<PAGE>
REGISTRATION NO. 333-58897
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- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
AMENDMENT NO. 1 TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------
ASTORIA FINANCIAL CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 6035 11-3170868
(PRIMARY STANDARD INDUSTRIAL CLASSIFICATION CODE NUMBER)
(I.R.S. EMPLOYER
(STATE OR OTHER IDENTIFICATION NO.)
JURISDICTION OF
INCORPORATION OR
ORGANIZATION)
---------------
ONE ASTORIA FEDERAL PLAZA
LAKE SUCCESS, NEW YORK 11042-1085
(516) 327-3000
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
---------------
GEORGE L. ENGELKE, JR.
CHAIRMAN, PRESIDENT AND CHIEF EXECUTIVE OFFICER
ASTORIA FINANCIAL CORPORATION
ONE ASTORIA FEDERAL PLAZA
LAKE SUCCESS, NEW YORK 11042-1085
(516) 327-3000
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
COPIES TO:
ROBERT C. AZAROW, ESQ.
THACHER PROFFITT & WOOD MEL M. IMMERGUT, ESQ.
MILBANK, TWEED, HADLEY & MCCLOY
TWO WORLD TRADE CENTER, 39TH FLOOR 1 CHASE MANHATTAN PLAZA
NEW YORK, NEW YORK 10048 NEW YORK, NEW YORK 10005
(212) 912-7400 (212) 530-5000
---------------
APPROXIMATE DATE OF COMMENCEMENT OF THE PROPOSED SALE OF THE SECURITIES TO
THE PUBLIC: At the effective time of the merger of Long Island Bancorp, Inc.
with and into Astoria Financial Corporation as described in the attached Joint
Proxy Statement-Prospectus.
---------------
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance
with General Instruction G, check the following box. [_]
---------------
CALCULATION OF REGISTRATION FEE
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<TABLE>
<CAPTION>
TITLE OF EACH CLASS OF PROPOSED MAXIMUM PROPOSED MAXIMUM
SECURITIES TO BE AMOUNT TO BE OFFERING PRICE AGGREGATE OFFERING AMOUNT OF
REGISTERED REGISTERED(1) PER SHARE(2) PRICE(3) REGISTRATION FEE(4)
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<S> <C> <C> <C> <C>
Common Stock, $0.01 par
value(5)............... 29,876,946 $ $1,803,820,611.73 $241,381.62
</TABLE>
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(1) This Registration Statement covers the maximum number of shares of the
Registrant's common stock that may be issued in the transaction described
herein.
(2) Not applicable.
(3) Estimated solely for the purpose of calculating the registration fee and
computed in accordance with Rule 457(f), based on the average of the high
and low sale prices of the common stock of Long Island Bancorp, Inc. on
July 2, 1998 as reported in the Nasdaq National Market System ($60 3/8)
and the maximum number of such shares (24,183,651) that may be exchanged
for the securities being registered.
(4) The required fee pursuant to Section 6(b) of the Securities Act of 1933,
as amended, ($532,127.08) has been reduced by the amount of the fee
previously paid to the Commission with respect to the transaction
($290,745.46) in accordance with Rule 457(b). Such amount was previously
paid upon filing of the Form S-4 on July 10, 1998.
(5) This Registration Statement also covers preferred share purchase rights
issued under the Rights Agreement between Astoria Financial Corporation
and ChaseMellon Shareholder Services, L.L.C., as Rights Agent, dated as of
July 17, 1996, as amended, which are currently transferable with and only
with the shares of Common Stock registered hereby.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A)
OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
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<PAGE>
LOGO ASTORIA FINANCIAL
CORPORATION
July , 1998
Dear Stockholder:
On behalf of the Board of Directors, it is with great pleasure that I extend
to you an invitation to attend a Special Meeting of Stockholders of Astoria
Financial Corporation ("AFC"). The Special Meeting will be held on August 19,
1998, at 9:30 a.m., Eastern Time, at the New Hyde Park Inn, 214 Jericho
Turnpike, New Hyde Park, New York 11040. At the Special Meeting, you will be
asked to approve and adopt an Agreement and Plan of Merger, by and between AFC
and Long Island Bancorp, Inc. ("LIB"), dated as of the 2nd day of April, 1998,
as amended (the "Merger Agreement").
The Merger Agreement provides for the merger of LIB with and into AFC with
AFC being the surviving corporation (the "Merger"). In the Merger, each share
of LIB Common Stock will be converted into the right to receive 1.15 shares of
AFC Common Stock, plus cash in lieu of any fractional share interest (the
"Merger Consideration"). The Merger Consideration may be increased by AFC in
the event LIB exercises its rights under the Merger Agreement to deliver to AFC
a notice to terminate the Merger Agreement if the price of the AFC Common Stock
declines below certain levels established by formulas set forth in the Merger
Agreement.
The Merger Agreement has been unanimously approved by the Boards of Directors
of AFC and LIB. Your Board of Directors has determined that the Merger is in
the best interests of AFC and its stockholders and unanimously recommends that
you vote FOR approval of the Merger Agreement.
Your approval and that of the LIB stockholders of the Merger Agreement are
conditions to the consummation of the Merger. Consummation of the Merger is
also subject to certain other conditions, including the approval of the Merger
Agreement by various regulatory agencies. The stockholders of LIB will consider
and vote upon a proposal to approve the Merger Agreement at a special meeting
to be held on August 19, 1998.
The enclosed Notice of Special Meeting of Stockholders and Joint Proxy
Statement-Prospectus describe the Merger and provide information concerning the
Special Meeting. Please read these materials carefully.
The affirmative vote of a majority of the issued and outstanding shares of
AFC Common Stock is required for approval of the Merger Agreement. Accordingly,
a failure to return a properly executed proxy card or to vote in person will
have the same effect as a vote against the Merger Agreement. Your vote is very
important regardless of the number of shares you own. Whether or not you plan
to attend the Special Meeting, I urge you to sign, date and return the enclosed
white proxy card as soon as possible to ensure that your shares will be
represented at the Special Meeting.
The Merger is an important step for AFC and its stockholders. On behalf of
the Board of Directors, I urge you to vote FOR the Merger Agreement.
If you have any questions, please call (516) 327-3000.
Sincerely
George L. Engelke, Jr.
Chairman, President and Chief
Executive Officer
<PAGE>
ASTORIA FINANCIAL CORPORATION
ONE ASTORIA FEDERAL PLAZA
LAKE SUCCESS, NEW YORK 11042
(516) 327-3000
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON AUGUST 19, 1998
A Special Meeting of Stockholders of Astoria Financial Corporation ("AFC")
will be held on August 19, 1998, at 9:30 a.m., Eastern Time, at the New Hyde
Park Inn, 214 Jericho Turnpike, New Hyde Park, New York 11040 (the "Special
Meeting"). The Special Meeting will be held to consider and act upon the
following matters:
1. To vote on the approval of the Agreement and Plan of Merger, dated as
of the 2nd day of April, 1998, as amended (the "Merger Agreement"), by and
between AFC and Long Island Bancorp, Inc., a Delaware corporation ("LIB"),
which provides, among other things, for (i) the merger of LIB with and into
AFC (the "Merger") and (ii) the conversion of each share of common stock of
LIB, par value $0.01 per share, outstanding immediately prior to the
Merger, into the right to receive 1.15 shares of common stock of AFC, par
value $0.01 per share ("AFC Common Stock"), plus cash in lieu of any
fractional share interest. A copy of the Merger Agreement is included as
Appendix A to the accompanying Joint Proxy Statement-Prospectus; and
2. The authorization of the Board of Directors of AFC, in its discretion,
to vote upon such other business as may properly be presented incident to
the conduct of the Special Meeting and any adjournment or postponement
thereof, including, without limitation, a motion to adjourn the Special
Meeting to another time or place for the purpose of soliciting additional
proxies in order to approve and adopt the transactions contemplated by the
Merger Agreement or otherwise.
Holders of record of AFC Common Stock as of the close of business on June
23, 1998, are entitled to notice of and to vote at the Special Meeting and any
adjournment or postponement thereof. A list of stockholders entitled to vote
at the Special Meeting will be available at the Special Meeting and at Astoria
Financial Corporation, One Astoria Federal Plaza, Lake Success, New York
11042, for a period of ten days prior to the Special Meeting.
IT IS IMPORTANT THAT YOUR SHARES BE REPRESENTED AT THE MEETING. WHETHER OR
NOT YOU PLAN TO ATTEND THE MEETING, PLEASE COMPLETE, SIGN AND PROMPTLY RETURN
THE ENCLOSED WHITE PROXY CARD IN THE ENCLOSED POSTAGE PAID ENVELOPE AS SOON AS
POSSIBLE.
By Order of the Board of Directors,
William K. Sheerin
Executive Vice President & Secretary
Dated: July , 1998
<PAGE>
LOGO LONG ISLAND
BANCORP INC
July , 1998
Dear Stockholder:
You are cordially invited to attend a special meeting of stockholders of
Long Island Bancorp, Inc. ("LIB") which will be held on August 19, 1998, at
9:30 a.m., Eastern Time, at the Huntington Hilton, 598 Broadhollow Road,
Melville, New York 11747 (the "Special Meeting"). At the Special Meeting, you
will be asked to approve and adopt an Agreement and Plan of Merger, by and
between LIB and Astoria Financial Corporation ("AFC"), dated as of the 2nd day
of April, 1998, as amended (the "Merger Agreement").
The Merger Agreement provides for the merger of LIB with and into AFC with
AFC being the surviving corporation (the "Merger"). In the Merger, each share
of LIB common stock will be converted into the right to receive 1.15 shares of
AFC common stock, plus cash in lieu of any fractional share interest (the
"Merger Consideration"). The Merger Consideration may be increased by AFC in
the event LIB exercises its rights under the Merger Agreement to deliver to
AFC a notice to terminate the Merger Agreement if the price of the AFC common
stock declines below certain levels established by formulas set forth in the
Merger Agreement.
AFTER CAREFUL CONSIDERATION, YOUR BOARD OF DIRECTORS HAS UNANIMOUSLY
APPROVED THE MERGER AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY AND
UNANIMOUSLY CONCLUDED THAT THE TERMS OF THE MERGER ARE FAIR TO AND IN THE BEST
INTERESTS OF LIB AND ITS STOCKHOLDERS. ACCORDINGLY, YOUR BOARD UNANIMOUSLY
RECOMMENDS A VOTE FOR APPROVAL AND ADOPTION OF THE MERGER AGREEMENT.
Your approval and that of AFC stockholders of the Merger Agreement are
conditions to the consummation of the Merger. Consummation of the Merger is
also subject to certain other conditions, including the approval of the Merger
Agreement by various regulatory agencies. The stockholders of AFC will
consider and vote upon a proposal to approve the Merger Agreement at a special
meeting to be held on August 19, 1998.
The enclosed Notice of Special Meeting of Stockholders and Joint Proxy
Statement-Prospectus describe the Merger and provide information concerning
the Special Meeting. Please read these materials carefully.
The affirmative vote of a majority of the issued and outstanding shares of
LIB common stock is required for approval of the Merger Agreement.
Accordingly, a failure to return a properly executed proxy card or to vote in
person will have the same effect as a vote against the Merger Agreement. Your
vote is very important regardless of the number of shares you own. It is
important that your shares be represented at the Special Meeting whether or
not you are present. Please be sure to sign, date and mail the enclosed Proxy
Card in the postage-paid envelope provided, even if you plan to attend in
person. If you attend the Special Meeting, you may vote in person even if you
have already mailed your Proxy Card.
On behalf of the Board of Directors, I urge you to vote FOR the approval and
adoption of the Merger Agreement and I thank you for your continued support.
If you have any questions, please call (516) 547-2000.
Sincerely,
John J. Conefry, Jr.
Chairman of the Board and
Chief Executive Officer
<PAGE>
LONG ISLAND BANCORP, INC.
201 OLD COUNTRY ROAD
MELVILLE, NEW YORK 11747
(516) 547-2000
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON AUGUST 19, 1998
NOTICE IS HEREBY GIVEN that a Special Meeting of Stockholders of Long Island
Bancorp, Inc. ("LIB") will be held on August 19, 1998, at 9:30 a.m., Eastern
Time, at the Huntington Hilton, 598 Broadhollow Road, Melville, New York 11747
(the "Special Meeting"). A Joint Proxy Statement-Prospectus and Proxy Card for
the Special Meeting are enclosed.
The Special Meeting will be held for the purpose of considering and voting
upon the following matters:
1. The approval and adoption of the Agreement and Plan of Merger, dated
as of the 2nd day of April, 1998, as amended (the "Merger Agreement"), by
and between LIB and Astoria Financial Corporation, a Delaware corporation
("AFC"), which provides, among other things, for (i) the merger of LIB with
and into AFC, with AFC being the surviving corporation (the "Merger"), and
(ii) the conversion of each share of common stock of LIB, par value $0.01
per share ("LIB Common Stock"), outstanding immediately prior to the
Merger, into the right to receive 1.15 shares of common stock of AFC, par
value $0.01 per share, plus cash in lieu of any fractional share interest.
A copy of the Merger Agreement is included as Appendix A to the
accompanying Joint Proxy Statement-Prospectus; and
2. The authorization of the Board of Directors of LIB, in its discretion,
to vote upon such other business as may properly be presented incident to
the conduct of the Special Meeting and any adjournment or postponement
thereof, including, without limitation, a motion to adjourn the Special
Meeting to another time or place for the purpose of soliciting additional
proxies in order to approve and adopt the transactions contemplated by the
Merger Agreement or otherwise.
Stockholders of record of LIB Common Stock as of the close of business on
June 23, 1998, which is the record date for the Special Meeting, are entitled
to receive notice of and to vote at the Special Meeting and any adjournment or
postponement thereof. A complete list of stockholders entitled to vote at the
Special Meeting will be open for examination by any stockholder for any purpose
germane to the Special Meeting during ordinary business hours at LIB's
principal office located at 201 Old Country Road, Melville, New York 11747 for
a period of ten days prior to the Special Meeting and will also be available at
the Special Meeting.
IT IS IMPORTANT THAT YOUR SHARES BE REPRESENTED AT THE MEETING. WHETHER OR
NOT YOU PLAN TO ATTEND THE MEETING, PLEASE COMPLETE, SIGN AND PROMPTLY RETURN
THE ENCLOSED WHITE PROXY CARD IN THE ENCLOSED POSTAGE PAID ENVELOPE AS SOON AS
POSSIBLE.
By Order of the Board of Directors,
Roger Teurfs
Senior Vice President and Corporate
Secretary
Dated: July , 1998
<PAGE>
ASTORIA FINANCIAL CORPORATION
AND
LONG ISLAND BANCORP, INC.
JOINT PROXY STATEMENT
----------------
ASTORIA FINANCIAL CORPORATION
PROSPECTUS
FOR COMMON STOCK OF ASTORIA FINANCIAL CORPORATION
----------------
This Joint Proxy Statement-Prospectus is being furnished to the holders of
common stock, par value $0.01 per share ("LIB Common Stock"), of Long Island
Bancorp, Inc. ("LIB") in connection with the solicitation of proxies by LIB's
Board of Directors (the "LIB Board") for use at a special meeting of LIB's
stockholders to be held on August 19, 1998, at 9:30 a.m., at the Huntington
Hilton, 598 Broadhollow Road, Melville, New York 11747, and at any adjournment
or postponement thereof (the "LIB Meeting"). At the LIB Meeting, holders of
LIB Common Stock will consider and vote, together as a single class, upon a
proposal to approve and adopt the Agreement and Plan of Merger, dated as of
the 2nd day of April, 1998, as amended, by and between Astoria Financial
Corporation ("AFC") and LIB (the "Merger Agreement"), pursuant to which LIB
will merge with and into AFC (the "Merger"), with AFC surviving the Merger.
This Joint Proxy Statement-Prospectus is also being furnished to the holders
of the common stock of AFC, par value $0.01 per share ("AFC Common Stock"), in
connection with the solicitation of proxies by the AFC Board of Directors (the
"AFC Board") for use at a special meeting of AFC's stockholders to be held on
August 19, 1998, at 9:30 a.m., Eastern Time, at the New Hyde Park Inn, 214
Jericho Turnpike, New Hyde Park, New York 11040, and at any adjournment or
postponement thereof (the "AFC Meeting" and, together with the LIB Meeting,
the "Meetings"). At the AFC Meeting, AFC stockholders will consider and vote
upon a proposal to approve and adopt the Merger Agreement.
The Merger Agreement provides that at the time the Merger becomes effective,
holders of LIB Common Stock will have the right to receive in the Merger, in
exchange for each of their issued and outstanding shares of LIB Common Stock,
1.15 shares of AFC Common Stock (the "Exchange Ratio"), together with the
related preferred share purchase right ("AFC Right") issued pursuant to the
Rights Agreement by and between AFC and ChaseMellon Shareholder Services,
L.L.C. ("ChaseMellon"), dated as of July 17, 1996, as amended (the "AFC Rights
Agreement"). Cash will be paid in lieu of the issuance of fractional shares of
AFC Common Stock (such cash, together with the shares of AFC Common Stock and
AFC Rights to be received in the Merger, is collectively referred to as the
"Merger Consideration").
The Exchange Ratio may be increased by AFC in the event LIB exercises its
rights under the Merger Agreement to deliver to AFC a notice to terminate the
Merger Agreement due to the price of the AFC Common Stock declining below
certain levels established by formulas set forth in the Merger Agreement. See
"THE MERGER -- Price-Based Termination."
The stockholders of each of AFC and LIB entitled to vote at the Meetings
will also consider and vote upon a proposal to authorize their respective
Board of Directors to vote upon such other business as may properly be
presented incident to the conduct of the AFC Meeting and LIB Meeting,
respectively, including and without limitation a motion to adjourn the AFC
Meeting, or the LIB Meeting, as the case may be, to another time or place for
the purpose of soliciting additional proxies (the "Additional Proposal"). See
"ADDITIONAL PROPOSAL."
This Joint Proxy Statement-Prospectus also constitutes a prospectus of AFC
with respect to up to 29,876,946 shares of AFC Common Stock to be issued in
exchange for shares of LIB Common Stock upon consummation
<PAGE>
of the Merger pursuant to the Merger Agreement, subject to adjustment in the
event the Exchange Ratio is increased as described in "THE MERGER -- Price-
Based Termination" (the "Merger Shares"). As a result of the Merger, holders
of LIB Common Stock as of completion of the Merger will own approximately 51%
of the outstanding shares of AFC Common Stock. (This percentage is based on
outstanding shares of AFC Common Stock and LIB Common Stock as of June 23,
1998).
For a description of the Merger Agreement, which is included in its entirety
as Appendix A to this Joint Proxy Statement-Prospectus, see "THE MERGER."
AFC Common Stock and LIB Common Stock are currently, and the Merger Shares
will be, traded in the over-the-counter market and included for quotation on
the National Market System of the Nasdaq Stock Market (the "Nasdaq National
Market"). The last reported sale prices per share of AFC Common Stock and LIB
Common Stock as reported on the Nasdaq National Market on April 2, 1998, the
last business day preceding public announcement of the signing of the Merger
Agreement, were $60 5/16 and $67 1/8, respectively, and on July 8, 1998 were
$54 3/4 and $62, respectively.
This Joint Proxy Statement-Prospectus and the accompanying forms of proxy
are first being mailed to stockholders of AFC and LIB on or about July ,
1998.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS JOINT PROXY STATEMENT-PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE SHARES OF AFC COMMON STOCK OFFERED HEREBY ARE NOT SAVINGS ACCOUNTS,
DEPOSITS OR OTHER OBLIGATIONS OF A BANK OR SAVINGS ASSOCIATION AND ARE NOT
INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENTAL
AGENCY AND ARE SUBJECT TO INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF
INVESTMENT.
STOCKHOLDERS OF LIB WHO ARE NOT AFFILIATED WITH LIB AND WHO RECEIVE SHARES
OF AFC COMMON STOCK IN CONNECTION WITH THE MERGER WILL BE ABLE TO SELL SUCH
SHARES WITHOUT THE USE OF A RESALE PROSPECTUS.
----------------
THE DATE OF THIS JOINT PROXY STATEMENT-PROSPECTUS IS JULY , 1998.
2
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
AVAILABLE INFORMATION..................................................... 5
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE........................... 6
SUMMARY................................................................... 7
Parties to the Merger................................................... 7
The Meetings............................................................ 7
Effects of the Merger................................................... 8
Effective Time.......................................................... 9
Merger Consideration.................................................... 9
Reasons for the Merger.................................................. 9
Opinions of Financial Advisors.......................................... 9
Conditions to the Consummation of the Merger; Regulatory Approvals...... 10
Federal Income Tax Consequences......................................... 10
Accounting Treatment.................................................... 10
Nasdaq Listing.......................................................... 10
Absence of Appraisal Rights............................................. 11
Termination............................................................. 11
Termination Fees........................................................ 11
Interests of Certain Persons in the Merger.............................. 11
Management of AFC after the Merger...................................... 12
LIB Stock Option Agreement.............................................. 12
AFC Stock Option Agreement.............................................. 13
Amendment to LIB Rights Agreement....................................... 13
Amendment to AFC Rights Agreement....................................... 13
Differences in Stockholders' Rights..................................... 14
COMPARATIVE COMMON STOCK PRICE AND DIVIDEND INFORMATION................... 14
SELECTED PRO FORMA HISTORICAL CONSOLIDATED COMPARATIVE PER SHARE DATA..... 16
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA........................... 17
AFC -- Historical....................................................... 17
LIB -- Historical....................................................... 20
SELECTED PRO FORMA HISTORICAL CONSOLIDATED FINANCIAL DATA................. 24
THE MEETINGS.............................................................. 27
LIB Meeting............................................................. 27
AFC Meeting............................................................. 28
THE MERGER................................................................ 30
Parties to The Merger................................................... 30
Effects of the Merger................................................... 31
Effective Time.......................................................... 31
Merger Consideration.................................................... 31
Background of the Merger................................................ 32
Reasons for the Merger.................................................. 37
Opinions of Financial Advisors.......................................... 39
Procedures for Exchange of LIB Common Stock Certificates................ 50
Regulatory Approvals.................................................... 51
Conditions to the Consummation of the Merger............................ 52
Representations and Warranties.......................................... 53
LIB Stock Option Plans.................................................. 54
Conduct of Business Pending the Merger.................................. 54
No Solicitation......................................................... 56
Amendment and Waiver.................................................... 57
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
PAGE
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<S> <C>
Termination.............................................................. 57
Price-Based Termination.................................................. 58
Termination Fees......................................................... 60
Expenses................................................................. 61
Federal Income Tax Consequences.......................................... 61
Accounting Treatment..................................................... 63
Absence of Appraisal Rights.............................................. 64
Interests of Certain Persons in the Merger............................... 64
Effect on LIB Employee Benefit Plans..................................... 67
Operations after the Merger.............................................. 68
Management of AFC after the Merger....................................... 68
Involvement in Legal Proceedings......................................... 69
CERTAIN RELATED TRANSACTIONS............................................... 70
LIB Stock Option Agreement............................................... 70
AFC Stock Option Agreement............................................... 71
Amendment to LIB Rights Agreement........................................ 73
Amendment to AFC Rights Agreement........................................ 73
Resales of AFC Common Stock.............................................. 73
ADDITIONAL PROPOSAL........................................................ 74
BENEFICIAL OWNERSHIP OF AFC COMMON STOCK................................... 75
Principal Security Ownership............................................. 75
Directors and Executive Officers......................................... 75
BENEFICIAL OWNERSHIP OF LIB COMMON STOCK................................... 78
Principal Security Ownership............................................. 78
Directors and Executive Officers......................................... 79
PRO FORMA CONDENSED COMBINED CONSOLIDATED FINANCIAL INFORMATION............ 81
DESCRIPTION OF AFC CAPITAL STOCK........................................... 90
General.................................................................. 90
AFC Common Stock......................................................... 90
AFC Preferred Stock...................................................... 91
COMPARISON OF CERTAIN RIGHTS OF STOCKHOLDERS............................... 93
General.................................................................. 93
Amendment of the Certificate of Incorporation............................ 93
Special Meetings of Stockholders......................................... 93
Limitation of Director Liability......................................... 93
Indemnification of Directors And Officers................................ 94
Other Constituencies..................................................... 94
LEGAL MATTERS.............................................................. 95
EXPERTS.................................................................... 95
STOCKHOLDER PROPOSALS...................................................... 95
APPENDIX A Agreement and Plan of Merger.................................... A-1
APPENDIX B LIB Stock Option Agreement...................................... B-1
APPENDIX C AFC Stock Option Agreement...................................... C-1
APPENDIX D Opinion of LIB's Financial Advisor.............................. D-1
APPENDIX E Opinion of AFC's Financial Advisor.............................. E-1
</TABLE>
4
<PAGE>
AVAILABLE INFORMATION
AFC and LIB are subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith file reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission").
Copies of both AFC's and LIB's reports, proxy statements and other
information can be obtained, upon payment of prescribed fees, from the public
reference facilities of the Commission at Room 1024, Judiciary Plaza, 450
Fifth Street, N.W., Washington, D.C. 20549. In addition, such reports, proxy
statements and other information can be inspected at the Commission's
facilities referred to above and at the Commission's Regional Offices at 7
World Trade Center, Suite 1300, New York, New York 10048 and Citicorp Center,
500 West Madison Street, Suite 1400, Chicago, Illinois 60661. If available,
such information may also be accessed through the Commission's Electronic
Data, Gathering, Analysis and Retrieval System via electronic means, including
the Commission's website on the Internet (http://www.sec.gov).
AFC has filed with the Commission a Registration Statement on Form S-4
(together with any amendments thereto, the "AFC Registration Statement") under
the Securities Act of 1933, as amended (the "Securities Act"), with respect to
the Merger Shares. This Joint Proxy Statement-Prospectus does not contain all
of the information set forth in the AFC Registration Statement and the
exhibits thereto. Such additional information may be obtained from the
Commission's principal office in Washington, D.C. Statements contained in this
Joint Proxy Statement-Prospectus or in any document incorporated by reference
in this Joint Proxy Statement-Prospectus as to the contents of any contract or
other document referred to herein or therein are not necessarily complete, and
in each instance reference is made to the copy of such contract or other
document filed as an exhibit to the AFC Registration Statement or such other
document, each such statement being qualified in all respects by such
reference.
All information contained in this Joint Proxy Statement-Prospectus relating
to AFC and its subsidiaries has been supplied by AFC, and all information
relating to LIB and its subsidiaries has been supplied by LIB.
THIS JOINT PROXY STATEMENT-PROSPECTUS CONTAINS CERTAIN FORWARD LOOKING
STATEMENTS WITH RESPECT TO THE FINANCIAL CONDITION, RESULTS OF OPERATIONS AND
BUSINESS OF AFC FOLLOWING THE CONSUMMATION OF THE MERGER, INCLUDING STATEMENTS
RELATING TO: (A) THE COST SAVINGS AND REVENUE ENHANCEMENTS THAT ARE EXPECTED
TO BE REALIZED FROM THE MERGER AND (B) PROJECTED 1999 EARNINGS PER SHARE. SEE
"SUMMARY," "THE MERGER -- BACKGROUND OF THE MERGER," "-- REASONS FOR THE
MERGER -- AFC" AND "PRO FORMA CONDENSED COMBINED CONSOLIDATED FINANCIAL
INFORMATION." FACTORS THAT MAY CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM
THOSE CONTEMPLATED BY SUCH FORWARD LOOKING STATEMENTS INCLUDE, AMONG OTHERS,
THE FOLLOWING POSSIBILITIES: (1) EXPECTED COST SAVINGS OR REVENUE ENHANCEMENTS
FROM THE MERGER CANNOT BE FULLY REALIZED; (2) DEPOSIT ATTRITION, CUSTOMER LOSS
OR REVENUE LOSS FOLLOWING THE MERGER IS GREATER THAN EXPECTED; (3) COMPETITIVE
PRESSURE IN THE BANKING AND FINANCIAL SERVICES INDUSTRY INCREASES
SIGNIFICANTLY; (4) CHANGES IN THE INTEREST RATE ENVIRONMENT REDUCE MARGINS;
(5) GENERAL ECONOMIC CONDITIONS, EITHER NATIONALLY OR IN THE STATE OF NEW
YORK, ARE LESS FAVORABLE THAN EXPECTED; (6) CHANGES IN REAL ESTATE VALUES; (7)
CHANGES IN COMPETITION; (8) CHANGES IN ACCOUNTING PRINCIPLES; (9) CHANGES IN
LEGISLATION AND (10) CHANGES IN OTHER ECONOMIC, COMPETITIVE, GOVERNMENT,
REGULATORY AND TECHNOLOGICAL FACTORS AFFECTING AFC'S OPERATIONS, PRICING,
PRODUCTS AND SERVICES.
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INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
THIS JOINT PROXY STATEMENT-PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE
WHICH ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH. SUCH DOCUMENTS
(EXCLUDING CERTAIN EXHIBITS THERETO) WILL BE FURNISHED WITHOUT CHARGE TO ANY
PERSON TO WHOM THIS JOINT PROXY STATEMENT-PROSPECTUS IS DELIVERED, UPON
WRITTEN OR ORAL REQUEST OF SUCH PERSON, DIRECTED, IN THE CASE OF DOCUMENTS
RELATING TO AFC, TO INVESTOR RELATIONS DEPARTMENT, ASTORIA FINANCIAL
CORPORATION, ONE ASTORIA FEDERAL PLAZA, LAKE SUCCESS, NEW YORK 11042,
TELEPHONE NUMBER (516) 327-7877, AND, IN THE CASE OF DOCUMENTS RELATING TO
LIB, TO INVESTOR RELATIONS DEPARTMENT, LONG ISLAND BANCORP, INC., 201 OLD
COUNTRY ROAD, MELVILLE, NEW YORK 11747, TELEPHONE NUMBER (516) 547-2607. IN
ORDER TO ENSURE TIMELY DELIVERY OF THE DOCUMENTS, ANY REQUEST SHOULD BE MADE
BY AUGUST 12, 1998.
The following documents filed with the Commission by AFC (File No. 0-22228)
pursuant to the Exchange Act are incorporated by reference in this Joint Proxy
Statement-Prospectus:
1. AFC's Annual Report on Form 10-K for the year ended December 31, 1997,
as amended by a Form 10-K/A, dated June 24, 1998;
2. AFC's Current Report on Form 8-K, dated July 10, 1998;
3. AFC's Current Report on Form 8-K, dated May 29, 1998;
4. AFC's Current Report on Form 8-K, dated April 3, 1998, as amended by a
Form 8-K/A, dated April 10, 1998;
5. AFC's Quarterly Report on Form 10-Q for the quarter ended March 31,
1998; and
6. The description of AFC Common Stock, and AFC Series A Junior
Participating Preferred Stock and Preferred Stock Purchase Rights set forth
in AFC's Registration Statements on Form 8-A dated August 11, 1993 and July
23, 1996, respectively, and any amendment or report filed for the purpose
of updating any such descriptions.
The following documents filed with the Commission by LIB (File No. 0-23526)
pursuant to the Exchange Act are incorporated by reference in this Joint Proxy
Statement-Prospectus:
1. LIB's Annual Report on Form 10-K for the year ended September 30,
1997;
2. The description of LIB Common Stock and Preferred Stock Purchase
Rights set forth in LIB's Registration Statements on Form 8-A dated March
1, 1994 and April 23, 1997, respectively, and any amendment or report filed
for the purpose of updating any such descriptions;
3. LIB's Current Report on Form 8-K, dated June 5, 1998;
4. LIB's Current Report on Form 8-K dated April 8, 1998;
5. LIB's Quarterly Report on Form 10-Q for the quarter ended December 31,
1997; and
6. LIB's Quarterly Report on Form 10-Q for the quarter ended March 31,
1998.
All documents filed by AFC or LIB with the Commission pursuant to Sections
13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to the date of this
Joint Proxy Statement-Prospectus and prior to the date of the Meetings shall
be deemed to be incorporated by reference in this Joint Proxy Statement-
Prospectus and to be a part hereof from the date of filing of such documents.
Any statement contained herein or in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Joint Proxy Statement-Prospectus to the extent that a
statement contained herein or in any subsequently filed document which also is
or is deemed to be incorporated by reference herein modifies or supersedes
such statement. Any such statement so modified or superseded shall not be
deemed, except as so modified or superseded, to constitute a part of this
Joint Proxy Statement-Prospectus.
NO PERSONS HAVE BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN AS CONTAINED IN THIS JOINT PROXY STATEMENT-
PROSPECTUS IN CONNECTION WITH THE SOLICITATIONS OF PROXIES OR THE OFFERING OF
SECURITIES MADE HEREBY AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY AFC OR
LIB. THIS JOINT PROXY STATEMENT-PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO
SELL, OR A SOLICITATION OF AN OFFER TO BUY, ANY SECURITIES, OR THE
SOLICITATION OF A PROXY, BY ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER OR
SOLICITATION IS NOT AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH OFFER OR
SOLICITATION IS NOT QUALIFIED TO DO SO OR TO ANY PERSON TO WHOM IT IS UNLAWFUL
TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS JOINT PROXY
STATEMENT-PROSPECTUS NOR ANY DISTRIBUTION OF SECURITIES MADE HEREUNDER SHALL
UNDER ANY CIRCUMSTANCES CREATE AN IMPLICATION THAT THERE HAS BEEN NO CHANGE IN
THE AFFAIRS OF AFC OR LIB SINCE THE DATE HEREOF OR THAT THE INFORMATION HEREIN
IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
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SUMMARY
The following summary is not intended to be a complete description of all
material facts regarding AFC, LIB and the matters to be considered at the
Meetings and is qualified in all respects by the information appearing
elsewhere or incorporated by reference in this Joint Proxy Statement-
Prospectus, the Appendices hereto and the documents referred to herein.
PARTIES TO THE MERGER
AFC. AFC is a Delaware corporation incorporated on June 14, 1993, and is the
holding company for Astoria Federal Savings and Loan Association, a federally-
chartered savings and loan association ("Astoria Federal"). The principal
business of AFC is the operation of its wholly-owned subsidiary, Astoria
Federal. Astoria Federal's principal business is attracting retail deposits
from the general public and investing those deposits, together with funds
generated from operations, principal repayments and borrowings, primarily in
one-to-four family residential mortgage loans and mortgage-backed securities
and, to a lesser extent, commercial real estate loans, multi-family mortgage
loans and consumer loans, as well as securities issued by the U.S. Government
and Federal agencies and other securities. At March 31, 1998, AFC had total
consolidated assets of $10.9 billion, deposits of $6.2 billion and
stockholders' equity of $916.8 million. As of March 31, 1998, Astoria Federal
had 61 retail banking office locations, of which 53 are located in Brooklyn,
Queens, Nassau and Suffolk counties on Long Island, and eight are located in
Westchester and the upstate counties of Chenango and Otsego. The principal
executive offices of AFC are located at One Astoria Federal Plaza, Lake
Success, New York 11042-1085 and its telephone number is (516) 327-3000.
Astoria Federal's deposits are insured by the Savings Association Insurance
Fund ("SAIF") of the Federal Deposit Insurance Corporation ("FDIC").
LIB. LIB is a Delaware corporation incorporated on December 20, 1993, and is
the holding company for The Long Island Savings Bank, FSB, a federally-
chartered savings bank ("LIB Bank"). The principal business of LIB is the
operation of its wholly-owned subsidiary, LIB Bank. LIB Bank's principal
business is attracting retail deposits from the general public and investing
those deposits, together with funds generated from operations, principal
repayments and borrowings, primarily in one-to-four family residential
mortgage loans and mortgage-backed and mortgage-related securities and, to a
lesser extent, commercial real estate loans, multi-family mortgage loans and
consumer loans. In addition, LIB Bank invests its funds in other securities,
including U.S. Government and Federal agency securities, investment grade
preferred stock and federal funds. At March 31, 1998, LIB had total
consolidated assets of $6.3 billion, deposits of $3.8 billion and
stockholders' equity of $563.7 million. As of March 31, 1998, LIB Bank had 35
retail banking office locations throughout Queens, Nassau and Suffolk counties
and 20 mortgage loan production offices located in seven states. The principal
executive offices of LIB are located at 201 Old Country Road, Melville, New
York 11747 and its telephone number is (516) 547-2000. LIB Bank's deposits are
insured by the SAIF.
See "INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE," "THE MERGER --
Parties to the Merger," "SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA" and
"PRO FORMA CONDENSED COMBINED CONSOLIDATED FINANCIAL INFORMATION."
THE MEETINGS
LIB. The LIB Meeting will be held on August 19, 1998, at 9:30 a.m., Eastern
Time, at the Huntington Hilton, 598 Broadhollow Road, Melville, New York
11747. The purpose of the LIB Meeting is to consider and vote upon a proposal
to approve and adopt the Merger Agreement and a proposal to authorize the LIB
Board, in its discretion, to vote upon such other business as may properly be
presented incident to the conduct of the LIB Meeting and any adjournment
thereof, including, without limitation, a motion to adjourn the LIB Meeting to
another time or place for the purpose of soliciting additional proxies in
order to approve and adopt the Merger Agreement or otherwise.
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Only holders of record of LIB Common Stock at the close of business on June
23, 1998 (the "LIB Record Date") will be entitled to vote at the LIB Meeting.
Approval and adoption of the Merger Agreement and the Merger requires the
affirmative vote of a majority of the outstanding shares of LIB Common Stock
entitled to vote at the LIB Meeting. Approval of the Additional Proposal (as
defined below) requires the affirmative vote of a majority of the votes
present in person or by proxy and entitled to vote at the LIB Meeting. As of
the LIB Record Date, there were 24,177,855 shares of LIB Common Stock
outstanding and entitled to be voted at the LIB Meeting.
The directors and executive officers of LIB and their affiliates (21
persons) beneficially owned, as of May 31, 1998, 1,708,452 shares, or
approximately 7.07% of the outstanding shares, of LIB Common Stock and all
such persons have indicated their intention to vote their shares in favor of
the Merger Agreement and the Merger, and the Additional Proposal (as defined
below). See "BENEFICIAL OWNERSHIP OF LIB COMMON STOCK." As of May 31, 1998,
AFC, its subsidiary and the directors and executive officers of AFC
beneficially owned no shares of LIB Common Stock. See "THE MEETINGS -- LIB
Meeting."
AFC. The AFC Meeting will be held on August 19, 1998, at 9:30 a.m., Eastern
Time, at the New Hyde Park Inn, 214 Jericho Turnpike, New Hyde Park, New York
11040. The purpose of the AFC Meeting is to consider and vote upon a proposal
to approve the Merger Agreement and a proposal to authorize the AFC Board, in
its discretion, to vote upon such other business as may properly be presented
incident to the conduct of the AFC Meeting and any adjournment thereof,
including, without limitation, a motion to adjourn the AFC Meeting to another
time or place for the purpose of soliciting additional proxies in order to
approve and adopt the Merger Agreement or otherwise. The proposals to
authorize the AFC Board or the LIB Board, as the case may be, to vote upon
such other business as may properly be presented incident to the conduct of
the AFC Meeting or the LIB Meeting, as the case may be, is hereinafter
referred to as the "Additional Proposal." See "ADDITIONAL PROPOSAL."
Only holders of record of AFC Common Stock at the close of business on June
23, 1998 (the "AFC Record Date") will be entitled to vote at the AFC Meeting.
Approval and adoption of the Merger Agreement requires the affirmative vote of
a majority of the outstanding shares of AFC Common Stock entitled to vote at
the AFC Meeting. Approval of the Additional Proposal requires the affirmative
vote of the holders of a majority of the shares of AFC Common Stock
represented in person or by proxy at the AFC Meeting. As of the AFC Record
Date, there were 26,530,706 shares of AFC Common Stock outstanding and
entitled to be voted at the AFC Meeting.
The directors and executive officers of AFC and their affiliates (15
persons) beneficially owned, as of May 31, 1998, 2,397,087 shares, or
approximately 8.61% of the outstanding shares, of AFC Common Stock and all
such persons have agreed to vote their shares in favor of the Merger Agreement
and the Merger, and the Additional Proposal. See "BENEFICIAL OWNERSHIP OF AFC
COMMON STOCK." As of May 31, 1998, LIB, its subsidiaries and the directors and
executive officers of LIB beneficially owned no shares of AFC Common Stock.
See "THE MEETINGS -- AFC Meeting."
EFFECTS OF THE MERGER
Pursuant to the Merger Agreement, at the Effective Time (as defined below),
LIB will be merged with and into AFC, and LIB stockholders will receive the
consideration described in "THE MERGER -- Merger Consideration" and "--
Effects of the Merger." For information on how LIB stockholders will be able
to exchange certificates representing shares of LIB Common Stock for new
certificates representing the shares of AFC Common Stock to be issued to them,
see "THE MERGER -- Procedures for Exchange of LIB Common Stock Certificates."
Each outstanding share of AFC Common Stock at the Effective Time shall remain
outstanding and unchanged as a result of the Merger.
Pursuant to the Plan of Bank Merger, to be entered into by and between
Astoria Federal and LIB Bank (the "Plan of Bank Merger"), immediately
following consummation of the Merger, LIB Bank will merge with and into
Astoria Federal (the "Bank Merger"), with Astoria Federal surviving the Bank
Merger.
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EFFECTIVE TIME
The Merger will become effective at the date and time set forth in the
certificate of merger (the "Certificate of Merger") that will be filed with
the Secretary of State of the State of Delaware in accordance with applicable
law (the "Effective Time"). The Certificate of Merger will be filed no later
than five business days following the expiration of the last of the waiting
periods related to regulatory approval and after satisfaction or waiver of
certain conditions to the Merger specified in the Merger Agreement and will
become effective upon the close of business on such date, unless another date
is agreed to by AFC and LIB. See "THE MERGER -- Effective Time."
MERGER CONSIDERATION
The Merger Agreement provides that each share of LIB Common Stock will be
converted in the Merger into the right to receive 1.15 shares of AFC Common
Stock, plus cash in lieu of any fractional share interest. The Exchange Ratio
may be increased by AFC in the event LIB exercises its rights under the Merger
Agreement to deliver to AFC a notice to terminate the Merger Agreement due to
the price of the AFC Common Stock declining below certain levels established
by formulas set forth in the Merger Agreement. See "THE MERGER-- Price Based
Termination."
NO GAIN OR LOSS WILL BE RECOGNIZED BY HOLDERS OF LIB COMMON STOCK AS A
RESULT OF THE MERGER, EXCEPT TO THE EXTENT OF ANY CASH RECEIVED IN LIEU OF A
FRACTIONAL SHARE INTEREST IN AFC COMMON STOCK. SEE "THE MERGER -- FEDERAL
INCOME TAX CONSEQUENCES."
LIB COMMON STOCK CERTIFICATES SHOULD NOT BE RETURNED WITH THE ENCLOSED PROXY
AND SHOULD NOT BE FORWARDED TO THE EXCHANGE AGENT, CHASEMELLON SHAREHOLDER
SERVICES, L.L.C. ("CHASEMELLON") UNTIL AN LIB STOCKHOLDER HAS RECEIVED THE
LETTER OF TRANSMITTAL (AS DEFINED BELOW). SEE "THE MERGER --PROCEDURES FOR
EXCHANGE OF LIB COMMON STOCK CERTIFICATES."
REASONS FOR THE MERGER
LIB. THE LIB BOARD HAS UNANIMOUSLY APPROVED THE MERGER AGREEMENT AND THE
TRANSACTIONS CONTEMPLATED THEREBY AND HAS UNANIMOUSLY CONCLUDED THAT THE
MERGER AND THE MERGER AGREEMENT ARE FAIR TO AND IN THE BEST INTERESTS OF LIB
AND ITS STOCKHOLDERS. ACCORDINGLY, THE LIB BOARD UNANIMOUSLY RECOMMENDS THAT
LIB'S STOCKHOLDERS VOTE FOR THE APPROVAL AND ADOPTION OF THE MERGER AGREEMENT
AND THE ADDITIONAL PROPOSAL. The LIB Board believes that the Merger will
provide significant value to all LIB stockholders and will enable them to
participate in the opportunities for growth that the LIB Board believes the
Merger makes possible. See "THE MEETINGS -- LIB Meeting -- Recommendation of
the Board of Directors" and "THE MERGER -- Reasons for the Merger -- LIB."
AFC. THE AFC BOARD HAS UNANIMOUSLY APPROVED THE MERGER AGREEMENT AND THE
TRANSACTIONS CONTEMPLATED THEREBY AND HAS UNANIMOUSLY CONCLUDED THAT THE
MERGER AND THE MERGER AGREEMENT ARE FAIR TO AND IN THE BEST INTERESTS OF AFC
AND ITS STOCKHOLDERS. ACCORDINGLY, THE AFC BOARD UNANIMOUSLY RECOMMENDS THAT
AFC'S STOCKHOLDERS VOTE FOR APPROVAL AND ADOPTION OF THE MERGER AGREEMENT AND
THE ADDITIONAL PROPOSAL. The AFC Board believes that the Merger will result in
the addition of a well-suited and positioned banking institution to AFC's
existing organization. See "THE MEETINGS -- AFC Meeting --Recommendation of
the Board of Directors" and "THE MERGER -- Reasons for the Merger -- AFC."
OPINIONS OF FINANCIAL ADVISORS
LIB. Salomon Smith Barney ("Salomon") has served as financial advisor to LIB
in connection with the Merger and has rendered a written opinion to the LIB
Board that, as of April 2, 1998, the date on which the LIB Board unanimously
approved the Merger and the Merger Agreement, the Exchange Ratio is fair from
a financial point of view to the stockholders of LIB (the "Salomon Opinion").
The opinion of Salomon is attached as
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Appendix D to this Joint Proxy Statement-Prospectus. Stockholders are urged to
read such opinion in its entirety for a description of the procedures
followed, assumptions made, matters considered and qualifications on the
review undertaken by Salomon in connection therewith. See "THE MERGER --
Opinions of Financial Advisors-- LIB."
AFC. Lehman Brothers, Inc. ("Lehman Brothers") has served as financial
advisor to AFC in connection with the Merger and has rendered a written
opinion to the AFC Board, dated April 2, 1998, which has been updated as of
the date of this Joint Proxy Statement-Prospectus to the effect that the
Exchange Ratio is fair to AFC from a financial point of view (the "Lehman
Opinion"). The Lehman Opinion is attached as Appendix E to this Joint Proxy
Statement-Prospectus. Stockholders are urged to read such opinion in its
entirety for a description of the procedures followed, assumptions made,
matters considered and qualifications on the review undertaken by Lehman
Brothers in connection therewith. See "THE MERGER -- Opinions of Financial
Advisors -- AFC."
CONDITIONS TO THE CONSUMMATION OF THE MERGER; REGULATORY APPROVALS
Consummation of the Merger is subject to various conditions, including
receipt of the stockholder approvals solicited hereby, receipt of the
necessary regulatory approvals, receipt of opinions of counsel regarding
certain tax aspects of the Merger, receipt of the opinion of the independent
auditors of AFC that the Merger will qualify to be treated as a "pooling-of-
interests" for accounting purposes by AFC and satisfaction of other customary
closing conditions.
The regulatory approvals and consents necessary to consummate the Merger
include the approval of the Office of Thrift Supervision (the "OTS"). An
application for approval of the transactions contemplated by the Merger
Agreement was filed with the OTS on June 17, 1998. Such application is
currently under review. There can be no assurance that such regulatory
approvals will be obtained, and, if the Merger is approved, there can be no
assurance as to the date of any such approval. THERE CAN ALSO BE NO ASSURANCE
THAT ANY SUCH APPROVALS WILL NOT CONTAIN A CONDITION OR REQUIREMENT WHICH
CAUSES SUCH APPROVALS TO FAIL TO SATISFY THE CONDITIONS SET FORTH IN THE
MERGER AGREEMENT AND DESCRIBED UNDER "THE MERGER -- REGULATORY APPROVALS" AND
"CONDITIONS TO THE CONSUMMATION OF THE MERGER."
FEDERAL INCOME TAX CONSEQUENCES
It is intended that the Merger will be treated as a reorganization within
the meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended
(the "Code"). Consummation of the Merger is conditioned upon receipt by AFC of
an opinion of Thacher Proffitt & Wood and receipt by LIB of an opinion of
Milbank, Tweed, Hadley & McCloy, each dated as of the Effective Date,
substantially to such effect. In general, it is expected that (i) no gain or
loss will be recognized by AFC, Astoria Federal, LIB or LIB Bank as a result
of the Merger and (ii) except to the extent of any cash received in lieu of a
fractional share interest in LIB Common Stock, holders of LIB Common Stock
will recognize no gain or loss in the Merger on the receipt of shares of AFC
Common Stock in exchange for their shares of LIB Common Stock. Holders of LIB
Common Stock who receive cash in lieu of a fractional share interest will
recognize any gain or loss realized with respect to such fractional shares to
the extent of such cash received. AFC and LIB each has received a tax opinion
from Thacher Proffitt & Wood and Milbank, Tweed, Hadley & McCloy,
respectively, dated immediately prior to the date of this Joint Proxy
Statement-Prospectus, that addresses the material federal income tax
consequences to stockholders of AFC and LIB, respectively. Such tax opinions
have been filed as exhibits to the AFC Registration Statement. See "THE
MERGER -- Federal Income Tax Consequences."
ACCOUNTING TREATMENT
AFC will treat the Merger as a pooling-of-interests for accounting purposes.
See "THE MERGER--Accounting Treatment."
NASDAQ LISTING
Both the LIB Common Stock and the AFC Common Stock are currently included
for quotation on the Nasdaq National Market. It is a condition to consummation
of the Merger that the AFC Common Stock to be issued to the stockholders of
LIB pursuant to the Merger Agreement will be included for quotation on the
Nasdaq National Market.
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ABSENCE OF APPRAISAL RIGHTS
Under the Delaware General Corporation Law (the "DGCL"), neither the
stockholders of AFC nor the stockholders of LIB are entitled to appraisal
rights in connection with the transactions related to the consummation of the
Merger. See "THE MEETINGS -- LIB Meeting," "-- AFC Meeting" and "THE MERGER --
Absence of Appraisal Rights."
TERMINATION
The Merger Agreement may be terminated, and the Merger abandoned, at or
prior to the Effective Time, either before or after its approval by the
stockholders of AFC or LIB, under certain specified circumstances, including,
without limitation, in accordance with a price-based termination provision.
Under this provision, the Merger Agreement may be terminated by LIB at any
time during the five-day period commencing on the date (the "Valuation Date")
that is the latest of (i) the day of expiration of the last waiting period
with respect to any of the required regulatory approvals, (ii) the day on
which the last of the required regulatory approvals is obtained and (iii) the
day on which the last of the required stockholder approvals have been
received, such termination to be effective on the 30th day following such
date, but only if all of the following are true: (i) the average of the mean
between the closing high bid and low asked price of AFC Common Stock over the
30 consecutive trading days prior to the Valuation Date is less than $49.76
per share, (ii) the quotient obtained by dividing such average price of AFC
Common Stock on the Valuation Date by $60.31 is less than the number obtained
by subtracting 0.175 from the quotient obtained by dividing the weighted
average common stock price of a group of other financial institution holding
companies over the 30 consecutive trading days prior to the Valuation Date by
the weighted average common stock price of such group on April 2, 1998 and
(iii) AFC elects on a timely basis not to increase the Exchange Ratio. Prior
to making any decision to terminate (or allow the termination of) the Merger
Agreement, each of the LIB Board and the AFC Board would consult with its
respective financial and other advisors and would consider all financial and
other information it deemed relevant to its decision. Approval and adoption of
the Merger Agreement by the stockholders of LIB at the LIB Meeting will confer
on the LIB Board the power, consistent with its fiduciary duties, to elect to
consummate the Merger in the event the termination right is triggered, whether
or not there is any increase in the Exchange Ratio and without any further
action by, or resolicitation of, the stockholders of LIB. Approval and
adoption of the Merger Agreement by the stockholders of AFC at the AFC Meeting
will confer on the AFC Board the power, consistent with its fiduciary duties,
to elect to increase the Exchange Ratio as described above and consummate the
Merger in the event the termination right is triggered, without any further
actions by, or resolicitation of, the stockholders of AFC. See "THE MERGER --
Termination," "-- Price-Based Termination," and "-- Termination Fees."
TERMINATION FEES
In recognition of the efforts and expenses of, and other opportunities
foregone by AFC while structuring the Merger, the Merger Agreement provides
that LIB shall, in certain circumstances involving an attempt by a third party
to acquire LIB, pay to AFC a termination fee of $30 million in cash, and in
certain other circumstances involving an attempt by a third party to acquire
LIB, pay to AFC a termination fee of $60 million in cash (each, a "Termination
Fee"). In addition, pursuant to the LIB Stock Option Agreement (as defined
below), LIB granted AFC an option to purchase up to 4,763,113 shares of LIB
Common Stock at an exercise price of $63.25 upon the occurrence of certain
events. However, the maximum aggregate amount AFC can receive as profit under
the LIB Stock Option Agreement and pursuant to the termination fee arrangement
is $60 million. See "THE MERGER -- Termination Fees" and "CERTAIN RELATED
TRANSACTIONS -- LIB Stock Option Agreement."
INTERESTS OF CERTAIN PERSONS IN THE MERGER
Certain members of LIB's senior management and the LIB Board may be deemed
to have certain interests in the Merger that are in addition to or potentially
different from the interests of the stockholders of LIB generally. These
include interests relating to indemnification, cash payments under employment
agreements and
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the LIB Bank severance plan, the vesting and roll-over of stock options, the
provision of life insurance coverage to certain individuals, the vesting of
restricted stock awards, service on an advisory board, a litigation committee
and the AFC Board, employment and consulting agreements for certain executive
officers, certain benefits under The Long Island Savings Bank, FSB Deferred
Pension Plan and liability insurance coverage. The approximate aggregate value
of such interests for all non-employee directors and senior management of LIB
(exclusive of indemnification rights, compensation for future services, stock
options and restricted stock) is $23.1 million. For a detailed description of
these and other interests of LIB's senior management and the LIB Board, see
"THE MERGER --Interests of Certain Persons in the Merger."
MANAGEMENT OF AFC AFTER THE MERGER
The Merger Agreement provides that, at the Effective Time, the directors of
AFC will consist of (i) the directors of AFC immediately prior to the
Effective Time and (ii) five persons who are mutually acceptable to AFC and
LIB, who are currently members of the LIB Board and who are willing to so
serve ("Former LIB Directors"), one of whom shall be Mr. Conefry. The
directors of AFC will cause the Former LIB Directors to be elected or
appointed as directors of AFC at, or as promptly as practicable after, the
Effective Time. The directors of Astoria Federal following the Bank Merger
will consist of the current directors of Astoria Federal, plus the Former LIB
Directors. At the Effective Time, Mr. Conefry will become a Vice Chairman of
AFC. See "THE MERGER -- Interests of Certain Persons in the Merger" and "--
Management of AFC after the Merger."
LIB STOCK OPTION AGREEMENT
As a condition to AFC entering into the Merger Agreement, AFC required that
LIB enter into a stock option agreement, dated as of April 2, 1998 (the "LIB
Stock Option Agreement"), pursuant to which LIB granted AFC an option (the
"LIB Option"), exercisable upon the occurrence of certain events (none of
which has occurred, to the best of AFC's and LIB's knowledge, as of the date
hereof), to purchase up to 4,763,113 shares of LIB Common Stock (representing
approximately 19.9% of the outstanding shares of LIB Common Stock on April 2,
1998), at an exercise price of $63.25 per share, subject to adjustment in
certain circumstances and subject to termination within certain periods. In
addition, the Merger Agreement provides that LIB shall in certain
circumstances pay to AFC a termination fee of $30 million or $60 million in
cash. However, the maximum aggregate amount AFC can receive as profit under
the LIB Stock Option Agreement and pursuant to the termination fee arrangement
is $60 million. See "THE MERGER -- Termination Fees."
The LIB Stock Option Agreement is intended to increase the likelihood that
the Merger will be consummated in accordance with the terms of the Merger
Agreement. Certain aspects of the LIB Stock Option Agreement may have the
effect of discouraging persons who might now or prior to the consummation of
the Merger be interested in acquiring all of or a significant interest in LIB
from considering or proposing such an acquisition, even if such persons were
prepared to pay a higher price per share for the LIB Common Stock than the
value per share contemplated by the Merger Agreement. The acquisition of LIB
or an interest in LIB, or an agreement to do either, could cause the LIB
Option to become exercisable. The existence of the LIB Option could
significantly increase the cost to a potential acquiror of acquiring LIB
compared to its cost had the LIB Stock Option Agreement not been entered into.
Such increased costs might discourage a potential acquiror from considering or
proposing an acquisition or might result in a potential acquiror proposing to
pay a lower per share price to acquire LIB than it might otherwise have
proposed to pay. The management of LIB believes that the exercise of the LIB
Option is likely to prohibit any acquiror of LIB from accounting for any
acquisition of LIB using the pooling-of-interests accounting method for a
period of two years. The inability to use the pooling-of-interests accounting
method could discourage or preclude an acquisition by other organizations
during that period.
A copy of the LIB Stock Option Agreement is attached as Appendix B to this
Joint Proxy Statement-Prospectus. A description of the LIB Stock Option
Agreement, including a description of the events which will result in the LIB
Option becoming exercisable, is set forth under "CERTAIN RELATED
TRANSACTIONS --LIB Stock Option Agreement -- Terms of LIB Stock Option
Agreement."
12
<PAGE>
AFC STOCK OPTION AGREEMENT
As a condition to LIB entering into the Merger Agreement, LIB required that
AFC enter into a stock option agreement, dated as of April 2, 1998 (the "AFC
Stock Option Agreement"), pursuant to which AFC granted LIB an option (the
"AFC Option"), exercisable upon the occurrence of certain events (none of
which has occurred, to the best of LIB's and AFC's knowledge, as of the date
hereof), to purchase up to 5,246,587 shares of AFC Common Stock (representing
approximately 19.9% of the outstanding shares of AFC Common Stock on April 2,
1998), at an exercise price of $61.8125 per share, subject to adjustment in
certain circumstances and subject to termination within certain periods.
The AFC Stock Option Agreement is intended to increase the likelihood that
the Merger will be consummated in accordance with the terms of the Merger
Agreement. Certain aspects of the AFC Stock Option Agreement may have the
effect of discouraging persons who might now or prior to the consummation of
the Merger be interested in acquiring all of or a significant interest in AFC
from considering or proposing such an acquisition. The acquisition of AFC or
an interest in AFC, or an agreement to do either, could cause the AFC Option
to become exercisable. The existence of the AFC Option could significantly
increase the cost to a potential acquiror of acquiring AFC compared to its
cost had the AFC Stock Option Agreement not been entered into. Such increased
costs might discourage a potential acquiror from considering or proposing an
acquisition or might result in a potential acquiror proposing to pay a lower
per share price to acquire AFC than it might otherwise have proposed to pay.
The management of AFC believes that the exercise of the AFC Option is likely
to prohibit any acquiror of AFC from accounting for any acquisition of AFC
using the pooling-of-interests accounting method for a period of two years.
The inability to use the pooling-of-interests accounting method could
discourage or preclude an acquisition by other organizations during that
period.
A copy of the AFC Stock Option Agreement is attached as Appendix C to this
Joint Proxy Statement-Prospectus. A description of the AFC Stock Option
Agreement, including a description of the events which will result in the AFC
Option becoming exercisable, is set forth under "CERTAIN RELATED
TRANSACTIONS --AFC Stock Option Agreement -- Terms of AFC Stock Option
Agreement."
AMENDMENT TO LIB RIGHTS AGREEMENT
On April 22, 1997, LIB adopted a Rights Agreement (the "LIB Rights
Agreement"), pursuant to which LIB's stockholders each received a dividend of
one preferred share purchase right for each outstanding share of LIB Common
Stock to holders of record as of May 6, 1997. In connection with the execution
of the Merger Agreement, LIB amended the LIB Rights Agreement to clarify that
for purposes of determining whether AFC (as well as its affiliates and
associates) is an Acquiring Person, as defined in the LIB Rights Agreement,
AFC shall not be deemed to be a Beneficial Owner, as defined in the LIB Rights
Agreement, or to beneficially own any securities as a result of the execution
and delivery of the Merger Agreement, the consummation of the Merger, the
execution and delivery of the LIB Stock Option Agreement or AFC's right to
acquire, or acquisition of, LIB Common Stock pursuant to the LIB Stock Option
Agreement. See "CERTAIN RELATED TRANSACTIONS -- Amendment to LIB Rights
Agreement."
AMENDMENT TO AFC RIGHTS AGREEMENT
On July 17, 1996, AFC adopted a Rights Agreement (the "AFC Rights
Agreement"), pursuant to which AFC's stockholders each received a dividend of
one AFC Right for each outstanding share of AFC Common Stock to holders of
record as of September 3, 1996. In connection with the execution of the Merger
Agreement, AFC amended the AFC Rights Agreement to clarify that for purposes
of determining whether LIB (as well as its affiliates and associates) is an
Acquiring Person, as defined in the AFC Rights Agreement, LIB shall not be
deemed to be a Beneficial Owner, as defined in the AFC Rights Agreement, or to
beneficially own any securities as a result of LIB's right to acquire, or
LIB's acquisition of, AFC Common Stock pursuant to the AFC Stock Option
Agreement. See "CERTAIN RELATED TRANSACTIONS -- Amendment to AFC Rights
Agreement."
13
<PAGE>
DIFFERENCES IN STOCKHOLDERS' RIGHTS
At the Effective Time, stockholders of LIB who receive shares of AFC Common
Stock will continue to have their rights governed by the DGCL, but will be
governed by the Certificate of Incorporation and Bylaws of AFC, rather than by
the Restated Certificate of Incorporation and Bylaws of LIB. Although the
rights of stockholders of each of AFC and LIB are governed by the DGCL, the
rights of stockholders of AFC differ from rights of the stockholders of LIB
with respect to the following important matters set forth in their respective
certificates of incorporation or bylaws, including: (i) the right to amend
certain provisions of AFC's Certificate of Incorporation or LIB's Restated
Certificate of Incorporation, as the case may be; (ii) the right to call
special meetings; (iii) limitations of director and officer liability; (iv)
indemnification of directors and officers and (v) consideration of other
constituencies when evaluating a change in control. See "COMPARISON OF CERTAIN
RIGHTS OF STOCKHOLDERS."
COMPARATIVE COMMON STOCK PRICE AND DIVIDEND INFORMATION
AFC Common Stock and LIB Common Stock are included for quotation on the
Nasdaq National Market (symbols: "ASFC" and "LISB," respectively). The
following table sets forth the high and low sale prices of shares of AFC
Common Stock and LIB Common Stock as reported in the Nasdaq National Market,
and the quarterly cash dividends declared per share, for the periods
indicated.
<TABLE>
<CAPTION>
AFC LIB
COMMON STOCK COMMON STOCK
-------------------------- ----------------------------
HIGH LOW DIVIDENDS HIGH LOW DIVIDENDS(1)
------- -------- --------- ------- ------- ------------
<S> <C> <C> <C> <C> <C> <C>
1996(2)(3)
First Quarter(2)....... $26 3/8 $22 3/16 $0.10 $29 5/8 $24 3/8 $0.10
Second Quarter(2)...... 28 3/4 23 1/4 0.11 31 26 7/8 0.10
Third Quarter.......... 29 1/4 24 1/8 0.11 33 1/4 27 1/2 0.10
Fourth Quarter......... 38 3/8 27 7/8 0.11 35 1/8 28 1/4 0.10
1997(3)
First Quarter.......... $ 44 $35 1/2 $0.11 $39 3/4 $32 7/8 $0.15
Second Quarter......... 47 5/8 33 3/4 0.15 36 7/8 32 7/8 0.15
Third Quarter.......... 50 7/8 44 3/4 0.15 48 3/4 34 7/8 0.15
Fourth Quarter......... 58 7/8 49 7/8 0.15 50 1/4 39 0.15
1998(3)
First Quarter.......... $62 5/8 $43 1/8 $0.20 $66 1/4 $41 3/8 $0.15
Second Quarter......... 63 3/8 51 0.20 69 1/4 58 1/4 0.15
Third Quarter (through
July 8)............... 54 3/4 52 3/4 -- 62 59 1/2 --
</TABLE>
- --------
(1) Pursuant to the Merger Agreement, (i) LIB may not, without the prior
written consent of AFC, make, declare or pay any dividend on the LIB
Common Stock, except for its regular quarterly dividend of $0.15 per share
and (ii) LIB will cause its regular quarterly dividend record dates and
payment dates for the LIB Common Stock to be the same as AFC's regular
quarterly dividend record dates and payment dates for the AFC Common
Stock.
(2) On April 17, 1996 the AFC Board declared a two-for-one stock split in the
form of a 100% stock dividend and on June 3, 1996, AFC stockholders
received one additional share of AFC Common Stock for each share of AFC
Common Stock owned as of May 15, 1996. AFC's high and low stock prices and
dividends for prior periods have been adjusted to reflect the effect of
such stock split.
(3) Periods reflected are for calendar quarters.
14
<PAGE>
The following table sets forth the last reported sale price per share of AFC
Common Stock and LIB Common Stock on (i) April 2, 1998, the last business day
preceding public announcement of the signing of the Merger Agreement and (ii)
July 8, 1998, the latest practicable date prior to the mailing of this Joint
Proxy Statement-Prospectus:
<TABLE>
<CAPTION>
EQUIVALENT
AFC LIB PRICE PER
COMMON STOCK COMMON STOCK LIB SHARE(1)
------------ ------------ ------------
<S> <C> <C> <C>
April 2, 1998(2)......................... $60 5/16 $67 1/8 $69.36
July 8, 1998............................. 54 3/4 62 62.96
</TABLE>
- --------
(1) The equivalent price per share of LIB Common Stock at each specified date
was determined by multiplying the last reported closing sales price of AFC
Common Stock on each specified date by the Exchange Ratio of 1.15.
(2) On April 2, 1998, the high and low sales prices of AFC Common Stock were
$63 3/8 and $59 5/8, respectively, and the high and low sales prices of
LIB Common Stock were $68 1/8 and $65 9/16, respectively, all as reported
on the Nasdaq National Market.
LIB AND AFC STOCKHOLDERS ARE ADVISED TO OBTAIN CURRENT MARKET QUOTATIONS FOR
AFC COMMON STOCK AND LIB COMMON STOCK. The market price of AFC Common Stock
will fluctuate between the date of this Joint Proxy Statement-Prospectus and
the Effective Date. Because the Exchange Ratio is fixed in the Merger
Agreement at 1.15 shares of AFC Common Stock per share of LIB Common Stock,
the market value of the shares of AFC Common Stock that holders of LIB Common
Stock will receive in the Merger may vary significantly from the prices shown
above. No assurance can be given concerning the market price of AFC Common
Stock before or after the Effective Date.
15
<PAGE>
SELECTED PRO FORMA HISTORICAL CONSOLIDATED
COMPARATIVE PER SHARE DATA
The following table sets forth for AFC Common Stock and LIB Common Stock
certain historical, pro forma and pro forma equivalent per share financial
information. The pro forma and pro forma equivalent per share information
gives effect to the Merger as if the Merger had been effective on the dates
presented, in the case of the book value data presented, and as if the Merger
had become effective January 1, 1997, in the case of the net income and
dividends declared data presented. The pro forma data in the tables assumes
that the Merger is accounted for using the pooling-of-interests method of
accounting. See "THE MERGER -- Accounting Treatment." The information
presented herein is based on, and is qualified in its entirety by, the
historical financial statements, including the notes thereto, of AFC and LIB
incorporated by reference herein and the pro forma financial information,
including the notes thereto, appearing elsewhere in this Joint Proxy
Statement-Prospectus, and should be read in conjunction therewith. See
"INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE" and "PRO FORMA CONDENSED
COMBINED CONSOLIDATED FINANCIAL INFORMATION." The pro forma and equivalent pro
forma per share data in the following tables are presented for comparative
purposes only and are not necessarily indicative of what the combined
financial position or results of operations would have been had the Merger
been consummated during the periods or as of the date for which such pro forma
tables are presented.
<TABLE>
<CAPTION>
AT OR FOR THE AT OR FOR THE
THREE MONTHS ENDED TWELVE MONTHS ENDED
MARCH 31, DECEMBER 31,
------------------- --------------------
1998 1997 1997 1996 1995
--------- --------- ------ ------ ------
<S> <C> <C> <C> <C> <C>
COMPARATIVE PER SHARE DATA:
Cash dividend per common share(1):
AFC................................ $ 0.20 $ 0.11 $ 0.56 $ 0.43 $ 0.20
LIB................................ 0.15 0.15 0.60 0.40 0.40
AFC Pro Forma...................... 0.20 0.11 0.56 0.43 0.20
Per equivalent LIB share........... 0.23 0.13 0.64 0.49 0.23
Book value per common share(2):
AFC................................ $ 32.88 $ 27.51 $32.42 $27.42 $26.13
LIB................................ 23.55 21.62 22.74 21.06 20.18
AFC Pro Forma...................... 26.55 22.57 25.93 22.24 21.23
Per equivalent LIB share........... 30.53 25.96 29.82 25.58 24.41
Tangible book value per common
share(2):
AFC................................ $ 23.27 $ 22.90 $22.57 $22.75 $21.30
LIB................................ 23.35 21.41 22.53 20.85 20.07
AFC Pro Forma...................... 21.75 20.47 21.04 20.13 19.11
Per equivalent LIB share........... 25.01 23.54 24.20 23.15 21.98
Basic earnings per common share:
AFC................................ $ 0.84 $ 0.79 $ 3.26 $ 1.87 $ 2.16
LIB................................ 0.63 0.54 2.20 1.40 1.78
AFC Pro Forma...................... 0.69 0.61 2.51 1.49 1.81
Per equivalent LIB share........... 0.79 0.70 2.89 1.71 2.08
Diluted earnings per common share(3):
AFC................................ $ 0.80 $ 0.74 $ 3.04 $ 2.58 $ 2.10
LIB................................ 0.60 0.52 2.12 1.80 1.74
AFC Pro Forma...................... 0.66 0.58 2.39 2.00 1.76
Per equivalent LIB share........... 0.76 0.67 2.75 2.30 2.02
</TABLE>
- --------
(1) AFC pro forma cash dividends per share represent historical cash dividends
declared by AFC and assumes no changes in cash dividends declared per
share.
(2) AFC pro forma book value per common share and tangible book value per
common share amounts are based on the historical total stockholders'
equity of the combined entity divided by the total pro forma common shares
of the combined entity based on the Exchange Ratio of 1.15.
(3) Excludes SAIF recapitalization assessment. Diluted earnings per common
share, including the SAIF recapitalization assessment, were $1.79, $1.35
and $1.44 for AFC, LIB and AFC pro forma, respectively for the year ended
December 31, 1996. LIB's number for 1996 includes the effect of the SAIF
assessments for basic earnings per common share.
16
<PAGE>
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
AFC -- HISTORICAL
The following tables set forth selected consolidated financial and other
data of AFC for the five years ended December 31, 1997 and the three month
periods ended March 31, 1998 and 1997. The financial information for the five
years ended December 31, 1997 of AFC is based on, and qualified in its
entirety by, the consolidated financial statements of AFC and subsidiary,
including the notes thereto, which are incorporated by reference in this Joint
Proxy Statement-Prospectus and should be read in conjunction therewith. The
selected consolidated financial and other data of AFC as of and for the
periods ended March 31, 1998 and 1997 were not audited, but in the opinion of
management, contain all adjustments (consisting only of normal recurring
adjustments) necessary for a fair presentation of the financial condition and
results of operations for such periods. The results of operations for the
three month period ended March 31, 1998 is not necessarily indicative of the
results of operations to be expected for the remainder of the year or any
other interim period.
17
<PAGE>
ASTORIA FINANCIAL CORPORATION AND SUBSIDIARY
SELECTED HISTORICAL CONSOLIDATED FINANCIAL AND OTHER DATA
<TABLE>
<CAPTION>
AT MARCH 31, AT DECEMBER 31,
---------------------- ---------------------------------------------------------
1998 1997 1997(1) 1996 1995(2) 1994 1993
----------- ---------- ----------- ---------- ---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
SELECTED FINANCIAL DATA:
Total assets............ $10,895,609 $7,689,409 $10,528,393 $7,272,763 $6,620,102 $4,642,547 $4,121,280
Securities available-
for-sale............... 2,905,483 2,430,970 2,860,256 2,296,662 2,515,968 55,550 --
Securities held-to-matu-
rity................... 2,589,064 2,080,739 2,610,449 1,961,015 1,615,542 2,659,533 2,227,402
Loans receivable, net... 4,605,019 2,763,538 4,304,967 2,637,327 2,043,643 1,574,760 1,506,966
Goodwill................ 253,371 97,978 258,159 100,088 108,772 4,938 6,725
Deposits................ 6,205,643 4,494,230 6,220,918 4,513,093 4,263,421 3,280,652 2,898,372
Borrowed funds.......... 3,643,404 2,540,477 3,272,781 2,111,514 1,704,691 766,849 652,849
Stockholders' equity.... 916,849 584,392 899,424 588,829 590,685 550,575 537,349
<CAPTION>
FOR THE THREE MONTHS
ENDED MARCH 31, FOR THE YEAR ENDED DECEMBER 31,
---------------------- ---------------------------------------------------------
1998 1997 1997(1) 1996 1995(2) 1994 1993
----------- ---------- ----------- ---------- ---------- ---------- ----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
SELECTED OPERATING DATA:
Interest income......... $ 184,930 $ 129,073 $ 579,401 $ 491,174 $ 434,976 $ 301,387 $ 266,983
Interest expense........ 115,070 79,617 364,350 304,481 265,705 150,527 140,406
----------- ---------- ----------- ---------- ---------- ---------- ----------
Net interest income..... 69,860 49,456 215,051 186,693 169,271 150,860 126,577
Provision for loan loss-
es..................... 300 500 3,061 3,963 2,007 3,733 6,959
----------- ---------- ----------- ---------- ---------- ---------- ----------
Net interest income
after provision for
loan losses............ 69,560 48,956 211,990 182,730 167,264 147,127 119,618
Non-interest income..... 7,389 3,471 22,263 13,722 9,466 6,218 6,374
Non-interest expense:
General and administra-
tive.................. 33,369 23,759 104,075 96,165 90,344 72,089 61,877
Real estate operations
and provision for
(recovery of) losses,
net................... -- 176 822 (4,470) (3,085) 4,911 9,577
Amortization of good-
will.................. 4,788 2,110 11,264 8,684 8,307 1,788 2,250
SAIF recapitalization
assessment............ -- -- -- 28,545 -- -- --
Provision for restruc-
turing................ -- -- -- -- -- -- 8,325
----------- ---------- ----------- ---------- ---------- ---------- ----------
Total non-interest ex-
pense.................. 38,157 26,045 116,161 128,924 95,566 78,788 82,029
----------- ---------- ----------- ---------- ---------- ---------- ----------
Income before income
taxes, extraordinary
item and cumulative
effect of accounting
changes................ 38,792 26,382 118,092 67,528 81,164 74,557 43,963
Income tax expense...... 16,523 10,948 49,628 30,675 35,743 30,880 18,677
----------- ---------- ----------- ---------- ---------- ---------- ----------
Income before
extraordinary item and
cumulative effect of
accounting changes..... 22,269 15,434 68,464 36,853 45,421 43,677 25,286
Extraordinary item:
Penalty on prepayment of
FHLB-NY advances, net
of income tax benefit.. -- -- -- -- -- -- (3,499)
Cumulative effect of ac-
counting changes....... -- -- -- -- -- -- 2,881
----------- ---------- ----------- ---------- ---------- ---------- ----------
Net income.............. 22,269 15,434 68,464 36,853 45,421 43,677 24,668
Preferred dividend re-
quirements............. 1,500 -- 1,500 -- -- -- --
----------- ---------- ----------- ---------- ---------- ---------- ----------
Net income available to
common shareholders.... $ 20,769 $ 15,434 $ 66,964 $ 36,853 $ 45,421 $ 43,677 $ 24,668
=========== ========== =========== ========== ========== ========== ==========
Basic earnings per
common share(3), (4)... $ 0.84 $ 0.79 $ 3.26 $ 1.87 $ 2.16 $ 1.88 $ 0.19
Diluted earnings per
common share(3), (4)... $ 0.80 $ 0.74 $ 3.04 $ 1.79 $ 2.10 $ 1.86 $ 0.19
Diluted earnings per
common share excluding
SAIF recapitalization
assessment, net of
tax(3), (4), (5)....... $ 0.80 $ 0.74 $ 3.04 $ 2.58 $ 2.10 $ 1.86 $ 0.19
</TABLE>
(See footnotes on the following page)
18
<PAGE>
ASTORIA FINANCIAL CORPORATION AND SUBSIDIARY
SELECTED HISTORICAL CONSOLIDATED FINANCIAL AND OTHER DATA -- (CONTINUED)
<TABLE>
<CAPTION>
AT OR FOR
THE THREE MONTHS
ENDED MARCH 31, AT OR FOR THE YEAR ENDED DECEMBER 31,
------------------ ----------------------------------------------
1998 1997 1997(1) 1996 1995(2) 1994 1993
-------- -------- -------- -------- -------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
SELECTED FINANCIAL RA-
TIOS AND OTHER DATA:
Return on average as-
sets................... 0.83% 0.83% 0.83% 0.53% 0.73% 0.99% 0.67%
Return on average as-
sets, excluding
SAIF(5)................ 0.83 0.83 0.83 0.77 0.73 0.99 0.67
Return on average stock-
holders' equity........ 9.81 10.52 10.23 6.38 8.01 7.95 8.37
Return on average
stockholders' equity,
excluding SAIF(5)...... 9.81 10.52 10.23 9.28 8.01 7.95 8.37
Average stockholders'
equity to average as-
sets................... 8.42 7.93 8.06 8.25 9.09 12.44 7.99
Average tangible
stockholders' equity to
average tangible
assets................. 6.19 6.68 6.52 6.86 7.55 12.32 7.79
Stockholders' equity to
total assets........... 8.41 7.60 8.54 8.10 8.92 11.86 13.04
Core deposits to total
deposits(6)............ 44.86 39.68 43.48 38.52 39.59 38.71 47.56
Net interest spread..... 2.40 2.46 2.38 2.45 2.55 3.04 3.29
Net interest margin(7).. 2.72 2.77 2.71 2.77 2.85 3.51 3.55
Operating income to av-
erage assets(8)........ 0.20 0.17 0.18 0.17 0.15 0.14 0.17
General and administra-
tive expense to average
assets................. 1.24 1.28 1.25 1.37 1.45 1.63 1.68
Efficiency ratio(9)..... 44.43 45.21 45.20 48.37 50.55 45.89 46.54
Book value per common
share.................. $ 32.88 $ 27.51 $ 32.42 $ 27.42 $ 26.13 $ 22.87 $ 20.39
Tangible book value per
common share........... 23.27 22.90 22.57 22.75 21.30 22.65 20.12
Cash dividends paid per
common share........... 0.20 0.11 0.56 0.43 0.20 -- --
ASSET QUALITY RATIOS:
Non-performing loans to
total loans(10)........ 0.91 1.02 0.99 1.26 2.16 4.20 6.45
Non-performing loans to
total assets(10)....... 0.39 0.37 0.41 0.46 0.67 1.44 2.40
Non-performing assets to
total assets(11)....... 0.54 0.52 0.56 0.63 1.02 2.01 3.18
Allowance for loan
losses to non-
performing loans(10)... 94.17 49.55 93.50 42.11 30.34 18.19 16.87
Allowance for loan
losses to non-accrual
loans.................. 109.85 60.72 105.11 54.06 34.90 21.37 21.47
Allowance for loan
losses to total loans.. 0.86 0.50 0.93 0.53 0.65 0.76 1.09
OTHER DATA:
Mortgage loans serviced
for others (in thou-
sands)................. $135,562 $107,707 $142,584 $109,521 $123,931 $54,157 $67,791
Number of full service
banking offices........ 61 45 61 46 46 28 28
Full time equivalent em-
ployees................ 1,267 925 1,241 930 954 751 788
</TABLE>
- --------
(1) After the close of business on September 30, 1997, AFC completed the
acquisition of The Greater New York Savings Bank ("The Greater") in a
transaction accounted for as a purchase.
(2) After the close of business on January 31, 1995, AFC completed the
acquisition of Fidelity New York, FSB in a transaction accounted for as a
purchase.
(3) 1993 based on net income from November 18, 1993 to December 31, 1993.
(4) Prior periods restated as a result of the implementation of Statement of
Financial Accounting Standards No. 128 ("SFAS No. 128") "Earnings per
Share."
(5) For 1996, the one-time $16.9 million, after tax, special assessment for
the recapitalization of the SAIF, was excluded.
(6) Core deposits are comprised of savings, money market, money manager and
NOW accounts.
(7) Net interest margin represents net interest income divided by average
interest-earning assets.
(8) Operating income represents total non-interest income less net gains on
sales of securities, loans and premises and equipment of $2,136,000 and
$380,000 for the three months ended March 31, 1998 and 1997, respectively
and $7,050,000, $1,614,000, $11,000, $0 and $165,000, for 1997, 1996,
1995, 1994 and 1993, respectively.
(9) Efficiency ratio represents general and administrative expense divided by
the sum of net interest income plus operating income.
(10) Non-performing loans consist of all non-accrual loans and all mortgage
loans delinquent 90 days or more as to their maturity date but not their
interest payments.
(11) Non-performing assets consist of all non-performing loans, real estate
owned and investments in real estate, net.
19
<PAGE>
LIB -- HISTORICAL
The following tables set forth selected consolidated financial and other
data of LIB for the five years ended September 30, 1997 and the three months
ended March 31, 1998 and 1997. The financial information for LIB for the three
months ended March 31, 1998 and 1997 has been presented to coincide with the
reporting periods for AFC. Following the Merger, the combined company's fiscal
year, like that of AFC, will end onDecember 31. The financial information for
the five years ended September 30, 1997 of LIB is based on, and qualified in
its entirety by, the consolidated financial statements of LIB and subsidiary,
including the notes thereto, which are incorporated by reference in this Joint
Proxy Statement-Prospectus and should be read in conjunction therewith. The
selected consolidated financial and other data of LIB as of and for the
periods endedMarch 31, 1998 and 1997 were not audited, but in the opinion of
management, contain all adjustments (consisting only of normal recurring
adjustments) necessary for a fair presentation of the financial condition and
results of operations for such periods. The results of operations for the
three month period ended March 31, 1998 is not necessarily indicative of the
results of operations to be expected for the remainder of the year or any
other interim period.
20
<PAGE>
LONG ISLAND BANCORP, INC. AND SUBSIDIARY
SELECTED HISTORICAL CONSOLIDATED FINANCIAL AND OTHER DATA
<TABLE>
<CAPTION>
AT MARCH 31, AT SEPTEMBER 30,
--------------------- ------------------------------------------------------
1998 1997 1997 1996 1995 1994 1993
---------- ---------- ---------- ---------- ---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
SELECTED FINANCIAL DATA:
Total assets............ $6,295,868 $5,814,296 $5,930,784 $5,363,791 $4,901,622 $4,516,137 $3,990,731
Mortgage-backed securi-
ties, net(1)........... 1,927,596 1,692,742 1,830,694 1,740,202 2,276,750 2,060,793 1,386,115
Investment in debt and
equity securities,
net(2)................. 287,966 162,998 138,578 180,650 289,247 433,840 351,415
Loans receivable held
for investment, net.... 3,460,712 3,461,267 3,484,094 3,040,837 1,994,741 1,630,820 1,760,455
Loans sold with re-
course(3).............. 781,329 425,038 487,102 289,464 250,423 201,083 223,032
Loans held for sale,
net.................... 262,294 93,516 157,617 57,969 49,372 7,956 148,393
Mortgage servicing
rights, net(4)......... 45,641 37,499 41,789 29,687 11,328 759 957
Goodwill................ 4,864 5,046 5,069 5,265 2,789 -- --
Deposits................ 3,762,115 3,667,184 3,730,503 3,633,010 3,573,529 3,567,815 3,617,600
Borrowed funds, net..... 1,787,629 1,445,233 1,501,456 978,023 633,675 325,022 44,500
Stockholders' equity-
partially restricted
(5)(6)(7).............. 563,744 523,853 546,375 519,094 526,174 493,709 211,630
</TABLE>
- --------
(1) Includes $1.9 billion, $1.7 billion, $1.8 billion, $1.7 billion, $938.8
million, $818.3 million and $845.0 million of mortgage-backed securities
available-for-sale carried at market value as of March 31, 1998 and 1997,
September 30, 1997, 1996, 1995, 1994 and 1993, respectively.
(2) Includes $288.0 million, $163.0 million, $138.6 million, $180.7 million,
$233.4 million, $348.2 million and $340.4 million of debt and equity
securities available-for-sale carried at market value as of March 31, 1998
and 1997, September 30, 1997, 1996, 1995, 1994 and 1993, respectively.
(3) Loans sold with recourse represent the outstanding principal amount of
residential property loans with the majority of these loans having been
securitized with Federal National Mortgage Association ("FNMA") and
Federal Home Loan Mortgage Corporation ("FHLMC").
(4) Includes mortgage servicing rights purchased and originated.
(5) Includes $12.5 million and $4.8 million, $12.9 million, $6.6 million, $6.9
million, $(3.1) million and $19.9 million after tax from unrealized gains
(losses) from debt, equity and mortgage-backed securities available-for-
sale at March 31, 1998 and 1997, September 30, 1997, 1996, 1995, 1994 and
1993, respectively, in accordance with Statement of Financial Accounting
Standards No. 115 ("SFAS 115"), "Accounting for Certain Investments in
Debt and Equity Securities."
(6) Prior to April 14, 1994, represented Retained income-partially restricted.
(7) The increase to September 30, 1994 from September 30, 1993 was primarily
due to the initial public offering of LIB Common Stock that occurred on
April 14, 1994.
21
<PAGE>
LONG ISLAND BANCORP, INC. AND SUBSIDIARY
SELECTED HISTORICAL CONSOLIDATED FINANCIAL AND OTHER DATA -- (CONTINUED)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS
ENDED MARCH 31, FOR THE YEAR ENDED SEPTEMBER 30,
---------------------- ------------------------------------------------
1998 1997 1997 1996 1995 1994 1993
---------- ---------- -------- -------- -------- -------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
SELECTED OPERATING DATA:
Interest income........... $ 104,995 $ 99,267 $399,049 $351,571 $321,215 $272,157 $ 340,629
Interest expense.......... 64,604 59,137 239,488 197,176 167,896 130,104 177,193
---------- --------- -------- -------- -------- -------- ---------
Net interest income....... 40,391 40,130 159,561 154,395 153,319 142,053 163,436
Provision for possible
loan losses.............. 1,500 1,500 6,000 6,200 6,470 11,955 47,288
---------- --------- -------- -------- -------- -------- ---------
Net interest income after
provision for possible
loan losses.............. 38,891 38,630 153,561 148,195 146,849 130,098 116,148
Non-interest income:
Fees and other income.... 5,560 6,998 27,520 28,343 25,992 21,688 18,471
Net gains on sale activi-
ty...................... 4,019 2,263 11,399 8,333 1,638 1,920 57,734
Net (loss) gain on in-
vestment in real estate
and premises............ (280) (570) (1,205) 2,028 (323) (4,790) (12,419)
---------- --------- -------- -------- -------- -------- ---------
Total non-interest in-
come..................... 9,299 8,691 37,714 38,704 27,307 18,818 63,786
---------- --------- -------- -------- -------- -------- ---------
Non-interest expense:
General and administra-
tive expense............ 25,224 26,661 108,084 111,553 100,532 99,972 108,750
SAIF special assessment.. -- -- -- 18,657 -- -- --
Litigation expense --
goodwill lawsuit....... 116 275 1,101 370 -- 11 182
Amortization of good-
will.................... 97 109 458 284 211 -- 47,222
Write-off of excess of
cost over fair value of
net assets acquired(1).. -- -- -- -- -- -- 70,809
---------- --------- -------- -------- -------- -------- ---------
Total non-interest ex-
pense.................... 25,437 27,045 109,643 130,864 100,743 99,983 226,963
---------- --------- -------- -------- -------- -------- ---------
Income (loss) before
income taxes and
cumulative effect of
accounting changes....... 22,753 20,276 81,632 56,035 73,413 48,933 (47,029)
Provision for income tax-
es....................... 8,816 8,159 32,212 23,760 29,897 18,046 11,504
---------- --------- -------- -------- -------- -------- ---------
Income (loss) before cumu-
lative effect of account-
ing changes.............. 13,937 12,117 49,420 32,275 43,516 30,887 (58,533)
Cumulative effect of
changes in account-
ing(1)(2)................... -- -- -- -- -- 8,648 (323,545)
---------- --------- -------- -------- -------- -------- ---------
Net income (loss)......... $ 13,937 $ 12,117 $ 49,420 $ 32,275 $ 43,516 $ 39,535 $(382,078)
========== ========= ======== ======== ======== ======== =========
Basic earnings per common
share(3)(4).............. $ 0.63 $ 0.54 $ 2.20 $ 1.40 $ 1.78 $ 0.70 N/A
========== ========= ======== ======== ======== ======== =========
Diluted earnings per com-
mon share(3)(4).......... $ 0.60 $ 0.52 $ 2.12 $ 1.35 $ 1.74 $ 0.70 N/A
========== ========= ======== ======== ======== ======== =========
</TABLE>
- --------
(1) LIB adopted Statement of Financial Accounting Standards No. 72 ("SFAS
72"), "Accounting for Certain Acquisitions of Banking or Thrift
Institutions" as of October 1, 1992, which resulted in a reduction in the
excess of cost over fair value of net assets acquired and a cumulative
charge to income of $323.5 million. LIB wrote-off the remaining balance of
the then existing excess of cost over fair value of net assets acquired of
$70.8 million after fiscal 1993 amortization of $47.2 million.
(2) LIB adopted Statement of Financial Accounting Standards No. 106 ("SFAS
106"), "Employers' Accounting for Postretirement Benefits Other Than
Pensions" and Statement of Financial Accounting Standards No. 109 ("SFAS
109"), "Accounting for Income Taxes" as of October 1, 1993, which resulted
in a cumulative charge to income of $10.7 million and a cumulative credit
to income of $19.4 million, respectively.
(3) For the year ended September 30, 1994, EPS is based upon the weighted
average number of shares of common stock outstanding and was determined
based upon income earned during the period April 14, 1994 through
September 30, 1994. The weighted average number of shares issuable under
LIB stock benefit plans were not materially dilutive and therefore were
excluded from the calculation of EPS.
(4) Prior periods restated as a result of the implementation of SFAS No.128.
22
<PAGE>
LONG ISLAND BANCORP, INC. AND SUBSIDIARY
SELECTED HISTORICAL CONSOLIDATED FINANCIAL AND OTHER DATA -- (CONTINUED)
<TABLE>
<CAPTION>
AT OR FOR
THE THREE MONTHS
ENDED MARCH 31, AT OR FOR THE YEAR ENDED SEPTEMBER 30,
---------------- --------------------------------------------
1998 1997 1997 1996 1995 1994 1993
-------- -------- ------- ------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
SELECTED FINANCIAL RA-
TIOS:
Return on average as-
sets(1)................ 0.91% 0.84% 0.86% 0.64% 0.93% 0.91% (7.57)%
Return on average stock-
holders' equity(1)..... 9.92 9.22 9.33 6.16 8.52 11.41 (147.93)
Average stockholders'
equity to average as-
sets(2)................ 9.13 9.06 9.22 10.43 10.90 7.93 5.11
Stockholders' equity to
total assets(3)........ 8.95 9.01 9.21 9.68 10.73 10.93 5.30
Tangible stockholders'
equity to total as-
sets(4)................ 8.88 8.93 9.13 9.57 10.67 10.93 5.30
Interest rate spread
during period.......... 2.32 2.51 2.57 2.89 3.10 3.30 3.46
Net interest margin..... 2.73 2.90 2.91 3.24 3.44 3.47 3.47
Operating expenses to
average assets(5)...... 1.64 1.84 1.88 2.22 2.15 2.29 2.15
Efficiency ratio(6)..... 54.89 56.57 57.78 61.05 56.07 61.05 59.78
Average interest-earning
assets to average
interest-bearing
liabilities............ 107.91 107.49 107.73 108.60 109.25 105.36 100.22
Net interest income to
operating expenses(7).. 1.60x 1.51x 1.48x 1.38x 1.52x 1.42x 1.50x
ASSET QUALITY RATIOS:
Non-performing loans to
total gross loans(8)... 1.26% 1.44% 1.28% 1.70% 2.67% 3.20% 7.42%(9)
Non-performing assets to
total assets(8)........ 0.86 1.04 0.91 1.14 1.32 1.36 4.29 (9)
Allowance for possible
loan losses to non-per-
forming loans.......... 71.90 66.07 71.97 63.79 61.71 66.09 23.36
</TABLE>
- --------
(1) For fiscal 1993 the cumulative charge to income for the adoption of SFAS
72 and the subsequent write-off of the remaining balance of the excess of
cost over fair value of net assets acquired in fiscal 1993 are reflected
in net income and stockholders' equity. For fiscal 1994, the cumulative
charge and credit for the adoption of SFAS 106 and SFAS 109, respectively,
are reflected in net income and stockholders' equity. For fiscal 1996,
exclusive of the one-time SAIF assessment, return on average assets and
return on average stockholders' equity would have been 0.86% and 8.20%,
respectively.
(2) For fiscal 1996, exclusive of the one-time SAIF assessment, average
stockholders' equity to average assets would have been 10.44%
(3) For fiscal 1996, exclusive of the one-time SAIF assessment, stockholders'
equity to total assets would have been 9.88%.
(4) For purposes of calculating these ratios, stockholders' equity and total
assets would have been reduced by the excess of cost over fair value of
net assets acquired.
(5) Amount is determined by dividing total general and administrative expense
by average assets.
(6) Amount is determined by dividing total general and administrative expense
by net interest income before the provision for possible loan losses plus
total fee and other income.
(7) Amount is determined by dividing net interest income before provision for
possible loan losses by total general and administrative expense.
(8) Non-performing loans excludes loans which have been restructured and are
accruing and performing in accordance with the restructured terms.
Restructured accruing loans totaled $9.2 million, $10.4 million, $9.1
million, $11.8 million, $12.1 million, $12.8 million and $8.9 million at
March 31, 1998 and 1997, September 30, 1997, 1996, 1995, 1994 and 1993,
respectively.
(9) Includes the effect of $25.0 million and $5.0 million reduction in
carrying value in September 1993 relating to a bulk sale of non-performing
loans and other real estate owned, respectively. Excluding the effect of
such reduction in carrying value, LIB Bank's ratio of non-performing loans
to total gross loans and non-performing assets to total assets would have
been 8.56% and 5.01%, respectively.
23
<PAGE>
SELECTED PRO FORMA HISTORICAL CONSOLIDATED FINANCIAL DATA
(UNAUDITED)
The following tables set forth certain selected consolidated condensed
financial data for AFC and LIB on an unaudited pro forma combined basis as if
the Merger had become effective March 31, 1998, in the case of the selected
consolidated statement of financial condition data presented, and as if the
Merger had become effective at the beginning of the periods indicated, in the
case of the consolidated statements of operations data presented. The pro
forma information in the tables assumes that the Merger is accounted for using
the pooling-of-interests method of accounting. See "THE MERGER -- Accounting
Treatment." The unaudited pro forma historical consolidated year-end statement
of financial condition information reflects AFC and LIB at their respective
year-end reporting periods of December 31 and September 30 and for the periods
then ended for the statement of operations information. Financial information
for the three months ended March 31, 1998 and 1997 combine AFC and LIB with
interim results presented to coincide with the reporting period for AFC.
Following the Merger, the combined company's fiscal year, like that of AFC,
will end on December 31. These tables should be read in conjunction with, and
are qualified in their entirety by, the historical financial statements,
including the notes thereto, of AFC and LIB incorporated by reference herein
and the more detailed pro forma financial information, including the notes
thereto, appearing elsewhere in this Joint Proxy Statement-Prospectus. Certain
LIB financial information has been reclassified to conform with AFC's
financial presentation. See "INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE"
and "PRO FORMA CONDENSED COMBINED CONSOLIDATED FINANCIAL INFORMATION."
The selected pro forma financial information set forth in the following
tables do not give effect to anticipated cost savings and revenue enhancement
opportunities that could result from the Merger or any other items of income
or expense which may result from the Merger. Additionally, the pro forma
financial information does not give effect to any anticipated leveraging of
AFC's pro forma assets. The unaudited pro forma historical consolidated
financial information is presented for informational purposes only and is not
necessarily indicative of the combined financial position or results of
operations that would have occurred had the Merger been consummated on March
31, 1998, or at the beginning of the periods indicated or which may occur in
the future.
24
<PAGE>
ASTORIA FINANCIAL CORPORATION AND SUBSIDIARY AND LONG ISLAND BANCORP, INC. AND
SUBSIDIARY
SELECTED PRO FORMA HISTORICAL CONSOLIDATED FINANCIAL DATA
(UNAUDITED)
<TABLE>
<CAPTION>
AT MARCH 31, AT DECEMBER 31,
----------------------- ------------------------------------
1998 1997 1997 1996 1995
----------- ----------- ----------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
SELECTED FINANCIAL DATA:
Total assets............ $17,191,477 $13,503,705 $16,459,177 $12,636,554 $11,521,724
Securities available-
for-sale............... 5,099,583 4,263,892 4,807,305 4,194,418 3,688,223
Securities held-to-matu-
rity................... 2,610,526 2,103,557 2,632,672 1,984,111 3,009,284
Loans receivable, net... 8,065,731 6,224,805 7,789,061 5,678,164 4,038,384
Loans sold with re-
course................. 804,162 455,806 511,816 322,548 293,824
Mortgage servicing
rights................. 45,641 37,499 41,789 29,687 11,328
Goodwill................ 258,235 103,024 263,228 105,353 111,561
Deposits................ 9,967,758 8,161,414 9,951,421 8,146,103 7,836,950
Borrowed funds.......... 5,431,033 3,985,710 4,774,237 3,089,537 2,338,366
Stockholders' equi-
ty(1).................. 1,480,593 1,108,245 1,445,799 1,107,923 1,116,859
<CAPTION>
FOR THE THREE MONTHS
ENDED MARCH 31, FOR THE YEAR ENDED DECEMBER 31,
----------------------- ------------------------------------
1998 1997 1997 1996 1995
----------- ----------- ----------- ----------- -----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
SELECTED OPERATING DATA:
Interest income......... $ 289,925 $ 228,340 $ 978,450 $ 842,745 $ 756,191
Interest expense........ 179,674 138,754 603,838 501,657 433,601
----------- ----------- ----------- ----------- -----------
Net interest income..... 110,251 89,586 374,612 341,088 322,590
Provision for loan loss-
es..................... 1,800 2,000 9,061 10,163 8,477
----------- ----------- ----------- ----------- -----------
Net interest income af-
ter provision for loan
losses................. 108,451 87,586 365,551 330,925 314,113
Non-interest income:
Fees and other income.. 10,846 10,091 42,738 40,461 35,447
Net gains on sale ac-
tivity................ 6,122 2,641 18,444 9,937 1,649
----------- ----------- ----------- ----------- -----------
Total non-interest in-
come................... 16,968 12,732 61,182 50,398 37,096
----------- ----------- ----------- ----------- -----------
Non-interest expense:
General and administra-
tive.................. 58,709 50,695 213,260 208,088 190,876
Real estate operations
and provision for (re-
covery of) real estate
losses, net........... 280 746 2,027 (6,498) (2,762)
Amortization of good-
will.................. 4,885 2,219 11,722 8,968 8,518
SAIF recapitalization
assessment............ -- -- -- 47,202 --
----------- ----------- ----------- ----------- -----------
Total non-interest ex-
pense.................. 63,874 53,660 227,009 257,760 196,632
----------- ----------- ----------- ----------- -----------
Income before income tax
expense................ 61,545 46,658 199,724 123,563 154,577
Income tax expense...... 25,339 19,107 81,840 54,435 65,640
----------- ----------- ----------- ----------- -----------
Net income.............. 36,206 27,551 117,884 69,128 88,937
Preferred dividend re-
quirements............. 1,500 -- 1,500 -- --
----------- ----------- ----------- ----------- -----------
Net income available to
common shareholders.... $ 34,706 $ 27,551 $ 116,384 $ 69,128 $ 88,937
=========== =========== =========== =========== ===========
Basic earnings per com-
mon share(2)........... $ 0.69 $ 0.61 $ 2.51 $ 1.49 $ 1.81
Diluted earnings per
common share(2)........ $ 0.66 $ 0.58 $ 2.39 $ 1.44 $ 1.76
Diluted earnings per
common share excluding
SAIF recapitalization
assessment, net of
tax(2)................. N/A N/A N/A $ 2.00 N/A
Basic weighted average
common shares(2)....... 50,272,057 45,329,243 46,362,179 46,267,304 49,065,248
Diluted weighted average
common and common
equivalent shares(2)... 52,756,334 47,726,260 48,765,698 48,085,820 50,393,927
</TABLE>
(See footnotes on page 26)
25
<PAGE>
ASTORIA FINANCIAL CORPORATION AND SUBSIDIARY AND LONG ISLAND BANCORP, INC. AND
SUBSIDIARY
SELECTED PRO FORMA HISTORICAL CONSOLIDATED FINANCIAL RATIOS(1)(3)
(UNAUDITED)
<TABLE>
<CAPTION>
AT OR FOR THE AT OR FOR THE
THREE MONTHS TWELVE MONTHS
ENDED MARCH 31, ENDED DECEMBER 31,
---------------- ----------------------
1998 1997 1997 1996 1995
------- ------- ------ ------ ------
<S> <C> <C> <C> <C> <C>
PERFORMANCE RATIOS:
Return on average assets............ 0.85% 0.83% 0.84% 0.57% 0.81%
Return on average stockholders equi-
ty(1).............................. 9.85 9.90 9.83 6.27 8.25
Average stockholders' equity to av-
erage assets(1).................... 8.67 8.43 8.54 9.16 9.87
Stockholders' equity to total as-
sets(1)............................ 8.61 8.21 8.78 8.77 9.69
Average tangible equity to average
tangible assets(1)................. 7.24 7.70 7.60 8.33 8.99
Net interest spread(4).............. 2.40 2.51 2.46 2.63 2.78
Net interest margin................. 2.73 2.83 2.79 2.97 3.11
Operating income to average assets.. 0.26 0.31 0.30 0.34 0.32
General and administrative expenses
to average assets.................. 1.39 1.54 1.52 1.73 1.75
Efficiency ratio.................... 48.48 50.86 51.10 54.54 53.31
SELECTED PERFORMANCE RATIOS EXCLUD-
ING SAIF
ASSESSMENT:(5)
Return on average assets............ 0.85 0.83 0.84 0.80 0.81
Return on average stockholders' eq-
uity............................... 9.85 9.90 9.83 8.76 8.25
CAPITAL RATIOS:(6)
Tangible capital to total tangible
assets............................. 6.14 6.28 6.25 6.59 6.97
Leverage ratio...................... 6.14 6.28 6.25 6.59 6.97
Risk-based ratio.................... 15.20 15.33 15.57 16.45 18.19
ASSET QUALITY RATIOS:
Non-performing loans to total
loans.............................. 1.07 1.26 1.12 1.50 2.42
Non-performing loans to total as-
sets............................... 0.52 0.59 0.55 0.69 0.87
Non-performing assets to total as-
sets............................... 0.66 0.74 0.69 0.85 1.15
Allowance for loan losses to non-
performing loans................... 82.39 60.20 82.23 55.41 47.78
Allowance for loan losses to total
loans.............................. 0.88 0.76 0.92 0.83 1.15
Allowance for loan losses to non-ac-
crual loans........................ 88.33 64.41 86.79 60.58 50.72
</TABLE>
- --------
(1) Pro forma stockholders' equity as of March 31, 1998 and ratios involving
equity accounts were calculated using LIB's and AFC's pure historical
figures and do not give effect to the Merger as if the Merger had become
effective on March 31, 1998. Based on such effect, pro forma stockholders'
equity as of March 31, 1998 was $1.4 billion. See "Pro Forma Condensed
Combined Consolidated Financial Information."
(2) Pro forma earnings per common share and weighted average common shares
utilize restated amounts for prior periods as a result of AFC's and LIB's
implementation of SFAS No. 128, and reflect the exchange ratio of 1.15
shares of AFC Common Stock for each share of LIB Common Stock.
(3) Pro forma ratios for the years combine AFC and LIB at their respective
year-end periods. Pro forma ratios for the three months ended March 31,
1998 and 1997 include LIB for the three month period to conform with that
of AFC.
(4) The pro forma calculation of net interest spread conforms LIB's
calculation of yields on interest-earning assets and costs of interest-
bearing liabilities to AFC's, which is a simple annualized basis.
(5) For 1996, the one-time special assessment for the recapitalization of the
SAIF was excluded. This one-time special assessment was $16.9 million,
after-tax and $10.7 million, after-tax for AFC and LIB, respectively.
(6) Represents pro forma ratios of Astoria Federal and LIB Bank.
26
<PAGE>
THE MEETINGS
LIB MEETING
General. Each copy of this Joint Proxy Statement-Prospectus mailed to
holders of LIB Common Stock is accompanied by a white proxy card furnished in
connection with the LIB Board's solicitation of proxies for use at the LIB
Meeting. The LIB Meeting is scheduled to be held on August 19, 1998, at 9:30
a.m., Eastern Time, at the Huntington Hilton, 598 Broadhollow Road, Melville,
New York 11747. At the LIB Meeting, LIB stockholders will consider and vote
upon (i) a proposal to approve and adopt the Merger Agreement and (ii) the
Additional Proposal. See "ADDITIONAL PROPOSAL."
HOLDERS OF LIB COMMON STOCK ARE REQUESTED TO COMPLETE, SIGN AND DATE THE
ACCOMPANYING WHITE PROXY CARD AND RETURN IT PROMPTLY IN THE ENCLOSED POSTAGE-
PAID, ADDRESSED ENVELOPE.
LIB STOCKHOLDERS SHOULD NOT FORWARD ANY STOCK CERTIFICATES WITH THEIR PROXY
CARDS.
Recommendation of the Board of Directors. THE LIB BOARD HAS UNANIMOUSLY
APPROVED THE MERGER AGREEMENT AND HAS DETERMINED THAT THE TERMS OF THE MERGER
AND THE MERGER AGREEMENT ARE FAIR TO AND IN THE BEST INTERESTS OF LIB AND ITS
STOCKHOLDERS. THE LIB BOARD THEREFORE UNANIMOUSLY RECOMMENDS THAT LIB'S
STOCKHOLDERS VOTE FOR APPROVAL AND ADOPTION OF THE MERGER AGREEMENT AND THE
ADDITIONAL PROPOSAL.
See "THE MERGER -- Reasons for the Merger -- LIB."
Record Date. The LIB Board has fixed the close of business on June 23, 1998
as the record date for the determination of holders of LIB Common Stock
entitled to receive notice of and to vote at the LIB Meeting. Only holders of
record of LIB Common Stock at the close of business on the LIB Record Date are
entitled to receive notice of and to vote at the LIB Meeting.
Voting and Solicitation of Proxies. LIB stockholders will be entitled to one
vote for each share of LIB Common Stock held of record as of the close of
business on the LIB Record Date on each matter to be voted upon at the LIB
Meeting. The presence in person or by proxy of the holders of at least a
majority of the outstanding shares of LIB Common Stock on the LIB Record Date
is necessary to constitute a quorum at the LIB Meeting.
The shares of LIB Common Stock represented by properly executed proxies
received at or prior to the LIB Meeting and not subsequently revoked prior to
the vote at the LIB Meeting will be voted as directed in such proxies. IF
INSTRUCTIONS ARE NOT GIVEN, SHARES REPRESENTED BY PROPERLY EXECUTED PROXIES
WILL BE VOTED FOR APPROVAL AND ADOPTION OF THE MERGER AGREEMENT AND FOR THE
ADDITIONAL PROPOSAL. However, no proxy which is voted against the proposal to
approve the Merger Agreement will be voted in favor of the Additional Proposal
by the proxies pursuant to such discretion.
Any holder of LIB Common Stock who has executed and delivered a proxy may
revoke it at any time before it is voted by attending the LIB Meeting and
voting in person or by giving notice of revocation in writing or submitting a
signed proxy card bearing a later date to LIB, at its administrative
headquarters at 201 Old Country Road, Melville, New York 11747; provided that
such notice or proxy card is actually received by LIB before the vote of LIB
stockholders. A proxy will not be revoked by death or supervening incapacity
of the LIB stockholder executing the proxy unless, before the vote, notice of
such death or incapacity is filed with the Corporate Secretary or other person
responsible for tabulating votes on behalf of LIB.
The cost of soliciting proxies from holders of LIB Common Stock in the form
enclosed herewith will be borne by LIB. Such solicitation will be made by mail
but also may be made by telephone or in person by the
27
<PAGE>
directors, officers and employees of LIB (who will receive no additional
compensation for doing so). LIB has retained D.F. King & Co., Inc. to assist
in such solicitation. The fee to be paid to such firm is not expected to
exceed $7,500, plus reasonable out-of-pocket costs and expenses authorized by
LIB. In addition, LIB will make arrangements with brokerage firms and other
custodians, nominees and fiduciaries to send proxy materials to their
principals and will reimburse such parties for their expenses in doing so.
A representative of LIB's independent certified public accountants, KPMG
Peat Marwick LLP, will be present at the LIB Meeting.
Vote Required. The affirmative vote of a majority of the outstanding shares
on the LIB Record Date of LIB Common Stock entitled to vote at the LIB
Meeting, voting as a single class, is required in order to approve and adopt
the Merger Agreement. In addition, the affirmative vote of a majority of the
votes present in person or by proxy and entitled to vote at the LIB Meeting is
required to approve the Additional Proposal. A failure to return a properly
executed proxy card or to vote in person or abstaining from voting will have
the same effect as a vote against the Merger Agreement. An abstention with
respect to the Additional Proposal will have the effect of a vote against the
Additional Proposal. Broker non-votes will not be counted as having been voted
in person or by proxy at the LIB Meeting and will have the same effect as a
vote against the Merger Agreement. In contrast, shares underlying broker non-
votes will have no effect on the vote on the Additional Proposal. As of the
LIB Record Date, there were a total of 24,177,855 shares of LIB Common Stock
outstanding and entitled to be voted at the LIB Meeting.
As of May 31, 1998, LIB's directors and executive officers (and their
affiliates) (21 persons) beneficially owned and had the power to vote 811,064
shares of LIB Common Stock, and beneficially owned, but did not have the right
to vote approximately 897,388 shares of LIB Common Stock subject to options
under The Long Island Bancorp, Inc. 1994 Stock Incentive Plan and the LIB 1994
Non-Employee Directors and Stock Option Program. Such shares of LIB Common
Stock that LIB directors and executive officers (and their affiliates) had the
right to vote, or direct the voting thereof, represented approximately 3.36%,
as of May 31, 1998, of the outstanding LIB Common Stock which may be voted at
the LIB Meeting. Such persons have agreed to vote their shares in favor of the
approval and adoption of the Merger Agreement and the Additional Proposal. See
"BENEFICIAL OWNERSHIP OF LIB COMMON STOCK." The Trustees of the LIB ESOP and
the LISB 401(k) Savings Plan are obligated to vote unallocated shares and
shares for which no direction has been received in the same proportion as
shares for which such voting directions have been received from participants
so long as such vote is in accordance with the provisions of ERISA. As of May
31, 1998, AFC, its subsidiaries, and the directors and executive officers of
AFC beneficially owned no shares of LIB Common Stock. Unawarded shares under
The Long Island Savings Bank Management Recognition and Retention Plan for
Executive Officers and The Long Island Savings Bank Management Recognition and
Retention Plan for Non-Employee Directors shall be voted by LIB Bank.
AFC MEETING
General. Each copy of this Joint Proxy Statement-Prospectus mailed to
holders of AFC Common Stock is accompanied by a white proxy card furnished in
connection with the AFC Board's solicitation of proxies for use at the AFC
Meeting. The AFC Meeting is scheduled to be held on August 19, 1998, at 9:30
a.m., Eastern Time, at the New Hyde Park Inn, 214 Jericho Turnpike, New Hyde
Park, New York 11040. At the AFC Meeting, AFC stockholders will consider and
vote upon (i) a proposal to approve and adopt the Merger Agreement and (ii)
approve the Additional Proposal. See "ADDITIONAL PROPOSAL."
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HOLDERS OF AFC COMMON STOCK ARE REQUESTED TO COMPLETE, SIGN AND DATE THE
ACCOMPANYING WHITE PROXY CARD AND RETURN IT PROMPTLY IN THE ENCLOSED POSTAGE-
PAID, ADDRESSED ENVELOPE.
Recommendation of the Board of Directors. THE AFC BOARD HAS UNANIMOUSLY
APPROVED THE MERGER AGREEMENT AND HAS UNANIMOUSLY DETERMINED THAT THE MERGER
AND THE MERGER AGREEMENT ARE FAIR TO AND IN THE BEST INTERESTS OF AFC AND ITS
STOCKHOLDERS. THE AFC BOARD THEREFORE UNANIMOUSLY RECOMMENDS THAT AFC'S
STOCKHOLDERS VOTE FOR APPROVAL OF THE MERGER AGREEMENT AND THE ADDITIONAL
PROPOSAL.
See "THE MERGER -- Reasons for the Merger -- AFC."
Record Date. The AFC Board has fixed the close of business on June 23, 1998
as the record date for the determination of holders of AFC Common Stock
entitled to receive notice of and to vote at the AFC Meeting. Only holders of
record of AFC Common Stock at the close of business on the AFC Record Date are
entitled to receive notice of and to vote at the AFC Meeting.
Voting and Solicitation of Proxies. AFC stockholders will be entitled to one
vote for each share of AFC Common Stock held of record as of the close of
business on the AFC Record Date on each matter to be voted upon at the AFC
Meeting. The presence in person or by proxy of the holders of at least a
majority of the total number of shares of AFC Common Stock outstanding on the
AFC Record Date is necessary to constitute a quorum at the AFC Meeting.
Pursuant to the Certificate of Incorporation of AFC, no record stockholder
of AFC Common Stock that is beneficially owned, directly or indirectly, by a
stockholder who as of the AFC Record Date beneficially owns more than 10% of
the AFC Common Stock outstanding on such date will be entitled or permitted to
vote any shares of AFC Common Stock in excess of 10% of AFC Common Stock
outstanding as of the AFC Record Date. For purposes of this limitation,
neither the Astoria Federal Savings and Loan Association Employee Stock
Ownership Plan (the "Astoria Federal ESOP") nor the trustee of such plan is
considered the beneficial owner of the AFC Common Stock held by the Astoria
Federal ESOP.
The shares of AFC Common Stock represented by properly executed proxies
received at or prior to the AFC Meeting and not subsequently revoked prior to
the vote at the AFC Meeting will be voted as directed in such proxies. IF
INSTRUCTIONS ARE NOT GIVEN, SHARES REPRESENTED BY PROPERLY EXECUTED PROXIES
WILL BE VOTED FOR APPROVAL OF THE MERGER AGREEMENT AND THE ADDITIONAL
PROPOSAL. However, no proxy which is voted against the proposal to approve the
Merger Agreement will be voted in favor of the Additional Proposal by the
proxies if no instruction is given with respect to the Additional Proposal.
Any holder of AFC Common Stock who has executed and delivered a proxy may
revoke it at any time before it is voted by attending and voting in person at
the AFC Meeting or by giving written notice of revocation or submitting a
signed proxy card bearing a later date to AFC, at One Astoria Federal Plaza,
Lake Success, New York 11042, attention: Corporate Secretary; provided that
such notice or proxy card is actually received by AFC prior to the vote of AFC
stockholders.
The cost of soliciting proxies from holders of AFC Common Stock in the form
enclosed herewith will be borne by AFC. Such solicitation will be made by mail
but also may be made by telephone or in person by the directors, officers or
employees of AFC (who will receive no additional compensation for doing so).
AFC has retained Kissell-Blake, Inc. to assist in such solicitation. The fee
to be paid to such firm is not expected to exceed $7,500, plus reasonable out-
of-pocket costs and expenses. In addition, AFC will make arrangements with
brokerage firms and other custodians, nominees and fiduciaries to send proxy
materials to their principals and will reimburse such parties for their
expenses in doing so.
A representative of AFC's independent auditors, KPMG Peat Marwick LLP, will
be present at the AFC Meeting.
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Vote Required. The affirmative vote of a majority of the aggregate issued
and outstanding shares on the AFC Record Date of AFC Common Stock entitled to
vote at the AFC Meeting, voting as a single class, is required in order to
approve and adopt the Merger Agreement. In addition, the affirmative vote of a
majority of the votes present in person or by proxy and entitled to vote at
the AFC Meeting is required to approve the Additional Proposal. A failure to
return a properly executed proxy card or to vote in person or abstaining from
voting will have the same effect as a vote against the Merger Agreement. An
abstention, with respect to the Additional Proposal, will have the effect of a
vote against the Additional Proposal. Broker non-votes will not be counted as
having been voted in person or by proxy at the AFC Meeting and will have the
same effect as a vote against the Merger Agreement. In contrast, shares
underlying broker non-votes will have no effect on the vote on the Additional
Proposal. As of the AFC Record Date, there were a total of 26,530,706 shares
of AFC Common Stock outstanding and entitled to be voted at the AFC Meeting.
The directors and executive officers of AFC and their affiliates
beneficially owned, as of May 31, 1998, 2,397,087 shares, or approximately
8.61% of the outstanding shares, of AFC Common Stock and all such persons have
agreed to vote their shares in favor of approval of the Merger Agreement and
the Additional Proposal. See "BENEFICIAL OWNERSHIP OF AFC COMMON STOCK." As of
May 31, 1998, the directors and executive officers of LIB and their affiliates
beneficially owned no shares of AFC Common Stock.
THE MERGER
The following information, which sets forth the material terms and
provisions relating to the Merger, insofar as it relates to matters contained
in the Merger Agreement, the AFC Stock Option Agreement or the LIB Stock
Option Agreement, is qualified in its entirety by reference to the Merger
Agreement, the LIB Stock Option Agreement or the AFC Stock Option Agreement,
which are attached hereto as Appendix A, Appendix B and Appendix C,
respectively, and are incorporated herein by reference. AFC and LIB
stockholders are urged to read the Merger Agreement, the AFC Stock Option
Agreement and the LIB Stock Option Agreement in their entirety.
PARTIES TO THE MERGER
AFC. AFC is a Delaware corporation incorporated on June 14, 1993, and is the
holding company for Astoria Federal. The principal business of AFC is the
operation of its wholly-owned subsidiary, Astoria Federal, a federally-
chartered savings and loan association. Astoria Federal's principal business
is attracting retail deposits from the general public and investing those
deposits, together with funds generated from operations, principal repayments
and borrowings, primarily in one-to-four family residential mortgage loans and
mortgage-backed securities and, to a lesser extent, commercial real estate
loans, multi-family mortgage loans and consumer loans. In addition, Astoria
Federal invests in mortgage-backed securities, securities issued by the U.S.
Government and Federal agencies and other securities. At March 31, 1998, AFC
had total consolidated assets of $10.9 billion, deposits of $6.2 billion and
stockholders' equity of $916.8 million. As of March 31, 1998, Astoria Federal
had 61 retail banking office locations, of which 53 are located in Brooklyn,
Queens, Nassau and Suffolk Counties on Long Island, and eight are located in
Westchester and the upstate New York counties of Chenango and Otsego. The
principal executive offices of AFC are located at One Astoria Federal Plaza,
Lake Success, New York 11042-1085; the telephone number is (516) 327-3000.
Astoria Federal's deposits are insured by the SAIF.
LIB. LIB is a Delaware corporation incorporated on December 20, 1993 and is
the holding company for LIB Bank. The principal business of LIB is the
operation of its wholly-owned subsidiary, LIB Bank, a federally-chartered
savings bank. LIB Bank's principal business is attracting retail deposits from
the general public and investing those deposits, together with funds generated
from operations, principal repayments and borrowings, primarily in one-to-four
family residential mortgage loans and mortgage-backed and mortgage-related
securities and, to a lesser extent, commercial real estate loans, multi-family
mortgage loans and consumer loans. In addition, LIB Bank invests its funds in
other securities, including U.S. Government and Federal agency securities,
investment grade preferred stock and federal funds. At March 31, 1998, LIB had
total consolidated assets of $6.3 billion, deposits of $3.8 billion and
stockholders' equity of $563.7 million. As of March 31, 1998,
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LIB Bank had 35 retail banking office locations throughout Queens, Nassau and
Suffolk Counties and 20 mortgage loan production offices located in seven
states. The principal executive offices of LIB are located at 201 Old Country
Road, Melville, New York 11747; the telephone number is (516) 547-2000. LIB
Bank's deposits are insured by the SAIF.
EFFECTS OF THE MERGER
Pursuant to the terms of the Merger Agreement, subject to the satisfaction
or waiver (where permissible) of certain conditions, including, among other
things, the receipt of all necessary regulatory approvals, the expiration of
all waiting periods in respect thereof, the approval of the Merger Agreement
by the requisite vote of the stockholders of LIB and the approval of the
Merger Agreement by the requisite vote of the stockholders of AFC, LIB will be
merged with and into AFC. LIB stockholders will receive the consideration
described below in "-- Merger Consideration." AFC shall be the surviving
corporation in the Merger. Upon consummation of the Merger, the separate
corporate existence of LIB shall terminate.
In connection with the Merger Agreement, Astoria Federal and LIB Bank have
entered into the Plan of Bank Merger, which provides for the merger of LIB
Bank with and into Astoria Federal, with Astoria Federal being the surviving
bank.
Each outstanding share of AFC Common Stock at the Effective Time will remain
outstanding and unchanged as a result of the Merger.
EFFECTIVE TIME
The Merger will become effective at the date and time set forth in the
certificate of merger that will be filed with the Secretary of State of the
State of Delaware in accordance with applicable law (the "Certificate of
Merger"). The Certificate of Merger will be filed no later than five business
days following the latest to occur of (i) the expiration of the last
applicable waiting period in connection with notices to and approvals of
governmental authorities, (ii) the effective date of the last order, approval
or exemption of any other governmental authority required to approve or exempt
the Merger, and (iii) all conditions to the consummation of the Merger
Agreement being satisfied or waived, and will be effective after the close of
business on such date, unless another date is agreed to in writing by AFC and
LIB (the "Closing Date"). See "-- Conditions to the Consummation of the
Merger." It is expected that a period of time will elapse between the Meetings
and the Effective Time while the parties seek to obtain the regulatory
approvals required to consummate the Merger. There can be no assurance that
such regulatory approvals will be obtained, and if obtained, there can be no
assurance as to the date of any such approval. There can likewise be no
assurance that the United States Department of Justice or the New York State
Attorney General will not challenge the Merger or, if such a challenge is
made, as to the result thereof. See "-- Regulatory Approvals."
MERGER CONSIDERATION
General. The Merger Agreement provides that each share of LIB Common Stock
will be converted in the Merger into the right to receive 1.15 shares of AFC
Common Stock. The Exchange Ratio of 1.15 shares may be increased by AFC in the
event LIB exercises its rights under the Merger Agreement to deliver to AFC a
notice to terminate the Merger Agreement due to the price of the AFC Common
Stock declining below certain levels established by formulas set forth in the
Merger Agreement. See "-- Price Based Termination."
NO GAIN OR LOSS WILL BE RECOGNIZED BY HOLDERS OF LIB COMMON STOCK AS A
RESULT OF THE MERGER, EXCEPT TO THE EXTENT OF ANY CASH RECEIVED IN LIEU OF A
FRACTIONAL SHARE INTEREST IN AFC COMMON STOCK. SEE "--FEDERAL INCOME TAX
CONSEQUENCES."
LIB COMMON STOCK CERTIFICATES SHOULD NOT BE RETURNED WITH THE ENCLOSED PROXY
AND SHOULD NOT BE FORWARDED TO CHASEMELLON UNTIL AN LIB STOCKHOLDER HAS
RECEIVED THE LETTER OF TRANSMITTAL (AS DEFINED BELOW).
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For a description of the contingent payments that stockholders of AFC after
the Merger may receive the value of, see "-- Opinions of Financial Advisors --
LIB -- Valuations of Contingent Payment Rights" and "-- AFC -- Supervisory
Goodwill Analysis."
BACKGROUND OF THE MERGER
From time to time over the past twenty-four months, LIB and its management
have considered strategic alternatives in the face of an increasingly
competitive market. Strategic alternatives considered by management included
acquisitions and business combination transactions with in-market and out-of-
market financial institutions.
Beginning in early 1997, John J. Conefry, Jr., the chief executive officer
of LIB, was contacted by representatives of various financial institutions
doing business in the greater New York area. Between May 1997 and September
1997, Mr. Conefry had discussions, either in person or by telephone, with the
chief executive officers of four New York based financial institutions, each
of which contact was initiated by the chief executive officer of the other
institution. In the course of these discussions, during which various matters
relating to LIB were discussed, each chief executive officer discussed a
potential business combination between his respective institution and LIB.
Subsequent to each of these contacts, Mr. Conefry informed the LIB Board of
the discussions that had taken place. In each case, the LIB Board determined
that it would not be in the best interests of LIB to pursue a business
combination with such institution at that time. During this period, LIB also
began discussions with Salomon with a view toward engaging Salomon to assist
LIB in its consideration of the various strategic alternatives available to
LIB to continue to grow stockholder value.
In September 1997, at the Community Bankers Association of New York State
convention in Colorado Springs, Colorado, George L. Engelke, Jr., the chief
executive officer of AFC, and Mr. Conefry briefly discussed whether the
parties would be interested in meeting to discuss a strategic business
combination. Mr. Conefry informed the LIB Board of his conversation with Mr.
Engelke and, subsequently, agreed to meet with Mr. Engelke in late October,
1997. At this meeting, Mr. Engelke and Mr. Conefry discussed various matters
affecting their respective institutions and the idea of a strategic business
combination between LIB and AFC; however, substantive terms of a proposed
transaction were not discussed. In early December 1997, Mr. Engelke contacted
Mr. Conefry and suggested that they meet again to discuss a potential business
combination between LIB and AFC. On December 12, 1997, Mr. Conefry and Mr.
Engelke met and further discussed a potential combination.
During the period from September 1997 through December 1997, Mr. Conefry
also received calls from or met with the chairmen of the three other New York
based financial institutions who had previously contacted him; during which
calls or meetings each institution expressed its continued interest in
pursuing a strategic business combination with LIB. On January 13, 1998, the
Executive Committee of the LIB Board held a meeting for the purpose of
discussing, among other things, the potential benefits to LIB and its
stockholders of various strategic alternatives. Salomon and LIB's legal
advisors attended this meeting to respond to specific questions raised by the
Executive Committee.
As a result of the discussions between Mr. Conefry and Mr. Engelke, on
January 16, 1998, AFC and LIB each executed and delivered to the other a
confidentiality and standstill agreement. Following the execution of the
confidentiality agreement, the parties exchanged certain confidential
information and further discussions took place between Mr. Conefry, Mr.
Engelke and certain senior officers of LIB and AFC and their respective
financial advisors with respect to the proposed terms of a strategic business
combination; however, Mr. Conefry and Mr. Engelke did not agree to terms that
either party believed would be in the best interests of their respective
institutions and stockholders. On January 27, 1998, at a regularly scheduled
meeting of the LIB Board, Mr. Conefry informed the LIB Board that the
discussions with AFC had terminated because the parties were unable to reach
mutually satisfactory terms upon which to continue to pursue a potential
strategic business combination. Mr. Conefry and the LIB Board agreed that
management would prepare a presentation for delivery at the annual planning
and strategy meeting of the LIB Board, scheduled to be held in March 1998,
regarding LIB's options
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for continuing to enhance stockholder value, including options with respect to
staying independent and options with respect to engaging in a strategic
business combination.
In early February 1998, Mr. Engelke again contacted Mr. Conefry to discuss a
strategic business combination between LIB and AFC. On February 17, 1998, Mr.
Conefry communicated the expression of interest from Mr. Engelke to the LIB
Board. The LIB Board authorized Mr. Conefry to proceed with discussions with
AFC and to communicate the results of such discussions to the members of the
Executive Committee of the LIB Board.
On the weekend of February 21 and 22, 1998, representatives of AFC
participated in due diligence meetings with management and representatives of
LIB. During that weekend, further discussions took place between
representatives of LIB and AFC with respect to the proposed terms of the
business combination and the potential future business strategies of the
combined institution; however, LIB and AFC did not agree upon terms of a
proposed strategic business combination that either party believed would be in
the best interests of their respective institutions and stockholders.
In early March 1998, after discussions with the members of the LIB Board and
in contemplation of the upcoming planning and strategy meeting of the LIB
Board, Mr. Conefry authorized Salomon to identify the most suitable potential
strategic business combination partners and to engage in preliminary talks
with those institutions with respect to a proposed strategic business
combination. Mr. Conefry further requested that Salomon work with LIB
management to continue to develop strategies to enhance stockholder value on a
"stand-alone" or independent basis.
Over the course of the next few weeks, representatives of Salomon, on behalf
of LIB, contacted representatives of North Fork Bancorporation, Inc. ("North
Fork") and two other New York based financial institutions (collectively, the
"Other Institutions"). Each of North Fork and the Other Institutions had
previously expressed an interest in discussing a strategic combination with
LIB and held preliminary discussions to determine whether these financial
institutions would be interested in a potential strategic combination with LIB
at that time. Representatives of Salomon, on behalf of LIB, also contacted AFC
and indicated that LIB was interested in discussing further the terms on which
AFC might be prepared to engage in a strategic combination transaction with
LIB. During this period, Salomon had conversations with representatives of
other financial institutions that expressed interest in a transaction
involving LIB, and Mr. Conefry was contacted directly by the chief executive
officer of another financial institution who was interested in exploring a
possible transaction involving LIB. None of these discussions led to
substantive discussions regarding a business combination transaction.
Over the course of the week of March 15, 1998, representatives of Salomon,
on behalf of LIB, contacted representatives of AFC, North Fork and the Other
Institutions, and requested that they each submit to LIB a written indication
of interest with regard to a possible strategic business combination with LIB.
Consequently, on March 20, 1998, North Fork entered into a confidentiality and
standstill agreement with LIB, and, on March 25, 1998, one of the Other
Institutions entered into a confidentiality and standstill agreement with LIB.
The confidentiality agreements required North Fork and such Other Institution
to keep confidential any proprietary information provided to them by LIB, and
prohibited them from acquiring shares of LIB Common Stock or engaging in
certain other activities without the approval of the LIB Board. Pursuant to
the confidentiality agreements, North Fork and such Other Institution received
certain confidential information regarding LIB and conducted due diligence on
LIB. A similar agreement was proffered to the remaining Other Institution, but
it declined to execute the agreement and accordingly, LIB did not provide such
institution with any confidential information.
On March 27, 1998, AFC, North Fork and each of the Other Institutions
submitted to LIB written indications of interest in engaging in a strategic
business combination with LIB. These written indications of interest each set
forth the principal terms on which the respective institutions were interested
in pursuing such a transaction.
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AFC's proposal stated that it was prepared to offer to LIB's stockholders a
fixed exchange ratio of 1.15 shares of AFC stock (an implied value of $70.70
per share of LIB Common Stock based on the average closing prices of AFC
Common Stock for the five trading days prior to March 27, 1998). AFC's
proposal also stated that the exchange ratio included the benefit to LIB
stockholders of goodwill litigation of AFC and LIB, which would, according to
the proposal, imply an additional value of $9 to $12 per LIB share in addition
to the base value of $70.87. Based on the exchange ratio, LIB stockholders
would own 50.4% of the pro forma combined institution, and, accordingly, would
thereby participate in that percentage of earnings and any goodwill litigation
recovery of such institution. The proposal was premised on reciprocal stock
options for 19.9% of the common stock of each company and a cash termination
fee of $60 million plus reasonable expenses. AFC would have the option to
receive the termination fee or to exercise the stock option. In addition, AFC
proposed that four members of LIB's Board would serve on the AFC Board (which
at the time had 10 members), with the remaining members joining an advisory
board. Mr. Conefry would serve as Vice Chairman of the AFC Board. The proposal
also stated that any employees holding positions that were eliminated because
of redundancies would be eligible to apply for other jobs in the combined
company and, in order to facilitate this, AFC would impose an immediate
selective hiring freeze at AFC upon the signing of a definitive agreement. All
severance packages of displaced employees would be honored. Finally, AFC
stated that it was prepared to complete the due diligence process within two
business days and that the proposal would terminate at 5:00 p.m. on March 31,
1998.
Prior to its submission, AFC's indication of interest, along with a proposed
definitive agreement prepared by AFC's counsel, financial advisors and
management, was reviewed in detail by the AFC Board, at a meeting held early
on March 27, 1998, and the AFC Board approved a strategic combination with LIB
upon the terms presented and authorized Mr. Engelke to negotiate the final
terms of a definitive agreement.
North Fork's proposal stated that it was prepared to offer to LIB's
stockholders an exchange ratio of 1.8352 shares of North Fork common stock for
each share of LIB Common Stock (or $70.49 per share based on the average
closing price of North Fork common stock for the five trading days prior to
March 27, 1998), with price protection if North Fork's common stock dropped
more than 15% and underperformed a market index by more than 15%. The proposal
stated that the exchange ratio included the value of goodwill litigation;
however, North Fork also stated that it would consider altering the
transaction to "spin-off" the goodwill claim to LIB's stockholders. Based on
the exchange ratio, LIB stockholders would own 33.9% of the pro forma combined
institution, and, accordingly, would thereby participate in that percentage of
earnings and any goodwill litigation recovery of such institution. North Fork
stated its willingness to honor the terms of all existing employment contracts
of LIB and to accept a proportionate number of members of the LIB Board on the
board of the combined entity (which number, based on North Fork's proposal,
LIB believed to be 4 of 11). All remaining members of the LIB Board would be
invited to join the board of North Fork's bank subsidiary or an advisory
board.
One of the Other Institution's proposal stated that it was prepared to offer
LIB's stockholders $68 in market value of its common stock for each share of
LIB Common Stock. The remaining Other Institution submitted a proposal stating
that it was prepared to offer LIB's stockholders (i) $57 in market value of
its common stock for each share of LIB Common Stock and (ii) securities
reflecting the value of LIB's goodwill lawsuit, valued by such Other
Institution's financial advisors in excess of $13 per share.
Over the course of the following two days, Mr. Conefry and other members of
LIB senior management met with representatives of Salomon to discuss the
written indications of interest and Salomon's preliminary analysis of their
respective proposed terms.
On March 30, 1998, the LIB Board met to discuss and analyze the various
strategic alternatives available to LIB to continue to enhance stockholder
value. Representatives of Salomon and LIB's legal advisors were present at
this meeting. At this meeting, LIB senior management informed the LIB Board
that four written indications of interest had been solicited and received,
each of which proposed a strategic business combination pursuant to which LIB
would be combined with another New York based financial institution in a stock
for stock merger. Salomon then discussed with the LIB Board management's
analysis of LIB on a stand-alone basis and various
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other strategic alternatives which management believed to be available to LIB
to continue to enhance stockholder value. Following this discussion,
management and Salomon discussed with the LIB Board the specific terms
proposed in each of the four written indications of interest. Each member of
the LIB Board was given a copy of each indication of interest letter. The
meeting was then adjourned.
On Tuesday, March 31, 1998 the LIB Board meeting was reconvened. The LIB
Board discussed each of the four indications of interest in detail and
analyzed the proposed terms set forth therein. The LIB Board considered, among
other things, the form of consideration offered by each institution (in each
case, shares of common stock of the applicable institution), the proposed
exchange ratio (and the implied value indicated thereby based on recent market
prices of each institution's common stock), Salomon's analysis of the business
prospects for each of the four institutions (including an analysis of the
various lines of business conducted by each institution and the publicly
available analysts' estimates of future earnings for each institution), the
prospective future value of the common stock of each of the four institutions,
the pro forma ownership of LIB stockholders in the entity resulting from a
strategic business combination between LIB and each of the four institutions,
the opportunity for synergistic savings in the event of a strategic
combination with each institution and the estimated effect of such potential
synergies on the future earnings of each institution, the opportunity for
synergies that could result in incremental revenue and business growth
potential in the event of a strategic combination with each institution, and
the potential effect of a strategic business combination with each institution
on the customers and communities served by LIB and on LIB's employees. The LIB
Board also discussed and considered management's analysis of the alternatives
available to LIB on a stand alone basis. As a result of these discussions, the
LIB Board concluded that a strategic business combination with one of the four
interested institutions offered more attractive opportunities for continuing
to enhance stockholder value than the alternatives available to LIB on a
stand-alone basis. Based on the factors considered by the LIB Board, the LIB
Board preliminarily concluded that the indication submitted by AFC appeared to
provide the best strategic fit for LIB and to be in the best interest of
enhancing long term value for LIB's stockholders. Accordingly, the LIB Board
authorized management to pursue the negotiation of a definitive agreement with
AFC (a draft of which was provided by AFC with its written indication of
interest on March 27, 1998) for presentation to the LIB Board for
consideration. The LIB Board further concluded that the indications of
interest submitted by the other three financial institutions all offered
potential significant long-term value to LIB's stockholders, and that it was
not yet certain that a definitive agreement would be successfully negotiated
with AFC. Therefore, the LIB Board instructed management and Salomon to
continue to pursue discussions with each of the other three institutions with
respect to the proposed terms upon which they would ultimately be willing to
consummate a strategic business combination with LIB.
On the afternoon and evening of March 31, 1998, representatives of Salomon,
on behalf of LIB, contacted the four institutions and advised them that the
LIB Board had determined that a strategic business combination involving LIB
might be in the best interests of LIB's stockholders. Each institution was
asked to clarify certain information contained in its written indication of
interest and to respond to certain other questions relating to their written
indication of interest and their expectation of the time period within which
they believed they could complete due diligence and enter into a definitive
agreement relating to a strategic business combination with LIB. Each
institution was further asked to provide LIB and its legal advisors with a
proposed definitive transaction agreement (other than AFC, which had provided
a form of definitive transaction agreement and related documents with its
written indication of interest on March 27, 1998). Each institution was
informed that the LIB Board was likely to schedule a meeting later that week
to consider further whether to proceed with a strategic business combination.
On April 1, 1998, at AFC's request, representatives of AFC and LIB met to
discuss the terms set forth in the proposed definitive merger agreement
previously provided by AFC to LIB. Salomon, on behalf of LIB, had further
conversations with each of the four institutions throughout the day and
evening of April 1, 1998 to discuss the requested clarifications and other
information relating to their respective indications of interest. AFC
indicated that it was prepared to waive any further due diligence
investigation and to enter into a definitive merger agreement immediately.
Discussions between representatives of AFC and LIB concerning such agreement
continued throughout the day of April 2nd. In addition, during the day of
April 2nd, representatives of
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Salomon had conversations with representatives of each of the four
institutions to determine whether any of them were prepared to enhance the
terms on which they would be willing to consummate a strategic business
combination with LIB. At this time, AFC indicated that it would increase the
number of members of LIB's Board that would serve on the AFC Board from four
to five. During the course of these discussions, each of the four institutions
confirmed that it had made a final proposal based on the information it had at
that time, and was not prepared at that time to further enhance the terms of
its proposal.
On April 2, 1998, at 5:00 p.m., the LIB Board met to further consider the
proposed strategic business combinations and to consider the revised terms (if
any) on which each of the four financial institutions was proposing to
consummate such a transaction. The meeting was attended by certain members of
LIB senior management, representatives of Salomon and LIB's legal advisors.
Immediately prior to the meeting, LIB received a letter from North Fork. The
letter, among other things, requested that the chief executive officer of
North Fork be given an opportunity to meet with the LIB Board to discuss the
terms on which North Fork would be willing to consummate a strategic stock for
stock merger with LIB, and suggested that he might be willing to increase the
exchange ratio component of his previous offer. At the April 2nd board
meeting, the LIB Board considered the letter and granted the chief executive
officer of North Fork's request to be permitted to address the LIB Board. The
chief executive officer of North Fork was then contacted, and he joined the
meeting by telephone and addressed the LIB Board. During the course of his
remarks, the chief executive officer of North Fork indicated that North Fork
might be willing to increase its proposed exchange ratio to 1.84 shares of
North Fork common stock for each share of LIB Common Stock (indicating an
implied value of $71.81 per LIB share based on the average closing price of
North Fork common stock for the five trading days ending on April 2, 1998), an
increase in the Exchange Ratio of less than 0.5% over North Fork's previous
offer of 1.8352 shares for each share of LIB Common Stock. Following this
telephone call, the LIB Board instructed Salomon to contact AFC to determine
whether AFC would increase its proposed exchange ratio. On a telephone call
with a representative of Salomon, Mr. Engelke declined to increase AFC's
proposed exchange ratio.
Following this telephone call, the LIB Board discussed the proposals made by
each of the four financial institutions in detail. The LIB Board again
considered in detail the terms on which each of the four institutions were
proposing to enter into a strategic business combination with LIB, and
reviewed again the business prospects for each of the four institutions
(including an analysis of the various lines of business conducted by each
institution and the publicly available analysts' estimates of future earnings
for each institution), the opportunity for synergistic savings in the event of
a strategic combination with each institution, including the ability to
achieve cost saving assumptions, and the estimated effect of such potential
synergies on the future earnings of each institution, the potential effect of
a strategic business combination with each institution on the customers and
communities served by LIB and LIB's employees and management's analysis of the
alternatives available to LIB on a stand alone basis. The LIB Board further
noted that, based on the average closing prices for the shares of AFC and
North Fork for the five trading days ended on April 2, 1998, the exchange
ratio proposed by AFC implied a value (exclusive of the potential pro forma
value of the goodwill litigation) of $71.04 per LIB share and the exchange
ratio proposed by North Fork implied a value (exclusive of the potential pro
forma value of the goodwill litigation) of $71.81 per LIB share. In addition,
the LIB Board believed that the pro forma earnings estimates proposed by AFC
were based on conservative assumptions and noted that AFC's proposal was the
sole proposal based on a definitive negotiated agreement and not subject to
further due diligence.
For the reasons described below under "-- Reasons for the Merger -- LIB"
(including, but not limited to, the approximately 51% pro forma ownership that
LIB stockholders would have in the combined institution, the potential value
of the goodwill claim lawsuits of each of LIB and AFC (estimated by AFC to be
between $9 and $12 per share of common stock of the combined institutions) to
the stockholders of LIB as owners of the combined institution, the prospective
value of AFC Common Stock, the potential for synergies between the two
institutions resulting in incremental revenue and business growth potential,
the potential for synergistic savings in the event of a combination of the two
institutions, and AFC's proposal to appoint five members of the current LIB
Board to the AFC Board), the LIB Board believed that the proposed strategic
business combination with AFC offered the best overall long-term value for the
stockholders of LIB.
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LIB's legal advisors discussed with the LIB Board the terms of the proposed
definitive transaction documents that had been discussed with AFC and its
advisors on April 1 and the morning of April 2. LIB's legal advisors also
reviewed the approval process to be commenced upon execution of definitive
transaction documents, including the process of seeking the approval of LIB
stockholders and the regulatory agency whose approval was required. At the
April 2 meeting, Salomon discussed the financial terms of the proposed
strategic business combination with AFC and rendered its oral and written
opinion to the LIB Board that, as of such date and based on and subject to
various considerations set forth in such opinion, the consideration to be
received in the proposed stock for stock merger with AFC by the holders of LIB
common stock was fair, from a financial point of view, to the stockholders of
LIB. See "-- Opinions of Financial Advisors -- LIB." After further discussion,
the LIB Board unanimously voted in favor of the proposed merger with AFC and
authorized the execution and delivery of the definitive transaction documents
with AFC and consummation of the transactions contemplated thereby.
Immediately thereafter, LIB and AFC each executed and delivered the Merger
Agreement and various other agreements ancillary thereto, including the LIB
Stock Option Agreement and the AFC Stock Option Agreement.
On the morning of April 3, 1998, AFC and LIB held a joint news conference at
which the transaction was announced.
REASONS FOR THE MERGER
LIB. The LIB Board has unanimously approved the Merger Agreement and has
determined that the terms of the Merger Agreement and the transactions
contemplated thereby are fair to, and in the best interests of, LIB and the
LIB stockholders. Accordingly, the LIB Board unanimously recommends that
stockholders of LIB vote FOR the approval and adoption of the Merger
Agreement. The LIB Board believes that the Merger will enable the stockholders
of LIB to realize significant value on a tax-free basis. In addition, the
stockholders of LIB will receive a higher dividend on the AFC Common Stock
than that presently received on the LIB Common Stock.
In reaching its determination that the terms of the Merger Agreement and the
Merger are fair to and in the best interests of the stockholders of LIB, the
LIB Board considered during the course of its strategic deliberations a number
of factors, both from a short-term and a long-term perspective, including,
without limitation, the following (which are all the material factors that the
LIB Board considered):
(i) the LIB Board's knowledge of the business, operations, financial
condition, competitive position and prospects of LIB, the nature of the
industry in which LIB operates, both on a historical and prospective basis,
and the potential growth, development, productivity and profitability of
LIB;
(ii) the current and prospective environment in which LIB operates,
including national and local economic conditions, the competitive
environment for thrifts and other financial institutions generally and the
trend toward consolidation in the financial services industry and in the
thrift industry;
(iii) the LIB Board's review, based in part on presentations by LIB
management and advisors, of AFC's business, financial condition, results of
operations and management, and the recent performance of the AFC Common
Stock on both an historical and prospective basis, the strategic fit
between the parties, the enhanced opportunities for operating efficiencies
that could result from the Merger and the respective contributions the
parties would bring to a combined institution;
(iv) the LIB Board's conclusion that the Merger would provide LIB
stockholders with an opportunity to have continued equity participation in
a larger, more diversified enterprise with equity value that will be
considerably larger than LIB's current equity value;
(v) the LIB Board's review of the historical and prospective market
prices of the LIB Common Stock compared to the Merger Consideration, and
the expectation of the LIB Board that the Merger will provide holders of
LIB Common Stock with the opportunity to receive a premium over the
historical trading prices for their shares (the Exchange Ratio proposed by
AFC implied a value of $71.04 (based upon the average closing price of
shares of AFC Common Stock for the five trading days ended on April 2,
1998) or a
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premium to the average closing price of shares of LIB Common Stock for the
five, 30, 60 and 90 days ended April 2, 1998 of $64.51, $61.07, $54.17 and
$51.98, respectively) and that the receipt of AFC Common Stock by the LIB
stockholders in the Merger would be on a tax-free basis for federal income
tax purposes;
(vi) the LIB Board's review with its legal and financial advisors of
alternatives to the Merger, including its review of the proposals made by
other institutions and the possibility of remaining independent and growing
internally;
(vii) the LIB Board's belief that AFC has a strong financial and capital
position and that the AFC Common Stock to be received by the stockholders
of LIB presented a higher long-term intrinsic value, greater capacity for
future growth and greater potential for long-term strategic value to such
stockholders than the consideration proposed pursuant to any of the other
proposals received by LIB;
(viii) the presentation of Salomon described below under "-- Opinions of
Financial Advisors -- LIB" and its written opinion dated the date of this
Joint Proxy Statement-Prospectus to the effect that, as of the date of such
opinion, the Merger Consideration is fair from a financial point of view to
the stockholders of LIB;
(ix) stockholders of LIB would own approximately 51% of the pro forma
combined company, thus reserving to such stockholders a significant
interest in any ultimate recovery from the goodwill litigation described in
"-- Opinions of Financial Advisors -- LIB," which interest is significantly
higher on a percentage basis than the interest that would have been
afforded by the other proposals and which potential recovery would be
increased by the addition of AFC's separate claim in a similar goodwill
litigation also described therein;
(x) the compatibility of AFC's and LIB's business lines, cultures and
philosophies and their commitments to the communities and customers they
each serve and to their respective employees;
(xi) the expectation that the combined institution will continue to
provide quality service to the communities and customers served by LIB;
(xii) the LIB Board's belief in the combined entity's ability to achieve
the pro forma earnings estimates presented to the LIB Board by AFC;
(xiii) the LIB Board's conclusion that the proposed business combination
with AFC, which was not conditioned upon any further due diligence review
by AFC and which had been fully negotiated, had a greater certainty of
consummation without alteration of its material terms;
(xiv) the terms and conditions of the Merger Agreement, including the
Exchange Ratio, the termination provisions and the obligation of AFC to
appoint five members of the LIB Board to the AFC Board; and
(xv) the terms of the LIB Stock Option Agreement, the AFC Stock Option
Agreement and the other documents executed in connection with the Merger.
In view of the wide variety of material factors considered in connection
with its evaluation of the Merger, the LIB Board did not find it practical to,
and did not, quantify or otherwise attempt to assign relative weights to the
specific factors considered in reaching its determination.
AFC. The AFC Board believes that the Merger is in the best interests of AFC
and its stockholders. Accordingly, the AFC Board has unanimously approved and
adopted the Merger Agreement and recommends that AFC stockholders vote FOR the
approval and adoption of the Merger Agreement.
In negotiating the terms of the Merger and in considering its recommendation
for the approval of the Merger Agreement, the AFC Board considered a number of
factors including, without limitation, the following (which are all the
material factors that the AFC Board considered):
(i) the Merger Consideration to be paid to the LIB stockholders in
relation to the market value, book value and earnings per share of the LIB
Common Stock;
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(ii) the AFC Board's review, based in part on presentations by Lehman
Brothers, its financial advisor, and management, of the business,
operations and financial condition of LIB, the prospects of the combined
institution, and the increased market presence, economies of scale, cost
savings opportunities estimated at 50% of LIB's projected 1998 general and
administrative expense base or approximately $52 million, and enhanced
opportunities for growth made possible by the Merger;
(iii) the AFC Board's recognition of the complementary nature of the
markets served and products offered by AFC and LIB and expectation that the
Merger would provide it with opportunities for additional growth, and
permit it to significantly expand its market presence in Suffolk County
while further enhancing its market presence in the counties of Nassau and
Queens and significantly expanding AFC's mortgage origination capabilities
in a manner that would provide greater geographic diversification;
(iv) the expectation of AFC management that as a result of the combined
impact of incremental income arising from the deployment of excess capital
and anticipated cost savings, the Merger would be accretive to earnings per
share in 1999 by approximately 3.6% to $3.89 per share;
(v) the opinion of Lehman Brothers that the Merger Consideration to be
paid by AFC is fair, from a financial point of view, to AFC. See " --
Opinions of Financial Advisors -- AFC;"
(vi) the impact of the Merger on depositors, employees, customers and
communities served by AFC and LIB;
(vii) the expectation that the Merger will generally be a tax-free
transaction to AFC and its stockholders and that the Merger will be
accounted for under the pooling-of-interests method of accounting. See " --
Federal Income Tax Consequences" and " -- Accounting Treatment;"
(viii) the Merger is consistent with AFC's ongoing strategy of growth
through acquisitions; and
(ix) the terms of the Merger Agreement, the AFC Stock Option Agreement,
the LIB Stock Option Agreement and the other documents executed in
connection with the Merger.
The AFC Board did not assign any specific or relative weights to the factors
under consideration.
In addition to the foregoing, the AFC Board considered the following risks
related to the Merger:
(i) the limited amount of due diligence that AFC conducted prior to the
submission of AFC's proposal on March 27, 1998 and the fact that AFC waived
any further due diligence prior to the execution of the Merger Agreement;
(ii) The requirement that the Merger be accounted for as a pooling-of-
interests and that the requirements for such accounting treatment are
complex and difficult to comply with;
(iii) difficulties in performing a data processing conversion in view of
Year 2000 compliance issues; and
(iv) the difficulty in assessing the merits of current litigation
involving LIB.
OPINIONS OF FINANCIAL ADVISORS
LIB. At the meeting of the LIB Board on April 2, 1998, at which the LIB
Board approved the Merger Agreement, Salomon delivered the Salomon Opinion, to
the effect that, as of such date, the Exchange Ratio is fair, from a financial
point of view, to the stockholders of LIB Common Stock. No limitations were
imposed by the LIB Board upon Salomon with respect to the investigations made
or the procedures followed by Salomon in rendering the Salomon Opinion. The
LIB Board informed Salomon and Salomon assumed in arriving at the Salomon
Opinion that the Merger would be accounted for as a pooling-of-interests and
would constitute a tax-free transaction under the Code.
THE FULL TEXT OF THE SALOMON OPINION, DATED AS OF APRIL 2, 1998, IS SET
FORTH AS APPENDIX D TO THIS JOINT PROXY STATEMENT-PROSPECTUS, THE INCLUSION OF
WHICH HAS BEEN CONSENTED TO BY SALOMON, AND DESCRIBES THE ASSUMPTIONS MADE,
PROCEDURES FOLLOWED AND MATTERS CONSIDERED. HOLDERS OF LIB COMMON STOCK ARE
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URGED TO READ THE SALOMON OPINION IN ITS ENTIRETY. THE SALOMON OPINION IS
DIRECTED ONLY TO THE EFFECT THAT AS OF THE DATE THEREOF, THE EXCHANGE RATIO IS
FAIR, FROM A FINANCIAL POINT OF VIEW, TO THE STOCKHOLDERS OF LIB, AND DOES NOT
CONSTITUTE A RECOMMENDATION CONCERNING HOW SUCH HOLDERS SHOULD VOTE WITH
RESPECT TO THE MERGER AGREEMENT OR THE MERGER. THE SUMMARY OF THE SALOMON
OPINION SET FORTH IN THIS JOINT PROXY STATEMENT-PROSPECTUS IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO THE FULL TEXT OF SUCH OPINION.
In connection with rendering the Salomon Opinion, Salomon reviewed and
analyzed, among other things, the following: (i) the Merger Agreement,
including the Exhibits and Schedules thereto; (ii) certain publicly available
information concerning LIB, including the Annual Reports on Form 10-K of LIB
for each of the years in the three-year period ended September 30, 1997 and
the Quarterly Report on Form 10-Q of LIB for the quarter ended December 31,
1997; (iii) certain other internal information, primarily financial in nature,
including projections, relating to the business and operations of LIB,
prepared by the management of LIB and furnished to Salomon for purposes of
Salomon's analysis; (iv) certain publicly available information concerning
AFC, including the Annual Reports on Form 10-K of AFC for each of the years in
the three-year period ended December 31, 1997; (v) certain other internal
information, primarily financial in nature, including projections, relating to
the business and operations of AFC and furnished to Salomon for purposes of
Salomon's analysis as well as certain information regarding the amount and
timing of the cost savings and related expenses expected to result from the
Merger by management of AFC; (vi) certain publicly available information
concerning the trading of, and the trading market for, LIB Common Stock and
AFC Common Stock; (vii) certain publicly available information with respect to
certain other companies that Salomon believed to be comparable in certain
respects to LIB and AFC and the trading markets for such other companies'
securities, including securities issued by certain companies relating to
litigation claims against the United States Government; and (viii) certain
publicly available information concerning the nature and terms of certain
other transactions that Salomon considered relevant to its inquiry. Salomon
also met with certain officers and employees of LIB and AFC to discuss the
foregoing, including past and current business operations, financial condition
and prospects of LIB and AFC, as well as other matters Salomon believed
relevant to its inquiry. Salomon also considered such other information,
financial studies, analyses, investigations and financial, economic and market
data that Salomon believed relevant to its inquiry.
In conducting its review and analysis and in arriving at its opinion,
Salomon assumed and relied upon the accuracy and completeness of all of the
financial and other information provided it or publicly available and neither
attempted independently to verify nor assumed responsibility for verifying any
of such information [and further relied upon assurances of management of LIB
and AFC, respectively, that they were not aware of any facts that would make
any of such information inaccurate or misleading]. With respect to the
financial forecasts of LIB and AFC, including the expected synergies from the
Merger, Salomon assumed that they were reasonably prepared on bases reflecting
the best available estimates and judgments of the managements of LIB or AFC as
of the date of the Salomon Opinion, and Salomon assumed that the expected
synergies would be achieved. Salomon expressed no opinion with respect to such
forecasts or the assumptions on which they were based. Salomon did not make an
independent evaluation of the adequacy of the allowance for loan losses of LIB
or AFC and Salomon assumed that the aggregate allowances for loan losses are
adequate to cover such losses on an individual and a pro forma combined basis.
Salomon did not review any individual loan files relating to AFC or LIB.
Salomon did not make or obtain or assume any responsibility for making or
obtaining any independent evaluations or appraisals of any of the assets
(including properties and facilities) or liabilities of LIB or AFC. Salomon
further assumed that the conditions precedent to the Merger contained in the
Agreement would be satisfied and the Merger would be consummated in accordance
with the terms of the Merger Agreement.
In conducting its analysis and arriving at the Salomon Opinion, Salomon
considered such financial and other factors as it deemed appropriate under the
circumstances, including, among others, the following: (i) the historical and
current financial position, results of operations and business prospects of
LIB and AFC; (ii) the assets and liabilities of LIB and AFC, and their
respective historical and current liability sources and costs and liquidity;
(iii) certain pro forma combined financial information of LIB and AFC; and
(iv) the nature and terms of certain other merger and acquisition transactions
involving depository institutions that Salomon deemed relevant. Salomon also
took into account its assessment of general economic, market and financial
conditions
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and its experience in other transactions, as well as its experience in
securities valuation and its knowledge of the thrift industry generally. The
Salomon Opinion was necessarily based upon conditions as they existed as of
the date of the Salomon Opinion and could be evaluated on the date thereof and
the information made available to it through the date thereof and Salomon
assumed no responsibility to update or revise the Salomon Opinion based upon
circumstances or events occurring after the date of the Salomon Opinion. The
Salomon Opinion does not constitute an opinion or imply any conclusions as to
the likely trading range for the AFC Common Stock following consummation of
the Merger. The Salomon Opinion is, in any event, limited to the fairness,
from a financial point of view, to the stockholders of LIB of the Exchange
Ratio in the Merger and does not address LIB's underlying business decision to
effect the Merger. The Salomon Opinion did not constitute a recommendation to
the LIB Board with respect to any approval of the Merger Agreement or the
Merger.
In rendering the Salomon Opinion, Salomon assumed that in the course of
obtaining the necessary regulatory approvals for the Merger no restrictions
would be imposed that would have a material adverse effect on the contemplated
benefits of the Merger.
As well as the other assumptions listed herein, Salomon made certain
financial assumptions in conducting its analyses outlined below. These
assumptions included an exchange ratio of 1.15 shares of AFC Common Stock for
each share of LIB Common Stock, a per share market price for AFC Common Stock
of $61.81, based on the market price as of March 31, 1998, cost savings
arising from the Merger of approximately 50% of LIB's overhead expenses and
the Institutional Broker Estimate System ("IBES") estimates of earnings per
share for AFC, LIB and certain other thrift companies. IBES is a data service
that monitors and publishes compilations of earnings estimates by selected
research analysts regarding companies of interest to institutional investors.
The following is a summary of the analyses and valuation methodologies
contained in the report presented by Salomon to the LIB Board on April 2,
1998, in connection with the rendering of the Salomon Opinion:
Share Price Analysis. Salomon reviewed the history of the per share market
prices and trading volumes of LIB Common Stock and AFC Common Stock over the
period from and including January 1, 1996 through and including March 30, 1998
as well as certain historical market trading multiples for AFC, LIB and a
composite index of certain publicly traded thrift companies. The thrift
companies included in the index were: Charter One Financial, Inc., Commercial
Federal Corp., Dime Bancorp, Inc., Golden West Financial Corporation,
GreenPoint Financial Corp., North Fork Bancorporation, Inc., Peoples Heritage
Financial Group, Inc., Sovereign Bancorp, Inc., St. Paul Bancorp, Inc., TCF
Financial Corporation, Washington Mutual, Inc. and Webster Financial
Corporation. Salomon compared the per share market price movements of LIB
Common Stock and AFC Common Stock to the Standard & Poor's Industrial Average
of 500 stocks (the "S&P 500") and the thrift index. This comparison showed
that over the period from and including January 1, 1997 through and including
March 30, 1998, the market price of LIB Common Stock had risen by 86.0% and
the market price of AFC Common Stock had risen by 68.8%. Over the same period,
the thrift index had risen by 71.1% and the S&P 500 had risen by 49.5%.
Comparable Transaction Analysis. Salomon also analyzed publicly available
financial information for 23 mergers and acquisitions of companies in the
thrift industry with transaction values exceeding $250 million and compared
this financial information to financial information relating to the Merger.
Based on such publicly available financial information Salomon made the
following calculations with regard to the analyzed transactions:
(i) That the premium (discount) of the consideration paid per share
compared to the market price for the target's stock one month prior to the
announcement of the relevant transaction ranged from 6.7% to 65.3% with a
median of 28.4% for all transactions and a median of 31.8% for in-market
transactions. The premium in the Merger was calculated to be 18.1%. Salomon
informed the LIB Board that the market price for the LIB Common Stock had
risen by approximately 19.5% in the period from January 1, 1998 to and
including March 2, 1998 and by approximately 34% in the period from January
1, 1998 to and including April 2, 1998, with a significant portion of the
share price appreciation in these periods resulting from takeover
speculation.
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(ii) That the premium of the consideration paid compared to the deposits
held by the target ranged from 6.5% to 38.7% with a median of 21.5% for all
transactions and a median of 21.8% for in-market transactions. The premium
in the Merger was calculated to be 34.4%.
(iii) That the ratios of the price paid per share to the earnings per
share of the target as a stand-alone entity ranged from 12.1 to 25.7 with a
median of 18.7 for all transactions and a median of 19.4 for in-market
transactions. The ratio in the Merger was calculated to be 30.5.
(iv) That the ratios of the price paid per share to the earnings per
share of the target taking into account synergies arising from the relevant
transaction ranged from 8.3 to 19.7 with a median of 12.4 for all
transactions and a median of 12.6 for in-market transactions. The ratio in
the Merger was calculated to be 19.2.
(v) That the ratios of the price paid per share to earnings per share of
the target over the 12 months prior to the relevant transaction ranged from
6.2 to 32.5 with a median of 21.6 for all transactions and 21.8 for in-
market transactions. The ratio in the Merger was calculated to be 33.2.
(vi) That the ratios of the consideration paid to the book value of the
target ranged from 1.46 to 4.72 with a median of 2.43 for all transactions
and a median of 2.45 for in-market transactions. The ratio in the Merger
was calculated to be 3.14.
(vii) That the ratios of the consideration paid to the tangible book
value ranged from 1.47 to 5.49 with a median of 2.53 for both all
transactions and in-market transactions. The ratio in the Merger was
calculated to be 3.16.
(viii) That the percentage ownership interest of the target's
stockholders in the combined entity divided by the percentage of the pro
forma net income of the combined entity attributable to the target ranged
from 0.73 to 1.91 with a median of 1.29 for all transactions and a median
of 1.11 for in-market transactions. The ratio in the Merger was calculated
to be 1.34.
Discounted Cash Flow Valuation. Using a discounted cash flow ("DCF")
analysis Salomon estimated the present value of future cash flows of LIB both
as a stand alone entity and after giving effect to projected synergies arising
from the Merger. Salomon conducted its DCF analysis by taking the sum of (x)
the present value of the projected cash flows for the fiscal years 1998
through 2003, (y) the present value of the terminal value and (z) the
estimated value of LIB's supervisory goodwill claim against the United States
government calculated as described under the heading "Valuation of Contingent
Rights," below. The terminal value was determined by multiplying the projected
2003 net income by a set multiplier. As part of the DCF analysis, Salomon made
certain assumptions, including 1998 earnings per share of $2.33, a discount
rate of 13.6% and an asset growth rate of 5.0%.
Using the DCF analysis, Salomon calculated a range of per share values for
LIB Common Stock based on earnings per share growth rates ranging from 8% to
14% and terminal value multipliers ranging from 14 to 18. Per share values
arising from these calculations ranged from $44.14 to $60.58 considering LIB
as a stand alone entity and from $60.43 to $80.14 after taking into account
the projected synergies.
Pro Forma Consolidation Analysis. Salomon reviewed certain pro forma
financial effects resulting from the Merger for each of the 12-month periods
ending December 31 in the three-year period ending December 31, 2001. Salomon
estimated that, on a pro forma basis, the Merger would be accretive to the
earnings per share of LIB Common Stock by 2.5%, 2.9% and 3.0% for the periods
ending December 31, 1999, 2000 and 2001, respectively, and would be dilutive
to the tangible book value per share of LIB Common Stock by 6.2%, 5.8% and
5.5% for the periods ending December 31, 1999, 2000 and 2001, respectively.
Salomon also analyzed certain capital and profitability ratios for each of LIB
and AFC as well as for the combined entities after giving effect to the Merger
in each such period. Based on this analysis, Salomon concluded that each of
the Tangible Common Ratio and the Equity/Assets Ratio for the combined
entities, for each such period, would be higher than the relevant last 12
months ratio for AFC and lower than the relevant last 12 months ratio for LIB.
Salomon also concluded that each of the Return on Average Assets and the
Return on Average Common Equity for the combined entities for each such period
would be higher than the relevant last 12 months ratios for each of LIB and
AFC.
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Contribution Analysis. Salomon reviewed and analyzed the pro forma
contribution to the combined entity of each of LIB and AFC as of and for the
12-month period ending December 31, 1997. Salomon's analysis did not take into
account the impact of projected synergies and the leveraging of the excess
capital resulting from such synergies. Based on this analysis Salomon
calculated that for such 12-month period, LIB contributed, on a pro forma
basis, 44.8% to total loans of the combined entities, 36.6% to total assets,
37.6% to total deposits, 39.6% to common equity, 38.3% to total stockholders'
equity, 41.8% to net interest income after provision for loan losses and 42.5%
to net income. Based on the Exchange Ratio of 1.15, LIB's stockholders would
own on a fully diluted basis approximately 51% of the combined entity
following the Merger.
Salomon also reviewed and analyzed the pro forma contribution to the 1999
net income of the combined entity of each of AFC and LIB. Based on this
analysis and the assumptions underlying the estimate of 1999 net income, LIB
would contribute 37.6% to the pro forma net income of the combined entity in
1999.
In addition to the above analysis, Salomon reviewed and analyzed the average
pro forma contributions of each of LIB and AFC to the pro forma combined
operational and financial information for each of the fiscal years from 1993
to 1997. Based on this analysis, LIB contributed 50.7% to total loans, 43.9%
to total assets, 47.1% to total deposits, 45.4% to tangible common equity,
41.7% to common equity, 48.0% to net interest income, 77.6% to noninterest
income and 45.8% to net income.
The results of the contribution analysis are not necessarily indicative of
the contributions that the respective businesses may have in the future.
Valuation of Contingent Payment Rights. The possibility exists that both or
either of LIB and AFC may receive a material payment from the federal
government as compensation for damages related to their separate litigations
against the United States government arising from the government's alleged
breaches of its agreements with respect to the permanent addition of
approximately $500 million to LIB's regulatory capital and $135 million to
AFC's regulatory capital (the "LIB Litigation"). Salomon took into account the
value of such claims in performing certain of the above financial analyses.
Salomon is not an expert in the evaluation of such claims and Salomon did not
make or obtain or assume any responsibility for making or obtaining any
valuation of such claims. For the purposes of its analysis, Salomon relied
solely on the trading market value of the Goodwill Certificates described
below.
In attempting to consider the value to stockholders of any payments arising
from the Litigation, Salomon considered the current trading value of publicly
traded certificates (the "Goodwill Certificates") issued by California Federal
Bank ("California Federal") in July 1995. California Federal agreed to pay to
holders of the Goodwill Certificates a portion of any damages which California
Federal might receive in relation to its supervisory goodwill lawsuit against
the United States government, a lawsuit which raises similar issues to those
involved in the Litigation (although there can be no assurance that the LIB
and AFC litigations will be resolved in a similar manner as the California
Federal litigation). The market value of these Goodwill Certificates, divided
by the supervisory goodwill required to be written off by California Federal,
provides a percentage basis upon which it is possible to impute a value to
other companies' regulatory capital claims (including that of LIB and AFC) by
multiplying the supervisory goodwill or capital credits required to be written
off, phased out or excluded from regulatory capital by such companies by such
percentage. However, the actual damages that may be awarded a plaintiff
institution may differ significantly from the amount of supervisory goodwill
or capital credits required to be written off, phased out or excluded from
regulatory capital, as the case may be, because a court would take into
account the actual damages suffered by a plaintiff thrift as a result of the
required phase-out or exclusion.
Based on the $21.88 per certificate closing price of the Goodwill
Certificates on March 31, 1998, the ratio of the market value of the
California Federal legal claim to the aggregate amount of supervisory goodwill
related thereto was 90.1%. Applying this ratio to LIB's supervisory goodwill
of approximately $500 million implied a market value of $450.6 million, or
$17.41 per share of LIB Common Stock, attributable to the LIB Litigation.
Applying this ratio to AFC's supervisory goodwill of approximately $135
million, implied a market value of
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$121.7 million, or $4.16 per share of AFC Common Stock, attributable to the
LIB Litigation. However, although the trading price of the Goodwill
Certificates provides a likely indicator of the market value of the LIB Common
Stock and the AFC Common Stock attributable to the LIB Litigation, there is no
assurance that such market value reflects the actual value of the LIB
Litigation to LIB and AFC or any potential recovery.
The preparation of a fairness opinion is not susceptible to partial analysis
or summary descriptions. Salomon believes that its analysis and the summary
set forth above must be considered as a whole and that selecting portions of
its analyses and the factors considered by it, without considering all such
analyses and factors, could create an incomplete view of the processes
underlying the analysis set forth in its report and the Salomon Opinion.
Salomon has not indicated that any of the analyses which it performed had a
greater significance than any other. The ranges of valuations resulting from
any particular analysis described above should not be taken to be the view of
Salomon of the actual value of LIB and AFC.
In performing its analyses, Salomon made numerous assumptions with respect
to industry performance, general business, financial, market and economic
conditions and other matters, many of which are beyond the control of LIB or
AFC. The analyses which Salomon performed are not necessarily indicative of
actual values or actual future results, which may be significantly more or
less favorable than suggested by such analyses. Such analyses were prepared
solely as a part of Salomon's analysis of the fairness, from a financial point
of view, of the consideration which the holders of LIB Common Stock would
receive in connection with the Mergers. Such analyses do not purport to be
appraisals or reflect the prices at which a company might actually be sold or
the prices at which any securities may trade at the present time or at any
time in the future.
Salomon is not affiliated with LIB or AFC. Salomon from time to time has
provided investment banking and financial advisory services to LIB for which
it has received customary compensation. Gross fees paid by LIB to Salomon for
such services, from April 1, 1996 through July 7, 1998, excluding any fees
related to the Merger, total $2,025,000. In the ordinary course of its
business, it may hold or actively trade the debt and equity securities of LIB
and AFC for Salomon's own account and for the accounts of its customers and,
accordingly, at any time may hold a long or short position in such securities.
Salomon and its affiliates (including Travelers Group Inc. and its affiliates)
may maintain other business relationships with LIB and AFC.
Pursuant to an engagement letter dated March 26, 1998 (the "Engagement
Letter") LIB agreed to pay Salomon for its services in connection with the
Mergers a cash fee not to exceed $16,000,000, consisting of (a) $300,000,
which was paid to Salomon upon the execution of the engagement letter, (b)
$500,000, which is payable upon the execution of an agreement to enter into
the Merger, (c) a fee equal to 0.62% multiplied by the aggregate consideration
to be paid in connection with the Merger, with a maximum fee equal to 0.62%,
multiplied by such consideration assuming an average market price of $60.50
for the securities of the acquiror given in exchange for each share of LIB and
(d) a fee equal to 2.58% multiplied by the difference between the aggregate
consideration paid and the aggregate consideration assuming an average market
price of $60.50. LIB also agreed to pay to Salomon a fee equal to 15% of any
break-up or similar fee received by LIB in connection with the termination or
abandonment of any Merger. In addition, LIB agreed to reimburse Salomon for
reasonable travel and out-of-pocket expenses incurred by Salomon in connection
with its engagement (including reasonable travel expenses and expenses of
Salomon's counsel). LIB further agreed to indemnify Salomon and certain
related persons against certain liabilities, including liabilities under the
Federal securities laws, relating to or arising out of its engagement. LIB has
agreed to retain Salomon as its agent with respect to financings undertaken in
connection with the Merger or any sale of a subsidiary division or other
significant portion of the assets of an acquiring company, on customary terms
to be agreed.
Salomon is an internationally recognized investment banking firm that
provides financial services in connection with a wide range of business
transactions. As part of its business, Salomon regularly engages in the
valuation of companies and their securities in connection with mergers and
acquisitions and for other purposes. LIB retained Salomon based on Salomon's
expertise in the valuation of companies as well as its familiarity with LIB
and other thrift companies.
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AFC. AFC retained Lehman Brothers to act as its financial advisor in
connection with the Merger. Lehman Brothers rendered the Lehman Opinion to the
AFC Board, dated April 2, 1998, which has been updated as of the date of this
Joint Proxy Statement-Prospectus, to the effect that, based upon and subject
to the factors and assumptions set forth in such opinion, and as of the date
of such opinion, the Exchange Ratio to be paid by AFC to LIB stockholders in
the Merger was fair to AFC from a financial point of view (the "Lehman
Brothers Opinion").
STOCKHOLDERS MAY READ THE LEHMAN BROTHERS OPINION FOR A DISCUSSION OF THE
ASSUMPTIONS MADE, MATTERS CONSIDERED AND LIMITATIONS ON THE REVIEW UNDERTAKEN
BY LEHMAN BROTHERS IN RENDERING ITS OPINION. THE FULL TEXT OF THE LEHMAN
BROTHERS OPINION IS ATTACHED HERETO AS APPENDIX E, THE INCLUSION OF WHICH HAS
BEEN CONSENTED TO BY LEHMAN BROTHERS. THE SUMMARY SET FORTH IN THIS JOINT
PROXY STATEMENT-PROSPECTUS OF THE LEHMAN BROTHERS OPINION IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO THE FULL TEXT OF THE LEHMAN BROTHERS OPINION ATTACHED
HERETO.
No limitations were imposed by AFC on the scope of Lehman Brothers'
investigation or the procedures to be followed by Lehman Brothers in rendering
the Lehman Brothers Opinion. Lehman Brothers was not requested to and did not
make any recommendation to the AFC Board as to the form or amount of
consideration to be paid by AFC to LIB stockholders in the Merger, which was
determined through arm's-length negotiations between AFC and LIB. In arriving
at its opinion, Lehman Brothers did not ascribe a specific range of value to
AFC or LIB, but rather made its determination as to the fairness, from a
financial point of view, of the Exchange Ratio to be paid by AFC to LIB
stockholders in the Merger on the basis of the financial and comparative
analyses described below. The Lehman Brothers Opinion is for the use and
benefit of the AFC Board and was rendered to the AFC Board in connection with
its consideration of the Merger. The Lehman Brothers Opinion is not intended
to be and does not constitute a recommendation to any stockholder of AFC as to
how such stockholder should vote with respect to the Merger. Lehman Brothers
was not requested to opine as to, and its opinion does not address, AFC's
underlying business decision to proceed with or effect the Merger.
In arriving at its opinion, Lehman Brothers reviewed and analyzed: (1) the
Merger Agreement and the specific terms of the Merger, (2) such publicly
available information concerning AFC and LIB that Lehman Brothers believed to
be relevant to its analysis including, without limitation, the Annual Report
on Form 10-K for the year ended December 31, 1996 and preliminary draft copies
of the Annual Report on Form 10-K for the year ended December 31, 1997 for
AFC, the Annual Report on Form 10-K for the year ended September 30, 1997 for
LIB, quarterly reports on Form 10-Q for the periods ended March 31, June 30,
and September 30, 1997 for AFC and recent press releases for AFC and LIB, (3)
financial and operating information with respect to the business, operations
and prospects of AFC and LIB furnished to it by AFC and LIB, (4) trading
histories of the AFC Common Stock and LIB Common Stock from April 2, 1997 to
the present and a comparison of those trading histories with those of other
companies that it deemed relevant, (5) a comparison of the historical
financial results and present financial condition of AFC and LIB with those of
other companies that it deemed relevant, (6) a comparison of the financial
terms of the Merger with the financial terms of certain other recent
transactions that it deemed relevant, (7) the potential pro forma impact of
the Merger on AFC and (8) the relative contributions of AFC and LIB to the
Combined Company (as defined below) on a pro forma basis. In addition, Lehman
Brothers had discussions with the managements of AFC and LIB concerning their
respective businesses, operations, assets, liabilities, financial conditions
and prospects, and the potential cost savings, operating synergies,
incremental revenues (including as a result of the use of excess capital), and
strategic benefits expected to result from a combination of the businesses of
AFC and LIB, and undertook such other studies, analyses and investigations as
it deemed appropriate.
In arriving at its opinion, Lehman Brothers assumed and relied upon the
accuracy and completeness of the financial and other information used by it
without assuming any responsibility for independent verification of such
information and further relied upon the assurances of managements of AFC and
LIB that they were not aware of any facts or circumstances that would make
such information inaccurate or misleading. With respect to the financial
projections of AFC and LIB and the combined company upon consummation of the
Merger (the "Combined Company"), upon advice of AFC, Lehman Brothers assumed
that such projections were reasonably prepared on a basis reflecting the best
currently available estimates and judgments of the respective managements
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of AFC and of LIB as to the future financial performance of AFC, LIB and the
Combined Company including, without limitation, with respect to projected cost
savings, operating synergies and incremental revenues (including as a result
of the use of excess capital) expected to result from a combination of the
businesses of AFC and LIB and that AFC and LIB would perform, and that the
Combined Company will perform, substantially in accordance with such
projections. Upon advice of AFC and its legal and accounting advisors, Lehman
Brothers assumed that the Merger will qualify for "pooling-of-interests"
accounting treatment. In arriving at its opinion, Lehman Brothers did not
conduct a physical inspection of the properties and facilities of LIB or AFC
and did not make or obtain any evaluations or appraisals of the assets or
liabilities of LIB or AFC. In addition, Lehman Brothers noted that it is not
expert in the evaluation of loan portfolios or allowances for loan and real
estate owned losses and, upon advice of AFC, it assumed that LIB's current
allowances for loan and real estate owned losses (including for off-balance
sheet items) were in the aggregate adequate to cover all such losses.
Furthermore, Lehman Brothers noted that it is not expert in matters relating
to the lawsuits filed by AFC and by LIB against the U.S. Government concerning
treatment of supervisory goodwill or the evaluation of any potential proceeds
which may be received by AFC or LIB therefrom and accordingly, upon the advice
of AFC, Lehman Brothers relied upon the amount of the book value of the
supervisory goodwill written off in connection with the enactment of the
Financial Institutions Reform, Recovery and Enforcement Act of 1989, as
communicated to Lehman Brothers by AFC and LIB, in performing the analysis
underlying its opinion. The Lehman Brothers Opinion necessarily was based upon
market, economic and other conditions as they existed on, and could be
evaluated as of, the date of its letter.
In connection with the preparation and delivery of its opinion to the AFC
Board, Lehman Brothers performed a variety of financial and comparative
analyses, as described below. The preparation of a fairness opinion involves
various determinations as to the most appropriate and relevant methods of
financial and comparative analysis and the application of those methods to the
particular circumstances and, therefore, such an opinion is not readily
susceptible to summary description. Furthermore, in arriving at its opinion,
Lehman Brothers did not attribute any particular weight to any analysis or
factor considered by it, but rather made qualitative judgments as to the
significance and relevance of each analysis and factor. Accordingly, Lehman
Brothers believes that its analyses must be considered as a whole and that
considering any portion of such analyses and factors, without considering all
analyses and factors, could create a misleading or incomplete view of the
process underlying its opinion. In its analyses, Lehman Brothers made numerous
assumptions with respect to industry performance, general business and
economic conditions and other matters, many of which are beyond the control of
AFC. Any estimates contained in these analyses were not necessarily indicative
of actual values or predictive of future results or values, which may be
significantly more or less favorable than as set forth therein. In addition,
analyses relating to the value of businesses did not purport to be appraisals
or to reflect the prices at which businesses may actually be sold.
Purchase Price Analysis. Based upon the Exchange Ratio, the closing price of
AFC Common Stock on March 25, 1998 of $61.25 represented a value to be
received by holders of LIB Common Stock of $70.44 per share. Based on this
implied transaction value per share, Lehman Brothers calculated the price-to-
market, price-to-book, price-to-tangible book, and price to earnings
multiples, price to adjusted earnings multiples (wherein earnings were
adjusted to reflect a range of rates of return on equity in excess of a
tangible common equity to tangible assets ratio of 5.50%), and the implied
core deposit premium paid, in the Merger. The implied transaction value per
share yielded a premium to market price premium ratio of 10% over the closing
price of LIB Common Stock of $64.00 on March 25, 1998. This analysis also
yielded a price-to-book value multiple of 3.04x, a price-to-tangible book
value multiple of 3.07x, a price to estimated 1998 earnings multiple of 30.2x,
a price to estimated 1999 earnings multiple of 27.4x, a price to estimated
adjusted 1998 earnings multiple of 23.6x, a price to estimated adjusted 1999
earnings multiple of 21.8x and an implied deposit premium of 30.6%. Earnings
estimates were based on consensus estimates of LIB's calendarized 1998 and
1999 earnings using quarterly estimates for the fiscal years ended September
30, 1998 and September 30, 1999 published by First Call as of March 25, 1998
and using, in respect of earnings for the fourth calendar quarter of 1999, the
estimated long-term earnings growth rate published by IBES. First Call, like
IBES, is a data service that monitors and publishes a compilation of earnings
estimates produced by selected research analysts regarding companies of
interest to institutional investors.
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Comparable Transaction Analysis. Using publicly available information,
Lehman Brothers reviewed certain terms and financial characteristics,
including historical price-to-earnings ratios, price-to-estimated 1998
earnings ratios using median earnings estimates published by IBES, price-to-
estimated forward earnings ratios, using median estimates for the next fiscal
year earnings published by IBES, adjusted for estimated cost savings, whereby
median estimates for forward earnings published by IBES were adjusted to
include, on a fully phased-in basis, the cost savings estimated by the parties
to the transactions described below at the time of transaction announcement,
the price-to-book ratio, the price-to-tangible book ratio, the adjusted price-
to-tangible book ratio and the core deposit premium paid at the time of
transaction announcement, of six savings institution pooling-of-interests
merger or acquisition transactions (the "Comparable Thrift Transactions
Group") with values greater than $500 million publicly announced since June
30, 1997, which Lehman Brothers deemed to be comparable to the Merger. The
Comparable Thrift Transactions Group considered by Lehman Brothers in its
analysis consisted of the following transactions (identified by
acquiror/acquiree): Washington Mutual, Inc./H.F. Ahmanson & Company,
Commercial Federal Corp./First Colorado Bancorp, Inc., Fifth Third
Bancorp/CitFed Bancorp, Inc., Fifth Third Bancorp/State Savings Co., Peoples
Heritage Financial Group, Inc./CFX Corporation and North Fork Bancorporation,
Inc./New York Bancorp Inc. The median values for these transactions for the
price to latest twelve months earnings ratio, price-to-estimated 1998 earnings
ratio, price-to-adjusted estimated forward earnings ratio, price-to-book
ratio, price-to-tangible book ratio and adjusted price-to-tangible book ratio
were 24.6x, 21.2x, 14.6x, 3.16x, 3.53x and 4.06x, respectively. The range of
values for these parameters were from 20.0x to 28.2x, 16.9x to 24.4x, 12.8x to
18.0x, 2.41x to 4.80x, 2.46x to 4.80x and 3.58x to 4.80x, respectively. These
compared to transaction multiples of 32.9x, 30.2x, 18.4x, 3.04x, 3.07x and
4.26x for the Merger based on the closing price of AFC Common Stock on March
25, 1998. The range of core deposit premiums paid in these transactions was
27% to 44%, with a median value of 30% compared to implied core deposit
premium, of 31% for AFC/LIB based on the closing price of AFC Common Stock on
March 25, 1998. Lehman Brothers also analyzed the ratio of price-to-estimated
forward earnings of AFC compared with those of the acquirors in the Comparable
Thrift Transactions Group. This analysis indicated a price-to-estimated
forward earnings of 16.3x for AFC compared with a median value of 15.2x for
the Comparable Thrift Transactions Group. The range of values for the
Comparable Thrift Transactions Group was 12.7x to 24.0x.
Using publicly available information, Lehman Brothers also reviewed certain
terms and financial characteristics, including historical price-to-earnings
ratios, price-to-estimated forward earnings ratios, price-to-adjusted
estimated forward earnings ratio, the price-to-book ratio, the price-to-
tangible book ratio and the price-to-adjusted tangible book ratio and the
deposit premium paid at the time of transaction announcement of eight
commercial banking company pooling-of-interests merger or acquisition
transactions (the "Comparable Bank Transactions Group") with values greater
than $1 billion publicly announced since June 30, 1997 that Lehman Brothers
deemed to be relevant to the present transaction. The Comparable Bank
Transactions Group considered by Lehman Brothers in its analysis consisted of
the following transactions (identified by acquirer/acquiree): Union Planters
Corporation/Magna Group, Inc., Regions Financial Corporation/First Commercial
Corporation, First American Corporation/Deposit Guaranty Corporation, National
City Corporation/First of America Bank Corporation, First Union
Corporation/CoreStates Financial Corp., Banc One Corporation/First Commerce
Corporation, NationsBank Corporation/Barnett Banks, Inc. and First Union
Corporation/Signet Banking Corporation. The median values for these
transactions for the price to latest twelve months earnings ratio, price-to-
estimated 1998 earnings ratio, price-to-adjusted estimated 1998 earnings
ratio, price-to-book ratio, price to tangible book ratio and price-to-adjusted
tangible book were 25.7x, 21.6x, 15.5x, 3.91x, 4.26x and 5.66x, respectively.
These compared to transaction multiples of 32.9x, 30.2x, 18.4x, 3.04x, 3.07x
and 4.26x for the Merger based on the closing price of AFC Common Stock on
March 25, 1998. The median value for the core deposit premium paid in these
transactions was 40%, compared to an implied core deposit premium of 31% for
AFC/LIB based on the closing price of AFC Common Stock on March 25, 1998.
Because the reasons for and circumstances surrounding each of the
transactions analyzed were so diverse and because of the inherent differences
in the businesses, operations, financial conditions and prospects of AFC, LIB
and the companies included in the Comparable Thrift Transactions Group and the
Comparable Bank Transactions Group, Lehman Brothers believed that a purely
quantitative comparable transaction analysis would
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not be particularly meaningful in the context of the Merger. Lehman Brothers
believed that the appropriate use of a comparable transaction analysis in this
instance would involve qualitative judgments concerning the differences
between the characteristics of these transactions and the Merger which would
affect the acquisition values of the acquired companies and LIB.
Comparable Company Analysis. Using publicly available information, Lehman
Brothers compared the financial performance and stock market valuation of LIB
with the following selected savings institutions (the "Comparable Thrift
Group") deemed relevant by Lehman Brothers: Webster Financial Corporation,
Peoples Heritage Financial Group, Inc., ALBANK Financial Corporation, Roslyn
Bancorp, Inc., T R Financial Corp., Bay View Capital Corporation, Reliance
Bancorp, Inc. Queens County Bancorp, Inc., JSB Financial, Inc. and Dime
Community Bancorp, Inc. Indications of such financial performance and stock
market valuation included profitability (return on average assets and return
on average equity for the latest quarter ended December 31, 1997 annualized,
adjusted for non-recurring items, of 0.87% and 9.59%, respectively, for LIB,
and medians of 1.03% and 14.5%, respectively, for the Comparable Thrift
Group); the ratio of tangible equity to tangible assets (9.10% for LIB and a
median of 6.63% for the Comparable Thrift Group); the ratio of price to
estimated 1998 earnings (27.5x for LIB and a median of 18.8x for the
Comparable Thrift Group); the ratio of price-to-book (2.76x for LIB and a
median of 2.14x for the Comparable Thrift Group) and the ratio of price-to-
tangible-book (2.79x for LIB and a median of 2.58x for the Comparable Thrift
Group). These ratios for the Comparable Thrift Group are based on public
financial statements as of December 31, 1997, closing stock market prices on
March 25, 1998 and earnings per share are based on the most recent median
estimates for 1998 and 1999 earnings published by IBES. These ratios for LIB
are based on public financial statements as of December 31, 1997, calendarized
First Call 1998 and 1999 earnings per share estimates as of March 25, 1998 and
the closing price for LIB Common Stock of $64.00 as of close of business on
March 25, 1998.
Because of the inherent differences in the businesses, operations, financial
conditions and prospects of LIB and the companies included in the Comparable
Thrift Group, Lehman Brothers believed that a purely quantitative comparable
company analysis would not be particularly meaningful in the context of the
Merger. Lehman Brothers believed that the appropriate use of a comparable
company analysis in this instance would involve qualitative judgments
concerning the differences between LIB and the companies included in the
Comparable Thrift Group which would affect the trading values of the
comparable companies and LIB.
Discounted Cash Flow Analysis. Based upon the financial projections provided
by AFC and LIB, Lehman Brothers discounted four years of cash flows of LIB and
an estimated terminal value of LIB Common Stock, assuming a dividend rate
sufficient to maintain a tangible capital ratio of 5.50% and using a range of
discount rates from 12% to 15%. Lehman Brothers derived an estimate of a range
of terminal values by applying multiples ranging from 16 times to 24 times
estimated year-end 2001 net income. These rates and values were chosen to
reflect different assumptions regarding the required rates of return of
holders or prospective buyers of LIB Common Stock. This analysis, and its
underlying assumptions, yielded a range of values for LIB Common Stock from
approximately $54.00 to $80.00 per share, as compared to a per share
transaction value of $70.44, based on the closing price of AFC Common Stock on
March 25, 1998. Lehman Brothers noted that the value derived excluded any
potential proceeds which may be received by LIB from its lawsuit against the
U.S. Government concerning treatment of goodwill.
Supervisory Goodwill Analysis. Based upon AFC's and LIB's estimates that the
amount of their supervisory goodwill remaining on the books at the time of
enactment of the Financial Institutions Reform, Recovery and Enforcement Act
of 1989, as amended ("FIRREA"), was approximately $135 million and $500
million, respectively, Lehman Brothers analyzed the potential value created
for stockholders of AFC and LIB through the supervisory goodwill lawsuits
filed by AFC and LIB against the U.S. Government. Lehman Brothers estimated
the implied value of these claims using the CALGZ and CCPRZ lawsuit claim
instruments currently trading in the market. The trading level of CALGZ
certificates, which entitle holders to approximately 25% of the post-tax
proceeds of California Federal Bank's lawsuit, implies a post-tax value for
the lawsuit proceeds of approximately $430 million compared with approximately
$485 million in supervisory goodwill remaining on
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California Federal Bank's books at the time of enactment of FIRREA. The
trading level of CCPRZ certificates, which entitle holders to the post-tax
proceeds of the claim of Coast Savings Financial, Inc., subsequently acquired
by H.F. Ahmanson & Company, implies a post-tax value for the lawsuit proceeds
of approximately $340 million compared with approximately $299 million in
supervisory goodwill remaining on Coast Financial's books at the time of
enactment of FIRREA. Based on these estimates and the current trading value of
the CALGZ and CCPRZ goodwill lawsuit instruments, Lehman Brothers calculated
the implied value of LIB's and AFC's goodwill claims at approximately $17.00
to $21.00 per share. On a pro forma basis based upon the Exchange Ratio,
Lehman Brothers calculated the implied value of the goodwill claims at
approximately $8.00 to $11.00 per share of AFC.
Pro Forma Merger Analysis. Lehman Brothers analyzed the impact of the Merger
on AFC's estimated earnings per share based on the most recent estimates for
the 1998 and 1999 earnings of AFC and LIB published by First Call and assumed
growth rates of 11.9% and 10.3% from 1999 to 2000 for AFC and LIB,
respectively. In connection with this analysis, management of each of AFC and
LIB provided Lehman Brothers with projections for cost savings, operational
synergies from the Merger, and incremental revenues (including as a result of
the use of excess capital), which projections were incorporated in Lehman
Brothers' analyses. Based on such First Call estimates, assumed growth rates
and management projections of cost savings and operational synergies, Lehman
Brothers concluded that the Merger would be accretive to earnings per share by
at least 3% in 1999 and 2000. Lehman Brothers noted that on a pro forma basis
as of December 31, 1997, before acquisition adjustments, the Merger would be
dilutive to book value per share and tangible book value per share by
approximately 19% and 6%, respectively.
Contribution Analysis. Lehman Brothers analyzed the respective contributions
of LIB and AFC to the Combined Company's pro forma balance sheet as of
December 31, 1997 and pro forma historic net income for 1997, without giving
effect to any cost savings or operational synergies resulting from the Merger.
This analysis showed that LIB would have contributed approximately 37% of
total assets, 46% of total gross loans, 38% of total equity and 40% of common
equity on a pro forma basis as of December 31, 1997 and that for the quarter
ended December 31, 1997, LIB's contribution to the Combined Company's pre-tax
net income and net income would have been 37% and 39%, respectively. This
analysis also showed that, based on First Call earnings estimates for 1998,
without giving effect to any cost savings or operational synergies resulting
from the Merger, LIB's contribution to the Combined Company's net income would
be 36% for 1998. Lehman Brothers also repeated this analysis based on First
Call earnings estimates for 1998 adjusted to reflect additional earnings that
could be derived from an assumed pre-tax spread of 1.00% on incremental assets
that LIB could generate while still maintaining a tangible common equity to
tangible assets ratio of at least 5.50%. This analysis showed that LIB's
contribution to the Combined Company's net income would be 42% for 1998. Based
upon the Exchange Ratio, LIB stockholders would own approximately 51% of the
Combined Company upon completion of the Merger.
Lehman Brothers is an internationally recognized investment banking firm.
Lehman Brothers, as part of its investment banking business, is continuously
engaged in the valuation of businesses and securities in connection with
mergers and acquisitions, negotiated underwritings, competitive biddings,
secondary distributions of listed and unlisted securities, private placements
and valuations for corporate and other purposes. The AFC Board retained Lehman
Brothers based upon Lehman Brothers' experience and expertise and its
familiarity with AFC and transactions similar to the Merger. Lehman Brothers
is acting as financial advisor to AFC in connection with the Merger. Pursuant
to a letter agreement dated March 25, 1998, between AFC and Lehman Brothers
(the "Letter Agreement"), AFC has agreed to pay Lehman Brothers (i) a retainer
of $75,000 paid upon the signing of the Letter Agreement, (ii) a fee of
$525,000 upon delivery of the Lehman Brothers Opinion and the signing of a
definitive agreement and plan of merger, and (iii) a fee of $6 million (less
any amounts paid to Lehman Brothers under (i) and (ii)) for its services in
connection with the Merger upon consummation thereof. The Letter Agreement
also provides that AFC will reimburse Lehman Brothers for its out-of-pocket
expenses and indemnify Lehman Brothers and certain related persons and
entities against certain liabilities, including liabilities under securities
laws, incurred in connection with its services thereunder.
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Lehman Brothers has performed various investment banking services for LIB in
the past, and has received customary fees for such services. Gross fees paid
by LIB to Lehman Brothers from April 1, 1996 through July 7, 1998 for such
services, excluding any fees related to the Merger, total approximately
$665,000. In the ordinary course of its business, Lehman Brothers and its
affiliates actively trade in the debt and equity securities of the AFC and LIB
for its own account and for the accounts of its customers and, accordingly,
may at any time hold a long or short position in such securities.
PROCEDURES FOR EXCHANGE OF LIB COMMON STOCK CERTIFICATES
As of the Effective Time, AFC shall deposit, or will cause to be deposited,
with ChaseMellon to act as the Exchange Agent, for the benefit of the holders
of shares of LIB Common Stock for exchange, an estimated amount of cash
sufficient to pay the aggregate amount of cash paid in lieu of fractional
shares, and AFC shall reserve for issuance with its transfer agent and
registrar the Merger Shares to be issued.
Appropriate transmittal materials (the "Letter of Transmittal") will be
mailed as soon as practicable after the Effective Time, and no later than 10
business days thereafter, to each holder of record of LIB Common Stock as of
the Effective Time. The Letter of Transmittal will specify that delivery will
be effected, and risk of loss and title to the certificates previously
representing shares of LIB Common Stock ("LIB Common Stock Certificates")
shall pass, only upon proper delivery of the LIB Common Stock Certificates to
the Exchange Agent and shall include instructions for use in effecting the
surrender of the LIB Common Stock Certificates in exchange for certificates
evidencing shares of AFC Common Stock.
Upon the proper surrender of LIB Common Stock Certificates to ChaseMellon
for cancellation, together with a Letter of Transmittal duly executed and
completed in accordance with the instructions thereto, and such other
documents as may be reasonably required pursuant to such instructions, the
holder of such LIB Common Stock Certificate will be entitled to receive in
exchange therefor the appropriate Merger Consideration. As soon as
practicable, but no later than 10 business days following receipt of the
properly completed Letter of Transmittal and any necessary accompanying
documentation, ChaseMellon will distribute AFC Common Stock and cash as
provided in the Merger Agreement.
Whenever a dividend or other distribution is declared by AFC on AFC Common
Stock, the record date for which is at or after the Effective Time, such
declaration will include dividends or other distributions on all shares of AFC
Common Stock issuable pursuant to the Merger Agreement, but no dividends or
other distributions declared or made after the Effective Time with respect to
AFC Common Stock with a record date after the Effective Time shall be paid to
the holder of any unsurrendered LIB Common Stock Certificate with respect to
the shares of AFC Common Stock represented thereby, and no cash payment in
lieu of any fractional shares shall be paid to any such holder, until the
holder of such LIB Common Stock Certificate surrenders such certificate in
accordance with the Merger Agreement. Subject to the effect of escheat, tax or
other applicable laws, following surrender of any such certificate, the holder
of whole shares of AFC Common Stock issued in exchange therefor, will be paid
without interest, (i) the amount of any cash payable with respect to a
fractional share of AFC Common Stock to which such holder is entitled and the
amount of dividends or other distributions with a record date after the
Effective Time and theretofore paid with respect to such whole shares of AFC
Common Stock, and (ii) at the appropriate payment date, the amount of
dividends or other distributions, with a record date after the Effective Time
but prior to surrender and a payment date occurring after surrender, payable
with respect to such whole shares of AFC Common Stock.
From and after the Effective Time, there shall be no transfers on the stock
transfer records of LIB of any shares of LIB Common Stock. From and after the
Effective Time, the holders of LIB Common Stock Certificates shall cease to
have any rights with respect to such shares of LIB Common Stock, except as
otherwise provided herein or by law.
Any portion of the aggregate amount of cash to be paid in lieu of fractional
shares of AFC Common Stock, any dividends or other distributions to be paid
pursuant to the Merger Agreement or the proceeds of any
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investments thereof that remains unclaimed by the stockholders of LIB for six
months after the Effective Time will be repaid by ChaseMellon to AFC upon the
written request of AFC. After such request is made, any stockholders of LIB
will look only to AFC for payment and issuance of their Merger Consideration
deliverable in respect of each share of LIB Common Stock such stockholder
holds as determined pursuant to the Merger Agreement, without any interest
thereon. If outstanding LIB Common Stock Certificates are not surrendered
prior to the date on which such payments would otherwise escheat to or become
the property of any governmental unit or agency, the unclaimed items shall, to
the extent permitted by abandoned property and any other applicable law,
become the property of AFC (and to the extent not in its possession shall be
paid over to it), free and clear of all claims or interest of any person
previously entitled to such claims. Notwithstanding the foregoing, none of
AFC, Astoria Federal, ChaseMellon or any other person shall be liable to any
former holder of LIB Common Stock for any amount delivered to a public
official pursuant to applicable abandoned property, escheat or similar laws.
In the event of a dispute with respect to ownership of stock represented by
any LIB Common Stock Certificate, AFC and ChaseMellon shall be entitled to
deposit any consideration represented thereby in escrow with an independent
third party and thereafter be relieved with respect to any claims thereto.
In the event any LIB Common Stock Certificate shall have been lost, stolen
or destroyed, upon the making of an affidavit of that fact by the person
claiming such LIB Common Stock Certificate to be lost, stolen or destroyed
and, if required by ChaseMellon, the posting by such person of a bond in such
amount as ChaseMellon may direct as indemnity against any claim that may be
made against it with respect to such LIB Common Stock Certificate, ChaseMellon
will issue in exchange for such lost, stolen or destroyed LIB Common Stock
Certificate, the Merger Consideration deliverable in respect thereof pursuant
to the Merger Agreement, subject to such other requirements that ChaseMellon
reasonably requires.
REGULATORY APPROVALS
Pursuant to the Bank Merger Act, Section 1828(c) of Title 12 of the United
States Code, and the Home Owners' Loan Act, Section 1467a(s) of Title 12 of
the United States Code and Sections 552.13 and 563.22 of Title 12 of the Code
of Federal Regulations, promulgated thereunder, the Merger and Bank Merger are
subject to the approval of the OTS. AFC and LIB filed an application for
approval of the Merger and the Bank Merger with the OTS on June 17, 1998. This
application is currently under review by the OTS. There can be no assurance as
to the timing of such approval or that the OTS will approve the Merger and
Bank Merger. The OTS is required to evaluate the applications by taking into
consideration, among other things, the capital level of the resulting
institution, the financial and managerial resources and future prospects of
the institutions involved, the convenience and needs of the communities to be
served and the conformity of the transaction to applicable law, regulation and
supervisory policies. In addition, the OTS may not approve any proposed
acquisition (i) which would result in a monopoly or which would be in
furtherance of any combination or conspiracy to monopolize or to attempt to
monopolize the savings and loan business in any part of the United States, or
(ii) which in any section of the country may have the effect of substantially
lessening competition or tending to create a monopoly or which in any other
manner would be in restraint of trade, unless the OTS finds that the anti-
competitive effects of the proposed acquisition are clearly outweighed in the
public interest by the probable effect of the acquisition in meeting the
convenience and needs of the community to be served. Under the Community
Reinvestment Act of 1977 ("CRA"), the OTS must take into account Astoria
Federal's and LIB Bank's respective record of performance in meeting the
credit needs of the entire community, including low- and moderate-income
neighborhoods, served by Astoria Federal and LIB Bank, respectively. The OTS
also considers, among other things, the fairness and disclosure of the Merger
Agreement and the Plan of Bank Merger (including compensation to officers,
directors and controlling persons of the disappearing association by the
surviving association), the justification, need for and compensation to be
paid to any advisory board, fees paid to each person or firm rendering legal
or other professional services in connection with a merger, and the accounting
and tax treatment of the merger. The OTS will also consider an assessment of
each party's Year 2000 compliance efforts and the impact of the Merger on such
efforts. The regulations of the OTS also provide for the publication of notice
and the opportunity for public comments relating to the application for
approval discussed above.
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In addition, under federal law, a period of 30 days must expire following
approval by the OTS within which period the Department of Justice may file
objections to the Merger under the federal antitrust laws. The post-approval
waiting period may be reduced by the OTS to 15 days, with the concurrence of
the Department of Justice. The Department of Justice could take such action
under the antitrust laws as it deems necessary or desirable in the public
interest, including seeking to enjoin the Merger and Bank Merger unless
divestiture of an acceptable number of branches to a competitively suitable
purchaser could be made. While AFC believes that the likelihood of such action
by the Department of Justice is remote in this case, there can be no assurance
that the Department of Justice will not initiate such proceeding, or that the
Attorney General of the State of New York will not challenge the Merger, or if
such proceeding is instituted or challenge is made, as to the result thereof.
The Merger cannot proceed in the absence of the requisite regulatory
approvals. See "-- Conditions to the Consummation of the Merger" and "--
Termination." There can be no assurance that such regulatory approvals will
be obtained, and if obtained, there can be no assurance as to the date of any
such approval. There can also be no assurance that any such approvals will not
contain a condition or requirement which causes such approvals to fail to
satisfy the conditions set forth in the Merger Agreement and described below
under "-- Conditions to the Consummation of the Merger."
CONDITIONS TO THE CONSUMMATION OF THE MERGER
Consummation of the Merger is subject to various conditions. While it is
anticipated that all such conditions will be satisfied, there can be no
assurance that all of such conditions will be satisfied or waived.
The respective obligations of AFC and LIB to cause the Merger to be
consummated are subject to certain conditions, including the following:
(i) approval of the Merger Agreement by the requisite vote of LIB's
stockholders and AFC's stockholders;
(ii) receipt and effectiveness of all regulatory approvals required to
consummate the Merger and the expiration of all applicable statutory
waiting periods in respect thereof; provided, that no regulatory approval
contains any term or condition which would have a material adverse effect
on (x) LIB and its subsidiaries taken as a whole or (y) AFC and its
subsidiaries taken as a whole;
(iii) Neither AFC nor LIB shall be subject to any order, decree or
injunction of a court or agency of competent jurisdiction which prohibits
the consummation of the Merger;
(iv) no statute, rule or regulation shall have been enacted, entered,
promulgated, interpreted, applied or enforced by any governmental authority
which prohibits, restricts or makes illegal consummation of the Merger;
(v) no proceedings shall be pending or threatened by the Commission to
suspend the effectiveness of the Registration Statement; and the shares of
AFC Common Stock issuable pursuant to the Merger Agreement shall have been
approved for listing on the Nasdaq National Market, subject to official
notice of issuance;
(vi) the receipt by AFC of the opinion of its independent auditors that
the Merger will be qualified to be treated as a "pooling-of-interests" for
accounting purposes by AFC;
(vii) AFC shall have received letters from each non-employee director,
each Executive Vice President, the President and the Chief Executive
Officer of LIB stipulating (with provision for limited subsequent
adjustments) the monetary payments and in-kind benefits (exclusive of tax-
qualified plan benefits, stock options and restricted stock) contractually
owed to him or her as a result of the Merger and agreeing to sign a release
in favor of AFC, Astoria Federal and their respective owners, affiliates,
officers, directors, employees and agents in consideration of such payments
and benefits;
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(viii) the representations and warranties of the other party in the
Merger Agreement being true and correct in all material respects as of the
dates specified therein, and the performance by the other party in all
material respects of all obligations required by the Merger Agreement to be
performed;
(ix) the receipt by AFC of the opinion of Thacher Proffitt & Wood, and
the receipt by LIB of the opinion of Milbank, Tweed, Hadley & McCloy, each
substantially to the effect that on the basis of the facts, representations
and assumptions set forth in such opinion which are consistent with the
state of facts existing at the Effective Time, the Merger will be treated
for federal income tax purposes as a reorganization within the meaning of
Section 368(a) of the Code and that, accordingly, no gain or loss will be
recognized by AFC or LIB as a result of the Merger; and
(x) the delivery to each of AFC and LIB of various letters, certificates
and other documents.
In the event the receipt of the Tax Opinions, specified above in condition
(ix), is waived by AFC and LIB, an amended prospectus will be recirculated to
the holders of LIB Common Stock.
The obligations of AFC and Astoria Federal to cause the Merger to be
consummated are subject to certain additional conditions, including (i) that
neither AFC nor Astoria Federal shall have become an "Acquiring Person" and no
"Stock Acquisition Date" or "Distribution Date" shall have occurred as such
terms are defined in the LIB Rights Agreement, and the rights reserved
thereunder shall not have become distributable, unredeemable or exercisable
and (ii) that neither LIB nor LIB Bank shall have become an "Acquiring Person"
and no "Stock Acquisition Date" or "Distribution Date" shall have occurred as
such terms are defined in the AFC Rights Agreement, and the rights reserved
thereunder shall not have become distributable, unredeemable or exercisable.
See "CERTAIN RELATED TRANSACTIONS -- Amendment to LIB Rights Agreements" and
"-- Amendment to AFC Rights Agreement."
The obligations of LIB to cause the Merger to be consummated are subject to
certain additional conditions, including no "Share Acquisition Date" or
"Distribution Date" as such terms are defined in AFC's Rights Agreement shall
have occurred, and the rights reserved thereunder shall not have become
distributable, unredeemable or exercisable.
REPRESENTATIONS AND WARRANTIES
Each of LIB and AFC have made certain representations and warranties to the
other in the Merger Agreement as to, among other things, the authorization,
validity, binding effect and enforceability of the Merger Agreement, various
corporate matters, capital structure, compliance with laws, absence of
material adverse changes, labor matters, employee benefit plans, environmental
matters, asset quality, loan portfolio and allowances for possible loan
losses, investment securities and borrowings, books and records, absence of
certain legal proceedings and regulatory actions and certain fees payable in
connection with the proposed transactions. LIB has also made certain
representations and warranties to AFC with respect to among other things, its
taxes, its deposits, its material agreements, its insurance, its termination
benefits and certain other matters. AFC has also made representations and
warranties to LIB with respect to the shares of AFC Common Stock to be issued
in connection with the Merger. Virtually all of the representations and
warranties of the parties, the accuracy of which is a condition to the closing
of the transactions contemplated by the Merger Agreement, contain exceptions
for any condition, event, change or occurrence that would not have a material
adverse effect on the business, financial condition or results of operations
of the party making such representation or warranty, and its subsidiaries
taken as a whole; provided that any such effects resulting from any (i)
changes in law, rule or regulation or generally accepted accounting principles
or interpretations thereof that applies to both AFC and Astoria Federal, and
LIB and LIB Bank, as the case may be, or (ii) changes in interest rates, shall
not be considered in determining if a material adverse effect has occurred.
The representations and warranties of the parties do not survive beyond the
Effective Time and, if the Merger Agreement is terminated without consummation
of the Merger, there will be no liability on the part of any party for a
misrepresentation except that no party will be relieved from any liability
arising out of the willful and material misrepresentation in the Merger
Agreement of any fact actually known to its directors and any officer with the
title ranking not less than executive vice president or the corporate
secretary.
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LIB STOCK OPTION PLANS
AFC has agreed in the Merger Agreement that, at the Effective Time, each
option to purchase shares of LIB Common Stock that has been issued by LIB and
is outstanding at the Effective Time (each, an "LIB Option"), pursuant to the
LIB 1994 Stock Incentive Plan and the LIB 1994 Non-Employee Directors Stock
Option Program, will be converted into and become the right to purchase shares
of AFC Common Stock (the "Converted Options"). The aggregate number of shares
of AFC Common Stock issuable upon the exercise of Converted Options after the
Effective Time will be equal to the product of the Exchange Ratio multiplied
by the number of shares of LIB Common Stock issuable upon the exercise of the
LIB Options immediately prior to the Effective Time. In addition, the Exercise
Price per share of each Converted Option will be equal to the quotient of the
exercise price of such LIB Option at the Effective Time divided by the
Exchange Ratio. All Converted Options will be exercisable for the same period
and have the same terms and conditions applicable to the LIB Options which
they replace. AFC has agreed in the Merger Agreement to reserve for future
issuance a sufficient number of additional shares of AFC Common Stock to
provide for the satisfaction of its obligations with respect to the Converted
Options. The exercise periods, terms and conditions of the Converted Options
may be modified, if and to the extent necessary, as set forth in the Merger
Agreement.
CONDUCT OF BUSINESS PENDING THE MERGER
Pursuant to the Merger Agreement, each of LIB and AFC has agreed that during
the period from the date of the Merger Agreement to the Effective Time (except
as expressly provided in the Merger Agreement and except to the extent
required by law or regulation or by regulatory authorities), to use
commercially reasonable efforts to, and shall cause each of its respective
subsidiaries to use commercially reasonable efforts to, (i) conduct its
business in the ordinary and usual course consistent with past practices and
prudent banking practice, (ii) maintain and preserve intact its business
organization, properties, leases, employees and advantageous business
relationships and retain the services of its officers and key employees, (iii)
take no action that would materially adversely affect or delay the ability of
AFC, Astoria Federal, LIB or LIB Bank to perform its covenants and agreements
on a timely basis under the Merger Agreement, (iv) take no action which would
adversely effect or delay the ability of AFC, Astoria Federal, LIB or LIB Bank
to obtain any necessary approvals, consents or waivers of any governmental
authority required for the transactions contemplated by the Merger Agreement
or to perform its respective covenants and agreements on a timely basis under
the Merger Agreement or which could reasonably be expected to result in any
such approval, consent or waiver containing any material condition or
restriction, and (v) take no action that results in or is reasonably likely to
have a material adverse effect on the other party. LIB has agreed to use
reasonable good faith efforts to consult with (but will not have to obtain the
approval of) AFC before: (x) creating any Fannie Mae or Freddie Mac securities
with limited recourse to reduce the amount of the guarantee fee payable to
Fannie Mae or Freddie Mac or (y) entering into any agreements or commitments
in connection with LIB's Year 2000 compliance efforts.
In addition, pursuant to the Merger Agreement, during the period from the
date of the Merger Agreement to the Effective Time (except as otherwise
specifically provided in the Merger Agreement or as required by law or
regulation or by regulatory authorities), LIB has agreed that it shall not,
and shall not permit any of its subsidiaries to, without the prior consent of
AFC, which shall not be unreasonably withheld, take certain actions, including
the following:
(i) put into effect any change in any provisions of the organization
certificate or bylaws of LIB, or any similar governing documents of LIB's
subsidiaries;
(ii) issue any shares of capital stock except pursuant to (a) the
exercise of stock options, (b) the LIB Stock Option Agreement, or (c) the
LIB Rights Agreement; or declare or pay any dividend or make any
distribution on any shares of its capital stock, except for its regular
quarterly dividend of $0.15 per share (LIB will cause its regular quarterly
dividend record dates and payment dates for the LIB Common Stock to be the
same as AFC's regular quarterly dividend record dates and payment dates for
the AFC Common Stock);
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(iii) other than in the ordinary course of business, sell, transfer,
mortgage, encumber or otherwise dispose of any material properties, leases
or assets;
(iv) increase the compensation or fringe benefits of any of its employees
or directors, except for certain salary increases in the ordinary course of
business, consistent with past practice; pay any pension or retirement
allowance not required under existing agreements; commit to the funding of
accounts or trusts related to any employee benefit plan or program
maintained by LIB for its employees ("LIB Plan") (provided, that none of
the above shall restrict LIB Bank from offering an early retirement program
consistent with past practices to eligible participants, as permitted by
the Merger Agreement); voluntarily accelerate the vesting of any stock
options or other compensation or benefit; terminate or increase the cost to
LIB of any LIB Plan; hire any new employees with an annual compensation in
excess of $75,000 or enter into or amend any employment, commission or
bonus contract; except as otherwise specifically contemplated by the Merger
Agreement, alter, amend or revise in any manner any compensation,
arrangements, practices or policies; make any discretionary contributions
to any LIB Plan; or take any action other than permitted by the Merger
Agreement that would cause the Merger to fail to qualify for pooling-of-
interests accounting treatment;
(v) except as contemplated by the Merger Agreement or as required by
certain accounting standards, change LIB's methods of accounting;
(vi) make any investment in any debt security, including mortgage-backed
and mortgage-related securities, other than U.S. Government and U.S.
Government agency securities with final maturities not greater than five
years or mortgage-backed or mortgage-related securities not considered
"high risk" under OTS guidelines that are purchased in the ordinary course
of business with past practice, in either case, with a purchase price no
greater than 101.5% of par value;
(vii) other than in the ordinary course of business consistent with past
practice, make any individual investment of more than $50,000 by purchase
of stock or security of any individual, corporation or other entity and
other than the purchase of Federal Home Loan Bank ("FHLB") common stock
necessary to maintain LIB's membership status with the FHLB of New York and
other than pursuant to existing commitments set forth in the Disclosure
Letter;
(viii) enter into, terminate or revise any contract or agreement that is
(a) not terminable within 30 days or (b) in excess of $100,000 and other
than agreements and commitments in connection with LIB's Year 2000
compliance efforts pursuant to its Year 2000 Plan;
(ix) settle any claim, action or proceeding for money damages in excess
of $500,000 or which impose material restrictions on the operations of LIB;
(x) waive or release any material right or collateral or cancel or
compromise any extension of credit or claim in excess of $500,000;
(xi) make, renegotiate, renew, increase, extend or purchase any (a) loan,
lease, advance, credit enhancement or extension of credit except loans,
advances or commitments made in accordance with generally established
underwriting guidelines in amounts not in excess of $2.0 million (except
for commercial real estate loans that are limited to $3.5 million to any
individual borrower and except for small business and commercial loans that
are limited to $300,000 to any individual borrower); provided, however,
that LIB and its subsidiaries may not make, renegotiate, renew, increase,
extend or purchase any loan that is underwritten based on no verification
of income or loans commonly known or referred to as "no documentation
loans;" however, LIB may originate no documentation loans pursuant to a
take-out commitment from an investor, but not for the portfolio of LIB or
(b) loan, advances or commitments to directors, officers or other
affiliated parties of LIB or any of its significant subsidiaries (other
than loans on primary residences in accordance with existing policies);
(xii) except to the extent required by applicable law or regulation,
adopt or implement any new policy or practice or procedure with respect to
its loan origination activities;
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(xiii) purchase or sell servicing rights (other than loan sales with
servicing released) with respect to loans the principal balance of which,
either individually or in the aggregate, exceeds $500,000;
(xiv) acquire any business or any corporation, partnership, association
or other business organization or division thereof, or any assets that are
material, individually or in the aggregate, to LIB, except in satisfaction
of debts previously contracted;
(xv) organize, capitalize, lend or otherwise invest in any subsidiary or
acquire a 10% or greater equity or voting interest in any entity;
(xvi) incur any additional borrowings beyond those permitted by the
Merger Agreement other than short-term FHLB borrowings and reverse
repurchase agreements consistent with past practice, or pledge any of its
assets to secure any borrowings other than as required pursuant to the
terms of borrowings of LIB in effect on April 2, 1998 or in connection with
borrowings or reverse repurchase agreements permitted by the Merger
Agreement;
(xvii) make any new capital expenditure in excess of $100,000;
(xviii) make any investment or commitment to invest in real estate or in
any real estate development project, other than real estate acquired in
satisfaction of defaulted mortgage loans and investments or commitments
approved by the board of directors of LIB or LIB Bank prior to April 2,
1998 and disclosed in writing to AFC;
(xix) make any new real estate loans secured by undeveloped land or real
estate (other than real estate secured by one-to-four family homes) located
outside the State of New York or make any construction loan (other than
construction loans secured by one-to-four family homes); and
(xx) establish or make any commitment relating to the establishment of
any new branch or other office facilities.
After the date on which all required regulatory approval and stockholder
approvals for the consummation of the transactions contemplated by the Merger
Agreement are received and prior to the Effective Time, but no earlier than
five days prior to the Closing Date and after receipt of written confirmation
from AFC that all conditions to closing contemplated by the Merger Agreement
have either been satisfied or waived, at the request of AFC, LIB shall cause
LIB Bank to modify and change its loan, litigation or real estate valuation
policies and practices (including loan classifications and levels of reserves)
and investment and asset/liability management policies and practices so as to
be consistent on a mutually satisfactory basis with those of Astoria Federal;
provided, that such policies and procedures are not prohibited by generally
accepted accounting principles or any applicable laws and regulations.
During the period from the date of the Merger Agreement to the Effective
Time, AFC may not, without the prior written consent of LIB, (x) put into
effect any change in any provisions of AFC's Certificate of Incorporation or
AFC's Bylaws, or any similar governing documents of AFC's subsidiaries, other
than an increase in the authorized capital stock of AFC or (y) issue any
shares of capital stock or change the terms of any outstanding stock except as
provided for in the Merger Agreement.
NO SOLICITATION
LIB has agreed not to: (i) initiate, solicit or encourage, directly or
indirectly, any inquiries or the making of any "Acquisition Proposal" or, (ii)
engage in any negotiations concerning, or provide any confidential information
or data to, or have discussions with, any person relating to an Acquisition
Proposal, or otherwise facilitate or attempt to make or implement an
Acquisition Proposal. "Acquisition Proposal" means for such purposes any
proposal or offer (including, without limitation, any proposal or offer to
stockholders of LIB) with respect to a merger, consolidation or similar
transaction involving, or any purchase of all or more than 10% of the assets
or equity securities of, LIB or any of its material subsidiaries. This
restriction applies to LIB's officers and directors as well.
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Nothing in the Merger Agreement will prevent LIB or the LIB Board from (a)
complying with Rule 14e-2, promulgated under the Exchange Act, with regard to
an Acquisition Proposal or (b) (1) providing information in response to a
request therefor by a person who has made an unsolicited bona fide written
Acquisition Proposal if the LIB Board receives from the person so requesting
such information an executed confidentiality agreement on terms substantially
equivalent to those contained in the confidentiality agreement between AFC and
LIB, dated as of January 16, 1998; or (2) engaging in any negotiations or
discussions with any person who has made an unsolicited bona fide written
Acquisition Proposal, if and only to the extent that, in each such case
referred to in clause (1) or (2) above, (x) the LIB Board, after consultation
with outside legal counsel, in good faith deems such action to be legally
necessary for the proper discharge of its fiduciary duties under applicable
law and (y) the LIB Board determines in good faith (after consultation with
its financial advisor) that such Acquisition Proposal, if accepted, is
reasonably likely to be consummated, taking into account all legal, financial
and regulatory aspects of the proposal and the person making the proposal and
would, if consummated, result in a more favorable transaction than the
transaction contemplated by the Merger Agreement, taking into account the
long-term prospects and interests of LIB and its stockholders. LIB is required
to notify AFC immediately orally (within one day) and in writing (within three
days) if any such negotiations or discussions are sought to be initiated or
continued in respect of any such Acquisition Proposal, together with details
as to the identity of the persons making such inquiry or proposal, requesting
such information or seeking such negotiations or discussions and the terms and
conditions thereof and will keep AFC informed of any developments with respect
thereto immediately upon occurrence thereof. If LIB provides confidential
information to a third party in accordance with the Merger Agreement, it will
do so only under the terms of a confidentiality agreement no less stringent
than that previously entered into between LIB and AFC and LIB will enforce
such agreement.
AMENDMENT AND WAIVER
Prior to the Effective Time, any provision of the Merger Agreement may be:
(i) waived in writing by the party benefitted by the provision; or (ii)
amended or modified at any time (including the structure of the transaction)
by an agreement in writing between AFC and LIB, except that after the vote by
the stockholders of AFC or LIB, no amendment may be made that would reduce the
Merger Consideration or contravene any provision of the DGCL or federal
banking laws, rules and regulations.
TERMINATION
The Merger Agreement may be terminated at any time prior to the Effective
Time, whether before or after its approval by the stockholders of AFC or LIB:
(i) by mutual consent of AFC and LIB, if the board of directors of each so
determines by a vote of a majority of the members of its entire board; (ii) by
either AFC or LIB, if its respective board of directors so determines by vote
of a majority of the members of its entire board, in the event (a) any
approval of the stockholders of AFC or LIB required for the consummation of
the Merger has not been obtained or (b) of a material breach by the other
party of any representation, warranty, covenant or agreement in the Merger
Agreement, which is not cured within 25 business days after written notice of
such breach or which breach by its nature cannot be cured prior to the closing
date or any extension thereof; (iii) by either AFC or LIB, upon written notice
to the other party if either (a) any approval, consent or waiver of a
governmental agency required to permit consummation of the transactions
contemplated by the Merger Agreement has been denied and such denial is final
and non-appealable, or (b) if any governmental authority of competent
jurisdiction issues a final, nonappealable order enjoining or otherwise
prohibiting the consummation of the transactions contemplated by the Merger
Agreement; (iv) by either AFC or LIB, if its respective board of directors so
determines by a vote of a majority of the members of its entire board, in the
event the Merger is not consummated on or before March 31, 1999 (the "Initial
Termination Date"); provided that if, as of such date, all necessary
regulatory or governmental approvals, consents or waivers required to
consummate the transactions contemplated by the Merger Agreement have not been
obtained but all other conditions to the consummation of the Merger (other
than delivery of executed documents at the closing of the Merger) have been
fulfilled, the Initial Termination Date will be extended to June 30, 1999,
unless the failure to so consummate by such time is due to the breach of any
representation, warranty or covenant contained in the Merger Agreement by the
party seeking to terminate, (v) by AFC, if the AFC Board determines by a
majority vote that an event that triggers the
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payment of the Termination Fee (as defined below) has occurred or (vi) by LIB,
if the price of AFC Common Stock declines below certain levels established by
formulas set forth in the Merger Agreement, as described below under "--
Price-Based Termination."
In the event of termination of the Merger Agreement, the Merger Agreement
shall thereafter become void and, subject to certain specified provisions of
the Merger Agreement dealing with the Termination Fee, there will not be any
liability on the part of any party thereto or their respective officers or
directors, except that (a) any such termination shall be without prejudice to
the rights of such party arising out of the breach by any other party of any
covenant, representation or obligation contained in the Merger Agreement, (b)
in certain limited circumstances, a termination fee may become payable as
described under "-- Termination Fees" and (c) AFC and LIB each will bear its
respective expenses in connection with the Merger Agreement and the
transactions contemplated thereby, except that AFC will pay all printing
expenses and SEC filing fees.
PRICE-BASED TERMINATION
The Merger Agreement contains a provision that permits LIB to terminate the
Merger Agreement if there is a significant and prolonged decline in the per
share market price of AFC's Common Stock that is not coincidental with a
significant and prolonged decline in the stock prices of certain other
financial institution holding companies unless AFC is willing to increase the
Merger Consideration ("Price-Based Termination").
This provision specifically provides that LIB may terminate the Merger
Agreement at any time during the five-day period commencing with the day (the
"Valuation Date") that is the latest of (i) the day of expiration of the last
waiting period with respect to any of the required regulatory approvals, (ii)
the day on which the last of the required regulatory approvals is obtained and
(iii) the day on which the last of the required stockholder approvals have
been received, such termination to be effective on the 30th day following such
date (the "Effective Termination Date"), if both of the following conditions
are satisfied:
(i) the average of the mean between the closing high bid and the low
asked prices of a share of AFC Common Stock, as reported on the Nasdaq
National Market, for the 30 consecutive Nasdaq trading days immediately
preceding the Valuation Date (the "AFC Market Value") is less than $49.76;
and
(ii) (A) the number (the "AFC Ratio") obtained by dividing the AFC Market
Value on the Valuation Date by $60.31 is less than (B) the number obtained
by dividing the Final Index Price (as defined below) by the Initial Index
Price (as defined below) and subtracting 0.175 from the quotient in this
clause (ii)(B) (the "Index Ratio").
If the LIB Board elects to exercise this termination right, it must give
prompt written notice to AFC following such election (provided that such
notice of election to terminate may be withdrawn at any time prior to the
Effective Termination Date). During the five-day period commencing with its
receipt of such notice, AFC has the option to avoid such termination of the
Merger Agreement by electing to increase the Exchange Ratio. This increase
would occur by adjusting the Exchange Ratio to equal the lesser of (x) a
number equal to a fraction, the numerator of which is the $49.76 multiplied by
1.15 and the denominator of which is the AFC Market Value, and (y) a number
equal to a fraction, the numerator of which is the Index Ratio multiplied by
1.15 and the denominator of which is the AFC Ratio. If AFC so elects within
such five-day period, it must give prompt written notice to LIB of such
election and the revised Exchange Ratio, whereupon no termination will have
occurred and the Merger Agreement will otherwise remain in effect in
accordance with its terms (except as the Exchange Ratio is so modified).
The following terms have the meanings indicated below:
"Final Index Price" means the sum of the numbers obtained by multiplying
(i) the quotient obtained by dividing (a) the Final Price of each company
comprising the Index Group by (b) the closing price of the common stock of
each company comprising the Index Group, as such prices are reported on the
consolidated transaction reporting system for the market or exchange on
which such common stock is
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principally traded on the trading day immediately preceding the public
announcement of this Agreement, by (ii) the applicable weighting.
"Final Price," with respect to any company belonging to the Index Group,
means the average of the daily closing sales prices of a share of common
stock of such company, as reported on the consolidated transaction
reporting system for the market or exchange on which such common stock is
principally traded, during the period of 30 trading days ending on the
Valuation Date.
"Index Group" means the 25 financial institution holding companies listed
below, the common stock of all of which shall be publicly traded and as to
which there shall not have been an Acquisition Transaction (as defined in
the Merger Agreement) involving such company publicly announced at any time
during the period beginning on the date of the Merger Agreement and ending
on the Valuation Date. In the event that the common stock of any such
company ceases to be publicly traded or an Acquisition Proposal involving
any such company is announced at any time during the period beginning on
April 2, 1998 and ending on the Valuation Date, such company will be
removed from the Index Group, and the weights attributed to the remaining
companies will be adjusted proportionately for purposes of determining the
Final Index Price and the Initial Index Price. The 25 financial institution
holding companies and the weights attributed to them are as follows:
<TABLE>
<CAPTION>
HOLDING COMPANY WEIGHTING
--------------- ---------
<S> <C>
ALBANK Financial Corporation....................................... 1.44%
Bank United Corp. ................................................. 3.67
Bay View Capital Corporation....................................... 0.93
Charter One Financial.............................................. 9.45
Commercial Federal Corporation..................................... 2.67
Dime Bancorp, Inc. ................................................ 7.75
Downey Financial Corp. ............................................ 1.92
First Empire State Corp. .......................................... 7.15
Golden West Financial Corporation. ................................ 12.18
GreenPoint Financial Corp. ........................................ 7.75
Harris Financial Corp. ............................................ 2.02
MAF Bancorp Corp. ................................................. 1.31
North Fork Bancorporation Inc. .................................... 6.04
Northwest Bancorp, Inc. ........................................... 1.76
People's Bank (MHC)................................................ 5.33
Peoples Heritage Financial Group, Inc. ............................ 3.09
Queens County Bancorp, Inc. ....................................... 1.49
Roslyn Bancorp, Inc. .............................................. 2.34
Sovereign Bancorp, Inc. ........................................... 4.74
St. Paul Bancorp, Inc. ............................................ 1.96
Staten Island Bancorp, Inc. ....................................... 2.06
TCF Financial Corp. ............................................... 7.02
T R Financial Corp. ............................................... 1.36
Washington Federal, Inc. .......................................... 3.25
Webster Financial Corp. ........................................... 2.11
</TABLE>
"Initial Index Price" means 1.00.
If AFC or any company belonging to the Index Group declares or effects a
stock dividend, reclassification, recapitalization, split-up, combination,
exchange of shares or similar transaction between the date of the Merger
Agreement and the Valuation Date, the prices for the common stock of such
company will be appropriately adjusted for purposes of applying the Price-
Based Termination.
Shares of AFC Common Stock traded below $49.76 during the third quarter of
1997. See "COMPARATIVE COMMON STOCK PRICE AND DIVIDEND INFORMATION." There can
be no
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assurance that shares of the AFC Common Stock will not trade below $49.76
between the mailing date of this Joint Proxy Statement-Prospectus and the
Effective Time or that the market value of AFC Common Stock will not be less
than $49.76.
Prior to making any decision to terminate (or allow the termination of) the
Merger Agreement, each of the LIB Board and the AFC Board would consult with
its respective financial and other advisors and would consider all financial
and other information it deemed relevant to its decision. It is not possible
to know whether the Price-Based Termination right will be triggered until
after the Valuation Date. The LIB Board has made no decision as to whether it
would exercise its right to terminate the Merger Agreement if the termination
right has been triggered. In considering whether to exercise its termination
right in such situation, the LIB Board would, consistent with its fiduciary
duties, take into account all relevant facts and circumstances that exist at
such time and would consult with its financial advisors and legal counsel.
Approval and adoption of the Merger Agreement by the stockholders of LIB at
the LIB Meeting will confer on the LIB Board the power, consistent with its
fiduciary duties, to elect to consummate the Merger in the event the
termination right is triggered, whether or not there is any increase in the
Exchange Ratio and without any further action by, or resolicitation of, the
stockholders of LIB. If the LIB Board elects to exercise its termination
right, LIB must give AFC prompt notice of that decision during a five-day
period beginning with the Valuation Date (the "Effective Termination Date")
but the LIB Board may withdraw such notice, at its sole option, at any time
prior to the Effective Termination Date. During the five-day period commencing
with receipt of such notice, AFC has the option, in its sole discretion, to
increase the Merger Consideration in the manner set forth in the Merger
Agreement and as illustrated above and thereby avoid such termination of the
Merger Agreement. AFC is under no obligation to increase the Merger
Consideration, and there can be no assurance that AFC would elect to increase
the Merger Consideration if the LIB Board were to exercise its right to
terminate the Merger Agreement as set forth above. Any such decision would be
made by AFC in consultation with its investment and legal advisors in light of
the circumstances existing at the time AFC has the opportunity to make such an
election. Approval of the Merger Agreement by the stockholders of AFC at the
AFC Meeting will confer on the AFC Board the power, consistent with its
fiduciary duties, to elect to increase the Merger Consideration as described
above and consummate the Merger in the event the termination right is
triggered without any further action by, or resolicitation of, the
stockholders of AFC. If AFC elects to increase the Merger Consideration as set
forth in the Merger Agreement and as illustrated above, it must give LIB
notice of that election within five days of receipt of such notice and such
increased Merger Consideration, in which case no termination of the Merger
Agreement would occur as a result of the triggering of the termination right.
TERMINATION FEES
In recognition of the efforts and expenses of, and other opportunities
foregone by AFC while structuring the Merger, the Merger Agreement provides
that LIB, except as described below, will pay to AFC a termination fee of $30
million, plus AFC's documented, reasonable out-of-pocket expenses (including
fees and expenses of legal, financial and accounting advisors) in cash on
demand, if, after a bona fide proposal is made by a third party to LIB or
LIB's stockholders to engage in an Acquisition Transaction (as defined below),
any of the following occurs:
(i) LIB breaches any covenant or obligation contained in the Merger
Agreement and such breach entitles AFC to terminate the Merger Agreement;
(ii) the stockholders of LIB do not approve the Merger Agreement at the
LIB Meeting, the LIB Meeting is not held or the LIB Meeting is canceled
prior to termination of the Merger Agreement; or
(iii) the LIB Board withdraws or modifies, in a manner adverse to AFC,
its recommendation with respect to the Merger Agreement.
The Merger Agreement further provides that LIB will pay to AFC a termination
fee of $60 million plus AFC's documented, reasonable out-of-pocket expenses
(including fees and expenses of legal, financial and accounting advisors) in
cash on demand, if, during a period of 18 months after April 2, 1998, either
of the following occurs:
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(i) Any person other than AFC or an affiliate of AFC acquires beneficial
ownership of 10% or more of the then outstanding voting power of LIB; or
(ii) LIB or any of its subsidiaries, without having received AFC's prior
written consent, enters into an agreement to engage in an Acquisition
Transaction (as defined below) with any person other than AFC or any of its
subsidiaries or the LIB Board recommends that the stockholders of LIB
approve or accept any Acquisition Transaction (as defined below) with any
person other than AFC or any of its subsidiaries; under the Merger
Agreement, an "Acquisition Transaction" is defined as (a) a merger or
consolidation, or any similar transaction, involving LIB, (b) a purchase,
lease or other acquisition of all or substantially all of the assets of LIB
or (c) a purchase or other acquisition of securities representing 10% or
more of the voting power of LIB.
Notwithstanding the foregoing, LIB will not be obligated to pay to AFC
either termination fee in the event that: (i) LIB and AFC mutually consent to
terminate the Merger Agreement; (ii) any governmental approval necessary to
consummate the Merger is denied, and such denial is final and non-appealable,
or a final non-appealable governmental order enjoining the Merger is issued;
(iii) LIB terminates the Merger Agreement due to (A) a material breach by AFC
of any representation, warranty, covenant or agreement contained in the Merger
Agreement that causes the conditions to the Merger Agreement not to be
satisfied and which breach is not cured within 25 days after written notice of
such breach is given by LIB to AFC or which breach is not capable of being
cured by the closing or any extension thereof or (B) a drop in the price of
the AFC Common Stock as described in "-- Price-Based Termination" or (iv) the
Merger is not consummated by March 31, 1999 (other than by reason of LIB's
fault).
A termination fee otherwise payable to AFC pursuant to the Merger Agreement
may be reduced under certain circumstances. Pursuant to the LIB Stock Option
Agreement, LIB has granted AFC an option to purchase up to 4,763,113 shares of
LIB Common Stock at an exercise price of $63.25 upon the occurrence of certain
events. The maximum aggregate profit AFC can receive under the LIB Stock
Option Agreement and the Termination Fee arrangements is $60 million. See
"CERTAIN RELATED TRANSACTIONS -- LIB Stock Option Agreement."
EXPENSES
All costs and expenses incurred in connection with the Merger Agreement, the
AFC Stock Option Agreement, the LIB Stock Option Agreement and the
transactions contemplated thereby shall be paid by the party incurring such
expense, except that AFC shall pay all printing expenses and Commission filing
fees.
FEDERAL INCOME TAX CONSEQUENCES
The federal income tax discussion set forth below may not be applicable to
certain classes of taxpayers, including insurance companies, securities
dealers, financial institutions, tax exempt organizations or trusts, foreign
persons, persons who hold shares of LIB Common Stock as part of a straddle or
conversion transaction and persons who acquired shares of LIB Common Stock
pursuant to the exercise of employee stock options or rights or otherwise as
compensation. In addition, this discussion does not address the tax
consequences of transactions effectuated prior to or after the Merger, whether
or not such transactions are in connection with the Merger, including, without
limitation, the exercise of options or rights to purchase shares of LIB stock
in anticipation of the Merger. LIB stockholders are urged to consult their own
tax advisors as to the specific tax consequences to them of the Merger,
including the applicability and effect of federal, state, local and other tax
laws.
Tax Opinions. It is intended that the Merger will be treated as a
reorganization within the meaning of Section 368(a) of the Code. AFC and LIB
each has received a tax opinion from Thacher Proffitt & Wood and Milbank,
Tweed, Hadley & McCloy, respectively, dated immediately prior to the date of
this Joint Proxy Statement-Prospectus, that addresses the material federal
income tax consequences to stockholders of AFC and LIB, respectively. Such tax
opinions have been filed as exhibits to the Registration Statement. These
opinions are substantially to the effect that for federal income tax purposes:
(i) the Merger will be treated as a
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reorganization within the meaning of Section 368(a) of the Code, (ii) no gain
or loss will be recognized by AFC, Astoria Federal, LIB or LIB Bank as a
result of the Merger; (iii) except to the extent of any cash received in lieu
of a fractional share interest in AFC Common Stock, no gain or loss will be
recognized by holders of LIB Common Stock who exchange their shares of LIB
Common Stock for shares of AFC Common Stock pursuant to the Merger; (iv) the
tax basis of the shares of AFC Common Stock received by each holder of LIB
Common Stock who exchanges shares of LIB Common Stock for shares of AFC Common
stock in the Merger will be the same as the tax basis of the shares of LIB
Common Stock surrendered pursuant to the Merger, reduced by any amount
allocable to a fractional share interest of AFC Common Stock for which cash is
received and gain recognized and (v) the holding period of the shares of AFC
Common Stock received by each holder of LIB Common Stock in the Merger will
include the holding period of the shares of LIB Common Stock exchanged
therefor, provided that such stockholder holds such shares of LIB Common Stock
as a capital asset at the Effective Time. Consummation of the Merger is
conditioned upon receipt by AFC of an opinion of Thacher Proffitt & Wood, and
receipt by LIB of an opinion of Milbank, Tweed, Hadley & McCloy (collectively,
the "Tax Opinions"), each dated as of the Effective Date, substantially to the
same effect. The Tax Opinions will address all material federal income tax
consequences to stockholders of LIB.
The Tax Opinions will not be binding on the Internal Revenue Service (the
"Service"), and there can be no assurance that the Service will not contest
the conclusions expressed therein. The Tax Opinions may be based in part upon
certain factual assumptions and upon certain representations made, and
certificates delivered, by AFC, Astoria Federal, LIB, LIB Bank and certain of
their respective stockholders, officers and other persons, which
representations and certificates Thacher Proffitt & Wood and Milbank, Tweed,
Hadley & McCloy will assume to be true, correct and complete.
In the event the receipt of the Tax Opinions is waived by AFC and LIB as a
condition to completion of the Merger, an amended prospectus will be
recirculated to the holders of LIB Common Stock.
Tax Consequences; General. The following summary sets forth certain
anticipated material federal income tax consequences of the Merger to LIB
stockholders. The tax treatment of each LIB stockholder will depend in part
upon such stockholder's particular situation and the consideration received by
such stockholder pursuant to the Merger. This summary is based on the
provisions of the Code, the Treasury Regulations promulgated thereunder and
administrative and judicial interpretations thereof, all as in effect as of
the date hereof. Such laws, regulations or interpretations may differ at the
Effective Time, and relevant facts also may differ.
Exchange of LIB Stock Solely for AFC Stock. No gain or loss will be
recognized by an LIB stockholder who receives solely AFC Common Stock for such
stockholder's shares of LIB Common Stock (except to the extent such a
stockholder receives cash in lieu of a fractional share interest in AFC Common
Stock). Such an LIB stockholder's aggregate tax basis in the AFC Common Stock
received pursuant to the Merger will equal such stockholder's aggregate tax
basis in the shares of LIB Common Stock exchanged therefor, reduced by any
amount allocable to a fractional share interest of AFC Common Stock for which
cash is received and increased by any gain recognized on such exchange.
Fractional Shares of AFC Common Stock. No fractional shares of AFC Common
Stock will be issued in the Merger; instead, each LIB stockholder who would
otherwise be entitled to a fractional share of AFC Common Stock will receive
cash in lieu of such fractional share interest. Such LIB stockholder will be
treated, under Section 302 of the Code, as having received such fractional
share ("Hypothetical Fractional Share") pursuant to the Merger and then as
having exchanged such Hypothetical Fractional Share for cash in a redemption
by AFC ("Hypothetical Redemption"). Under the principles of Section 302 of the
Code, an LIB stockholder will recognize capital gain rather than dividend
income with respect to the cash received if the Hypothetical Redemption is
"not essentially equivalent to a dividend."
If the AFC Common Stock represents a capital asset in the hands of the
stockholder, the stockholder will generally recognize capital gain or loss on
such a deemed redemption of the fractional share in an amount
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determined by the excess of the amount of cash received therefor and the
stockholder's tax basis in the fractional share. Any such capital gain
realized by an individual taxpayer will qualify for the 20% maximum tax (10%
in the case of individuals in the 15% ordinary income tax bracket) on net
capital gains if the LIB Common Stock exchanged was held for at least 18
months, and for the 28% maximum tax on net capital gains if such LIB Common
Stock was held for more than one year and less than 18 months.
Whether the Hypothetical Redemption by AFC of a Hypothetical Fractional
Share for cash is "not essentially equivalent to a dividend" with respect to
an LIB stockholder will depend upon such stockholder's particular
circumstances. However, the Hypothetical Redemption must, in any event, result
in a "meaningful reduction" in such LIB stockholder's percentage ownership of
AFC Common Stock. In determining whether the Hypothetical Redemption by AFC
results in a meaningful reduction in an LIB stockholder's percentage ownership
of AFC Common Stock and, therefore, does not have the effect of a distribution
of a dividend, an LIB stockholder should compare his or her share interest in
AFC (including interests owned actually, hypothetically or constructively
under Section 318 of the Code) immediately after the Merger (but before the
Hypothetical Redemption) to his or her share interest after the Hypothetical
Redemption. The IRS has indicated, in Revenue Ruling 76-385, that a
stockholder in a publicly-held corporation whose relative stock interest in
the corporation is minimal and who exercises no "control" over corporate
affairs is generally treated as having had a meaningful reduction in his or
her stock after a redemption transaction if his or her percentage stock
ownership in the corporation has been reduced to any extent, taking into
account the stockholder's actual and constructive ownership before and after
the redemption. In Revenue Ruling 76-385, a reduction from 0.0001118% to
0.0001081% was found to be a meaningful reduction in stockholdings.
The holding period of AFC Common Stock received will include the holding
period of the shares of LIB Common Stock exchanged therefor, provided that
such shares of LIB Common Stock were held as a capital asset as of the
Effective Date. LIB stockholders should consult their own tax advisors
concerning the determination of their basis and holding period in any
particular share of AFC Common Stock since several methods of determination
may be available.
Backup Withholding. Unless an exemption applies under applicable law and
regulations, the Exchange Agent will be required to withhold 31% of any
payment of cash in lieu of a fractional share interest to which a non-
corporate stockholder or other payee is entitled pursuant to the Merger unless
the stockholder or other payee provides its taxpayer identification number
(social security number, employer identification number or individual taxpayer
identification number) and certifies that such number is correct. Each
stockholder and, if applicable, each other payee must complete and sign the
substitute Form W-9 or, if applicable, the certificate of foreign status on
Form W-8, so as to provide the information and certification necessary to
avoid backup withholding, unless an applicable exemption exists and is
established in a manner satisfactory to AFC and the Exchange Agent.
ACCOUNTING TREATMENT
The Merger is intended to qualify as a pooling-of-interests for accounting
and financial reporting purposes. Under this method of accounting, the
recorded assets and liabilities of AFC and LIB will be carried forward to the
combined corporation at their recorded amounts; income of the combined
corporation will include income of both AFC and LIB for the entire fiscal year
of AFC in which the Merger occurs. The reported income of the separate
corporations for prior periods will be combined and restated as income of the
combined corporation. Expenses incurred in connection with the Merger will
constitute expenses for the accounting periods subsequent to the Closing Date.
It is a condition to completion of the Merger that AFC receives an opinion
from its independent accountants confirming that the Merger will qualify as a
pooling-of-interests for financial accounting purposes.
AFC and LIB have each been informed by their respective independent auditors
that there is no reason to believe that the Merger will not qualify as a
pooling-of-interests for financial accounting and financial reporting
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purposes. LIB has agreed in the Merger Agreement that, to the extent
determined by AFC in AFC's reasonable judgment as necessary for the Merger to
qualify as a pooling-of-interests for accounting purposes, prior to the
Effective Time, LIB shall conduct a sale of a sufficient number of shares of
LIB Common Stock currently held as treasury shares by LIB to allow the Merger
to qualify as a pooling-of-interests for accounting purposes.
ABSENCE OF APPRAISAL RIGHTS
Under the DGCL, neither the stockholders of AFC nor the stockholders of LIB
are entitled to appraisal rights in connection with the transactions related
to the consummation of the Merger.
Holders of LIB Common Stock do not have appraisal rights in connection with
the Merger. Under the DGCL, stockholders of a Delaware corporation who dissent
from a merger or consolidation of the corporation may be entitled to appraisal
rights, unless such corporation's shares are either (i) listed on a national
securities exchange or designated as a national market system security on an
inter dealer quotation system by the National Association of Securities
Dealers, Inc., or (ii) held of record by more than 2,000 stockholders, and
such stockholders receive only shares of stock or depository receipts of the
corporation surviving or resulting from the merger or consolidation of shares
of stock or depository receipts of any other corporation which at the
effective date of the merger or consolidation will be either listed on a
national securities exchange or designated as a national market system
security on an inter dealer quotation system by the National Association of
Securities Dealers, Inc. or held of record by more than 2,000 stockholders (or
cash in lieu of fractional share interests thereon). Since the LIB Common
Stock and the AFC Common Stock to be received pursuant to the Merger Agreement
are presently listed on the Nasdaq National Market, the stockholders of LIB
are not entitled to appraisal rights.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
General. Certain members of LIB's senior management and the LIB Board may be
deemed to have certain interests in the Merger that are in addition to or
potentially different from the interests of stockholders of LIB generally. The
LIB Board was aware of these interests and considered them, among other
matters, in approving the Merger Agreement and the transaction contemplated
thereby. In considering the recommendation of the LIB Board in respect of the
Merger Agreement and the transactions contemplated thereby, the LIB
stockholders should be aware that such interests may present actual or
potential conflicts of interest with respect to the Merger.
LIB Employment and Severance Arrangements. LIB entered into employment
agreements with Messrs. Conefry, Fuster, Singer, and Volk, each dated as of
September 19,1994, Mr. Barnet, dated as of October 3, 1996, Mr. Peters, dated
as of March 1, 1997, Ms. Cullen, dated as of August 4, 1997, and Ms. Kwaschyn,
dated as of March 31, 1998, which are substantially identical (as such
agreements may have been amended from time to time, the "Employment
Agreements"). The Employment Agreements provide for employment for a period of
three years (34 months for Mr. Peters) at an annual base salary (currently
$700,000 in the case of Mr. Conefry, $215,000 for Messrs. Fuster and Singer,
$180,000 for Mr. Volk, $225,000 for Mr. Barnet, $375,000 for Mr. Peters,
$200,000 for Ms. Cullen and $150,000 for Ms. Kwaschyn) and a discretionary
bonus payment. Mr. Peters' Employment Agreement provides for the payment of a
guaranteed bonus payment of no less than $125,000 per year. During the
employment period, each executive is entitled to participate in all incentive,
pension, retirement, savings and other employee benefit plans and programs
maintained by LIB and/or LIB Bank for the benefit of its other employees. The
Merger will constitute a change in control of LIB for purposes of the
Employment Agreements. Within six months after a change in control, each
executive is entitled to terminate employment for any reason and receive a
severance benefit equal to the sum of the following: (i) three times (one and
one quarter times for Mr. Peters) the sum of the executive's highest per annum
base salary and aggregate bonus amount paid to the executive at any time
during the term of the Employment Agreement; (ii) payment of accrued salary
through the executive's date of termination and any bonus actually awarded,
but not yet paid as of the date of termination; (iii) reimbursement for all
expenses incurred as of the executive's date of termination, but not yet paid
as of the date of termination; (iv) payment of the value of any unused
vacation days accrued during the executive's term of employment and the
unaccrued portion of any vacation days available
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through the end of the calendar year in which the termination occurs; and (v)
three years continued coverage under LIB's and/or LIB Bank's welfare benefit
plans or substantially similar coverage. In the event it shall be determined
that any payment or distribution by LIB to or for the benefit of the above
named executives (whether pursuant to the terms of the Employment Agreements
or otherwise) would be subject to the excise tax imposed by Section 4999 of
the Code, such executive will receive an additional tax reimbursement payment.
In addition to the severance amounts payable under the Employment
Agreements, certain of the above named executives stand to receive additional
benefits, in cash or in kind, in connection with the Merger. All of the above
named executives will receive a lump sum payment under the LIB Bank severance
plan. Messrs. Conefry and Peters will receive title to certain computer
equipment purchased by LIB. Messrs. Conefry, Peters and Barnet will receive
title to certain company automobiles previously owned or leased by LIB and
being used by such executives. Mr. Peters' life insurance policy will be
continued for life at LIB's expense. LIB will provide life insurance policies
for Ms. Cullen and Ms. Kwaschyn. In addition, LIB will forgive amounts owed to
LIB and/or LIB Bank for premiums paid in connection with any life insurance
policy or policies pursuant to any split dollar life insurance arrangement and
will make a lump sum payment to satisfy the cost of maintaining such policy or
policies with respect to all of the above mentioned executives. Mr. Peters
will continue and Mr. Fuster will begin to receive quarterly distributions of
their accrued benefits under the Long Island Savings Bank, FSB Deferred
Pension Plan (over a period of seven years for Mr. Peters and ten years for
Mr. Fuster) and both Messrs. Peters and Fuster will receive a waiver of the
"non-competition" provision contained in such plan. All of the above named
executives with the exception of Mr. Peters will receive outplacement
services. Mr. Fuster will be entitled to enhanced post-retirement health
coverage under a special provision of LIB's retirement program. Mr. Peters
will receive distributions of his accrued benefits under LIB's non-employee
retirement and deferred stock unit plans.
The aggregate amount of the benefits to be paid to the above named
executives in satisfaction of the obligations described above, both under the
Employment Agreements or otherwise, is approximately $20 million. AFC has
agreed in the Merger Agreement to assume all of the above obligations from LIB
and/or LIB Bank.
Share Ownership. As of May 31, 1998, directors and executive officers of
LIB, LIB Bank, and certain of their affiliates had a beneficial interest in
811,064 shares of LIB Common Stock (exclusive of shares which could be
acquired upon the exercise of options) for which they will receive Merger
Consideration.
LIB Bank 1994 Stock Incentive Plan and 1994 Non-Employee Directors Stock
Option Program (the "Option Plans"). Under the terms of the Merger Agreement
all LIB options outstanding at the Effective Time (representing options to
purchase 1,572,084 shares of LIB Common Stock, as of May 31, 1998) will
automatically be converted into options to purchase shares of AFC Common Stock
subject to the terms of the Option Plans and the individual award agreements
issued thereunder, including the terms and provisions governing vesting and
exercisability. Under the Option Plans, all LIB options will become fully
vested and exercisable as of the date LIB stockholders approve the Merger. The
number of substitute options and the exercise price thereof will be set by,
respectively multiplying the number of shares covered by, and dividing the
exercise price of, the LIB options by the Exchange Ratio.
LIB Bank Management Recognition and Retention Plan for Executive Officers
and LIB Bank Management Recognition and Retention Plan for Non-Employee
Directors (the "MRP Plans"). The MRP Plans provide for the grant of restricted
stock awards to certain employees and non-employee directors of LIB and LIB
Bank. As of May 31, 1998, there were 164,188 shares of unvested restricted
stock which have been awarded under the MRP Plans. Upon stockholder approval
of the Merger, awards granted pursuant to the MRP Plans shall become fully
vested.
Board of Directors. Immediately following the Effective Time, the AFC Board
will consist of 15 members and will include five persons who are currently
members of the LIB Board. The five new members of the AFC Board will be
Messrs. Conefry, Peters, Wenk, Waters and Robert J. Conway. Each member of the
AFC Board who is not an employee of AFC receives a fee for such service and,
if applicable, for service as a non-employee
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director of Astoria Federal at a combined annual rate of $45,000 and shall be
afforded the opportunity, at his or her own expense, to purchase coverage
under the group health plan maintained by Astoria Federal. Furthermore, within
30 days after the Effective Time, each member of the AFC Board will receive a
grant of options to purchase 4,000 shares of AFC Common Stock with a term
extending for ten years beginning on the Effective Time and an exercise price
equal to the fair market value of such shares as of the date of grant.
Advisory Board. All members of the LIB Board as of April 2, 1998 who do not
become directors of AFC, and who are willing to serve, will be appointed as
members of an advisory board established by AFC (the "Advisory Board").
Members of the Advisory Board will serve for a one year term and may be re-
appointed by AFC to serve two successive one-year terms following the initial
one-year term. Each member of the Advisory Board who is not an employee of AFC
will receive a fee for such services at an annual rate of $40,000 and shall be
afforded the opportunity, at his or her own expense, to purchase coverage
under the group health plan maintained by Astoria Federal. Furthermore, within
30 days after the Effective Time, each member of the Advisory Board will
receive a grant of options to purchase 4,000 shares of AFC Common Stock with a
term extending for ten years beginning on the Effective Time and an exercise
price equal to the fair market value of such shares as of the date of grant.
Litigation Committee. LIB Bank is the plaintiff in (the "LIB Litigation").
Promptly following the Effective Time, AFC will designate a special litigation
committee consisting of Mr. Conefry, as chairman, Messrs. Fuster, Herbst and
Teurfs and Ms. Cullen (the "Litigation Committee") for the purpose of
preserving the knowledge and experience of certain LIB officers in connection
with the LIB Litigation, assisting in achieving maximum recovery thereon, and
assisting AFC in evaluating and managing the progress thereof. In connection
with each member's service, AFC will enter into a consulting agreement with
each member of the Litigation Committee (the "Litigation Committee Consulting
Agreements"). Pursuant to the Litigation Committee Consulting Agreements, each
member of the Litigation Committee will serve for a term beginning on the
Effective Date and ending on the earliest of (i) the third anniversary of the
Effective Date; (ii) the date of a final, unappealable judgment in the LIB
Litigation or a final settlement of the LIB Litigation; (iii) the individual's
death or disability; (iv) the individual's material breach of the LIB
Litigation Committee Consulting Agreement; (v) the individual's conviction of
a felony; or (vi) the individual's voluntary termination. The term of each
individual's Litigation Committee Consulting Agreement will automatically
extend for two (2) additional one-year terms absent advance notice by either
AFC or the individual. In connection with the Merger, Mr. Conefry will enter
into an employment agreement with AFC (see below). The term of Mr. Conefry's
Litigation Committee Consulting Agreement will not commence until the
termination of his employment under such employment agreement for any reason
other than his death, disability or cause, as each is defined in such
employment agreement. Each member of the Litigation Committee who is not a
director, officer or employee of AFC will receive an annual fee for his or her
services to the Litigation Committee ($400,000 for Mr. Conefry, $225,000 for
Mr. Fuster, and $100,000 each for Messrs. Herbst and Teurfs and Ms. Cullen).
Additionally, if the individual performs services for AFC with respect to the
LIB Litigation after the expiration of the term of his or her Litigation
Committee Consulting Agreement, AFC will pay him or her a fee of $200 per
hour. AFC will cause to be created a bonus pool in an amount equal to 1% of
the amount by which the gross proceeds of (1) a final, unappealable judgment
in the LIB Litigation, or (2) the final settlement of the LIB Litigation,
exceeds $500 million which shall be available, in the absolute discretion of
the disinterested members of the AFC Board, for distribution, in whole or in
part, to officers, directors and consultants of AFC who have had involvement
in the successful prosecution of the LIB Litigation.
Indemnification and Insurance. Pursuant to the Merger Agreement, AFC will
indemnify the present and former directors and officers of LIB from the
Effective Time through the sixth anniversary of the Effective Time from
liabilities arising out of actions or omissions from their service as
directors or officers of LIB. The Merger Agreement also contains provisions
regarding the continuation of directors' and officers' liability insurance for
a period of six years after the Effective Time; (provided, that AFC may
substitute or cause LIB to substitute single premium tail coverage with policy
limits equal to LIB Bank's existing annual coverage limits) however, in no
event will AFC be obligated to expend an aggregate premium in excess of 200%
of the amount of the annual premiums paid as of April 2, 1998 by LIB for such
insurance. In addition, the above named executives will
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receive additional indemnification pursuant to the terms of their Litigation
Committee Consulting Agreements, AFC Employment Agreements, and/or AFC
Consulting Agreements which generally provide for indemnification for the
executives while performing their duties under their respective agreements and
for a period of six years following the termination of services under such
contracts.
AFC Employment and Consulting Agreements. AFC entered into an employment
agreement with Mr. Conefry, dated as of April 2, 1998 (the "Conefry
Agreement"). Pursuant to the terms of the Conefry Agreement, upon the
Effective Time, Mr. Conefry will serve as a Vice Chairman of AFC and the
Chairman of the Litigation Committee (see above). The Conefry Agreement
provides for an initial three year term of employment, commencing on the
Effective Time, at an annual base salary of no less than $700,000 (and at
least 80% of the rate of base salary payable by AFC to its Chief Executive
Officer) and an annual bonus payment in an amount not less than 80% of the
amount paid to AFC's Chief Executive Officer. The Conefry Agreement also
provides for an award of 10,000 shares of restricted stock under The Astoria
Federal Savings and Loan Association Recognition and Retention Plan for
Officers and Employees, with 5,000 of such shares vesting on January 10, 1999
and the remaining 5,000 shares vesting on January 10, 2000. In addition, upon
the Effective Time Mr. Conefry will receive options to acquire 25,000 shares
of AFC Common Stock having a ten year term and an exercise price equal to the
fair market value of such shares as of the date of grant, and the prospective
amount of options to acquire shares of AFC Common Stock that is at least 50%
of such options granted to AFC's Chief Executive Officer. During the
employment period, Mr. Conefry is entitled to participate in and receive
benefits under any and all incentive, pension, retirement, savings, welfare
and other employee benefit plans and programs maintained by AFC and/or Astoria
Federal for the benefit of its employees.
AFC entered into consulting agreements with Messrs. Barnet and Peters, dated
as of April 2, 1998 (the "Consulting Agreements"). The Consulting Agreements
provide for a consulting term of three years for Mr. Barnet and one year for
Mr. Peters from the Effective Time at an annual retainer ($150,000 for Mr.
Barnet and $500,000 for Mr. Peters).
LIB Non-Employee Directors Benefit Plan. LIB provides for retirement
benefits to be awarded to its non-employee directors under the LIB Non-
Employee Directors Benefit Plan (the "Directors Retirement Plan"). Upon the
Effective Time, the Directors Retirement Plan cannot be terminated or amended
and will allow for participation by any director with five or more years of
service on the LIB Board. In total, the amount of benefits provided under the
Directors Retirement Plan will be approximately $3.1 million (present value).
EFFECT ON LIB EMPLOYEE BENEFIT PLANS
Each person who is employed by LIB Bank immediately prior to the Effective
Time (an "LIB Employee") shall, at the effective time of the Bank Merger,
become an employee of Astoria Federal upon the same terms and conditions
generally applicable to other employees of Astoria Federal with comparable
positions, with the following special provisions:
(i) No LIB Employee shall be, or have or exercise the authority of, an
officer of Astoria Federal unless and until elected or appointed an officer
of Astoria Federal in accordance with Astoria Federal's Bylaws which
election or appointment shall be determined and implemented as soon as
practicable following the Effective Time;
(ii) At or as soon as practicable following the Effective Time, AFC and
Astoria Federal will implement a program of compensation and benefits
designed to cover all similarly situated employees on a uniform basis (the
"New Benefits Program"). The New Benefits Program may contain any
combination of new plans, continuations of plans maintained by AFC or
Astoria Federal immediately prior to the Effective Time and continuations
of plans maintained by LIB or LIB Bank immediately prior to the Effective
Time as AFC, in its discretion, may determine. To the extent that it is not
practicable to implement any constituent part of the New Benefits Program
at the Effective Time, AFC and Astoria Federal shall continue in effect any
comparable plan maintained immediately prior to the Effective Time for the
respective employees of AFC, LIB, Astoria Federal and LIB Bank for a
transition period. During the transition period, the persons who
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were employees of LIB or LIB Bank immediately prior to the Effective Time
who become employees of AFC or Astoria Federal at the Effective Time shall
continue to participate in the plans of LIB and LIB Bank which are
continued for transitional purposes, and all other employees of AFC or
Astoria Federal will participate only in the comparable plans of AFC and
Astoria Federal which are continued for transitional purposes;
(iii) The New Benefits Program will recognize, in the case of persons
employed by AFC, Astoria Federal, LIB or LIB Bank immediately prior to the
Effective Time who are also employed by the Astoria Federal or AFC
immediately after the Effective Time, all service with or previously
recognized by AFC, Astoria Federal, LIB or LIB Bank as service with AFC and
Astoria Federal for eligibility and vesting purposes; and
(iv) In the case of any constituent part of the New Benefits Program
which is a life, health or long-term disability insurance plan: (A) such
plan will not apply to any preexisting condition limitations for conditions
covered under the applicable life, health or long-term disability insurance
plans maintained by AFC, Astoria Federal, LIB and LIB Bank as of the
Effective Time, (B) each such plan which is a health insurance plan will
honor any deductible and copayment or out-of-pocket expenses incurred under
the applicable health insurance plans maintained by AFC, Astoria Federal,
LIB and LIB Bank as of the Effective Time and (C) each such plan which is a
life or long-term disability insurance plan will waive any medical
certification otherwise required in order to assure the continuation of
coverage at a level not less than that in effect immediately prior to the
implementation of such plan (but subject to any overall limit on the
maximum amount of coverage under such plans).
OPERATIONS AFTER THE MERGER
At the Effective Time, LIB will merge with and into AFC, with AFC being the
surviving entity. Under the terms of the Merger Agreement, the certificate of
incorporation and bylaws of AFC will be the charter and bylaws of the
surviving entity which will retain the name of Astoria Financial Corporation.
AFC, as the resulting entity, will operate under the policies, practices and
procedures currently in place. All assets and property (real, personal and
mixed, tangible and intangible, choices in actions, rights and credits) owned
by LIB shall immediately become the property of AFC. Pursuant to the Plan of
Bank Merger, immediately following consummation of the Merger, LIB Bank will
merge with and into Astoria Federal, with Astoria Federal surviving the Bank
Merger. AFC and Astoria Federal do not currently anticipate closing any of
Astoria Federal's branches but do currently anticipate consolidating five of
LIB's branches into Astoria Federal's branches following completion of the
Merger and the Bank Merger. The net result of the Merger will result in a
greater number of branches and the addition of new market areas for AFC. AFC
will also recognize cost savings through consolidation of back office
functions. See "-- Management of AFC after the Merger."
MANAGEMENT OF AFC AFTER THE MERGER
The Merger Agreement provides that, at the Effective Time, the directors of
AFC will consist of (i) the directors of AFC immediately prior to the
Effective Time and (ii) the Former LIB Directors, one of whom shall be Mr.
Conefry. The directors of AFC will cause the Former LIB Directors to be
elected or appointed as directors of AFC at, or as promptly as practicable
after, the Effective Time. The directors of Astoria Federal following the Bank
Merger will consist of the current directors of Astoria Federal, plus the
Former LIB Directors. At the Effective Time, Mr. Conefry will become a Vice
Chairman of AFC. See "-- Interests of Certain Persons in the Merger."
INVOLVEMENT IN LEGAL PROCEEDINGS
On February 27, 1998, a class action complaint was commenced in the Court of
Chancery of the State of Delaware (the "Chancery Court") entitled Miriam Simon
and Stewart Simon v. Long Island Bancorp, Inc., et al, (the "Simon Complaint")
against LIB and its directors. The Simon Complaint alleges, among other
things, that the directors of LIB violated their fiduciary duties in
connection with LIB's non-acceptance of an offer alleged
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to have been made by AFC on February 25, 1998 to purchase LIB for $55 per
share (the "AFC Offer"). The Simon Complaint seeks, among other things, a
judgment (i) enjoining the LIB directors to maximize stockholder value and
consider and negotiate all bona fide offers, (ii) compensating class members
for losses and damages, and (iii) awarding plaintiffs costs and attorneys'
fees. On March 13, 1998, a class action complaint substantially similar to the
Simon Complaint was filed in the Chancery Court entitled Lawrence Berman v.
John J. Conefry, Jr., et al, against LIB and its directors (the "Berman
Complaint"). The Berman Complaint alleges that the directors of LIB violated
their fiduciary duties in connection with LIB's non-acceptance of the AFC
Offer and seeks injunctive relief, damages in an unstated amount, and costs
and disbursements, including attorneys' fees and expert fees.
On March 6, 1998, a class action complaint was commenced in the Chancery
Court entitled Murray Zucker and Deborah Dyckman v. Long Island Bancorp, Inc.,
et al, against LIB and its directors (the "Zucker Complaint"). An amended
Zucker Complaint was filed on April 6, 1998. The amended Zucker Complaint
alleges, among other things, that the directors of LIB violated their
fiduciary duties in entering into the Merger Agreement. The amended Zucker
Complaint seeks injunctive relief and the costs and disbursements of the
action, including attorneys' fees and expert fees.
The Simon Complaint, the Berman Complaint and the Zucker Complaint have been
consolidated for all purposes by the Chancery Court. LIB believes that each of
these actions is without merit and intends to vigorously defend against them.
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CERTAIN RELATED TRANSACTIONS
LIB STOCK OPTION AGREEMENT
General. As a condition to entering into the Merger Agreement, AFC required
that LIB enter into the LIB Stock Option Agreement, which allows AFC to
purchase LIB Common Stock under certain circumstances. Pursuant to the LIB
Stock Option Agreement, LIB granted to AFC an option (the "AFC Option") to
purchase 4,763,113 shares of LIB Common Stock (representing approximately
19.9% of the issued and outstanding shares of the LIB Common Stock on April 2,
1998) (subject to adjustment such that in no event may AFC acquire shares of
LIB Common Stock representing more than 19.9% of the issued and outstanding
shares of such stock) at an exercise price of $63.25 per share (subject to
adjustment). The LIB Option may only be exercised upon the occurrence of
certain "LIB Purchase Events" which are described herein (none of which has
occurred to the best of AFC's or LIB's knowledge as of the date of this Joint
Proxy Statement-Prospectus).
Effect of LIB Stock Option Agreement. The LIB Stock Option Agreement is
intended to increase the likelihood that the Merger will be consummated in
accordance with the terms of the Merger Agreement. Consequently, certain
aspects of the LIB Stock Option Agreement may have the effect of discouraging
persons who might now or prior to the consummation of the Merger be interested
in acquiring all of or a significant interest in LIB from considering or
proposing such an acquisition, even if such persons were prepared to pay a
higher price per share for the LIB Common Stock than the value per share
contemplated by the Merger Agreement. The acquisition of LIB, a significant
portion of its consolidated assets or an interest in LIB, or an agreement to
do so, could cause the LIB Option to become exercisable. The existence of such
LIB Option could significantly increase the cost to a potential acquiror of
acquiring LIB compared to its cost had the LIB Stock Option Agreement not been
executed. Such increased costs might discourage a potential acquiror from
considering or proposing an acquisition or might result in a potential
acquiror proposing to pay a lower per share price to acquire LIB than it might
otherwise have proposed to pay. The management of LIB believes that the
exercise of the LIB Option is likely to prohibit any acquiror of LIB from
accounting for any acquisition of LIB using the pooling-of-interests
accounting method for a period of two years. This could discourage or preclude
an acquisition by other banking organizations.
Terms of LIB Stock Option Agreement. The following is a brief summary of
certain provisions of the LIB Stock Option Agreement, which is attached hereto
as Appendix B. The following summary is qualified in its entirety by reference
to the LIB Stock Option Agreement.
If AFC is not in material breach of the LIB Stock Option Agreement or the
Merger Agreement and if no injunction or other court order against delivery of
the shares covered by the related LIB Option is in effect, AFC may exercise
the LIB Option, in whole or in part, at any time and from time to time upon
the occurrence of the following (each an "LIB Purchase Event"):
(i) Without AFC's prior written consent, LIB taking certain actions (each
an "LIB Acquisition Transaction") including authorizing, recommending or
proposing, or entering into an agreement with any third party to effect (A)
a merger, consolidation or similar transaction involving LIB or any of its
significant subsidiaries, (B) the disposition, by sale, lease, exchange or
otherwise, of assets or deposits of LIB or any of its significant
subsidiaries representing in either case all or substantially all of the
consolidated assets or deposits of LIB and its subsidiaries or (C) the
issuance, sale or other disposition by LIB of (including by way of merger,
consolidation, share exchange or any similar transaction) securities
representing 10% or more of the voting power of LIB; or
(ii) Any third party acquiring or having the right to acquire 10% or more
of the voting power of LIB;
provided, that the LIB Option will terminate upon the earliest to occur of
certain events, including: (i) the Effective Time; (ii) termination of the
Merger Agreement in accordance with the terms thereof prior to the occurrence
of an LIB Purchase Event or an LIB Preliminary Purchase Event other than a
termination thereof by AFC under certain circumstances (a "Default
Termination"); (iii) 18 months after a Default Termination; or
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(iv) 18 months after termination of the Merger Agreement (other than a Default
Termination) following the occurrence of an LIB Purchase Event or an LIB
Preliminary Purchase Event.
The term "LIB Preliminary Purchase Event" means any of the following events:
(i) Commencement by any third party of a tender offer or exchange offer
to purchase 10% or more of the then outstanding shares of LIB Common Stock
(such an offer being referred to herein as a "Tender Offer" or an "Exchange
Offer," respectively);
(ii) Failure of the stockholders of LIB to approve the Merger Agreement
or failure of LIB to have held such meeting or the LIB Board shall have
withdrawn or modified in a manner adverse to AFC the recommendation of the
LIB Board with respect to the Merger Agreement, in each case after public
announcement that a third party (A) proposes to engage in an LIB
Acquisition Transaction or (B) files an application under certain federal
statutes relating to the regulation of banks and other financial
institutions or their holding companies to engage in an LIB Acquisition
Transaction;
(iii) Any third party proposal to LIB or its stockholders publicly, or in
any writing that becomes publicly disclosed, to engage in an LIB
Acquisition Transaction; or
(iv) After a proposal is made by a third party to LIB or its stockholders
to engage in an LIB Acquisition Transaction, or such third party states its
intention to LIB to make such a proposal if the Merger Agreement
terminates, LIB breaches any representation, warranty, covenant or
agreement in the Merger Agreement and such breach would entitle AFC to
terminate the Merger Agreement.
In the event that LIB shall enter into an agreement (i) to consolidate with
or merge into any person, other than AFC or one of its subsidiaries, and LIB
shall not be the continuing or surviving corporation of such consolidation or
merger, (ii) to permit any person, other than AFC or one of its subsidiaries,
to merge into LIB and LIB shall be the continuing or surviving corporation,
but, in connection with such merger, the then outstanding shares of LIB Common
Stock shall be changed into or exchanged for stock or other securities of LIB
or any other person or cash or any other property, or the outstanding shares
of LIB 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 or deposits to any person, other than AFC or one of its
subsidiaries, then, and in each such case, the agreement governing such
transaction shall make proper provisions so that the LIB Option shall, upon
the consummation of any such transaction and upon the terms and conditions set
forth in the LIB Stock Option Agreement, be converted into, or exchanged for,
an option (the "LIB Substitute Option"), at the election of AFC, of either (A)
the Acquiring Corporation (as defined in the LIB Stock Option Agreement), (B)
any person that controls the Acquiring Corporation or (C) in the case of a
merger described in clause (ii), LIB (such person being referred to as
"Substitute Option LIB").
Both the Merger Agreement and the LIB Stock Option Agreement contain
provisions that limit the aggregate realizable profit to AFC from the LIB
Option and the termination fees described under "THE MERGER -- Termination
Fees" to $60 million.
AFC STOCK OPTION AGREEMENT
General. As a condition to entering into the Merger Agreement, LIB required
that AFC enter into the AFC Stock Option Agreement, which allows LIB to
purchase AFC Common Stock under certain circumstances. Pursuant to the AFC
Stock Option Agreement, AFC granted to LIB an option (the "LIB Option") to
purchase 5,246,587 shares of AFC Common Stock (representing approximately
19.9% of the issued and outstanding shares of the AFC Common Stock on April 2,
1998) (subject to adjustment such that in no event may LIB acquire shares of
AFC Common Stock representing more than 19.9% of the issued and outstanding
shares of such stock) at an exercise price of $61.8125 per share (subject to
adjustment). The AFC Option may only be exercised upon the occurrence of
certain "AFC Purchase Events" which are described herein (none of which has
occurred to the best of LIB's or AFC's knowledge as of the date of this Joint
Proxy Statement-Prospectus).
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Effect of AFC Stock Option Agreement. The AFC Stock Option Agreement is
intended to increase the likelihood that the Merger will be consummated in
accordance with the terms of the Merger Agreement. Consequently, certain
aspects of the AFC Stock Option Agreement may have the effect of discouraging
persons who might now or prior to the consummation of the Merger be interested
in acquiring all of or a significant interest in AFC from considering or
proposing such an acquisition. The acquisition of AFC, a significant portion
of its consolidated assets or an interest in AFC, or an agreement to do so,
could cause the AFC Option to become exercisable. The existence of such AFC
Option could significantly increase the cost to a potential acquiror of
acquiring AFC compared to its cost had the AFC Stock Option Agreement not been
executed. Such increased costs might discourage a potential acquiror from
considering or proposing an acquisition or might result in a potential
acquiror proposing to pay a lower per share price to acquire AFC than it might
otherwise have proposed to pay. The management of AFC believes that the
exercise of the AFC Option is likely to prohibit any acquiror of AFC from
accounting for any acquisition of AFC using the pooling-of-interests
accounting method for a period of two years. This could discourage or preclude
an acquisition by other banking organizations.
Terms of AFC Stock Option Agreement. The following is a brief summary of
certain provisions of the AFC Stock Option Agreement, which is attached hereto
as Appendix C. The following summary is qualified in its entirety by reference
to the AFC Stock Option Agreement.
If LIB is not in material breach of the AFC Stock Option Agreement or the
Merger Agreement and if no injunction or other court order against delivery of
the shares covered by the related AFC Option is in effect, LIB may exercise
the AFC Option, in whole or in part, at any time and from time to time upon
the occurrence of the following (each an "AFC Purchase Event"):
(i) Without LIB's prior written consent, AFC taking certain actions (each
an "AFC Acquisition Transaction") including authorizing, recommending or
proposing, or entering into an agreement with any third party to effect (A)
a merger, consolidation or similar transaction involving AFC or any of its
significant subsidiaries, (B) the disposition, by sale, lease, exchange or
otherwise, of assets or deposits of AFC or any of its significant
subsidiaries representing in either case all or substantially all of the
consolidated assets or deposits of AFC and its subsidiaries or (C) the
issuance, sale or other disposition by AFC of (including by way of merger,
consolidation, share exchange or any similar transaction) securities
representing 10% or more of the voting power of AFC; or
(ii) Any third party acquiring or having the right to acquire 10% or more
of the voting power of AFC;
provided, that the AFC Option will terminate upon the earliest to occur of
certain events, including: (i) the Effective Time; (ii) termination of the
Merger Agreement in accordance with the terms thereof prior to the occurrence
of an AFC Purchase Event or an AFC Preliminary Purchase Event other than a
termination thereof by LIB under certain circumstances (a "Default
Termination"); (iii) 18 months after a Default Termination; or (iv) 18 months
after termination of the Merger Agreement (other than a Default Termination)
following the occurrence of an AFC Purchase Event or an AFC Preliminary
Purchase Event.
The term "AFC Preliminary Purchase Event" means any of the following events:
(i) Commencement by any third party of a tender offer or exchange offer
to purchase 10% or more of the then outstanding shares of AFC Common Stock
(such an offer being referred to herein as a "Tender Offer" or an "Exchange
Offer," respectively);
(ii) Failure of the stockholders of AFC to approve the Merger Agreement
or failure of AFC to have held such meeting or the AFC Board shall have
withdrawn or modified in a manner adverse to LIB the recommendation of the
AFC Board with respect to the Merger Agreement, in each case after public
announcement that a third party (A) proposes to engage in an AFC
Acquisition Transaction or (B) files an application under certain federal
statutes relating to the regulation of banks and other financial
institutions or their holding companies to engage in an AFC Acquisition
Transaction;
(iii) Any third party proposal to AFC or its stockholders publicly, or in
any writing that becomes publicly disclosed, to engage in an AFC
Acquisition Transaction; or
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(iv) After a proposal is made by a third party to AFC or its stockholders
to engage in an AFC Acquisition Transaction, or such third party states its
intention to AFC to make such a proposal if the Merger Agreement
terminates, AFC breaches any representation, warranty, covenant or
agreement in the Merger Agreement and such breach would entitle LIB to
terminate the Merger Agreement.
In the event that AFC shall enter into an agreement (i) to consolidate with
or merge into any person, other than LIB or one of its subsidiaries, and AFC
shall not be the continuing or surviving corporation of such consolidation or
merger, (ii) to permit any person, other than LIB or one of its subsidiaries,
to merge into AFC and AFC shall be the continuing or surviving corporation,
but, in connection with such merger, the then outstanding shares of AFC Common
Stock shall be changed into or exchanged for stock or other securities of AFC
or any other person or cash or any other property, or the outstanding shares
of AFC 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 or deposits to any person, other than LIB or one of its
subsidiaries, then, and in each such case, the agreement governing such
transaction shall make proper provisions so that the AFC Option shall, upon
the consummation of any such transaction and upon the terms and conditions set
forth in the AFC Stock Option Agreement, be converted into, or exchanged for,
an option (the "AFC Substitute Option"), at the election of LIB, of either (A)
the Acquiring Corporation (as defined in the AFC Stock Option Agreement), (B)
any person that controls the Acquiring Corporation or (C) in the case of a
merger described in clause (ii), AFC.
AMENDMENT TO LIB RIGHTS AGREEMENT
On April 22, 1997, LIB adopted the LIB Rights Agreement pursuant to which
LIB's stockholders of record as of May 6, 1997 each received a dividend of one
LIB Right for each outstanding share of LIB Common Stock to holders. In
connection with the execution of the Merger Agreement, LIB amended the LIB
Rights Agreement to clarify that for purposes of determining whether AFC (as
well as its affiliates and associates) is an Acquiring Person, as defined in
the LIB Rights Agreement, AFC shall not be deemed to be a Beneficial Owner, as
defined in the LIB Rights Agreement, or to beneficially own any securities as
a result of the Merger or AFC's right to acquire, or AFC's acquisition of, LIB
Common Stock pursuant to the LIB Stock Option Agreement.
AMENDMENT TO AFC RIGHTS AGREEMENT
On July 17, 1996, AFC adopted the AFC Rights Agreement pursuant to which
AFC's stockholders of record as of September 3, 1996 each received a dividend
of one AFC Right for each outstanding share of AFC Common Stock to holders. In
connection with the execution of the Merger Agreement, AFC amended the AFC
Rights Agreement to clarify that for purposes of determining whether LIB (as
well as its affiliates and associates) is an Acquiring Person, as defined in
the AFC Rights Agreement, LIB shall not be deemed to be a Beneficial Owner, as
defined in the AFC Rights Agreement, or to beneficially own any securities as
a result of LIB's right to acquire, or LIB's acquisition of, AFC Common Stock
pursuant to the AFC Stock Option Agreement.
RESALES OF AFC COMMON STOCK
The shares of AFC Common Stock issued pursuant to the Merger Agreement will
be freely transferable under the Securities Act except for shares issued to
any stockholder who may be deemed to be an "affiliate" of LIB for purposes of
Rule 145 under the Securities Act as of the date of the LIB Meeting.
Affiliates may not sell their shares of AFC Common Stock acquired in
connection with the Merger except pursuant to an effective registration
statement under the Securities Act covering such shares or in compliance with
Rule 145 under the Securities Act or another applicable exemption from the
registration requirements of the Securities Act. Persons who may be deemed to
be affiliates of LIB generally include individuals or entities that control,
are controlled by or are under common control with LIB and may include certain
officers and directors of LIB as well as principal stockholders of LIB.
LIB agreed in the Merger Agreement to cause each affiliate of LIB to enter
into an agreement with AFC providing that such persons will not sell, transfer
or otherwise dispose of shares of LIB Common Stock owned
73
<PAGE>
by such person or AFC Common Stock to be received by such person in the Merger
except in compliance with the applicable provisions of the Securities Act and
the rules and regulations thereunder. LIB has delivered these agreements to
AFC.
ADDITIONAL PROPOSAL
The Bylaws of LIB and AFC each require that no business be transacted and no
corporate action be taken at a special meeting of their respective
stockholders other than that stated in the Notice of Meeting. The LIB Board is
not aware of any other business that may properly come before the LIB Meeting.
The AFC Board is not aware of any other business that may properly come before
the AFC Meeting. The LIB Board and the AFC Board each seek the authorization
of their respective stockholders, in the event matters incident to the conduct
of the LIB Meeting or AFC Meeting, as the case may be, properly come before
such meeting, including, without limitation, a motion to adjourn the LIB
Meeting or the AFC Meeting, as the case may be, to another time or place for
the purpose of soliciting additional proxies in order to approve and adopt the
transactions contemplated by the Merger Agreement or otherwise. As to all such
matters, the LIB Board and the AFC Board each intends to direct the voting of
such shares in the manner determined by the board of directors in its
discretion, and in the exercise of its duties and responsibilities, to be in
the best interests of LIB or AFC, as the case may be, and its stockholders,
taken as a whole.
THE LIB BOARD AND THE AFC BOARD EACH UNANIMOUSLY RECOMMENDS THAT ITS
RESPECTIVE STOCKHOLDERS VOTE "FOR" AUTHORIZATION OF THEIR BOARD OF
DIRECTORS, TO DIRECT THE VOTE OF THE PROXIES UPON SUCH OTHER MATTERS
INCIDENT TO THE CONDUCT OF THE AFC MEETING OR THE LIB MEETING, AS THE CASE
MAY BE, AS MAY PROPERLY COME BEFORE SUCH MEETING, INCLUDING, WITHOUT
LIMITATION, A MOTION TO ADJOURN SUCH MEETING.
74
<PAGE>
BENEFICIAL OWNERSHIP OF AFC COMMON STOCK
PRINCIPAL SECURITY OWNERSHIP
As of May 31, 1998 management of AFC knew of no person, other than those
below, who is the beneficial owner of more than 5% of AFC Common Stock.
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF PERCENT OF
TITLE OF CLASS NAME & ADDRESS OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP CLASS
- -------------- -------------------------------------------- -------------------- ----------
<S> <C> <C> <C>
Common.................. State Street Bank and Trust Company, Trustee 2,703,022(1) 10.19%
225 Franklin Street
Boston, Massachusetts 02110
Common.................. FMR Corp. 1,696,870(2) 6.40
82 Devonshire Street
Boston, Massachusetts 02109
</TABLE>
- --------
(1) State Street Bank and Trust Company ("State Street") is the trustee of the
Astoria Federal ESOP (the "Trustee"), which is administered by the Astoria
Federal ESOP Committee consisting of four officers of Astoria Federal, one
of whom is an executive officer of AFC. As of December 31, 1997, State
Street held 2,581,224 shares of AFC Common Stock for the benefit of the
participants of the Astoria Federal ESOP. Under the terms of the Astoria
Federal ESOP, the Trustee votes the shares held by the Astoria Federal
ESOP Trust based upon directions received from the participants as "named
fiduciaries" in the Astoria Federal ESOP. As of December 31, 1997,
approximately 860,653 shares were allocated to participants. For voting
purposes, each participant as a "named fiduciary" will be eligible to
direct the Trustee how to vote at AFC annual meetings as to the number of
shares of AFC Common Stock that have been allocated to his or her account
under the Astoria Federal ESOP. The remaining unallocated shares and any
allocated shares with respect to which no voting instructions have been
received, will be voted by the Trustee at the AFC annual meetings in the
same manner and proportion as the allocated shares, with respect to which
voting instructions have been received, so long as such vote is in
accordance with the provisions of ERISA. Due to the requirements of ERISA,
the Trustee is deemed to have shared voting power as to all shares held in
the Astoria Federal ESOP Trust. According to a filing on Schedule 13G
dated February 10, 1998, State Street also holds 121,798 shares as trustee
or discretionary advisor of various collective investment funds for
employee benefit plans of other companies and other index accounts, as to
which State Street has sole voting and dispositive power.
(2) According to a filing on Schedule 13G dated February 14, 1998, Edward C.
Johnson 3d and Abigail P. Johnson own 12.0% and 24.5%, respectively, of
the outstanding voting common stock of FMR Corp. Mr. Johnson is Chairman
of FMR Corp. The members of the Johnson family may be deemed to form a
controlling group with respect to FMR Corp. Fidelity Management & Research
Company, a wholly owned subsidiary of FMR Corp. and an investment advisor
registered under Section 203 of the Investment Advisors Act of 1940, as
amended, is the beneficial owner of 1,072,700 shares of AFC Common Stock
as a result of acting as investment advisor to various investment
companies registered under Section 8 of the Investment Company Act of
1940. Mr. Johnson and FMR each claim sole dispositive power with respect
to such shares of AFC Common Stock. Fidelity Management Trust Company, a
wholly owned subsidiary of FMR Corp., is the beneficial owner of 624,170
shares of AFC Common Stock. Edward C. Johnson 3d and FMR Corp., through
their control of Fidelity Management Trust Company, each claim sole
dispositive over 624,170 shares of AFC Common Stock and sole power to
direct the voting of 484,970 shares, and no power to vote or to direct the
voting of 129,200 shares of AFC Common Stock owned by institutional
account(s).
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information as of May 31, 1998 with
respect to the beneficial ownership of AFC Common Stock by each director of
AFC, the Chief Executive Officer and each of the four most highly compensated
officers of AFC other than the Chief Executive Officer, and all of the
directors and executive officers of AFC as a group.
75
<PAGE>
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF PERCENT OF
TITLE OF CLASS NAME OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP(1) CLASS(2)
- -------------- ------------------------ ----------------------- ----------
<S> <C> <C> <C>
Common.................. George L. Engelke, Jr. 671,788(3)(14) 2.50%
Common.................. Gerard C. Keegan 201,013(4)(14) *
Common.................. Robert G. Bolton 87,974(5)(14) *
Common.................. Andrew M. Burger 112,315(14) *
Common.................. Denis J. Connors 124,262(14) *
Common.................. Thomas J. Donahue 119,966(6)(14) *
Common.................. William J. Fendt 114,474(14) *
Common.................. Peter C. Haeffner, Jr. 11,848(7)(14) *
Common.................. Ralph F. Palleschi 11,000(14) *
Common.................. Thomas V. Powderly 92,512(8)(14) *
Common.................. Arnold K. Greenberg 256,201(9)(14) *
Common.................. Thomas W. Drennan 212,571(10)(14) *
Common.................. Monte N. Redman 222,662(11)(14) *
Common.................. William K. Sheerin 226,626(12)(14) *
Common.................. All Directors and Executive Officers as 2,397,087(13)(14) 8.61%
a group (15 persons)
</TABLE>
- --------
*Less than 1%
(1) Except as otherwise indicated, each person listed has sole voting and
investment power with respect to the shares of AFC Common Stock
indicated.
(2) Except as otherwise indicated, the percent of class beneficially owned
does not exceed 1.00%.
(3) Included are 62,000 shares of AFC Common Stock as to which Mr. Engelke
has shared voting and investment power, 52,900 shares of AFC Common Stock
as to which he has sole voting and no investment power, 6,983 shares of
AFC Common Stock as to which he has shared voting and no investment
power, and 8,322 shares of AFC Common Stock as to which he has shared
voting and sole investment power.
(4) Included are 1,218 shares of AFC Common Stock as to which Mr. Keegan has
shared voting and investment power, 10,000 shares of AFC Common Stock as
to which he has sole voting and no investment power, and 15,322 shares of
AFC Common Stock as to which he has shared voting and no investment
power.
(5) Included are 3,270 shares of AFC Common Stock as to which Mr. Bolton has
shared voting and investment power.
(6) Included are 24,813 shares of AFC Common Stock as to which Mr. Donahue
has shared voting and investment power.
(7) Included are 100 shares of AFC Common Stock as to which Mr. Haeffner has
shared voting and investment power.
(8) Included are 6,784 shares of AFC Common Stock as to which Mr. Powderly
has shared voting and investment power.
(9) Included are 61,852 shares of AFC Common Stock as to which Mr. Greenberg
has shared voting and investment power, 18,918 shares of AFC Common Stock
as to which he has sole voting and no investment power, 6,983 shares of
AFC Common Stock as to which he has shared voting and no investment
power, and 12,690 shares of AFC Common Stock as to which he has shared
voting and sole investment power.
(10) Included are 46,437 shares of AFC Common Stock as to which Mr. Drennan
has shared voting and investment power, 18,918 shares of AFC Common Stock
as to which he has sole voting and no investment power, 6,983 shares of
AFC Common Stock as to which he has shared voting and no investment
power, and 9,849 shares of AFC Common Stock as to which he has shared
voting and sole investment power.
(11) Included are 815 shares of AFC Common Stock as to which Mr. Redman has
shared voting and investment power, 18,918 shares of AFC Common Stock as
to which he has sole voting and no investment power, 6,983 shares of AFC
Common Stock as to which he has shared voting and no investment power,
and 8,718 shares of AFC Common Stock as to which he has shared voting and
sole investment power.
(12) Included are 68,982 shares of AFC Common Stock as to which Mr. Sheerin
has shared voting power, 14,238 shares of AFC Common Stock as to which he
has sole voting and no investment power, 6,983 shares
(notes continued on next page)
76
<PAGE>
of AFC Common Stock as to which he has shared voting and no investment
power, and 13,955 shares of AFC Common Stock as to which he has shared
voting and sole investment power.
(13) Included are 176,805 shares of AFC Common Stock as to which Directors,
Board Nominees and Executive Officers, as a group, have shared voting and
investment power, 133,892 shares of AFC Common Stock as to which they
have sole voting and no investment power, 55,100 shares of AFC Common
Stock as to which they have shared voting and no investment power, and
54,393 shares of AFC Common Stock as to which they have shared voting and
sole investment power.
(14) Included are shares of AFC Common Stock which could be acquired within 60
days of May 31, 1998 pursuant to options to acquire AFC Common Stock as
follows: Mr. Engelke (348,880 shares), Mr. Keegan (136,250 shares), Mr.
Bolton (57,314 shares), Mr. Burger (82,314 shares), Mr. Connors (82,314
shares), Mr. Donahue (82,314 shares), Mr. Fendt (62,314 shares), Mr.
Haeffner (6,000 shares), Mr. Palleschi (8,000 shares), Mr. Powderly
(72,132 shares), Mr. Greenberg (73,669 shares), Mr. Drennan (98,225
shares), Mr. Redman (117,225 shares), Mr. Sheerin (65,657 shares) and all
Directors, Board Nominees and Executive Officers as a group (1,309,990
shares).
77
<PAGE>
BENEFICIAL OWNERSHIP OF LIB COMMON STOCK
PRINCIPAL SECURITY OWNERSHIP
As of May 31, 1998 management of LIB knew of no person, except as set forth
below, who is the beneficial owner of more than 5% of LIB Common Stock:
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF PERCENT OF
TITLE OF CLASS NAME & ADDRESS OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP(1) CLASS
-------------- ---------------------------------- ----------------------- ----------
<S> <C> <C> <C>
Common.................. The LISB Employee Stock 2,022,886 shares(1) 8.45%
Ownership Trust
114 W. 47th Street
New York, New York 10036
Common.................. Wellington Management Company 1,548,480 shares(2) 6.47
75 State Street
Boston, Massachusetts 02109
</TABLE>
- --------
(1) The LIB Bank ESOP is administered by a committee consisting of three
employees of LIB Bank who were appointed by the Board of Directors of LIB
Bank. The LIB Bank ESOP's assets are held in trust (the "LIB Bank ESOP
Trust"), for which CG Trust Company serves as trustee (the "LIB Bank ESOP
Trustee"). The terms of the LIB Bank ESOP Trust Agreement provide that
U.S. Trust Company of California, N.A., as the ESOP Investment Manager
(the "Investment Manager"), subject to the Investment Manager's fiduciary
responsibilities under ERISA, will direct the LIB Bank ESOP Trustee to
vote, tender or exchange shares of LIB Common Stock held in the LIB Bank
ESOP Trust in accordance with the following rules. The Investment Manager
will direct the LIB Bank ESOP Trustee to vote, tender or exchange shares
of LIB Common Stock allocated to participants' accounts in accordance with
instructions received from the participants. The Investment Manager will
direct the LIB Bank ESOP Trustee to vote allocated shares as to which no
instructions are received and any shares in the "suspense account" or that
otherwise have not been allocated to participants' accounts in the same
proportion as allocated shares with respect to which the Investment
Manager receives instructions are voted. Excludes amounts held by the
Trustee for the benefit of the 401(k) Trust.
(2) According to its filing on Schedule 13G with the Commission dated January
14, 1998, Wellington Management Company acquired such interest through its
subsidiary Wellington Trust Company, N.A. and claims sole voting power
over no shares of LIB Common Stock, shared voting power with respect to
946,740 shares of LIB Common Stock and shared dispositive power as to
1,548,480 shares of LIB Common Stock. Shares of LIB Common Stock
beneficially owned by Wellington Management Company are owned by a variety
of investment advisory clients of Wellington Management Company. No such
client is known to have an interest in more than 5% of the LIB Common
Stock.
78
<PAGE>
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information as of May 31, 1998 with
respect to the beneficial ownership of LIB Common Stock by each director of
LIB, the Chief Executive Officer and each of the four most highly compensated
officers of LIB other than the Chief Executive Officer, and all of the
directors and executive officers of LIB as a group as of May 31, 1998.
<TABLE>
<CAPTION>
SHARES OF
LIB
COMMON
STOCK PERCENT OF LIB
BENEFICIALLY COMMON STOCK
NAME TITLE OWNED(1)(2)(3)(4) OUTSTANDING(5)
---- ----- ----------------- --------------
<S> <C> <C> <C>
John J. Conefry, Jr. ... Chairman of the Board and 355,874 1.47%
Chief Executive Officer
Lawrence W. Peters(6)... President and Chief 31,020 *
Operating Officer, Director
Bruce M. Barnet(7)...... Executive Vice President, 36,414 *
Director
Clarence M. Buxton...... Director 83,096 *
Edwin M. Canuso......... Director 79,824 *
Richard F. Chapdelaine.. Director 84,360 *
Brian J. Conway......... Director 85,792 *
Robert J. Conway(8)..... Director 75,365 *
Frederick DeMatteis..... Director 105,664 *
George R. Irvin(9)...... Director 77,056 *
Herbert J. McCooey...... Director 59,702 *
Robert S. Swanson,
Jr. ................... Director 77,202 *
James B. Tormey,
M.D.(10)............... Director 62,528 *
Leo J. Waters........... Director 36,832 *
Donald D. Wenk(11)...... Director 111,540 *
Troy J. Baydala......... Emeritus Director 46,763 *
W. Douglas Singer....... Executive Vice President 88,159 *
Mark Fuster............. Executive Vice President 87,413 *
All directors and execu-
tive officers as a
group (21 persons)..... 1,708,452 7.07%
</TABLE>
- --------
* Less than 1%.
(1) Unless otherwise indicated, each person effectively exercises sole voting
and dispositive power as to the shares reported.
(2) Includes options granted under the Long Island Bancorp, Inc. 1994 Stock
Incentive Plan (the "Stock Incentive Plan") or the Long Island Bancorp,
Inc. 1994 Non-Employee Directors Stock Option Program (the "Director
Stock Option Program") which are currently exercisable. Excludes
remaining options granted in 1994 which are exercisable on March 29,
1999, options granted in 1995 which are exercisable in two equal
installments beginning on March 29, 1999, options granted in 1996 which
are exercisable in three equal installments beginning on March 29, 1999,
and options granted in 1997 which are exercisable in four equal
installments beginning on March 29, 1999 and options granted on November
25, 1997, which are exercisable in five equal installments, beginning on
November 25, 1998, and options granted on March 29, 1998, which are
exercisable in five equal installments, beginning on March 29, 1998.
(3) Includes shares awarded under The Long Island Savings Bank Management
Recognition and Retention Plan for Executive Officers (the "Executive
Officer MRP") and The Long Island Savings Bank Management Recognition and
Retention Plan for Non-Employee Directors (the "Director MRP" and,
together with the Executive Officer MRP, the "MRPs"). Under the MRPs,
awards are granted in the form of shares of LIB Common Stock held by the
MRPs. Directors and executive officers earn shares of LIB Common Stock
covered by the awards prior to 1997 at a rate of 20% per year commencing
one year from
(notes continued on next page)
79
<PAGE>
the date of the award. However, shares awarded in 1997 vest 50% on March
29, 1997 and 50% on March 29, 1998.
(4) Includes 2,880, 2,621, 2,621, and 57 shares allocated under the ESOP to
the accounts of Messrs. Conefry, Singer, Fuster and Barnet, respectively.
(5) The total number of shares of LIB Common Stock outstanding on May 31,
1998 was 24,162,130. For purposes of this table, 286,799 shares of LIB
Common Stock subject to stock options granted, in the aggregate, to all
directors and executive officers are not considered outstanding as such
options are not exercisable within 60 days of May 31, 1998.
(6) Mr. Peters was elected President and Chief Operating Officer on March 1,
1997.
(7) Mr. Barnet was elected Executive Vice President, Director of Real Estate
and Development for both the Company and the Bank on October 3, 1996.
(8) Of the 75,365 shares of LIB Common Stock beneficially owned, Mr. Robert
J. Conway has sole voting and investment power with respect to 67,365
shares of LIB Common Stock and has shared voting and investment power
with respect to 8,000 shares of LIB Common Stock.
(9) Of the 77,056 shares of LIB Common Stock beneficially owned, Mr. Irvin
has sole voting and investment power with respect to 7,166 shares of LIB
Common Stock and has shared voting and investment power with respect to
69,890 shares of LIB Common Stock.
(10) Of the 62,528 shares of LIB Common Stock beneficially owned, Dr. Tormey
has sole voting and investment power with respect to 60,528 shares of LIB
Common Stock and has shared voting and investment power with respect to
2,000 shares of LIB Common Stock.
(11) Of the 111,540 shares of LIB Common Stock beneficially owned, Mr. Wenk
has sole voting and investment power with respect to 104,540 shares of
LIB Common Stock and has shared voting and investment power with respect
to 7,000 shares of LIB Common Stock.
80
<PAGE>
PRO FORMA CONDENSED COMBINED CONSOLIDATED
FINANCIAL INFORMATION
(UNAUDITED)
The following statements set forth certain selected condensed financial
information for AFC and LIB on an unaudited pro forma combined basis giving
effect to the Merger as if the Merger had become effective on March 31, 1998,
in the case of financial condition information presented, and as if the Merger
had become effective at the beginning of the periods indicated, in the case of
operations information presented. The pro forma information in the statements
assumes that the Merger is accounted for using the pooling of interests method
of accounting. See "THE MERGER -- Accounting Treatment." Financial information
for the three months ended March 31, 1998 and 1997 combine AFC and LIB with
LIB's interim results presented to coincide with the reporting period of AFC.
The unaudited pro forma statements of operations reflect AFC and LIB at their
respective year-end reporting periods of December 31 and September 30,
respectively. These statements should be read in conjunction with, and are
qualified in their entirety by the historical financial statements, including
the notes thereto, of AFC and LIB incorporated by reference herein. See
"INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE."
The pro forma condensed combined consolidated financial information set forth
in the following tables do not give effect to anticipated cost savings and
revenue enhancement opportunities that could result from the Merger or any
other items of income or expense which may result from the Merger.
Additionally, the pro forma financial information does not give effect to any
anticipated leveraging of AFC's pro forma assets. The unaudited pro forma
condensed combined consolidated financial information is presented for
informational purposes only and is not necessarily indicative of the combined
financial position or results of operations that would have occurred had the
Merger been consummated on March 31, 1998 or at the beginning of the periods
indicated or which may occur in the future.
81
<PAGE>
ASTORIA FINANCIAL CORPORATION AND SUBSIDIARY
LONG ISLAND BANCORP, INC. AND SUBSIDIARY
PRO FORMA CONDENSED COMBINED
CONSOLIDATED STATEMENT OF FINANCIAL CONDITION
(UNAUDITED)
AT MARCH 31, 1998
<TABLE>
<CAPTION>
ASTORIA LONG
FINANCIAL ISLAND PRO FORMA ASTORIA
CORP. BANCORP, INC. ADJUSTMENTS PRO FORMA
----------- ------------- ----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
ASSETS:
Cash and due from
banks.................. $ 24,535 $ 40,512 -- $ 65,047
Federal funds sold and
repurchase agreements.. 158,000 41,338 -- 199,338
Securities available-
for-sale (at estimated
fair value)............ 2,905,483 2,194,100 -- 5,099,583
Securities held-to-matu-
rity................... 2,589,064 21,462 -- 2,610,526
Federal Home Loan Bank
of New York stock...... 60,050 50,548 -- 110,598
Loans held for sale..... -- 262,294 -- 262,294
Loans receivable: 4,644,727 3,494,753 -- 8,139,480
Less allowance for
loan losses.......... 39,708 34,041 -- 73,749
----------- ---------- -------- -----------
Loans receivable, net... 4,605,019 3,460,712 -- 8,065,731
Mortgage servicing
rights, net............ -- 45,641 -- 45,641
Real estate owned and
investments in real
estate, net............ 16,663 9,403 -- 26,066
Accrued interest receiv-
able................... 61,990 35,953 -- 97,943
Premises and equipment,
net.................... 113,946 86,086 -- 200,032
Goodwill................ 253,371 4,864 -- 258,235
Deferred taxes.......... 67,164 18,680 -- 85,844
Other assets............ 40,324 24,275 -- 64,599
----------- ---------- -------- -----------
Total Assets............ $10,895,609 $6,295,868 $ -- $17,191,477
=========== ========== ======== ===========
LIABILITIES AND STOCK-
HOLDERS' EQUITY
Liabilities:
Deposits.............. $ 6,205,643 $3,762,115 $ -- $ 9,967,758
Borrowed Funds........ 3,643,404 1,787,629 -- 5,431,033
Mortgage escrow
funds................ 61,292 82,654 -- 143,946
Accrued expenses and
other liabilities.... 68,421 99,726 82,753 (4) 250,900
----------- ---------- -------- -----------
Total Liabilities....... 9,978,760 5,732,124 82,753 15,793,637
----------- ---------- -------- -----------
Stockholders' equity:
Preferred stock....... 2,000 -- -- 2,000
Common stock.......... 265 268 6 (2) 539
Additional paid-in
capital.............. 504,133 311,907 (80,680)(2) 735,360
Retained earnings --
substantially re-
stricted............. 431,844 339,427 (82,753)(4) 688,518
Treasury stock........ (4,807) (79,619) 79,619 (2) (4,807)
Accumulated other com-
prehensive income:
Net unrealized gains
on securities, net
of taxes........... 6,574 12,468 -- 19,042
Unallocated common
stock held by ESOP... (20,679) (17,727) -- (38,406)
Unearned common stock
held by RRPs......... (2,481) (2,980) 1,055 (2) (4,406)
----------- ---------- -------- -----------
Total Stockholders' Eq-
uity................... 916,849 563,744 (82,753) 1,397,840
----------- ---------- -------- -----------
Total Liabilities and
Stockholders' Equity... $10,895,609 $6,295,868 $ -- $17,191,477
=========== ========== ======== ===========
</TABLE>
See "Notes to Pro Forma Condensed Combined Consolidated Financial Statements
(Unaudited)."
82
<PAGE>
ASTORIA FINANCIAL CORPORATION AND SUBSIDIARY
LONG ISLAND BANCORP, INC. AND SUBSIDIARY
PRO FORMA CONDENSED COMBINED
CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
FOR THE THREE MONTHS ENDED MARCH 31, 1998
<TABLE>
<CAPTION>
ASTORIA LONG
FINANCIAL ISLAND ASTORIA
CORP. BANCORP, INC. PRO FORMA
------------- -----------------------------
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C>
Interest income................ $ 184,930 $ 104,995 $ 289,925
Interest expense............... 115,070 64,604 179,674
------------- ------------- -------------
Net interest income............ 69,860 40,391 110,251
Provision for loan losses...... 300 1,500 1,800
------------- ------------- -------------
Net interest income after pro-
vision for loan losses........ 69,560 38,891 108,451
------------- ------------- -------------
Non-interest income:
Fees and other income........ 5,286 5,560 10,846
Net gain on sales activity... 2,103 4,019 6,122
------------- ------------- -------------
Total non-interest income...... 7,389 9,579 16,968
------------- ------------- -------------
Non-interest expense:
General and administrative... 33,369 25,340 58,709
Real estate operations and
provision for losses, net... -- 280 280
Amortization of goodwill..... 4,788 97 4,885
------------- ------------- -------------
Total non-interest expense..... 38,157 25,717 63,874
------------- ------------- -------------
Income before income tax ex-
pense......................... 38,792 22,753 61,545
Income tax expense............. 16,523 8,816 25,339
------------- ------------- -------------
Net income..................... $ 22,269 $ 13,937 $ 36,206
============= ============= =============
Net income available to common
stockholders.................. $ 20,769 $ 13,937 $ 34,706
============= ============= =============
Basic earnings per common
share......................... $ 0.84 $ 0.63 $ 0.69
============= ============= =============
Diluted earnings per common
share......................... $ 0.80 $ 0.60 $ 0.66
============= ============= =============
Basic weighted average common
shares........................ 24,636,539 22,291,755 50,272,057(3)
Diluted weighted average common
and common equivalent shares.. 26,045,896 23,226,468 52,756,334(3)
</TABLE>
See "Notes to Pro Forma Condensed Combined Consolidated Financial Statements
(Unaudited)."
83
<PAGE>
ASTORIA FINANCIAL CORPORATION AND SUBSIDIARY
LONG ISLAND BANCORP, INC. AND SUBSIDIARY
PRO FORMA CONDENSED COMBINED
CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
FOR THE THREE MONTHS ENDED MARCH 31, 1997
<TABLE>
<CAPTION>
ASTORIA LONG
FINANCIAL ISLAND ASTORIA
CORP. BANCORP, INC. PRO FORMA
------------- -----------------------------
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C>
Interest income................ $ 129,073 $ 99,267 $ 228,340
Interest expense............... 79,617 59,137 138,754
------------- ------------- -------------
Net interest income............ 49,456 40,130 89,586
Provision for loan losses...... 500 1,500 2,000
------------- ------------- -------------
Net interest income after pro-
vision for loan losses........ 48,956 38,630 87,586
------------- ------------- -------------
Non-interest income:
Fees and other income........ 3,093 6,998 10,091
Net gain on sales activity... 378 2,263 2,641
------------- ------------- -------------
Total non-interest income...... 3,471 9,261 12,732
------------- ------------- -------------
Non-interest expense:
General and administrative... 23,759 26,936 50,695
Real estate operations and
provision for losses, net... 176 570 746
Amortization of goodwill..... 2,110 109 2,219
------------- ------------- -------------
Total non-interest expense..... 26,045 27,615 53,660
------------- ------------- -------------
Income before income tax ex-
pense......................... 26,382 20,276 46,658
Income tax expense............. 10,948 8,159 19,107
------------- ------------- -------------
Net income..................... $ 15,434 $ 12,117 $ 27,551
============= ============= =============
Basic earnings per common
share......................... $ 0.79 $ 0.54 $ 0.61
============= ============= =============
Diluted earnings per common
share......................... $ 0.74 $ 0.52 $ 0.58
============= ============= =============
Basic weighted average common
shares........................ 19,417,530 22,531,924 45,329,243(3)
Diluted weighted average common
and common equivalent shares.. 20,823,710 23,393,522 47,726,260(3)
</TABLE>
Shares and related amounts have been restated as a result of the implementation
of SFAS No. 128.
See "Notes to Pro Forma Condensed Combined Consolidated Financial Statements
(Unaudited)."
84
<PAGE>
ASTORIA FINANCIAL CORPORATION AND SUBSIDIARY
LONG ISLAND BANCORP, INC. AND SUBSIDIARY
PRO FORMA CONDENSED COMBINED
CONSOLIDATED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
ASTORIA LONG ASTORIA
FINANCIAL ISLAND PRO FORMA
CORP. BANCORP, INC. (UNAUDITED)
------------- --------------- -------------
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C>
Interest income................ $579,401 $399,049 $978,450
Interest expense............... 364,350 239,488 603,838
------------- ------------- -------------
Net interest income............ 215,051 159,561 374,612
Provision for loan losses...... 3,061 6,000 9,061
------------- ------------- -------------
Net interest income after pro-
vision for loan losses........ 211,990 153,561 365,551
------------- ------------- -------------
Non-interest income:
Fees and other income........ 15,218 27,520 42,738
Net gain on sales activity... 7,045 11,399 18,444
------------- ------------- -------------
Total non-interest income...... 22,263 38,919 61,182
------------- ------------- -------------
Non-interest expense:
General and administrative... 104,075 109,185 213,260
Real estate operations and
provision for losses, net... 822 1,205 2,027
Amortization of goodwill..... 11,264 458 11,722
------------- ------------- -------------
Total non-interest expense..... 116,161 110,848 227,009
------------- ------------- -------------
Income before income tax ex-
pense......................... 118,092 81,632 199,724
Income tax expense............. 49,628 32,212 81,840
------------- ------------- -------------
Net income..................... $ 68,464 $ 49,420 $117,884
============= ============= =============
Net income available to common
stockholders.................. $ 66,964 $ 49,420 $116,384
============= ============= =============
Basic earnings per common
share......................... $3.26 $2.20 $2.51
============= ============= =============
Diluted earnings per common
share......................... $3.04 $2.12 $2.39
============= ============= =============
Basic weighted average common
shares........................ 20,552,574 22,443,135 46,362,179(3)
Diluted weighted average common
and common equivalent shares.. 21,994,383 23,279,404 48,765,698(3)
</TABLE>
Shares and related amounts have been restated as a result of the implementation
of SFAS No. 128.
See "Notes to Pro Forma Condensed Combined Consolidated Financial Statements
(Unaudited)."
85
<PAGE>
ASTORIA FINANCIAL CORPORATION AND SUBSIDIARY
LONG ISLAND BANCORP, INC. AND SUBSIDIARY
PRO FORMA CONDENSED COMBINED
CONSOLIDATED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
ASTORIA LONG ASTORIA
FINANCIAL ISLAND PRO FORMA
CORP. BANCORP, INC. (UNAUDITED)
------------- --------------- -------------
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C>
Interest income.............. $ 491,174 $ 351,571 $ 842,745
Interest expense............. 304,481 197,176 501,657
------------- ------------- -------------
Net interest income.......... 186,693 154,395 341,088
Provision for loan losses.... 3,963 6,200 10,163
------------- ------------- -------------
Net interest income after
provision for loan losses... 182,730 148,195 330,925
------------- ------------- -------------
Non-interest income:
Fees and other income...... 12,118 28,343 40,461
Net gain on sales activi-
ty........................ 1,604 8,333 9,937
------------- ------------- -------------
Total non-interest income.... 13,722 36,676 50,398
------------- ------------- -------------
Non-interest expense:
General and administra-
tive...................... 96,165 111,923 208,088
Real estate operations and
recovery of losses, net... (4,470) (2,028) (6,498)
Amortization of goodwill... 8,684 284 8,968
SAIF recapitalization as-
sessment.................. 28,545 18,657 47,202
------------- ------------- -------------
Total non-interest expense... 128,924 128,836 257,760
------------- ------------- -------------
Income before income tax ex-
pense....................... 67,528 56,035 123,563
Income tax expense........... 30,675 23,760 54,435
------------- ------------- -------------
Net income................... $ 36,853 $ 32,275 $ 69,128
============= ============= =============
Basic earnings per common
share....................... $ 1.87 $ 1.40 $ 1.49
============= ============= =============
Diluted earnings per common
share....................... $ 1.79 $ 1.35 $ 1.44
============= ============= =============
Basic weighted average common
shares...................... 19,683,273 23,116,549 46,267,304(3)
Diluted weighted average com-
mon and common equivalent
shares...................... 20,545,205 23,948,361 48,085,820(3)
</TABLE>
Shares and related amounts have been restated as a result of the implementation
of SFAS No. 128.
See "Notes to Pro Forma Condensed Combined Consolidated Financial Statements
(Unaudited)."
86
<PAGE>
ASTORIA FINANCIAL CORPORATION AND SUBSIDIARY
LONG ISLAND BANCORP, INC. AND SUBSIDIARY
PRO FORMA CONDENSED COMBINED
CONSOLIDATED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
ASTORIA LONG ASTORIA
FINANCIAL ISLAND PRO FORMA
CORP. BANCORP, INC. (UNAUDITED)
------------- --------------- -------------
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C>
Interest income................ $ 434,976 $ 321,215 $ 756,191
Interest expense............... 265,705 167,896 433,601
------------- ------------- -------------
Net interest income............ 169,271 153,319 322,590
Provision for loan losses...... 2,007 6,470 8,477
------------- ------------- -------------
Net interest income after pro-
vision for loan losses........ 167,264 146,849 314,113
------------- ------------- -------------
Non-interest income:
Fees and other income........ 9,455 25,992 35,447
Net gain on sales activity... 11 1,638 1,649
------------- ------------- -------------
Total non-interest income...... 9,466 27,630 37,096
------------- ------------- -------------
Non-interest expense:
General and administrative... 90,344 100,532 190,876
Real estate operations and
(recovery of) provision for
losses, net................. (3,085) 323 (2,762)
Amortization of goodwill..... 8,307 211 8,518
------------- ------------- -------------
Total non-interest expense..... 95,566 101,066 196,632
------------- ------------- -------------
Income before income tax ex-
pense......................... 81,164 73,413 154,577
Income tax expense............. 35,743 29,897 65,640
------------- ------------- -------------
Net income..................... $ 45,421 $ 43,516 $ 88,937
============= ============= =============
Basic earnings per common
share......................... $ 2.16 $ 1.78 $ 1.81
============= ============= =============
Diluted earnings per common
share......................... $ 2.10 $ 1.74 $ 1.76
============= ============= =============
Basic weighted average common
shares........................ 21,017,742 24,389,136 49,065,248(3)
Diluted weighted average common
and common equivalent shares.. 21,678,872 24,969,613 50,393,927(3)
</TABLE>
Shares and related amounts have been restated as a result of the implementation
of SFAS No. 128.
See "Notes to Pro Forma Condensed Combined Consolidated Financial Statements
(Unaudited)."
87
<PAGE>
ASTORIA FINANCIAL CORPORATION AND SUBSIDIARY
AND LONG ISLAND BANCORP, INC. AND SUBSIDIARY
NOTES TO PRO FORMA CONDENSED COMBINED CONSOLIDATED
FINANCIAL STATEMENTS (UNAUDITED)
(1) The pro forma financial information presented has been prepared in
conformity with generally accepted accounting principles ("GAAP") and
prevailing practices within the financial services industry. Under GAAP,
the assets and liabilities of LIB will be combined with those of AFC at
book value. In addition, the statements of operations for LIB will be
combined with those of AFC as of the earliest period presented. Certain
reclassifications have been included in the pro forma financial statements
to conform to AFC's presentation. AFC utilizes a fiscal year which ends on
December 31 for reporting purposes, whereas LIB uses a fiscal year which
ends on September 30 for such purposes. The unaudited condensed combined
consolidated statements of operations for 1997, 1996, and 1995 combine AFC
and LIB at their respective year-end periods. The unaudited condensed
combined consolidated statements of operations for the three-month periods
ended March 31, 1998 and 1997 include LIB for the three months then ended
to conform with the reporting periods of AFC. Summary unaudited operating
results for LIB for the three-months ended December 31, 1997 and 1996,
have not been included in the unaudited pro forma condensed combined
consolidated financial statements and are presented in the following
table.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
DECEMBER 31,
(UNAUDITED)
-----------------------
1997 1996
----------- -----------
(DOLLARS IN THOUSANDS,
EXCEPT SHARE DATA)
<S> <C> <C>
Interest income...................................... $ 104,517 $ 95,970
Interest expense..................................... 65,550 55,714
Net interest income.................................. 38,967 40,256
Net income........................................... 13,182 11,934
Diluted earnings per share........................... $ 0.57 $ 0.51
</TABLE>
(2) Pro forma adjustments to common stock, additional paid-in capital and
treasury stock, at March 31, 1998, reflect the Merger accounted for as a
pooling-of-interests, through the exchange of 27,524,576 shares of AFC
Common Stock at March 31, 1998 (using the Exchange Ratio of 1.15) for
23,934,414 actual outstanding shares of LIB. Pro forma adjustments to
unearned common stock held by RRPs represent cancellation of 91,763
unallocated MRP shares of LIB at a cost of $11.50 per share.
(3) The pro forma weighted average common and common equivalent shares for the
three months ended March 31, 1998 and 1997, and for each of the combined
three-year periods, reflects the Exchange Ratio of 1.15 shares of AFC
Common Stock for each share of LIB Common Stock.
(4) The pro forma condensed combined consolidated statement of financial
condition reflects a non-recurring merger and restructuring charge of
approximately $82.8 million, net of taxes, which will be recognized upon
consummation of the transaction. Such charge will reduce diluted earnings
per share for the period in which such charge is recognized by
approximately $1.57 (based on pro forma diluted weighted average common
and common equivalent shares of 52,756,334 for the three months ended
March 31, 1998). A summary of the estimated merger and restructuring
charges follows:
<TABLE>
<CAPTION>
EXPECTED RANGE OF COSTS
-------------------------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
Merger Expenses.................................... $ 20.8 to $ 25.4
Restructuring Charges:
Severance and Other Employee Expense............. 24.5 to 30.0
Facility and System Costs........................ 37.3 to 45.6
Other............................................ 11.1 to 13.5
-------- ---------
Total Pre-Tax Merger and Restructuring Charge...... 93.7 to 114.5
Less: Tax Effect................................... 26.0 to 31.7
-------- ---------
Total After-Tax Merger and Restructuring Charge.... $ 67.7 to $ 82.8
======== =========
</TABLE>
88
<PAGE>
ASTORIA FINANCIAL CORPORATION AND SUBSIDIARY
AND LONG ISLAND BANCORP, INC. AND SUBSIDIARY
NOTES TO PRO FORMA CONDENSED COMBINED CONSOLIDATED
FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
The estimated restructuring charge of $45.6 million, relating to facility
and system costs, primarily relates to the abandonment of the main operating
facility of LIB including a portion of the carrying value of the building,
which, after consummation of the Merger, will be classified as held-for-sale.
Additionally, a significant amount includes AFC's abandonment of LIB's data
processing systems currently in production, as well as abandonment of five of
LIB's branch facilities, the operations of which are being consolidated into
four corresponding branch offices of AFC. All exit activities for these
facilities and assets will commence after the consummation of the Merger. The
abandonment of the data processing systems is anticipated to be finalized
during the fourth quarter of 1998 and facilities exit activities are
anticipated to be completed during the first quarter of 1999.
The effect of the proposed charge has been reflected in the pro forma
condensed combined consolidated statement of financial condition as of March
31, 1998; however, since this charge is non-recurring, it has not been
reflected in the pro forma combined statements of operations. Refinements to
the foregoing estimates may occur as the merger and integration task force
formed by AFC and LIB completes its work. The pro forma financial information
does not give effect to expected cost savings, nor does it include any
estimates of revenue enhancements that could be realized with the Merger.
89
<PAGE>
DESCRIPTION OF AFC CAPITAL STOCK
GENERAL
AFC is authorized to issue 200,000,000 shares of AFC Common Stock having a
par value of $0.01 per share and 5,000,000 shares of preferred stock having a
par value of $1.00 per share (the "AFC Preferred Stock"). As of the AFC Record
Date, there were 26,530,706 shares of AFC Common Stock issued and outstanding
and 2,000,000 shares of AFC Preferred Stock issued and outstanding. Each share
of the AFC Common Stock has the same relative rights as, and is identical in
all respects with, each other share of AFC Common Stock. The AFC Board has the
power from time to time to issue additional shares of AFC Common Stock or
preferred stock authorized by AFC's Certificate of Incorporation without
obtaining approval of AFC's stockholders. The rights, qualifications,
limitations and restrictions on each series of preferred stock issued will be
determined by the AFC Board and approved as required by the DGCL or otherwise,
at the time of issuance and may include, among other things, rights in
liquidation, rights to participating dividends, voting and convertibility to
AFC Common Stock. The following descriptions of AFC capital stock are
qualified in their entirety by reference to AFC's Certificate of
Incorporation.
AFC COMMON STOCK
Dividends. AFC can pay dividends out of statutory surplus or from certain
net profits if, as, and when declared by the AFC Board. The payment of
dividends by AFC is subject to limitations that are imposed by law and
applicable regulations. The holders of AFC Common Stock are entitled to
receive and share equally in such dividends as may be declared by the AFC
Board out of funds legally available therefor. Holders of AFC Preferred Stock
will have a priority over the holders of AFC Common Stock with respect to
dividends.
Voting Rights. The holders of AFC Common Stock possess exclusive voting
rights in AFC. Such holders elect the AFC Board and act on such other matters
as are required to be presented to them under the DGCL or AFC's Certificate of
Incorporation or as are otherwise presented to them by the AFC Board. Except
as discussed in "Limitation on Voting Rights," each holder of AFC Common Stock
is entitled to one vote per share of AFC Common Stock and will not have any
right to cumulate votes in the election of directors. Holders of AFC Preferred
Stock will not have voting rights except in certain limited circumstances
although the AFC Board may provide voting rights for any newly created series
of AFC Preferred Stock that may be issued in the future.
Limitation on Voting Rights. AFC's Certificate of Incorporation provides
that in no event shall any record owner of any outstanding AFC Common Stock
that is beneficially owned, directly or indirectly, by a person who
beneficially owns in excess of 10% of the then outstanding shares of AFC
Common Stock (the "Limit") be entitled or permitted to any vote with respect
to the shares held in excess of the Limit. Beneficial ownership is determined
pursuant to Rule 13d-3 of the General Rules and Regulations promulgated
pursuant to the Exchange Act, and includes shares beneficially owned by such
person or any of his affiliates (as defined in AFC's Certificate of
Incorporation), shares that such person or his affiliates have the right to
acquire upon the exercise of conversion rights or options, and shares as to
which such person and his affiliates have or share investment or voting power,
but shall not include shares beneficially owned by Astoria Federal's ESOP or,
in the case of directors or officers of Astoria Federal or AFC, shares
beneficially owned by any other such director or officer or shares that are
subject to a publicly solicited revocable proxy and that are not otherwise
beneficially owned, or deemed by AFC to be beneficially owned, by such person
and his affiliates. AFC's Certificate of Incorporation further provides that
such provision limiting voting rights only may be amended upon the vote of 80%
of the outstanding shares of voting stock.
Liquidation Rights. In the event of any liquidation, dissolution, or winding
up of Astoria Federal, AFC, as a holder of Astoria Federal's capital stock,
would be entitled to receive, after payment or provision for payment of all
debts and liabilities of Astoria Federal (including all deposit accounts and
accrued interest thereon) and after distribution of the balance in the special
liquidation accounts established for the benefit of certain account holders of
Astoria Federal in connection with its conversion to stock form and for the
benefit of certain account holders of Fidelity and The Greater in connection
with their respective conversions to stock form, all assets of
90
<PAGE>
Astoria Federal available for distribution. In the event of liquidation,
dissolution, or winding up of AFC, the holders of AFC Common Stock would be
entitled to receive, after payment or provision for payment of all its debts
and liabilities, all of the assets of AFC available for distribution. Holders
of AFC Preferred Stock will have a priority over the holders of AFC Common
Stock in the event of liquidation or dissolution.
Preemptive Rights. Holders of the AFC Common Stock are not entitled to
preemptive rights with respect to any shares which may be issued.
Issuance of Stock. In certain instances, the issuance of authorized but
unissued shares of AFC Common Stock or AFC Preferred Stock may have an anti-
takeover effect. The authority of the AFC Board to issue AFC Preferred Stock
with rights and privileges, including voting rights, as it may deem
appropriate, may enable the AFC Board to prevent a change of control despite a
shift in ownership of AFC Common Stock. In addition, the AFC Board's authority
to issue additional shares of AFC Common Stock may help deter or delay a
change of control by increasing the number of shares needed to gain control.
Certain Anti-takeover Provisions. AFC's Certificate of Incorporation and
Bylaws contain a number of provisions that may be deemed to have the effect of
discouraging or delaying attempts to gain control of AFC, including provisions
(i) classifying the AFC Board into three classes with each class to serve for
three years with one class being elected annually; (ii) authorizing the AFC
Board the exclusive power to fix from time to time the size of the AFC Board;
(iii) authorizing a majority vote of the AFC Board then in office to fill
vacancies in the AFC Board; (iv) providing that the directors may be removed
only for cause and only by the affirmative vote of at least 80% of the shares
entitled to be voted in the election of directors; (v) providing that any
action required or permitted to be taken by the stockholders of AFC may not be
effected by a written consent by such stockholders; (vi) allowing the AFC
Board to give due consideration to constituencies other than AFC's
stockholders in evaluating acquisition or merger proposals; (vii) providing
that certain of the foregoing provisions only may be amended by the
affirmative vote of at least 80% of the outstanding stock entitled to vote or
a majority vote of the AFC Board; and (viii) setting forth specific conditions
under which: (a) business may be transacted at an annual meeting of
stockholders; and (b) persons may be nominated for election as directors of
AFC at an annual meeting of stockholders.
The foregoing provisions could impede a change of control of AFC. In
particular, classification of the AFC Board has the effect of decreasing the
number of directors that could be elected in a single year by any person who
seeks to elect its designees to a majority of the seats on the AFC Board.
Furthermore, allowing the AFC Board to consider non-stockholder constituencies
may have the effect of increasing the AFC Board's discretion to reject
acquisition or merger proposals.
AFC PREFERRED STOCK
As of the AFC Record Date, 2,000,000 shares of AFC Preferred Stock have been
issued by AFC. AFC Preferred Stock may be issued with such preferences and
designations as the AFC Board may determine from time to time. The AFC Board
may issue, without stockholder approval, AFC Preferred Stock with voting,
dividend, liquidation, and conversion rights that could dilute the voting
strength of the holders of AFC Common Stock and may assist AFC's management in
impeding an unfriendly takeover or an attempted change in control.
Although AFC has no arrangements, understandings, or plans at the present
time for the issuance or use of the shares of undesignated preferred stock
(the "AFC Undesignated Preferred Stock") authorized, the AFC Board believes
that the availability of such shares will provide AFC and Astoria Federal with
increased flexibility in structuring possible future financing and
acquisitions and in meeting other corporate needs that may arise. In the event
of a proposed merger, tender offer, or other attempt to gain control of AFC of
which AFC management does not approve, the AFC Board may be able to authorize
the issuance of one or more series of AFC Preferred Stock with rights and
preferences that could impede the completion of such a hostile transaction.
The issuance of AFC Preferred Stock, therefore, may deter future takeover
attempts. The AFC Board does not intend to issue
91
<PAGE>
any AFC Preferred Stock except on terms that it deems to be in the best
interest of both Astoria Federal's and AFC's then existing stockholders.
AFC Series A Preferred Stock. AFC's Certificate of Designations, Preferences
and Rights of the Series A Junior Participating Preferred Stock with respect
to the AFC Series A Junior Participating Preferred Stock, par value $0.01 per
share ("AFC Junior Preferred Stock"), authorizes the issuance of up to 325,000
shares of the AFC Junior Preferred Stock. AFC Junior Preferred Stock is
issuable only in connection with AFC's Rights Plan. When issued, the AFC
Junior Preferred Stock will rank junior to all other series of AFC's preferred
stock as to the payment of dividends and the distribution of assets, unless
the terms of any such series provide otherwise. Dividends on the AFC Junior
Preferred Stock will be cumulative to the greater of (i) $1.00 or (ii) subject
to adjustment, 100 times the aggregate per share amount of all non-cash
dividends or other distributions declared on AFC Common Stock, and 100 times
the aggregate per share amount of all non-cash dividends or other
distributions declared on AFC Common Stock other than a dividend payable in
shares of AFC Common Stock or a subdivision of the outstanding shares of AFC
Common Stock. Holders of shares of the AFC Junior Preferred Stock will have no
voting rights, except as required by law. The AFC Junior Preferred Stock has
preference over AFC Common Stock with respect to the distribution of assets in
the event of a liquidation, dissolution or winding up of AFC. The liquidation
preference of the AFC Junior Preferred Stock is $100.00 per share, plus an
amount equal to accrued and unpaid dividends and distributions.
AFC Series B Preferred Stock. AFC's Certificate of Designations, Preferences
and Rights of 12% Noncumulative Perpetual Preferred Stock, Series B with
respect to the AFC Series B Preferred Stock, authorizes the issuance of up to
2,000,000 shares of the AFC Series B Preferred Stock. The AFC Series B
Preferred Stock ranks prior to the AFC Common Stock and to all other classes
and series of equity securities of AFC, now or hereafter authorized ("Junior
Stock"), other than equity securities that AFC expressly designates as ranking
on a parity with or senior to the AFC Series B Preferred Stock. Holders of
shares of the AFC Series B Preferred Stock are entitled to receive, when, as
and if declared by the AFC Board, noncumulative cash dividends at a rate not
greater than $3.00 per share per annum. Holders of shares of the AFC Series B
Preferred Stock will have no voting rights, except with regard to certain
activities described in the Certificate of Designations of the AFC Series B
Preferred Stock and as required by law. The AFC Series B Preferred Stock has
preference over AFC Common Stock and Junior Stock, with respect to the
distribution of assets in the event of a liquidation, dissolution or winding
up of AFC. The liquidation preference of the AFC Series B Preferred Stock is
$25.00 per share, plus an amount equal to accrued, undeclared and unpaid
dividends. The AFC Series B Preferred Stock is not redeemable before October
1, 2003, but on or after such date, the AFC Series B Preferred Stock will be
redeemable at the option AFC, in whole or in part, at any time and from time
to time, at the redemption prices set forth in the Certificate of Designations
of the AFC Series B Preferred Stock.
92
<PAGE>
COMPARISON OF CERTAIN RIGHTS OF STOCKHOLDERS
GENERAL
Both AFC and LIB are Delaware corporations subject to the provisions of the
DGCL. At the Effective Time, stockholders of LIB, whose rights are governed by
LIB's Restated Certificate of Incorporation, LIB's Bylaws and the DGCL and who
are allocated stock under the exchange procedures set forth herein, will, upon
consummation of the Merger, become stockholders of AFC, and their rights as
stockholders will be determined by AFC's Certificate of Incorporation, AFC's
Bylaws, and the DGCL.
The following is a summary of the material differences in the rights of
stockholders of LIB under LIB's Restated Certificate of Incorporation and
LIB's Bylaws, and the rights of stockholders of AFC under AFC's Certificate of
Incorporation, and AFC's Bylaws. The following discussion does not purport to
be a complete discussion of, and is qualified in its entirety by reference to,
the governing laws, LIB's Restated Certificate of Incorporation, LIB's Bylaws,
AFC's Certificate of Incorporation and AFC's Bylaws.
AMENDMENT OF THE CERTIFICATE OF INCORPORATION
AFC's Certificate of Incorporation requires the affirmative vote of the
holders of at least 80% of the voting power of all of the then-outstanding
shares of the capital stock of AFC entitled to vote generally in the election
of AFC's directors, voting together as a single class, to amend or repeal the
provisions of AFC's Certificate of Incorporation regarding: (i) amendments to
AFC's Certificate of Incorporation or AFC's Bylaws, (ii) beneficial ownership
limitations on AFC Common Stock, (iii) actions by stockholders by written
consent, (iv) staggered board of directors and the ability to fill vacancies
on the AFC Board, (v) removal of directors, (vi) stockholder special meetings,
(vii) higher vote requirements for certain actions, and (viii) director and
officer indemnification.
LIB's Restated Certificate of Incorporation requires the affirmative vote of
the holders of at least 80% of the voting power of all of the then-outstanding
shares of capital stock of LIB entitled to vote generally in the election of
LIB's directors, voting together as a single class, to amend, repeal or adopt
provisions of LIB's Restated Certificate of Incorporation regarding: (i)
amendments to LIB's Restated Certificate of Incorporation or Bylaws, (ii)
beneficial ownership limitations on LIB Common Stock, (iii) actions by
stockholders by written consent, (iv) staggered board of directors and the
ability to fill vacancies on the LIB Board, (v) removal of directors, (vi)
higher vote requirements for certain actions, and (vii) authorization to
create and issue rights entitling the holders thereof to purchase or receive
from LIB shares of other stock or securities. LIB's Restated Certificate of
Incorporation does not address special meetings of stockholders or
indemnification of officers and directors; however, both topics are addressed
in LIB's Bylaws, amendment of which requires the affirmative vote of the LIB
Board or a vote of at least 80% of the voting power of the then outstanding
shares of capital stock entitled to vote in the election of directors.
SPECIAL MEETINGS OF STOCKHOLDERS
Under AFC's Bylaws, special meetings of AFC stockholders may be called only
by the AFC Board pursuant to a resolution adopted by a majority of the total
number of AFC directors that AFC would have if there were no vacancies on the
AFC Board.
Under LIB's Bylaws, special meetings of LIB stockholders may be called only
by the Chairman of the LIB Board or by the LIB Board pursuant to a resolution
adopted by a majority of the total number of LIB directors that LIB would have
if there were no vacancies on the LIB Board.
LIMITATION OF DIRECTOR LIABILITY
Section 102(b)(7) of the DGCL permits the inclusion of a provision in the
certificate of incorporation of a Delaware corporation that eliminates or
limits the personal liability of a director of such corporation to the
corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director; provided that
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such provision does not eliminate or limit the liability of a director (i) for
any breach of the director's duty of loyalty to the corporation or its
stockholders; (ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law; (iii) for a breach of
the DGCL provision relating to unlawful payment of dividends or redemptions or
(iv) for any transaction from which the director derived an improper personal
benefit.
AFC's Certificate of Incorporation contains a provision so eliminating the
liability of AFC's directors to AFC and its stockholders for monetary damages
for breach of a fiduciary duty as a director to the fullest extent permitted
by the DGCL, including any future amendment to authorize corporate action to
further limit the personal liability of AFC's directors.
LIB's Restated Certificate of Incorporation contains a provision eliminating
the liability of LIB's directors to LIB or its stockholders for monetary
damages for breach of a fiduciary duty as a director, except to the extent
such exemption is not permitted under the DGCL
INDEMNIFICATION OF DIRECTORS AND OFFICERS
Under Section 145 of the DGCL, a Delaware corporation may indemnify fully
its directors, officers, employees, and agents if such persons have acted in
good faith and in a manner that such persons reasonably believed was in, or
not opposed to, the best interests of the corporation. A Delaware corporation
also may indemnify fully such individuals with respect to criminal actions or
proceedings, provided that such individual had no reasonable cause to believe
such conduct was unlawful.
AFC's Certificate of Incorporation provides that AFC shall indemnify, to the
fullest extent authorized by the DGCL, its directors, officers, employees, and
agents against all expense, liability and loss reasonably incurred or suffered
by such indemnitee in connection therewith; provided, however, that except as
provided in AFC's Certificate of Incorporation with respect to proceedings to
enforce rights to indemnification, AFC shall indemnify any such indemnitee in
connection with a proceeding initiated by such indemnitee only if such
proceeding was authorized by the AFC Board. AFC's Certificate of Incorporation
further permits AFC to maintain insurance on behalf of any director, officer,
employee, or agent of AFC.
LIB's Bylaws provide substantially similar indemnification as AFC's
Certificate of Incorporation for LIB's directors, officers, employees and
agents. LIB's Bylaws also permit LIB to maintain insurance on behalf of any
director, officer, employee, or agent of LIB.
OTHER CONSTITUENCIES
AFC's Certificate of Incorporation provides that the AFC Board, when
evaluating offers to make a tender or exchange offer, merge or consolidate
AFC, or purchase or otherwise acquire all or substantially all of the assets
and properties of AFC may, in determining what is in the best interests of AFC
and AFC's stockholders, give due consideration (to the extent permitted by
law) to all relevant factors, including, without limitation, those factors
that directors of AFC or any subsidiary of AFC may consider in evaluating any
action that may result in a change in control of the subsidiary, and the
social and economic effect of acceptance of such offer on: (i) AFC's and any
of AFC's subsidiary's present and future customers and employees, (ii) the
communities in which AFC and any subsidiary of AFC operates or is located,
(iii) the ability of AFC to fulfill its corporate objectives as a savings and
loan holding company, and (iv) the ability of Astoria Federal to fulfill the
objectives of a federally chartered stock savings and loan association. The
DGCL does not address what factors a board of directors may consider in
exercising such duty. However, pursuant to case law interpreting the
provisions of the DGCL, the board of directors of a Delaware corporation
generally may consider the impact of such a proposal on AFC's other
constituencies; provided that doing so bears some reasonable relationship to
general stockholder interests.
Neither LIB's Certificate of Incorporation nor LIB's Bylaws have a provision
regarding consideration of non-stockholder constituencies.
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LEGAL MATTERS
The validity of the Merger Shares will be passed upon for AFC by Thacher
Proffitt & Wood.
EXPERTS
The consolidated financial statements of AFC and subsidiaries as of December
31, 1997 and 1996 and for each of the years in the three-year period ended
December 31, 1997, included in AFC's Form 10-K for the year ended December 31,
1997 and incorporated by reference into this Joint Proxy Statement-Prospectus,
have been incorporated by reference herein and in the Registration Statement
of which this Joint Proxy Statement-Prospectus is a part in reliance upon the
report of KPMG Peat Marwick LLP, independent auditors, included in AFC's 1997
Form 10-K and incorporated by reference herein, and upon the authority of said
firm as experts in accounting and auditing.
The consolidated financial statements of LIB and subsidiaries as of
September 30, 1997 and 1996 and for each of the years in the three-year period
ended September 30, 1997, included in LIB's Form 10-K for the year ended
September 30, 1997 and incorporated by reference into this Joint Proxy
Statement-Prospectus, have been incorporated by reference herein and in the
Registration Statement of which this Joint Proxy Statement-Prospectus is a
part in reliance upon the report of KPMG Peat Marwick LLP, independent
auditors, included in LIB's 1997 Form 10-K and incorporated by reference
herein, and upon the authority of said firm as experts in accounting and
auditing.
STOCKHOLDER PROPOSALS
To be considered for inclusion in AFC's proxy statement and form of proxy
relating to the annual meeting of stockholders to be held in 1999, a
stockholder proposal must be received by the Secretary of AFC at Astoria
Financial Corporation, One Astoria Federal Plaza, Lake Success, New York 11042
but not later than December 4, 1998. Any such proposal will be subject to 17
C.F.R. (S) 240.14a-8 promulgated by the Commission under the Exchange Act.
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APPENDIX A
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- --------------------------------------------------------------------------------
AGREEMENT AND PLAN OF MERGER
DATED AS OF THE 2ND DAY OF APRIL, 1998
AS AMENDED
BY AND BETWEEN
ASTORIA FINANCIAL CORPORATION
AND
LONG ISLAND BANCORP, INC.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Introductory Statement................................................... A-1
ARTICLE I
The Merger
Section 1.01 Structure of the Merger..................................... A-1
Section 1.02 Effect on Outstanding Shares of LISB Common Stock........... A-1
Section 1.03 Exchange Procedures......................................... A-2
Section 1.04 Stock Options............................................... A-4
Section 1.05 Bank Merger................................................. A-5
Section 1.06 Directors of AFC after Effective Time....................... A-5
Section 1.07 Alternative Structure....................................... A-5
ARTICLE II
Representations and Warranties
Section 2.01 Disclosure Letters.......................................... A-5
Section 2.02 Standards................................................... A-5
Section 2.03 Representations and Warranties of LISB...................... A-6
Section 2.04 Representations and Warranties of AFC....................... A-17
ARTICLE III
Conduct Pending the Merger
Section 3.01 Conduct of LISB's Business Prior to the Effective Time...... A-25
Section 3.02 Forbearance by LISB......................................... A-25
Section 3.03 Conduct of AFC's Business Prior to the Effective Time....... A-28
Section 3.04 Forbearance by AFC.......................................... A-28
ARTICLE IV
Covenants
Section 4.01 Acquisition Proposals....................................... A-29
Section 4.02 Certain Policies of LISB.................................... A-29
Section 4.03 Access and Information...................................... A-30
Section 4.04 Certain Filings, Consents and Arrangements.................. A-31
Section 4.05 Antitakeover Provisions..................................... A-31
Section 4.06 Additional Agreements....................................... A-31
Section 4.07 Publicity................................................... A-31
Section 4.08 Stockholders' Meeting....................................... A-31
Section 4.09 Joint Proxy Statement-Prospectus; Comfort Letters........... A-32
Section 4.10 Registration of AFC Common Stock............................ A-32
Section 4.11 Affiliate Letters........................................... A-32
Section 4.12 Notification of Certain Matters............................. A-33
Section 4.13 Directors and Officers; Advisory Board; Litigation
Committee............................................................... A-33
Section 4.14 Indemnification; Directors' and Officers' Insurance......... A-34
Section 4.15 Pooling and Tax-Free Reorganization Treatment............... A-35
Section 4.16 Employees; Benefit Plans and Programs....................... A-35
</TABLE>
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ARTICLE V
Conditions to Consummation
<TABLE>
<S> <C>
Section 5.01 Conditions to Each Party's Obligations...................... A-37
Section 5.02 Conditions to the Obligations of AFC and the Association
under this Agreement.................................................... A-37
Section 5.03 Conditions to the Obligations of LISB....................... A-38
ARTICLE VI
Termination
Section 6.01 Termination................................................. A-40
Section 6.02 Effect of Termination....................................... A-42
Section 6.03 Third Party Termination Fee to AFC.......................... A-42
ARTICLE VII
Closing, Effective Date and Effective Time
Section 7.01 Effective Date and Effective Time........................... A-43
Section 7.02 Deliveries at the Closing................................... A-43
ARTICLE VIII
Certain Other Matters
Section 8.01 Certain Definitions; Interpretation......................... A-43
Section 8.02 Survival.................................................... A-44
Section 8.03 Waiver; Amendment........................................... A-44
Section 8.04 Counterparts................................................ A-44
Section 8.05 Governing Law............................................... A-44
Section 8.06 Expenses.................................................... A-44
Section 8.07 Notices..................................................... A-44
Section 8.08 Entire Agreement, etc....................................... A-45
Section 8.09 Assignment.................................................. A-45
</TABLE>
Exhibits
Exhibit 1.05 Plan of Bank Merger
Exhibit 4.11(a) Form of Affiliate Letter for LISB Affiliates
Exhibit 4.11(b)Form of Affiliate Letter for AFC Affiliates
Exhibit 4.16(b)(a)Form of Release
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This is an AGREEMENT AND PLAN OF MERGER, dated as of the 2nd day of April,
1998 (the "Agreement"), by and between Astoria Financial Corporation, a
Delaware corporation ("AFC"), and Long Island Bancorp, Inc., a Delaware
corporation ("LISB"), as amended.
INTRODUCTORY STATEMENT
The Board of Directors of each of AFC and LISB (i) has determined that this
Agreement and the business combination and related transactions contemplated
hereby are in the best interests of AFC and LISB, respectively, and in the
best long-term interests of their respective stockholders, (ii) has determined
that this Agreement and the transactions contemplated hereby are consistent
with, and in furtherance of, its respective business strategies and (iii) has
approved, at meetings of each of such Boards of Directors, this Agreement.
Concurrently with the execution and delivery of this Agreement, and as a
condition and inducement to AFC's willingness to enter into this Agreement,
AFC and LISB have entered into a stock option agreement (the "LISB Option
Agreement"), pursuant to which LISB has granted to AFC an option to purchase
shares of LISB's common stock, par value $0.01 per share (the "LISB Common
Stock"), upon the terms and conditions therein contained and, as a condition
and inducement to LISB's willingness to enter into this Agreement, LISB and
AFC have entered into a stock option agreement (the "AFC Option Agreement")
pursuant to which AFC has granted LISB an option to purchase shares of AFC
common stock, par value $0.01 per share (the "AFC Common Stock") upon the
terms and conditions therein contained.
The parties hereto intend that the Merger shall qualify as a reorganization
under the provisions of Section 368(a) of the Internal Revenue Code of 1986,
as amended (the "Code"), for federal income tax purposes, and that the Merger
shall be treated as a "pooling-of-interests" for accounting purposes.
Promptly following the consummation of the Merger, the parties hereto intend
that The Long Island Savings Bank, FSB, a wholly owned subsidiary of LISB
("LISB Bank"), and Astoria Federal Savings and Loan Association, a wholly
owned subsidiary of Astoria (the "Association") shall be merged (the "Bank
Merger").
AFC and LISB desire to make certain representations, warranties and
agreements in connection with the business combination transactions provided
for herein and to prescribe various conditions to the transactions.
In consideration of their mutual promises and obligations hereunder, the
parties hereto adopt and make this Agreement and prescribe the terms and
conditions hereof and the manner and basis of carrying it into effect, which
shall be as follows:
ARTICLE I
THE MERGER
Section 1.01 Structure of the Merger. On the Effective Date (as defined in
Section 7.01), LISB will merge with and into AFC (the "Merger"), with AFC
being the surviving entity, pursuant to the provisions of, and with the effect
provided in the Delaware General Corporation Law (the "DGCL"). Upon
consummation of the Merger, the separate corporate existence of LISB shall
cease. The certificate of incorporation and bylaws of AFC, as in effect
immediately prior to the Effective Time (as defined in Section 7.01), shall be
the certificate of incorporation and bylaws of the surviving corporation,
until altered, amended or repealed in accordance with their terms and
applicable law. The authorized capital stock of the surviving corporation
shall be as stated in the certificate of incorporation of AFC immediately
prior to the Effective Time. Each share of AFC Common Stock and AFC Preferred
Stock (as defined herein) issued and outstanding immediately prior to the
Effective Time shall be unchanged and shall remain issued and outstanding.
Section 1.02 Effect on Outstanding Shares of LISB Common Stock.
(a) By virtue of the Merger, automatically and without any action on the
part of the holders of LISB Common Stock, each share of LISB Common Stock
issued and outstanding at the Effective Time (other than (i)
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shares held directly or indirectly by AFC (other than shares held in a
fiduciary capacity or in satisfaction of a debt previously contracted), (ii)
shares held as treasury stock and (iii) unallocated shares held in LISB's
Management Recognition and Retention Plan for the Executive Officers or LISB's
Management Recognition and Retention Plan for Non-Employee Directors
(together, the "MRPs") (the shares referred to in clauses (i), (ii) and (iii)
are hereinafter collectively referred to as the "Excluded Shares")) together
with the related preferred share purchase right issued pursuant to the Rights
Agreement (the "LISB Rights Agreement"), dated as of April 22, 1997, between
LISB and ChaseMellon Shareholder Services, L.L.C. as Rights Agent (the "LISB
Preferred Share Purchase Right") shall become and be converted into the right
to receive 1.15 shares of AFC Common Stock (the "Exchange Ratio"), together
with the related preferred share purchase right issued pursuant to the Rights
Agreement (the "AFC Rights Agreement"), dated as of July 17, 1996 between AFC
and ChaseMellon Shareholder Services, L.L.C. as Rights Agent (the "AFC
Preferred Share Purchase Right"); provided, however, that, notwithstanding any
other provision hereof, no fraction of a share of AFC Common Stock and no
certificates or scrip therefor will be issued in the Merger; instead, AFC
shall pay to each holder of LISB Common Stock who would otherwise be entitled
to a fractional share an amount in cash, rounded to the nearest cent,
determined by multiplying such fraction by the AFC Market Value (as defined
below) (collectively, the "Merger Consideration").
(b) If, between the date of this Agreement and the Effective Time, the
outstanding shares of AFC Common Stock shall have been changed into a
different number of shares or into a different class (or a record date for
such a change shall have been determined), by reason of any stock dividend,
subdivision, reclassification, recapitalization, split, combination or
exchange of shares (each, a "Stock Adjustment"), the Merger Consideration
shall be adjusted correspondingly to the extent appropriate to reflect the
Stock Adjustment.
(c) As used herein, "AFC Market Value" shall be the average of the mean
between the closing high bid and low asked prices of a share of AFC Common
Stock, as reported on the Nasdaq National Market System (the "Nasdaq National
Market"), for the five (5) consecutive Nasdaq trading days immediately
preceding the Effective Date.
(d) As of the Effective Time, each Excluded Share shall be cancelled and
retired and cease to exist, and no exchange or payment shall be made with
respect thereto. All shares of AFC Common Stock and AFC Preferred Stock (as
defined in Section 2.04(b)) that are held by LISB, if any, other than shares
held in a fiduciary capacity or in satisfaction of a debt previously
contracted, shall become treasury stock of AFC.
Section 1.03 Exchange Procedures.
(a) At and after the Effective Time, each certificate ("LISB Certificate")
previously representing shares of LISB Common Stock (except as specifically
set forth in Section 1.02) shall represent only the right to receive the
Merger Consideration.
(b) Prior to the Effective Time, AFC shall deposit, or shall cause to be
deposited, with such bank or trust company as shall be selected by AFC and
reasonably acceptable to LISB to act as exchange agent (the "Exchange Agent"),
for the benefit of the holders of shares of LISB Common Stock, for exchange in
accordance with this Section 1.03, certificates representing the shares of AFC
Common Stock to which the holders of LISB Certificates are entitled pursuant
to this Agreement and an estimated amount of cash sufficient to pay the
aggregate amount of cash in lieu of fractional shares to be issued and paid
pursuant to Section 1.02. AFC agrees to provide such additional cash as may be
necessary to pay the aggregate amount of cash in lieu of fractional shares
promptly upon requisition therefor by the Exchange Agent.
(c) Appropriate transmittal materials (the "Letter of Transmittal") shall be
mailed as soon as reasonably practicable after the Effective Time, and in no
event later than 10 business days thereafter, to each holder of record of LISB
Common Stock as of the Effective Time. A Letter of Transmittal will be deemed
properly completed only if accompanied by certificates representing all shares
of LISB Common Stock to be converted thereby.
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<PAGE>
(d) The Letter of Transmittal shall (i) specify that delivery shall be
effected, and risk of loss and title to LISB Certificates shall pass, only
upon delivery of LISB Certificates to the Exchange Agent, (ii) be in a form
and contain any other provisions as AFC may reasonably determine and (iii)
include instructions for use in effecting the surrender of LISB Certificates
in exchange for the Merger Consideration. Upon the proper surrender of LISB
Certificates to the Exchange Agent, together with a properly completed and
duly executed Letter of Transmittal, the holder of such LISB Certificate(s)
shall be entitled to receive in exchange therefor (i) a certificate
representing that number of whole shares of AFC Common Stock that such holder
has the right to receive pursuant to Section 1.02 of this Agreement, and (ii)
a check in the amount equal to the cash in lieu of fractional shares, if any,
which such holder has the right to receive pursuant to Section 1.02 of this
Agreement. LISB Certificates so surrendered shall forthwith be cancelled. As
soon as practicable, but no later than 10 business days following receipt of
the properly completed Letter of Transmittal and any necessary accompanying
documentation, the Exchange Agent shall distribute AFC Common Stock and cash
as provided herein. The Exchange Agent shall not be entitled to vote or
exercise any rights of ownership with respect to the shares of AFC Common
Stock held by it from time to time hereunder, except that it shall receive and
hold all dividends or other distributions paid or distributed with respect to
such shares for the account of the persons entitled thereto. If there is a
transfer of ownership of any shares of LISB Common Stock not registered in the
transfer records of LISB, the Merger Consideration shall be issued to the
transferee thereof if LISB Certificate(s) representing such LISB Common Stock
are presented to the Exchange Agent, accompanied by all documents required, in
the reasonable judgment of AFC and the Exchange Agent, (x) to evidence and
effect such transfer and (y) to evidence that any applicable stock transfer
taxes have been paid.
(e) Whenever a dividend or other distribution is declared by AFC on AFC
Common Stock, the record date for which is at or after the Effective Time, the
declaration shall include dividends or other distributions on all shares
issuable pursuant to this Agreement, but no dividends or other distributions
declared or made after the Effective Time with respect to AFC Common Stock
shall be remitted to any person entitled to receive shares of AFC Common Stock
hereunder until such person surrenders LISB Certificate(s) in accordance with
this Article I. Upon the surrender of such person's LISB Certificates in
accordance with this Article I, such person shall be entitled to receive any
dividends or other distributions, without interest thereon, which theretofore
had become payable with respect to shares of AFC Common Stock represented by
such person's LISB Certificates.
(f) From and after the Effective Time, there shall be no transfers on the
stock transfer records of LISB of any shares of LISB Common Stock. If, after
the Effective Time, LISB Certificates are presented to AFC or LISB for
transfer, they shall be cancelled and exchanged for the Merger Consideration
deliverable in respect thereof pursuant to this Agreement in accordance with
the procedures set forth in this Section 1.03.
(g) Any portion of the aggregate amount of cash to be paid in lieu of
fractional shares pursuant to Section 1.02, any dividends or other
distributions to be paid pursuant to Section 1.03 or the proceeds of any
investments thereof, that remains unclaimed by the stockholders of LISB for
six (6) months after the Effective Time shall be repaid by the Exchange Agent
to AFC upon the written request of AFC. After such request is made, any
stockholders of LISB who have not theretofore complied with this Section 1.03
shall look only to AFC for the Merger Consideration deliverable in respect of
each share of LISB Common Stock such stockholder holds as determined pursuant
to this Agreement, without any interest thereon. If outstanding certificates
for shares of LISB Common Stock are not surrendered prior to the date on which
such payments would otherwise escheat to or become the property of any
governmental unit or agency, the unclaimed items shall, to the extent
permitted by abandoned property and any other applicable law, become the
property of AFC (and to the extent not in its possession shall be paid over to
it), free and clear of all claims or interest of any person previously
entitled to such claims. Notwithstanding the foregoing, none of AFC, the
Association, the Exchange Agent or any other person shall be liable to any
former holder of LISB Common Stock for any amount delivered to a public
official pursuant to applicable abandoned property, escheat or similar laws.
(h) AFC and the Exchange Agent shall be entitled to rely upon LISB's stock
transfer books to establish the identity of those persons entitled to receive
the Merger Consideration, which books shall be conclusive with
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respect thereto. In the event of a dispute with respect to ownership of stock
represented by any LISB Certificate, AFC and the Exchange Agent shall be
entitled to deposit any Merger Consideration or dividends or distributions
thereon represented thereby in escrow with an independent third party and
thereafter be relieved with respect to any claims thereto.
(i) If any LISB Certificate shall have been lost, stolen or destroyed, upon
the making of an affidavit of that fact by the person claiming such LISB
Certificate to be lost, stolen or destroyed and, if required by the Exchange
Agent, the posting by such person of a bond in such amount as the Exchange
Agent may direct as indemnity against any claim that may be made against it
with respect to such LISB Certificate, the Exchange Agent will issue in
exchange for such lost, stolen or destroyed LISB Certificate, the Merger
Consideration deliverable in respect thereof pursuant to this Agreement,
subject to such other requirements that the Exchange Agent shall reasonably
require.
Section 1.04 Stock Options.
(a) Options to purchase shares of LISB Common Stock that have been issued by
LISB and are outstanding at the Effective Time (each, a "LISB Option"),
pursuant to the LISB 1994 Stock Incentive Plan and the LISB 1994 Non-Employee
Directors Stock Option Program (the "LISB Option Plan") shall be converted
into options to purchase shares of AFC Common Stock as follows:
(i) in the case of each holder of LISB Options at the Effective Time, the
aggregate number of shares of AFC Common Stock issuable upon the exercise
of converted LISB Options after the Effective Time shall be equal to the
product of the Exchange Ratio multiplied by the number of shares of LISB
Common Stock issuable upon exercise of the LISB Options immediately prior
to the Effective Time, such product to be rounded up to the nearest whole
share of AFC Common Stock; and
(ii) the exercise price per share of each converted LISB Option shall be
equal to the quotient of the exercise price of such LISB Option at the
Effective Time divided by the Exchange Ratio, such quotient to be rounded
to the nearest whole cent;
provided, however, that, in the case of any LISB Option that is intended to
qualify as an incentive stock option under Section 422 of the Code, the number
of shares of AFC Common Stock issuable upon exercise of and the exercise price
per share for such converted LISB Option determined in the manner provided
above shall be further adjusted as necessary to conform to the requirements of
Section 424(b) of the Code. Options to purchase shares of AFC Common Stock
that arise from the operation of this Section 1.04 shall be referred to as the
"Converted Options." All Converted Options shall be exercisable for the same
period and otherwise have the same terms and conditions applicable to the LISB
Options which they replace, including any post-termination extended exercise
periods as a result of the transaction contemplated by this Agreement as
provided under the current terms of the LISB Options; provided, however, that
such exercise periods, terms and conditions shall be further modified if and
to the extent necessary to enable the Merger to qualify for pooling-of-
interests accounting treatment. Prior to the Effective Time, AFC shall take,
or cause to be taken, all necessary action to effect the intent of the
provisions set forth in this Section 1.04.
(b) Prior to the date of the LISB stockholders meeting contemplated by
Section 4.08, LISB shall take, or cause to be taken, appropriate action under
the terms of any stock option plan, agreement or arrangement under which LISB
Options have been granted to convert LISB Options outstanding at the Effective
Time into Converted Options as contemplated by Section 1.04(a).
(c) Concurrently with the reservation of shares of AFC Common Stock to
provide for the payment of the Merger Consideration, AFC shall take all
corporate action necessary to reserve for future issuance a sufficient
additional number of shares of AFC Common Stock to provide for the
satisfaction of its obligations with respect to the Converted Options. As soon
as practicable following the Effective Time, AFC shall (i) cause to be
executed and delivered to each holder of a Converted Option an agreement,
certificate or other instrument evidencing such holder's rights with respect
to the Converted Options, which rights shall be as governed by and set forth
under the LISB Option Plans and (ii) file a registration statement on Form S-8
of the Securities and
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Exchange Commission (the "SEC") (or any successor or other appropriate form)
with respect to the AFC Common Stock issuable upon exercise of the Converted
Options.
Section 1.05 Bank Merger. Within 10 days of the execution of this Agreement,
the Association and LISB Bank shall enter into the Plan of Bank Merger in the
form annexed hereto as Exhibit 1.05 (which shall qualify as a reorganization
under Section 368(a) of the Code pursuant to which the Bank Merger will be
effected pursuant to and with the effect set forth in the rules and
regulations of the Office of Thrift Supervision ("OTS")). The parties hereto
intend that the Bank Merger shall become effective on the Effective Date. The
documentation relating to the Bank Merger shall provide that the directors of
the Association as the surviving entity of the Bank Merger shall be (a) all of
the respective directors of the Association immediately prior to such merger
and (b) such additional persons who shall become directors of the Association
pursuant to Section 4.13.
Section 1.06 Directors of AFC after Effective Time. At the Effective Time,
the directors of AFC shall consist of (a) the directors of AFC serving
immediately prior to the Effective Time and (b) such additional persons who
shall become directors of AFC in accordance with Section 4.13.
Section 1.07 Alternative Structure. Notwithstanding anything to the contrary
contained in this Agreement, prior to the Effective Time, in the event that
the parties hereto mutually agree that it would be advantageous to restructure
the transactions contemplated hereby, the parties hereto will cooperate in
good faith in structuring an alternative transaction which accomplishes the
goals, effects and purposes of this Agreement; provided, however, that such
revised structure shall not adversely affect the tax treatment of the
transaction to the holders of LISB Common Stock or the effects or economic
benefits of the transactions contemplated hereby to the holders of LISB Common
Stock and shall not materially delay the closing of the merger (the
"Closing"). This Agreement and any related documents shall be appropriately
amended in order to reflect any such revised structure.
ARTICLE II
REPRESENTATIONS AND WARRANTIES
Section 2.01 Disclosure Letters. On or prior to the execution hereof, LISB
and AFC each shall have delivered to the other a letter (its "Disclosure
Letter") setting forth, among other items, facts, circumstances and events the
disclosure of which is required or appropriate in relation to any or all of
its representations and warranties (and making specific reference to the
Section of this Agreement to which they relate), other than Section 2.03(h)
and Section 2.04(h); provided, that (a) no such fact, circumstance or event is
required to be set forth in the Disclosure Letter as an exception to a
representation or warranty if its absence is not reasonably likely to result
in the related representation or warranty being deemed untrue or incorrect
under the standards established by Section 2.02, and (b) the mere inclusion of
an item in the Disclosure Letter shall not be deemed an admission by a party
that such item represents a material exception or that such item is reasonably
likely to result in a Material Adverse Effect (as defined in Section 2.02(b)).
Section 2.02 Standards.
(a) No representation or warranty of LISB or AFC contained in Section 2.03
or 2.04, respectively, shall be deemed untrue or incorrect, and no party
hereto shall be deemed to have breached a representation or warranty, on
account of the existence of any fact, circumstance or event unless, as a
consequence of such fact, circumstance or event, individually or taken
together with all other facts, circumstances or events inconsistent with any
paragraph of Section 2.03 or 2.04, as applicable, there is reasonably likely
to exist a Material Adverse Effect. LISB's representations, warranties and
covenants contained in this Agreement shall not be deemed to be untrue or
breached as a result of effects arising solely from actions taken in
compliance with a written request of AFC.
(b) As used in this Agreement, the term "Material Adverse Effect" means
either (i) an effect which is material and adverse to the business, financial
condition or results of operations of LISB or AFC, as the context may dictate,
and its respective subsidiaries taken as a whole; provided, however, that any
such effects resulting
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from any changes (A) in law, rule or regulation or generally accepted
accounting principles or interpretations thereof that applies to both AFC and
the Association and LISB and LISB Bank, as the case may be, or (B) in the
general level of market interest rates, shall not be considered in determining
if a Material Adverse Effect has occurred; or (ii) the failure of (x) a
representation or warranty contained in Sections 2.03(a)(i) and (iv), 2.03(b),
2.03(c), 2.03(d), 2.03(g), 2.03(h)(iii), 2.04(a)(i) and (iv), 2.04(b),
2.04(c), 2.04(d), 2.04(h)(iii) or 2.04(l) to be true and correct or (y) a
representation or warranty contained in the last sentence of each of Section
2.03(f) or 2.04(f), and the first two sentences of each of Section 2.03(dd) or
2.04(w) to be true and correct in all material respects.
(c) For purposes of this Agreement, "knowledge" shall mean, with respect to
a party hereto, actual knowledge of the members of the Board of Directors of
that party, any officer of that party with the title ranking not less than
executive vice president or that party's corporate secretary.
Section 2.03 Representations and Warranties of LISB. Subject to Sections
2.01 and 2.02, LISB represents and warrants to AFC that, except as
specifically disclosed in the Disclosure Letter of LISB:
(a) Organization. (i) LISB is a corporation duly organized, validly existing
and in good standing under the laws of the State of Delaware and is a savings
and loan holding company duly registered with the OTS under the Home Owner's
Loan Act of 1933, as amended (the "HOLA"). LISB Bank is a stock savings bank,
duly organized, validly existing and in good standing under the laws of the
United States of America. Each other Significant Subsidiary of LISB or LISB
Bank is a corporation, limited liability company or partnership duly
organized, validly existing and in good standing under the laws of its
jurisdiction of incorporation or organization. Each of LISB, LISB Bank and
each of the other Significant Subsidiaries of LISB has all requisite power and
authority to own, lease and operate its properties and to carry on its
business as now being conducted. As used in this Agreement, unless the context
requires otherwise, the term "Subsidiary" when used with respect to any party
means any corporation or other organization, whether incorporated or
unincorporated, which is consolidated with such party for financial reporting
purposes or which is controlled, directly or indirectly, by such party,
including without limitation, LISB Bank. As used in this Agreement, the term
"Significant Subsidiary" shall mean each Subsidiary which is a "significant
subsidiary" as defined in Regulation S-X, promulgated by the SEC, as in effect
as of the date hereof.
(ii) LISB and each Subsidiary of LISB is duly qualified and is in good
standing to do business in each jurisdiction in which the nature of its
business or the ownership or leasing of its properties makes such
qualification necessary.
(iii) The Disclosure Letter sets forth all of the Subsidiaries of LISB and
all entities (whether corporations, partnerships, or similar organizations),
including the corresponding percentage ownership in which LISB owns, directly
or indirectly, 5% or more of the ownership interests as of the date of this
Agreement and indicates for each Subsidiary, as of such date, its jurisdiction
of organization and the jurisdiction wherein it is qualified to do business.
All such Subsidiaries and ownership interests are in compliance with all
applicable laws, rules and regulations relating to direct investments in
equity ownership interests. LISB owns, either directly or indirectly, all of
the outstanding capital stock of each of its Subsidiaries. Except for LISB
Bank, no Subsidiary of LISB is an "insured depositary institution" as defined
in the Federal Deposit Insurance Act, as amended (the "FDIA"), and applicable
regulations thereunder. All of the shares of capital stock of each of the
Subsidiaries held by LISB or by another Subsidiary of LISB are fully paid,
nonassessable and not subject to any preemptive rights and are owned by LISB
or a Subsidiary of LISB free and clear of any claims, liens, encumbrances or
restrictions (other than those imposed by applicable federal and state
securities laws) and there are no agreements or understandings with respect to
the voting or disposition of any such shares.
(iv) The deposits of LISB Bank are insured by the Savings Association
Insurance Fund of the Federal Deposit Insurance Corporation (the "FDIC") to
the extent provided in the FDIA.
(b) Capital Structure. (i) The authorized capital stock of LISB consists of
130,000,000 shares of LISB Common Stock and 5,000,000 shares of preferred
stock of LISB, par value $0.01 per share, (the "LISB Preferred
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Stock"). As of the date of this Agreement: (A) 23,935,242 shares of LISB
Common Stock were issued and outstanding, (B) no shares of LISB Preferred
Stock were issued and outstanding, (C) no shares of LISB Common Stock were
reserved for issuance except that 1,796,302 shares of LISB Common Stock were
reserved for issuance pursuant to the LISB Option Plans, (D) no shares of LISB
Preferred Stock were reserved for issuance except pursuant to the LISB Rights
Agreement, and (E) 2,881,222 shares of LISB Common Stock were held by LISB in
its treasury or by its Subsidiaries. The authorized capital stock of LISB Bank
consists of 45,000,000 shares of common stock, par value $0.01 per share, and
5,000,000 shares of preferred stock, par value $0.01 per share. As of the date
of the Agreement, 1,000 shares of such common stock were outstanding, no
shares of such preferred stock were outstanding and all outstanding shares of
such common stock were, and as of the Effective Time will be, owned by LISB.
All outstanding shares of LISB Common Stock are validly issued, fully paid and
nonassessable and not subject to any preemptive rights and, with respect to
shares held by LISB in its treasury or by its Subsidiaries, are free and clear
of all liens, claims, encumbrances or restrictions (other than those imposed
by applicable federal and state securities laws) and there are no agreements
or understandings to which LISB or its Subsidiaries is a party or by which it
is bound with respect to the voting or disposition of any such shares. The
Disclosure Letter sets forth a complete and accurate list of all options to
purchase LISB Common Stock that have been granted and are outstanding pursuant
to LISB Option Plans and all restricted stock grants under the LISB MRPs
including the dates of grant, exercise prices, dates of vesting, dates of
termination and shares subject to each grant. LISB has not, since September
30, 1997 adopted or modified the terms of any stock option plan or restricted
stock or phantom stock plan or any grants under the Stock Option Plans.
(ii) No bonds, debentures, notes or other indebtedness having the right to
vote on any matters on which stockholders may vote ("Voting Debt") of LISB are
issued or outstanding.
(iii) As of the date of this Agreement, except for this Agreement, and the
LISB Option Agreement, neither LISB nor any of its Subsidiaries has or is
bound by any outstanding options, warrants, calls, rights, convertible
securities, commitments or agreements of any character obligating LISB or any
of its Subsidiaries to issue, deliver or sell, or cause to be issued,
delivered or sold, any additional shares of capital stock of LISB or any of
its Subsidiaries or obligating LISB or any of its Subsidiaries to grant,
extend or enter into any such option, warrant, call, right, convertible
security, commitment or agreement. As of the date hereof, there are no
outstanding contractual obligations of LISB or any of its Subsidiaries to
repurchase, redeem or otherwise acquire any shares of capital stock of LISB or
any of its Subsidiaries.
(c) Authority. Each of LISB and LISB Bank has all requisite corporate power
and authority to enter into this Agreement and the Plan of Bank Merger,
respectively, and, subject to approval of this Agreement by the requisite vote
of the stockholders of LISB and receipt of all required regulatory or
governmental approvals as contemplated by Section 5.01(b) of this Agreement,
to consummate the transactions contemplated hereby. The execution and delivery
of this Agreement, and, subject to the approval of this Agreement by the
stockholders of LISB, the consummation of the transactions contemplated
hereby, have been duly authorized by all necessary corporate actions on the
part of LISB and LISB Bank. This Agreement has been duly executed and
delivered by LISB and constitutes a valid and binding obligation of LISB,
enforceable in accordance with its terms, subject to applicable bankruptcy,
insolvency and similar laws affecting creditors' rights and remedies generally
and subject, as to enforceability, to general principles of equity, whether
applied in a court of law or a court of equity.
(d) Stockholder Approval; Fairness Opinion. The affirmative vote of a
majority of the outstanding shares of LISB Common Stock entitled to vote on
this Agreement is the only vote of the stockholders of LISB required for
approval of this Agreement and the consummation of the Merger and the related
transactions contemplated hereby. LISB has received the written opinion of
Salomon Smith Barney to the effect that, as of the date hereof, the Merger
Consideration to be received by the stockholders of LISB is fair, from a
financial point of view, to such stockholders.
(e) No Violations. Subject to approval of this Agreement by LISB's
stockholders and the obtaining of the approvals, consents and waivers referred
to in Section 2.03(f), the execution, delivery and performance of this
Agreement by LISB and the execution, delivery and performance of the LISB
Option Agreement by LISB will
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not, and the consummation of the transactions contemplated hereby or thereby
by LISB will not, constitute (i) a breach or violation of, or a default under,
any law, including any Environmental Law (as defined in Section 2.03(s)), rule
or regulation or any judgment, decree, order, governmental permit or license,
or agreement, indenture or instrument of LISB or any Significant Subsidiary of
LISB or to which LISB or any of its Significant Subsidiaries (or any of their
respective properties) is subject, (ii) a breach or violation of, or a default
under, the organization certificate or articles of incorporation or bylaws of
LISB or any Significant Subsidiary of LISB or (iii) a breach or violation of,
or a default under (or an event which with due notice or lapse of time or both
would constitute a default under), or result in the termination of, accelerate
the performance required by, or result in the creation of any lien, pledge,
security interest, charge or other encumbrance upon any of the properties or
assets of LISB or any Subsidiary of LISB under, any of the terms, conditions
or provisions of any note, bond, indenture, deed of trust, loan agreement or
other agreement, instrument or obligation to which LISB or any Subsidiary of
LISB is a party, or to which any of their respective properties or assets may
be bound or affected; and the consummation of the transactions contemplated
hereby by LISB or, upon its execution and delivery, by the LISB Option
Agreement will not require any approval, consent or waiver under any such law,
rule, regulation, judgment, decree, order, governmental permit or license or
the approval, consent or waiver of any other party to any such agreement,
indenture or instrument, other than (i) the required approvals, consents and
waivers referred to in Section 5.01(b), (ii) the approval of the stockholders
of LISB referred to in Section 2.03(d) and (iii) such approvals, consents or
waivers as are required under the federal and state securities or "blue sky"
laws in connection with the transactions contemplated by this Agreement or the
LISB Option Agreement.
(f) Consents. Except as referred to herein or in connection, or in
compliance, with the provisions of the Hart-Scott-Rodino Antitrust
Improvements Act of 1976 (the "HSR Act"), the Securities Act of 1933, as
amended (the "Securities Act"), the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), the HOLA, the Bank Merger Act, as amended (the
"B.A."), the FDIA, the rules and regulations of the OTS, and the
environmental, corporation, securities or "blue sky" laws or regulations of
the various states, no filing or registration with, or authorization, consent
or approval of, any other party is necessary for the consummation by LISB or
LISB Bank of the Merger or the other transactions contemplated by this
Agreement. As of the date hereof, LISB knows of no reason why the approvals,
consents and waivers of governmental authorities referred to in this Section
2.03(f) that are required to be obtained should not be obtained without the
imposition of any condition or restriction referred to in the last sentence in
Section 5.01(b).
(g) Reports. (i) As of their respective dates, neither LISB's Annual Report
on Form 10-K of the SEC for the fiscal year ended September 30, 1997 nor any
other document filed subsequent to September 30, 1997, under Section 13(a),
13(c), 14 or 15(d) of the Exchange Act, each in the form (including exhibits
and any documents specifically incorporated by reference therein) filed with
the SEC (collectively, "LISB Reports"), contained or will contain any untrue
statement of a material fact or omitted or will omit to state a material fact
required to be stated therein or necessary to make the statements made
therein, in light of the circumstances under which they were made, not
misleading. Each of the financial statements of LISB included in the LISB
Reports complied as to form, as of their respective dates of filing with the
SEC, in all material respects with applicable accounting requirements and with
the published rules and regulations of the SEC with respect thereto and have
been prepared in accordance with generally accepted accounting principles
applied on a consistent basis during the periods involved (except as may be
indicated in the notes thereto or, in the case of the unaudited financial
statements, as permitted by Form 10-Q of the SEC.) Each of the balance sheets
contained or incorporated by reference in LISB's Reports (including in each
case any related notes and schedules) fairly presented the financial position
of the entity or entities to which it relates as of its date and each of the
statements of income and of changes in stockholders' equity and of cash flows,
contained or incorporated by reference in LISB's Reports (including in each
case any related notes and schedules), fairly presented the results of
operations, stockholders' equity and cash flows, as the case may be, of the
entity or entities to which it relates for the periods set forth therein
(subject, in the case of unaudited interim statements, to normal year-end
audit adjustments that are not material in amount or effect), in each case in
accordance with generally accepted accounting principles consistently applied
during the periods involved, except as may be noted therein. LISB has made
available to AFC a true and complete copy of each LISB Report filed with the
SEC since September 30, 1993.
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(ii) LISB and each of its Subsidiaries have each timely filed all material
reports, registrations and statements, together with any amendments required
to be made with respect thereto, that they were required to file since
September 30, 1993 with (A) the OTS, (B) the FDIC, (C) the SEC, (D) the
National Association of Securities Dealers, Inc. (the "NASD"), and (E) any
other self-regulatory organization ("SRO"), and have paid all fees and
assessments due and payable in connection therewith.
(h) Absence of Certain Changes or Events. Except as disclosed in LISB's
Reports filed on or prior to the date of this Agreement, since September 30,
1997, (i) LISB and its Subsidiaries have not incurred any liability, except in
the ordinary course of their business consistent with past practice, (ii) LISB
and its Subsidiaries have conducted their respective businesses only in the
ordinary and usual course of such businesses other than the negotiation,
execution and delivery of this Agreement and ancillary matters related
thereto, and (iii) there has not been any condition, event, change or
occurrence that, individually or in the aggregate, has had, or is reasonably
likely to have, a Material Adverse Effect on LISB.
(i) Taxes. All federal, state, local and foreign tax returns required to be
filed by or on behalf of LISB or any of its Subsidiaries have been timely
filed or requests for extensions have been timely filed and any such extension
shall have been granted and not have expired, and all such filed returns are
complete and accurate in all material respects. All taxes shown on such
returns, all taxes required to be shown on returns for which extensions have
been granted, and all other taxes required to be paid by LISB or any of its
Subsidiaries, have been paid in full or adequate provision has been made for
any such taxes on LISB's balance sheet (in accordance with generally accepted
accounting principles). For purposes of this Section 2.03(i), the term "taxes"
shall include all income, franchise, gross receipts, real and personal
property, real property transfer and gains, wage and employment taxes. As of
the date of this Agreement, there is no audit, examination, deficiency, or
refund litigation with respect to any taxes of LISB or any of its
Subsidiaries, and no claim has been made by any authority in a jurisdiction
where LISB or any of its Subsidiaries do not file tax returns that LISB or any
such Subsidiary is subject to taxation in that jurisdiction. All taxes,
interest, additions, and penalties due with respect to completed and settled
examinations or concluded litigation relating to LISB or any of its
Subsidiaries have been paid in full or adequate provision has been made for
any such taxes on LISB's balance sheet (in accordance with generally accepted
accounting principles). LISB and its Subsidiaries have not executed an
extension or waiver of any statute of limitations on the assessment or
collection of any material tax due that is currently in effect. LISB and each
of its Subsidiaries has withheld and paid all taxes required to have been
withheld and paid in connection with amounts paid or owing to any employee,
independent contractor, creditor, stockholder or other third party, and LISB
and each of its Subsidiaries has timely complied with all applicable
information reporting requirements under Part III, Subchapter A of Chapter 61
of the Code and similar applicable state and local information reporting
requirements. Neither LISB nor any of its Subsidiaries (i) has made an
election under Section 341(f) of the Code, (ii) has made any payment, is
obligated to make any payment, or is a party to any agreement that could
obligate it to make any payment that would not be deductible under Section
280G of the Code, (iii) has issued or assumed any obligation under Section 279
of the Code, any high yield discount obligation as described in Section 163(i)
of the Code or any registration-required obligation within the meaning of
Section 163(f)(2) of the Code that is not in registered form, or (iv) is or
has been a United States real property holding corporation within the meaning
of Section 897(c)(2) of the Code.
(j) Absence of Claims. No litigation, proceeding, controversy, claim or
action before any court or governmental agency is pending, against LISB or any
of its Subsidiaries and, to the best of LISB's knowledge, no such litigation,
proceeding, controversy, claim or action has been threatened.
(k) Absence of Regulatory Actions. Neither LISB nor any of its Subsidiaries
is a party to any cease and desist order, written agreement or memorandum of
understanding with, or a party to any commitment letter or similar undertaking
to, or is subject to any action, proceeding, order or directive by, or is a
recipient of any extraordinary supervisory letter from, federal or state
governmental authorities charged with the supervision or regulation of
depository institutions or depository institution holding companies or engaged
in the insurance of bank and/or savings and loan deposits (the "Government
Regulators") nor has it been advised by any Government Regulator that it is
contemplating issuing or requesting (or is considering the appropriateness of
issuing or requesting) any such action, proceeding, order, directive, written
agreement, memorandum of understanding, extraordinary supervisory letter,
commitment letter or similar undertaking.
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(l) Agreements. (i) Except for the LISB Option Agreement and arrangements
made in the ordinary course of business, LISB and its Subsidiaries are not
bound by any material contract (as defined in (Item 601(b)(10) of Regulation
S-K of the SEC)) to be performed after the date hereof that has not been filed
with or incorporated by reference in LISB's Reports. Except as disclosed in
LISB's Reports filed prior to the date of this Agreement, neither LISB nor any
of its Subsidiaries is a party to an oral or written (A) consulting agreement
not terminable on thirty (30) days' or less notice, (B) agreement with any
executive officer or other key employee of LISB or any of its Subsidiaries the
benefits of which are contingent, or the terms of which are materially
altered, upon the occurrence of a transaction involving LISB or any of its
Subsidiaries of the nature contemplated by this Agreement or the LISB Option
Agreement, (C) agreement with respect to any employee or director of LISB or
any of its Subsidiaries providing any term of employment or compensation
guarantee extending for a period longer than sixty (60) days and for the
payment of in excess of $30,000 per annum, (D) agreement or plan, including
any stock option plan, phantom stock or stock appreciation rights plan,
restricted stock plan or stock purchase plan, any of the benefits of which
will be increased, or the vesting or payment of the benefits of which will be
accelerated, by the occurrence of any of the transactions contemplated by this
Agreement or the LISB Option Agreement or the value of any of the benefits of
which will be calculated on the basis of any of the transactions contemplated
by this Agreement or the LISB Option Agreement or (E) agreement containing
covenants that limit the ability of LISB or any of its Subsidiaries to compete
in any line of business or with any person, or that involve any restriction on
the geographic area in which, or method by which, LISB (including any
successor thereof) or any of its Subsidiaries may carry on its business (other
than as may be required by law or any regulatory agency). Neither LISB nor any
of its Subsidiaries has entered into, adopted or modified the terms of any of
the foregoing since September 30, 1997.
(ii) Neither LISB nor any of its Subsidiaries is in default under or in
violation of any provision, and is not aware of any fact or circumstance that
would constitute a default or violation, of any note, bond, indenture,
mortgage, deed of trust, loan agreement or other agreement to which it is a
party or by which it is bound or to which any of its respective properties or
assets is subject.
(iii) LISB and each of its Subsidiaries owns or possesses valid and binding
license and other rights to use without payment all patents, copyrights, trade
secrets, trade names, servicemarks and trademarks used in its businesses and
neither LISB nor any of its Subsidiaries has received any notice of conflict
with respect thereto that asserts the right of others. Each of LISB and its
Subsidiaries has performed all the obligations required to be performed by it
and are not in default under any contract, agreement, arrangement or
commitment relating to any of the foregoing.
(m) Labor Matters. Neither LISB nor any of its Subsidiaries is or has ever
been a party to, or is or has ever been bound by, any collective bargaining
agreement, contract, or other agreement or understanding with a labor union or
labor organization with respect to its employees, nor is LISB or any of its
Subsidiaries the subject of any proceeding asserting that it has committed an
unfair labor practice or seeking to compel it or any such Subsidiary to
bargain with any labor organization as to wages and conditions of employment,
nor is the management of LISB aware of any pending or threatened strike, other
labor dispute or organizational effort involving LISB or any of its
Subsidiaries. LISB and its Subsidiaries are in compliance with applicable laws
regarding employment of employees and retention of independent contractors,
and are in compliance with applicable employment tax laws.
(n) Employee Benefit Plans. The Disclosure Letter contains a complete list
of all pension, retirement, stock option, stock purchase, stock ownership,
savings, stock appreciation right, profit sharing, deferred compensation,
consulting, bonus, group insurance, severance and other benefit plans,
contracts, agreements, arrangements, including, but not limited to, "employee
benefit plans," as defined in Section 3(3) of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA"), incentive and welfare policies,
contracts, plans and arrangements and all trust agreements related thereto
with respect to any present or former directors, officers, or other employees
of LISB or any of its Subsidiaries (hereinafter referred to collectively as
the "Employee Plans"). All of the Employee Plans comply in all respects with
all applicable requirements of
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ERISA, the Code and other applicable laws and there has occurred no non-exempt
"prohibited transaction" (as defined in Section 406 of ERISA or Section 4975
of the Code) which is likely to result in the imposition of any penalties or
taxes under Section 502(i) of ERISA or Section 4975 of the Code upon LISB or
any of its Subsidiaries. No liability, to the Pension Benefit Guaranty
Corporation, has been or is expected by LISB or any of its Subsidiaries to be
incurred with respect to any Employee Plan which is subject to Title IV of
ERISA ("Pension Plan"), or with respect to any "single-employer plan" (as
defined in Section 4001(a) of ERISA) currently or formerly maintained by LISB
or any entity which is considered one employer with LISB under Section
4001(b)(1) of ERISA or Section 414 of the Code (an "ERISA Affiliate"). No
Pension Plan had an "accumulated funding deficiency" (as defined in Section
302 of ERISA) (whether or not waived) as of the last day of the end of the
most recent plan year ending prior to the date hereof; the fair market value
of the assets of each Pension Plan exceeds the present value of the "benefit
liabilities" (as defined in Section 4001(a)(16) of ERISA) under such Pension
Plan as of the end of the most recent plan year with respect to the respective
Pension Plan ending prior to the date hereof, calculated on an accumulated
benefit obligation basis using the actuarial assumptions used in the most
recent actuarial valuation for such Pension Plan as of the date hereof; and no
notice of a "reportable event" (as defined in Section 4043 of ERISA) for which
the 30-day reporting requirement has not been waived has been required to be
filed for any Pension Plan within the 12-month period ending on the date
hereof. Neither LISB nor any Subsidiary of LISB has provided, or is required
to provide, security to any Pension Plan or to any single-employer plan of an
ERISA Affiliate pursuant to Section 401(a)(29) of the Code. Neither LISB, its
Subsidiaries, nor any ERISA Affiliate has contributed to any "multi employer
plan", as defined in Section 3(37) of ERISA, on or after September 26, 1980.
Each Employee Plan of LISB or of any of its Subsidiaries which is an "employee
pension benefit plan" (as defined in Section 3(2) of ERISA) and which is
intended to be qualified under Section 401(a) of the Code (a "Qualified Plan")
has received a favorable determination letter from the Internal Revenue
Service (the "IRS") and LISB and its Subsidiaries are not aware of any
circumstances likely to result in revocation of any such favorable
determination letter. Each Qualified Plan which is an "employee stock
ownership plan" (as defined in Section 4975(e)(7) of the Code) has satisfied
all of the applicable requirements of Sections 409 and 4975(e)(7) of the Code
and the regulations thereunder in all respects and any assets of any such
Qualified Plan that are not allocated to participants' individual accounts are
pledged as security for, and may be applied to satisfy, any securities
acquisition indebtedness. There is no pending or, to the knowledge of LISB,
threatened litigation, administrative action or proceeding relating to any
Employee Plan. There is not currently any announcement or commitment by LISB
or any Subsidiary of LISB to create an additional Employee Plan, or to amend
an Employee Plan except for amendments required by applicable law which do not
materially increase the cost of such Employee Plan; and, LISB and its
Subsidiaries do not have any obligations for post-retirement or post-
employment benefits (other than pensions) under any Employee Plan that cannot
be amended or terminated upon sixty (60) days' notice or less without
incurring any liability thereunder, except for coverage required by Part 6 of
Title I of ERISA or Section 4980B of the Code, the premium cost of which is
borne (to the extent permitted by law) by the insured individuals. With
respect to LISB or any of its Subsidiaries, the execution and delivery of this
Agreement and the consummation of the transactions contemplated hereby will
not result in any payment or series of payments by LISB or any Subsidiary of
LISB to any person which is an "excess parachute payment" (as defined in
Section 280G of the Code), increase or secure (by way of a trust or other
vehicle) any benefits payable under any Employee Plan or accelerate the time
of payment or vesting of any such benefit. With respect to each Employee Plan,
LISB has supplied to AFC a true and correct copy of (A) the annual report on
the applicable form of the Form 5500 series filed with the IRS for the most
recent three plan years, (B) such Employee Plan, including amendments thereto,
(C) each trust agreement, insurance contract or other funding arrangement
relating to such Employee Plan, including amendments thereto, (D) the most
recent summary plan description and summary of material modifications thereto
for such Employee Plan, if the Employee Plan is subject to Title I of ERISA,
(E) the most recent actuarial report or valuation if such Employee Plan is a
Pension Plan and any subsequent changes to the actuarial assumptions contained
therein and (F) the most recent determination letter issued by the IRS and any
pending determination application if such Employee Plan is a Qualified Plan.
LISB has not, since September 30, 1997, adopted or amended any of the Employee
Plans. The cost of post-retirement benefits that were deemed to be immaterial
to be included in the LISB Reports under Statement of Financial Accounting
Standards No. 106 "Employers Accounting for Postretirement Benefits Other than
Pensions " are set forth in the Disclosure Letter.
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(o) Termination Benefits. The Disclosure Letter contains a schedule showing
the good faith estimated present value as of September 30, 1998 of the
monetary amounts payable (including tax indemnification payments in respect of
income and/or excise taxes) and identifying the in-kind benefits due under the
Specified Compensation and Benefit Programs (as defined herein) for each Named
Individual (as defined herein) individually. For purposes hereof, "Specified
Compensation and Benefit Programs" shall include all employment agreements,
change in control agreements, severance or special termination agreements,
severance plans, pension, retirement or deferred compensation plans for non-
employee directors, supplemental executive retirement programs, tax
indemnification agreements, outplacement programs, cash bonus programs, stock
appreciation rights, phantom stock or stock unit plans, and health, life,
disability and other insurance or welfare plans or other arrangements, but
shall not include any tax-qualified pension, profit-sharing or employee stock
ownership plan or any LISB Option Plans or LISB MRPs. For purposes hereof,
"Named Individual" shall include each non-employee director of LISB or any of
its subsidiaries and each officer of LISB with the position of executive vice
president or higher. For purposes of preparing the Disclosure Letter, the
present value of the benefits payable under the Specified Compensation and
Benefit Programs shall be determined as follows: (i) it shall be assumed that
a change of control of LISB occurs on September 30, 1998 and that each person
entitled to benefits under the Specified Compensation and Benefit Programs is
discharged as of September 30, 1998; (ii) it shall be assumed that all
compensation levels remain constant; (iii) it shall be assumed that the
present value of any payment or benefit which would be due and payable before
September 30, 1998 is equal to the amount of such payment or the cost of such
benefit; (iv) the present value of any payment or benefit that would be due
and payable after September 30, 1998 shall be computed using the interest rate
specified by the applicable plan for purposes of valuing lump sum payments or
if no rate is specified, an assumed interest rate of 6% per annum, compounded
annually; and (v) that all accrued benefits under all tax-qualified plans are
100% vested. The entire present value of the benefits payable under the
Specified Compensation and Benefit Programs is set forth on the Disclosure
Schedule, which specifies the portion thereof that has been accrued as a
liability on the financial statements of LISB as of February 28, 1998.
(p) Title to Assets. LISB and each of its Subsidiaries has good and
marketable title to its properties and assets other than property as to which
it is lessee, in which case the related lease is valid and in full force and
effect. Each lease pursuant to which LISB or any of its Subsidiaries is lessor
is valid and in full force and effect and no lessee under any such lease is in
default or in violation of any provisions of any such lease. All material
tangible properties of LISB and each of its Subsidiaries are in a good state
of maintenance and repair, conform with all applicable ordinances, regulations
and zoning laws and are considered by LISB to be adequate for the current
business of LISB and its Subsidiaries.
(q) Compliance with Laws. LISB and each of its Subsidiaries has all permits,
licenses, certificates of authority, orders and approvals of, and has made all
filings, applications and registrations with, federal, state, local and
foreign governmental or regulatory bodies that are required in order to permit
it to carry on its business as it is presently conducted; all such permits,
licenses, certificates of authority, orders and approvals are in full force
and effect, and, to the best knowledge of LISB, no suspension or cancellation
of any of them is threatened. Since the date of its incorporation, the
corporate affairs of LISB have not been conducted in violation of any law,
ordinance, regulation, order, writ, rule, decree or approval of any federal or
state regulatory authority having jurisdiction over insured depositary
institutions or their holding companies, the SEC, the NASD, or any other SRO
(each, a "Governmental Entity"). The businesses of LISB and its Subsidiaries
are not being conducted in violation of any law, ordinance, regulation, order,
writ, rule or decree approval of any Governmental Entity.
(r) Fees. Other than financial advisory services performed for LISB by
Salomon Smith Barney pursuant to an agreement, a true and complete copy of
which has been previously delivered to AFC, neither LISB nor any of its
Subsidiaries, nor any of their respective officers, directors, employees or
agents, has employed any broker or finder or incurred any liability for any
financial advisory fees, brokerage fees, commissions, or finder's fees, and no
broker or finder has acted directly or indirectly for LISB or any Subsidiary
of LISB, in connection with the Agreement or the transactions contemplated
hereby.
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(s) Environmental Matters. (i) With respect to LISB and each of its
Subsidiaries:
(A) Each of LISB and its Subsidiaries, the Participation Facilities, and,
to LISB's knowledge, the Loan Properties (each as defined herein) are, and
have been, in substantial compliance with all Environmental Laws (as
defined herein);
(B) There is no suit, claim, action, demand, executive or administrative
order, directive, investigation or proceeding pending or, to LISB's
knowledge, threatened, before any court, governmental agency or authority
against it or any of its Subsidiaries or any current or, to LISB's
knowledge, former Participation Facility (x) for alleged noncompliance
(including by any predecessor) with, or liability under, any Environmental
Law or (y) relating to the Release (as defined herein) into the environment
of any Hazardous Material (as defined herein), whether or not occurring at
or on a site owned, leased or operated by it or any of its Subsidiaries or
any Participation Facility;
(C) To LISB's knowledge, there is no suit, claim, action, demand,
executive or administrative order, directive, investigation or proceeding
pending or threatened, before any court, governmental agency or authority
relating to or against any Loan Property (or LISB or any of its
Subsidiaries in respect of such Loan Property) (x) relating to alleged
noncompliance (including by any predecessor) with, or liability under, any
Environmental Law or (y) relating to the Release into the environment of
any Hazardous Material whether or not occurring at or on a site owned,
leased or operated by a Loan Property;
(D) To LISB's knowledge, the properties currently or formerly owned or
operated by LISB or any of its Subsidiaries (including, without limitation,
soil, groundwater or surface water on, under or adjacent to the properties,
and buildings thereon) do not contain any Hazardous Material other than in
compliance with applicable Environmental Law; provided, however, that with
respect to properties formerly owned or operated by LISB or any of its
Subsidiaries, such representation is limited to the period LISB or any such
Subsidiary owned or operated such properties;
(E) None of LISB or any of its Subsidiaries has received any notice,
demand letter, executive or administrative order, directive or request for
information from any federal, state, local or foreign governmental entity
or any third party relating to Hazardous Materials or Remediation (as
defined herein) thereof or indicating that it may be in violation of, or
liable under, any Environmental Law, or any actual or, to LISB's knowledge,
potential administrative or judicial proceedings in connection with any of
the foregoing;
(F) To LISB's knowledge, there are no underground storage tanks on, in or
under any properties currently or formerly owned or operated by LISB or any
of its Subsidiaries, any Participation Facility or any Loan Property and no
underground storage tanks have been closed or removed from any properties
currently or formerly owned or operated by LISB or any of its Subsidiaries,
any Participation Facility or any Loan Property which are or have been in
the ownership of LISB or any of its Subsidiaries; and
(G) To LISB's knowledge, during the period of (l) LISB or any of its
Subsidiaries' ownership or operation of any of their respective current or
formerly owned properties, (m) LISB's or any of its Subsidiaries'
participation in the management of any Participation Facility, or (n) its
or any of its Subsidiaries' holding of a security interest in a Loan
Property, there has been no Release and there is currently no threatened
Release of Hazardous Material in, on, under, affecting or migrating to such
properties. To LISB's knowledge, prior to the period of (x) LISB's or any
of its Subsidiaries' ownership or operation of any of their respective
current properties, (y) LISB's or any of its Subsidiaries' participation in
the management of any Participation Facility, or (z) LISB's or any of its
Subsidiaries' holding of a security interest in a Loan Property, there was
no Release of Hazardous Material in, on, under, affecting or migrating to
any such property, Participation Facility or Loan Property.
(ii) The following definitions apply for purposes of this Section 2.03(s)
and Section 2.04(q): (u) "Loan Property" means any property in which the
applicable party (or a Subsidiary of it) holds a security interest, and, where
required by the context, includes the owner or operator of such property, but
only with respect to such
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property; (v) "Participation Facility" means any facility in which the
applicable party (or a Subsidiary of it) participates in the management
(including all property held as trustee or in any other fiduciary capacity)
and, where required by the context, includes the owner or operator of such
property, but only with respect to such property; (w) "Environmental Law"
means (i) any federal, state or local law, statute, ordinance, rule,
regulation, code, license, permit, authorization, approval, consent, legal
doctrine, order, directive, executive or administrative order, judgment,
decree, injunction, legal requirement or agreement with any governmental
entity, (A) relating to the protection, preservation or restoration of the
environment (which includes, without limitation, air, water vapor, surface
water, groundwater, drinking water supply, structures, soil, surface land,
subsurface land, plant and animal life or any other natural resource), or to
human health or safety as it relates to Hazardous Materials, or (B) the
exposure to, or the use, storage, recycling, treatment, generation,
transportation, processing, handling, labeling, production, release or
disposal of, Hazardous Materials, in each case as amended and as now in
effect. The term Environmental Law includes, without limitation, (i) the
Federal Comprehensive Environmental Response, Compensation and Liability Act
of 1980, the Superfund Amendments and Reauthorization Act, the Federal Water
Pollution Control Act of 1972, the Federal Clean Air Act, the Federal Clean
Water Act, the Federal Resource Conservation and Recovery Act of 1976
(including, but not limited to, the Hazardous and Solid Waste Amendments
thereto and Subtitle IX relating to underground storage tanks), the Federal
Solid Waste Disposal and the Federal Toxic Substances Control Act, the Federal
Insecticide, Fungicide and Rodenticide Act, the Federal Occupational Safety
and Health Act of 1970 as it relates to Hazardous Materials, the Federal
Hazardous Substances Transportation Act, the Emergency Planning and Community
Right-To-Know Act, the Safe Drinking Water Act, the Endangered Species Act,
the National Environmental Policy Act, the Rivers and Harbors Appropriation
Act or any so-called "Superfund" or "Superlien" law, each as amended and as
now or hereafter in effect, (ii) any common law or equitable doctrine
(including, without limitation, injunctive relief and tort doctrines such as
negligence, nuisance, trespass and strict liability) that may impose liability
or obligations for injuries or damages due to, or threatened as a result of,
the presence of or exposure to any Hazardous Material and (iii) any state and
local laws, statutes, ordinances, rules, regulations and the like, as well as
common law: conditioning transfer of property upon a negative declaration or
other approval of a governmental authority of the environmental condition of
the property; requiring notification or disclosure of Releases of "Hazardous
Substances" or other environmental condition of the Loan Property to any
governmental authority or other person or entity, whether or not in connection
with transfer of title to or interest in property; imposing conditions or
requirements in connection with permits or other authorization for lawful
activity; relating to nuisance, trespass or other causes of action related to
the Loan Property; (x) "Hazardous Material" means any substance (whether
solid, liquid or gas) which is listed, defined, designated or classified as
hazardous, toxic, radioactive or dangerous, or otherwise regulated, under any
Environmental Law, whether by type or by quantity, including any substance
containing any such substance as a component. Hazardous Material includes,
without limitation, any toxic waste, pollutant, contaminant, hazardous
substance, toxic substance, hazardous waste, special waste, extremely
hazardous wastes, or words of similar meanings or regulatory effect under any
Environmental Laws, including, but not limited to, oil or petroleum or any
derivative or by-product thereof, radon, radioactive material, asbestos,
asbestos-containing material, urea formaldehyde foam insulation, lead and
polychlorinated biphenyl, flammables and explosives; (y) "Release" of any
Hazardous Material includes, but is not limited to, any release, deposit,
discharge, emission, leaking, spilling, seeping, migrating, injecting,
pumping, pouring, emptying, escaping, dumping, disposing or other movement of
Hazardous Materials in violation of or requiring action under any applicable
Environmental Law; and (z) "Remediation" includes, but is not limited to, any
response, remedial, removal, or corrective action, any activity to cleanup,
detoxify, decontaminate, contain or otherwise remediate any Hazardous
Material, any actions to prevent, cure or mitigate any Release of Hazardous
Materials, any action to comply with any Environmental Laws or with any
permits issued pursuant thereto, any inspection, investigation, study,
monitoring, assessment, audit, sampling and testing, laboratory or other
analysis, or evaluation relating to any Hazardous Materials.
(t) Loan Portfolio; Allowance; Asset Quality. (i) With respect to each loan
owned by LISB or its Subsidiaries in whole or in part (each, a "Loan"), to the
best knowledge of LISB:
(A) the note and the related security documents are each legal, valid and
binding obligations of the maker or obligor thereof, enforceable against
such maker or obligor in accordance with their terms;
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(B) neither LISB nor any of its Subsidiaries nor any prior holder of a
Loan has modified the note or any of the related security documents in any
material respect or satisfied, canceled or subordinated the note or any of
the related security documents except as otherwise disclosed by documents
in the applicable Loan file;
(C) LISB or a Subsidiary is the sole holder of legal and beneficial title
to each Loan (or LISB's applicable participation interest, as applicable),
except as otherwise referenced on the books and records of LISB;
(D) the note and the related security documents, copies of which are
included in the Loan files, are true and correct copies of the documents
they purport to be and have not been suspended, amended, modified, canceled
or otherwise changed except as otherwise disclosed by documents in the
applicable Loan file;
(E) there is no pending or threatened condemnation proceeding or similar
proceeding affecting the property which serves as security for a Loan,
except as otherwise referenced on the books and records of LISB;
(F) there is no pending or threatened litigation or proceeding relating
to the property which serves as security for a Loan that would have a
Material Adverse Effect upon the related Loan; and
(G) with respect to a Loan held in the form of a participation, the
participation documentation is legal, valid, binding and enforceable.
(ii) The allowance for possible losses reflected in LISB's audited statement
of condition at September 30, 1997 was, and the allowance for possible losses
shown on the balance sheets in its Reports for periods ending after September
30, 1997, were and will be, adequate, as of the dates thereof, under generally
accepted accounting principles applicable to savings banks consistently
applied.
(iii) The Disclosure Letter sets forth by category the amounts of all loans,
leases, advances, credit enhancements, other extensions of credit, commitments
and interest-bearing assets of LISB and its Subsidiaries that have been
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"
(in the latter two cases, to the extent available) or words of similar import,
and LISB and its Subsidiaries shall promptly after the end of any month inform
AFC of any such classification arrived at any time after the date hereof. The
Other Real Estate Owned ("OREO") included in any non-performing assets of LISB
or any of its Subsidiaries is carried net of reserves at the lower of cost or
fair value, less estimated selling costs, based on current independent
appraisals or evaluations or current management appraisals or evaluations;
provided, however, that "current" shall mean within the past 12 months.
(u) Deposits. None of the deposits of LISB or any of its Subsidiaries is a
"brokered" deposit as defined in 12 U.S.C. (S) 1831f.
(v) Accounting Matters. Neither LISB nor any of its Subsidiaries nor, to the
best of its knowledge, any of its other affiliates has, through the date
hereof, taken or agreed to take any action that would prevent AFC from
accounting for the business combination to be effected by the Merger as a
"pooling-of-interests," and LISB has no knowledge of any fact or circumstance
that would prevent such accounting treatment.
(w) LISB Rights Agreement. The LISB Rights Agreement has been amended so as
to provide that AFC will not become an "Acquiring Person" and that no
"Triggering Event," "Stock Acquisition Date" or "Distribution Date" (as such
terms are defined in the LISB Rights Agreement) will occur as a result of the
approval, execution or delivery of this Agreement or the LISB Option Agreement
or the consummation of the Merger pursuant to this Agreement or the
acquisition of shares of LISB Common Stock by AFC pursuant to the LISB Option
Agreement.
(x) Antitakeover Provisions Inapplicable. LISB and its Subsidiaries have
taken all actions required to exempt LISB, this Agreement, the Merger and the
LISB Option Agreement from any provisions of an antitakeover nature in their
organization certificates and bylaws and the provisions of Section 203 of the
DGCL.
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(y) Material Interests of Certain Persons. Except as disclosed in LISB's
Proxy Statement for its 1998 Annual Meeting of Stockholders, no officer or
director of LISB, or any "associate" (as such term is defined in Rule 12b-2
under the Exchange Act) of any such officer or director, has any material
interest in any material contract or property (real or personal), tangible or
intangible, used in or pertaining to the business of LISB or any of its
Subsidiaries.
(z) Insurance. LISB and its Subsidiaries are presently insured, and since
December 31, 1993, have been insured, for reasonable amounts with financially
sound and reputable insurance companies, against such risks as companies
engaged in a similar business would, in accordance with good business
practice, customarily be insured. All of the insurance policies and bonds
maintained by LISB and its Subsidiaries are in full force and effect, LISB and
its Subsidiaries are not in default thereunder and all material claims
thereunder have been filed in due and timely fashion.
(aa) Investment Securities; Borrowings. (i) Except for investments in
Federal Home Loan Bank Stock and pledges to secure Federal Home Loan Bank
borrowings and reverse repurchase agreements entered into in arms-length
transactions pursuant to normal commercial terms and conditions and entered
into in the ordinary course of business and restrictions that exist for
securities to be classified as "held to maturity," none of the investments
reflected in the consolidated balance sheet of LISB included in LISB's Report
on Form 10-Q for the quarter ended December 31, 1997 and none of the
investment securities held by it or any of its Subsidiaries since December 31,
1997 is subject to any restriction (contractual or statutory) that would
materially impair the ability of the entity holding such investment freely to
dispose of such investment at any time.
(ii) Neither LISB nor any Subsidiary is a party to or has agreed to enter
into an exchange-traded or over-the-counter equity, interest rate, foreign
exchange or other swap, forward, future, option, cap, floor or collar or any
other contract that is not included on the consolidated statements of
condition and is a derivative contract (including various combinations
thereof) (each, a "Derivatives Contract") or owns securities that (A) are
referred to generically as "structured notes," "high risk mortgage
derivatives," "capped floating rate notes" or "capped floating rate mortgage
derivatives" or (B) are likely to have changes in value as a result of
interest or exchange rate changes that significantly exceed normal changes in
value attributable to interest or exchange rate changes, except for those
Derivatives Contracts and other instruments legally purchased or entered into
in the ordinary course of business, consistent with safe and sound banking
practices and regulatory guidance, and listed (as of the date hereof) in the
Disclosure Letter or disclosed in its Reports filed on or prior to the date
hereof.
(iii) Set forth in the Disclosure Letter is a true and correct list of
LISB's borrowed funds (excluding deposit accounts) as of the date hereof.
(bb) Indemnification. Except as provided in LISB's Employment Agreements or
the organization certificate or bylaws of LISB, neither LISB nor any Company
Subsidiary is a party to any indemnification agreement with any of its present
or future directors, officers, employees, agents or other persons who serve or
served in any other capacity with any other enterprise at the request of LISB
(a "Covered Person"), and, to the best knowledge of LISB, there are no claims
for which any Covered Person would be entitled to indemnification under the
organization certificate or bylaws of LISB or any Subsidiary of LISB,
applicable law regulation or any indemnification agreement.
(cc) Books and Records. The books and records of LISB and its Subsidiaries
have been, and are being, maintained in accordance with applicable legal and
accounting requirements and reflect in all material respects the substance of
events and transactions that should be included therein.
(dd) Corporate Documents. LISB has delivered to AFC true and complete copies
of its certificate of incorporation and bylaws and of LISB Bank's charter and
bylaws. The minute books of LISB and LISB Bank constitute a complete and
correct record of all actions taken by the boards of directors of LISB and
LISB Bank (and each committee thereof) and the stockholders of LISB and LISB
Bank. The minute books of each of LISB's Significant Subsidiaries constitutes
a complete and correct record of all actions taken by the respective boards of
directors (and each committee thereof) and the stockholders of each such
Significant Subsidiary.
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(ee) Liquidation Account. Neither the Merger nor the Bank Merger will result
in any payment or distribution payable out of the liquidation account of LISB
Bank established pursuant to the rules and regulations of the OTS in
connection with the conversion of LISB Bank to stock form.
(ff) Tax Treatment of the Merger. LISB has no knowledge of any fact or
circumstance that would prevent the transactions contemplated by this
Agreement from qualifying as a tax-free reorganization under the Code.
(gg) Beneficial Ownership of AFC Common Stock. As of the date hereof, LISB
beneficially owns no shares of AFC Common Stock and, other than as
contemplated by the AFC Option Agreement, does not have any option, warrant or
right of any kind to acquire the beneficial ownership of any shares of AFC
Common Stock.
(hh) Year 2000 Matters. The Disclosure Letter contains a true and correct
copy of LISB's proposed plan for addressing year 2000 computer issues (the
"Year 2000 Plan"). LISB is in material compliance with the LISB Year 2000 Plan
and agrees to take all actions required by the OTS to continue to be "Year
2000 Compliant." Neither LISB nor LISB Bank has received any written
communication from the OTS commenting adversely with respect to the ability of
LISB to become Year 2000 compliant and LISB is not aware of any reason why it
would not receive a "satisfactory" rating in connection with any OTS
examination of its Year 2000 compliance efforts.
(ii) Ordinary Course of Business. Except as set forth in the LISB Reports,
since December 31, 1997, LISB has made no material change in the conduct of
its business that would constitute a breach of its obligations under Section
3.01(i) and (ii) hereof if that Section had been in effect for the period from
December 31, 1997 to the date of this Agreement. LISB has not altered, amended
or rescinded in any material manner any of its Board approved written
policies, practices or procedures since February 21, 1998, including its
lending, pricing or approval policies for making loans, its investment
policies, its deposit pricing policies, its asset/liability management
policies, its environmental policies or any other material banking policies.
Section 2.04 Representations and Warranties of AFC. Subject to Sections 2.01
and 2.02, AFC represents and warrants to LISB that:
(a) Organization. (i) AFC is a corporation duly incorporated, validly
existing and in good standing under the laws of the State of Delaware and is a
savings and loan holding company duly registered with the OTS under the HOLA.
The Association is a savings and loan association duly incorporated, validly
existing and in good standing under the laws of the United States of America.
Each Significant Subsidiary of the Association is a corporation, limited
liability company or partnership duly organized, validly existing and in good
standing under the laws of its jurisdiction of incorporation or organization.
Each of AFC, the Association and the Association's Significant Subsidiaries
has all requisite power and authority to own, lease and operate its properties
and to carry on its business as now being conducted. The only Subsidiary of
AFC is the Association.
(ii) AFC, the Association and each Subsidiary of the Association is duly
qualified and is in good standing to do business in each jurisdiction in which
the nature of its business or the ownership or leasing of its properties makes
such qualification necessary.
(iii) The Disclosure Letter sets forth all of the Subsidiaries of the
Association and all entities (whether corporations, partnerships, or similar
organizations), including the corresponding percentage ownership in which the
Association owns, directly or indirectly, 5% or more of the ownership
interests as of the date of this Agreement and indicates for each Subsidiary,
as of the such date, its jurisdiction of organization and the jurisdiction
wherein it is qualified to do business. All such Subsidiaries and ownership
interests are in compliance with all applicable laws, rules and regulations
relating to direct investments in equity ownership interests. Except as set
forth on the Disclosure Letters, the Association owns, either directly or
indirectly, all of the outstanding capital stock of each of its Subsidiaries.
No Subsidiary of the Association is an "insured depositary institution" as
defined in the FDIA, and applicable regulations thereunder. All of the shares
of capital stock of each of the Subsidiaries held by the Association or by
another Subsidiary of the Association are fully paid, nonassessable
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and not subject to any preemptive rights and are owned by the Association or a
Subsidiary of the Association free and clear of any claims, liens,
encumbrances or restrictions (other than those imposed by applicable federal
and state securities laws) and there are no agreements or understandings with
respect to the voting or disposition of any such shares.
(iv) The deposits of the Association are insured by the Savings Association
Insurance Fund or the Bank Insurance Fund of the FDIC to the extent provided
in the FDIA.
(b) Capital Structure. (i) The authorized capital stock of AFC consists of
70,000,000 shares of AFC Common Stock and 5,000,000 shares of preferred stock
of AFC, par value $1.00 per share (the "AFC Preferred Stock"). As of the date
of this Agreement, (A) 26,451,252 shares of AFC Common Stock were issued and
26,364,760 were outstanding, (B) no shares of the AFC Series A Preferred Stock
were outstanding, (C) 2,000,000 shares of AFC Series B Preferred Stock were
outstanding; (D) no shares of AFC Common Stock were reserved for issuance
except that 3,531,043 of AFC Common Stock were reserved for issuance pursuant
to AFC's stock option plans and agreements and 300,000 shares of AFC Common
Stock were reserved for issuance pursuant to AFC's dividend reinvestment plan,
(E) no shares of AFC Series A Preferred Stock were reserved for issuance
except pursuant to the AFC Rights Agreement and (F) 86,492 shares of AFC
Common Stock were held by AFC in its treasury or by its Subsidiaries. The
authorized capital stock of the Association consists of 35,000,000 shares of
common stock, par value $1.00 per share, and 5,000,000 shares of preferred
stock, par value $1.00 per share. As of the date of this Agreement, 1,000
shares of such common stock were outstanding, no shares of such preferred
stock were outstanding and all outstanding shares of such common stock were,
and as of the Effective Time will be, owned by AFC. All outstanding shares of
capital stock of AFC and the Association are, validly issued, fully paid and
nonassessable and not subject to any preemptive rights and, with respect to
shares held by AFC in its treasury or by its Significant Subsidiaries, are
free and clear of all liens, encumbrances or restrictions (other than those
imposed by applicable federal or state securities laws) and there are no
agreements or understandings with respect to the voting or disposition of such
shares.
(ii) No Voting Debt of AFC is issued or outstanding.
(iii) As of the date of this Agreement, except for this Agreement and the
AFC Option Agreement, neither AFC nor any of its Subsidiaries has or is bound
by any outstanding options, warrants, calls, rights, convertible securities,
commitments or agreements of any character obligating AFC or any of its
Subsidiaries to issue, deliver or sell, or cause to be issued, delivered or
sold, any additional shares of capital stock of AFC or any of its Subsidiaries
or obligating AFC or any of its Subsidiaries to grant, extend or enter into
any such option, warrant, call, right, convertible security, commitment or
agreement. As of the date hereof, there are no outstanding contractual
obligations of AFC or any of its Subsidiaries to repurchase, redeem or
otherwise acquire any shares of capital stock of AFC or any of its
Subsidiaries.
(c) Authority. Each of AFC and the Association has the requisite corporate
power and authority to enter into this Agreement and the Plan of Bank Merger,
respectively and, subject to approval of this Agreement by the requisite vote
of the stockholders of AFC and receipt of all required regulatory or
governmental approvals as contemplated by Section 5.01(b) of this Agreement,
to consummate the transactions contemplated hereby. The execution and delivery
of this Agreement, and, subject to the approval of this Agreement by the
stockholders of AFC, the consummation of the transactions contemplated hereby,
have been duly authorized by all necessary corporate actions on the part of
AFC and the Association. This Agreement has been duly executed and delivered
by AFC and constitutes a valid and binding obligation of AFC, enforceable in
accordance with its terms, subject to applicable bankruptcy, insolvency and
similar laws affecting creditors' rights and remedies generally and subject,
as to enforceability, to general principles of equity, whether applied in a
court of law or a court of equity.
(d) Stockholder Approval; Fairness Opinion. The affirmative vote of a
majority of the outstanding shares of the AFC Common Stock entitled to vote on
this Agreement is the only vote of the stockholders of AFC required for
approval of this Agreement and the consummation of the Merger and the related
transactions contemplated hereby. AFC has received the opinion of Lehman
Brothers Inc. to the effect that, as of the date hereof, the Exchange Ratio is
fair, from a financial point of view, to AFC.
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(e) No Violations. Subject to approval of this Agreement by AFC's
stockholders and the obtaining of the approvals, consents and waivers referred
to in Section 2.04(f), the execution, delivery and performance of this
Agreement by AFC and the execution, delivery and performance of the AFC Option
Agreement by AFC will not, and the consummation of the transactions
contemplated hereby or thereby will not, constitute (i) a breach or violation
of, or a default under, any law, including any Environmental Law, rule or
regulation or any judgment, decree, order, governmental permit or license, or
agreement, indenture or instrument of AFC or any Significant Subsidiary of AFC
or to which AFC or any Significant Subsidiary of AFC (or any of their
respective properties) is subject, or enable any person to enjoin the Merger
or the other transactions contemplated hereby, (ii) a breach or violation of,
or a default under, the certificate or articles of incorporation or bylaws of
AFC or any Significant Subsidiary of AFC or (iii) a breach or violation of, or
a default under (or an event which with due notice or lapse of time or both
would constitute a default under), or result in the termination of, accelerate
the performance required by, or result in the creation of any lien, pledge,
security interest, charge or other encumbrance upon any of the properties or
assets of AFC or any Subsidiary of AFC under, any of the terms, conditions or
provisions of any note, bond, indenture, deed of trust, loan agreement or
other agreement, instrument or obligation to which AFC or any Subsidiary of
AFC is a party, or to which any of its respective properties or assets may be
bound or affected; and the consummation of the transactions contemplated
hereby and by the AFC Option Agreement, will not require any approval, consent
or waiver under any such law, rule, regulation, judgment, decree, order,
governmental permit or license or the approval, consent or waiver of any other
party to any such agreement, indenture or instrument, other than (i) the
required approvals, consents and waivers of governmental authorities referred
to in Section 5.01(b), (ii) the approval of the stockholders of AFC referred
to in Section 2.04(d) and (iii) such approvals, consents or waivers as are
required under the federal and state securities or "blue sky" laws in
connection with the transactions contemplated by this Agreement or the AFC
Option Agreement.
(f) Consents. Except as referred to herein or in connection, or in
compliance, with the provisions of the HSR Act, the Securities Act, the
Exchange Act, the HOLA, the BMA, the FDIA, the rules and regulations of the
OTS, and the environmental, corporation, securities or "blue sky" laws or
regulations of the various states, no filing or registration with, or
authorization, consent or approval of, any other party is necessary for the
consummation by AFC or the Association of the Merger or the other transactions
contemplated by this Agreement. As of the date hereof, AFC knows of no reason
why the approvals, consents and waivers of governmental authorities referred
to in this Section 2.04(f) that are required to be obtained should not be
obtained without the imposition of any material condition or restriction
referred to in the last sentence of 5.01(b).
(g) Reports. (i) As of their respective dates, neither AFC's Annual Report
on Form 10-K for the fiscal year ended December 31, 1997, nor any other
document filed subsequent to December 31, 1997 under Section 13(a), 13(c), 14
or 15(d) of the Exchange Act, each in the form (including exhibits and any
documents specifically incorporated by reference therein) filed with the SEC
(collectively, the "AFC Reports"), contained or will contain any untrue
statement of a material fact or omitted or will omit to state a material fact
required to be stated therein or necessary to make the statements made
therein, in light of the circumstances under which they were made, not
misleading. Each of the financial statements of AFC included in the AFC
Reports complied as to form, as of their respective dates, in all material
respects with applicable accounting requirements and with the published rules
and regulations of the SEC with respect thereto and have been prepared in
accordance with generally accepted accounting principles applied on a
consistent basis during the periods involved (except as may be indicated in
the notes thereto, or in the case of unaudited financial statements, as
permitted by Form 10-Q of the SEC). Each of the balance sheets contained or
incorporated by reference in AFC's Reports (including in each case any related
notes and schedules) fairly presented the financial position of the entity or
entities to which it relates as of its date and each of the statements of
income and of changes in stockholders' equity and of cash flows, contained or
incorporated by reference in AFC's Reports (including in each case any related
notes and schedules), fairly presented the results of operations,
stockholders' equity and cash flows, as the case may be, of the entity or
entities to which it relates for the periods set forth therein (subject, in
the case of unaudited interim statements, to normal year-end audit adjustments
that are not material in amount or effect), in each case in accordance with
generally accepted accounting principles consistently applied during the
periods involved, except as may be noted therein. AFC has made available to
LISB a true and complete copy of each AFC Report filed with the SEC since
December 31, 1997.
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(ii) AFC and each of its Subsidiaries have each timely filed all material
reports, registrations and statements, together with any amendments required
to be made with respect thereto, that they were required to file since
December 31, 1993 with (A) the OTS, (B) the FDIC, (C) the SEC, (D) the NASD
and (E) any other self-regulatory organization, and have paid all fees and
assessments due and payable in connection therewith.
(h) Absence of Certain Changes or Events. Except as disclosed in AFC's
Reports filed on or prior to the date of this Agreement, since December 31,
1997, (i) AFC and its Subsidiaries have not incurred any liability, except in
the ordinary course of their business consistent with past practice, (ii) AFC
and its Subsidiaries have conducted their respective businesses only in the
ordinary and usual course of such businesses other than the negotiation,
execution and delivery of this Agreement and ancillary matters related thereto
and (iii) there has not been any condition, event, change or occurrence that,
individually or in the aggregate, has had, or is reasonably likely to have, a
Material Adverse Effect on AFC.
(i) Taxes. All federal, state, local and foreign tax returns required to be
filed by or on behalf of AFC or any of its Subsidiaries have been timely filed
or requests for extensions have been timely filed and any such extension shall
have been granted and not have expired, and all such filed returns are
complete and accurate in all material respects. All taxes shown on such
returns, all taxes required to be shown on returns for which extensions have
been granted, and all other taxes required to be paid by AFC or any of its
Subsidiaries, have been paid in full or adequate provision has been made for
any such taxes on AFC's balance sheet (in accordance with generally accepted
accounting principles). For purposes of this Section 2.04(k), the term "taxes"
shall include all income, franchise, gross receipts, real and personal
property, real property transfer and gains, wage and employment taxes. As of
the date of this Agreement, there is no audit, examination, deficiency, or
refund litigation with respect to any taxes of AFC or any of its Subsidiaries,
and no claim has been made by any authority in a jurisdiction where AFC or any
of its Subsidiaries do not file tax returns that AFC or any such Subsidiary is
subject to taxation in that jurisdiction. All taxes, interest, additions, and
penalties due with respect to completed and settled examinations or concluded
litigation relating to AFC or any of its Subsidiaries have been paid in full
or adequate provision has been made for any such taxes on AFC's balance sheet
(in accordance with generally accepted accounting principles). AFC and its
Subsidiaries have not executed an extension or waiver of any statute of
limitations on the assessment or collection of any material tax due that is
currently in effect. AFC and each of its Subsidiaries has withheld and paid
all taxes required to have been withheld and paid in connection with amounts
paid or owing to any employee, independent contractor, creditor, stockholder
or other third party, and AFC and each of its Subsidiaries has timely complied
with all applicable information reporting requirements under Part III,
Subchapter A of Chapter 61 of the Code and similar applicable state and local
information reporting requirements. Neither AFC nor any of its Subsidiaries
(i) has made an election under Section 341(f) of the Code, (ii) has made any
payment, is obligated to make any payment, or is a party to any agreement that
could obligate it to make any payment that would not be deductible under
Section 280G of the Code, (iii) has issued or assumed any obligation under
Section 279 of the Code, any high yield discount obligation as described in
Section 163(i) of the Code or any registration-required obligation within the
meaning of Section 163(f)(2) of the Code that is not in registered form, or
(iv) is or has been a United States real property holding corporation within
the meaning of Section 897(c)(2) of the Code.
(j) Absence of Claims. No litigation, proceeding, controversy, claim or
action before any court or governmental agency is pending against AFC, the
Association or any of its Subsidiaries, and, to the best of AFC's knowledge,
no such litigation, proceeding, controversy, claim or action has been
threatened.
(k) Absence of Regulatory Actions. Neither AFC nor any of its Subsidiaries
is a party to any cease and desist order, written agreement or memorandum of
understanding with, or a party to any commitment letter or similar written
undertaking to, or is subject to any action, proceeding, order or directive
by, or is a recipient of any extraordinary supervisory letter from any
Government Regulator, nor has it been advised by any Government Regulator that
it is contemplating issuing or requesting (or is considering the
appropriateness of issuing or requesting) any such order, directive, written
agreement, memorandum of understanding, extraordinary supervisory letter,
commitment letter or similar written undertaking.
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(l) AFC Common Stock. The shares of AFC Common Stock to be issued pursuant
to this Agreement, when issued in accordance with the terms of this Agreement,
will be duly authorized, validly issued, fully paid and non-assessable and
subject to no preemptive rights.
(m) Labor Matters. Neither AFC nor any of its Subsidiaries is or has ever
been a party to, or is or has ever been bound by, any collective bargaining
agreement, contract, or other agreement or understanding with a labor union or
labor organization with respect to its employees, nor is AFC or any of its
Subsidiaries the subject of any proceeding asserting that it has committed an
unfair labor practice or seeking to compel AFC or any of its Subsidiaries to
bargain with any labor organization as to wages and conditions of employment,
nor is the management of AFC aware of any pending or threatened strike, other
labor dispute or organizational effort involving AFC or any of its
Subsidiaries AFC and its Subsidiaries are in compliance with applicable laws
regarding employment of employees and retention of independent contractors,
and are in compliance with applicable employment tax laws.
(n) Employee Benefit Plans. The Disclosure Letter contains a complete list
of all pension, retirement, stock option, stock purchase, stock ownership,
savings, stock appreciation right, profit sharing, deferred compensation,
consulting, bonus, group insurance, severance and other benefit plans,
contracts, agreements, arrangements, including, but not limited to, "employee
benefit plans," as defined in Section 3(3) of ERISA, incentive and welfare
policies, contracts, plans and arrangements and all trust agreements related
thereto with respect to any present or former directors, officers, or other
employees of AFC or any of its Subsidiaries (hereinafter referred to
collectively as the "AFC Employee Plans"). All AFC Employee Plans comply in
all material respects with all applicable requirements of ERISA, the Code and
other applicable laws and there has occurred no non-exempt "prohibited
transaction" (as defined in Section 406 of ERISA or Section 4975 of the Code)
which is likely to result in the imposition of any penalties or taxes under
Section 502(i) of ERISA or Section 4975 of the Code upon AFC or any of its
Subsidiaries. No liability, to the Pension Benefit Guaranty Corporation, has
been or is expected by AFC or any of its Subsidiaries to be incurred with
respect to any AFC Employee Plan which is subject to Title IV of ERISA ("AFC
Pension Plan"), or with respect to any "single-employer plan" (as defined in
Section 4001(a) of ERISA) currently or formerly maintained by AFC or any
entity which is considered one employer with AFC under Section 4001(b)(1) of
ERISA or Section 414 of the Code (an "ERISA Affiliate"). No AFC Pension Plan
had an "accumulated funding deficiency" (as defined in Section 302 of ERISA
(whether or not waived)) as of the last day of the end of the most recent plan
year ending prior to the date hereof; the fair market value of the assets of
each AFC Pension Plan exceeds the present value of the "benefit liabilities"
(as defined in Section 4001(a)(16) of ERISA) under such AFC Pension Plan as of
the end of the most recent plan year with respect to the respective AFC
Pension Plan ending prior to the date hereof, calculated on an accumulated
benefit obligation basis using the actuarial assumptions used in the most
recent actuarial valuation for such AFC Pension Plan as of the date hereof;
and no notice of a "reportable event" (as defined in Section 4043 of ERISA)
for which the 30-day reporting requirement has not been waived has been
required to be filed for any AFC Pension Plan within the 12-month period
ending on the date hereof. Neither AFC nor any Subsidiary of AFC has provided,
or is required to provide, security to any AFC Pension Plan or to any single-
employer plan of an ERISA Affiliate pursuant to Section 401(a)(29) of the
Code. Neither AFC, its Subsidiaries, nor any ERISA Affiliate has contributed
to any "multi employer plan," as defined in Section 3(37) of ERISA, on or
after September 26, 1980. Each AFC Employee Plan of AFC or of any of its
Subsidiaries which is an "employee pension benefit plan" (as defined in
Section 3(2) of ERISA) and which is intended to be qualified under Section
401(a) of the Code (a "AFC Qualified Plan") has received a favorable
determination letter from the IRS and AFC and its Subsidiaries are not aware
of any circumstances likely to result in revocation of any such favorable
determination letter. There is no pending or, to the knowledge of AFC,
threatened litigation, administrative action or proceeding relating to any AFC
Employee Plan.
(o) Compliance with Laws. AFC and each of its Subsidiaries has all permits,
licenses, certificates of authority, orders and approvals of, and has made all
filings, applications and registrations with, federal, state, local and
foreign governmental or regulatory bodies that are required in order to permit
it to carry on its business as it is presently conducted; all such permits,
licenses, certificates of authority, orders and approvals are in full force
and effect, and, to the best knowledge of AFC, no suspension or cancellation
of any of them is threatened.
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Since the date of its incorporation, the corporate affairs of AFC have not
been conducted in violation of any law, ordinance, regulation, order, writ,
rule, decree or approval of any Governmental Entity. The business of AFC and
its Subsidiaries are not being conducted in violation of any law, ordinance,
regulation, order, writ, rule or decree approval of any Governmental Entity.
(p) Fees. Other than the financial advisory services performed for AFC by
Lehman Brothers Inc. pursuant to an agreement, a true and complete copy of
which has been previously delivered to LISB, neither AFC nor any of its
Subsidiaries, nor any of their respective officers, directors, employees or
agents, has employed any broker or finder or incurred any liability for any
financial advisory fees, brokerage fees, commissions, or finder's fee, and no
broker or finder has acted directly or indirectly for the purchase of any
Subsidiary of AFC, in connection with the Agreement or the transactions
contemplated hereby.
(q) Environmental Matters. With respect to AFC and each of its Subsidiaries:
(i) Each of AFC and its Subsidiaries, the Participation Facilities, and,
to AFC's knowledge, the Loan Properties (each as defined herein) are, and
have been, in substantial compliance with all Environmental Laws (as
defined herein);
(ii) There is no suit, claim, action, demand, executive or administrative
order, directive, investigation or proceeding pending or, to AFC's
knowledge, threatened, before any court, governmental agency or authority
or other forum against it or any of its Subsidiaries or any current or, to
AFC's knowledge, former Participation Facility (x) for alleged
noncompliance (including by any predecessor) with, or liability under, any
Environmental Law or (y) relating to the Release (as defined herein) into
the environment of any Hazardous Material (as defined herein), whether or
not occurring at or on a site owned, leased or operated by it or any of its
Subsidiaries or any Participation Facility;
(iii) To AFC's knowledge, there is no suit, claim, action, demand,
executive or administrative order, directive, investigation or proceeding
pending or threatened, before any court, governmental agency or authority
or other forum relating to or against any Loan Property (or AFC or any of
its Subsidiaries in respect of such Loan Property) (A) relating to alleged
noncompliance (including by any predecessor) with, or liability under, any
Environmental Law or (B) relating to the Release into the environment of
any Hazardous Material whether or not occurring at or on a site owned,
leased or operated by a Loan Property;
(iv) To AFC's knowledge, the properties currently or formerly owned or
operated by AFC or any of its Subsidiaries (including, without limitation,
soil, groundwater or surface water on, under or adjacent to the properties,
and buildings thereon) do not contain any Hazardous Material other than in
compliance with applicable Environmental Law; provided, however, that with
respect to properties formerly owned or operated by AFC or any of its
Subsidiaries, such representation is limited to the period AFC or any such
Subsidiary owned or operated such properties;
(v) None of AFC or any of its Subsidiaries has received any notice,
demand letter, executive or administrative order, directive or request for
information from any federal, state, local or foreign governmental entity
or any third party relating to Hazardous Materials or Remediation (as
defined herein) thereof or indicating that it may be in violation of, or
liable under, any Environmental Law, or any actual or, to AFC's knowledge,
potential administrative or judicial proceedings in connection with any of
the foregoing;
(vi) To AFC's knowledge, there are no underground storage tanks on, in or
under any properties currently or formerly owned or operated by AFC or any
of its Subsidiaries, any Participation Facility or any Loan Property and no
underground storage tanks have been closed or removed from any properties
currently or formerly owned or operated by AFC or any of its Subsidiaries,
any Participation Facility or any Loan Property which are or have been in
the ownership of AFC or any of its Subsidiaries; and
(vii) To AFC's knowledge, during the period of (A) AFC or any of its
Subsidiaries' ownership or operation of any of their respective current or
formerly owned properties, (B) AFC's or any of its Subsidiaries'
participation in the management of any Participation Facility, or (C) its
or any of its Subsidiaries' holding of a security interest in a Loan
Property, there has been no Release and there is currently no threatened
Release of Hazardous Material in, on, under, affecting or migrating to such
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properties. To AFC's knowledge, prior to the period of (X) AFC's or any of
its Subsidiaries' ownership or operation of any of their respective current
properties, (Y) AFC's or any of its Subsidiaries' participation in the
management of any Participation Facility, or (Z) AFC's or any of its
Subsidiaries' holding of a security interest in a Loan Property, there was
no Release of Hazardous Material in, on, under, affecting or migrating to
any such property, Participation Facility or Loan Property.
(r) Loan Portfolio; Allowance; Asset Quality. (i) With respect to each loan
owned by AFC or its Subsidiaries in whole or in part (each, a "Loan"), to the
best knowledge of AFC:
(A) the note and the related security documents are each legal, valid and
binding obligations of the maker or obligor thereof, enforceable against
such maker or obligor in accordance with their terms;
(B) neither AFC nor any of its Subsidiaries nor any prior holder of a
Loan has modified the note or any of the related security documents in any
material respect or satisfied, canceled or subordinated the note or any of
the related security documents except as otherwise disclosed by documents
in the applicable Loan file;
(C) AFC or a Subsidiary is the sole holder of legal and beneficial title
to each Loan (or the Association's applicable participation interest, as
applicable); except as otherwise referenced on the books and records of the
Association;
(D) the note and the related security documents, copies of which are
included in the Loan files, are true and correct copies of the documents
they purport to be and have not been suspended, amended, modified, canceled
or otherwise changed, except as otherwise disclosed by documents in the
applicable Loan file;
(E) there is no pending or threatened condemnation proceeding or similar
proceeding affecting the property which serves as security for a Loan;
except as otherwise referenced on the books and records of the Association;
(F) there is no pending or threatened litigation or proceeding relating
to the property which serves as security for a Loan that would have a
Material Adverse Effect upon the related Loan; and
(G) with respect to a Loan held in the form of a participation, the
participation documentation is legal, valid, binding and enforceable.
(ii) The allowance for possible losses reflected in AFC's audited statement
of condition at December 31, 1997 as, and the allowance for possible losses
shown on the balance sheets in its Reports for periods ending after December
31, 1997 will be, adequate, as of the dates thereof, under generally accepted
accounting principles applicable to federal savings and loan associations
consistently applied.
(iii) The Disclosure Letter sets forth by category the amounts of all loans,
leases, advances, credit enhancements, other extensions of credit, commitments
and interest-bearing assets of the Subsidiaries that have been 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" (in the
latter two cases, to the extent available) or words of similar import, and the
Association and its Subsidiaries shall promptly after the end of any month
inform LISB of any such classification arrived at any time after the date
hereof. The OREO included in any non-performing assets of the Subsidiaries is
carried net of reserves at the lower of cost or fair value, less estimated
selling costs, based on current independent appraisals or evaluations or
current management appraisals or evaluations; provided, however, that
"current" shall mean within the past 12 months.
(s) Accounting Matters. Neither AFC nor any of its Subsidiaries nor, to the
best of its knowledge, any of its other affiliates has, through the date
hereof, taken or agreed to take any action that would prevent AFC from
accounting for the business combination to be effected by the Merger as a
"pooling-of-interests," and AFC has no knowledge of any fact or circumstance
that would prevent such accounting treatment.
(t) AFC Rights Agreement. The AFC Rights Agreement has been amended so as to
provide that LISB will not become an "Acquiring Person" and that no
"Triggering Event," "Stock Acquisition Date" or
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"Distribution Date" (as such terms are defined in the AFC Rights Agreement)
will occur as a result of the approval, execution or delivery of this
Agreement or the AFC Option Agreement or the consummation of the Merger
pursuant to this Agreement or the acquisition of shares of AFC Common Stock by
LISB pursuant to the AFC Option Agreement.
(u) Investment Securities; Borrowing. (i) Except for investments in Federal
Home Loan Bank Stock and pledges to secure Federal Home Loan Bank borrowings
and reverse repurchase agreements entered into in arms-length transactions
pursuant to normal commercial terms and conditions and entered into in the
ordinary course of business and restrictions that exist for securities to be
classified as "held to maturity," none of the investments reflected in the
consolidated balance sheet of AFC included in AFC's Report on Form 10-K for
the year ended December 31, 1997, and none of the investment securities held
by it or any of its Subsidiaries since December 31, 1997, is subject to any
restriction (contractual or statutory) that would materially impair the
ability of the entity holding such investment freely to dispose of such
investment at any time.
(ii) Neither AFC nor any Subsidiary is a party to or has agreed to enter
into an exchange-traded or over-the-counter equity, interest rate, foreign
exchange or other swap, forward, future, option, cap, floor or collar or any
other contract that is not included on the consolidated statements of
condition and is a derivative contract (including various combinations
thereof) (each, a "Derivatives Contract") or owns securities that (A) are
referred to generically as "structured notes," "high risk mortgage
derivatives," "capped floating rate notes" or "capped floating rate mortgage
derivatives" or (B) are likely to have changes in value as a result of
interest or exchange rate changes that significantly exceed normal changes in
value attributable to interest or exchange rate changes, except for those
Derivatives Contracts and other instruments legally purchased or entered into
in the ordinary course of business, consistent with safe and sound banking
practices and regulatory guidance, and listed (as of the date hereof) in the
Disclosure Letter or disclosed in its Reports filed on or prior to the date
hereof.
(iii) Set forth in the Disclosure Letter is a true and correct list of AFC's
borrowed funds (excluding deposit accounts) as of the date hereof.
(v) Books and Records. The books and records of AFC and its Subsidiaries
have been, and are being, maintained in accordance with applicable legal and
accounting requirements and reflect in all material respects the substance of
events and transactions that should be included therein.
(w) Corporate Documents. AFC has delivered to LISB true and complete copies
of its certificate of incorporation and bylaws and of the Association's
charter and bylaws. The minute books of AFC and the Association constitute a
complete and correct record of all actions taken by the respective boards of
directors (and each committee thereof) and the stockholders of AFC and the
Association. The minute books of each of AFC's Subsidiaries constitutes a
complete and correct record of all actions taken by the respective boards of
directors (and each committee thereof) and the stockholders of each
Subsidiary.
(x) Beneficial Ownership of LISB Common Stock. As of the date hereof, AFC
beneficially owns no shares of LISB Common Stock and, other than as
contemplated by the LISB Option Agreement, does not have any option, warrant
or right of any kind to acquire the beneficial ownership of any shares of LISB
Common Stock.
(y) Tax Treatment of the Merger. As of the date hereof, AFC has no knowledge
of any fact or circumstance that would prevent the transactions contemplated
by this Agreement from qualifying as a tax-free reorganization under the Code.
(z) Year 2000 Matters. The Disclosure Letter contains a true and correct
copy of AFC's proposed plan for addressing year 2000 computer issues (the "AFC
Year 2000 Plan"). AFC is in material compliance with the AFC Year 2000 Plan
and agrees to take all actions required by the OTS to continue to be "Year
2000 Compliant". Neither AFC nor AFC Bank has received any written
communication from the OTS commenting adversely with respect to the ability of
AFC to become Year 2000 compliant and AFC is not aware of any reason why it
would not receive a "satisfactory" rating in connection with any OTS
examination of its Year 2000 compliance efforts.
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ARTICLE III
CONDUCT PENDING THE MERGER
Section 3.01 Conduct of LISB's Business Prior to the Effective Time. Except
as expressly provided in this Agreement, during the period from the date of
this Agreement to the Effective Time, LISB shall use commercially reasonable
efforts to, and shall cause its Subsidiaries to use commercially reasonable
efforts to, (i) conduct its business in the ordinary and usual course
consistent with past practices and prudent banking practice; (ii) maintain and
preserve intact its business organization, properties, leases, employees and
advantageous business relationships and retain the services of its officers
and key employees, (iii) take no action which would adversely affect or delay
the ability of LISB, LISB Bank, AFC or the Association to perform its
covenants and agreements on a timely basis under this Agreement, (iv) take no
action which would adversely affect or delay the ability of LISB, LISB Bank,
AFC or the Association to obtain any necessary approvals, consents or waivers
of any governmental authority required for the transactions contemplated
hereby or which would reasonably be expected to result in any such approvals,
consents or waivers containing any material condition or restriction, and (v)
take no action that results in or is reasonably likely to have a Material
Adverse Effect on LISB. LISB will use reasonable good faith efforts to consult
with (but shall not have to obtain the approval of) AFC before engaging in any
of the following activities:
(a) the creation of any Fannie Mae or Freddie Mac securities with limited
recourse to reduce the amount of the guarantee fee payable; or
(b) entering into any agreements or commitments in connection with LISB's
Year 2000 compliance efforts.
Section 3.02 Forbearance by LISB. Without limiting the covenants set forth
in Section 3.01 hereof, during the period from the date of this Agreement to
the Effective Time LISB shall not, and shall not permit any of its
Subsidiaries, without the prior written consent of AFC which shall not be
unreasonably withheld, to:
(a) put into effect any change in any provisions of the organization
certificate or bylaws of LISB, or any similar governing documents of LISB's
Subsidiaries;
(b) issue any shares of capital stock or change the terms of any outstanding
stock options or warrants, issue, award or grant any stock bonus, including
any restricted stock award pursuant to the MRPs, or issue, grant or sell any
option, warrant, call, commitment, stock appreciation right, right to purchase
or agreement of any character relating to the authorized or issued capital
stock of LISB except pursuant to (i) the exercise of stock options or warrants
as set forth in the Disclosure Letter consistent with Section 1.04 of this
Agreement, (ii) the LISB Option Agreement or (iii) the terms of the LISB
Rights Agreement (provided that LISB shall take no action that would cause or
have the effect of causing AFC to become an "Acquiring Person" under the LISB
Rights Agreement); adjust, split, combine or reclassify any capital stock;
make, declare or pay any dividend or make any other distribution on, or
directly or indirectly redeem, purchase or otherwise acquire, any shares of
its capital stock or any securities or obligations convertible into or
exchangeable for any shares of its capital stock except for LISB's regular
quarterly dividend of $0.15 per share. As promptly as practicable following
the date of this Agreement, the Board of Directors of LISB shall cause its
regular quarterly dividend record dates and payment dates to be the same as
AFC's regular quarterly dividend record dates and payments dates for AFC
Common Stock, and LISB shall not thereafter change its regular dividend
payment dates and record dates. Nothing contained in this Section 3.02(b) or
in any other Section of this Agreement shall be construed to permit holders of
shares of LISB to receive two dividends either from LISB or from AFC or LISB
and AFC in any one quarter or to deny or prohibit such holders from receiving
one dividend from LISB or AFC in any quarter;
(c) other than in the ordinary course of business consistent with past
practice and pursuant to policies currently in effect (which includes sales of
mortgage and mortgage related securities as part of balance sheet management),
sell, transfer, mortgage, encumber or otherwise dispose of any of its material
properties, leases or assets to any individual, corporation or other entity
other than a direct or indirect wholly owned Subsidiary of LISB or cancel,
release or assign any indebtedness of any such person, except pursuant to
contracts or
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agreements in force at the date of this Agreement and which have been
described to AFC; provided, however, that no sales may be made with recourse
other than sales of Fannie Mae and Freddie Mac securities with limited
recourse to reduce the amount of the guarantee fee payable; provided, further,
that sales of such recourse loans shall be limited to $50 million per month,
unless AFC receives prior notification thereof;
(d) except to the extent required by law or as disclosed in Section 3.02(d)
of LISB's Disclosure Letter or as specifically provided for elsewhere herein,
increase in any manner the compensation or fringe benefits of any of its
employees or directors other than general increases in compensation for non-
officer employees (and officers, provided that Section 3.02(d) of the
Disclosure Schedule sets forth a complete and accurate schedule of the
expected maximum salary increases for persons with a title of first vice
president or higher of LISB scheduled to occur prior to September 30, 1998) in
the ordinary course of business consistent with past practice that do not
cause the aggregate annualized compensation of all of LISB's non-officer
employees and officers with a title below first vice president participating
in the increase being granted, immediately following such increase, to exceed
by more than 5% the aggregate total annual compensation expense of LISB with
respect to such persons for the twelve month period ended September 30, 1997
and that do not cause the aggregate annual rates of base salaries of all of
LISB's non-officer employees participating in the increase being granted to
increase by more than 5% over such aggregate base salaries at September 30,
1997, or pay any pension or retirement allowance not required by any existing
plan or agreement to any such employees or directors, or become a party to,
amend or commit itself to or fund or otherwise establish any trust or account
related to any Employee Plan (as defined in Section 2.03(n)) with or for the
benefit of any employee or director (provided that the foregoing shall not
restrict LISB from paying normal, discretionary and/or contractual bonuses in
the ordinary course of business due as of September 30, 1998 in amount and
scope of distributions consistent with past practices not to exceed $4 million
in the aggregate; and provided, further, that the foregoing shall not restrict
LISB Bank from offering an early retirement incentive program consistent with
past practices to eligible plan participants who retire on a date selected by
LISB Bank that is as close in time as practicable to the Effective Time, at a
total cost not materially different from the estimated cost shown on Section
3.02(d) of the Disclosure Schedule.); voluntarily accelerate the vesting of
any stock options or other compensation or benefit; terminate or increase the
costs to LISB or any Subsidiary of any Employee Plan; hire any employee with
an annual compensation in excess of $75,000 or enter into or amend any
employment, commission or bonus contract; except as otherwise specifically
contemplated by this paragraph (d), alter, amend or revise in any manner any
compensation, arrangements, practices or policies; make any discretionary
contributions to any Employee Plan; make any discretionary contributions to
any Employee Plan; or taken any action other than permitted by this Section
3.02(d) that would cause the Merger to fail to qualify for pooling-of-
interests account treatment;
(e) except as contemplated by Section 4.02, change its method of accounting
as in effect at September 30, 1997, except as required by changes in generally
accepted accounting principles as concurred in writing by LISB's independent
auditors;
(f) make any investment in any debt security, including mortgage-backed and
mortgage related securities, other than U.S. government and U.S. government
agency securities with final maturities not greater than five years or
mortgage-backed or mortgage related securities which would not be considered
"high risk" securities pursuant to Thrift Bulletin Number 52 issued by the
OTS, that are purchased in the ordinary course of business consistent with
past practice, in either case, with a purchase price no greater than 101.5% of
par value;
(g) other than in the ordinary course of business consistent with past
practice in individual amounts not to exceed $50,000 and other than
investments for LISB's portfolio made in accordance with Section 3.02(f), make
any investment either by purchase of stock or securities, contributions to
capital, property transfers, or purchase of any property or assets of any
other individual, corporation or other entity and other than the purchase of
Federal Home Loan Bank common stock necessary to maintain LISB's membership
status with the Federal Home Loan Bank of New York and other than pursuant to
existing commitments set forth in the Disclosure Letter;
(h) enter into any contract or agreement that is not terminable within 30
days, or make any change in, or terminate, any of its leases or contracts,
other than with respect to those involving aggregate payments of less
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than, or the provision of goods or services with a market value of less than
$100,000 per annum and other than contracts or agreements covered by Section
3.02(k) and other than agreements and commitments in connection with LISB's
Year 2000 compliance efforts pursuant to its Year 2000 Plan;
(i) settle any claim, action or proceeding involving any liability of LISB
or any of its Subsidiaries for money damages in excess of $500,000 or impose
material restrictions upon the operations of LISB or any of its Subsidiaries;
(j) except in the ordinary course of business and in amounts less than
$500,000, waive or release any material right or collateral or cancel or
compromise any extension of credit or other debt or claim;
(k) make, renegotiate, renew, increase, extend or purchase any (i) loan,
lease (credit equivalent), advance, credit enhancement or other extension of
credit, or make any commitment in respect of any of the foregoing, except in
conformity with existing lending practices in amounts not to exceed $2,000,000
to any individual borrower (except for commercial real estate loans which
shall be limited to $3.5 million to any individual borrower and except for
small business and commercial loans which shall be limited to $300,000 to any
individual borrower); provided, however, that LISB and its Subsidiaries may
not make, renegotiate, renew, increase, extend or purchase any loan that is
underwritten based on no verification of income or loans commonly known or
referred to as "no documentation loans;" however, LISB may originate no
documentation loans pursuant to a take-out commitment from an investor, but
not for the portfolio of LISB or (ii) loans, advances or commitments to
directors, officers or other affiliated parties of LISB or any of its
Significant Subsidiaries (other than loans on primary residences in accordance
with existing policies);
(l) except to the extent required by applicable law or regulation, adopt or
implement any new policy or practice or procedure with respect to its loan
origination activities, including without limitation, taking any action to
amend, renew or extend any contract, agreement or other arrangement with terms
greater than one year regarding the delegation of loan underwriting functions,
the delegation of loan processing functions, the provisions of tax-related
services or the provision of insurance-related services;
(m) purchase or sell servicing rights (other than loan sales with servicing
released) with respect to loans the principal balance of which, either
individually or in the aggregate, exceeds $500,000;
(n) acquire or agree to acquire, by merging or consolidating with, or by
purchasing a substantial equity interest in or a substantial portion of the
assets of, or by any other manner, any business or any corporation,
partnership, association or other business organization or division thereof,
or otherwise acquire or agree to acquire any assets which are material,
individually or in the aggregate, to LISB except in satisfaction of debts
previously contracted;
(o) incur any additional borrowings beyond those set forth on the Disclosure
Letter other than short-term (two years or less) Federal Home Loan Bank
borrowings and reverse repurchase agreements consistent with past practice, or
pledge any of its assets to secure any borrowings other than as required
pursuant to the terms of borrowings of LISB or any Subsidiary in effect at the
date hereof or in connection with borrowings or reverse repurchase agreements
permitted hereunder. Deposits shall not be deemed to be borrowings within the
meaning of this paragraph;
(p) make any capital expenditures in excess of $100,000 per expenditure from
the date of this Agreement until the Effective Date other than pursuant to
binding commitments existing on the date hereof, other than expenditures
necessary to maintain existing assets in good repair;
(q) make any investment or commitment to invest in real estate or in any
real estate development project, other than real estate acquired in
satisfaction of defaulted mortgage loans and investments or commitments
approved by the Board of Directors of LISB or LISB Bank prior to the date of
this Agreement and disclosed in writing to AFC;
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(r) except pursuant to commitments existing at the date hereof which have
previously been disclosed in writing to AFC, make any real estate loans
secured by undeveloped land or real estate (other than real estate secured by
one-to four-family homes) located outside the State of New York or make any
construction loan (other than construction loans secured by one-to four-family
homes);
(s) establish or make any commitment relating to the establishment of any
new branch or other office facilities;
(t) organize, capitalize, lend to or otherwise invest in or invest in any
Subsidiary or acquire a 10% or greater equity or voting interest in any firm,
corporation or business enterprise;
(u) elect to the Board of Directors of LISB or any Subsidiary any person who
is not a member of the Board of Directors of LISB or such Subsidiary as of the
date of this Agreement; or
(v) agree or make any commitment to take any action that is prohibited by
this Section 3.02.
In the event that AFC does not respond in writing to LISB within five
business days of a written request for LISB to engage in any of the actions
for which AFC's prior written consent is required pursuant to this Section
3.02, AFC shall be deemed to have consented to such action. Any request by
LISB or response thereto by AFC shall be made in accordance with the notice
provisions of Section 8.07, and any request by LISB shall also state that it
is a request pursuant to this Section 3.02 and that a failure to respond
within five (5) business days shall constitute consent.
Section 3.03 Conduct of AFC's Business Prior to the Effective Time. Except
as expressly provided in this Agreement, during the period from the date of
this Agreement to the Effective Time, AFC shall use commercially reasonable
efforts to, and shall cause its Subsidiaries to use commercially reasonable
efforts to, (i) conduct its business in the ordinary and usual course
consistent with past practices and prudent banking practice, (ii) maintain and
preserve intact its business organization, properties, leases, employees and
advantageous business relationships and retain the services of its officers
and key employees, (iii) take no action which would adversely affect or delay
the ability of LISB or AFC to perform its covenants and agreements on a timely
basis under this Agreement, (iv) take no action which would adversely affect
or delay the ability of LISB, AFC, LISB Bank or the Association to obtain any
necessary approvals, consents or waivers of any governmental authority
required for the transactions contemplated hereby or which would reasonably be
expected to result in any such approvals, consents or waivers containing any
material condition or restriction, and (v) take no action that results in or
is reasonably likely to have a Material Adverse Effect on AFC.
Section 3.04 Forbearance by AFC. Without limiting the covenants set forth in
Section 3.02 hereof, during the period from the date of this Agreement to the
Effective Time AFC shall not, and shall not permit any of its Subsidiaries,
without the prior written consent of LISB which shall not be unreasonably
withheld, to:
(a) put into effect any change in any provisions of the organization
certificate or bylaws of AFC, or any similar governing documents of AFC's
Subsidiaries, other than an increase in the authorized capital stock of AFC;
(b) issue any shares of capital stock or change the terms of any outstanding
stock options or warrants or issue, grant or sell any option, warrant, call,
commitment, stock appreciation right, right to purchase or agreement of any
character relating to the authorized or issued capital stock of AFC except
pursuant to (i) the exercise of stock options or warrants as set forth in the
Disclosure Letter or consistent with Section 1.04 of this Agreement; (ii) the
AFC Option Agreement (iii) pursuant to the terms of the AFC Rights Agreement;
or (iii) pursuant to a stock split in the form of a stock dividend for which a
Stock Adjustment shall be made.
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ARTICLE IV
COVENANTS
Section 4.01 Acquisition Proposals. LISB agrees that neither it nor any of
its Subsidiaries nor any of the respective officers and directors of LISB or
its Subsidiaries shall, and LISB shall direct and use its best efforts to
cause its employees, agents and representatives (including, without
limitation, any investment banker, attorney or accountant retained by it or
any of its Subsidiaries) not to, (a) initiate, solicit or encourage, directly
or indirectly, any inquiries or the making of any proposal or offer
(including, without limitation, any proposal or offer to stockholders of LISB)
with respect to a merger, consolidation or similar transaction involving, or
any purchase of all or more than 10% of the assets or any equity securities of
LISB or any of its material Subsidiaries (any such proposal or offer being
hereinafter referred to as an "Acquisition Proposal") or, (b) engage in any
negotiations concerning, or provide any confidential information or data to,
or have any discussions with, any person relating to an Acquisition Proposal,
or otherwise facilitate any effort or attempt to make or implement an
Acquisition Proposal; provided, however, that nothing contained in this
Agreement shall prevent LISB or its Board of Directors from (i) complying with
Rule 14e-2 promulgated under the Exchange Act with regard to an Acquisition
Proposal or (ii) (A) providing information in response to a request therefor
by a person who has made an unsolicited bona fide written Acquisition Proposal
if the Board of Directors receives from the person so requesting such
information an executed confidentiality agreement on terms substantially
equivalent to those contained in the confidentiality agreement between AFC and
LISB, dated as of January 16, 1998; or (B) engaging in any negotiations or
discussions with any person who has made an unsolicited bona fide written
Acquisition Proposal, if and only to the extent that, in each such case
referred to in clause (A) or (B) above, (i) the Board of Directors of LISB,
after consultation with outside legal counsel, in good faith deems such action
to be legally necessary for the proper discharge of its fiduciary duties under
applicable law and (ii) the Board of Directors of LISB determines in good
faith (after consultation with its financial advisor) that such Acquisition
Proposal, if accepted, is reasonably likely to be consummated, taking into
account all legal, financial and regulatory aspects of the proposal and the
person making the proposal and would, if consummated, result in a more
favorable transaction than the transaction contemplated by this Agreement,
taking into account the long-term prospects and interests of LISB and its
stockholders. LISB will notify AFC immediately orally (within one day) and in
writing (within 3 days) if any such inquiries, proposals or offers are
received by, any such information is requested from, or any such negotiations
or discussions are sought to be initiated or continued with LISB after the
date hereof, and the identity of the person making such inquiry, proposal or
offer and the substance thereof and will keep AFC informed of any developments
with respect thereto immediately upon occurrence thereof. If the Board of
Directors of LISB shall determine in accordance with the second preceding
sentence to provide confidential information or data to any other person, LISB
shall do so only under the terms of a confidentiality agreement no less
stringent than that previously entered into between the parties hereto and
LISB shall enforce such agreement. Subject to the foregoing, LISB will
immediately cease and cause to be terminated any existing activities,
discussions or negotiations with any parties conducted heretofore with respect
to any of the foregoing. LISB will take the necessary steps to inform the
appropriate individuals or entities referred to in the first sentence hereof
of the obligations undertaken in this Section 4.01. LISB will promptly request
each person (other than AFC) that has executed a confidentiality agreement
prior to the date hereof in connection with its consideration of a business
combination with LISB or any Subsidiary of LISB to return or destroy all
confidential information previously furnished to such person by or on behalf
of LISB or any of its Subsidiaries.
Section 4.02 Certain Policies of LISB.
(a) After the date on which all required regulatory approval and shareholder
approvals for the consummation of the transactions contemplated hereby are
received and prior to the Effective Time, but no earlier than five (5) days
prior to the Closing Date and after receipt of written confirmation from AFC
that all conditions to closing set forth in Sections 5.01 and 5.02, except for
the condition set forth in Section 5.01(f), have either been satisfied or
waived, at the request of AFC, LISB shall cause LISB Bank to modify and change
its loan, litigation or real estate valuation policies and practices
(including loan classifications and levels of reserves) and investment and
asset/liability management policies and practices so as to be consistent on a
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mutually satisfactory basis with those of the Association; provided, that such
policies and procedures are not prohibited by generally accepted accounting
principles or any applicable laws and regulations.
(b) LISB's representations, warranties and covenants contained in this
Agreement shall not be deemed to be untrue or breached in any respect for any
purpose as a consequence of any modifications or changes undertaken solely on
account of this Section 4.02.
Section 4.03 Access and Information. (a) Upon reasonable notice, LISB and
AFC shall (and shall cause its respective Subsidiaries to) afford to each
other and their respective representatives (including, without limitation,
directors, officers and employees of such party and its affiliates, and
counsel, accountants and other professionals retained) such reasonable access
during normal business hours throughout the period prior to the Effective Time
to the books, records (including, without limitation, tax returns and work
papers of independent auditors), properties, personnel and to such other
information as either party may reasonably request; provided, however, that no
investigation pursuant to this Section 4.03 shall affect or be deemed to
modify any representation or warranty made herein. In furtherance, and not in
limitation of the foregoing, LISB shall make available to AFC all information
necessary or appropriate for the preparation and filing of all real property
and real estate transfer tax returns and reports required by reason of the
Merger or the Bank Merger. AFC and LISB will not, and will cause its
respective representatives not to, use any information obtained pursuant to
this Section 4.03 for any purpose unrelated to the consummation of the
transactions contemplated by this Agreement. Subject to the requirements of
law, each of AFC and LISB will keep confidential, and will cause its
respective representatives to keep confidential, all information and documents
obtained pursuant to this Section 4.03 unless such information (i) was already
known to such party or an affiliate of such party, other than pursuant to a
confidentiality agreement or other confidential relationship, (ii) becomes
available to such party or an affiliate of such party from other sources not
known by such party to be bound by a confidentiality obligation or agreement,
(iii) is disclosed with the prior written approval of the other party or (iv)
is or becomes readily ascertainable from published information or trade
sources. In the event that this Agreement is terminated or the transactions
contemplated by this Agreement shall otherwise fail to be consummated, each
party shall promptly cause all copies of documents or extracts thereof
containing information and data as to another party hereto (or an affiliate of
any party hereto) to be returned to the party which furnished the same.
(b) During the period of time beginning on the day application materials for
the Bank Merger are initially filed with the OTS and continuing to the
Effective Time, including weekends and holidays, LISB shall cause LISB Bank to
provide the Association and its authorized agents and representatives full
access to LISB Bank's offices for the purpose of installing any necessary
wiring and equipment to be utilized by the Association after the Effective
Time; provided, that:
(i) reasonable advance notice of each entry shall be given to LISB Bank,
and LISB Bank approves of each entry, which approval shall not be
unreasonably withheld;
(ii) LISB Bank shall have the right to have its employees or contractors
present to inspect the work being done;
(iii) to the extent practicable, such work shall be done in a manner that
will not interfere with LISB Bank's business conducted at any affected
branch offices;
(iv) all such work shall be done in compliance with all applicable laws
and government regulation, and the Association shall be responsible for the
procurement, at the Association's expense, of all required governmental or
administrative permits and approvals;
(v) the Association shall maintain appropriate insurance satisfactory to
LISB Bank in connection with any work done by the Association's agents and
representatives pursuant to this Section 4.03;
(vi) the Association shall reimburse LISB Bank for any material out-of-
pocket costs or expenses incurred by LISB Bank in connection with this
undertaking; and
(vii) in the event this Agreement is Terminated in accordance with
Article VI hereof, the Association, within a reasonable time period and at
its sole cost and expense, will restore such offices to their condition
prior to the commencement of any such installation.
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Section 4.04 Certain Filings, Consents and Arrangements. AFC and LISB shall
(a) as soon as practicable (and in any event within 60 days after the date
hereof) make (or cause to be made) any filings and applications and provide
any notices, required to be filed or provided in order to obtain all
approvals, consents and waivers of governmental authorities and third parties
necessary or appropriate for the consummation of the transactions contemplated
hereby or by the LISB Option Agreement and the AFC Option Agreement, (b)
cooperate with one another (i) in promptly determining what filings and
notices are required to be made or approvals, consents or waivers are required
to be obtained under any relevant federal or state law or regulation or under
any relevant agreement or other document and (ii) in promptly making any such
filings and notices, furnishing information required in connection therewith
and seeking timely to obtain any such approvals, consents or waivers and (c)
deliver to the other copies of the publicly available portions of all such
filings, notices and applications promptly after they are filed.
Section 4.05 Antitakeover Provisions.
(a) LISB shall (and shall cause its Subsidiaries to) take all steps required
by any relevant federal or state law or regulation or under any relevant
agreement or other document (i) to exempt or continue to exempt AFC, this
Agreement, the Merger, the Bank Merger and the LISB Option Agreement from any
provisions of an antitakeover nature in LISB's or its Subsidiaries'
certificates of incorporation or charters, as the case may be, and bylaws and
the provisions of Section 203 of the DGCL and (ii) upon the request of AFC, to
assist in any challenge by AFC to the applicability to this Agreement, the
Merger or the LISB Option Agreement of Section 203 of the DGCL.
(b) Except for the Amendment and amendments approved in writing by AFC, LISB
will not, following the date hereof, amend or waive any of the provisions of
or take any action to exempt any other persons from the provisions of the LISB
Rights Agreement in any manner that adversely affects the consummation of the
Merger or, except as provided in the next sentence, redeem the rights
thereunder. If requested by AFC, but not otherwise, LISB will redeem all
outstanding Rights at a redemption price of not more than $0.01 per Right
effective immediately prior to the Effective Time with respect to the
consummation of the Merger.
Section 4.06 Additional Agreements. Subject to the terms and conditions
herein provided, each of the parties hereto agrees to use all reasonable
efforts to take promptly, or cause to be taken promptly, all actions and to do
promptly, or cause to be done promptly, all things necessary, proper or
advisable under applicable laws and regulations to consummate and make
effective the transactions contemplated by this Agreement, including the Bank
Merger, as expeditiously as possible, including using efforts to obtain all
necessary actions or non-actions, extensions, waivers, consents and approvals
from all applicable governmental entities, effecting all necessary
registrations, applications and filings (including, without limitation,
filings under any applicable state securities laws) and obtaining any required
contractual consents and regulatory approvals.
Section 4.07 Publicity. The initial press release announcing this Agreement
shall be a joint press release and thereafter LISB and AFC shall consult with
each other in issuing any press releases or otherwise making public statements
with respect to the acquisition contemplated hereby and in making any filings
with any governmental entity or with any national securities exchange with
respect thereto.
Section 4.08 Stockholders' Meeting. Each of LISB and AFC shall take all
action necessary, in accordance with applicable law and its corporate
documents, to convene a meeting of its respective stockholders (each, a
"Stockholder Meeting") as promptly as practicable for the purpose of
considering and voting on approval and adoption of the transactions provided
for in this Agreement. Except to the extent the boards of directors of each of
LISB or AFC, as the case may be, after consultation with outside legal
counsel, in good faith deems that failure to do the following is legally
necessary for the proper discharge of its fiduciary duties under applicable
law, the board of directors of each of LISB and AFC shall (a) recommend at its
Stockholder Meeting that the stockholders vote in favor of and approve the
transactions provided for in this Agreement, and (b) use its best efforts to
solicit such approvals. LISB and AFC, in consultation with the other, shall
each employ professional proxy solicitors to assist in contacting stockholders
in connection with soliciting favorable votes on
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the Merger. LISB and AFC shall coordinate and cooperate with respect to the
timing of their respective Stockholder Meetings.
Section 4.09 Joint Proxy Statement-Prospectus; Comfort Letters. (i) As soon
as practicable after the date hereof, AFC and LISB shall cooperate with
respect to the preparation of a Joint Proxy Statement-Prospectus for the
purpose of taking stockholder action on the Merger and this Agreement and file
the Joint Proxy Statement-Prospectus with the SEC and respond to comments of
the staff of the SEC and promptly after the Form S-4 (as defined in Section
4.10) is declared effective by the SEC mail the Joint Proxy Statement-
Prospectus to the respective holders of record (as of the applicable record
date) of shares of voting stock of each of LISB and AFC. AFC and LISB each
represents and covenants to the other that the Joint Proxy Statement-
Prospectus and any amendment or supplement thereto, with respect to the
information pertaining to it or its Subsidiaries at the date of mailing to its
stockholders and the date of its meeting of its stockholders to be held in
connection with the Merger, will be in compliance with the Exchange Act and
all relevant rules and regulations of the SEC and will not contain any untrue
statement of a material fact or omit to state any material fact required to be
stated or necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading.
(ii) AFC shall cause KPMG Peat Marwick, its independent public accounting
firm to deliver to LISB, and LISB shall cause KPMG Peat Marwick, its
independent public accounting firm, to deliver to AFC and to its officers and
directors who sign the Registration Statement for this transaction, a "comfort
letter" or "agreed upon procedures letter," in the form customarily issued by
such accountants at such time in transactions of this type, dated (a) the date
of the mailing of the Joint Proxy Statement-Prospectus for the Stockholders
Meeting of LISB and the date of mailing of the Joint Proxy Statement for the
Stockholders meeting of AFC, respectively, and (b) a date not earlier than
five business days preceding the date of the Closing.
Section 4.10 Registration of AFC Common Stock.
(a) AFC shall, as promptly as practicable following the preparation thereof,
file a Registration Statement on Form S-4 (including any pre-effective or
post-effective amendments or supplements thereto) with the SEC under the
Securities Act in connection with the transactions contemplated by this
Agreement, and AFC and LISB shall use all reasonable efforts to have the
Registration Statement declared effective under the Securities Act as promptly
as practicable after such filing. AFC will advise LISB promptly after AFC
receives notice of the time when the Registration Statement has become
effective or any supplement or amendment has been filed, of the issuance of
any stop order or the suspension of the qualification of the shares of capital
stock issuable pursuant to the Registration Statement, or the initiation or
threat of any proceeding for any such purpose, or of any request by the SEC
for the amendment or supplement of the Registration Statement or for
additional information. AFC will provide LISB with as many copies of such
Registration Statement and all amendments thereto promptly upon the filing
thereof as LISB may reasonably request.
(b) AFC shall use its best efforts to obtain, prior to the effective date of
the Registration Statement, all necessary state securities laws or "blue sky"
permits and approvals required to carry out the transactions contemplated by
this Agreement.
(c) AFC shall use its best efforts to list, prior to the Effective Time, on
the Nasdaq National Market or on such other exchange as AFC Common Stock shall
then be trading, subject only to official notice of issuance, the shares of
AFC Common Stock to be issued by AFC in exchange for the shares of LISB Common
Stock.
Section 4.11 Affiliate Letters. Promptly, but in any event within two weeks
after the execution and delivery of this Agreement, LISB shall deliver to AFC
a letter identifying all persons who, to the knowledge of LISB, may be deemed
to be "affiliates" of LISB under Rule 145 of the 1933 Act and the pooling-of-
interests accounting rules, including, without limitation, all directors and
executive officers of LISB, together with executed letter agreements, each
substantially in the form of Exhibit 4.11(a), executed by each such person so
identified as an affiliate of LISB agreeing (i) to comply with Rule 145 and
(ii) to refrain from transferring shares as required by the "pooling-of-
interests" accounting rules and (iii) to be present in person or by proxy and
vote
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in favor of the Merger at the Shareholders Meeting as provided in Exhibit
4.11(a). Within two weeks after the date hereof, AFC shall cause its directors
and executive officers to enter into letter agreements in the form of Exhibit
4.11(b) with AFC concerning the pooling-of-interests accounting rules. AFC
agrees to publish, or file a Form 8-K, Form 10-K or Form 10-Q containing
financial results covering at least 30 days of post-Merger combined operations
of AFC and LISB as soon as practicable (but in no event later than 30 days)
following the close of the first calendar month ending 30 days after the
Effective Time, in form and substance sufficient to remove the restrictions
set forth in paragraph "B" of each of Exhibit 4.11(a) and Exhibit 4.11(b).
Section 4.12 Notification of Certain Matters. Each party shall give prompt
notice to the others of: (a) any event or notice of, or other communication
relating to, a default or event that, with notice or lapse of time or both,
would become a default, received by it or any of its Subsidiaries subsequent
to the date of this Agreement and prior to the Effective Time, under any
contract material to the financial condition, properties, businesses or
results of operations of each party and its Subsidiaries taken as a whole to
which each party or any Subsidiary is a party or is subject; and (b) any
event, condition, change or occurrence which individually or in the aggregate
has, or which, so far as reasonably can be foreseen at the time of its
occurrence, is reasonably likely to result in a Material Adverse Event. Each
of LISB and AFC shall give prompt notice to the other party of any notice or
other communication from any third party alleging that the consent of such
third party is or may be required in connection with any of the transactions
contemplated by this Agreement.
Section 4.13 Directors and Officers; Advisory Board; Litigation
Committee. (a) AFC agrees to cause five persons who are mutually acceptable to
AFC and LISB, who are currently members of the LISB board of directors and who
are willing to so serve ("Former LISB Directors"), one of whom shall be Mr.
John J. Conefry, Jr., to be elected or appointed as directors of AFC at, or as
promptly as practicable after, the Effective Time (such appointment or
election of Former LISB Directors to be as evenly distributed as possible
among the classes of AFC directors). The directors of the Association,
following the Bank Merger, shall be the current directors of the Association,
plus the five individuals named above in the immediately preceding sentence.
(b) At the Effective Time, AFC shall enter into an agreement with Mr. John
J. Conefry, Jr., Mr. Lawrence W. Peters and Mr. Bruce M. Barnet substantially
in the forms attached as Exhibit 4.13(b), (c) and (d) to the AFC Disclosure
Letter.
(c) AFC shall, promptly following the Effective Time, cause all of the
members of the LISB's Board as of the date of this Agreement who do not become
directors of AFC and the Association pursuant to Section 4.13 hereof, and who
are willing to so serve, to be elected or appointed as members of an advisory
board (the "Advisory Board") established by AFC, the function of which shall
be to meet no less frequently than quarterly in order to advise AFC with
respect to general business as well as deposit and lending opportunities and
activities in LISB's former market area and to maintain and develop customer
relationships. The members of the Advisory Board who are willing to so serve
initially shall be elected or appointed for a term of one year. AFC agrees
annually to re-elect or re-appoint each of the initial members of the advisory
board to two successive one-year terms following the initial one-year term;
provided, however, that AFC shall have no obligation to re-elect or re-appoint
any member if AFC reasonably determines that such member has a conflict of
interest that compromises such member's ability to serve effectively as a
member of the advisory board or any cause exists that otherwise would allow
for removal of such person as a director of AFC if such person were a member
of AFC's Board of Directors. Each member of the Advisory Board who is not a
director of AFC and who is not an employee of AFC shall receive a retainer fee
for such service at an annual rate of $40,000.00, payable in monthly
installments and shall be afforded the opportunity, at his own expense, to
purchase coverage under a group health plan offered by the Association to its
employees. Within 30 days after the Effective Time, each member of the
Advisory Board shall receive a grant of options to purchase 4,000 shares of
AFC Common Stock which, subject to the terms of an option agreement to be
provided by AFC and reasonably acceptable to LISB, shall extend for a term of
ten (10) years beginning at the Effective Time; shall be exercisable at any
time after the Effective Time at an exercise price per share equal to the
closing sales price for a share of AFC Common Stock on the date of grant as
reported in The Wall Street Journal and shall provide for reasonable
registration rights. At or prior to the Effective Time, AFC shall (i) take all
corporate action necessary to reserve for issuance a sufficient number of
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shares of AFC Common Stock for delivery upon exercise of options granted in
accordance with this Section and (ii) file a registration statement on Form S-
8 (or any successor or other appropriate form) with respect to the AFC Common
Stock subject to such options. AFC shall use its best efforts to maintain the
effectiveness of such registration statement (and maintain the current status
of the prospectus or prospectuses contained therein) for so long as such
Options remain outstanding. Service on the Advisory Board shall be treated in
the same manner historically accorded to service as an Emeritus Director of
LISB or LISB Bank for purposes of determining the exercise periods of
Converted Options.
(d) LISB Bank is the plaintiff in a case resulting from a complaint filed by
LISB Bank in the United States Court of Federal Claims entitled The Long
Island Savings Bank FSB et al. vs. The United States (the "Case").
Notwithstanding anything to the contrary set forth elsewhere in the Agreement,
LISB shall not, without the prior written consent of AFC, cause or permit LISB
Bank to settle the Case or take any action having such effect. Promptly
following the Effective Time, AFC will designate a special litigation
committee consisting of Mr. John J. Conefry, Jr., as Chairman, Mr. Mark
Fuster, Mr. Roger Teurfs, Ms. Karen Cullen and Mr. Richard Herbst (the
"Litigation Committee"), provided such persons are willing to so serve for the
purpose of preserving the knowledge and experience of certain LISB officers in
connection with the Case, providing for the maximum recovery thereon, and
assisting AFC in evaluating and managing the progress thereof. The Litigation
Committee shall be responsible for advising AFC exclusively on the prosecution
and settlement of the Case, including the evaluation of any settlement
proposals, the making of and responses to motions to dismiss, proposals to
terminate or cease prosecuting the Case and the pursuit or abandonment of any
appeals. Each member of the Committee shall be available to assist AFC in
developing oral and documentary testimony and evidence at the request of AFC,
and shall not, in the absence of legal compulsion, assist any persons other
than AFC in the prosecution of the Case. Each member of the Litigation
Committee who is not a director of AFC and who is not an officer or employee
of, or consultant to, AFC shall receive a retainer fee for service on the
Litigation Committee as set forth in a separate consulting agreement to be
entered into between each such person and AFC in the form attached to the
Disclosure Letter as Exhibit 4.13(d). AFC will cause to be created a bonus
pool in an amount equal to 1% of the amount by which the gross proceeds of (1)
a final, unappealable judgment in the Case or (2) the final settlement of the
Case, exceeds $500,000,000, which shall be available, in the absolute
discretion of the disinterested members of the Board of Directors of AFC, for
distribution, in whole or in part, to officers, directors and consultants of
AFC who have had involvement in the successful prosecution of the Case.
Section 4.14 Indemnification; Directors' and Officers' Insurance. (a) From
and after the Effective Time through the sixth anniversary of the Effective
Date, AFC agrees to indemnify and hold harmless each person who is now or has
been at any time prior to the date hereof or who becomes prior to the
Effective Date, a director or officer of LISB or its Subsidiaries or a
director or trustee of another entity expressly at LISB's request or direction
(each, an "Indemnified Party"), against any costs or expenses (including
reasonable attorneys' fees), judgments, fines, losses, claims, damages or
liabilities (collectively, "Costs") incurred in connection with any claim,
action, suit, proceeding or investigation, whether civil, criminal,
administrative or investigative, arising out of matters existing or occurring
at or prior to the Effective Time (including the transactions contemplated by
this Agreement, including the entering into of the LISB Option Agreement),
whether asserted or claimed prior to, at or after the Effective Time, and to
advance any such Costs to each Indemnified Party as they are from time to time
incurred, in each case to the fullest extent such Indemnified Party would have
been indemnified as a director or officer of LISB or LISB Bank, as applicable,
and as then permitted under applicable law.
(b) Any Indemnified Party wishing to claim indemnification under Section
4.14(a), upon learning of any such claim, action, suit, proceeding or
investigation, shall promptly notify AFC thereof, but the failure to so notify
shall not relieve AFC of any liability it may have hereunder to such
Indemnified Party if such failure does not materially and substantially
prejudice the indemnifying party. In the event of any such claim, action,
suit, proceeding or investigation, (i) AFC shall have the right to assume the
defense thereof with counsel reasonably acceptable to the Indemnified Party
and AFC shall not be liable to such Indemnified Party for any legal expenses
of other counsel subsequently incurred by such Indemnified Party in connection
with the defense thereof, except that if AFC does not elect to assume such
defense within a reasonable time or counsel for the Indemnified Party
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at any time advises that there are issues which raise conflicts of interest
between AFC and the Indemnified Party (and counsel for AFC does not disagree),
the Indemnified Party may retain counsel satisfactory to such Indemnified
Party, and AFC shall remain responsible for the reasonable fees and expenses
of such counsel as set forth above, to be paid promptly as statements therefor
are received; provided, however, that AFC shall be obligated pursuant to this
paragraph (b) to pay for only one firm of counsel for all Indemnified Parties
in any one jurisdiction with respect to any given claim, action, suit,
proceeding or investigation unless the use of one counsel for such Indemnified
Parties would present such counsel with a conflict of interest; (ii) the
Indemnified Party will reasonably cooperate in the defense of any such matter;
and (iii) AFC shall not be liable for any settlement effected by an
Indemnified Party without its prior written consent, which shall not be
unreasonably withheld.
(c) AFC shall pay all reasonable Costs, including attorneys' fees, that may
be incurred by any Indemnified Party in successfully enforcing the indemnity
and other obligations provided for in this Section 4.14 to the fullest extent
permitted under applicable law. The rights of each Indemnified Party hereunder
shall be in addition to any other rights such Indemnified Party may have under
applicable law.
(d) For a period of six years after the Effective Time, AFC shall cause to
be maintained in effect for the former directors and officers of LISB and LISB
Bank coverage under AFC's policy of directors and officers liability insurance
no less advantageous to the beneficiaries thereof than the current policies of
directors' and officers' liability insurance maintained by LISB; provided,
however, that AFC, in its sole discretion, may substitute or, in its sole
discretion, may cause LISB to substitute therefor single premium tail coverage
with policy limits equal to LISB Bank's existing annual coverage limits;
provided, further, however, that in no event shall AFC be obligated to expend,
in order to maintain or provide insurance coverage pursuant to this Subsection
4.14(d), an aggregate premium excess of 200% of the amount of the annual
premiums paid as of the date hereof by LISB in for such insurance (the
"Maximum Amount"); provided, further, that if the amount of the annual
premiums necessary to maintain or procure such insurance coverage exceeds the
Maximum Amount, AFC shall obtain the most advantageous coverage of directors'
and officers' insurance obtainable for an annual premium equal to the Maximum
Amount; and provided, further, that officers and directors of LISB may be
required to make application and provide customary representations and
warranties to AFC's insurance carrier for the purpose of obtaining such
insurance.
Section 4.15 Pooling and Tax-Free Reorganization Treatment. (a) Prior to the
Effective Time, neither AFC nor LISB shall take, fail to take, or cause to be
taken or not taken, or cause or permit any of their respective Subsidiaries to
take, fail to take, or cause to be taken or not taken, any action within its
control, which would disqualify the Merger as a "pooling-of-interests" for
accounting purposes or as a "reorganization" within the meaning of Section
368(a) of the Code. Subsequent to the Effective Time, AFC shall not take any
action within its control that would disqualify the Merger as such a
"reorganization" under the Code, or as a pooling-of-interests for accounting
purposes.
(b) To the extent determined by AFC, in its reasonable judgment, as
necessary for the Merger to qualify as a pooling-of-interests for accounting
purposes, prior to the Effective Time, LISB shall conduct a sale of a
sufficient number of shares of LISB Common Stock currently held as treasury
shares by LISB to allow the Merger to so qualify.
Section 4.16 Employees; Benefit Plans and Programs. (a) Each person who is
employed by LISB Bank immediately prior to the Effective Time (a "LISB
Employee") shall, at the effective time of the Bank Merger, become an employee
of the Association upon the same terms and conditions generally applicable to
other employees of the Association with comparable positions, with the
following special provisions:
(i) No LISB Employee shall be, or have or exercise the authority of, an
officer of the Association unless and until elected or appointed an officer
of the Association in accordance with the Association's Bylaws which
election or appointment shall be determined and implemented as soon as
practicable following the Effective Time;
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(ii) At or as soon as practicable following the Effective Time, AFC and
the Association shall establish and implement a program of compensation and
benefits designed to cover all similarly situated employees on a uniform
basis (the "New Compensation and Benefits Program"). The New Compensation
and Benefits Program may contain any combination of new plans,
continuations of plans maintained by AFC or the Association immediately
prior to the Effective Time and continuations of plans maintained by LISB
or LISB Bank immediately prior to the Effective Time as AFC, in its
discretion, may determine. To the extent that it is not practicable to
implement any constituent part of the New Compensation and Benefits Program
at the Effective Time, AFC and the Association shall continue in effect any
comparable plan maintained immediately prior to the Effective Time for the
respective employees of AFC, LISB, the Association and LISB Bank for a
transition period. During the transition period, the persons who were
employees of LISB or LISB Bank immediately prior to the Effective Time who
become employees of AFC or the Association at the Effective Time shall
continue to participate in the plans of LISB and LISB Bank which are
continued for transitional purposes, and all other employees of AFC or the
Association will participate only in the comparable plans of AFC and the
Association which are continued for transitional purposes;
(iii) Each constituent part of the New Compensation and Benefits Program
shall recognize, in the case of persons employed by AFC, the Association,
LISB or LISB Bank immediately prior to the Effective Time who are also
employed by the Association or AFC immediately after the Effective Time,
all service with or previously recognized by AFC, the Association, LISB or
LISB Bank as service with AFC and the Association for eligibility and
vesting purposes; and
(iv) In the case of any constituent part of the New Compensation and
Benefits Program which is a life, health or long-term disability insurance
plan: (A) such plan shall not apply any preexisting condition limitations
for conditions covered under the applicable life, health or long-term
disability insurance plans maintained by AFC, the Association, LISB and
LISB Bank as of the Effective Time, (B) each such plan which is a health
insurance plan shall honor any deductible and co-payment or out of pocket
expenses incurred under the applicable health insurance plans maintained by
AFC, the Association, LISB and LISB Bank as of the Effective Time and (C)
each such plan which is a life or long-term disability insurance plan shall
waive any medical certification otherwise required in order to assure the
continuation of coverage at a level not less than that in effect
immediately prior to the implementation of such plan (but subject to any
overall limit on the maximum amount of coverage under such plans).
(b) AFC shall assume the obligations of LISB and LISB Bank with respect to
the employment agreements, the Employee Plans and the Specified Compensation
and Benefits Programs identified on the Disclosure Schedule, as they may be in
effect at the Effective Time. LISB and LISB Bank shall obtain and deliver to
AFC within seven days of the execution of this Agreement an agreement in form
and substance reasonably satisfactory to AFC to the effect that the Named
Individual agrees (A) that the Specified Compensation and Benefit Programs
listed on the schedule attached to such agreement are the only Specified
Compensation and Benefit Programs and other benefits and compensation items to
which such Named Individual is entitled in connection with the transactions
contemplated hereby and that the amounts shown on such schedule should not be
less than 90% of the total maximum amounts to which such Named Individual
shall be entitled in connection with the transactions contemplated hereby and
(B) to deliver in exchange for such compensation and benefits a written
release, substantially in the form attached hereto as Exhibit 4.16(b)(a) (the
"Release"), of any further claim in, to and under the Specified Compensation
and Benefit Programs. Such Settlement Agreement shall be countersigned by AFC
and shall acknowledge that the consummation of the transactions contemplated
by this Agreement shall, upon consummation, constitute a "change of control"
and "good reason" event under the existing terms of the Specified Compensation
and Benefit Programs and that, with respect to Named Individuals who are
employees of LISB and/or LISB Bank as of the Effective Time, AFC will provide
to each such Named Individual the termination payments and benefits to which
such Named Individual is entitled under the Special Compensation and Benefit
Programs.
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ARTICLE V
CONDITIONS TO CONSUMMATION
Section 5.01 Conditions to Each Party's Obligations. The respective
obligations of each party to effect the Merger shall be subject to the
fulfillment of the following conditions:
(a) this Agreement shall have been approved by (i) the requisite vote of
LISB's stockholders in accordance with applicable law and regulations; and
(ii) the requisite vote of AFC's stockholders in accordance with applicable
law and regulations;
(b) all necessary regulatory or governmental approvals, consents or waivers
required to consummate the transactions contemplated hereby shall have been
obtained and shall remain in full force and effect and all statutory waiting
periods in respect thereof shall have expired; and all other consents, waivers
and approvals of any third parties which are necessary to permit the
consummation of the Merger and the other transactions contemplated hereby
shall have been obtained or made except for those the failure to obtain of
which would not have a Material Adverse Effect (i) on LISB and its
Subsidiaries taken as a whole or (ii) on AFC and its Subsidiaries taken as a
whole. None of the approvals or waivers referred to herein shall contain any
term or condition which would have a Material Adverse Effect on (x) LISB and
its Subsidiaries taken as a whole or (y) AFC and its Subsidiaries taken as a
whole;
(c) no party hereto shall be subject to any order, decree or injunction of a
court or agency of competent jurisdiction which enjoins or prohibits the
consummation of the Merger;
(d) no statute, rule or regulation, shall have been enacted, entered,
promulgated, interpreted, applied or enforced by any governmental authority
which prohibits, restricts or makes illegal consummation of the Merger;
(e) the Registration Statement shall have been declared effective by the SEC
and no proceedings shall be pending or threatened by the SEC to suspend the
effectiveness of the Registration Statement; all required approvals by state
securities or "blue sky" authorities with respect to the transactions
contemplated by this Agreement shall have been obtained;
(f) AFC shall have received a letter, dated as of the Effective Date, from
its independent certified public accountants, reasonably satisfactory to AFC
and LISB, to the effect that the Merger shall be qualified to be treated as a
"pooling-of-interests" for accounting purposes by AFC;
(g) AFC shall have received the agreement referred to in Section 4.11 from
each affiliate of LISB; and
(h) AFC shall have caused to be listed on the Nasdaq National Market, or on
such other market on which shares of AFC Common Stock shall then be trading,
subject only to official notice of issuance, the shares of AFC Common Stock to
be issued by AFC in exchange for the shares of LISB Common Stock.
Section 5.02 Conditions to the Obligations of AFC and the Association under
this Agreement. The obligations of AFC to effect the Merger shall be further
subject to the satisfaction of the following additional conditions, any one or
more of which may be waived by AFC:
(a) each of the obligations of LISB required to be performed by it at or
prior to the Closing pursuant to the terms of this Agreement shall have been
duly performed and complied with in all material respects and the
representations and warranties of LISB contained in this Agreement shall be
true and correct, subject to Sections 2.01 and 2.02, as of the date of this
Agreement and as of the Effective Time as though made at and as of the
Effective Time (except as to any representation or warranty which specifically
relates to an earlier date). AFC shall have received a certificate to the
foregoing effect signed by the president and the chief financial or principal
accounting officer of LISB;
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(b) all action required to be taken by, or on the part of, LISB to authorize
the execution, delivery and performance of this Agreement and the consummation
by LISB of the transactions contemplated hereby shall have been duly and
validly taken by the Board of Directors and stockholders of LISB, and AFC
shall have received certified copies of the resolutions evidencing such
authorization;
(c) AFC shall have received certificates (such certificates to be dated as
of a day as close as practicable to the date of the Closing) from appropriate
authorities as to the good standing of LISB and the corporate existence of
LISB Bank;
(d) LISB shall have obtained the consent or approval of each person (other
than the governmental approvals or consents referred to in Section 5.01(b))
whose consent or approval shall be required in order to permit the succession
by the surviving corporation pursuant to the Merger to any obligation, right
or interest of LISB or any Subsidiary of LISB under any loan or credit
agreement, note, mortgage, indenture, lease, license or other agreement or
instrument, except those for which failure to obtain such consents and
approvals would not, individually or in the aggregate, have a Material Adverse
Effect on AFC (after giving effect to the consummation of the transactions
contemplated hereby) or upon the consummation of the transactions contemplated
hereby;
(e) Neither a Distribution Date nor a Triggering Event, as such terms are
defined in the LISB Rights Agreement, shall have occurred, and the LISB Rights
shall not have become nonredeemable and shall not become nonredeemable upon
consummation of the Merger and the LISB Rights shall not become exercisable
for capital stock of AFC upon consummation of the Merger;
(f) AFC shall have received an opinion of Thacher Proffitt & Wood, counsel
to AFC, dated as of the Effective Date in form and substance customary in
transactions of the type contemplated hereby, and reasonably satisfactory to
AFC, substantially to the effect that on the basis of the facts,
representations and assumptions set forth in such opinion which are consistent
with the state of facts existing at the Effective Time, the Merger will be
treated for federal income tax purposes as a reorganization within the meaning
of Section 368(a) of the Code and that accordingly:
(i) No gain or loss will be recognized by AFC, the Association or LISB as
a result of the Merger;
(ii) Except to the extent of any cash received in lieu of a fractional
share interest in AFC Common Stock, no gain or loss will be recognized by
the stockholders of LISB who exchange their LISB Stock for AFC Common Stock
pursuant to the Merger;
(iii) The tax basis of AFC Common Stock received by stockholders who
exchange their LISB Common Stock for AFC Common Stock in the Merger will be
the same as the tax basis of LISB Common Stock surrendered pursuant to the
Merger, reduced by any amount allocable to a fractional share interest for
which cash is received and increased by any gain recognized on the
exchange; and
(iv) The holding period of AFC Stock received by each stockholder in the
Merger will include the holding period of LISB Common Stock exchanged
therefor, provided that such stockholder held such LISB Common Stock as a
capital asset on the date of the Merger.
Such opinion may be based on, in addition to the review of such matters of
fact and law as Thacher Proffitt & Wood considers appropriate, (i)
representations made at the request of Thacher Proffitt & Wood by AFC, LISB,
stockholders of AFC or LISB, or any combination of such persons and (ii)
certificates provided at the request of Thacher Proffitt & Wood by officers of
AFC, LISB and other appropriate persons.
Section 5.03 Conditions to the Obligations of LISB. The obligations of LISB
to effect the Merger shall be further subject to the satisfaction of the
following additional conditions, any one or more of which may be waived by
LISB:
(a) each of the obligations of AFC and the Association, respectively,
required to be performed by it at or prior to the Closing pursuant to the
terms of this Agreement shall have been duly performed and complied with in
all material respects and the representations and warranties of AFC and the
Association contained in this
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Agreement shall be true and correct, subject to Sections 2.01 and 2.02, as of
the date of this Agreement and as of the Effective Time as though made at and
as of the Effective Time (except as to any representation or warranty which
specifically relates to an earlier date). LISB shall have received a
certificate to the foregoing effect signed by the president and the chief
financial officer of AFC;
(b) all action required to be taken by, or on the part of, AFC and the
Association to authorize the execution, delivery and performance of this
Agreement and the consummation by AFC and the Association of the transactions
contemplated hereby shall have been duly and validly taken by the Board of
Directors and stockholders of AFC, and LISB shall have received certified
copies of the resolutions evidencing such authorization;
(c) AFC shall have obtained the consent or approval of each person (other
than the governmental approvals or consents referred to in Section 5.01(b))
whose consent or approval shall be required in connection with the
transactions contemplated hereby under any loan or credit agreement, note,
mortgage, indenture, lease, license or other agreement or instrument to which
AFC or any of its Subsidiaries is a party or is otherwise bound, except those
for which failure to obtain such consents and approvals would not,
individually or in the aggregate, have a Material Adverse Effect on AFC (after
giving effect to the transactions contemplated hereby) or upon the
consummation of the transactions contemplated hereby;
(d) Neither a Distribution Date nor a Triggering Event, as such terms are
defined in the AFC Rights Agreement, shall have occurred, and the AFC Rights
shall not have become nonredeemable and shall not become nonredeemable upon
consummation of the Merger;
(e) LISB shall have received certificates (such certificates to be dated as
of a day as close as practicable to the date of the Closing) from appropriate
authorities as to the good standing of AFC and corporate existence of the
Association;
(f) LISB shall have received an opinion of Milbank Tweed Hadley & McCloy,
counsel to LISB, dated as of the Effective Date, in form and substance
customary in transactions of the type contemplated hereby, and reasonably
satisfactory to LISB, substantially to the effect that on the basis of the
facts, representations and assumptions set forth in such opinion which are
consistent with the state of facts existing at the Effective Time, the Merger
will be treated for federal income tax purposes as a reorganization within the
meaning of Section 368(a) of the Code and that accordingly:
(i) No gain or loss will be recognized by AFC, the Association or LISB as
a result of the Merger;
(ii) Except to the extent of any cash received in lieu of a fractional
share interest in AFC Common Stock, no gain or loss will be recognized by
the stockholders of LISB who exchange their LISB Common Stock for AFC
Common Stock pursuant to the Merger;
(iii) The tax basis of AFC Common Stock received by stockholders who
exchange their LISB Common Stock for AFC Common Stock in the Merger will be
the same as the tax basis of LISB Common Stock surrendered pursuant to the
Merger, reduced by any amount allocable to a fractional share interest for
which cash is received and increased by any gain recognized on the
exchange; and
(iv) The holding period of AFC Stock received by each stockholder in the
Merger will include the holding period of LISB Common Stock exchanged
therefor, provided that such stockholder held such LISB Common Stock as a
capital asset on the date of the Merger.
Such opinion may be based on, in addition to the review of such matters of
fact and law as Milbank Tweed Hadley & McCloy considers appropriate, (i)
representations made at the request of Milbank Tweed Hadley & McCloy by AFC,
the Association, LISB, stockholders of AFC or LISB, or any combination of such
persons and (ii) certificates provided at the request of Milbank Tweed Hadley
& McCloy by officers of AFC, the Association, LISB and other appropriate
persons.
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<PAGE>
ARTICLE VI
TERMINATION
Section 6.01 Termination. This Agreement may be terminated, and the Merger
abandoned, at or prior to the Effective Date, either before or after its
approval by the stockholders of LISB and AFC:
(a) by the mutual consent of AFC and LISB, if the board of directors of each
so determines by vote of a majority of the members of its entire board;
(b) by AFC or LISB, if its board of directors so determines by vote of a
majority of the members of its entire board, in the event of (i) the failure
of the stockholders of LISB or AFC to approve the Agreement at its meeting
called to consider such approval; provided, however, that LISB or AFC, as the
case may be, shall only be entitled to terminate the Agreement pursuant to
this clause (i) if it has complied in all material respects with its
obligations under Sections 4.08 and 4.09, or (ii) a material breach by the
other party hereto of any representation, warranty, covenant or agreement
contained herein which causes the conditions set forth in Section 5.02(a) (in
the case of termination by AFC) and Section 5.03(a) (in the case of the
termination by LISB) not to be satisfied and such breach is not cured within
25 business days after written notice of such breach is given to the party
committing such breach by the other party; or which breach is not capable of
being cured by the date set forth in Section 6.01(d) or any extension thereof;
(c) by AFC or LISB by written notice to the other party if either (i) any
approval, consent or waiver of a governmental agency required to permit
consummation of the transactions contemplated hereby shall have been denied
and such denial is final and non-appealable or (ii) any governmental authority
of competent jurisdiction shall have issued a final, unappealable order
enjoining or otherwise prohibiting consummation of the transactions
contemplated by this Agreement;
(d) by AFC or LISB, if its board of directors so determines by vote of a
majority of the members of its entire board, in the event that the Merger is
not consummated by March 31, 1999 (the "Initial Termination Date"); provided
that if as of such date all necessary regulatory or governmental approvals,
consents or waivers required to consummate the transactions contemplated
hereby shall not have been obtained but all other conditions to the
consummation of the Merger (other than the delivery of executed documents at
the Closing) shall be fulfilled, the Initial Termination Date shall be
extended to June 30, 1999, unless the failure to so consummate by such time is
due to the breach of any representation, warranty or covenant contained in
this Agreement by the party seeking to terminate;
(e) by AFC, if its board of directors so determines by vote of a majority of
the members of its entire board, if one of the events set forth in Section
6.03(a) or (b) occurs; or
(f) by LISB, if its board of directors so determines by a majority vote of
members of its entire board, at any time during the five-day period commencing
on the Valuation Date (the "Effective Termination Date"), that both of the
following conditions are satisfied:
(i) The AFC Market Value on the Valuation Date shall be less than an
amount equal to $49.76, adjusted as indicated in the last sentence of this
Section 6.01(f); and
(ii) (A) the number (the "AFC Ratio") obtained by dividing the AFC Market
Value on the Valuation Date by $60.31 shall be less than (B) the number
obtained by dividing the Final Index Price by the Initial Index Price and
subtracting .175 from the quotient in this clause (ii)(B) (the "Index
Ratio");
subject, however, to the following three sentences. If LISB elects to exercise
its termination right pursuant to this Section 6.01(f), it shall give prompt
written notice thereof to AFC; provided, that such notice of election to
terminate may be withdrawn at any time prior to the Effective Termination
Date. During the five-day period commencing with its receipt of such notice,
AFC shall have the option to increase the consideration to be received by the
holders of LISB Common Stock hereunder, by adjusting the Exchange Ratio to
equal the lesser of (x) a number equal to a fraction, the numerator of which
is 1.15 multiplied by $49.76, adjusted as indicated in the last sentence of
this Section 6.01(f), and the denominator of which is the AFC Market Value,
and (y) a number equal to a fraction, the numerator of which is the Index
Ratio multiplied by 1.15 and the denominator of
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<PAGE>
which is the AFC Ratio. If AFC so elects it shall give, within such five day
period, written notice to LISB of such election and the revised Exchange
Ratio, whereupon no termination shall be deemed to have occurred pursuant to
this Section 6.01(f) and this Agreement shall remain in full force and effect
in accordance with its terms (except as the Exchange Ratio shall have been so
modified).
For purposes of this Section 6.01(f), the following terms shall have the
meanings indicated below:
"Final Index Price" means the sum of the numbers obtained by multiplying (i)
the quotient obtained by dividing (a) the Final Price of each company
comprising the Index Group by (b) the closing price of the common stock of
each company comprising the Index Group, as such prices are reported on the
consolidated transaction reporting system for the market or exchange on which
such common stock is principally traded on the trading day immediately
preceding the public announcement of this Agreement, by (ii) the applicable
weighting.
"Final Price," with respect to any company belonging to the Index Group,
means the average of the daily closing sales prices of a share of common stock
of such company, as reported on the consolidated transaction reporting system
for the market or exchange on which such common stock is principally traded,
during the period of 30 trading days ending on the Valuation Date.
"Index Group" means the 25 financial institution holding companies listed
below, the common stock of all of which shall be publicly traded and as to
which there shall not have been an Acquisition Transaction (as defined in
Section 6.03) involving such company publicly announced at any time during the
period beginning on the date of this Agreement and ending on the Valuation
Date. In the event that the common stock of any such company ceases to be
publicly traded or an Acquisition proposal involving any such company is
announced at any time during the period beginning on the date of this
Agreement and ending on the Valuation Date, such company will be removed from
the Index Group, and the weights attributed to the remaining companies will be
adjusted proportionately for purposes of determining the Final Index Price and
the Initial Index Price. The 25 financial institution holding companies and
the weights attributed to them are as follows:
<TABLE>
<CAPTION>
HOLDING COMPANY WEIGHTING
--------------- ---------
<S> <C>
ALBANK Financial................................................ 1.44%
Bank United Corp................................................ 3.67%
Bay View Capital................................................ 0.93%
Charter One Financial........................................... 9.45%
Commercial Federal Corp......................................... 2.67%
Dime Bancorp, Inc............................................... 7.75%
Downey Financial................................................ 1.92%
First Empire State.............................................. 7.15%
Golden West Financial........................................... 12.18%
GreenPoint Financial............................................ 6.96%
Harris Financial................................................ 2.02%
MAF Bancorp..................................................... 1.31%
North Fork Bancorp.............................................. 6.04%
Northwest Bancorp............................................... 1.76%
People's Bank (MHC)............................................. 5.33%
Peoples Heritage Financial...................................... 3.09%
Queens County Bancorp........................................... 1.49%
Roslyn Bancorp.................................................. 2.34%
Sovereign Bancorp............................................... 4.74%
St. Paul Bancorp................................................ 1.96%
Staten Island Bancorp........................................... 2.06%
TCF Financial................................................... 7.02%
TR Financial.................................................... 1.36%
Washington Federal Inc.......................................... 3.25%
Webster Financial............................................... 2.11%
</TABLE>
A-41
<PAGE>
"Initial Index Price" means 1.00.
"AFC Market Value" shall mean the average of the mean between the closing
high bid and low asked price of a share of AFC Common Stock, as reported on
the Nasdaq Stock Market National Market System, for the 30 consecutive trading
days immediately preceding the Valuation Date.
"Valuation Date" means the day that is the latest of (i) the day of
expiration of the last waiting period with respect to any of the required
regulatory approvals, as defined in Section 5.01(b), (ii) the day on which the
last of the requested required approvals, as defined in Section 5.01(b), is
obtained and (iii) the day on which the last of the required stockholder
approvals have been received.
If AFC or any company belonging to the Index Group declares or effects a
stock dividend, reclassification, recapitalization, split-up, combination,
exchange of shares or similar transaction between the date of this Agreement
and the Valuation Date, the prices for the common stock of such company shall
be appropriately adjusted for the purposes of applying this Section 6.01(f).
Section 6.02 Effect of Termination. In the event of the termination of this
Agreement by either AFC or LISB, as provided above, this Agreement shall
thereafter become void and, subject to the provisions of Section 6.03, there
shall be no liability on the part of any party hereto or their respective
officers or directors, except that (a) any such termination shall be without
prejudice to the rights of any party hereto arising out of the breach by any
other party of any covenant, representation or obligation contained in this
Agreement and (b) the obligations of the parties under Section 6.03 and
Section 8.06 shall survive.
Section 6.03 Third Party Termination Fee to AFC. In recognition of the
efforts, expenses and other opportunities foregone by AFC while structuring
the Merger, the parties agree that:
(a) LISB shall pay to AFC a termination fee of Thirty Million and 00/100
Dollars ($30,000,000.00) plus AFC's documented, reasonable out-of-pocket
expenses (including fees and expenses of legal, financial and accounting
advisors) in cash on demand if, after a bona fide proposal is made by a third
party to LISB or its stockholders to engage in an Acquisition Transaction, any
of the following occur:
(i) LISB shall have breached any covenant or obligation contained in this
Agreement and such breach would entitle AFC to terminate the Agreement;
(ii) the holders of LISB stock shall not have approved the Agreement at
the meeting of such stockholders held for the purpose of voting on the
Agreement, such meeting shall not have been held or shall have been
canceled prior to termination of the Agreement; or
(iii) LISB's Board of Directors shall have withdrawn or modified in a
manner adverse to AFC the recommendation of LISB's Board of Directors with
respect to the Agreement; and
(b) LISB shall pay to AFC a termination fee of Sixty Million and 00/100
Dollars ($60,000,000.00) plus AFC's documented, reasonable out-of-pocket
expenses (including fees and expenses of legal, financial and accounting
advisors) in cash on demand if, during a period of 18 months after the date
hereof either if the following occurs:
(i) the acquisition by any person other than AFC or an affiliate of AFC
of beneficial ownership of 10% or more of the then outstanding voting power
of LISB; or
(ii) LISB or any of its Subsidiaries, without having received AFC's prior
written consent, shall have entered into an agreement to engage in an
Acquisition Transaction (as defined herein) with any person (the term
"person" for purposes of this Agreement having the meaning assigned thereto
in Sections 3(a)(9) and 13(d)(3) of the Exchange Act and the rules and
regulations thereunder) other than AFC or any of its
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<PAGE>
Subsidiaries or the Board of Directors of LISB shall have recommended that
the stockholders of LISB approve or accept any Acquisition Transaction with
any person other than AFC or any of its Subsidiaries. For purposes of this
Agreement, "Acquisition Transaction" shall mean (x) a merger or
consolidation, or any similar transaction, involving LISB, (y) a purchase,
lease or other acquisition of all or substantially all of the assets of
LISB or (z) a purchase or other acquisition (including by way of merger,
consolidation, share exchange or otherwise) of securities representing 10%
or more of the voting power of LISB; provided, that the term "Acquisition
Transaction" does not include any internal merger or consolidation
involving only LISB and/or its Subsidiaries.
Any fee payable to AFC pursuant to Section 6.03(b) shall be reduced dollar
for dollar to the extent that any fee is actually paid pursuant to Section
6.03(a). Any fee payable to AFC pursuant to this Section 6.03 shall be reduced
dollar for dollar (but shall not be reduced to a negative number) to the
extent that the Total Profit (as defined in the LISB Option Agreement) exceeds
$60,000,000. Notwithstanding the foregoing, LISB shall not be obligated to pay
to AFC such termination fees in the event that (i) LISB or AFC validly
terminate this Agreement pursuant to Section 6.01(a) or 6.01(c) or (ii) LISB
terminates this Agreement pursuant to Section 6.01(b)(ii) or 6.01(d).
ARTICLE VII
CLOSING, EFFECTIVE DATE AND EFFECTIVE TIME
Section 7.01 Effective Date and Effective Time. The closing of the
transactions contemplated hereby shall take place at the offices of Thacher
Proffitt & Wood, Two World Trade Center, New York, New York 10048, on a date
no later than five (5) business days following the latest to occur of (i) the
expiration of the last applicable waiting period in connection with notices to
and approvals of governmental authorities shall occur (ii) the effective date
of the last order, approval or exemption of any other governmental authority
approving or exempting the Merger if such action is required, and (iii) all
conditions to the consummation of this Agreement are satisfied or waived, or
on such other date as may be agreed by the parties (the date of such closing
being referred to herein as the "Closing Date"). Prior to the Closing Date,
AFC and LISB shall execute a Certificate of Merger in accordance with all
appropriate legal requirements which shall be filed as required by law on the
Closing Date, and the Merger provided for therein shall become effective upon
such filing or on such date and time as may be specified in such Certificate
of Merger. The date of such filing or such later effective date is herein
called the "Effective Date." The "Effective Time" of the Merger shall be as
set forth in such Certificate of Merger.
Section 7.02 Deliveries at the Closing. Subject to the provisions of
Articles V and VI, on the Closing Date there shall be delivered to AFC and
LISB the documents and instruments required to be delivered under Article V.
ARTICLE VIII
CERTAIN OTHER MATTERS
Section 8.01 Certain Definitions; Interpretation. As used in this Agreement,
the following terms shall have the meanings indicated:
"material" means material to AFC or LISB (as the case may be) and its
respective Subsidiaries, taken as a whole.
"person" includes an individual, corporation, limited liability company,
partnership, association, trust or unincorporated organization.
When a reference is made in this Agreement to Sections, Exhibits or
Schedules, such reference shall be to a Section of, Exhibit or Schedule to,
this Agreement unless otherwise indicated. The table of contents and headings
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<PAGE>
contained in this Agreement are for ease of reference only and shall not
affect the meaning or interpretation of this Agreement. Whenever the words
"include", "includes", or "including" are used in this Agreement, they shall
be deemed followed by the words "without limitation." Any singular term in
this Agreement shall be deemed to include the plural, and any plural term, the
singular. Any reference to gender in this Agreement shall be deemed to any
other gender.
Section 8.02 Survival. Only those agreements and covenants of the parties
that are by their terms applicable in whole or in part after the Effective
Time, including Section 4.14 of this Agreement, shall survive the Effective
Time. All other representations, warranties, agreements and covenants shall be
deemed to be conditions of the Agreement and shall not survive the Effective
Time. If the Agreement shall be terminated, the agreements of the parties in
the last three sentences of Section 4.03(a) and Section 8.06 shall survive
such termination.
Section 8.03 Waiver; Amendment. Prior to the Effective Time, any provision
of this Agreement may be: (i) waived in writing by the party benefitted by the
provision; or (ii) amended or modified at any time (including the structure of
the transaction) by an agreement in writing between the parties hereto except
that, after the vote by the stockholders of LISB or AFC, no amendment may be
made that would reduce the Merger Consideration or contravene any provision of
the Delaware General Corporation Law or federal banking laws, rules and
regulations.
Section 8.04 Counterparts. This Agreement may be executed in counterparts
each of which shall be deemed to constitute an original, but all of which
together shall constitute one and the same instrument.
Section 8.05 Governing Law. This Agreement shall be governed by, and
interpreted in accordance with, the laws of the State of New York, without
regard to conflicts of laws principles.
Section 8.06 Expenses. Each party hereto will bear all expenses incurred by
it in connection with this Agreement and the transactions contemplated hereby,
except that AFC shall pay all printing expenses and SEC filing fees.
Section 8.07 Notices. All notices, requests, acknowledgments and other
communications hereunder to a party shall be in writing and shall be deemed to
have been duly given when delivered by hand, overnight courier or facsimile
transmission (confirmed in writing) to such party at its address or facsimile
number set forth below or such other address or facsimile transmission as such
party may specify by notice to the other party hereto.
If to LISB:
Long Island Bancorp, Inc.
201 Old Country Road
Melville, New York 11747
Facsimile:
Attention: John J. Conefry, Jr.
Chairman and Chief Executive Officer
With copies to:
Milbank Tweed Hadley & McCloy
One Chase Manhattan Plaza
New York, New York 10005
Facsimile: (212) 530-5219
Attention: Mel M. Immergut, Esq.
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<PAGE>
If to AFC, to:
Astoria Financial Corporation
One Astoria Federal Plaza
Lake Success, New York 11042-1805
Facsimile: (516) 327-3000
Attention: George L. Engelke, Jr.
Chairman, President and Chief Executive Officer
With copies to:
Thacher Proffitt & Wood
Two World Trade Center
New York, New York 10048
Facsimile: (212) 912-7751
Attention: Omer S.J. Williams, Esq.
Section 8.08 Entire Agreement, etc. This Agreement, together with the Option
Agreement and the Disclosure Letters, represents the entire understanding of
the parties hereto with reference to the transactions contemplated hereby and
supersedes any and all other oral or written agreements heretofore made. All
terms and provisions of the Agreement shall be binding upon and shall inure to
the benefit of the parties hereto and their respective successors and assigns.
Except for Section 4.14, nothing in this Agreement is intended to confer upon
any other person any rights or remedies of any nature whatsoever under or by
reason of this Agreement.
Section 8.09 Assignment. This Agreement may not be assigned by either party
hereto without the written consent of the other party.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their duly authorized officers as of the 2nd day of April, 1998.
Astoria Financial Corporation
/s/ George L. Engelke, Jr.
By:__________________________________
George L. Engelke, Jr.
Chairman, President and Chief
Executive Officer
Long Island Bancorp, Inc.
/s/ John J. Conefry, Jr.
By:__________________________________
John J. Conefry, Jr.
Chairman and Chief Executive
Officer
A-45
<PAGE>
APPENDIX B
THE TRANSFER OF THIS AGREEMENT IS
SUBJECT TO CERTAIN PROVISIONS CONTAINED
HEREIN AND MAY BE SUBJECT TO TRANSFER
RESTRICTIONS UNDER
FEDERAL AND STATE LAW
LONG ISLAND BANCORP, INC. STOCK OPTION AGREEMENT
Stock Option Agreement, dated as of April 2, 1998 (the "Agreement"), by and
between Astoria Financial Corporation, a Delaware corporation ("AFC"), and
Long Island Bancorp, Inc., a Delaware corporation ("LISB").
RECITALS
A. The Plan. AFC and LISB have entered into an Agreement and Plan of Merger,
dated as of April 2, 1998 (the "Plan"), providing for, among other things, the
merger of LISB with and into AFC, with AFC being the surviving corporation.
B. Condition to Plan. As a condition and an inducement to AFC's execution
and delivery of the Plan, AFC has required that LISB agree, and LISB has
agreed, to grant AFC the Option (as hereinafter defined).
Now, Therefore, in consideration of the foregoing and the respective
representations, warranties, covenants and agreements set forth herein and in
the Plan, and intending to be legally bound hereby, LISB and AFC 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 Plan.
2. Grant of Option. Subject to the terms and conditions set forth herein,
LISB hereby grants to AFC an irrevocable option (the "Option") to purchase up
to 4,763,113 shares of common stock, par value $0.01 per share ("LISB Common
Stock"), of LISB (as adjusted as set forth herein, the "Option Shares," which
shall include the Option Shares before and after any transfer of such Option
Shares, but in no event shall the number of Option Shares for which this
Option is exercisable exceed 19.9% of the issued and outstanding shares of
LISB Common Stock as of the date hereof), at a purchase price per Option Share
(as adjusted as set forth herein, the "Purchase Price") equal to $63.25. Each
Option Share issued upon exercise of the Option shall be accompanied by the
related preferred share purchase right ("LISB Rights") issued pursuant to the
Rights Agreement between LISB and ChaseMellon Shareholder Services, L.L.C.,
dated as of April 22, 1997, as amended, as in effect on the date hereof ("LISB
Rights Agreement").
3. Exercise of Option.
(a) Provided that (i) AFC or Holder (as hereinafter defined), as applicable,
shall not be in material breach of the agreements or covenants contained in
this Agreement or the Plan, and (ii) no preliminary or permanent injunction or
other order against the delivery of Option Shares issued by any court of
competent jurisdiction in the United States shall be in effect, the Holder 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 hereinafter defined);
provided, that the Option shall terminate and be of no further force or effect
upon the earliest to occur of (A) the Effective Time, (B) termination of the
Plan in accordance with the terms thereof prior to the occurrence of a
Purchase Event or a Preliminary Purchase Event other than a termination
thereof by AFC pursuant to Section 6.01(b)(ii) of the Plan (a termination of
the Plan by AFC pursuant to such Section of the Plan, being referred to herein
as a "Default Termination") and other than termination by AFC pursuant to
Section 6.01(e) of the Plan, (C) 18 months after a Default Termination or (D)
18 months after termination of the Plan (other than a Default Termination)
following
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<PAGE>
the occurrence of a Purchase Event or a Preliminary Purchase Event; provided,
however, that any purchase of shares upon exercise of the Option shall be
subject to compliance with applicable law; provided further, however, that if
the Option cannot be exercised on any day because of an 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 the tenth 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. The term "Holder" shall mean the holder or holders of the Option
from time to time, and which initially is AFC. The rights set forth in
Sections 8 and 9 of this Agreement shall terminate when the right to exercise
the Option and Substitute Option terminate (other than as a result of a
complete exercise of the Option or Substitute Option) as set forth herein.
(b) As used herein, a "Purchase Event" means any of the following events:
(i) Without AFC's prior written consent, LISB shall have recommended,
publicly proposed or publicly announced an intention to authorize,
recommend or propose, or LISB shall have entered into an agreement with any
person (other than AFC or any subsidiary of AFC) to effect (A) a merger,
consolidation or similar transaction involving LISB or any of its
significant subsidiaries, (B) the disposition, by sale, lease, exchange or
otherwise, of assets or deposits of LISB or any of its significant
subsidiaries representing in either case all or substantially all of the
consolidated assets or deposits of LISB and its subsidiaries or (C) the
issuance, sale or other disposition by LISB of (including by way of merger,
consolidation, share exchange or any similar transaction) securities
representing 10% or more of the voting power of LISB or any of its
significant subsidiaries (each of (A), (B) or (C), an "Acquisition
Transaction"); or
(ii) Any person (other than AFC or any subsidiary of AFC) shall have
acquired beneficial ownership (as such term is defined in Rule 13d-3,
promulgated under the Securities and Exchange Act of 1934 (the "Exchange
Act")) of, or the right to acquire beneficial ownership of, or any "group"
(as such term is defined in Section 13(d)(3) of the Exchange Act), other
than a group of which AFC or any subsidiary of AFC is a member, shall have
been formed which beneficially owns or has the right to acquire beneficial
ownership of, 10% or more of the voting power of LISB or any of its
significant subsidiaries.
(c) As used herein, a "Preliminary Purchase Event" means any of the
following events:
(i) Any person (other than AFC or any subsidiary of AFC) shall have
commenced (as such term is defined in Rule 14d-2, promulgated 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 LISB Common
Stock such that, upon consummation of such offer, such person would own or
control 10% or more of the then outstanding shares of LISB Common Stock
(such an offer being referred to herein as a "Tender Offer" or an "Exchange
Offer," respectively); or
(ii) The stockholders shall not have approved the Plan by the requisite
vote at the stockholders meeting of LISB called for that purpose ("Company
Meeting"), the Company Meeting shall not have been held or shall have been
canceled prior to termination of the Plan or LISB's Board of Directors
shall have withdrawn or modified in a manner adverse to AFC the
recommendation of LISB's Board of Directors with respect to the Plan, in
each case after it shall have been publicly announced that any person
(other than AFC or any subsidiary of AFC) shall have (A) made, or disclosed
an intention to make, a bona fide proposal to engage in an Acquisition
Transaction or (B) filed an application (or given a notice), whether in
draft or final form, under the Home Owners' Loan Act of 1933, as amended,
the Bank Holding Company Act, as amended, the Bank Merger Act, as amended,
or the Change in Bank Control Act of 1978, as amended, for approval to
engage in an Acquisition Transaction; or
(iii) Any person (other than AFC or any subsidiary of AFC) shall have
made a bona fide proposal to LISB or its stockholders by public
announcement, or written communication that is or becomes the subject of
public disclosure, to engage in an Acquisition Transaction; or
B-2
<PAGE>
(iv) After a proposal is made by a third party to LISB or its
stockholders to engage in an Acquisition Transaction, or such third party
states its intention to LISB to make such a proposal if the Plan
terminates, LISB shall have breached any representation, warranty, covenant
or agreement contained in the Plan and such breach would entitle AFC to
terminate the Plan under Section 6.01(b) thereof (without regard to the
cure period provided for therein unless such cure is promptly effected
without jeopardizing consummation of the Merger pursuant to the terms of
the Plan).
As used in this Agreement, the term "person" shall have the meaning
specified in Sections 3(a)(9) and 13(d)(3) of the Exchange Act.
(d) LISB shall notify AFC promptly in writing of the occurrence of any
Preliminary Purchase Event or Purchase Event of which it has knowledge, it
being understood that the giving of such notice by LISB shall not be a
condition to the right of Holder to exercise the Option.
(e) In the event Holder wishes to exercise the Option, it shall send to LISB
a written notice (the "Stock Exercise 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 15 business days from
the Notice Date for the closing (the "Closing") of such purchase (such date as
it may be extended pursuant to the next sentence, the "Closing Date");
provided that the first notice of exercise shall be sent to LISB within 180
days after the first Purchase Event of which AFC has been notified. If prior
notification to or approval of any Regulatory Authority is required in
connection with any such purchase, LISB shall cooperate with the Holder in the
filing of the required notice of application for approval and the obtaining of
such approval, and the Closing shall occur promptly following such regulatory
approvals and any mandatory waiting periods. Any exercise of the Option shall
be deemed to occur on the Notice Date relating thereto.
4. Payment and Delivery of Certificates.
(a) On each Closing Date, Holder shall (i) pay to LISB, in immediately
available funds by wire transfer to a bank account designated by LISB, 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 LISB at the address of LISB specified in Section 14(f) of 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) of
this Agreement, (i) LISB shall deliver to Holder (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 (as defined in the
Plan) and subject to no preemptive rights, 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 LISB Common
Stock purchasable hereunder, and (ii) Holder shall deliver to LISB a letter
agreeing that Holder shall not offer to sell or otherwise dispose of such
Option Shares in violation of applicable federal and state law or of the
provisions of this Agreement.
(c) In addition to any other legend that is required by applicable law,
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 IS SUBJECT TO
RESTRICTIONS ARISING UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND
PURSUANT TO THE TERMS OF A STOCK OPTION AGREEMENT DATED AS OF APRIL 2, 1998. A
COPY OF SUCH AGREEMENT WILL BE PROVIDED TO THE HOLDER HEREOF WITHOUT CHARGE
UPON RECEIPT BY LONG ISLAND BANCORP, INC. OF A WRITTEN REQUEST THEREFOR.
It is understood and agreed that the portion of the above legend relating to
the Securities Act shall be removed by delivery of substitute certificate(s)
without such legend if Holder shall have delivered to LISB a
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copy of a letter from the staff of the Securities Exchange Commission (the
"SEC"), or an opinion of counsel in form and substance reasonably satisfactory
to LISB and its counsel, to the effect that such legend is not required for
purposes of the Securities Act.
(d) Upon the giving by Holder to LISB of the Stock Exercise Notice, the
tender of the applicable purchase price in immediately available funds and the
tender of this Agreement to LISB, Holder shall be deemed to be the holder of
record of the shares of LISB Common Stock issuable upon such exercise,
notwithstanding that the stock transfer books of LISB shall then be closed or
that certificates representing such shares of LISB Common Stock shall not then
be actually delivered to Holder. LISB shall pay all expenses, and any and all
United States federal, state and local taxes and other charges that may be
payable in connection with the preparation, issuance and delivery of stock
certificates under this Section 4 in the name of Holder or its assignee,
transferee or designee.
(e) LISB agrees (i) that it shall at all times maintain, free from
preemptive rights, sufficient authorized but unissued or treasury shares of
LISB Common Stock so that the Option may be exercised without additional
authorization of LISB Common Stock after giving effect to all other options,
warrants, convertible securities and other rights to purchase LISB Common
Stock, (ii) that it will not, by charter amendment or through reorganization,
consolidation, merger, dissolution or sale of assets, or by any other
voluntary act, avoid or seek to avoid the observance or performance of any of
the covenants, stipulations or conditions to be observed or performed
hereunder by LISB, (iii) promptly to take all action as may from time to time
be required (including (A) complying with all premerger notification,
reporting and waiting period requirements and (B) in the event prior approval
of or notice to any Regulatory Authority is necessary before the Option may be
exercised, cooperating fully with Holder in preparing such applications or
notices and providing such information to such Regulatory Authority as it may
require) in order to permit Holder to exercise the Option and LISB duly and
effectively to issue shares of LISB Common Stock pursuant hereto and (iv)
promptly to take all action provided herein to protect the rights of Holder
against dilution.
5. Representations and Warranties of LISB. LISB hereby represents and
warrants to AFC (and Holder, if different than AFC) as follows:
(a) Corporate Authority. LISB has full corporate power and authority to
execute and deliver this Agreement and to consummate the transactions
contemplated hereby; the execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby have been duly and
validly authorized by the Board of Directors of LISB, and no other
corporate proceedings on the part of LISB are necessary to authorize this
Agreement or to consummate the transactions so contemplated; this Agreement
has been duly and validly executed and delivered by LISB.
(b) Beneficial Ownership. To the best knowledge of LISB, as of the date
of this Agreement, no person or group has beneficial ownership of more than
10% of the issued and outstanding shares of LISB Common Stock.
(c) Shares Reserved for Issuance; Capital Stock. LISB has taken all
necessary corporate action to authorize and reserve and permit it to issue,
and at all times from the date hereof through the termination of the Option
in accordance with Section 3(a) of this Agreement, will have reserved for
issuance upon the exercise of the Option, that number of shares of LISB
Common Stock equal to the maximum number of Option Shares at any time and
from time to time purchasable upon exercise of the Option, and all such
Option Shares, upon issuance pursuant to the Option, will be duly
authorized, validly issued, fully paid and nonassessable, and will be
delivered free and clear of all claims, liens, encumbrances and security
interests (other than those created by this Agreement) and not subject to
any preemptive rights.
(d) No Violations. The execution, delivery and performance of this
Agreement does not and will not, and the consummation by LISB of any of the
transactions contemplated hereby will not, constitute or result in (i) a
breach or violation of, or a default under, its certificate of
incorporation or bylaws, or the comparable governing instruments of any of
its subsidiaries, or (ii) a breach or violation of, or a default under, any
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agreement, lease, contract, note, mortgage, indenture, arrangement or other
obligation of it or any of its subsidiaries (with or without the giving of
notice, the lapse of time or both) or under any law, rule, ordinance or
regulation or judgment, decree, order, award or governmental or non-
governmental permit or license to which it or any of its subsidiaries is
subject, that would, in any case, give any other person the ability to
prevent or enjoin LISB's performance under this Agreement in any material
respect.
6. Representations and Warranties of AFC. AFC hereby represents and warrants
to LISB that AFC has full corporate power and authority to enter into this
Agreement and, subject to obtaining the approvals referred to in this
Agreement, to consummate the transactions contemplated by this Agreement; 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 AFC; and this Agreement has been duly executed
and delivered by AFC.
7. Adjustment upon Changes in LISB Capitalization, Etc.
(a) In the event of any change in LISB Common Stock by reason of a stock
dividend, stock split, split-up, recapitalization, combination, exchange of
shares, exercise of the Company Rights or similar transaction, the type and
number of shares or securities subject to the Option, and the Purchase Price
therefor, shall be adjusted appropriately, and proper provision shall be made
in the agreements governing any such transaction so that Holder shall receive,
upon exercise of the Option, the number and class of shares or other
securities or property that Holder would have received in respect of LISB
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 LISB
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), upon
exercise of any option to purchase LISB Common Stock outstanding on the date
hereof or upon conversion into LISB Common Stock of any convertible security
of LISB outstanding on the date hereof), the number of shares of LISB Common
Stock subject to the Option shall be adjusted so that, after such issuance,
it, together with any shares of LISB Common Stock previously issued pursuant
hereto, equals 19.9% of the number of shares of LISB Common Stock then issued
and outstanding, without giving effect to any shares subject to or issued
pursuant to the Option. No provision of this Section 7 shall be deemed to
affect or change, or constitute authorization for any violation of, any of the
covenants or representations in the Plan.
(b) In the event that LISB shall enter into an agreement (i) to consolidate
with or merge into any person, other than AFC or one of its subsidiaries, and
LISB shall not be the continuing or surviving corporation of such
consolidation or merger, (ii) to permit any person, other than AFC or one of
its subsidiaries, to merge into LISB and LISB shall be the continuing or
surviving corporation, but, in connection with such merger, the then
outstanding shares of LISB Common Stock shall be changed into or exchanged for
stock or other securities of LISB or any other person or cash or any other
property, or the outstanding shares of LISB 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 or deposits to any
person, other than AFC 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 Holder, of either
(A) the Acquiring Corporation (as hereinafter defined), (B) any person that
controls the Acquiring Corporation or (C) in the case of a merger described in
clause (ii), LISB (such person being referred to as "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 Holder. Substitute Option Issuer shall also enter into an
agreement with Holder 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
Substitute Common Stock (as hereinafter defined) as is equal to the Assigned
Value (as hereinafter defined) multiplied by the number of Option
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Shares 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 Substitute Common Stock (the "Substitute Option Price")
shall be equal to the Purchase Price multiplied by a fraction in which the
numerator is the number of shares of LISB 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 (A) the continuing or surviving
corporation of a consolidation or merger with LISB (if other than LISB),
(B) LISB in a merger in which LISB is the continuing or surviving person,
or (C) the transferee of all or substantially all of LISB's assets (or a
substantial part of the assets of its subsidiaries taken as a whole).
(ii) "Substitute Common Stock" shall mean the shares of capital stock (or
similar equity interest) with the greatest voting power in respect of the
election of directors (or persons similarly responsible for the direction
of the business and affairs) of the Substitute Option Issuer.
(iii) "Assigned Value" shall mean the highest of (A) the price per share
of LISB Common Stock at which a Tender Offer or an Exchange Offer therefor
has been made, (B) the price per share of LISB Common Stock to be paid by
any third party pursuant to an agreement with LISB, (C) the highest closing
price for shares of LISB Common Stock within the sixty-day period
immediately preceding the consolidation, merger or sale in question and (D)
in the event of a sale of all or substantially all of LISB's assets or
deposits, an amount equal to (x) the sum of the price paid in such sale for
such assets (and/or deposits) and the current market value of the remaining
assets of LISB, as determined by a nationally recognized investment banking
firm selected by Holder, divided by (y) the number of shares of LISB Common
Stock outstanding at such time. In the event that a Tender Offer or an
Exchange Offer is made for LISB 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 LISB Common Stock shall be determined by a nationally
recognized investment banking firm selected by Holder.
(iv) "Average Price" shall mean the average closing price of a share of
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 Substitute Common Stock on the day preceding
such consolidation, merger or sale; provided, that, if LISB is the issuer
of the Substitute Option, the Average Price shall be computed with respect
to a share of common stock issued by LISB, the person merging into LISB or
by any company which controls such person, as Holder 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 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 the limitation in the first sentence of this Section
7(f), Substitute Option Issuer shall make a cash payment to Holder equal to
the excess of (i) the value of the Substitute Option without giving effect to
the limitation in the first sentence of this Section 7(f) over (ii) the value
of the Substitute Option after giving effect to the limitation in the first
sentence of this Section 7(f). This difference in value shall be determined by
a nationally recognized investment banking firm selected by Holder.
(g) LISB shall not enter into any transaction described in Section 7(b) of
this Agreement unless the Acquiring Corporation and any person that controls
the Acquiring Corporation assume in writing all the obligations of LISB
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 holders of
the other shares of common stock issued by Substitute Option Issuer are not
entitled to exercise any rights by reason of the issuance or exercise of the
Substitute Option and the shares of Substitute Common Stock are otherwise in
no way distinguishable from or have lesser economic value (other than any
diminution in value resulting from the fact that the shares of Substitute
Common Stock are restricted securities, as defined in Rule 144, promulgated
under the Securities Act ("Rule 144"), or any successor provision) than other
shares of common stock issued by Substitute Option Issuer).
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(h) Notwithstanding anything herein to the contrary, in the event that LISB
completes a reorganization involving the formation of a holding company for
LISB, 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 of such holding company.
8. Repurchase at the Option of Holder.
(a) Subject to the last sentence of Section 3(a) of this Agreement, at the
request of Holder at any time commencing upon the first occurrence of a
Repurchase Event (as defined in Section 8(d) hereof) and ending 12 months
immediately thereafter, LISB shall repurchase from Holder (i) the Option and
(ii) all shares of LISB Common Stock purchased by Holder pursuant hereto with
respect to which Holder then has beneficial ownership. The date on which
Holder exercises its rights under this Section 8 is referred to as the
"Section 8 Request Date." Such repurchase shall be at an aggregate price (the
"Section 8 Repurchase Consideration") equal to the sum of:
(i) The aggregate Purchase Price paid by Holder for any shares of LISB
Common Stock acquired pursuant to the Option with respect to which Holder
then has beneficial ownership;
(ii) The excess, if any, of (A) the Applicable Price (as defined below)
for each share of LISB Common Stock over (B) the Purchase Price (subject to
adjustment pursuant to Section 7 of this Agreement), multiplied by the
number of shares of LISB Common Stock with respect to which the Option has
not been exercised; and
(iii) The excess, if any, of the Applicable Price over the Purchase Price
(subject to adjustment pursuant to Section 7 of this Agreement) paid (or,
in the case of Option Shares with respect to which the Option has been
exercised but the Closing Date has not occurred, payable) by Holder for
each share of LISB Common Stock with respect to which the Option has been
exercised and with respect to which Holder then has beneficial ownership,
multiplied by the number of such shares.
(b) If Holder exercises its rights under this Section 8, LISB shall, within
10 business days after the Section 8 Request Date, pay the Section 8
Repurchase Consideration to Holder in immediately available funds, and
contemporaneously with such payment, Holder shall surrender to LISB the Option
and the certificates evidencing the Option Shares purchased thereunder with
respect to which Holder then has beneficial ownership, and Holder shall
warrant that it has sole record and beneficial ownership of such shares and
that the same are then free and clear of all Liens. Notwithstanding the
foregoing, to the extent that prior notification to or approval of any
Regulatory Authority is required in connection with the payment of all or any
portion of the Section 8 Repurchase Consideration, Holder shall have the
ongoing option to revoke its request for repurchase pursuant to this Section
8, in whole or in part, or to require that LISB deliver from time to time that
portion of the Section 8 Repurchase Consideration that it is not then so
prohibited from paying and promptly file the required notice or application
for approval and expeditiously process the same (and each party shall
cooperate with the other in the filing of any such notice or application and
the obtaining of any such approval). If any Regulatory Authority disapproves
of any part of LISB's proposed repurchase pursuant to this Section 8, LISB
shall promptly give notice of such fact to Holder and Holder shall have the
right (i) to revoke the repurchase request or (ii) to the extent permitted by
such Regulatory Authority, determine whether the repurchase should apply to
the Option and/or Option Shares and to what extent to each, and Holder shall
thereupon have the right to exercise the Option as to the number of Option
Shares for which the Option was exercisable at the Section 8 Request Date less
the number of shares covered by the Option in respect of which payment has
been made pursuant to Section 8(a)(ii) of this Agreement. Holder shall notify
LISB of its determination under the preceding sentence within five business
days of receipt of notice of disapproval of the repurchase. Notwithstanding
anything herein to the contrary, in the event that LISB delivers to the Holder
written notice accompanied by a certification of LISB's independent auditor
each stating that a requested repurchase of LISB Common Stock would result in
the recapture of LISB's bad debt reserves under the Internal Revenue Code of
1986, as amended, Holder's repurchase request shall be deemed to be
automatically revoked.
Notwithstanding anything herein to the contrary, all of Holder's rights
under this Section 8 shall terminate on the date of termination of this Option
pursuant to Section 3(a) of this Agreement.
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(c) For purposes of this Agreement, the "Applicable Price" means the highest
of (i) the highest price per share of LISB Common Stock paid for any such
share by the person or groups described in Section 8(d)(i) hereof, (ii) the
price per share of LISB Common Stock received by holders of LISB Common Stock
in connection with any merger, sale or other business combination transaction
described in Section 7(b)(i), 7(b)(ii) or 7(b)(iii) of this Agreement, or
(iii) the highest closing sales price per share of LISB Common Stock quoted on
the Nasdaq (or if LISB 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
chosen by Holder) during the 40 business days preceding the Section 8 Request
Date; provided, however, that in the event of a sale of less than all of
LISB's assets, the Applicable Price shall be the sum of the price paid in such
sale for such assets and the current market value of the remaining assets of
LISB as determined by a nationally recognized investment banking firm selected
by Holder, divided by the number of shares of the LISB Common Stock
outstanding at the time of such sale. If the consideration to be offered, paid
or received pursuant to either of the foregoing clauses (i) or (ii) shall be
other than in cash, the value of such consideration shall be determined in
good faith by an independent nationally recognized investment banking firm
selected by Holder and reasonably acceptable to LISB, which determination
shall be conclusive for all purposes of this Agreement.
(d) As used herein, "Repurchase Event" shall occur if (i) any person (other
than AFC or any subsidiary of AFC) shall have acquired beneficial ownership of
(as such term is defined in Rule 13d-3, promulgated under the Exchange Act),
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 beneficially
owns or has the right to acquire beneficial ownership of, 50% or more of the
then outstanding shares of LISB Common Stock, or (ii) any of the transactions
described in Section 7(b)(i), 7(b)(ii) or 7(b)(iii) of this Agreement shall be
consummated.
9. Repurchase of Substitute Option.
(a) Subject to the last sentence of Section 3(a) of this Agreement, at the
request of Holder at any time commencing upon the first occurrence of a
Repurchase Event (as defined in Section 8(d) hereof) and ending 12 months
immediately thereafter, Substitute Option Issuer (or any successor entity
thereof) shall repurchase from Holder (i) the Substitute Option and (ii) all
shares of Substitute Common Stock purchased by Holder pursuant hereto with
respect to which Holder then has beneficial ownership. The date on which
Holder exercises its rights under this Section 9 is referred to as the
"Section 9 Request Date." Such repurchase shall be at an aggregate price (the
"Section 9 Repurchase Consideration") equal to the sum of:
(i) The aggregate Purchase Price paid by Holder for any shares of
Substitute Common Stock acquired pursuant to the Substitute Option with
respect to which Holder then has beneficial ownership;
(ii) The excess, if any, of (A) the Highest Closing Price (as defined
below) for each share of Substitute Common Stock over (B) the Purchase
Price (subject to adjustment pursuant to Section 7 of this Agreement),
multiplied by the number of shares of Substitute Common Stock with respect
to which the Substitute Option has not been exercised; and
(iii) The excess, if any, of the Highest Closing Price over the Purchase
Price (subject to adjustment pursuant to Section 7 of this Agreement) paid
(or, in the case of Substitute Option Shares with respect to which the
Substitute Option has been exercised but the Closing Date has not occurred,
payable) by Holder for each share of Substitute Common Stock with respect
to which the Substitute Option has been exercised and with respect to which
Holder then has beneficial ownership, multiplied by the number of such
shares.
(b) If Holder exercises its rights under this Section 9, Substitute Option
Issuer shall, within 10 business days after the Section 9 Request Date, pay
the Section 9 Repurchase Consideration to Holder in immediately available
funds, and contemporaneously with such payment, Holder shall surrender to
Substitute Option Issuer the Substitute Option and the certificates evidencing
the shares of Substitute Common Stock purchased thereunder with respect to
which Holder then has beneficial ownership, and Holder shall warrant that it
has sole record and beneficial ownership of such shares and that the same are
then free and clear of all Liens. Notwithstanding the foregoing, to the extent
that prior notification to or approval of any Regulatory Authority is required
in connection with the payment of all or any portion of the Section 9
Repurchase Consideration, Holder
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shall have the ongoing option to revoke its request for repurchase pursuant to
this Section 9, in whole or in part, or to require that Substitute Option
Issuer deliver from time to time that portion of the Section 9 Repurchase
Consideration that it is not then so prohibited from paying and promptly file
the required notice or application for approval and expeditiously process the
same (and each party shall cooperate with the other in the filing of any such
notice or application and the obtaining of any such approval). If any
Regulatory Authority disapproves of any part of Substitute Option Issuer's
proposed repurchase pursuant to this Section 9, Substitute Option Issuer shall
promptly give notice of such fact to Holder and Holder shall have the right
(i) to revoke the repurchase request or (ii) to the extent permitted by such
Regulatory Authority, determine whether the repurchase should apply to the
Substitute Option and/or Substitute Option Shares and to what extent to each,
and Holder shall thereupon have the right to exercise the Substitute Option as
to the number of Substitute Option Shares for which the Substitute Option was
exercisable at the Section 9 Request Date less the number of shares covered by
the Substitute Option in respect of which payment has been made pursuant to
Section 9(a)(ii) of this Agreement. Holder shall notify Substitute Option
Issuer of its determination under the preceding sentence within five business
days of receipt of notice of disapproval of the repurchase. Notwithstanding
anything herein to the contrary, in the event that Substitute Option Issuer
delivers to the Holder written notice accompanied by a certification of
Substitute Option Issuer's independent auditor each stating that a requested
repurchase of LISB Common Stock would result in the recapture of Substitute
Option Issuer's bad debt reserves under the Internal Revenue Code of 1986, as
amended, Holder's repurchase request shall be deemed to be automatically
revoked.
Notwithstanding anything herein to the contrary, all of Holder's rights
under this Section 9 shall terminate on the date of termination of this
Substitute Option pursuant to Section 3(a) of this Agreement.
(c) For purposes of this Agreement, the "Highest Closing Price" means the
highest of closing sales price for shares of Substitute Common Stock quoted on
the Nasdaq (or if the Substitute Common Stock is not quoted on the Nasdaq, on
the principal trading market on which such shares are traded as reported by a
recognized source) during the six-month period preceding the Section 9 Request
Date.
10. Registration Rights.
(a) Demand Registration Rights. LISB shall, subject to the conditions of
Section 10(c) of this Agreement, if requested by any Holder, including AFC and
any permitted transferee ("Selling Shareholder"), as expeditiously as
possible, prepare and file a registration statement under the Securities Act,
if such registration is necessary in order to permit the sale or other
disposition of any or all shares of LISB Common Stock or other securities that
have been acquired by or are issuable to the Selling Shareholder upon exercise
of the Option in accordance with the intended method of sale or other
disposition stated by the Selling Shareholder in such request, including
without limitation a "shelf" registration statement under Rule 415,
promulgated under the Securities Act, or any successor provision, and LISB
shall use its best efforts to qualify such shares or other securities for sale
under any applicable state securities laws.
(b) Additional Registration Rights. If LISB at any time after the exercise
of the Option proposes to register any shares of LISB Common Stock under the
Securities Act, in connection with an underwritten public offering of such
LISB Common Stock, LISB will promptly give written notice to the Selling
Shareholders of its intention to do so and, upon the written request of any
Selling Shareholder given within 30 days after receipt of any such notice
(which request shall specify the number of shares of LISB Common Stock
intended to be included in such underwritten public offering by the Selling
Shareholder), LISB will cause all such shares for which a Selling Shareholder
requests participation in such registration, to be so registered and included
in such underwritten public offering; provided, however, that LISB may elect
to not cause any such shares to be so registered (i) if the underwriters in
good faith object for valid business reasons, or (ii) in the case of a
registration solely to implement an employee benefit plan or a registration
filed on Form S-4 of the Securities Act or any equivalent or successor Form.
If some, but not all the shares of LISB Common Stock, with respect to which
LISB shall have received requests for registration pursuant to this Section
10(b), shall be excluded from such registration, LISB shall make appropriate
allocation of shares to be registered among the Selling Shareholders desiring
to register their shares pro rata in the proportion that the number of shares
requested to be registered by
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each such Selling Shareholder bears to the total number of shares requested to
be registered by all such Selling Shareholders then desiring to have LISB
Common Stock registered for sale.
(c) Conditions to Required Registration. LISB shall use all reasonable
efforts to cause each registration statement referred to in Section 10(a) of
this Agreement to become effective and to obtain all consents or waivers of
other parties which are required therefor and to keep such registration
statement effective, provided, however, that LISB may delay any registration
of Option Shares required pursuant to Section 10(a) of this Agreement for a
period not exceeding 90 days provided LISB shall in good faith determine that
any such registration would adversely affect an offering or contemplated
offering of other securities by LISB, and LISB shall not be required to
register Option Shares under the Securities Act pursuant to Section 10(a)
hereof:
(i) Prior to the earliest of (A) termination of the Plan pursuant to
Article VI thereof, (B) failure to obtain the requisite stockholder
approval pursuant to Section 6.01 of Article VI of the Plan, and (C) a
Purchase Event or a Preliminary Purchase Event;
(ii) On more than one occasion during any calendar year;
(iii) Within 90 days after the effective date of a registration referred
to in Section 9(b) of this Agreement pursuant to which the Selling
Shareholder or Selling Shareholders concerned were afforded the opportunity
to register such shares under the Securities Act and such shares were
registered as requested; and
(iv) Unless a request therefor is made to LISB by Selling Shareholders
that hold at least 25% or more of the aggregate number of Option Shares
(including shares of LISB Common Stock issuable upon exercise of the
Option) then outstanding.
In addition to the foregoing, LISB shall not be required to maintain the
effectiveness of any registration statement after the expiration of nine
months from the effective date of such registration statement. LISB shall use
all reasonable efforts to make any filings, and take all steps, under all
applicable state securities laws to the extent necessary to permit the sale or
other disposition of the Option Shares so registered in accordance with the
intended method of distribution for such shares; provided, however, that LISB
shall not be required to consent to general jurisdiction or qualify to do
business in any state where it is not otherwise required to so consent to such
jurisdiction or to so qualify to do business.
(d) Expenses. Except where applicable state law prohibits such payments,
LISB will pay all expenses (including, without limitation, registration fees,
qualification fees, blue sky fees and expenses (including the fees and
expenses of counsel), legal expenses, including the reasonable fees and
expenses of one counsel to the holders whose Option Shares are being
registered, printing expenses and the costs of special audits or "cold
comfort" letters, expenses of underwriters, excluding discounts and
commissions but including liability insurance if LISB so desires or the
underwriters so require, and the reasonable fees and expenses of any necessary
special experts) in connection with each registration pursuant to Section
10(a) or 10(b) of this Agreement (including the related offerings and sales by
holders of Option Shares) and all other qualifications, notifications or
exemptions pursuant to Section 10(a) or 10(b) of this Agreement.
(e) Indemnification. In connection with any registration under Section 10(a)
or 10(b) of this Agreement, LISB hereby indemnifies the Selling Shareholders,
and each underwriter thereof, including each person, if any, who controls such
holder or underwriter within the meaning of Section 15 of the Securities Act,
against all expenses, losses, claims, damages and liabilities caused by any
untrue, or alleged untrue, statement of a material fact contained in any
registration statement or prospectus or notification or offering circular
(including any amendments or supplements thereto) or any preliminary
prospectus, or caused by any omission, or alleged omission, to state therein a
material fact required to be stated therein or necessary to make the
statements therein not misleading, except insofar as such expenses, losses,
claims, damages or liabilities of such indemnified party are caused by any
untrue statement or alleged untrue statement that was included by LISB in any
such registration statement or prospectus or notification or offering circular
(including any amendments or supplements thereto) in reliance upon and in
conformity with, information furnished in writing to LISB by such
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indemnified party expressly for use therein, and LISB and each officer,
director and controlling person of LISB shall be indemnified by such Selling
Shareholders, or by such underwriter, as the case may be, for all such
expenses, losses, claims, damages and liabilities caused by any untrue, or
alleged untrue, statement, that was included by LISB in any such registration
statement or prospectus or notification or offering circular (including any
amendments or supplements thereto) in reliance upon, and in conformity with,
information furnished in writing to LISB by such Selling Stockholder or such
underwriter, as the case may be, expressly for such use.
Promptly upon receipt by a party indemnified under this Section 10(e) of
notice of the commencement of any action against such indemnified party in
respect of which indemnity or reimbursement may be sought against any
indemnifying party under this Section 10(e), such indemnified party shall
notify the indemnifying party in writing of the commencement of such action,
but the failure so to notify the indemnifying party shall not relieve it of
any liability which it may otherwise have to any indemnified party under this
Section 10(e). In case notice of commencement of any such action shall be
given to the indemnifying party as above provided, the indemnifying party
shall be entitled to participate in and, to the extent it may wish, jointly
with any other indemnifying party similarly notified, to assume the defense of
such action at its own expense, with counsel chosen by it and satisfactory to
such indemnified party. The indemnified party shall have the right to employ
separate counsel in any such action and participate in the defense thereof,
but the fees and expenses of such counsel (other than reasonable costs of
investigation) shall be paid by the indemnified party unless (i) the
indemnifying party either agrees to pay the same, (ii) the indemnifying party
fails to assume the defense of such action with counsel satisfactory to the
indemnified party, or (iii) the indemnified party has been advised by counsel
that one or more legal defenses may be available to the indemnifying party
that may be contrary to the interest of the indemnified party, in which case
the indemnifying party shall be entitled to assume the defense of such action
notwithstanding its obligation to bear fees and expenses of such counsel. No
indemnifying party shall be liable for any settlement entered into without its
consent, which consent may not be unreasonably withheld.
If the indemnification provided for in this Section 10(e) is unavailable to
a party otherwise entitled to be indemnified in respect of any expenses,
losses, claims, damages or liabilities referred to herein, then the
indemnifying party, in lieu of indemnifying such party otherwise entitled to
be indemnified, shall contribute to the amount paid or payable by such party
to be indemnified as a result of such expenses, losses, claims, damages or
liabilities in such proportion as is appropriate to reflect the relative
benefits received by LISB, the Selling Shareholders and the underwriters from
the offering of the securities and also the relative fault of LISB, the
Selling Shareholders and the underwriters in connection with the statements or
omissions which resulted in such expenses, losses, claims, damages or
liabilities, as well as any other relevant equitable considerations. The
amount paid or payable by a party as a result of the expenses, losses, claims,
damages and liabilities referred to above shall be deemed to include any legal
or other fees or expenses reasonably incurred by such party in connection with
investigating or defending any action or claim; provided, however, that in no
case shall any Selling Shareholder be responsible, in the aggregate, for any
amount in excess of the net offering proceeds attributable to its Option
Shares included in the offering. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation. Any obligation by any holder to indemnify shall
be several and not joint with other holders.
In connection with any registration pursuant to Section 10(a) or 10(b) of
this Agreement, LISB and each Selling Shareholder (other than AFC) shall enter
into an agreement containing the indemnification provisions of Section 10(e)
of this Agreement.
(f) Miscellaneous Reporting. LISB shall comply with all reporting
requirements and will do all such other things as may be necessary to permit
the expeditious sale at any time of any Option Shares by the Selling
Shareholders thereof in accordance with and to the extent permitted by any
rule or regulation promulgated by the SEC from time to time, including,
without limitation, Rule 144. LISB shall at its expense provide the Selling
Shareholders with any information necessary in connection with the completion
and filing of any reports or forms required to be filed by them under the
Securities Act or the Exchange Act, or required pursuant to any state
securities laws or the rules of any stock exchange.
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(g) Issue Taxes. LISB will pay all stamp taxes in connection with the
issuance and the sale of the Option Shares and in connection with the exercise
of the Option, and will save the Selling Shareholders harmless, without
limitation as to time, against any and all liabilities, with respect to all
such taxes.
11. Quotation; Listing. If LISB Common Stock or any other securities to be
acquired in connection with the exercise of the Option are then authorized for
quotation or trading or listing on the Nasdaq or any securities exchange,
LISB, upon the request of Holder, will promptly file an application, if
required, to authorize for quotation or trading or listing the shares of LISB
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, if required, of such quotation or listing as soon as
practicable.
12. Division of Option. This Agreement (and the Option granted hereby) are
exchangeable, without expense, at the option of Holder, upon presentation and
surrender of this Agreement at the principal office of LISB for other
Agreements providing for Options of different denominations entitling the
holder thereof to purchase in the aggregate the same number of shares of LISB
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
LISB 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, LISB 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 LISB, whether or not the Agreement so lost, stolen, destroyed
or mutilated shall at any time be enforceable by anyone.
13. Profit Limitation. (a) Notwithstanding any other provision of this
Agreement, in no event shall AFC's Total Profit (as hereinafter defined)
exceed $60 million, plus AFC's documented, reasonable out-of-pocket expenses
(including fees and expenses of legal, financial and accounting advisors)
incurred in connection with the transactions contemplated by the Merger
Agreement, and, if it otherwise would exceed such amount, AFC, at its sole
election, shall either (a) deliver to LISB for cancellation Shares previously
purchased by AFC, (b) pay cash or other consideration to LISB or (c) undertake
any combination thereof, so that AFC's total Profit shall not exceed $60
million, plus AFC's documented, reasonable out-of-pocket expenses (including
fees and expenses of legal, financial and accounting advisors) incurred in
connection with the transactions contemplated by the Merger Agreement, after
taking into account the foregoing actions.
(b) Notwithstanding any other provision of this Agreement, this Option may
not be exercised for a number of Shares as would, as of the Notice Date,
result in a Notional Total Profit (as defined below) of more than $60 million,
plus AFC's documented, reasonable out-of-pocket expenses (including fees and
expenses of legal, financial and accounting advisors) incurred in connection
with the transactions contemplated by the Merger Agreement, and, if exercise
of the Option otherwise would exceed such amount, AFC, at its discretion, may
increase the Purchase Price for that number of Shares set forth in the Stock
Exercise Notice so that the Notional Total Profit shall not exceed $60
million, plus AFC's documented, reasonable out-of-pocket expenses (including
fees and expenses of legal, financial and accounting advisors) incurred in
connection with the transactions contemplated by the Merger Agreement;
provided, that nothing in this sentence shall restrict any exercise of the
Option permitted hereby on any subsequent date at the Purchase Price set forth
in Section 2 hereof.
(c) As used herein, the term "Total Profit" shall mean the aggregate amount
(before taxes) of the following: (i) the amount of cash received by AFC
pursuant to Section 6.03 of the Merger Agreement and Section 8(a)(ii) hereof,
(ii) (x) the amount received by AFC pursuant to the repurchase of Option
Shares pursuant to Section 8 or Section 9 hereof, less (y) AFC's purchase
price for such Option Shares, and (iii) (z) the net cash amounts received by
AFC pursuant to the sale of Option Shares (or any other securities into which
such Option Shares are converted or exchanged) to any unaffiliated party, less
(y) AFC's purchase price for such Option Shares.
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(d) As used herein, the term "Notional Total Profit" with respect to any
number of Option Shares as to which AFC may propose to exercise this Option
shall be the Total Profit determined as of the date of the Stock Exercise
Notice assuming that this Option were exercised on such date for such number
of Shares and assuming that such Option Shares, together with all other Option
Shares held by AFC and its affiliates as of such date, were sold for cash at
the closing market price for the Common Stock as of the close of business on
the preceding trading day (less customary brokerage commissions).
14. Miscellaneous.
(a) Expenses. Except to the extent expressly provided for herein, each of
the parties hereto shall bear and pay all costs and expenses incurred by it or
on its behalf in connection with the transactions contemplated hereunder,
including fees and expenses of its own financial consultants, investment
bankers, accountants and counsel.
(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 Beneficiaries; Severability. This
Agreement, together with the Plan and the other documents and instruments
referred to herein and therein, between AFC and LISB (i) 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 (ii) is not intended to confer upon any person other than the
parties hereto (other than the indemnified parties under Section 9(e) of this
Agreement and any transferees of the Option Shares or any permitted transferee
of this Agreement pursuant to Section 11(h) of this Agreement) any rights or
remedies hereunder. If any term, provision, covenant or restriction of this
Agreement is held by a court of competent jurisdiction or Regulatory Authority
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 Authority determines that the Option does not
permit Holder to acquire, or does not require LISB to repurchase, the full
number of shares of LISB Common Stock as provided in Section 3 of this
Agreement (as may be adjusted herein), it is the express intention of LISB to
allow Holder to acquire or to require LISB to repurchase 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 York 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 addresses set forth in the Plan (or at such
other address for a party as shall be specified by like notice).
(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 Holder may assign this
Agreement to a wholly-owned subsidiary of Holder and Holder may assign its
rights hereunder in whole or in part after the occurrence of a Purchase Event.
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.
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(i) Further Assurances. In the event of any exercise of the Option by the
Holder, LISB and the Holder 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 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, LISB and AFC 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.
LONG ISLAND BANCORP, INC.
/s/ John J. Conefry, Jr.
By:__________________________________
John J. Conefry, Jr.
Chairman and Chief Executive
Officer
ASTORIA FINANCIAL CORPORATION
/s/ George L. Engelke, Jr.
By:__________________________________
George L. Engelke, Jr.
Chairman, President and Chief
Executive Officer
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APPENDIX C
THE TRANSFER OF THIS AGREEMENT IS
SUBJECT TO CERTAIN PROVISIONS CONTAINED
HEREIN AND MAY BE SUBJECT TO TRANSFER
RESTRICTIONS UNDER
FEDERAL AND STATE LAW
ASTORIA FINANCIAL CORPORATION STOCK OPTION AGREEMENT
Stock Option Agreement, dated as of April 2, 1998 (the "Agreement"), by and
between Long Island Bancorp, Inc., a Delaware corporation ("LISB"), and
Astoria Financial Corporation, a Delaware corporation ("AFC").
RECITALS
A. The Plan. LISB and AFC have entered into an Agreement and Plan of Merger,
dated as of April 2, 1998 (the "Plan"), providing for, among other things, the
merger of LISB with and into AFC, with AFC being the surviving corporation.
B. Condition to Plan. As a condition and an inducement to LISB's execution
and delivery of the Plan, LISB has required that AFC agree, and AFC has
agreed, to grant LISB the Option (as hereinafter defined).
Now, Therefore, in consideration of the foregoing and the respective
representations, warranties, covenants and agreements set forth herein and in
the Plan, and intending to be legally bound hereby, AFC and LISB 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 Plan.
2. Grant of Option. Subject to the terms and conditions set forth herein,
AFC hereby grants to LISB an irrevocable option (the "Option") to purchase up
to 5,246,587 shares of common stock, par value $0.01 per share ("AFC Common
Stock"), of AFC (as adjusted as set forth herein, the "Option Shares," which
shall include the Option Shares before and after any transfer of such Option
Shares, but in no event shall the number of Option Shares for which this
Option is exercisable exceed 19.9% of the issued and outstanding shares of AFC
Common Stock as of the date hereof ), at a purchase price per Option Share (as
adjusted as set forth herein, the "Purchase Price") equal to $61.8125. Each
Option Share issued upon exercise of the Option shall be accompanied by the
related preferred share purchase right ("AFC Rights") issued pursuant to the
Rights Agreement between AFC and ChaseMellon Shareholder Services, L.L.C.,
dated as of July 17, 1996, as amended, as in effect on the date hereof ("AFC
Rights Agreement").
3. Exercise of Option.
(a) Provided that (i) LISB or Holder (as hereinafter defined), as
applicable, shall not be in material breach of the agreements or covenants
contained in this Agreement or the Plan, and (ii) no preliminary or permanent
injunction or other order against the delivery of Option Shares issued by any
court of competent jurisdiction in the United States shall be in effect, the
Holder 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 hereinafter
defined); provided, that the Option shall terminate and be of no further force
or effect upon the earliest to occur of (A) the Effective Time, (B)
termination of the Plan in accordance with the terms thereof prior to the
occurrence of a Purchase Event or a Preliminary Purchase Event other than a
termination thereof by LISB pursuant to Section 6.01(b)(ii) of the Plan (a
termination of the Plan by LISB pursuant to such Section of the Plan, being
referred to herein as a "Default Termination"), (C) 18 months after a Default
Termination or (D) 18 months after termination of the Plan (other than a
Default Termination) following the occurrence of a Purchase Event or a
Preliminary Purchase Event; provided, however, that any purchase of shares
upon exercise of the Option shall be subject to compliance with
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applicable law; provided further, however, that if the Option cannot be
exercised on any day because of an 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 the tenth 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. The
term "Holder" shall mean the holder or holders of the Option from time to
time, and which initially is LISB. The rights set forth in Sections 8 and 9 of
this Agreement shall terminate when the right to exercise the Option and
Substitute Option terminate (other than as a result of a complete exercise of
the Option or Substitute Option) as set forth herein.
(b) As used herein, a "Purchase Event" means any of the following events:
(i) Without LISB's prior written consent, AFC shall have recommended,
publicly proposed or publicly announced an intention to authorize,
recommend or propose, or AFC shall have entered into an agreement with any
person (other than LISB or any subsidiary of LISB) to effect (A) a merger,
consolidation or similar transaction involving AFC or any of its
significant subsidiaries, (B) the disposition, by sale, lease, exchange or
otherwise, of assets or deposits of AFC or any of its significant
subsidiaries representing in either case all or substantially all of the
consolidated assets or deposits of AFC and its subsidiaries or (C) the
issuance, sale or other disposition by AFC of (including by way of merger,
consolidation, share exchange or any similar transaction) securities
representing 10% or more of the voting power of AFC or any of its
significant subsidiaries (each of (A), (B) or (C), an "Acquisition
Transaction"); or
(ii) Any person (other than LISB or any subsidiary of LISB) shall have
acquired beneficial ownership (as such term is defined in Rule 13d-3,
promulgated under the Securities and Exchange Act of 1934 (the "Exchange
Act")) of, or the right to acquire beneficial ownership of, or any "group"
(as such term is defined in Section 13(d)(3) of the Exchange Act), other
than a group of which LISB or any subsidiary of LISB is a member, shall
have been formed which beneficially owns or has the right to acquire
beneficial ownership of, 10% or more of the voting power of AFC or any of
its significant subsidiaries.
(c) As used herein, a "Preliminary Purchase Event" means any of the
following events:
(i) Any person (other than LISB or any subsidiary of LISB) shall have
commenced (as such term is defined in Rule 14d-2, promulgated 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 AFC Common Stock
such that, upon consummation of such offer, such person would own or
control 10% or more of the then outstanding shares of AFC Common Stock
(such an offer being referred to herein as a "Tender Offer" or an "Exchange
Offer," respectively); or
(ii) The stockholders shall not have approved the Plan by the requisite
vote at the stockholders meeting of AFC called for that purpose ("Company
Meeting"), the Company Meeting shall not have been held or shall have been
canceled prior to termination of the Plan or AFC's Board of Directors shall
have withdrawn or modified in a manner adverse to LISB the recommendation
of AFC's Board of Directors with respect to the Plan, in each case after it
shall have been publicly announced that any person (other than LISB or any
subsidiary of LISB) shall have (A) made, or disclosed an intention to make,
a bona fide proposal to engage in an Acquisition Transaction or (B) filed
an application (or given a notice), whether in draft or final form, under
the Home Owners' Loan Act of 1933, as amended, the Bank Holding Company
Act, as amended, the Bank Merger Act, as amended, or the Change in Bank
Control Act of 1978, as amended, for approval to engage in an Acquisition
Transaction; or
(iii) Any person (other than LISB or any subsidiary of LISB) shall have
made a bona fide proposal to AFC or its stockholders by public
announcement, or written communication that is or becomes the subject of
public disclosure, to engage in an Acquisition Transaction; or
(iv) After a proposal is made by a third party to AFC or its stockholders
to engage in an Acquisition Transaction, or such third party states its
intention to AFC to make such a proposal if the Plan terminates, AFC shall
have breached any representation, warranty, covenant or agreement contained
in the Plan and such breach would entitle LISB to terminate the Plan under
Section 6.01(b) thereof (without regard to the
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cure period provided for therein unless such cure is promptly effected
without jeopardizing consummation of the Merger pursuant to the terms of
the Plan).
As used in this Agreement, the term "person" shall have the meaning
specified in Sections 3(a)(9) and 13(d)(3) of the Exchange Act.
(d) AFC shall notify LISB promptly in writing of the occurrence of any
Preliminary Purchase Event or Purchase Event of which it has knowledge, it
being understood that the giving of such notice by AFC shall not be a
condition to the right of Holder to exercise the Option.
(e) In the event Holder wishes to exercise the Option, it shall send to AFC
a written notice (the "Stock Exercise 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 15 business days from
the Notice Date for the closing (the "Closing") of such purchase (such date as
it may be extended pursuant to the next sentence, the "Closing Date");
provided that the first notice of exercise shall be sent to AFC within 180
days after the first Purchase Event of which LISB has been notified. If prior
notification to or approval of any Regulatory Authority is required in
connection with any such purchase, AFC shall cooperate with the Holder in the
filing of the required notice of application for approval and the obtaining of
such approval, and the Closing shall occur promptly following such regulatory
approvals and any mandatory waiting periods. Any exercise of the Option shall
be deemed to occur on the Notice Date relating thereto.
4. Payment and Delivery of Certificates.
(a) On each Closing Date, Holder shall (i) pay to AFC, in immediately
available funds by wire transfer to a bank account designated by AFC, 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 AFC at the address of AFC specified in Section 14(f) of 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) of
this Agreement, (i) AFC shall deliver to Holder (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 (as defined in the
Plan) and subject to no preemptive rights, 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 AFC Common Stock
purchasable hereunder, and (ii) Holder shall deliver to AFC a letter agreeing
that Holder shall not offer to sell or otherwise dispose of such Option Shares
in violation of applicable federal and state law or of the provisions of this
Agreement.
(c) In addition to any other legend that is required by applicable law,
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 IS SUBJECT TO
RESTRICTIONS ARISING UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND
PURSUANT TO THE TERMS OF A STOCK OPTION AGREEMENT DATED AS OF APRIL 2, 1998. A
COPY OF SUCH AGREEMENT WILL BE PROVIDED TO THE HOLDER HEREOF WITHOUT CHARGE
UPON RECEIPT BY ASTORIA FINANCIAL CORPORATION OF A WRITTEN REQUEST THEREFOR.
It is understood and agreed that the portion of the above legend relating to
the Securities Act shall be removed by delivery of substitute certificate(s)
without such legend if Holder shall have delivered to AFC a copy of a letter
from the staff of the Securities Exchange Commission (the "SEC"), or an
opinion of counsel in form and substance reasonably satisfactory to AFC and
its counsel, to the effect that such legend is not required for purposes of
the Securities Act.
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(d) Upon the giving by Holder to AFC of the Stock Exercise Notice, the
tender of the applicable purchase price in immediately available funds and the
tender of this Agreement to AFC, Holder shall be deemed to be the holder of
record of the shares of AFC Common Stock issuable upon such exercise,
notwithstanding that the stock transfer books of AFC shall then be closed or
that certificates representing such shares of AFC Common Stock shall not then
be actually delivered to Holder. AFC shall pay all expenses, and any and all
United States federal, state and local taxes and other charges that may be
payable in connection with the preparation, issuance and delivery of stock
certificates under this Section 4 in the name of Holder or its assignee,
transferee or designee.
(e) AFC agrees (i) that it shall at all times maintain, free from preemptive
rights, sufficient authorized but unissued or treasury shares of AFC Common
Stock so that the Option may be exercised without additional authorization of
AFC Common Stock after giving effect to all other options, warrants,
convertible securities and other rights to purchase AFC Common Stock, (ii)
that it will not, by charter amendment or through reorganization,
consolidation, merger, dissolution or sale of assets, or by any other
voluntary act, avoid or seek to avoid the observance or performance of any of
the covenants, stipulations or conditions to be observed or performed
hereunder by AFC, (iii) promptly to take all action as may from time to time
be required (including (A) complying with all premerger notification,
reporting and waiting period requirements and (B) in the event prior approval
of or notice to any Regulatory Authority is necessary before the Option may be
exercised, cooperating fully with Holder in preparing such applications or
notices and providing such information to such Regulatory Authority as it may
require) in order to permit Holder to exercise the Option and AFC duly and
effectively to issue shares of AFC Common Stock pursuant hereto and (iv)
promptly to take all action provided herein to protect the rights of Holder
against dilution.
5. Representations and Warranties of AFC. AFC hereby represents and warrants
to LISB (and Holder, if different than LISB) as follows:
(a) Corporate Authority. AFC has full corporate power and authority to
execute and deliver this Agreement and to consummate the transactions
contemplated hereby; the execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby have been duly and
validly authorized by the Board of Directors of AFC, and no other corporate
proceedings on the part of AFC are necessary to authorize this Agreement or
to consummate the transactions so contemplated; this Agreement has been
duly and validly executed and delivered by AFC.
(b) Beneficial Ownership. To the best knowledge of AFC, as of the date of
this Agreement, no person or group has beneficial ownership of more than
10% of the issued and outstanding shares of AFC Common Stock.
(c) Shares Reserved for Issuance; Capital Stock. AFC has taken all
necessary corporate action to authorize and reserve and permit it to issue,
and at all times from the date hereof through the termination of the Option
in accordance with Section 3(a) of this Agreement, will have reserved for
issuance upon the exercise of the Option, that number of shares of AFC
Common Stock equal to the maximum number of Option Shares at any time and
from time to time purchasable upon exercise of the Option, and all such
Shares, upon issuance pursuant to the Option, will be duly authorized,
validly issued, fully paid and nonassessable, and will be delivered free
and clear of all claims, liens, encumbrances and security interests (other
than those created by this Agreement) and not subject to any preemptive
rights.
(d) No Violations. The execution, delivery and performance of this
Agreement does not and will not, and the consummation by AFC of any of the
transactions contemplated hereby will not, constitute or result in (i) a
breach or violation of, or a default under, its certificate of
incorporation or bylaws, or the comparable governing instruments of any of
its subsidiaries, or (ii) a breach or violation of, or a default under, any
agreement, lease, contract, note, mortgage, indenture, arrangement or other
obligation of it or any of its subsidiaries (with or without the giving of
notice, the lapse of time or both) or under any law, rule, ordinance or
regulation or judgment, decree, order, award or governmental or non-
governmental permit or license to which it or any of its subsidiaries is
subject, that would, in any case, give any other person the ability to
prevent or enjoin AFC's performance under this Agreement in any material
respect.
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6. Representations and Warranties of LISB. LISB hereby represents and
warrants to AFC that LISB has full corporate power and authority to enter into
this Agreement and, subject to obtaining the approvals referred to in this
Agreement, to consummate the transactions contemplated by this Agreement; 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 LISB; and this Agreement has been duly
executed and delivered by LISB.
7. Adjustment upon Changes in AFC Capitalization, Etc.
(a) In the event of any change in AFC Common Stock by reason of a stock
dividend, stock split, split-up, recapitalization, combination, exchange of
shares, exercise of the Company Rights or similar transaction, the type and
number of shares or securities subject to the Option, and the Purchase Price
therefor, shall be adjusted appropriately, and proper provision shall be made
in the agreements governing any such transaction so that Holder shall receive,
upon exercise of the Option, the number and class of shares or other
securities or property that Holder would have received in respect of AFC
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 AFC
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), upon
exercise of any option to purchase AFC Common Stock outstanding on the date
hereof or upon conversion into AFC Common Stock of any convertible security of
AFC outstanding on the date hereof), the number of shares of AFC Common Stock
subject to the Option shall be adjusted so that, after such issuance, it,
together with any shares of AFC Common Stock previously issued pursuant
hereto, equals 19.9% of the number of shares of AFC Common Stock then issued
and outstanding, without giving effect to any shares subject to or issued
pursuant to the Option. No provision of this Section 7 shall be deemed to
affect or change, or constitute authorization for any violation of, any of the
covenants or representations in the Plan.
(b) In the event that AFC shall enter into an agreement (i) to consolidate
with or merge into any person, other than LISB or one of its subsidiaries, and
AFC shall not be the continuing or surviving corporation of such consolidation
or merger, (ii) to permit any person, other than LISB or one of its
subsidiaries, to merge into AFC and AFC shall be the continuing or surviving
corporation, but, in connection with such merger, the then outstanding shares
of AFC Common Stock shall be changed into or exchanged for stock or other
securities of AFC or any other person or cash or any other property, or the
outstanding shares of AFC 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 or deposits to any person, other than LISB
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 Holder, of either (A) the
Acquiring Corporation (as hereinafter defined), (B) any person that controls
the Acquiring Corporation or (C) in the case of a merger described in clause
(ii), AFC (such person being referred to as "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 Holder. Substitute Option Issuer shall also enter into an
agreement with Holder 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
Substitute Common Stock (as hereinafter defined) as is equal to the Assigned
Value (as hereinafter defined) multiplied by the number of Option Shares 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
Substitute Common Stock (the "Substitute Option Price") shall be equal to the
Purchase Price multiplied by a fraction in which the numerator is the number
of shares of AFC 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.
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(e) The following terms have the meanings indicated:
(i) "Acquiring Corporation" shall mean (A) the continuing or surviving
corporation of a consolidation or merger with AFC (if other than AFC), (B)
AFC in a merger in which AFC is the continuing or surviving person, or (C)
the transferee of all or substantially all of AFC's assets (or a
substantial part of the assets of its subsidiaries taken as a whole).
(ii) "Substitute Common Stock" shall mean the shares of capital stock (or
similar equity interest) with the greatest voting power in respect of the
election of directors (or persons similarly responsible for the direction
of the business and affairs) of the Substitute Option Issuer.
(iii) "Assigned Value" shall mean the highest of (A) the price per share
of AFC Common Stock at which a Tender Offer or an Exchange Offer therefor
has been made, (B) the price per share of AFC Common Stock to be paid by
any third party pursuant to an agreement with AFC, (C) the highest closing
price for shares of AFC Common Stock within the sixty-day period
immediately preceding the consolidation, merger or sale in question and (D)
in the event of a sale of all or substantially all of AFC's assets or
deposits, an amount equal to (x) the sum of the price paid in such sale for
such assets (and/or deposits) and the current market value of the remaining
assets of AFC, as determined by a nationally recognized investment banking
firm selected by Holder, divided by (y) the number of shares of AFC Common
Stock outstanding at such time. In the event that a Tender Offer or an
Exchange Offer is made for AFC 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 AFC Common Stock shall be determined by a nationally
recognized investment banking firm selected by Holder.
(iv) "Average Price" shall mean the average closing price of a share of
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 Substitute Common Stock on the day preceding
such consolidation, merger or sale; provided, that, if AFC is the issuer of
the Substitute Option, the Average Price shall be computed with respect to
a share of common stock issued by AFC, the person merging into AFC or by
any company which controls such person, as Holder 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 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 the limitation in the first sentence of this Section
7(f), Substitute Option Issuer shall make a cash payment to Holder equal to
the excess of (i) the value of the Substitute Option without giving effect to
the limitation in the first sentence of this Section 7(f) over (ii) the value
of the Substitute Option after giving effect to the limitation in the first
sentence of this Section 7(f). This difference in value shall be determined by
a nationally recognized investment banking firm selected by Holder.
(g) AFC shall not enter into any transaction described in Section 7(b) of
this Agreement unless the Acquiring Corporation and any person that controls
the Acquiring Corporation assume in writing all the obligations of AFC
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 holders of
the other shares of common stock issued by Substitute Option Issuer are not
entitled to exercise any rights by reason of the issuance or exercise of the
Substitute Option and the shares of Substitute Common Stock are otherwise in
no way distinguishable from or have lesser economic value (other than any
diminution in value resulting from the fact that the shares of Substitute
Common Stock are restricted securities, as defined in Rule 144, promulgated
under the Securities Act ("Rule 144"), or any successor provision) than other
shares of common stock issued by Substitute Option Issuer).
(h) Notwithstanding anything herein to the contrary, in the event that AFC
completes a reorganization involving the formation of a holding company for
AFC, 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 of such holding company.
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8. Repurchase at the Option of Holder.
(a) Subject to the last sentence of Section 3(a) of this Agreement, at the
request of Holder at any time commencing upon the first occurrence of a
Repurchase Event (as defined in Section 8(d) hereof) and ending 12 months
immediately thereafter, AFC shall repurchase from Holder (i) the Option and
(ii) all shares of AFC Common Stock purchased by Holder pursuant hereto with
respect to which Holder then has beneficial ownership. The date on which
Holder exercises its rights under this Section 8 is referred to as the
"Section 8 Request Date." Such repurchase shall be at an aggregate price (the
"Section 8 Repurchase Consideration") equal to the sum of:
(i) The aggregate Purchase Price paid by Holder for any shares of AFC
Common Stock acquired pursuant to the Option with respect to which Holder
then has beneficial ownership;
(ii) The excess, if any, of (A) the Applicable Price (as defined below)
for each share of AFC Common Stock over (B) the Purchase Price (subject to
adjustment pursuant to Section 7 of this Agreement), multiplied by the
number of shares of AFC Common Stock with respect to which the Option has
not been exercised; and
(iii) The excess, if any, of the Applicable Price over the Purchase Price
(subject to adjustment pursuant to Section 7 of this Agreement) paid (or,
in the case of Option Shares with respect to which the Option has been
exercised but the Closing Date has not occurred, payable) by Holder for
each share of AFC Common Stock with respect to which the Option has been
exercised and with respect to which Holder then has beneficial ownership,
multiplied by the number of such shares.
(b) If Holder exercises its rights under this Section 8, AFC shall, within
10 business days after the Section 8 Request Date, pay the Section 8
Repurchase Consideration to Holder in immediately available funds, and
contemporaneously with such payment, Holder shall surrender to AFC the Option
and the certificates evidencing the Option Shares purchased thereunder with
respect to which Holder then has beneficial ownership, and Holder shall
warrant that it has sole record and beneficial ownership of such shares and
that the same are then free and clear of all Liens. Notwithstanding the
foregoing, to the extent that prior notification to or approval of any
Regulatory Authority is required in connection with the payment of all or any
portion of the Section 8 Repurchase Consideration, Holder shall have the
ongoing option to revoke its request for repurchase pursuant to this Section
8, in whole or in part, or to require that AFC deliver from time to time that
portion of the Section 8 Repurchase Consideration that it is not then so
prohibited from paying and promptly file the required notice or application
for approval and expeditiously process the same (and each party shall
cooperate with the other in the filing of any such notice or application and
the obtaining of any such approval). If any Regulatory Authority disapproves
of any part of AFC's proposed repurchase pursuant to this Section 8, AFC shall
promptly give notice of such fact to Holder and Holder shall have the right
(i) to revoke the repurchase request or (ii) to the extent permitted by such
Regulatory Authority, determine whether the repurchase should apply to the
Option and/or Option Shares and to what extent to each, and Holder shall
thereupon have the right to exercise the Option as to the number of Option
Shares for which the Option was exercisable at the Section 8 Request Date less
the number of shares covered by the Option in respect of which payment has
been made pursuant to Section 8(a)(ii) of this Agreement. Holder shall notify
AFC of its determination under the preceding sentence within five business
days of receipt of notice of disapproval of the repurchase. Notwithstanding
anything herein to the contrary, in the event that AFC delivers to the Holder
written notice accompanied by a certification of AFC's independent auditor
each stating that a requested repurchase of AFC Common Stock would result in
the recapture of AFC's bad debt reserves under the Internal Revenue Code of
1986, as amended, Holder's repurchase request shall be deemed to be
automatically revoked.
Notwithstanding anything herein to the contrary, all of Holder's rights
under this Section 8 shall terminate on the date of termination of this Option
pursuant to Section 3(a) of this Agreement.
(c) For purposes of this Agreement, the "Applicable Price" means the highest
of (i) the highest price per share of AFC Common Stock paid for any such share
by the person or groups described in Section 8(d)(i) hereof, (ii) the price
per share of AFC Common Stock received by holders of AFC Common Stock in
connection with any merger, sale or other business combination transaction
described in Section 7(b)(i), 7(b)(ii) or 7(b)(iii) of
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this Agreement, or (iii) the highest closing sales price per share of AFC
Common Stock quoted on the Nasdaq (or if AFC 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 chosen by Holder) during the 40 business days preceding the
Section 8 Request Date; provided, however, that in the event of a sale of less
than all of AFC's assets, the Applicable Price shall be the sum of the price
paid in such sale for such assets and the current market value of the
remaining assets of AFC as determined by a nationally recognized investment
banking firm selected by Holder, divided by the number of shares of the AFC
Common Stock outstanding at the time of such sale. If the consideration to be
offered, paid or received pursuant to either of the foregoing clauses (i) or
(ii) shall be other than in cash, the value of such consideration shall be
determined in good faith by an independent nationally recognized investment
banking firm selected by Holder and reasonably acceptable to AFC, which
determination shall be conclusive for all purposes of this Agreement.
(d) As used herein, "Repurchase Event" shall occur if (i) any person (other
than LISB or any subsidiary of LISB) shall have acquired beneficial ownership
of (as such term is defined in Rule 13d-3, promulgated under the Exchange
Act), 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
beneficially owns or has the right to acquire beneficial ownership of, 50% or
more of the then outstanding shares of AFC Common Stock, or (ii) any of the
transactions described in Section 7(b)(i), 7(b)(ii) or 7(b)(iii) of this
Agreement shall be consummated.
9. Repurchase of Substitute Option.
(a) Subject to the last sentence of Section 3(a) of this Agreement, at the
request of Holder at any time commencing upon the first occurrence of a
Repurchase Event (as defined in Section 8(d) hereof) and ending 12 months
immediately thereafter, Substitute Option Issuer (or any successor entity
thereof) shall repurchase from Holder (i) the Substitute Option and (ii) all
shares of Substitute Common Stock purchased by Holder pursuant hereto with
respect to which Holder then has beneficial ownership. The date on which
Holder exercises its rights under this Section 9 is referred to as the
"Section 9 Request Date." Such repurchase shall be at an aggregate price (the
"Section 9 Repurchase Consideration") equal to the sum of:
(i) The aggregate Purchase Price paid by Holder for any shares of
Substitute Common Stock acquired pursuant to the Substitute Option with
respect to which Holder then has beneficial ownership;
(ii) The excess, if any, of (A) the Highest Closing Price (as defined
below) for each share of Substitute Common Stock over (B) the Purchase
Price (subject to adjustment pursuant to Section 7 of this Agreement),
multiplied by the number of shares of Substitute Common Stock with respect
to which the Substitute Option has not been exercised; and
(iii) The excess, if any, of the Highest Closing Price over the Purchase
Price (subject to adjustment pursuant to Section 7 of this Agreement) paid
(or, in the case of Substitute Option Shares with respect to which the
Substitute Option has been exercised but the Closing Date has not occurred,
payable) by Holder for each share of Substitute Common Stock with respect
to which the Substitute Option has been exercised and with respect to which
Holder then has beneficial ownership, multiplied by the number of such
shares.
(b) If Holder exercises its rights under this Section 9, Substitute Option
Issuer shall, within 10 business days after the Section 9 Request Date, pay
the Section 9 Repurchase Consideration to Holder in immediately available
funds, and contemporaneously with such payment, Holder shall surrender to
Substitute Option Issuer the Substitute Option and the certificates evidencing
the shares of Substitute Common Stock purchased thereunder with respect to
which Holder then has beneficial ownership, and Holder shall warrant that it
has sole record and beneficial ownership of such shares and that the same are
then free and clear of all Liens. Notwithstanding the foregoing, to the extent
that prior notification to or approval of any Regulatory Authority is required
in connection with the payment of all or any portion of the Section 9
Repurchase Consideration, Holder shall have the ongoing option to revoke its
request for repurchase pursuant to this Section 9, in whole or in part, or to
require that Substitute Option Issuer deliver from time to time that portion
of the Section 9 Repurchase Consideration that it is not then so prohibited
from paying and promptly file the required notice or application
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for approval and expeditiously process the same (and each party shall
cooperate with the other in the filing of any such notice or application and
the obtaining of any such approval). If any Regulatory Authority disapproves
of any part of Substitute Option Issuer's proposed repurchase pursuant to this
Section 9, Substitute Option Issuer shall promptly give notice of such fact to
Holder and Holder shall have the right (i) to revoke the repurchase request or
(ii) to the extent permitted by such Regulatory Authority, determine whether
the repurchase should apply to the Substitute Option and/or Substitute Option
Shares and to what extent to each, and Holder shall thereupon have the right
to exercise the Substitute Option as to the number of Substitute Option Shares
for which the Substitute Option was exercisable at the Section 9 Request Date
less the number of shares covered by the Substitute Option in respect of which
payment has been made pursuant to Section 9(a)(ii) of this Agreement. Holder
shall notify Substitute Option Issuer of its determination under the preceding
sentence within five business days of receipt of notice of disapproval of the
repurchase. Notwithstanding anything herein to the contrary, in the event that
Substitute Option Issuer delivers to the Holder written notice accompanied by
a certification of Substitute Option Issuer's independent auditor each stating
that a requested repurchase of AFC Common Stock would result in the recapture
of Substitute Option Issuer's bad debt reserves under the Internal Revenue
Code of 1986, as amended, Holder's repurchase request shall be deemed to be
automatically revoked.
Notwithstanding anything herein to the contrary, all of Holder's rights
under this Section 9 shall terminate on the date of termination of this
Substitute Option pursuant to Section 3(a) of this Agreement.
(c) For purposes of this Agreement, the "Highest Closing Price" means the
highest of closing sales price for shares of Substitute Common Stock quoted on
the Nasdaq (or if the Substitute Common Stock is not quoted on the Nasdaq, on
the principal trading market on which such shares are traded as reported by a
recognized source) during the six-month period preceding the Section 9 Request
Date.
10. Registration Rights.
(a) Demand Registration Rights. AFC shall, subject to the conditions of
Section 10(c) of this Agreement, if requested by any Holder, including LISB
and any permitted transferee ("Selling Shareholder"), as expeditiously as
possible, prepare and file a registration statement under the Securities Act,
if such registration is necessary in order to permit the sale or other
disposition of any or all shares of AFC Common Stock or other securities that
have been acquired by or are issuable to the Selling Shareholder upon exercise
of the Option in accordance with the intended method of sale or other
disposition stated by the Selling Shareholder in such request, including
without limitation a "shelf" registration statement under Rule 415,
promulgated under the Securities Act, or any successor provision, and AFC
shall use its best efforts to qualify such shares or other securities for sale
under any applicable state securities laws.
(b) Additional Registration Rights. If AFC at any time after the exercise of
the Option proposes to register any shares of AFC Common Stock under the
Securities Act, in connection with an underwritten public offering of such AFC
Common Stock, AFC will promptly give written notice to the Selling
Shareholders of its intention to do so and, upon the written request of any
Selling Shareholder given within 30 days after receipt of any such notice
(which request shall specify the number of shares of AFC Common Stock intended
to be included in such underwritten public offering by the Selling
Shareholder), AFC will cause all such shares for which a Selling Shareholder
requests participation in such registration, to be so registered and included
in such underwritten public offering; provided, however, that AFC may elect to
not cause any such shares to be so registered (i) if the underwriters in good
faith object for valid business reasons, or (ii) in the case of a registration
solely to implement an employee benefit plan or a registration filed on Form
S-4 of the Securities Act or any equivalent or successor Form. If some, but
not all the shares of AFC Common Stock, with respect to which AFC shall have
received requests for registration pursuant to this Section 10(b), shall be
excluded from such registration, AFC shall make appropriate allocation of
shares to be registered among the Selling Shareholders desiring to register
their shares pro rata in the proportion that the number of shares requested to
be registered by each such Selling Shareholder bears to the total number of
shares requested to be registered by all such Selling Shareholders then
desiring to have AFC Common Stock registered for sale.
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(c) Conditions to Required Registration. AFC shall use all reasonable
efforts to cause each registration statement referred to in Section 10(a) of
this Agreement to become effective and to obtain all consents or waivers of
other parties which are required therefor and to keep such registration
statement effective, provided, however, that AFC may delay any registration of
Option Shares required pursuant to Section 10(a) of this Agreement for a
period not exceeding 90 days provided AFC shall in good faith determine that
any such registration would adversely affect an offering or contemplated
offering of other securities by AFC, and AFC shall not be required to register
Option Shares under the Securities Act pursuant to Section 10(a) hereof:
(i) Prior to the earliest of (A) termination of the Plan pursuant to
Article VI thereof, (B) failure to obtain the requisite stockholder
approval pursuant to Section 6.01 of Article VI of the Plan, and (C) a
Purchase Event or a Preliminary Purchase Event;
(ii) On more than one occasion during any calendar year;
(iii) Within 90 days after the effective date of a registration referred
to in Section 9(b) of this Agreement pursuant to which the Selling
Shareholder or Selling Shareholders concerned were afforded the opportunity
to register such shares under the Securities Act and such shares were
registered as requested; and
(iv) Unless a request therefor is made to AFC by Selling Shareholders
that hold at least 25% or more of the aggregate number of Option Shares
(including shares of AFC Common Stock issuable upon exercise of the Option)
then outstanding.
In addition to the foregoing, AFC shall not be required to maintain the
effectiveness of any registration statement after the expiration of nine
months from the effective date of such registration statement. AFC shall use
all reasonable efforts to make any filings, and take all steps, under all
applicable state securities laws to the extent necessary to permit the sale or
other disposition of the Option Shares so registered in accordance with the
intended method of distribution for such shares; provided, however, that AFC
shall not be required to consent to general jurisdiction or qualify to do
business in any state where it is not otherwise required to so consent to such
jurisdiction or to so qualify to do business.
(d) Expenses. Except where applicable state law prohibits such payments, AFC
will pay all expenses (including without limitation registration fees,
qualification fees, blue sky fees and expenses (including the fees and
expenses of counsel), legal expenses, including the reasonable fees and
expenses of one counsel to the holders whose Option Shares are being
registered, printing expenses and the costs of special audits or "cold
comfort" letters, expenses of underwriters, excluding discounts and
commissions but including liability insurance if AFC so desires or the
underwriters so require, and the reasonable fees and expenses of any necessary
special experts) in connection with each registration pursuant to Section
10(a) or 10(b) of this Agreement (including the related offerings and sales by
holders of Option Shares) and all other qualifications, notifications or
exemptions pursuant to Section 10(a) or 10(b) of this Agreement.
(e) Indemnification. In connection with any registration under Section 10(a)
or 10(b) of this Agreement, AFC hereby indemnifies the Selling Shareholders,
and each underwriter thereof, including each person, if any, who controls such
holder or underwriter within the meaning of Section 15 of the Securities Act,
against all expenses, losses, claims, damages and liabilities caused by any
untrue, or alleged untrue, statement of a material fact contained in any
registration statement or prospectus or notification or offering circular
(including any amendments or supplements thereto) or any preliminary
prospectus, or caused by any omission, or alleged omission, to state therein a
material fact required to be stated therein or necessary to make the
statements therein not misleading, except insofar as such expenses, losses,
claims, damages or liabilities of such indemnified party are caused by any
untrue statement or alleged untrue statement that was included by AFC in any
such registration statement or prospectus or notification or offering circular
(including any amendments or supplements thereto) in reliance upon and in
conformity with, information furnished in writing to AFC by such indemnified
party expressly for use therein, and AFC and each officer, director and
controlling person of AFC shall be indemnified
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by such Selling Shareholders, or by such underwriter, as the case may be, for
all such expenses, losses, claims, damages and liabilities caused by any
untrue, or alleged untrue, statement, that was included by AFC in any such
registration statement or prospectus or notification or offering circular
(including any amendments or supplements thereto) in reliance upon, and in
conformity with, information furnished in writing to AFC by such Selling
Shareholder or such underwriter, as the case may be, expressly for such use.
Promptly upon receipt by a party indemnified under this Section 10(e) of
notice of the commencement of any action against such indemnified party in
respect of which indemnity or reimbursement may be sought against any
indemnifying party under this Section 10(e), such indemnified party shall
notify the indemnifying party in writing of the commencement of such action,
but the failure so to notify the indemnifying party shall not relieve it of
any liability which it may otherwise have to any indemnified party under this
Section 10(e). In case notice of commencement of any such action shall be
given to the indemnifying party as above provided, the indemnifying party
shall be entitled to participate in and, to the extent it may wish, jointly
with any other indemnifying party similarly notified, to assume the defense of
such action at its own expense, with counsel chosen by it and satisfactory to
such indemnified party. The indemnified party shall have the right to employ
separate counsel in any such action and participate in the defense thereof,
but the fees and expenses of such counsel (other than reasonable costs of
investigation) shall be paid by the indemnified party unless (i) the
indemnifying party either agrees to pay the same, (ii) the indemnifying party
fails to assume the defense of such action with counsel satisfactory to the
indemnified party, or (iii) the indemnified party has been advised by counsel
that one or more legal defenses may be available to the indemnifying party
that may be contrary to the interest of the indemnified party, in which case
the indemnifying party shall be entitled to assume the defense of such action
notwithstanding its obligation to bear fees and expenses of such counsel. No
indemnifying party shall be liable for any settlement entered into without its
consent, which consent may not be unreasonably withheld.
If the indemnification provided for in this Section 10(e) is unavailable to
a party otherwise entitled to be indemnified in respect of any expenses,
losses, claims, damages or liabilities referred to herein, then the
indemnifying party, in lieu of indemnifying such party otherwise entitled to
be indemnified, shall contribute to the amount paid or payable by such party
to be indemnified as a result of such expenses, losses, claims, damages or
liabilities in such proportion as is appropriate to reflect the relative
benefits received by AFC, the Selling Shareholders and the underwriters from
the offering of the securities and also the relative fault of AFC, the Selling
Shareholders and the underwriters in connection with the statements or
omissions which resulted in such expenses, losses, claims, damages or
liabilities, as well as any other relevant equitable considerations. The
amount paid or payable by a party as a result of the expenses, losses, claims,
damages and liabilities referred to above shall be deemed to include any legal
or other fees or expenses reasonably incurred by such party in connection with
investigating or defending any action or claim; provided, however, that in no
case shall any Selling Shareholder be responsible, in the aggregate, for any
amount in excess of the net offering proceeds attributable to its Option
Shares included in the offering. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation. Any obligation by any holder to indemnify shall
be several and not joint with other holders.
In connection with any registration pursuant to Section 10(a) or 10(b) of
this Agreement, AFC and each Selling Shareholder (other than LISB) shall enter
into an agreement containing the indemnification provisions of Section 10(e)
of this Agreement.
(f) Miscellaneous Reporting. AFC shall comply with all reporting
requirements and will do all such other things as may be necessary to permit
the expeditious sale at any time of any Option Shares by the Selling
Shareholders thereof in accordance with and to the extent permitted by any
rule or regulation promulgated by the SEC from time to time, including,
without limitation, Rule 144. AFC shall at its expense provide the Selling
Shareholders with any information necessary in connection with the completion
and filing of any reports or forms required to be filed by them under the
Securities Act or the Exchange Act, or required pursuant to any state
securities laws or the rules of any stock exchange.
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<PAGE>
(g) Issue Taxes. AFC will pay all stamp taxes in connection with the
issuance and the sale of the Option Shares and in connection with the exercise
of the Option, and will save the Selling Shareholders harmless, without
limitation as to time, against any and all liabilities, with respect to all
such taxes.
11. Quotation; Listing. If AFC Common Stock or any other securities to be
acquired in connection with the exercise of the Option are then authorized for
quotation or trading or listing on the Nasdaq or any securities exchange, AFC,
upon the request of Holder, will promptly file an application, if required, to
authorize for quotation or trading or listing the shares of AFC 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, if required, of such quotation or listing as soon as practicable.
12. Division of Option. This Agreement (and the Option granted hereby) are
exchangeable, without expense, at the option of Holder, upon presentation and
surrender of this Agreement at the principal office of AFC for other
Agreements providing for Options of different denominations entitling the
holder thereof to purchase in the aggregate the same number of shares of AFC
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
AFC 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, AFC 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
AFC, whether or not the Agreement so lost, stolen, destroyed or mutilated
shall at any time be enforceable by anyone.
13. Profit Limitation. (a) Notwithstanding any other provision of this
Agreement, in no event shall LISB's Total Profit (as hereinafter defined)
exceed $60 million and, if it otherwise would exceed such amount, LISB, at its
sole election, shall either (a) deliver to AFC for cancellation Shares
previously purchased by LISB, (b) pay cash or other consideration to AFC or
(c) undertake any combination thereof, so that LISB's total Profit shall not
exceed $60 million after taking into account the foregoing actions.
(b) Notwithstanding any other provision of this Agreement, this Option may
not be exercised for a number of Shares as would, as of the Notice Date,
result in a Notional Total Profit (as defined below) of more than $60 million
and, if exercise of the Option otherwise would exceed such amount, LISB, at
its discretion, may increase the Purchase Price for that number of Shares set
forth in the Stock Exercise Notice so that the Notional Total Profit shall not
exceed $60 million; provided, that nothing in this sentence shall restrict any
exercise of the Option permitted hereby on any subsequent date at the Purchase
Price set forth in Section 2 hereof.
(c) As used herein, the term "Total Profit" shall mean the aggregate amount
(before taxes) of the following: (i) the amount of cash received by LISB
pursuant to Section 6.03 of the Merger Agreement and Section 8(a)(ii) hereof,
(ii) (x) the amount received by LISB pursuant to the repurchase of Option
Shares pursuant to Section 8 or Section 9 hereof, less (y) LISB's purchase
price for such Option Shares, and (iii) (z) the net cash amounts received by
LISB pursuant to the sale of Option Shares (or any other securities into which
such Option Shares are converted or exchanged) to any unaffiliated party, less
(y) LISB's purchase price for such Option Shares.
(d) As used herein, the term "Notional Total Profit" with respect to any
number of Option Shares as to which LISB may propose to exercise this Option
shall be the Total Profit determined as of the date of the Stock Exercise
Notice assuming that this Option were exercised on such date for such number
of Shares and assuming that such Option Shares, together with all other Option
Shares held by LISB and its affiliates as of such date, were sold for cash at
the closing market price for the Common Stock as of the close of business on
the preceding trading day (less customary brokerage commissions).
14. Miscellaneous.
(a) Expenses. Except to the extent expressly provided for herein, each of
the parties hereto shall bear and pay all costs and expenses incurred by it or
on its behalf in connection with the transactions contemplated
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<PAGE>
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 Beneficiaries; Severability. This
Agreement, together with the Plan and the other documents and instruments
referred to herein and therein, between LISB and AFC (i) 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 (ii) is not intended to confer upon any person other than the
parties hereto (other than the indemnified parties under Section 9(e) of this
Agreement and any transferees of the Option Shares or any permitted transferee
of this Agreement pursuant to Section 11(h) of this Agreement) any rights or
remedies hereunder. If any term, provision, covenant or restriction of this
Agreement is held by a court of competent jurisdiction or Regulatory Authority
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 Authority determines that the Option does not
permit Holder to acquire, or does not require AFC to repurchase, the full
number of shares of AFC Common Stock as provided in Section 3 of this
Agreement (as may be adjusted herein), it is the express intention of AFC to
allow Holder to acquire or to require AFC to repurchase 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 York 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 addresses set forth in the Plan (or at such
other address for a party as shall be specified by like notice).
(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 Holder may assign this
Agreement to a wholly-owned subsidiary of Holder and Holder may assign its
rights hereunder in whole or in part after the occurrence of a Purchase Event.
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.
(i) Further Assurances. In the event of any exercise of the Option by the
Holder, AFC and the Holder 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 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.
C-13
<PAGE>
IN WITNESS WHEREOF, AFC and LISB 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.
ASTORIA FINANCIAL CORPORATION
/s/ George L. Engelke, Jr.
By: _________________________________
George L. Engelke, Jr.
Chairman, President and Chief
Executive Officer
LONG ISLAND BANCORP, INC.
/s/ John J. Conefry, Jr.
By: _________________________________
John J. Conefry, Jr.
Chairman and Chief Executive
Officer
C-14
<PAGE>
APPENDIX D
SALOMON SMITH BARNEY
- --------------------
A Member of TravelersGroup LOGO
April 2, 1998
Board of Directors
Long Island Bancorp, Inc.
201 Old Country Road
Melville, NY 11747
Members of the Board:
You have requested our opinion as investment bankers as to the fairness,
from a financial point of view, to the stockholders of Long Island Bancorp,
Inc. (the "Company") of the Exchange Ratio (defined below) in connection with
the proposed merger (the "Proposed Merger") of the Company with and into the
Astoria Financial Corporation ("Astoria") pursuant to the Agreement and Plan
of Merger dated as of April 2, 1998 by and between the Company and Astoria
(the "Agreement").
As more specifically set forth in the Agreement, each currently outstanding
share of common stock, par value $0.01 per share (the "Company Common Stock"),
of the Company will be converted into and represent the right to receive
1.1500 (the "Exchange Ratio") shares of common stock, $0.01 par value (the
"Astoria Common Stock"), of the Astoria. You have informed us and we have
assumed that the Proposed Merger will be accounted for as a pooling-of-
interests and will constitute a tax-free transaction under the Internal
Revenue Code.
As you are aware, Salomon Brothers Inc and Smith Barney Inc. (collectively
doing business as "Salomon Smith Barney") are acting as financial advisor to
the Company in connection with the Proposed Merger, and Salomon Smith Barney
will receive customary compensation for its services, substantially all of
which is contingent upon the execution of the Agreement and the consummation
of the Proposed Merger. Salomon Smith Barney from time to time has provided
investment banking and financial advisory services to the Company for which we
have received customary compensation. In the ordinary course of our business,
we may hold or actively trade the debt and equity securities of the Company
and Astoria for our own account and for the accounts of our customers and,
accordingly, at any time may hold a long or short position in such securities.
We and our affiliates (including Travelers Group Inc. and its affiliates) may
maintain other business relationships with the Company and Astoria.
In connection with rendering our opinion, we have reviewed and analyzed,
among other things, the following: (i) the Agreement, including the Exhibits
and Schedules thereto; (ii) certain publicly available information concerning
the Company, including the Annual Reports on Form 10-K of the Company for each
of the years in the three-year period ended September 30, 1997 and the
Quarterly Report on Form 10-Q of the Company for the quarter ended December
31, 1997; (iii) certain other internal information, primarily financial in
nature, including projections, relating to the business and operations of the
Company, prepared by the management of the Company and furnished to us for
purposes of our analysis; (iv) certain publicly available information
concerning Astoria, including the Annual Reports on Form 10-K of Astoria for
each of the years in the three-year period ended December 31, 1997; (v)
certain other internal information, primarily financial in nature, including
projections, relating to the business and operations of Astoria and furnished
to us for purposes of our analysis as well as certain information regarding
the amount and timing of the cost savings and related expenses expected to
result from the Proposed Merger by management of Astoria; (vi) certain
publicly available information concerning the trading of, and the trading
market for, the Company's Common Stock and Astoria's Common Stock; (vii)
certain publicly available information with respect to certain other companies
that we believe to be comparable in certain respects to the Company and
Astoria and the trading markets for such other
D-1
<PAGE>
companies' securities, including securities issued by certain companies
relating to litigation claims against the United States Government; and (viii)
certain publicly available information concerning the nature and terms of
certain other transactions that we consider relevant to our inquiry. We have
also met with certain officers and employees of the Company and Astoria and
with Astoria's independent outside auditors to discuss the foregoing,
including past and current business operations, financial condition and
prospects of the Company and Astoria, as well as other matters we believe
relevant to our inquiry. We have also considered such other information,
financial studies, analyses, investigations and financial, economic and market
data that we believed relevant to our inquiry.
In conducting our review and analysis and in arriving at our opinion, we
have assumed and relied upon the accuracy and completeness of all of the
financial and other information provided us or publicly available and have
neither attempted independently to verify nor assumed responsibility for
verifying any of such information and have further relied upon assurances of
management of the Company and Astoria, respectively, that they are not aware
of any facts that would make any of such information inaccurate or misleading.
With respect to the financial forecasts of the Company and Astoria, including
the expected synergies from the Proposed Merger, we have assumed that they
have been reasonably prepared on bases reflecting the best currently available
estimates and judgments of the managements of the Company or Astoria, and we
have assumed that the expected synergies will be achieved. We express no
opinion with respect to such forecasts or the assumptions on which they are
based. We have not made an independent evaluation of the adequacy of the
allowance for loan losses of the Company or Astoria and we have assumed that
the aggregate allowances for loan losses are adequate to cover such losses on
an individual and a pro forma combined basis. We have not reviewed any
individual loan files relating to Astoria or the Company. We have not made or
obtained or assumed any responsibility for making or obtaining any independent
evaluations or appraisals of any of the assets (including properties and
facilities) or liabilities of the Company or Astoria. We further have assumed
that the conditions precedent to the Proposed Merger contained in the
Agreement will be satisfied and the Proposed Merger will be consummated in
accordance with the terms of the Agreement. We note that the Company and
Astoria have certain litigation claims pending against the United States
Government. We are not experts in the evaluation of such claims and we have
not made or obtained or assumed any responsibility for making or obtaining any
valuation of such claims. For the purposes of our analysis, we have relied
solely on the trading market value of securities issued by certain companies
relating to similar litigation claims against the United States Government.
In conducting our analysis and arriving at our opinion as expressed herein,
we have considered such financial and other factors as we have deemed
appropriate under the circumstances, including, among others, the following:
(i) the historical and current financial position, results of operations and
business prospects of the Company and Astoria; (ii) the assets and liabilities
of the Company and Astoria, and their respective historical and current
liability sources and costs and liquidity; (iii) certain pro forma combined
financial information of the Company and Astoria; and (iv) the nature and
terms of certain other merger and acquisition transactions involving
depository institutions that we deem relevant. We have also taken into account
our assessment of general economic, market and financial conditions and our
experience in other transactions, as well as our experience in securities
valuation and our knowledge of the banking industry generally. Our opinion is
necessarily based upon conditions as they exist and can be evaluated on the
date hereof and the information made available to us through the date hereof
and we assume no responsibility to update or revise our opinion based upon
circumstances or events occurring after the date hereof. Our opinion as
expressed below does not constitute an opinion or imply any conclusions as to
the likely trading range for the Astoria Common Stock following consummation
of the Proposed Merger. Our opinion is, in any event, limited to the fairness,
from a financial point of view, to the stockholders of the Company of the
Exchange Ratio in the Proposed Merger and does not address the Company's
underlying business decision to effect the Proposed Merger. Our opinion does
not constitute a recommendation to the Company's Board of Directors with
respect to any approval of the Agreement or the Proposed Merger.
In rendering our opinion we have assumed that in the course of obtaining the
necessary regulatory approvals for the Proposed Merger no restrictions will be
imposed that would have a material adverse effect on the contemplated benefits
of the Proposed Merger.
D-2
<PAGE>
Based upon and subject to the foregoing, we are of the opinion that, as of
the date hereof, the Exchange Ratio in the Proposed Merger, is fair, from a
financial point of view, to the stockholders of the Company.
Very truly yours,
/s/ Salomon Smith Barney
Salomon Smith Barney
D-3
<PAGE>
APPENDIX E
LEHMAN BROTHERS
, 1998
Board of Directors
Astoria Financial Corporation
One Astoria Federal Plaza
Lake Success, NY 11042-1085
Members of the Board:
We understand that Astoria Financial Corporation (the "Company") and Long
Island Bancorp, Inc. ("LIB") have entered into a definitive merger agreement
pursuant to which LIB will be merged with and into the Company and each share
of common stock of LIB will be converted into the right to receive 1.15 shares
(the "Exchange Ratio") of common stock of the Company (the "Merger"). The
terms and conditions of the Merger are set forth in more detail in the
Agreement and Plan of Merger dated as of April 2, 1998 by and between the
Company and LIB, as amended (the "Merger Agreement").
We have been requested by the Board of Directors of the Company to render
our opinion with respect to the fairness, from a financial point of view, to
the Company of the Exchange Ratio to be paid by the Company in the Merger. We
have not been requested to opine as to, and our opinion does not in any manner
address, the Company's underlying business decision to proceed with or effect
the Merger.
In arriving at our opinion, we reviewed and analyzed: (1) the Merger
Agreement and the specific terms of the Merger, (2) the Company's Joint Proxy
Statement--Prospectus dated as of the date hereof and such publicly available
information concerning the Company and LIB that we believe to be relevant to
our analysis including, without limitation, the Company's quarterly report on
Form 10-Q for the period ended March 31, 1998, Form 10-K for the year ended
December 31, 1997 and quarterly reports on Form 10-Q for the periods ended
March 31, June 30 and September 30, 1997 and LIB's quarterly reports on Form
10-Q for the periods ended March 31, 1998 and December 31, 1997, Form 10-K for
the year ended September 30, 1997 and quarterly reports on Form 10-Q for the
periods ended December 31, 1996, March 31 and June 30, 1997, (3) financial and
operating information with respect to the business, operations and prospects
of the Company and LIB furnished to us by the Company and LIB, (4) trading
histories of the common stocks of the Company and LIB from April 2, 1993 to
the present and a comparison of those trading histories with those of other
companies that we deemed relevant, (5) a comparison of the historical
financial results and present financial conditions of the Company and LIB with
those of other companies that we deemed relevant, (6) a comparison of the
financial terms of the Merger with the financial terms of certain other recent
transactions that we deemed relevant, (7) the potential pro forma impact of
the Merger on the Company, and (8) the relative contributions of the Company
and LIB to the Combined Company (as defined below) on a historical and
projected pro forma basis. In addition, we have had discussions with the
management of the Company and LIB concerning their respective businesses,
operations, assets, liabilities, financial conditions and prospects, and the
potential cost savings, operating synergies, incremental revenues and
strategic benefits expected by the managements of the Company and LIB to
result from a combination of the businesses of the Company and LIB, and have
undertaken such other studies, analyses and investigations as we deemed
appropriate.
In arriving at our opinion, we have assumed and relied upon the accuracy and
completeness of the financial and other information used by us without
assuming any responsibility for independent verification of such information
and have further relied upon the assurances of management of the Company and
LIB that they are not aware of any facts or circumstances that would make such
information inaccurate or misleading. With respect to the financial
projections of the Company and LIB and the combined company upon consummation
of the Merger (the "Combined Company"), upon advice of the Company and LIB, we
have assumed that such projections have been reasonably prepared on a basis
reflecting the best currently available estimates and
E-1
<PAGE>
judgments of the respective managements of the Company and of LIB, as the case
may be, as to the future financial performance of the Company, LIB and the
Combined Company including, without limitation, with respect to projected cost
savings, operating synergies and incremental revenues (including as a result
of the use of excess capital) expected to result from a combination of the
businesses of the Company and LIB, and that the Company and LIB would perform,
and that the Combined Company will perform, substantially in accordance with
such projections. Upon advice of the Company and its legal and accounting
advisors, we have assumed that the Merger will qualify for pooling accounting
treatment. In arriving at our opinion, we have not conducted a physical
inspection of the properties and facilities of LIB or the Company and have not
made or obtained any evaluations or appraisals of the assets or liabilities of
LIB for the Company. In addition, upon advice of the Company, we have assumed
that LIB's current allowances for loan and real estate owned losses (including
for off-balance sheet items) are in the aggregate adequate to cover all such
losses. Furthermore, we are not experts in matters relating to the lawsuits
filed by the Company and LIB against the U.S. government concerning treatment
of supervisory goodwill or the evaluation of any potential proceeds which may
be received by the Company or LIB therefrom and accordingly, upon advice of
the Company, we have relied upon the amount of the book value of the
supervisory goodwill written off in connection with the enactment of the
Financial Institutions Reform, Recovery and Enforcement Act of 1989, as
communicated to us by the Company and LIB, in performing the analyses
underlying our opinion. Our opinion necessarily is based upon market, economic
and other conditions as they exist on, and can be evaluated as of, the dated
of this letter.
Based upon and subject to the foregoing, we are of the opinion as of the
date hereof that, from a financial point of view, the Exchange Ratio to be
paid by the Company in the Merger is fair to the Company.
We have acted as financial advisor to the Company in connection with the
Merger and will receive a fee for our services, a significant portion of which
is contingent upon the consummation of the Merger. In addition, the Company
has agreed to indemnify us for certain liabilities that may arise out of the
rendering of this opinion. We also have performed various investment banking
services for the Company and for LIB in the past, and have received customary
fees for such services. In the ordinary course of our business, we actively
trade in the debt and equity securities of the Company and LIB for our own
account and for the accounts of our customers and, accordingly, may at any
time hold a long or short position in such securities.
This opinion is for the use and benefit of the Board of Directors of the
Company and is rendered to the Board of Directors in connection with its
consideration of the Merger. This opinion is not intended to be and does not
constitute a recommendation to any stockholder of the Company as to how such
stockholder should vote with respect to the Merger.
Very truly yours,
Lehman Brothers
E-2
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the Delaware General Corporation Law ("Delaware General
Corporation Law"), inter alia, empowers a Delaware corporation to indemnify any
person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding (other than an
action by or in the right of the corporation) by reason of the fact that such
person is or was a director, officer, employee or agent of another corporation
or their enterprise, against expenses (including attorneys' fees), judgments,
fines and amounts paid in settlement actually and reasonably incurred by him in
connection with such action, suit or proceeding (other than an action by or in
the right of the corporation) by reason of the fact that such person is or was
a director, officer, employee or agent of another corporation or other
enterprise, against expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred by him in
connection with such action, suit or proceeding if he acted in good faith and
in a manner he reasonably believed to be in or not opposed to the best interest
of the corporation, and, with respect to any criminal action or proceeding, had
no reasonable cause to believe his conduct was unlawful. Similar indemnity is
authorized for such person against expenses (including attorneys' fees)
actually and reasonably incurred in connection with the defense or settlement
of any such threatened, pending or completed action or suit if such person
acted in good faith and in a manner he reasonably believed to be in or not
opposed to the best interests of the corporation, and provided further that
(unless a court of competent jurisdiction otherwise provides) such person shall
not have been adjudged liable to the corporation. Any such indemnification may
be made only as authorized in each specific case upon a determination by the
shareholders or disinterested directors or by independent legal counsel in a
written opinion that indemnification is proper because the indemnitee has met
the applicable standard of conduct.
Section 145 further authorizes a corporation to purchase and maintain
insurance on behalf of any person who is or was a director, officer, employee
or agent of the corporation, or is or was serving at the request of the
corporation as a director, officer, employee or agent of another corporation or
enterprise, against any liability asserted against him, and incurred by him in
any such capacity, or arising out of his status as such, whether or not the
corporation would otherwise have the power to indemnify him under Section 145.
The Registrant has also entered into employment agreements with certain
executive officers, which agreements require that the Registrant maintain a
directors' and officers' liability policy for the benefit of such officers and
that the Registrant will indemnify such officers to the fullest extent
permitted by law.
In addition, pursuant to the Merger Agreement, the Registrant has agreed for
a period of six years following the effective time of the Merger to indemnify
certain employees, directors and officers of Long Island Bancorp, Inc. with
respect to acts or omissions occurring prior to the effective time of the
Merger. The Registrant has also agreed in the Merger Agreement to maintain for
a period of six years following the effective time of the Merger the directors'
and officers' liability insurance coverage maintained by Long Island Bancorp,
Inc. (or substantially equivalent coverage under substitute policies) with
respect to any claims arising out of any actions or omissions occurring prior
to the effective time of the Merger.
In accordance with the General Corporation Law of the State of Delaware
(being Chapter 1 of Title 8 of the Delaware Code), Articles 10 and 11 of the
Registrant's Certificate of Incorporation provide as follows:
TENTH:
A. Each person who was or is made a party or is threatened to be made a party
to or is otherwise involved in any action, suit or proceeding, whether civil,
criminal, administrative or investigative (hereinafter a "proceeding"), by
reason of the fact that he or she is or was a Director or an Officer of the
Corporation or is or was serving at the request of the Corporation as a
Director, Officer, employee or agent of another corporation of
<PAGE>
or a partnership, joint venture, trust or other enterprise, including service
with respect to an employee benefit plan (hereinafter an "indemnitee"),
whether the basis of such proceeding is alleged action in an official capacity
as a Director, Officer, employee or agent or in any other capacity while
serving as a Director, Officer, employee or agent, shall be indemnified and
held harmless by the Corporation to the fullest extent authorized by the
Delaware General Corporation Law, as the same exists or may hereafter be
amended (but, in the case of any such amendment, only to the extent that such
amendment permits the Corporation to provide broader indemnification rights
than such law permitted the Corporation to provide prior to such amendment),
against all expense, liability and loss (including attorneys' fees, judgments,
fines, ERISA excise taxes or penalties and amounts paid in settlement)
reasonably incurred or suffered by such indemnitee in connection therewith;
provided, however, that, except as provided in Section C hereof with respect
to proceedings to enforce rights to indemnification, the Corporation shall
indemnify any such indemnitee in connection with a proceeding (or part
thereof) initiated by such indemnitee only if such proceeding (or part
thereof) was authorized by the Board of Directors of the Corporation.
B. The right to indemnification conferred in Section A of this Article TENTH
shall include the right to be paid by the Corporation the expenses incurred in
defending any such proceeding in advance of its final disposition (hereinafter
an "advancement of expenses"); provided, however, that, if the Delaware
General Corporation Law requires, an advancement of expenses incurred by an
indemnitee in his or her capacity as a Director or Officer (and not in any
other capacity in which service was or is rendered by such indemnitee,
including, without limitation, services to an employee benefit plan) shall be
made only upon delivery to the Corporation of an undertaking (hereinafter an
"undertaking"), by or on behalf of such indemnitee, to repay all amounts so
advanced if it shall ultimately be determined by final judicial decision from
which there is no further right to appeal (hereinafter a "final adjudication")
that such indemnitee is not entitled to be indemnified for such expenses under
this Section or otherwise. The rights to indemnification and to the
advancement of expenses conferred in Sections A and B of this Article TENTH
shall be contract rights and such rights shall continue as to an indemnitee
who has ceased to be a Director, Officer, employee or agent and shall inure to
the benefit of the indemnitee's heirs, executors and administrators.
C. If a claim under Section A or B of this Article TENTH is not paid in full
by the Corporation within sixty days after a written claim has been received
by the Corporation, except in the case of a claim for an advancement of
expenses, in which case the applicable period shall be twenty days, the
indemnitee may at any time thereafter bring suit against the Corporation to
recover the unpaid amount of the claim. If successful in whole or in part in
any such suit, or in a suit brought by the Corporation to recover an
advancement of expenses pursuant to the terms of an undertaking, the
indemnitee shall be entitled to be paid also the expenses of prosecuting or
defending such suit. In (i) any suit brought by the indemnitee to enforce a
right to indemnification hereunder (but not in a suit brought by the
indemnitee to enforce a right to an advancement of expenses) it shall be a
defense that, and (ii) in any suit by the Corporation to recover an
advancement of expenses pursuant to the terms of an undertaking the
Corporation shall be entitled to recover such expenses upon a final
adjudication that, the indemnitee has not met any applicable standard for
indemnification set forth in the Delaware General Corporation Law. Neither the
failure of the Corporation (including its Board of Directors, independent
legal counsel, or its stockholders) to have made a determination prior to the
commencement of such suit that indemnification of the indemnitee is proper in
the circumstances because the indemnitee has met the applicable standard of
conduct set forth in the Delaware General Corporation Law, nor an actual
determination by the Corporation (including its Board of Directors,
independent legal counsel, or its stockholders) that the indemnitee has not
met such applicable standard of conduct, shall create a presumption that the
indemnitee has not met the applicable standard of conduct or, in the case of
such a suit brought by the indemnitee, be a defense to such suit. In any suit
brought by the indemnitee to enforce a right to indemnification or to an
advancement of expenses hereunder, or by the Corporation to recover an
advancement of expenses pursuant to the terms of an undertaking, the burden of
proving that the indemnitee is not entitled to be indemnified, or to such
advancement of expenses under this Article TENTH or otherwise shall be on the
Corporation.
D. The rights to indemnification and to the advancement of expenses
conferred in this Article TENTH shall not be exclusive of any other right
which any person may have or hereafter acquire under any statute, the
II-2
<PAGE>
Corporation's Certificate of Incorporation, Bylaws, agreement, vote of
stockholders or Disinterested Directors or otherwise.
E. The Corporation may maintain insurance, at its expense, to protect itself
and any Director, Officer, employee or agent of the Corporation or another
corporation, partnership, joint venture, trust or other enterprise against any
expense, liability or loss, whether or not the Corporation would have the
power to indemnify such person against such expense, liability or loss under
the Delaware General Corporation Law.
F. The Corporation may, to the extent authorized from time to time by the
Board of Directors, grant rights to indemnification and to the advancement of
expenses to any employee or agent of the Corporation to the fullest extent of
the provisions of this Article TENTH with respect to the indemnification and
advancement of expenses of Directors and Officers of the Corporation.
ELEVENTH:
A Director of this Corporation shall not be personally liable to the
Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a Director, except for liability (i) for any breach of the Director's
duty of loyalty to the Corporation or its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) under Section 174 of the Delaware General
Corporation Law, or (iv) for any transaction from which the Director derived
an improper personal benefit. If the Delaware General Corporation Law is
amended to authorize corporate action further eliminating or limiting the
personal liability of Directors, then the liability of a Director of the
Corporation shall be eliminated or limited to the fullest extent permitted by
the Delaware General Corporation Law, as so amended.
Any repeal or modification of the foregoing paragraph by the stockholders of
the Corporation shall not adversely affect any right or protection of a
Director of the Corporation existing at the time of such repeal or
modification.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
The exhibits and financial statement schedules filed as a part of this
Registration Statement are as follows:
(A) LIST OF EXHIBITS.
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
2.1 Agreement and Plan of Merger, dated as of the 2nd day of April,
1998, as amended, by and between Astoria Financial Corporation and
Long Island Bancorp, Inc. (included as Appendix A to the Joint
Proxy Statement-Prospectus)*
3.1 Certificate of Incorporation of Astoria Financial Corporation, as
amended effective May 27, 1998 (1)
3.2 Bylaws of Astoria Financial Corporation (1)
4.1 Astoria Financial Corporation Specimen Stock Certificate (2)
4.2 Federal Stock Charter of Astoria Federal Savings and Loan Associa-
tion (3)
4.3 Bylaws of Astoria Federal Savings and Loan Association (4)
4.4 Certificate of Designations, Preferences and Rights of Series A
Junior Participating Preferred Stock (5)
4.5 Rights Agreement between Astoria Financial Corporation and
ChaseMellon Shareholder Services, L.L.C., as Rights Agent, dated
as of July 17, 1996, as amended effective April 12, 1998 (5)
4.6 Form of Rights Certificate (5)
4.7 Certificate of Designations, Preferences and Rights of 12%
Noncumulative, Perpetual Preferred Stock, Series B (6)
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
4.8 Astoria Financial Corporation Specimen 12% Noncumulative, Perpet-
ual Preferred Stock, Series B Certificate (4)
4.9 Astoria Financial Corporation Automatic Dividend Reinvestment and
Stock Purchase Plan (7)
5.1 Opinion of Thacher Proffitt & Wood re: legality*
8.1 Opinion of Thacher Proffitt & Wood re: tax matters*
8.2 Opinion of Milbank, Tweed, Hadley & McCloy re: tax matters*
11.1 Statement regarding computation of earnings per share (4)
13.1 1997 Annual Report to security holders (4)
21.1 Subsidiaries of Astoria Financial Corporation (4)
23.1 Consent of KPMG Peat Marwick LLP**
23.2 Consent of Thacher Proffitt & Wood (included in Exhibits 5.1 and
8.1)*
23.3 Consent of Milbank, Tweed, Hadley & McCloy (included in Exhibit
8.2)*
23.4 Consent of Lehman Brothers Inc.**
23.5 Consent of Salomon Smith Barney**
23.6 Consent of Person to Be Named as Director of Astoria Financial
Corporation**
23.7 Consent of Person to Be Named as Director of Astoria Financial
Corporation**
23.8 Consent of Person to Be Named as Director of Astoria Financial
Corporation**
23.9 Consent of Person to Be Named as Director of Astoria Financial
Corporation**
23.10 Consent of Person to Be Named as Director of Astoria Financial
Corporation**
23.11 Consent of KPMG Peat Marwick LLP**
24.1 Powers of Attorney (included in the signature page of this regis-
tration statement)**
</TABLE>
- --------
* Filed herewith.
** Previously filed.
(1) Incorporated by reference to Astoria Financial Corporation's Annual Report
on Form 10-K for the fiscal year ended December 31, 1993, filed with the
Securities and Exchange Commission on March 30, 1994.
(2) Incorporated by reference to Astoria Financial Corporation's Annual Report
on Form 10-K for the fiscal year ended December 31, 1996, filed with the
Commission on March 28, 1997.
(3) Incorporated by reference to Astoria Financial Corporation's Annual Report
on Form 10-K for the fiscal year ended December 31, 1994, filed with the
Securities and Exchange Commission on March 15, 1995.
(4) Incorporated by reference to Astoria Financial Corporation's Annual Report
on Form 10-K for the fiscal year ended December 31, 1997, filed with the
Securities and Exchange Commission on March 25, 1998.
(5) Incorporated by reference to Astoria Financial Corporation's Registration
Statement on Form 8-A dated July 17, 1996 and filed with the Securities
and Exchange Commission on July 23, 1996 and Astoria Financial
Corporation's Current Report on Form 8-K/A, dated April 10, 1998 and filed
with the Securities and Exchange Commission on April 10, 1998.
(6) Incorporated by reference to Astoria Financial Corporation's Form S-4
Registration Statement as filed with the Securities and Exchange
Commission on June 24, 1997.
(7) Incorporated by reference to Form S-3 Registration Statement as filed with
the Securities and Exchange Commission on October 23, 1995.
II-4
<PAGE>
(B) FINANCIAL STATEMENT SCHEDULES.
All schedules have been omitted as not applicable or not required under the
rules of Regulation S-X.
(C) REPORTS, OPINIONS OR APPRAISALS OF OUTSIDE PARTIES.
The opinions of Salomon Smith Barney and Lehman Brothers Inc. are included
as Appendices D and E, respectively, to the Joint Proxy Statement-Prospectus.
ITEM 22. UNDERTAKINGS.
The undersigned Registrant hereby undertakes:
(A)(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this Registration Statement:
(i) To include any Prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the Prospectus any facts or events arising after
the effective date of the Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the Registration Statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than a 20% change in the
maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective Registration Statement; and
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the Registration Statement or
any material change to such information in the Registration Statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(B) For purposes of determining any liability under the Securities Act of
1933, each filing of the Registrant's annual report pursuant to Section
13(a) or 15(d) of the Securities Exchange Act of 1934 (and each filing of
an employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
Registration Statement shall be deemed a new registration statement
relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide
offering thereof.
(C) To respond to requests for information that is incorporated by
reference into the Joint Proxy Statement-Prospectus pursuant to Item 4,
10(b), 11, or 13 of this form, within one business day of receipt of such
request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in
documents filed subsequent to the effective date of the registration
statement through the date of responding to the request.
(D) To supply by means of a post-effective amendment all information
concerning a transaction, and the company being acquired involved therein,
that was not the subject of and included in the registration statement when
it became effective.
II-5
<PAGE>
Insofar as indemnification by the Registrant for liabilities arising under
the Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the Registrant pursuant to the foregoing provisions, or
otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Securities Act and is, therefore, unenforceable. In
the event that a claim for indemnification against such liabilities (other
than the payment by the Registrant of expenses incurred or paid by a director,
officer or controlling person of the Registrant in the successful defense of
any action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
II-6
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) 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 in the town of
Lake Success in the State of New York on July 10, 1998.
ASTORIA FINANCIAL CORPORATION
By: /s/ George L. Engelke, Jr.
---------------------------------
George L. Engelke, Jr.
Chairman of the Board, President
and Chief Executive Officer
II-7
<PAGE>
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
NAME DATE
/s/ George L. Engelke, Jr.
- ------------------------------------- July 14, 1998
George L. Engelke, Jr.
Chairman of the Board, President, Chief
Executive Officer and Director
(principal executive officer)
* July 14, 1998
- -------------------------------------
Gerard C. Keegan
Vice Chairman, Chief Administrative
Officer and Director
* July 14, 1998
- -------------------------------------
Monte N. Redman
Executive Vice President and Chief
Financial Officer
(principal financial officer)
(principal accounting officer)
* July 14, 1998
- -------------------------------------
Robert G. Bolton
Director
* July 14, 1998
- -------------------------------------
Andrew M. Burger
Director
* July 14, 1998
- -------------------------------------
Thomas J. Donahue
Director
* July 14, 1998
- -------------------------------------
William J. Fendt
Director
* July 14, 1998
- -------------------------------------
Peter C. Haeffner, Jr.
Director
* July 14, 1998
- -------------------------------------
Ralph F. Palleschi
Director
II-8
<PAGE>
NAME DATE
* July 14, 1998
- -------------------------------------
Thomas V. Powderly
Director
/s/ Alan P. Eggleston
*By __________________________
Alan P. Eggleston
as attorney-in-fact pursuant
to a Power of Attorney filed
on July 10, 1998
II-9
<PAGE>
[THACHER PROFFITT & WOOD LETTERHEAD]
EXHIBIT 5.1
July 14, 1998
Astoria Financial Corporation
One Astoria Federal Plaza
Lake Success, New York 11042
Ladies and Gentlemen:
We have acted as special counsel for Astoria Financial Corporation, a
Delaware corporation ("AFC"), in connection with the issuance of and
registration under the Securities Act of 1933, as amended, by AFC of an
aggregate of 29,876,946 shares, subject to adjustment, of AFC common stock, par
value $0.01 per share (the "Merger Shares"), into which certain shares of common
stock, par value $0.01 per share, of Long Island Bancorp, Inc., a Delaware
corporation ("LIB"), will be converted pursuant to an Agreement and Plan of
Merger, dated as of the 2nd day of April, 1998, by and between AFC and LIB, as
amended (the "Merger Agreement"), and the related preparation and filing by AFC
with the Securities and Exchange Commission of a registration statement on Form
S-4 (the "Registration Statement"). In rendering the opinions set forth below,
we do not express any opinion concerning law other than the federal law of the
United States and the corporate law of the State of Delaware.
We have examined originals or copies, certified or otherwise identified to
our satisfaction, of such documents, corporate records and other instruments,
and have examined such matters of law, as we have deemed necessary or advisable
for purposes of rendering the opinions set forth below. As to matters of fact,
we have examined and relied upon the representations of AFC and LIB, contained
in the Merger Agreement and the Registration Statement and, where we have deemed
appropriate, representations or certificates of officers of AFC or LIB or public
officials. We have assumed the authenticity of all documents submitted to us as
originals, the genuineness of all signatures, the legal capacity of natural
persons and the conformity to the originals of all documents submitted to us as
copies. In making our examination of any documents, we have assumed that all
parties, other than AFC, had the corporate power and authority to enter into and
perform all obligations thereunder, and, as to such parties, we have also
assumed the due authorization by all requisite action, the due execution and
delivery of such documents and the validity and binding effect and
enforceability thereof.
<PAGE>
Astoria Financial Corporation Page 2.
July 14, 1998
Based on the foregoing, we are of the opinion that, upon effectiveness of
the Registration Statement and the approval of the Merger Agreement by the AFC
shareholders, the issuance of the Merger Shares in accordance with the terms of
the Merger Agreement will have been duly authorized and, when the Merger Shares
are issued in accordance with the terms of the Merger Agreement and the
Registration Statement, the Merger Shares will be validly issued, fully paid and
non-assessable.
In rendering the opinions set forth above, we have not passed upon and do
not purport to pass upon the application of "doing business" or securities or
"blue-sky" laws of any jurisdiction (except federal securities laws).
This opinion is given solely for the benefit of AFC and LIB and the
shareholders of LIB who exchange shares of LIB common stock for the Merger
Shares pursuant to the Registration Statement, and may not be relied upon by any
other person or entity, nor quoted in whole or in part, or otherwise referred to
in any document without our express written consent.
We consent to the filing of this opinion as an Exhibit to the Registration
Statement and to the reference to our firm under the heading "LEGAL MATTERS" in
the Joint Proxy Statement-Prospectus that is part of such Registration
Statement.
Very truly yours,
Thacher Proffitt & Wood
By: /s/ Robert C. Azarow
Robert C. Azarow
<PAGE>
[THACHER PROFFITT & WOOD LETTERHEAD]
EXHIBIT 8.1
(212) 912-7633
July 14, 1998
Astoria Financial Corporation
One Astoria Plaza
Lake Success, New York 11042-1805
Re: Merger of Long Island Bancorp, Inc.
into Astoria Financial Corporation
----------------------------------
Dear Sirs:
You have requested our opinion regarding certain federal income tax
consequences of the merger (the "Merger") of Long Island Bancorp, Inc. ("LIB"),
a Delaware corporation, with and into Astoria Financial Corporation ("AFC"), a
Delaware corporation and parent of its wholly-owned subsidiary, Astoria Federal
Savings and Loan Association (the "Association"). The Merger will be effected
pursuant to the Agreement and Plan of Merger dated as of the 2nd day of April,
1998 by and between AFC and LIB, as amended (the "Merger Agreement"). The Merger
and related transactions are described in the Merger Agreement and in the Joint
Proxy Statement-Prospectus (the "Proxy Statement") included in AFC's
Registration Statement on Form S-4 filed with the Securities and Exchange
Commission in connection with the Merger (the "Registration Statement"). All
capitalized terms used but not defined in this letter shall have the meanings
set forth in the Merger Agreement or in the Proxy Statement.
In connection with the opinions expressed below, we have examined
and relied on originals, or copies certified or otherwise identified to our
satisfaction, of the Merger Agreement and of such corporate records of AFC and
LIB as we have deemed appropriate. We have also relied, without independent
verification, upon the July 14, 1998 letters of AFC and LIB to Thacher Proffitt
& Wood containing certain tax representations. We have assumed that the parties
will act, and that the Merger will be effected, in accordance with the Merger
Agreement, and that the representations made by AFC and LIB in the foregoing
letters are true, correct and complete, and will be true, correct and complete
at the Effective Time, and as to statements qualified by the best of knowledge
of the Management of AFC or
<PAGE>
Astoria Financial Corporation.
July 14, 1998 Page 2
LIB, will be consistent with the underlying facts as of the Effective Time. In
addition, we have made such investigations of law as we have deemed appropriate
to form a basis for the opinions expressed below.
Based on and subject to the foregoing, it is our opinion that, for
Federal income tax purposes, under current law:
(1) The Merger will be treated as a reorganization within
the meaning of Section 368(a) of the Code;
(2) No gain or loss will be recognized by AFC, the
Association or LIB as a result of the Merger;
(3) Except to the extent of any cash received in lieu of a
fractional share interest in AFC Common Stock, no gain or loss will
be recognized by holders of LIB Common Stock who exchange their
shares of LIB Common Stock for shares of AFC Common Stock pursuant
to the Merger;
(4) The tax basis of the shares of AFC Common Stock
received by each holder of LIB Common Stock who exchanges shares of
LIB Common Stock for shares of AFC Common Stock in the Merger will
be the same as the tax basis of the shares of LIB Common Stock
surrendered pursuant to the Merger, reduced by any amount allocable
to a fractional share interest of AFC Common Stock for which cash
is received and increased by any gain recognized on such exchange;
and
(5) The holding period of the shares of AFC Common Stock
received by each holder of LIB Common Stock in the Merger will
include the holding period of the shares of LIB Common Stock
exchanged therefor, provided that such stockholder holds such
shares of LIB Common Stock as a capital asset at the Effective
Time;
Except as set forth above, we express no opinion to any party as to
the tax consequences, whether federal, state, local or foreign, of the Merger or
of any transaction related thereto or contemplated by the Merger Agreement. This
opinion is given solely for the benefit of LIB and its shareholders and AFC, and
may not be relied upon by any other party or entity or otherwise referred to in
any document without our express written consent. We consent to the filing of
this opinion as an exhibit to the Registration Statement and to the reference
thereto under the heading "The Merger Material Federal Income Tax Consequences"
and "Legal Matters" in the Proxy Statement which is a part of the Registration
Statement.
Very truly yours,
THACHER PROFFITT & WOOD
By: /s/ Albert J. Cardinali
<PAGE>
[MILBANK, TWEED, HADLEY & MCCLOY LETTERHEAD]
EXHIBIT 8.2
July 14, 1998
Long Island Bancorp, Inc.
201 Old Country Road
Melville, New York 11747
Ladies and Gentlemen:
We have acted as special legal counsel to Long Island Bancorp, Inc., a
Delaware corporation ("LISB"), in connection with the merger (the "Merger") of
LISB into Astoria Financial Corporation, a Delaware corporation ("AFC"),
pursuant to the Agreement and Plan of Merger by and between AFC and LISB dated
April 2, 1998 (the "Merger Agreement").
You have requested our opinion regarding certain material federal
income tax consequences of the Merger. In rendering our opinion, we have
examined and relied upon the accuracy and completeness of facts, information,
covenants, and representations contained in originals or copies, certified or
otherwise identified to our satisfaction, of the Merger Agreement, the Joint
Proxy Statement/Prospectus filed as part of the Registration Statement (the
"Proxy Statement/Prospectus"), other than the descriptions of the tax
consequences, and other documents we have deemed necessary and appropriate.
Capitalized terms used in this opinion and not otherwise defined have the
meanings given to them in the Merger Agreement. Our opinion relies on and is
conditioned on, among other things, the accuracy of the facts, information,
covenants and representations set forth in the Officer Certificates required to
be delivered by Merger Agreement (S) 5.03(f), and their being true on the date
of the Merger.
In our examination, we have assumed the genuineness of all signatures,
the legal capacity of natural persons, the authenticity of all documents
submitted to us as originals, the conformity to original documents of all
documents submitted to us as certified or photostatic
<PAGE>
copies and the authenticity of the originals of those documents. We have also
assumed the transactions related to the Merger or contemplated by the Merger
Agreement will be consummated in accordance with the Merger Agreement and as
described in the Proxy Statement/Prospectus.
The opinions set forth here are as of the date of this letter and are
subject in each case to the truth and accuracy as of the date of the Merger of
the representations stated here as being relied upon with respect to our
opinions as to the Merger. In rendering our opinions, we have considered the
applicable provisions of the Internal Revenue Code of 1986, as amended (the
"Code"), Treasury Regulations promulgated thereunder, pertinent judicial
authorities, Internal Revenue Service ("IRS") interpretive rulings, and other
authorities we consider relevant. We caution that statutes, regulations,
judicial decisions, and administrative interpretations are subject to change at
any time and, in some circumstances, with retroactive effect. A change in the
authorities upon which our opinion is based could affect our conclusions.
The Merger
- ----------
LISB will be merged into AFC, with AFC surviving the Merger. In the
Merger, the LISB shareholders will receive 1.15 shares of AFC Common Stock in
exchange for each share of LISB Common Stock owned by them immediately prior to
the Merger. Cash will be paid in lieu of any fractional shares of AFC Common
Stock. Outstanding options to purchase LISB Common Stock will be assumed by AFC
and converted into options to purchase AFC Common Stock.
Based on the foregoing, it is our opinion that:
1. The Merger will constitute a reorganization within the meaning of Code
(S)368(a)(1)(A) and LISB and AFC will each be a party to the
reorganization within the meaning of Code (S)368(b).
2. No gain or loss will be recognized by LISB or AFC as a result of the
Merger.
3. No gain or loss will be recognized by an LISB shareholder who receives
solely shares of AFC in exchange for LISB Common Stock. Code (S)354(a)(1).
An LISB shareholder who receives cash in lieu of an AFC fractional share
will recognize gain or loss equal to the difference between the cash
received and the tax basis allocated to the fractional share interest. Any
gain or loss recognized by a shareholder will constitute capital gain or
loss, provided the shareholder's LISB Common Stock was held as a capital
asset on the date of the Merger.
4. The tax basis of the AFC Common Stock received by an LISB shareholder will
be the same as the shareholder's tax basis in the LISB Common Stock
exchanged for it. Code (S)358(a)(1).
2
<PAGE>
5. The holding period of the AFC Common Stock received by an LISB shareholder
will include the holding period or periods of the LISB Common Stock
exchanged, provided the LISB Common Stock was held as capital assets
within the meaning of Code (S)1221 on the Merger Date. Code (S)1223(1).
Except as expressly set forth above, we express no opinion to any party as
to the consequences, whether federal, state, local or foreign, of the Merger or
any transaction related to the Merger or contemplated by the Merger Agreement or
the Joint Proxy Statement/Prospectus. We are furnishing this opinion to you in
connection with Section 5.03(f) of the Merger Agreement, which states LISB's
obligation to effect the Merger is conditioned on the delivery of this opinion.
We consent to the references to our Firm under the headings "The Merger and The
Merger Agreement Material Federal Income Tax Consequences" in the Proxy
Statement/Prospectus and to the filing of this opinion as Exhibit 8.1 to the
Registration Statement. This opinion is not to be used, circulated, quoted or
otherwise referred to for any other purpose without our express prior written
permission.
Very truly yours,
/s/ Milbank, Tweed, Hadley & McCloy
DLP/RAJ
3
