<PAGE>
As Filed With the Securities And Exchange Commission on March 22, 1999.
Registration No. 333-74673
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------
PRE-EFFECTIVE
AMENDMENT NO. 1 TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------
Dime Bancorp, Inc.
(Exact name of registrant as specified in its charter)
Delaware 6060 11-3197414
(State or other (Primary Standard (I.R.S. Employer
jurisdiction of Industrial Identification No.)
incorporation) Classification Code No.)
589 Fifth Avenue
New York, New York 10017
(212) 326-6170
---------------
(Address, including ZIP Code, and telephone number, including area code, of
registrant's principal executive offices)
James E. Kelly, Esq.
589 Fifth Avenue
New York, New York 10017
(212) 326-6170
---------------
(Name, address, including ZIP Code, and telephone number, including area code,
of agent for service)
---------------
with copies to:
Mitchell S. Eitel Samuel J. Malizia
Sullivan & Cromwell Malizia, Spidi, Sloane & Fisch, P.C.
125 Broad Street One Franklin Square
New York, New York 10004 1301 K Street, N.W.
(212) 558-4000 Suite 700 East
Washington, D.C. 20005
(202) 434-4660
Approximate date of commencement of the proposed sale of the securities to the
public:
As soon as practicable after this Registration Statement becomes effective.
---------------
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. [_]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_]
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
---------------
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 thereafter 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 Commission, acting pursuant to said
Section 8(a), may determine.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
LAKEVIEW FINANCIAL CORP.
989 McBride Avenue
West Paterson, New Jersey 07424
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD APRIL 27, 1999
To the Shareholders of Lakeview Financial Corp.:
Notice is hereby given that a special meeting of shareholders of Lakeview
Financial Corp. will be held at Valley Regency, 1129 Valley Road, Clifton, New
Jersey at 10:00 a.m. on April 27, 1999, for the purpose of voting upon an
Agreement and Plan of Merger dated as of December 15, 1998, between Lakeview
and Dime Bancorp, Inc., pursuant to which Lakeview will merge into Dime.
In the merger, your shares of Lakeview common stock will be converted into
the right to receive your choice of Dime common stock, cash or a combination of
both. Generally, if you choose to receive Dime common stock, you will receive
0.9 of a share of Dime common stock for each Lakeview share you own, and if you
choose to receive cash you will receive $24.26 for each Lakeview share you own.
However, Lakeview and Dime have agreed that, in the aggregate, approximately
65% of the outstanding shares of Lakeview common stock will be converted into
Dime common stock and the other 35% will be converted into cash. Therefore, you
may actually receive a combination of cash and Dime common stock for your
shares based on the choices made by the other Lakeview shareholders. A copy of
the merger agreement is set forth in Appendix A to the accompanying proxy
statement/prospectus.
Only shareholders of record at the close of business on March 18, 1999 are
entitled to receive notice of and to vote at the special meeting or any
adjournments or postponements thereof. Approval of the merger agreement
requires that a majority of the votes cast at the special meeting be in favor
of the merger agreement. The directors and executive officers of Lakeview, who
are entitled to vote about 27% of the outstanding shares of Lakeview common
stock, have agreed to vote their shares in favor of the merger agreement.
Lakeview's Board of Directors unanimously recommends that shareholders vote
"FOR" approval of the merger agreement.
By Order of the Board of Directors,
Sandra L. Coulthart
Acting Secretary
West Paterson, New Jersey
March 22, 1999
<PAGE>
[LOGO] [LOGO]
PROXY STATEMENT OF PROSPECTUS OF
LAKEVIEW FINANCIAL CORP. DIME BANCORP, INC.
----------------
The Board of Directors of Lakeview has entered into a merger agreement with
Dime Bancorp, Inc. The merger will provide you with the opportunity to
participate as a holding company shareholder in the largest savings bank based
on the East Coast, The Dime Savings Bank of New York, FSB.
In the merger, your shares of Lakeview common stock will be converted into
the right to receive your choice of Dime common stock, cash or a combination of
both.
<TABLE>
<CAPTION>
This choice
is Value as of
If you choose: Then you are asking to receive: generally: March 19, 1999:
-------------- ------------------------------- ----------- ---------------
<S> <C> <C> <C>
Stock 0.9 of a share of Dime common stock Not Taxable $22.50
Cash $24.26 in cash Taxable $24.26
</TABLE>
However, Lakeview and Dime have agreed that, in the aggregate, approximately
65% of the outstanding shares of Lakeview common stock will be converted into
Dime common stock and the other 35% will be converted into cash. Therefore, you
may actually receive a combination of cash and Dime common stock for your
shares based on the choices made by the other Lakeview shareholders.
In order to complete this merger, Lakeview needs the approval of its
shareholders. This document is being furnished to you in connection with the
solicitation of proxies by Lakeview's Board of Directors for use at the special
meeting of shareholders of Lakeview Financial Corp. to be held at Valley
Regency, 1129 Valley Road, Clifton, New Jersey at 10:00 a.m. on April 27, 1999,
where you will be asked to vote on the merger agreement.
The Lakeview Board of Directors has unanimously approved the merger
agreement. The Board believes that the merger is in the best interests of
Lakeview and its shareholders and strongly encourages you to vote "FOR" the
proposal. Sandler O'Neill & Partners, L.P., an investment banking firm, has
issued its opinion to the Board that the consideration to be paid by Dime
pursuant to the merger agreement is fair, from a financial point of view, to
the shareholders of Lakeview.
Dime common stock is listed on the NYSE under the symbol "DME." Lakeview
common stock is quoted on the Nasdaq National Market under the symbol "LVSB."
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved the Dime common stock to be issued
under this proxy statement/prospectus or determined if this proxy
statement/prospectus is accurate or adequate. Any representation to the
contrary is a criminal offense.
The shares of Dime common stock that Dime is offering through this document
are not savings or deposit accounts or other obligations of any bank or
savings association, and they are not insured by the Federal Deposit
Insurance Corporation or any other governmental agency.
----------------
The date of this proxy statement/prospectus is March 22, 1999, and it is
being mailed or otherwise delivered to Lakeview shareholders on or about such
date.
<PAGE>
REFERENCES TO ADDITIONAL INFORMATION
This proxy statement/prospectus incorporates important business and financial
information about Dime and Lakeview from documents that are not included in or
delivered with this document. You can obtain documents incorporated by
reference in this proxy statement/prospectus (other than certain exhibits to
those documents) by requesting them in writing or by telephone from the
appropriate company at the following addresses:
Dime Bancorp, Inc. Lakeview Financial Corp.
589 Fifth Avenue, Third Floor 989 McBride Avenue
New York, New York 10017 West Paterson, New Jersey 07424
Attention: Investor Relations Attention: Sandra L. Coulthart
Department Telephone: (973) 890-1234
Telephone: (212) 326-6170
You will not be charged for any of these documents that you request. If you
would like to request documents, please do so by April 20, 1999 in order to
receive them before the special meeting.
Certain financial and other information relating to Lakeview is contained in
this proxy statement/prospectus, including Appendix E.
See "Where You Can Find More Information" on page 48.
ii
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
REFERENCES TO ADDITIONAL INFORMATION...................................... ii
QUESTIONS AND ANSWERS ABOUT THE DIME/LAKEVIEW MERGER...................... 1
SUMMARY................................................................... 2
Comparison of Unaudited Per Share Data.................................. 6
Selected Financial Data of Dime......................................... 7
Selected Financial Data of Lakeview..................................... 8
Selected Unaudited Pro Forma Financial Data of Dime and Lakeview........ 9
RISK FACTORS.............................................................. 10
An Economic Downturn May Lead to Less Demand for Dime's Services and
Reduce Dime's Earnings................................................. 10
Changes in Interest Rates May Reduce Dime's Net Interest Income......... 10
Year 2000 Issue May Cause Computer-Related Disruptions.................. 10
Dime is Extensively Regulated........................................... 11
Legislative and Regulatory Proposals May Unfavorably Affect Dime........ 11
Intense Competition Exists for Loans and Deposits....................... 11
FORWARD-LOOKING STATEMENTS................................................ 12
SPECIAL MEETING........................................................... 13
General................................................................. 13
Record Date............................................................. 13
Solicitation and Revocability of Proxies................................ 13
Vote Required........................................................... 13
Recommendation of Board of Directors.................................... 14
THE MERGER................................................................ 14
General................................................................. 14
Background of the Merger................................................ 14
Reasons of Lakeview for the Merger and Recommendation of the Lakeview
Board.................................................................. 15
Opinion of Lakeview Financial Advisor................................... 16
Effective Time.......................................................... 22
Election and Allocation Procedures...................................... 22
Distribution of Dime Certificates....................................... 23
Fractional Shares....................................................... 23
Federal Income Tax Considerations of the Merger......................... 24
Management and Operations After the Merger.............................. 26
Post-Merger Compensation and Benefits................................... 26
Treatment of Outstanding Options........................................ 26
Interests of Certain Persons in the Merger.............................. 26
Conditions to Completion................................................ 27
Regulatory Approvals.................................................... 28
Amendment, Waiver and Termination....................................... 29
Conduct of Business Pending the Merger.................................. 30
Expenses and Fees....................................................... 31
Accounting Treatment.................................................... 31
Stock Exchange Listing of Dime Common Stock............................. 32
Resales of Dime Common Stock............................................ 32
Stock Option Agreement.................................................. 32
</TABLE>
iii
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
Shareholder Agreements................................................. 35
No Dissenters' Appraisal Rights........................................ 35
DESCRIPTION OF DIME CAPITAL STOCK........................................ 35
Authorized Stock....................................................... 35
Common Stock........................................................... 35
Dime Preferred Stock................................................... 35
Stockholder Protection Rights Plan..................................... 36
Other Provisions....................................................... 36
CERTAIN DIFFERENCES IN THE RIGHTS OF DIME STOCKHOLDERS AND LAKEVIEW
SHAREHOLDERS............................................................ 40
Size and Classification of Board of Directors.......................... 40
Removal of Directors................................................... 40
Amendment of Certificate of Incorporation and By-laws.................. 41
Stockholder Nominations and Proposals.................................. 41
Special Meetings of Stockholders and Stockholder Action by Written
Consent............................................................... 42
Limitations on Voting.................................................. 42
Rights Plans........................................................... 42
CERTAIN REGULATORY CONSIDERATIONS........................................ 42
Regulatory Capital Requirements........................................ 43
Limitations on Capital Distributions................................... 43
Transactions with Affiliates........................................... 45
COMPARATIVE MARKET PRICES AND DIVIDENDS.................................. 46
Dime................................................................... 46
Lakeview............................................................... 47
EXPERTS.................................................................. 47
VALIDITY OF DIME COMMON STOCK............................................ 47
OTHER MATTERS............................................................ 48
WHERE YOU CAN FIND MORE INFORMATION...................................... 48
</TABLE>
APPENDICES:
<TABLE>
<C> <S>
Appendix A --Agreement and Plan of Merger, dated as of December 15, 1998, by
and between Dime Bancorp, Inc. and Lakeview Financial Corp.
Appendix B --Stock Option Agreement, dated as of December 16, 1998, by and
between Dime Bancorp, Inc. and Lakeview Financial Corp.
Appendix C --Form of Shareholder Agreement
Appendix D --Opinion of Sandler O'Neill & Partners, L.P.
Appendix E --Certain Financial Information Relating to Lakeview Financial
Corp.
</TABLE>
iv
<PAGE>
QUESTIONS AND ANSWERS ABOUT THE DIME/LAKEVIEW MERGER
Q:What do I need to do now?
A: Just indicate on your proxy card how you want your shares to be voted, then
sign and mail it in the enclosed prepaid return envelope marked "Proxy" as
soon as possible, so that your shares may be represented and voted at the
special meeting to be held on April 27, 1999.
Your vote is very important. A majority of the votes cast at the special
meeting must be in favor of the merger agreement, and therefore you should
return your signed proxy card as soon as possible.
The Lakeview Board of Directors unanimously recommends voting "FOR" the
proposed merger.
Q: If my shares are held in "street name" by my broker, will my broker vote my
shares for me?
A: Your broker will vote your shares only if you provide instructions on how
to vote. You should follow the directions provided by your broker. Without
instructions, your shares will not be voted on the merger agreement.
Q: Can I change my vote after I have mailed my signed proxy card?
A: Yes. There are three ways for you to revoke your proxy and change your
vote. First, you may send a written notice to the person to whom you
submitted your proxy stating that you would like to revoke your proxy.
Second, you may complete and submit a new proxy card. Third, you may vote
in person at the special meeting. If you have instructed a broker to vote
your shares, you must follow directions received from your broker to change
your vote.
Q:Should I send in my stock certificates now?
A: No. Shortly before the merger is completed, Dime will send you written
instructions for exchanging your stock certificates and making your choice
for the form of consideration you wish to receive (that is, shares of Dime
common stock, cash or both)
Q:When do you expect to merge?
A: We are working towards completing the merger as quickly as possible. In
addition to the approval of the Lakeview shareholders, we must also obtain
certain regulatory approvals. We expect to receive all of these approvals
before June 30, 1999.
Q: Whom should I call with questions or to obtain additional copies of this
proxy statement/prospectus?
A: You should contact either:
Dime Bancorp, Inc.
589 Fifth Avenue, Third Floor
New York, New York 10017
Attention: Investor Relations Department
Telephone: (212) 326-6170
Lakeview Financial Corp.
989 McBride Avenue
West Paterson, New Jersey 07424
Attention: Sandra L. Coulthart
Telephone: (973) 890-1234
1
<PAGE>
SUMMARY
This brief summary highlights selected information from the proxy
statement/prospectus. It does not contain all of the information that is
important to you. We urge you to read carefully the entire proxy
statement/prospectus and the other documents to which we refer to fully
understand the merger. See "Where You Can Find More Information" on page 48.
Each item in this summary refers to the page where that subject is discussed in
more detail.
Merger Consideration will be 0.9 of a Share of Dime Common Stock or $24.26 in
Cash (see page 14)
When the merger is complete, each share of Lakeview common stock will be
converted into the right to receive 0.9 of a share of Dime common stock or
$24.26 in cash, subject to the requirement that in the aggregate approximately
65% of the outstanding shares of Lakeview common stock will be converted into
Dime common stock and the other 35% will be converted into cash.
For example, if you hold 100 shares of Lakeview common stock, you may elect to
receive 90 shares of Dime common stock, $2,426 in cash, or some combination of
the two. The amount of either stock or cash that you actually receive will
depend upon the elections of other Lakeview shareholders. For instance, if you
elect to receive only shares of Dime common stock and all other Lakeview
shareholders make the same election, 65% of your shares would be converted into
Dime common stock and 35% of your shares would be converted into cash, so you
would receive a total of 58 shares of Dime common stock and approximately
$849.10 in cash. Similarly, even if you elect to receive only cash, you may
receive a mix of cash and Dime common stock in the merger.
You will be asked to Elect the Form of Merger Consideration (see page 22)
Prior to the time the merger happens, you will receive an election form, which
you may use to indicate your preference to receive Dime common stock, cash or
both for your shares of Lakeview common stock. Alternatively, you may decide to
make no election, in which case the form of consideration you receive will be
determined by the elections of other Lakeview shareholders. After the deadline
for submitting election forms has passed, an exchange agent chosen by Dime will
allocate the consideration to comply with the requirement that in the aggregate
65% of the outstanding shares of Lakeview common stock will be converted into
Dime common stock and the other 35% will be converted into cash.
Tax Treatment Depends on Type of Merger Consideration Elected (see page 24)
We expect that for United States federal income tax purposes, you generally
will not recognize any gain or loss for your shares of Lakeview common stock
that are converted into shares of Dime common stock. You will, however,
recognize income or gain to the extent your shares of Lakeview common stock are
converted into cash (including cash received instead of fractional shares of
Dime common stock).
We have conditioned the merger on our receipt of legal opinions that the merger
will be treated as a "reorganization" for federal income tax purposes.
This tax treatment may not apply to certain Lakeview shareholders, including
shareholders who are non-U.S. persons or dealers in securities. Determining the
actual tax consequences of the merger to you may be complex. They will depend
on your specific situation and on factors not within our control. You should
consult your own tax advisor for a full understanding of the merger's tax
consequences.
Lakeview Board Recommends Shareholder Approval (see page 15)
Lakeview's Board of Directors believes that the merger is in your best
interests and has unanimously approved the merger agreement. Lakeview's Board
of Directors recommends that Lakeview shareholders vote "FOR" approval of the
merger agreement.
2
<PAGE>
Investment Bank Says Consideration Fair, from a Financial Point of View, to
Lakeview Shareholders (see page 16)
Sandler O'Neill & Partners, L.P. has served as financial advisor to Lakeview in
connection with the merger and has rendered an opinion to the Lakeview Board of
Directors that the consideration to be paid by Dime for the Lakeview common
stock is fair, from a financial point of view, to Lakeview shareholders. A copy
of the opinion delivered by Sandler O'Neill & Partners, L.P. is attached to
this document as Appendix D. You should read the opinion completely to
understand the assumptions made, matters considered and limitations of the
review undertaken by Sandler O'Neill & Partners, L.P. in providing this
opinion.
The merger agreement is attached as Appendix A to this proxy
statement/prospectus. We encourage you to read the merger agreement because it
is the legal document that governs the merger.
Meeting to Be Held on April 27, 1999 (see page 13)
The special meeting of Lakeview shareholders will be held at 10.00 a.m. on
April 27, 1999, at Valley Regency, 1129 Valley Road, Clifton, New Jersey. At
the special meeting, Lakeview shareholders will be asked to vote to approve the
merger agreement that provides for the merger of Lakeview into Dime.
Record Date set at March 18, 1999; Majority Vote of Shareholders Voting at
Meeting Required (see page 13)
You can vote at the special meeting if you owned Lakeview common stock at the
close of business on March 18, 1999. As of that date, there were 4,673,938
shares of Lakeview common stock entitled to be voted at the special meeting.
Approval of the merger agreement requires that a majority of the votes cast at
the special meeting be in favor of the merger.
Certain Shareholders Have Agreed to Vote in Favor of Merger (see page 35)
The directors and executive officers of Lakeview, who are entitled to vote
about 27% of Lakeview's outstanding common stock, have entered into shareholder
agreements with Dime. The shareholder agreements provide that these
shareholders will vote their shares of Lakeview common stock in favor of the
merger agreement.
The directors and executive officers entered into the shareholder agreements in
order to induce Dime to enter into the merger agreement. The shareholder
agreements could discourage other companies from trying to acquire Lakeview.
The form of these shareholder agreements is attached to this document as
Appendix C.
No Appraisal Rights (see page 35)
Lakeview shareholders do not have dissenters' appraisal rights in connection
with the merger.
Information Regarding Dime and Lakeview
Dime Bancorp, Inc.
589 Fifth Avenue, Third Floor
New York, New York 10017
Dime is a Delaware corporation. It is the parent holding company for The Dime
Savings Bank of New York, FSB. Dime Savings Bank has 90 branch offices
throughout the greater New York metropolitan area. Through Dime Savings Bank
and its subsidiaries, Dime provides mortgage banking and consumer financial
services in selected markets throughout the United States. Based on its
consolidated asset size and market capitalization at December 31, 1998, Dime
Savings Bank was the largest savings bank based on the East Coast. At that
date, Dime had consolidated assets of $22.3 billion, deposits of $13.7 billion
and shareholders' equity of $1.4 billion.
Lakeview Financial Corp.
989 McBride Avenue
West Paterson, New Jersey 07424
Lakeview is a New Jersey corporation. It is the parent holding company for
Lakeview Savings Bank. Lakeview Savings Bank has eleven branches in Bergen and
Passaic counties in New Jersey. Through Lakeview Savings Bank and its other
subsidiaries, Lakeview engages in its primary business of accepting savings
deposits from the general public and originating and purchasing mortgage loans.
Lakeview Savings Bank also
3
<PAGE>
originates home equity loans and commercial loans. At January 31, 1998,
Lakeview had consolidated assets of $573.2 million, deposits of $462.1 million
and shareholders' equity of $49.6 million.
Dime to Continue As Surviving Corporation (see page 26)
Dime will be the surviving corporation after the merger. The directors and
officers of Dime in office before the merger will serve as the directors and
officers of Dime after the merger.
Dime to Use Purchase Accounting Treatment (see page 31)
Dime will account for the merger as a purchase for financial reporting
purposes.
Monetary Benefits to Management in the Merger (see page 26)
The directors and executive officers of Lakeview have interests in the merger
in addition to their interests as shareholders of Lakeview generally. These
interests include:
. Some officers have entered into severance agreements with Lakeview pursuant
to which each will receive one or more payments in the event his employment
terminates under certain circumstances following the merger.
. Some officers of Lakeview have entered into consulting agreements with Dime.
. Each member of the Lakeview Board of Directors will be invited to serve on a
New Jersey advisory board to be established by Dime for a one year period
following the merger.
. Following the merger, Dime will indemnify and provide liability insurance to
the officers and directors of Lakeview.
The Lakeview Board of Directors was aware of these interests and took them into
account in approving the merger agreement.
Conditions That Must be Satisfied for the Merger to Occur (see page 27)
Completion of the merger is subject to various conditions, including: (1)
approval of the merger agreement by the Lakeview shareholders; (2) receipt of
all governmental and other consents and approvals that are necessary to permit
completion of the merger; and (3) other usual conditions. Certain of these
conditions to the merger may be waived by Dime or Lakeview, as applicable.
Regulatory Approvals We Must Obtain for the Merger (see page 28)
We cannot complete the merger unless it is approved by the Office of Thrift
Supervision. Dime has filed an application with the Office of Thrift
Supervision seeking its approval. In addition, the merger is subject to the
approval of or notice to certain state and other regulatory authorities. We
have made the necessary filings with these regulatory authorities.
Although we do not know of any reason why we cannot obtain these regulatory
approvals in a timely manner, we cannot be certain when or if we will obtain
them.
Merger Expected to Occur in Second Quarter of 1999 (see page 22)
The merger will occur shortly after all of the conditions to its completion
have been satisfied. It is currently anticipated that the merger will occur in
the second quarter of 1999.
Termination of the Merger Agreement (see page 29).
We can agree to abandon the merger (and terminate the merger agreement) at any
time prior to the time the merger is completed, even if Lakeview's shareholders
have approved the merger agreement. Also, either Lakeview or Dime can decide,
without the consent of the other, to abandon the merger if any of the following
occurs:
. The other party breaches a provision contained in the merger agreement and
does not (or cannot) correct the breach within 30 days.
. The merger has not been completed by September 30, 1999.
. Any regulatory authority denies an approval we need to complete the merger
or issues any order preventing the merger.
4
<PAGE>
. Lakeview's shareholders vote not to approve the merger agreement.
In addition, Dime may abandon the merger if Lakeview's Board of Directors
withdraws its recommendation to Lakeview shareholders to approve the merger
agreement or modifies its recommendation in certain ways. Lakeview may abandon
the merger if it enters into a definitive agreement with a third party which
has made an acquisition proposal superior to Dime's proposal, so long as
Lakeview provides written notice of its intention to terminate at least five
days in advance and pays Dime a termination fee of $400,000. The termination
would also allow Dime to exercise its option to purchase up to 19.9% of
Lakeview's common stock.
Stock Option Agreement (see page 32)
In connection with the merger agreement, Lakeview granted to Dime an option to
purchase shares of Lakeview common stock under certain circumstances. Under the
option Dime may purchase up to 19.9% of the outstanding shares of Lakeview
common stock at a price of $21.50 per share (which was the closing price of
Lakeview common stock on the day before Lakeview and Dime signed the merger
agreement). Under certain circumstances, Lakeview may be required to repurchase
the option (and/or any shares purchased under the option) at a predetermined
price. Instead of purchasing the shares, Dime may choose to surrender the
option to Lakeview for a cash payment of at least $5.5 million.
Dime cannot exercise this option unless certain events occur. These events can
generally be described as business combinations or acquisition transactions
relating to Lakeview and certain related events (other than the merger we are
proposing in this document). We do not know of any event that has occurred as
of the date of this document that would allow Dime to exercise this option.
Lakeview agreed to grant the option to Dime in order to induce Dime to enter
into the merger agreement. The option could have the effect of discouraging
other companies from trying to acquire Lakeview.
The option agreement is attached to this document as Appendix B.
Share Information and Market Prices (see page 46)
Dime common stock is traded on the NYSE under the symbol "DME." Lakeview common
stock is quoted on the Nasdaq National Market under the symbol "LVSB." The
following table sets forth the last sale prices of Dime common stock, Lakeview
common stock and the equivalent price per share on December 15, 1998, the last
trading day before we announced the merger, and on March 19, 1999, the latest
practicable date prior to the mailing of this proxy statement/prospectus.
<TABLE>
<CAPTION>
Equivalent
Per Share
Price of
Dime Lakeview Lakeview
Common Common Common
Stock Stock Stock
------ -------- ----------
<S> <C> <C> <C>
December 15, 1998.................................... $24.25 $22 $21.825
March 19, 1999....................................... $25.00 $22.44 $22.50
</TABLE>
The market prices of both Dime and Lakeview common stock will fluctuate prior
to the merger. You should obtain current market quotations for Dime common
stock and Lakeview common stock.
5
<PAGE>
Comparison of Unaudited Per Share Data
The following table shows information about our per share net income, cash
dividends and book value, and similar information after giving effect to the
merger (which is called "pro forma" information). In presenting the pro forma
information for certain time periods, we assumed that we merged as of the
beginning of the period presented. The pro forma information gives effect to
the merger under the purchase method of accounting in accordance with generally
accepted accounting principles (commonly called "GAAP").
We expect that we will incur merger and integration charges. The pro forma
information, while helpful in illustrating the financial characteristics of the
combined company under one set of assumptions, does not reflect these expenses
and, accordingly, does not attempt to predict or suggest future results. It
also does not necessarily reflect what the historical results of the combined
company would have been had our companies been combined.
The information in the following table should be read together with the
historical financial information that we have presented in our prior filings
with the Securities and Exchange Commission. We have incorporated this material
into this document by reference to those other filings. See "Where You Can Find
More Information" on page 48.
<TABLE>
<CAPTION>
At or For
At or For the Nine the
Months Ended Year Ended
September 30, December 31,
1998 1997
------------------ ------------
Dime Common Stock
<S> <C> <C>
Income before extraordinary items per basic
common share:
Historical.................................. $ 1.57 $ 1.15
Pro forma combined(1)....................... 1.59 1.16
Income before extraordinary items per diluted
common share:
Historical.................................. 1.54 1.13
Pro forma combined(1)....................... 1.56 1.14
Dividends per common share:
Historical.................................. 0.14 0.12
Pro forma combined(2)....................... 0.14 0.12
Book value per common share:
Historical.................................. 11.96 11.30
Pro forma combined.......................... 12.27 11.61
Lakeview Common Stock
Income before extraordinary items per basic
common share:
Historical(3)............................... $ 2.23 $ 1.69
Equivalent pro forma combined(4)............ 1.43 1.04
Income before extraordinary items per diluted
common share:
Historical(3)............................... 1.99 1.52
Equivalent pro forma combined(4)............ 1.40 1.03
Dividends per common share:
Historical(3)............................... 0.16 0.13
Equivalent pro forma combined(4)............ 0.13 0.11
Book value per common share:
Historical(3)............................... 11.60 13.29
Equivalent pro forma combined(4)............ 11.04 10.45
</TABLE>
- --------
(1) The pro forma combined data at or for the nine months ended September 30,
1998 reflect Lakeview's results and common shares outstanding at or for the
nine months ended July 31, 1998. The pro forma combined data at or for the
year ended December 31, 1997 reflect Lakeview's results and common shares
outstanding at or for the year ended October 31, 1997.
(2) Pro forma combined dividends per common share represent historical
dividends of Dime.
(3) The historical data of Lakeview at or for the nine months ended September
30, 1998 reflect Lakeview's results and common shares outstanding at or for
the nine months ended July 31, 1998. The historical data of Lakeview at or
for the year ended December 31, 1997 reflect Lakeview's results and common
shares outstanding at or for the year ended October 31, 1997.
(4) Equivalent pro forma combined per share amounts were computed by
multiplying the pro forma combined per share amounts by the exchange ratio
of 0.9.
6
<PAGE>
Selected Financial Data of Dime
The following table presents selected historical financial data of Dime
derived from Dime's previously filed financial statements. The interim
financial information has been derived from unaudited financial statements of
Dime. Dime believes that these financial statements include all adjustments of
a normal, recurring nature and all disclosures that are necessary for a fair
statement of the results for the unaudited interim periods. Results for the
interim periods do not necessarily indicate results which may be expected for
any other interim or annual period.
The information in the following table should be read together with the
historical financial information that Dime has presented in its prior filings
with the Securities and Exchange Commission. Dime has incorporated this
material into this document by reference to those other filings. See "Where You
Can Find More Information" on page 48.
<TABLE>
<CAPTION>
At or For the
Nine Months Ended
September 30, At or For the Year Ended December 31,
------------------------ -------------------------------------------------------------
1998 1997 1997 1996 1995 1994 1993
----------- ----------- ----------- ----------- ----------- ----------- -----------
(In thousands, except per share data)
SUMMARY OF OPERATIONS
<S> <C> <C> <C> <C> <C> <C> <C>
Net interest income.... $ 394,069 $ 356,537 $ 483,062 $ 461,295 $ 409,626 $ 429,077 $ 390,172
Provision for loan
losses................ 24,000 41,000 49,000 41,000 39,650 55,799 95,489
Non-interest income.... 380,405 87,121 145,291 85,978 74,712 89,900 134,381
Non-interest expense... 486,558 240,352 381,145 352,033 334,776 384,042 407,888
Minority interest-
preferred
stock dividends of
subsidiary............ -- -- -- -- -- 11,433 1,312
Income tax expense
(benefit)............. 84,452 62,091 75,034 49,984 47,727 (53,138) (68,959)
----------- ----------- ----------- ----------- ----------- ----------- -----------
Income before
extraordinary items
and cumulative effect
of a change in
accounting principle.. 179,464 100,215 123,174 104,256 62,185 120,841 88,823
Extraordinary items,
net of tax benefits... (4,057) -- (1,460) -- -- -- --
Cumulative effect of a
change in accounting
principle, net of tax
benefits.............. -- -- -- -- -- (92,887) (1,187)
----------- ----------- ----------- ----------- ----------- ----------- -----------
Net income............. $ 175,407 $ 100,215 $ 121,714 $ 104,256 $ 62,185 $ 27,954 $ 87,636
=========== =========== =========== =========== =========== =========== ===========
PER SHARE AMOUNTS
Basic earnings:
Income before
extraordinary items
and cumulative effect
of a change in
accounting principle.. $ 1.57 $ 0.97 $ 1.15 $ 1.00 $ 0.63 $ 1.23 $ 1.01
Net income............. 1.54 0.97 1.14 1.00 0.63 0.28 1.00
Diluted earnings:
Income before
extraordinary items
and cumulative effect
of a change in
accounting principle.. 1.54 0.95 1.13 0.96 0.57 1.12 0.91
Net income............. 1.51 0.95 1.12 0.96 0.57 0.26 0.90
Dividends declared..... 0.14 0.08 0.12 -- -- -- --
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING
Basic.................. 114,140 103,823 106,585 103,742 99,356 98,334 87,957
Diluted................ 115,919 105,553 108,613 109,097 109,742 107,668 97,153
FINANCIAL CONDITION
(PERIOD END)
Total assets........... $21,242,833 $19,413,597 $21,848,000 $18,870,108 $20,326,620 $19,647,937 $18,098,984
Interest-earning
assets................ 19,490,571 18,492,304 20,279,118 18,098,933 19,463,798 18,802,613 17,206,959
Loans receivable, net.. 12,455,170 12,035,948 12,879,789 10,631,562 9,702,018 9,181,239 7,749,058
Deposits............... 13,546,265 13,392,320 13,847,275 12,856,739 12,572,203 12,811,269 11,091,362
Stockholders' equity... 1,339,802 1,053,004 1,314,858 1,022,337 976,530 905,125 904,982
</TABLE>
7
<PAGE>
Selected Financial Data of Lakeview
The following table presents selected historical financial data of Lakeview
derived from Lakeview's previously filed financial statements. The interim
financial information has been derived from unaudited financial statements of
Lakeview. Lakeview believes that these financial statements include all
adjustments of a normal, recurring nature and all disclosures that are
necessary for a fair statement of the results for the unaudited interim
periods. Results for the interim periods do not necessarily indicate results
which may be expected for any other interim or annual period.
The information in the following table should be read together with the
historical financial information that Lakeview has presented in its prior
filings with the Securities and Exchange Commission, recent copies of which are
included in Appendix E to this proxy statement/prospectus. This material is
incorporated into this document by reference to those other filings. See "Where
You Can Find More Information" on page 48.
<TABLE>
<CAPTION>
At or For the
Six Months Ended
January 31, At or For the Fiscal Year Ended July 31,
------------------ --------------------------------------------
1999 1998 1998 1997 1996 1995 1994
-------- -------- -------- -------- -------- -------- --------
(In thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
SUMMARY OF OPERATIONS
Net interest income.... $ 9,576 $ 8,354 $ 17,575 $ 15,524 $ 14,422 $ 14,891 $ 11,212
Provision for loan
losses................ 450 601 1,500 961 664 1,801 2,047
Non-interest income
(loss)................ (2,780) 4,117 11,812 8,102 7,030 7,207 2,609
Non-interest expense... 7,114 5,851 12,852 13,155 10,868 10,266 6,705
Income tax expense
(benefit)............. (12) 2,205 5,590 3,449 3,646 3,736 1,813
-------- -------- -------- -------- -------- -------- --------
Income (loss) before
cumulative effect of a
change in accounting
principle............. (756) 3,814 9,445 6,061 6,274 6,295 3,256
Cumulative effect of a
change in accounting
principle............. -- -- -- -- -- -- 1,315
-------- -------- -------- -------- -------- -------- --------
Net income (loss)...... $ (756) $ 3,814 $ 9,445 $ 6,061 $ 6,274 $ 6,295 $ 4,571
======== ======== ======== ======== ======== ======== ========
PER SHARE AMOUNTS
Basic:
Income (loss) before
cumulative effect of a
change in accounting
principle............. $ (0.18) $ 1.06 $ 2.51 $ 1.48 $ 1.22 $ 1.05 N/A*
Net income (loss)...... (0.18) 1.06 2.51 1.48 1.22 1.05 N/A*
Diluted:
Income (loss) before
cumulative effect of a
change in accounting
principle............. (0.17) 0.90 2.28 1.30 1.14 1.00 N/A*
Net income (loss)...... (0.17) 0.90 2.28 1.30 1.14 1.00 N/A*
-------- -------- -------- -------- -------- -------- --------
Dividends declared..... 0.12 0.06 0.19 0.12 0.11 0.10 0.02
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING
Basic.................. 4,193 3,590 3,760 4,081 5,123 5,981 N/A*
Diluted................ 4,469 4,234 4,135 4,666 5,491 6,282 N/A*
FINANCIAL CONDITION
(PERIOD END)
Total assets........... $573,178 $472,691 $593,856 $505,882 $457,860 $419,212 $413,725
Interest-earning
assets................ 523,227 444,382 554,864 478,637 426,100 384,390 385,822
Loans receivable, net.. 287,220 238,832 286,869 224,564 163,457 142,123 136,143
Deposits............... 462,133 360,659 456,880 370,787 354,247 343,489 344,915
Stockholders' equity... 49,572 45,625 56,607 61,809 45,760 49,440 46,982
</TABLE>
- --------
*Initial years at IPO.
8
<PAGE>
Selected Unaudited Pro Forma Financial Data of Dime and Lakeview
The following unaudited selected pro forma financial data combine Dime's
historical results with Lakeview's historical results, in each case as of or
for the nine months ended September 30, 1998 and as of or for the fiscal year
ended December 31, 1997, giving effect to the merger as if it had occurred on
January 1, 1997. The pro forma combined data at or for the nine months ended
September 30, 1998 reflect Lakeview's results and common shares outstanding at
or for the nine months ended July 31, 1998. The pro forma combined data at or
for the year ended December 31, 1997 reflect Lakeview's results and common
shares outstanding at or for the year ended October 31, 1997.
The information in the following table should be read together with the
historical financial information that Dime and Lakeview have presented in their
prior filings with the Securities and Exchange Commission. See "Where You Can
Find More Information" on page 48.
<TABLE>
<CAPTION>
Pro Forma Combined
-------------------------------------
For the Nine
Months Ended For the Year Ended
September 30, 1998 December 31, 1997
------------------ ------------------
<S> <C> <C>
(In thousands, except per share data)
SUMMARY OF OPERATIONS:
Net interest income.................... $ 406,225 $497,623
Provision for loan losses.............. 25,199 50,157
Non-interest income.................... 391,472 152,524
Non-interest expense................... 497,897 394,507
Income tax expense..................... 88,903 78,361
----------- --------
Income before extraordinary items...... $ 185,698 $127,122
=========== ========
PER SHARE AMOUNTS:
Income before extraordinary items,
basic................................. $ 1.59 $ 1.16
Income before extraordinary items,
diluted............................... 1.56 1.14
Dividends declared..................... 0.14 0.12
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING:
Basic.................................. 116,995 109,440
Diluted................................ 118,774 111,468
<CAPTION>
Pro Forma Combined
at September 30,
1998
------------------
(In thousands)
<S> <C> <C>
FINANCIAL CONDITION DATA:
Total assets........................... $21,899,637
Interest-earning assets................ 20,055,875
Loans receivable, net.................. 12,748,696
Deposits............................... 14,006,708
Stockholders' equity................... 1,409,070
</TABLE>
9
<PAGE>
RISK FACTORS
In addition to the information contained elsewhere in this proxy
statement/prospectus or incorporated in this proxy statement/prospectus by
reference, Lakeview shareholders evaluating the merger should carefully
consider the following factors before making any final decision. See "Where You
Can Find More Information."
An Economic Downturn May Lead to Less Demand for Dime's Services and Reduce
Dime's Earnings
Dime's business faces various business risks. In a recession or other
economic downturn, these risks would probably become more acute, and might lead
to less demand for Dime's loan production or other services. The volume of
Dime's loan production depends upon demand for the types of loans produced by
Dime and the competition for such loans in the marketplace. Fluctuations in
consumer confidence, real estate values, interest rates and investment returns
could combine to make the types of loans produced by Dime less attractive. In
particular, an increase in long-term interest rates could reduce the volume of
loans funded and sold by Dime and thereby reduce Dime's earnings. In addition,
during recessions and economic downturns, the number of foreclosures generally
increases, which could lead to a higher number of lawsuits against Dime.
Changes in Interest Rates May Reduce Dime's Net Interest Income
Dime realizes a major part of its income from the differential or "spread"
between the interest it earns on its assets, such as loans and investments, and
the interest it pays on its liabilities, such as deposits and borrowings.
Differences between the maturity and repricing terms of these assets and
liabilities affect the size of the spread. In general, Dime's interest-bearing
liabilities reprice or mature sooner than its interest-earning assets. This
means that higher interest rates may decrease the spread and reduce Dime's net
interest income. If interest rates decline, however, Dime's loans and
investments may, on average, reprice sooner than its deposits or be prepaid
earlier than expected, which may also decrease the spread and lower Dime's net
interest income. In addition, changes in the relationship between long-term and
short-term interest rates (known as the "yield curve") or changes in the
relationship between Dime's funding costs and the return on its loans and other
investments can adversely impact Dime's net interest spread and net interest
income.
In addition, Dime earns a large part of its revenues from mortgage banking
activities, which are also subject to interest rate risk. First, Dime holds a
large portfolio of mortgage servicing assets. When interest rates fall,
borrowers are more likely to prepay the loans underlying these assets, which
leads to lower future servicing revenues and therefore a decline in the value
of these mortgage servicing assets. Second, Dime produces mortgage loans and
then sells them in the secondary mortgage market as mortgage-backed securities.
As a result, Dime faces the risk that interest rates may change between the
time of production and the time of sale.
Dime uses a variety of techniques to try to reduce its exposure to interest
rate fluctuations, but it cannot eliminate this risk.
Year 2000 Issue May Cause Computer-Related Disruptions
Many existing computer programs use only two digits to identify a year in a
data field. These programs were designed and developed without considering the
upcoming end of the century. If not corrected, many computer applications could
fail or create erroneous results by or at the year 2000 or possibly earlier.
The Year 2000 issue affects Dime because the financial services industry
depends heavily on computer applications in a variety of ways, including the
following:
. Dime relies on computer systems in almost all aspects of its business,
including the processing of deposits, loans and other services and
products offered to customers as well as for certain environmental
issues such as heating, ventilation and air conditioning in certain
buildings where Dime conducts its business, and the failure of these
computer systems could cause disruptions and failures in the products
and services offered by Dime.
10
<PAGE>
. Other banks, clearinghouses and vendors whose products and services Dime
uses are at risk of disruptions and failures in the event that these
entities have not adequately addressed their Year 2000 issues.
. The creditworthiness of borrowers and the stability of Dime Savings
Bank's deposits might be diminished by disruptions of the businesses of
Dime Savings Bank's borrowers as a result of their own or others'
failure to address adequately the Year 2000 issue.
. Federal banking agencies have issued guidance on the business-wide risk
posed to financial institutions by the Year 2000 problem. These agencies
may take supervisory actions against financial institutions that fail to
address Year 2000 issues appropriately.
In order to address the Year 2000 issues facing Dime, Dime's management
initiated a program to prepare Dime's computer systems and applications for the
Year 2000. Dime has completed the process of assessing and analyzing the
systems issues associated with the Year 2000 problem and has adopted a plan to
modify or replace certain existing systems or software. In addition, Dime has
substantially completed testing of its internal mission critical systems and
the development of contingency plans for such systems.
Further, Dime is communicating with important vendors and service providers
to evaluate their readiness to meet the Year 2000 challenge and determine
Dime's exposure if they fail to address the problem. Dime has begun testing to
confirm the readiness of its important systems that work with third party
systems and expects to have substantially completed these tests by March 31,
1999. Dime estimates that it will spend approximately $20 million in connection
with its Year 2000 program; it had spent approximately $17.5 million as of
December 31, 1998. The total cost estimate reflects consulting fees associated
with software modification, project management and programming, but does not
reflect the costs of having Dime personnel spend time on Year 2000 issues or
capital expenditures on systems that would have been made regardless of Year
2000 issues. Dime cannot guarantee that its efforts will be accomplished in a
timely manner or that the failure to do so will not have a material adverse
effect on Dime.
Dime is Extensively Regulated
The operations of Dime and Dime Savings Bank are subject to extensive
regulation by federal, state and local governmental authorities and are subject
to various laws and judicial and administrative decisions imposing requirements
and restrictions on them. Policies adopted by the entities can affect Dime's
business operations and the availability, growth and distribution of Dime's
investments, borrowings and deposits. In addition, federal authorities
periodically conduct examinations of Dime and Dime Savings Bank and may impose
various requirements or sanctions.
Most of Dime's cash flow comes from dividends and other capital distributions
paid to Dime by Dime Savings Bank, and Dime's ability to pay dividends to its
shareholders is therefore dependent upon its ability to receive these
distributions. Certain statutes and regulations restrict Dime Savings Bank's
ability to pay dividends or make other distributions on its capital stock and
thus limit the transfer of funds to Dime.
Legislative and Regulatory Proposals May Unfavorably Affect Dime
Proposals to change the laws governing financial institutions are frequently
raised in Congress and before bank regulatory authorities. Changes in
applicable laws or policies could materially affect Dime's business, and the
likelihood of any major changes in the future and their effects are impossible
to determine. Moreover, it is impossible to predict the ultimate form any
proposed legislation might take or how it might affect Dime.
Intense Competition Exists for Loans and Deposits
Competition among financial institutions in attracting and retaining deposits
and making loans is intense. Traditionally, Dime Savings Bank has faced
competition for deposits from other thrifts and commercial banks in the greater
New York metropolitan area. However, in recent years "nonbank" investment
alternatives such
11
<PAGE>
as money market mutual funds and corporate and governmental debt securities,
have become significant competitors for available funds. Dime Savings Bank
competes for loans with other thrift institutions, commercial banks, mortgage
banking companies, consumer finance companies, insurance companies and other
institutional investors and lenders. Many of the institutions that Dime Savings
Bank competes with for deposits and loans are substantially larger than Dime
Savings Bank.
FORWARD-LOOKING STATEMENTS
This proxy statement/prospectus contains certain forward-looking statements
with respect to the financial condition, results of operations and business of
Dime. These statements may be made directly in this document or may be
incorporated in this document by reference to other documents and may include
statements for the period following the consummation of the merger. You can
find many of these statements by looking for words such as "believes,"
"expects," "anticipates," "estimates" or similar expressions. These forward-
looking statements involve substantial risks and uncertainties. Some of the
factors that may cause actual results to differ materially from those
contemplated by such forward-looking statements include the following
possibilities:
. combining the businesses of Dime and Lakeview may cost more than we
expect;
. integrating the businesses of Dime and Lakeview and retaining key
personnel may be more difficult than we expect;
. our revenues after the merger may be lower than we expect;
. we may lose more business or customers after the merger than we expect,
or our operating costs may be higher than we expect;
. there may be increases in competitive pressure among financial
institutions;
. changes in the interest rate environment may reduce interest margins;
. general economic conditions, either nationally or in some or all of the
states in which the combined company will be doing business, or
conditions in securities markets, may be less favorable than we
currently anticipate; or
. legislation or regulatory changes may adversely affect our business.
12
<PAGE>
SPECIAL MEETING
General
The Board of Directors of Lakeview (the "Lakeview Board") is providing this
proxy statement/prospectus to the holders of Lakeview common stock for the
solicitation of proxies for use at the special meeting of Lakeview shareholders
and at any adjournments or postponements of that meeting. The special meeting
is scheduled to be held at Valley Regency, 1129 Valley Road, Clifton, New
Jersey at 10:00 a.m. on April 27, 1999.
Dime is also providing this proxy statement/prospectus to Lakeview
shareholders as a prospectus for the offer and sale by Dime of shares of Dime
common stock to Lakeview shareholders in connection with the merger of Lakeview
into Dime.
Record Date
The Lakeview Board has fixed the close of business on March 18, 1999, as the
record date for determining the Lakeview shareholders entitled to receive
notice of and to vote at the special meeting. As of the record date, there were
issued and outstanding 4,673,938 shares of Lakeview common stock. Only holders
of record of Lakeview common stock as of the record date are entitled to notice
of and to vote at the special meeting.
The presence, in person or by properly executed proxy, of the holders of a
majority of the outstanding shares is necessary to constitute a quorum at the
special meeting. Abstentions and broker non-votes (as described below) will be
counted solely for the purpose of determining whether a quorum is present.
Under the applicable rules of the NYSE and NASD, brokers or members who hold
shares in street name for customers who are the beneficial owners of such
shares are prohibited from giving a proxy to vote those shares with respect to
the approval of the merger agreement in the absence of specific instructions
from such customers ("broker non-votes"). Abstentions and broker non-votes will
not be deemed to be cast either "FOR" or "AGAINST" the merger agreement.
Solicitation and Revocability of Proxies
Proxies in the form accompanying this document are being solicited by the
Lakeview Board. Shares represented by properly executed proxies, if such
proxies are received in time and are not revoked, will be voted in accordance
with the instructions indicated on the proxies. Except for broker non-votes, if
no instructions are indicated, such proxies will be voted "FOR" approval of the
merger agreement and, as determined by a majority of the Lakeview Board, as to
any other matter that may come before the special meeting including, among
other things, a motion to adjourn or postpone the special meeting to another
time and/or place, for the purpose of soliciting additional proxies or
otherwise. No proxy with instructions to vote against the proposal to approve
the merger agreement, however, will be voted in favor of any adjournment or
postponement of the special meeting.
A shareholder who has given a proxy may revoke it at any time prior to its
exercise at the special meeting by (1) giving written notice of revocation to
the Acting Secretary of Lakeview, (2) properly submitting a duly executed proxy
bearing a later date, or (3) voting in person at the special meeting. All
written notices of revocation and other communications with respect to the
revocation of proxies should be addressed to Lakeview Financial Corp., 989
McBride Avenue, West Paterson, New Jersey 07424, Attention: Acting Secretary. A
shareholder whose shares are held in street name should follow the instructions
of his or her broker regarding revocation of proxies. A proxy appointment will
not be revoked by the death or incapacity of the shareholder executing the
proxy unless, before the shares are voted, notice of such death or incapacity
is filed with the acting Secretary of Lakeview or other person responsible for
tabulating votes on behalf of Lakeview.
Vote Required
Approval of the merger agreement requires the affirmative vote of a majority
of the votes cast at the special meeting.
13
<PAGE>
As of the record date, Dime held no shares of Lakeview common stock and none
of Dime's directors or executive officers or their affiliates held any shares
of Lakeview common stock. The directors and executive officers of Lakeview are
entitled to vote approximately 27% of the outstanding shares of Lakeview common
stock. As an inducement to Dime to enter into the merger agreement, these
directors and executive officers have already agreed to vote their shares in
favor of the merger agreement.
Recommendation of Board of Directors
For the reasons described in the section of this proxy statement/prospectus
entitled "The Merger--Reasons of Lakeview for the Merger and Recommendation of
the Lakeview Board," the Lakeview Board has unanimously approved the merger
agreement, believes that the merger is in the best interests of Lakeview and
recommends that shareholders of Lakeview vote "FOR" approval of the merger
agreement. See also "The Merger--Background of the Merger" and "--Interests of
Certain Persons in the Merger."
THE MERGER
The following information describes certain information pertaining to the
merger. This description is not complete and is qualified in its entirety by
reference to the Appendices attached to this proxy statement/prospectus, which
are incorporated herein by reference. We urge you to read the Appendices in
their entirety.
General
The merger agreement provides for a transaction in which Lakeview will merge
into Dime. Dime will be the surviving corporation of the merger. At the
Effective Time (as defined below), each share of issued and outstanding
Lakeview common stock will cease to be outstanding and (excluding any shares
held by Lakeview or Dime or their subsidiaries) will be converted into the
right to receive, at the election of each Lakeview shareholder, either (1) 0.9
(the "Exchange Ratio") of a share of Dime common stock (the "Per Share Stock
Consideration") or (2) $24.26 in cash (the "Per Share Cash Consideration").
Lakeview shareholders may also elect a combination of Dime common stock and
cash for their shares. In addition, Dime and Lakeview have agreed that, in the
aggregate, 65% of the outstanding shares of Lakeview common stock will be
converted into Dime common stock and 35% of the outstanding shares of Lakeview
common stock will be converted into cash. Therefore, Lakeview shareholders may
receive a combination of cash and Dime common stock for their shares based on
the choices made by the other Lakeview shareholders.
The merger agreement provides that Dime may change the way it combines with
Lakeview, provided that it cannot alter the consideration to be received by
Lakeview shareholders, adversely affect the tax treatment for Lakeview
shareholders or materially impede or delay the merger.
Dime and Lakeview expect to merge Lakeview Savings Bank with Dime Savings
Bank (the "Bank Merger") on or about the Effective Time.
Background of the Merger
On October 8, 1998, after considering Lakeview's financial performance, the
active financial institution merger and acquisition market in New Jersey, and
the strong economy, Lakeview issued a press release stating that the Lakeview
Board had determined that it was in the best interest of its shareholders to
seek a sale or merger of Lakeview. The Lakeview Board approved the engagement
of Sandler O'Neill to act as an independent financial advisor to Lakeview in
connection with a possible business combination. The Lakeview Board authorized
Sandler O'Neill to explore the market and contact potential acquirors to
determine the feasibility and economics of a merger of Lakeview with another
financial institution or its holding company and to assist in structuring and
negotiating a possible business combination transaction. Sandler O'Neill was
also engaged to render its opinion regarding the fairness, from a financial
point of view, of the consideration proposed to be received by the shareholders
of Lakeview in business combination.
14
<PAGE>
In mid-October 1998, Lakeview's management, with assistance from Sandler
O'Neill, identified approximately 15 companies believed to be the most likely
to offer favorable terms to acquire Lakeview. Sandler O'Neill then contacted
these institutions on a no-name basis to determine their interest in a business
combination. Based on discussions with Sandler O'Neill, seven parties elected
to receive additional confidential information about Lakeview. These
prospective candidates were given a specific time to review the information.
In November 1998, three institutions submitted formal indications of interest
regarding a possible business combination with Lakeview. Lakeview management
met with Sandler O'Neill and legal counsel to review the indications of
interest.
During the weeks of November 9, November 16 and November 23, three
institutions completed a detailed on-site due diligence on Lakeview.
Two of these institutions presented revised proposals in early December 1998.
An analysis of the revised proposals was presented by Sandler O'Neill to the
Lakeview Board on December 8, 1998. Dime's proposal was the highest in dollar
value to Lakeview's shareholders. The Lakeview Board engaged in a comprehensive
discussion and analysis of the following factors in determining with which
merger candidate to proceed:
(1) the Lakeview Board's obligation to provide a favorable investment
return to Lakeview's shareholders;
(2) the market risk and opportunity associated with a stock-for-stock
transaction;
(3) the ability of the parties to complete the transaction;
(4) the tax and accounting consequences of the transaction to Lakeview's
shareholders;
(5) the proposed terms of a definitive agreement; and
(6) the effect of the proposed transaction on employees, customers and
the community.
After completing its analysis, the Lakeview Board authorized and directed
management, its legal counsel and Sandler O'Neill to continue negotiations with
Dime regarding the terms of a merger agreement. During the next week, legal
counsel, Sandler O'Neill and Lakeview management continued to negotiate the
proposed agreement.
In addition, during the week of December 7, 1998, Lakeview personnel, Sandler
O'Neill personnel and Lakeview's legal representatives met with representatives
of Dime to perform due diligence on Dime.
On December 15, 1998, legal counsel, Sandler O'Neill and Lakeview management
reviewed with the Lakeview Board the terms of the proposed merger agreement and
Sandler O'Neill discussed the proposed consideration to be received by Lakeview
shareholders. Specifically, Sandler O'Neill discussed the proposal that each
share of Lakeview common stock will be converted into the right to receive 0.9
of a share of Dime common stock or $24.26 in cash, subject to the requirement
that in the aggregate approximately 65% of the outstanding shares of Lakeview
common stock would be converted into Dime common stock and the other 35% would
be converted into cash (the "Consideration"). Sandler O'Neill discussed the
fairness of the proposed Consideration to Lakeview shareholders from a
financial point of view. The Lakeview Board determined that the Dime offer
would produce the maximum benefit to Lakeview's shareholders. Further, the
Lakeview Board felt that the proposed transaction with Dime offered a greater
likelihood of stability in the operations of Lakeview Savings Bank, thereby
benefitting employees, customers and the community. As a result, the Lakeview
Board unanimously approved the merger agreement.
Reasons of Lakeview for the Merger and Recommendation of the Lakeview Board
The Lakeview Board believes that the merger is fair to, and in the best
interests of, Lakeview and its shareholders. Accordingly, the Lakeview Board
unanimously approved the merger agreement and the merger and recommends that
Lakeview shareholders vote FOR the approval of the merger agreement.
15
<PAGE>
In reaching its determination that the merger is fair to, and in the best
interests of, Lakeview and its shareholders, the Lakeview Board considered a
number of factors, including the following:
(1) the current condition and growth prospects of Lakeview and Lakeview
Savings Bank, as well as Lakeview's historical results of operations and
prospective results of operations were Lakeview to remain independent;
(2) the economic, business and competitive climate for banking and
financial institutions in New Jersey, with special consideration given to
recent transactions that have increased the competitive environment in the
financial services and banking industry;
(3) the consideration offered to Lakeview shareholders by Dime (a) in
absolute terms, (b) as compared to the value of other offers received from
qualified and informed potential acquirers, whose offers were each less
than Dime's offer, and (c) as compared to recent mergers and acquisitions
involving other banking and financial institutions in New Jersey and
nationally;
(4) the potential market value, liquidity and dividend yield of Lakeview
common stock if Lakeview were to remain independent;
(5) the historically greater liquidity represented by the Dime common
stock to be received in the merger;
(6) the greater financial and management resources and customer product
offerings of Dime, which could increase the competitiveness of the combined
institution in Dime's market area and ability to serve the depositors,
customers and communities currently served by Dime;
(7) the historical results of operations and financial condition of Dime
and the future prospects for Dime, including anticipated benefits of the
merger;
(8) the future growth prospects of Dime following the merger;
(9) the fact that the merger will be a tax-free exchange to Lakeview
shareholders for federal income tax purposes to the extent they receive
Dime common stock as consideration in exchange for their shares of Lakeview
common stock; and
(10) the presentation of Sandler O'Neill and the fact that Sandler
O'Neill would render an opinion that the consideration to be received in
the merger by Lakeview shareholders was fair to such holders from a
financial point of view.
The foregoing list of factors is not intended to be an exhaustive list, but
is intended to include the material factors considered by the Lakeview Board.
In reaching its determination to approve and recommend the merger, the Lakeview
Board did not assign any relative or specific weights to the foregoing factors,
and the individual directors may have given differing weights to different
factors.
The Lakeview Board unanimously recommends that all shareholders of Lakeview
approve the merger agreement.
Opinion of Lakeview Financial Advisor
By letter agreement dated as of September 18, 1998, Lakeview retained Sandler
O'Neill as an independent financial advisor in connection with Lakeview's
general strategic analyses and its consideration of possible business
combinations with a second party. Sandler O'Neill is a nationally recognized
investment banking firm whose principal business specialty is financial
institutions. In the ordinary course of its investment banking business,
Sandler O'Neill is regularly engaged in the valuation of financial institutions
and their securities in connection with mergers and acquisitions and other
corporate transactions.
16
<PAGE>
Sandler O'Neill acted as financial advisor to Lakeview in connection with the
merger and participated in certain of the negotiations leading to the execution
of the merger agreement. At the request of the Lakeview Board, representatives
of Sandler O'Neill attended the December 8, 1998 and December 15, 1998 meetings
of the Lakeview Board at which the Board considered and approved the merger
agreement. At the December 15th meeting, Sandler O'Neill delivered to the
Lakeview Board its written opinion that, as of such date, the Consideration was
fair to the Lakeview shareholders from a financial point of view. Sandler
O'Neill has also delivered to the Lakeview Board a written opinion dated the
date of this proxy statement/prospectus (the "Sandler Opinion"), which is
substantially identical to the December 15, 1998 opinion. The full text of the
Sandler Opinion is attached as Appendix D to this proxy statement/prospectus.
The Sandler Opinion outlines the procedures followed, assumptions made, matters
considered and qualifications and limitations on the review undertaken by
Sandler O'Neill in rendering the opinion. The Sandler Opinion is incorporated
by reference into this description of the opinion and this description is
qualified in its entirety by reference to the Sandler Opinion. Lakeview
shareholders are urged to carefully read the Sandler Opinion in connection with
their consideration of the merger.
The Sandler Opinion was directed to the Lakeview Board and was provided to
the Lakeview Board for its information in considering the merger. The Sandler
Opinion is directed only to the fairness of the consideration to Lakeview
shareholders from a financial point of view. It does not address the underlying
business decision of Lakeview to engage in the merger or any other aspect of
the merger and is not a recommendation to any Lakeview shareholder as to how
such shareholder should vote at the special meeting with respect to the merger
or any other related matter.
In rendering its December 15, 1998 opinion, Sandler O'Neill performed a
variety of financial analyses. The following is a summary of the material
analyses performed by Sandler O'Neill, but is not a complete description of all
the analyses underlying Sandler O'Neill's opinion. The preparation of a
fairness opinion is a complex process involving subjective judgments as to the
most appropriate and relevant methods of financial analysis and the application
of those methods to the particular circumstances. The process, therefore, is
not necessarily susceptible to a partial analysis or summary description.
Sandler O'Neill believes that its analyses must be considered as a whole and
that selecting portions of the factors and analyses considered without
considering all factors and analyses, or attempting to ascribe relative weights
to some or all such factors and analyses, could create an incomplete view of
the evaluation process underlying its opinion.
In performing its analyses, Sandler O'Neill made numerous assumptions with
respect to industry performance, business and economic conditions and various
other matters, many of which cannot be predicted and are beyond the control of
Lakeview, Dime and Sandler O'Neill. The analyses performed by Sandler O'Neill
are not necessarily indicative of actual values or future results, which may be
significantly more or less favorable than suggested by such analyses. Sandler
O'Neill prepared its analyses solely for the purpose of rendering its opinion
and provided such analyses to the Lakeview Board at the December 8th meeting.
Estimates on the values of companies do not purport to be appraisals or
necessarily reflect the prices at which companies or their securities may
actually be sold. Such estimates are inherently subject to uncertainty and
actual values may be materially different. Accordingly, Sandler O'Neill's
analyses do not necessarily reflect the value of Lakeview common stock or Dime
common stock or the prices at which Lakeview common stock or Dime common stock
may be sold at any time.
Summary of Proposal. Sandler O'Neill reviewed the financial terms of the
proposed transaction. Based on the closing price of Dime common stock on
December 7, 1998 of $26.75, an exchange ratio of 0.9 of a share of Dime common
stock per share for 65% of the outstanding Lakeview common stock and $24.26 in
cash per share in cash for the other 35% of the outstanding Lakeview common
stock, Sandler O'Neill calculated an implied transaction value per share of the
Lakeview common stock of $24.14 (the "Implied Value"). The implied aggregate
transaction value was $124 million, based upon the Implied Value of $24.14 and
5,150,714 fully diluted shares of Lakeview common stock outstanding, which was
determined using the treasury stock
17
<PAGE>
method at the Implied Value, and included all shares held by the Employee Stock
Ownership Plan. Based upon the Implied Value and Lakeview's October 31, 1998
financial information, Sandler O'Neill calculated the following ratios:
<TABLE>
<S> <C>
Implied Value/Tangible Book Value................................. 4.08x
Implied Value/Book Value.......................................... 2.56x
Implied Value/LTM Normalized EPS.................................. 29.81x
Implied Value/Estimated EPS....................................... 20.94x
</TABLE>
For purposes of Sandler O'Neill's analyses, LTM normalized net income was
assumed to be $4.2 million and 1999 net income was assumed to be $5.9 million,
and the earnings per share calculations were based on fully diluted shares of
5,150,714. Sandler O'Neill noted that the Implied Value represented a 3.83%
premium over the December 7, 1998 closing price of Lakeview common stock of
$23.25.
Stock Trading History. Sandler O'Neill reviewed the history of the reported
trading prices and volume of Lakeview common stock and Dime common stock, and
the relationship between the movements in the prices of Lakeview common stock
and Dime common stock, respectively, to movements in certain stock indices,
including the Standard & Poor's 500 Index (the "S&P Index"), the NASDAQ Bank
Index (the "Bank Index") and selected composite peer groups of publicly traded
savings institutions identified as the Regional Group and Peer Group,
respectively, below. During the period December 4, 1997 through December 4,
1998, Lakeview common stock outperformed both the Bank Index and the Regional
Group and underperformed the S&P Index. During the period December 4, 1997
through December 4, 1998, Dime common stock outperformed both the Bank Index
and the Regional Group and underperformed the S&P Index.
Comparable Company Analysis. Sandler O'Neill used publicly available
information to compare selected financial and market trading information,
including balance sheet composition, asset quality ratios, loan loss reserve
levels, profitability, capital adequacy, dividends and trading multiples, for
Lakeview and two different groups of savings institutions. The first group
consisted of Lakeview and the following twelve publicly traded regional savings
institutions (the "Regional Group"): GA Financial, Inc., First Bell Bancorp,
Inc., TF Financial Corp., FMS Financial Corp., Statewide Financial Corp.,
Progress Financial Corp., Ambanc Holding Co., Northeast PA Financial Corp.,
Thistle Group Holdings Co., Carver Bancorp, Inc., Warwick Community Bancorp and
Harleysville Savings Bank. Sandler O'Neill also compared Lakeview to a group of
ten publicly traded savings institutions that had a return on average equity
(based on last twelve months' earnings) of greater than 14.0% and a price to
tangible book value of greater than 190% (the "Highly Valued Group"). The
Highly Valued Group included Lakeview and the following institutions: CFSB
Bancorp, Inc., Home Federal Bancorp, MetroWest Bank, Coastal Financial Corp.,
Emerald Financial Corp., First Citizens Corp., Winton Financial Corp., Home
Port Bancorp, Inc., Ipswich Savings Bank and Crusader Holding Corp. The
analysis utilized publicly available financial information for Lakeview as of
and for each of the years ended July 31, 1993 through July 31, 1998 and as of
and for the twelve months ended October 31, 1998. The analysis compared
Lakeview data and the median data for each of the Regional Group and the Highly
Valued Group as of and for each of the years ended December 31, 1993 through
December 31, 1997 and as of and for the twelve months ended September 30, 1998.
The table below sets forth the comparative data as of and for the twelve months
ended October 31, 1998 for Lakeview and as of and for the twelve months ended
September 30, 1998 for each of the Regional Group and the Highly Valued Group.
18
<PAGE>
<TABLE>
<CAPTION>
Highly
Lakeview Regional Group Valued Group
-------- -------------- ------------
<S> <C> <C> <C>
Total Assets............................. $572,872 $572,872 $572,872
Annual Growth Rate of Assets............. 13.24% 11.32% 14.28%
Tangible Equity/Total Assets............. 5.30% 9.37% 7.82%
Intangible Assets/Total Equity........... 37.36% 0.13% 1.08%
Net Loans/Total Assets................... 50.04% 55.18% 75.05%
Cash & Securities/Total Assets........... 38.65% 38.74% 17.44%
Gross Loans/Total Deposits............... 64.19% 87.25% 100.03%
Total Borrowings/Total Assets............ 9.73% 23.94% 14.21%
Nonperforming Assets/Total Assets........ 0.68% 0.37% 0.52%
Loan Loss Reserves/Gross Loans........... 1.59% 0.83% 1.14%
Net Interest Margin...................... 3.58% 3.00% 3.56%
Loan Loss Provision/Average Assets....... 0.26% 0.09% 0.08%
Non-interest Income/Average Assets....... 0.65% 0.35% 0.65%
Non-interest Expense/Average Assets...... 2.41% 2.34% 2.32%
Efficiency Ratio......................... 62.42% 67.01% 56.15%
ROAA..................................... 0.75% 0.81% 1.25%
ROAE..................................... 8.08% 7.70% 16.29%
Price/Tangible Book Value per Share...... 319.61% 121.09% 218.02%
Price/Earnings per Share................. 23.21x 16.18x 14.69x
Market Capitalization/Assets............. 16.95% 12.18% 18.02%
Dividend Yield........................... 0.80% 1.59% 1.45%
Dividend Payout Ratio.................... 8.23% 26.16% 26.04%
</TABLE>
Sandler O'Neill also used publicly available information to perform a similar
comparison of selected financial and market trading information for Dime and
two different groups of savings institutions. The first group consisted of Dime
and the following six publicly traded savings institutions (the "Peer Group"):
Sovereign Bancorp, Inc., GreenPoint Financial Corp., Astoria Financial Corp.,
Peoples Heritage Financial Group, Webster Financial Corp. and Independence
Community Bank Corp. Sandler O'Neill also compared Dime to a group of seven
publicly traded savings institutions that had a return on average equity of
greater than 13%, based on last twelve months' earnings, and a price to
tangible book value of greater than 170% (the "Large Highly Valued Group"). The
Large Highly Valued Group included Dime and the following institutions: Golden
State Bancorp, Golden West Financial, Bank United Corp., Washington Federal,
Inc., MAF Bancorp, Inc. and Flagstar Bancorp, Inc. The analysis utilized
publicly available financial information for Dime as of and for each of the
years ended December 31, 1993 through December 31, 1997 and as of and for the
twelve months ended September 30, 1998. The analysis compared Dime data to the
median data for each of the Peer Group and the Large Highly Valued Group as of
and for each of the years ended December 31, 1993 through December 31, 1997 and
as of and for the twelve months ended September 30, 1998.
No company included in the above analysis is identical to Lakeview or Dime.
Accordingly, an analysis of comparable companies is not mathematical; rather,
it involves complex considerations and judgments concerning differences in
financial and operating characteristics of the companies and other factors that
could affect the public trading values or merger transaction values, as the
case may be, of Lakeview and Dime and the companies to which they are being
compared.
Analysis of Selected Merger Transactions. Sandler O'Neill reviewed certain
other merger or acquisition transactions announced from January 1, 1998 to
December 6, 1998 involving publicly traded savings institutions as acquired
institutions with transaction values greater than $15 million. Sandler O'Neill
reviewed 58 transactions announced nationwide ("Nationwide Transactions") and
18 transactions announced in Maryland, New Jersey, New York, Pennsylvania and
Delaware ("Regional Transactions"). Sandler O'Neill reviewed the ratios of deal
price to last four quarters' earnings, deal price to book value, deal price to
tangible book value, tangible book premium to core deposits and deal price to
total assets and computed high, low, mean and median ratios and premiums for
the respective groups of transactions. These multiples were applied
19
<PAGE>
to Lakeview's financial information as of and for the twelve months ended
October 31, 1998. As illustrated in the following table, Sandler O'Neill
derived an imputed range of values per share of Lakeview common stock of $14.04
to $26.73 based upon the median multiples for Nationwide Transactions and
$12.78 to $29.73 based upon the median multiples for Regional Transactions. As
calculated by Sandler O'Neill, the Implied Value of the merger to Lakeview
shareholders was $24.14.
<TABLE>
<CAPTION>
Nationwide Regional
Transactions Transactions
---------------- ----------------
Median Implied Median Implied
Multiple Value Multiple Value
-------- ------- -------- -------
<S> <C> <C> <C> <C>
Deal price/LTM normalized EPS........... 26.16x $21.24 26.72x $21.69
Deal price/Book value................... 2.21x 22.26 2.03x 20.41
Deal price/Tangible book value.......... 2.23x 14.04 2.03x 12.78
Tangible book premium/Core deposits..... 21.28% 23.70 20.20% 22.80
Deal price/Total assets................. 22.48% 26.73 25.01% 29.73
</TABLE>
No companies involved in the transactions included in the above analysis are
identical to Lakeview and Dime and no transaction included in the above
analysis is identical to the merger. Accordingly, an analysis of the results of
the foregoing analysis is not mathematical; rather, it involves complex
considerations and judgments concerning differences in financial and operating
characteristics of the companies and other factors that could affect the public
trading values or merger transaction values, as the case may be, of Lakeview
and Dime and the companies to which they are being compared.
Discounted Dividend Stream and Terminal Value Analysis. Sandler O'Neill also
performed an analysis which estimated the future stream of after-tax dividend
flows of Lakeview through July 31, 2005 under various circumstances, assuming
Lakeview's current dividend payout ratio and that Lakeview performed in
accordance with the earnings forecasts of its management. To approximate the
terminal value of Lakeview common stock at July 31, 2005, Sandler O'Neill
applied price to earnings multiples ranging from 10x to 22x and applied
multiples of tangible book value ranging from 100% to 250%. The dividend income
streams and terminal values were then discounted to present values using
different discount rates ranging from 9% to 15% chosen to reflect different
assumptions regarding required rates of return of holders or prospective buyers
of Lakeview common stock. As illustrated in the following table, this analysis
indicated an imputed range of values per share of Lakeview common stock of
$9.71 to $26.80 when applying the price/earnings multiples and $9.51 to $30.82
when applying multiples of tangible book value. As calculated by Sandler
O'Neill, the Implied Value of the merger to Lakeview shareholders was $24.14.
<TABLE>
<CAPTION>
Tangible Book
Price -------------
Earnings Value
Multiples Multiples
------------- -------------
Discount Rate 10x 22x 1.0x 2.5x
------------- ------ ------ ------ ------
<S> <C> <C> <C> <C>
9%.......................................... $12.76 $26.80 $13.12 $30.82
11........................................... 11.64 24.37 11.77 27.52
13........................................... 10.62 22.18 10.57 24.58
15........................................... 9.71 20.20 9.51 21.99
</TABLE>
In connection with its analysis, Sandler O'Neill considered and discussed
with the Lakeview Board how the present value analysis would be affected by
changes in the underlying assumptions, including variations with respect to the
growth rate of assets, net interest spread, non-interest income, non-interest
expenses and dividend payout ratio. Sandler O'Neill noted that the discounted
dividend stream and terminal value analysis is a widely used valuation
methodology, but the results of such methodology are highly dependent upon the
numerous assumptions that must be made, and the results thereof are not
necessarily indicative of actual values or future results.
Pro Forma Merger Analysis. Sandler O'Neill analyzed certain potential pro
forma effects of the merger, based upon the Consideration, Lakeview's and
Dime's current and projected income statements and balance sheets, and
assumptions regarding the economic environment, accounting and tax treatment of
the merger,
20
<PAGE>
charges associated with the merger, operating efficiencies and other
adjustments discussed with senior managements of Lakeview and Dime. Sandler
O'Neill assumed a closing date of the merger of June 30, 1999. As illustrated
in the following table, this analysis indicated that the merger would be
slightly accretive to Dime's earnings per share and dilutive to tangible book
value per share of Dime common stock as of December 31, 1999. The actual
results by Dime may vary from projected results and the variation may be
material.
<TABLE>
<CAPTION>
December 31,
1999
------------
<S> <C>
Dime Projected Stand-alone EPS............................. $ 2.092
Dime Proforma EPS.......................................... $ 2.093
Dime Stand-alone TBV....................................... $11.350
Dime Proforma TBV.......................................... $11.100
</TABLE>
In connection with rendering its December 15, 1998 opinion, Sandler O'Neill
reviewed, among other things: (1) the merger agreement and exhibits thereto;
(2) the stock option agreement; (3) certain publicly available financial
statements of Lakeview and other historical financial information provided by
Lakeview that Sandler O'Neill deemed relevant; (4) certain publicly available
financial statements of Dime and other historical financial information
provided by Dime that Sandler O'Neill deemed relevant; (5) certain financial
analyses and forecasts of Lakeview prepared by and reviewed with management of
Lakeview and the views of senior management of Lakeview regarding Lakeview's
past and current business, operations, results thereof, financial condition and
future prospects; (6) certain financial analyses and forecasts of Dime prepared
by and reviewed with management of Dime and the views of senior management of
Dime regarding Dime's past and current business, operations, results thereof,
financial condition and future prospects; (7) the pro forma impact of the
merger; (8) the publicly reported historical price and trading activity for
Lakeview and Dime common stock, including a comparison of certain financial and
stock market information for Lakeview and Dime with similar publicly available
information for certain other companies with securities that are publicly
traded; (9) the financial terms of recent business combinations in the savings
institution industry, to the extent publicly available; (10) the current market
environment generally and the banking environment in particular; and (11) such
other information, financial studies, analyses and investigations and
financial, economic and market criteria as Sandler O'Neill considered relevant.
In connection with rendering the Sandler Opinion, Sandler O'Neill confirmed
the appropriateness of its reliance on the analyses used to render its December
15, 1998 opinion by performing procedures to update certain of such analyses
and by reviewing the assumptions upon which such analyses were based and the
other factors considered in rendering its opinion.
In performing its reviews and analyses, Sandler O'Neill assumed and relied
upon the accuracy and completeness of all the financial information, analyses
and other information that was publicly available or otherwise furnished to,
reviewed by or discussed with it, and Sandler O'Neill does not assume any
responsibility or liability for independently verifying the accuracy or
completeness of any of such information. Sandler O'Neill did not make an
independent evaluation or appraisal of the assets, the collateral securing
assets or the liabilities, contingent or otherwise, of Lakeview or Dime or any
of their respective subsidiaries, or the collectibility of any such assets, nor
was it furnished with any such evaluations or appraisals. Sandler O'Neill is
not an expert in the evaluation of allowances for loan losses and it has not
made an independent evaluation of the adequacy of the allowance for loan losses
of Lakeview or Dime, nor has it reviewed any individual credit files relating
to Lakeview or Dime. With Lakeview's consent, Sandler O'Neill has assumed that
the respective allowances for loan losses for both Lakeview and Dime are
adequate to cover such losses and will be adequate on a pro forma basis for the
combined entity. In addition, Sandler O'Neill has not conducted any physical
inspection of the properties or facilities of Lakeview or Dime. With respect to
all financial projections prepared by or reviewed with each company's
management and used by Sandler O'Neill in its analyses, Sandler O'Neill assumed
that they had been reasonably prepared on bases reflecting the best currently
available estimates and judgments of the respective managements of the
respective future financial performances of Lakeview and Dime and that such
performances will be achieved. Sandler O'Neill expressed no opinion as to such
financial projections or the assumptions on which they were based.
21
<PAGE>
Sandler O'Neill's opinion was necessarily based upon market, economic and
other conditions as they existed on, and could be evaluated as of, the date of
such opinion. Sandler O'Neill assumed, in all respects material to its
analysis, that all of the representations and warranties contained in the
merger agreement and all related agreements are true and correct, that each
party to such agreements will perform all of the covenants required to be
performed by such party under such agreements and that the conditions precedent
in the merger agreement are not waived. Sandler O'Neill also assumed, with
Lakeview's consent, that there has been no material change in Lakeview's and
Dime's assets, financial condition, results of operations, business or
prospects since the date of the last publicly filed financial statements
available to it, that Lakeview and Dime will remain as going concerns for all
periods relevant to its analyses, and that the merger will be accounted for as
a purchase and will qualify as a tax-free reorganization.
Lakeview has agreed to pay Sandler O'Neill a transaction fee in connection
with the merger, a substantial portion of which is contingent upon the closing
of the merger. Based on the closing price of Lakeview common stock on March 19,
1999, the last practicable date prior to the printing of this proxy
statement/prospectus, Lakeview will pay Sandler O'Neill a transaction fee of
approximately $1.5 million, of which approximately $365,000 has been paid and
the balance of which is payable upon closing of the transaction. Sandler
O'Neill has also received a fee of $150,000 for rendering its fairness opinion,
which will be credited against that portion of the transaction fee payable at
closing. Lakeview has also agreed to reimburse Sandler O'Neill for its
reasonable out-of-pocket expenses incurred in connection with its engagement
and to indemnify Sandler O'Neill and its affiliates and their respective
partners, directors, officers, employees, agents, and controlling persons
against certain expenses and liabilities, including liabilities under
securities laws.
In the ordinary course of its business as a broker-dealer, Sandler O'Neill
may purchase securities from and sell securities to Lakeview and Dime and may
actively trade the debt and equity securities of Lakeview and Dime for its own
account and for the accounts of customers and, accordingly, may at any time
hold a long or short position in such securities.
Effective Time
The merger will be consummated if the merger agreement is approved by the
Lakeview shareholders, Dime and Lakeview obtain all required consents and
approvals and all other conditions to the merger are either satisfied or
waived. The merger will become effective on the date (the "Effective Date") and
at the time (the "Effective Time") that certificates of merger are filed with
the Secretary of State of the State of Delaware and the Secretary of State of
the State of New Jersey, or such later date or time as may be indicated in such
certificates. Dime and Lakeview have generally agreed to cause the Effective
Date to occur on the fifth NYSE trading day to occur after the last of the
conditions to the consummation of the merger have been satisfied or waived (or,
at Dime's election, on the last business day of the month in which such day
occurs, or on any other date as Dime and Lakeview agree in writing). It is
currently anticipated that the merger will occur in the second quarter of 1999.
Dime and Lakeview each has the right to terminate the merger agreement if the
merger is not completed by September 30, 1999. See "The Merger--Amendment,
Waiver and Termination."
Election and Allocation Procedures
Each record holder of shares of Lakeview common stock will be entitled (1) to
elect to receive Dime common stock for all or some of its shares ("Stock
Election Shares"), (2) to elect to receive cash for all or some of its shares
("Cash Election Shares") or (3) to make no election for all or some of its
shares ("No-Election Shares"). Any shares of Lakeview common stock for which
the record holder has not submitted a properly completed election form to the
exchange agent chosen by Dime by the election deadline (as defined in the
merger agreement) will be treated as No-Election Shares.
No later than the fifteenth day following the election deadline, Dime will
cause the exchange agent to allocate among the holders of Lakeview common stock
rights to receive Dime common stock, cash or both in exchange for their shares.
If the number of Stock Election Shares is less than 65% of the number of
shares of Lakeview common stock outstanding at the Effective Time (the "Stock
Number"), then (1) all Stock Election Shares will be
22
<PAGE>
converted into the right to receive Dime common stock, (2) the exchange agent
will allocate pro rata from among the No-Election Shares a sufficient number of
No-Election Shares so that the sum of such number and the number of Stock
Election Shares is equal as closely as practicable to the Stock Number, (3) if
the sum of the number of Stock Election Shares and No-Election Shares is less
than the Stock Number, the exchange agent will allocate pro rata from among the
Cash Election Shares a sufficient number of Cash Election Shares such that the
sum of such number and the number of Stock Election Shares and No-Election
Shares is as equal as practicable to the Stock Number, and all such shares will
be converted into the right to receive the Per Share Stock Consideration, and
(4) the remaining No-Election Shares and Cash Election Shares will be converted
into the right to receive the Per Share Cash Consideration.
If the number of Stock Election Shares is greater than the Stock Number, then
(1) all Cash Election Shares and No-Election Shares will be converted into the
right to receive the Per Share Cash Consideration, (2) the exchange agent will
allocate pro rata from among the Stock Election Shares a sufficient number of
Cash Election Shares such that the number of Stock Election Shares is as equal
as practicable to the Stock Number, and all such allocated shares will be
converted into the right to receive the Per Share Cash Consideration, and (3)
the remaining Stock Election Shares will be converted into the right to receive
the Per Share Stock Consideration.
Distribution of Dime Certificates
At least 30 days before the Effective Date, or another day that Dime and
Lakeview may agree upon, Dime will send transmittal materials to each Lakeview
shareholder for use in making the election described above and for exchanging
his or her certificates representing shares of Lakeview common stock for shares
of Dime common stock and/or cash. Lakeview shareholders should not surrender
their certificates for exchange until they receive the letter of transmittal
and instructions. The exchange agent will deliver certificates for Dime common
stock and/or a check for any cash consideration (or fractional share interests
or dividends or distributions) once it receives the certificates representing a
holder's shares of Lakeview common stock. No party will be liable to any
shareholder for any property delivered in good faith to a public official
pursuant to any applicable abandoned property, escheat or similar law.
Dime will not pay any dividends or other distributions with respect to Dime
common stock with a record date occurring after the Effective Time to any
former Lakeview shareholder who has not exchanged his or her certificates
representing Lakeview common stock. After exchanging his or her certificates
for Dime stock certificates, all paid dividends and other distributions and, if
applicable, a check for the amount to be paid for any fractional shares will be
delivered to such shareholder, in each case without interest. In addition, no
former Lakeview shareholder shall be eligible to vote the shares of Dime common
stock, if any, he or she is entitled to receive until he or she has exchanged
his or her certificates representing Lakeview common stock for Dime common
stock.
After the Effective Time, there will be no transfers of shares of Lakeview
common stock on Lakeview's stock transfer books. If certificates representing
shares of Lakeview common stock are presented for transfer after the Effective
Time, the exchange agent or Dime will cancel and exchange them for certificates
representing shares of Dime common stock and a check for the amount to be paid
for fractional shares of Dime common stock, if any.
Fractional Shares
Dime will not issue any fractional shares of Dime common stock. Instead, a
Lakeview shareholder who would otherwise have received a fraction of a share of
Dime common stock will receive cash (without interest). The amount of cash
received will be determined by multiplying the fraction of Dime common stock
the shareholder would have been entitled to receive by the average of the last
sale prices of Dime common stock, as reported by the NYSE Composite
Transactions Reporting System, for the five trading days immediately preceding
the Effective Date. Holders will not be entitled to dividends, voting rights or
any other rights as a shareholder with respect to any fractional shares.
23
<PAGE>
Federal Income Tax Considerations of the Merger
The following is a summary of the material U.S. federal income tax
consequences to holders of Lakeview common stock who hold such stock as a
"capital asset" within the meaning of Section 1221 of the Internal Revenue Code
(the "Code"). Special tax consequences may be applicable to particular classes
of taxpayers, such as financial institutions, insurance companies, tax-exempt
organizations, broker-dealers, traders in securities that elect to mark to
market, persons that hold Lakeview common stock as part of a straddle or
conversion transaction, persons who are not citizens or residents of the United
States and shareholders who acquired their shares of Lakeview common stock
through the exercise of an employee stock option or otherwise as compensation.
The following represents general information only and is based upon the Code,
its legislative history, existing and proposed regulations thereunder,
published rulings and decisions, all as currently in effect as of the date
hereof, and all of which are subject to change, possibly with retroactive
effect. Tax considerations under state, local and foreign laws are not
addressed in this proxy statement/prospectus. All shareholders should consult
with their own tax advisors as to the particular tax consequences of the
merger, including the applicability and effect of the alternative minimum tax
and any state, local or foreign income and other tax laws and of changes in
such tax laws.
Tax Consequences of the Merger Generally. It is a condition to the merger
that Dime receive an opinion of its counsel, Sullivan & Cromwell, that the
merger will constitute a "reorganization" within the meaning of Section 368 of
the Code and that Lakeview receive an opinion of its counsel, Malizia, Spidi,
Sloane & Fisch, P.C., that (1) the merger will constitute a "reorganization"
within the meaning of Section 368 of the Code and (2) no gain or loss will be
recognized by Lakeview shareholders to the extent they receive Dime common
stock as consideration in exchange for shares of Lakeview common stock. In
rendering such opinions, counsel may require and rely upon representations
contained in letters to be received from Lakeview, Dime and others. Neither of
these tax opinions will be binding on the Internal Revenue Service, but neither
Dime nor Lakeview intends to request any ruling from the Internal Revenue
Service as to the U.S. federal income tax consequences of the merger.
Based on the above assumptions and qualifications, for U.S. federal income
tax purposes (1) no gain or loss generally will be recognized by Dime or
Lakeview pursuant to the merger, (2) a shareholder of Lakeview who exchanges
all of its Lakeview common stock solely for cash in the merger will recognize
gain or loss in an amount equal to the difference between the cash received and
such shareholder's adjusted tax basis in the shares surrendered, (3) a
shareholder of Lakeview who receives solely Dime common stock in exchange for
its shares in the merger will not recognize any gain or loss (except, as
discussed below, to the extent the shareholder receives cash in exchange for
fractional shares) and (4) a shareholder of Lakeview who receives a combination
of cash and Dime common stock in the merger will not recognize loss but will
recognize gain, if any, on the shares so exchanged to the extent of any cash
received.
Exchange of Lakeview Common Stock Solely for Cash. In general, a shareholder
of Lakeview who exchanges all of its Lakeview common stock for cash in the
merger will recognize capital gain or loss equal to the difference between the
amount of cash received and such shareholder's adjusted tax basis in the shares
of Lakeview common stock surrendered. The gain or loss will be long-term
capital gain or loss if, as of the date of the exchange, the holding period for
such shares is greater than one year.
Exchange of Lakeview Common Stock Solely for Dime Common Stock. A shareholder
of Lakeview who receives solely Dime common stock in exchange for its shares in
the merger will not recognize any gain or loss upon such exchange. Such
shareholder may recognize gain or loss, however, to the extent cash is received
in lieu of a fractional share of Lakeview common stock, as discussed below. The
aggregate adjusted tax basis of the shares of Dime common stock received in
such exchange will be equal to the aggregate adjusted tax basis of the shares
surrendered therefor, and the holding period of the Dime common stock will
include the holding period of the shares of Lakeview common stock surrendered
therefor.
Exchange of Lakeview Common Stock for Dime Common Stock and Cash. A
shareholder of Lakeview who receives a combination of cash and shares of Dime
common stock in the merger will not recognize loss but will recognize gain
(equal to the excess of the cash and the fair market value of the Dime common
stock
24
<PAGE>
received by the shareholder over such shareholder's adjusted tax basis in the
Lakeview common stock exchanged therefor), if any, on the shares so exchanged
to the extent of any cash received. Any such recognized gain will be treated as
capital gain unless the receipt of the cash has the effect of the distribution
of a dividend for U.S. federal income tax purposes, in which case such gain
will be treated as ordinary dividend income to the extent of such shareholder's
ratable share of Lakeview's accumulated earnings and profits. Any capital gain
will be long-term capital gain if, as of the date of the exchange, the holding
period for such shares is greater than one year. The following is a brief
discussion of such potential tax treatment; however, Lakeview shareholders
should consult their own tax advisors as to the possibility that all or a
portion of any cash received in exchange for their Lakeview common stock will
be treated as a dividend.
The stock redemption provisions of Section 302 of the Code apply in
determining whether cash received by a shareholder of Lakeview pursuant to the
merger has the effect of a distribution of a dividend under Section 356(a)(2)
of the Code. Under this analysis (called the "hypothetical redemption
analysis"), a shareholder of Lakeview will be treated as if the portion of the
shares of Lakeview common stock exchanged for cash in the merger had been
instead exchanged for shares of Dime common stock (the "hypothetical shares"),
followed immediately by a redemption of the hypothetical shares by Dime for
cash. Under the principles of Section 302 of the Code, a shareholder of
Lakeview 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" or is "substantially disproportionate" with respect
to such shareholder. In applying the principles of Section 302, the
constructive ownership rules of Section 318 of the Code will apply in comparing
the shareholder's ownership interest in Dime both immediately after the merger
(but before the hypothetical redemption) and after the hypothetical redemption.
Whether the hypothetical redemption by Dime of the hypothetical shares for
cash is "not essentially equivalent to a dividend" with respect to a
shareholder of Lakeview will depend upon such shareholder's particular
circumstances. However, the hypothetical redemption must, in any event, result
in a "meaningful reduction" in such shareholder's percentage ownership of Dime
stock. In determining whether the hypothetical redemption by Dime results in a
meaningful reduction in the shareholder's percentage ownership of Dime stock,
and therefore, does not have the effect of a distribution of a dividend, a
shareholder of Lakeview should compare his or her share interest in Dime
(including interests owned actually, hypothetically and constructively)
immediately after the merger (but before the hypothetical redemption) to his or
her interest after the hypothetical redemption. The IRS has indicated, in
Revenue Ruling 76-385, that a shareholder 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 shareholder's actual and constructive ownership
before and after the hypothetical redemption. In Revenue Ruling 76-385, the IRS
found a reduction from .0001118% to .0001081% to be a meaningful reduction.
The hypothetical redemption transaction would be "substantially
disproportionate," and therefore, would not have the effect of a distribution
of a dividend with respect to a shareholder of Lakeview who owns less than 50%
of the voting power of the outstanding Dime common stock, if the percentage of
Dime common stock actually and constructively owned by such shareholder
immediately after the hypothetical redemption is less than 80% of the
percentage of Dime common stock actually, hypothetically and constructively
owned by such shareholder immediately before the hypothetical redemption.
The aggregated adjusted tax basis of the shares of Dime common stock received
in such exchange will be equal to the aggregate tax basis of the shares
surrendered therefor, decreased by the cash received and increased by the
amount of gain recognized, if any. The holding period of Dime common stock will
include the holding period of the shares of Lakeview common stock surrendered
therefor.
Cash Received in Lieu of a Fractional Interest of Dime Common Stock. A
shareholder of Lakeview who receives cash in lieu of a fractional share of Dime
common stock will be treated as having received such fractional share pursuant
to the merger and then as having exchanged such fractional share for cash in a
25
<PAGE>
redemption by Dime subject to Section 302 of the Code. Such a deemed redemption
will be treated as a sale of the fractional share, provided that it is not
"essentially equivalent to a dividend" or is "substantially disproportionate"
with respect to the Lakeview shareholder. (See the preceding section.) If the
deemed redemption is treated as a sale of a fractional share, a Lakeview
shareholder will recognize gain or loss equal to the difference between the
amount of cash received and the portion of the basis of the shares of Dime
common stock allocable to such fractional interest. Such gain or loss will be
capital gain or loss if, as of the date of the exchange, the holding period for
such shares is greater than one year.
Backup Withholding and Information Reporting. Payments of cash to a holder
surrendering shares of Lakeview common stock will be subject to information
reporting and "backup" withholding (whether or not the holder also receives
Dime common stock) at a rate of 31% of the cash payable to the holder, unless
the holder furnishes its taxpayer identification number in the manner
prescribed in applicable Treasury Regulations, certifies that such number is
correct, certifies as to no loss of exemption from backup withholding and meets
certain other conditions. Any amounts withheld from payments to a holder under
the backup withholding rules will be allowed as a refund or credit against the
holder's U.S. federal income tax liability, provided the required information
is furnished to the Internal Revenue Service.
Management and Operations After the Merger
Dime will be the surviving corporation resulting from the merger. It will
continue to be governed by the laws of the State of Delaware and will operate
in accordance with its certificate of incorporation and by-laws as in effect
immediately prior to the Effective Time.
The directors and officers of Dime before the merger will continue to be the
directors and officers of Dime after the merger.
Post-Merger Compensation and Benefits
The merger agreement provides that for at least one year after the Effective
Date, Dime will provide employees of Lakeview and its subsidiaries who become
employees of Dime and any of its subsidiaries (the "Retained Employees") with
employee benefits which are no less favorable in the aggregate than those
provided to similarly situated employees of Dime and its subsidiaries. The
merger agreement provides that any Retained Employees generally will receive
credit for their service with Lakeview or any of its subsidiaries or
predecessors prior to the Effective Time, to the extent Lakeview credited such
service under a comparable plan, for the purpose of determining eligibility to
participate and vesting, but not for the purpose of benefit accrual, under
Dime's employee benefit plans. The merger agreement provides that Dime
generally will cause any and all pre-existing condition limitations and waiting
periods under group health plans to be waived with respect to the Retained
Employees and their eligible dependents.
Treatment of Outstanding Options
Prior to the Effective Time, Lakeview will take all action necessary to cause
each option to purchase shares of Lakeview common stock, whether vested or
unvested (each, a "Lakeview Stock Option"), under Lakeview's 1993 Stock Option
Plans to be converted into the right to receive an amount in cash equal to the
excess of $24.26 over the exercise price per share of such Lakeview Stock
Option, multiplied by the number of shares subject to such option.
Interests of Certain Persons in the Merger
Some members of Lakeview's management and the Lakeview Board have interests
in the merger in addition to their interests as Lakeview shareholders. The
Lakeview Board was aware of these interests and considered them, among other
matters, in approving the merger agreement.
Kevin J. Coogan, Kevin M. McCloskey, Anthony G. Gallo and Leo J. Costello
each have employment agreements with Lakeview that provide for payments over 36
months (or reduced lump sum payments) by Lakeview in the event of a "change in
control" (as defined in such agreements) of Lakeview and the
26
<PAGE>
individual's involuntary termination of employment (absent "just cause") or, in
certain circumstances, the individual's voluntary termination of employment,
within 12 months after the change in control. In connection with the merger
agreement, each of these individuals entered into severance agreements with
Lakeview providing for payments in the same circumstances that would have
enabled payment under their employment agreements after a change in control,
that are the lesser of a stated amount or the product of 2.99 times the
individual's prior five-year average taxable compensation, subject to reduction
with respect to other payments made or due the individual that would otherwise
constitute "parachute payments" under the Code. For purposes of these
agreements, the merger would constitute a "change in control." The maximum
amount payable to Messrs. Coogan, McCloskey, Gallo and Costello under their
severance agreements is $2,586,667, $634,000, $600,000 and $62,000,
respectively (subject to reduction based on their prior five-year average
taxable compensation and other Code Section 280G parachute payments). These
payments are to be made in a lump sum or otherwise as soon as they can be made
and remain deductible for federal income tax purposes. The payments under the
severance agreements are in lieu of any payments that would be made under the
employment agreements, and are also in lieu of any right to any payments under
the Lakeview Savings Bank Supplement Retirement Plan for Senior Officers that
might have otherwise been payable.
Furthermore, Dime has entered into three-year consulting agreements with
Kevin J. Coogan and Leo J. Costello and two-year consulting agreements with
Kevin M. McCloskey and Anthony G. Gallo. Under the agreements, Messrs. Coogan,
McCloskey, Gallo and Costello will be entitled to annual compensation of
approximately $400,000, $150,000, $150,000 and $50,000, respectively. In
exchange for such payments, the individuals will provide consulting services to
Dime and be subject to certain non-competition requirements.
Dime has agreed that each member of the Lakeview Board (seven persons) will
be entitled to serve on a New Jersey advisory board to be established by Dime
for a one-year period following the Effective Date. Each member of the Lakeview
Board serving on this advisory board would be entitled to receive a fee for
such service equal to $20,000 per year.
The merger agreement provides that, for a period of six years after the
Effective Date, Dime will indemnify the directors and officers of Lakeview and
its subsidiaries against certain liabilities to the fullest extent that Dime is
permitted to indemnify its directors and executive officers. Furthermore, Dime
agreed in the merger agreement to use its reasonable best efforts to provide,
for a period of three years, subject to certain limitations, directors' and
officers' liability insurance coverage for persons who were covered by such
insurance maintained by Lakeview on the date of the merger agreement.
Certain directors and officers of Lakeview hold stock options which, if not
exercised prior to the Effective Time, will be converted into the right to
receive a cash payment. See "--Treatment of Outstanding Options."
In connection with the merger, the Lakeview Savings Bank Employee Stock
Ownership Plan and Trust (commonly called an "ESOP") may be terminated. The
termination of the ESOP would require the ESOP trustees to use a certain
portion of the proceeds received from the exchange of shares of Lakeview common
stock pursuant to the merger agreement to repay the related outstanding debt of
the ESOP. Pursuant to the terms of the ESOP, to the extent permitted by law,
any amounts remaining after the repayment of the debt would be allocated to the
ESOP participants.
In August 1998, awards of Lakeview common stock were made to certain officers
and directors under Lakeview's Management Stock Bonus Plan. To the extent that
those awards were not vested upon grant, they vested in connection with the
Dime offer to Lakeview and the signing of the merger agreement. The awards made
to Messrs. Coogan, McCloskey and Gallo in August 1998 totaled 72,000, 16,000
and 16,000 shares of Lakeview common stock, respectively, and the awards to
certain directors as a group (six persons) totaled 90,000 shares of Lakeview
common stock in the aggregate.
Conditions to Completion
The obligations of Lakeview and Dime to consummate the merger are subject to
the satisfaction or written waiver prior to the Effective Time of the following
conditions:
. the merger agreement is approved by the shareholders of Lakeview;
27
<PAGE>
. the required regulatory approvals described below under "Regulatory
Approvals" are received, without any conditions, restrictions or
requirements that the Dime Board reasonably determines would, following
the Effective Time, have a material adverse effect on Dime or reduce the
benefits of the merger to such a degree that Dime would not have entered
into the merger agreement had such conditions, restrictions or
requirements been known as of the date of the merger agreement;
. all third party consents are obtained, without any conditions,
restrictions or requirements that the Dime Board reasonably determines
would, following the Effective Time, have a material adverse effect on
Dime or reduce the benefits of the merger to such a degree that Dime
would not have entered into the merger agreement had such conditions,
restrictions or requirements been known as of the date of the merger
agreement;
. no court or regulatory authority has taken any action prohibiting the
consummation of the merger;
. the Registration Statement of which this proxy statement/prospectus
constitutes a part is declared effective by the Securities and Exchange
Commission (the "SEC") and is not subject to a stop order or any
threatened stop order;
. all permits or authorizations necessary to consummate the merger are
received;
. the shares of Dime common stock issuable in the merger are approved for
listing on the NYSE;
. the representations and warranties of each party are true and correct
other than any inaccuracies that would not be reasonably likely,
individually or in the aggregate, to have a material adverse effect on
the financial condition, results of operations, businesses or prospects
of the party by whom such representations and warranties were made, and
each party has performed in all material respects all of the obligations
required to be performed by it pursuant to the merger agreement, and
shall have delivered certificates confirming satisfaction of the
foregoing requirements;
. Lakeview receives an opinion of Malizia, Spidi, Sloane & Fisch, P.C. as
to certain tax matters;
. Dime receives an opinion of Sullivan & Cromwell as to certain tax
matters;
. Dime receives an opinion of Sullivan & Cromwell that the shares of Dime
common stock to be issued as consideration, when issued in accordance
with the terms of the merger agreement, will be duly authorized, validly
issued, fully paid and nonassessable;
. Lakeview and Dime receive "comfort" letters from KPMG LLP, Lakeview's
and Dime's independent public accountants in accordance with the
Financial Accounting Standards Board's Statement of Accounting Standards
No. 72; and
. unless otherwise requested by Dime, Lakeview causes Lakeview Savings
Bank to pay in cash the maximum dividend permitted to be paid to
Lakeview under applicable law.
No assurances can be provided as to when or if all of the conditions to the
merger can or will be satisfied or waived by the appropriate party. As of the
date of this proxy statement/prospectus, the parties have no reason to believe
that any of these conditions will not be satisfied.
Regulatory Approvals
Office of Thrift Supervision. The merger is subject to receipt of approvals
of the Office of Thrift Supervision (the "OTS") under the Home Owners' Loan Act
and the Federal Deposit Insurance Act and related OTS regulations. These
approvals require consideration of various factors, including assessments of
the competitive effect of the contemplated transactions, the managerial and
financial resources and future prospects of the resulting institutions and the
effect of the contemplated transactions on the convenience and needs of the
communities to be served. The Community Reinvestment Act of 1977, as amended
("CRA"), also requires
28
<PAGE>
that the OTS, in deciding whether to approve the merger and the Bank Merger,
assess the records of performance of Lakeview and Dime in meeting the credit
needs of the communities they serve, including low and moderate income
neighborhoods. As part of the review process under the CRA, it is not unusual
for community groups and others to submit protests and adverse comments. OTS
regulations require publication of notice of, and an opportunity for public
comment with respect to, the applications. In addition, the OTS is authorized
to hold informal and formal meetings in connection with its review. Any such
meeting or comments provided by third parties could prolong the period during
which the transaction is subject to review.
State Authorities. The Merger is also subject to receipt of approval of the
New Jersey Department of Banking and Insurance.
Status of Regulatory Approvals and Other Information. Dime and Lakeview have
filed all applications and notices and taken other appropriate action with
respect to any necessary approvals or other action of any governmental
authority of which they have knowledge. The merger agreement provides that the
obligation of each of Dime and Lakeview to consummate the merger is conditioned
upon (1) the receipt of all requisite regulatory approvals, including the
approvals of the OTS and, to the extent necessary, other authorities, (2) the
termination or expiration of all statutory or regulatory waiting periods and
(3) no such approvals containing conditions, restrictions or requirements that
the Dime Board reasonably determines would, after the Effective Date, have a
material adverse effect on Dime or reduce the benefits of the merger to such a
degree that Dime would not have entered into the merger agreement had such
conditions, restrictions or requirements been known as of the date of the
merger agreement.
The merger cannot proceed in the absence of the necessary regulatory
approvals. There can be no assurance that these regulatory approvals will be
obtained or as to the dates of such approvals. There can also be no assurance
that these approvals will not contain a condition, restriction or requirement
that fails to satisfy the conditions set forth in the merger agreement.
See "--Effective Time," "--Conditions to Completion" and "--Amendment, Waiver
and Termination."
Amendment, Waiver and Termination
Prior to the Effective Time, certain provisions of the merger agreement may
be waived by the party benefitted by such provision or may be amended or
modified, by written agreement between Dime and Lakeview. However, after the
special meeting the merger agreement may not be amended in violation of the New
Jersey Business Corporation Act (the "NJBCA") or the Delaware General
Corporation Law (the "DGCL").
The merger agreement may be terminated, and the merger abandoned, at any time
prior to the Effective Time by mutual consent of Lakeview and Dime. In
addition, the merger agreement may be terminated, and the merger abandoned,
prior to the Effective Time by either Dime or Lakeview if:
. the other party breaches (a) a representation or warranty contained in
the merger agreement, or (b) a covenant or other agreement contained in
the merger agreement, which is reasonably likely, individually or in the
aggregate, to have a material adverse effect on the breaching party, and
in either case (a) or (b), which cannot be or has not been cured within
30 days after giving written notice to the breaching party;
. the merger is not completed by September 30, 1999;
. the approval of a governmental authority required for consummation of
the merger and the other transactions contemplated by the merger
agreement is denied by final, nonappealable action of such authority; or
. the Lakeview shareholders fail to approve the merger agreement at the
special meeting.
29
<PAGE>
In addition, Dime may terminate the merger agreement if the Lakeview Board
withdraws or materially changes its recommendation to approve the merger
agreement, and Lakeview may terminate the merger agreement if it simultaneously
enters into a definitive agreement with a third party that has made a Superior
Proposal (as defined in the merger agreement), but if Lakeview terminates for
this reason it must deliver written notice of its intention to terminate at
least five days in advance and must pay Dime a termination fee of $400,000, and
Dime may exercise its option to purchase up to 19.9% of the outstanding shares
of Lakeview common stock.
Conduct of Business Pending the Merger
The following is a general summary of the agreements Lakeview and Dime have
regarding actions prior to the merger. We urge you to read the merger agreement
(which is attached to this proxy statement/prospectus as Appendix A) for a more
complete description of these agreements.
Lakeview. Lakeview has agreed that it will operate its business and the
businesses of its subsidiaries in the ordinary course through the Effective
Time. In addition, it has agreed not to engage in the activities listed below.
. Issue any additional shares of Lakeview common stock or any rights to
acquire Lakeview common stock except pursuant to already existing rights
to acquire Lakeview common stock or similar stock-based employee rights.
. Repurchase, redeem or otherwise acquire, directly or indirectly, any
shares of Lakeview common stock.
. Enter into any voting agreement or voting trust relating to Lakeview
common stock.
. Make any distributions with respect to Lakeview common stock (other than
quarterly cash dividends in an amount not greater than $0.0625 per
share) or change its capital structure.
. Enter into or amend any employment-related agreements, grant any salary
or wage increase or increase any employee related benefits, except in
the ordinary course of business, as required by law, or to satisfy
contracts previously disclosed to Dime prior to the date of the merger
agreement.
. Make any contributions to the ESOP or any profit sharing, defined
benefit or other pension plan, except as authorized by Dime.
. Enter into or amend (except as may be required by law or contemplated by
the merger agreement) any employee-related benefit plan or take any
action to accelerate the vesting or exercisability of any benefits
payable under any employee-related benefit plans.
. Sell, encumber, lease or otherwise dispose of any material amount of its
assets, business or properties, except in the ordinary course of
business.
. Acquire any material assets, business, deposits or properties of any
other entity, except in the ordinary course of business.
. Amend Lakeview's certificate of incorporation or by-laws or the
certificate of incorporation or by-laws (or similar governing documents)
of any of Lakeview's subsidiaries.
. Make any change in its accounting principles, practices or methods,
other than as may be required by generally accepted accounting
principles.
. Enter into, terminate, amend or modify any material contract, except in
the ordinary course of business.
. Settle any material claim, action or proceeding, except in the ordinary
course of business.
30
<PAGE>
. Except as required by law, change or fail to follow its interest rate
risk management and hedging policies, procedures or practices; or fail
to use commercially reasonable means to avoid materially increasing its
exposure to interest rate risk.
. Borrow money, assume or guarantee the obligations of another person, or
materially cancel or release another person's indebtedness, other than
in the ordinary course of business.
. Make any loans (1) other than in the ordinary course of business and
consistent with its current lending policies or (2) (except for
residential loans) greater than $200,000 without consulting Dime.
. Take any action which is reasonable likely to prevent or impede the
merger from qualifying as a reorganization under Section 368 of the Code
or knowingly take any action that would interfere with the merger
agreement.
. Make any election with respect to taxes.
. Agree or commit to do any of the foregoing without first obtaining
Dime's consent.
Lakeview has also agreed that it will not (and it will not ask anyone to)
initiate or solicit any inquiries or any offer relating to a tender offer,
exchange offer, merger, consolidation or similar transaction involving Lakeview
or Lakeview Savings Bank (this type of proposal is referred to in this document
as an "Acquisition Proposal"). In addition, except as legally required for the
discharge by the Lakeview Board of its fiduciary duties and, except after
receiving a confidentiality agreement substantially the same as entered into by
Dime, Lakeview will not negotiate or provide any confidential information or
data to, or have any discussions with, any person relating to an Acquisition
Proposal, or otherwise facilitate an Acquisition Proposal. Lakeview has agreed
to promptly (within 24 hours) advise Dime following the receipt by Lakeview of
any Acquisition Proposal and to immediately advise Dime of any developments
relating to such Acquisition Proposal.
Dime. Dime has agreed that it will operate its business and the businesses of
its subsidiaries in the ordinary course through the Effective Time, provided
that this provision will not constrict the ability of Dime or its subsidiary to
engage in the acquisition or disposition of any business, assets, or deposits,
or to engage in a merger, consolidation or other business combination. In
addition, it has agreed not to engage in the activities listed below.
. Take any action which is reasonable likely to prevent or impede the
merger from qualifying as a reorganization under Section 368 of the Code
or knowingly take any action that would interfere with the merger
agreement.
. Amend Dime's Amended and Restated Certificate of Incorporation or by-
laws.
. Agree or commit to do any of the foregoing.
Expenses and Fees
Each party will be responsible for all expenses incurred by it in connection
with the negotiation and consummation of the transactions contemplated by the
merger agreement. Dime and Lakeview have agreed, however, to share equally any
SEC registration fees and printing and postage expenses.
Accounting Treatment
Dime will account for the merger as a "purchase," as that term is used under
generally accepted accounting principles, for accounting and financial
reporting purposes. Under purchase accounting, the assets and liabilities of
Lakeview as of the Effective Time will be recorded at their respective fair
values and added to those of Dime. Any excess of purchase price over the fair
values is recognized as goodwill. Financial statements of Dime issued after the
Effective Time would reflect such values and would not be restated
retroactively to reflect the historical financial position or results of
operations of Lakeview.
31
<PAGE>
Stock Exchange Listing of Dime Common Stock
Dime has agreed to use its reasonable best efforts to list, prior to the
Effective Date, on the NYSE, subject to official notice of issuance, the shares
of Dime common stock to be issued to the holders of Lakeview common stock in
the merger.
Resales of Dime Common Stock
The shares of Dime common stock to be issued in the merger will be freely
transferable under the Securities Act, except for shares issued to any
shareholder who may be deemed to be an "affiliate" (generally including,
without limitation, directors, certain executive officers, and beneficial
owners of 10% or more of any class of capital stock) of Lakeview for purposes
of Rule 145 under the Securities Act as of the date of the special meeting.
Affiliates may not sell their shares of Dime common stock acquired in the
merger except pursuant to an effective registration statement under the
Securities Act or other applicable exemption from the registration requirements
of the Securities Act.
Lakeview has agreed in the merger agreement to use its reasonable best
efforts to cause each person who may be deemed to be an "affiliate" of Lakeview
to execute and deliver to Dime an agreement pursuant to which such person
agreed, among other things, not to offer to sell, transfer or otherwise dispose
of any of the shares of Dime common stock distributed to them pursuant to the
merger except in compliance with Rule 145 under the Securities Act, or in a
transaction that, in the opinion of counsel reasonably satisfactory to Dime, is
otherwise exempt from the registration requirements of the Securities Act, or
in an offering registered under the Securities Act. Dime may place restrictive
legends on certificates representing Dime common stock issued to all persons
who are deemed to be "affiliates" of Lakeview under Rule 145. This proxy
statement/prospectus does not cover resales of Dime common stock received by
any person who may be deemed to be an affiliate of Lakeview.
Stock Option Agreement
As an inducement to Dime's entering into the merger agreement, Lakeview and
Dime entered into a stock option agreement, dated as of December 16, 1998. The
following description of the stock option agreement is qualified in its
entirety by reference to the text of the stock option agreement. For a more
complete description, we urge you to read the text of the stock option
agreement (which is attached hereto as Appendix B) in its entirety.
Pursuant to the stock option agreement, Lakeview granted Dime an option to
purchase up to 958,877 shares of Lakeview common stock. Although the number of
shares Dime may purchase is subject to adjustment in certain cases (described
below), it will never exceed 19.9% of the number of shares of Lakeview common
stock outstanding immediately before exercise of the option. The exercise price
of the option is $21.50 per share, and is also subject to adjustment in certain
cases (such exercise price, as adjusted, is referred to below as the "Option
Price").
Dime can exercise the option if both a "Preliminary Event" and a "Triggering
Event" occur prior to the occurrence of an "Exercise Termination Event," as
these terms are defined below. The purchase of any shares of Lakeview common
stock pursuant to the option is subject to compliance with applicable law,
including the prior approval of the OTS. If Dime were to exercise its right to
acquire the full 19.9% of the number of shares outstanding of Lakeview common
stock subject to the option, Dime would hold approximately 16.6% of the
outstanding shares of the Lakeview common stock immediately after such
exercise.
The stock option agreement generally defines the term "Preliminary Event" to
mean any of the following events or transactions:
. Lakeview or Lakeview Savings Bank, without Dime's prior written consent,
enters into an agreement to engage in an "Acquisition Transaction" (as
defined below) with a third party or the Lakeview Board recommends that
the shareholders of Lakeview approve or accept any Acquisition
Transaction, other than the merger;
32
<PAGE>
. a third party acquires beneficial ownership or the right to acquire
beneficial ownership of 15% or more of the outstanding shares of
Lakeview common stock;
. the shareholders of Lakeview voted but failed to approve the merger
agreement at the special meeting or the special meeting has been
canceled or otherwise not held in violation of the merger agreement and
prior to the shareholder vote or cancellation a third party has
announced an Acquisition Transaction;
. the Lakeview Board withdraws or adversely modifies its recommendation
that the shareholders of Lakeview approve the merger agreement, or
Lakeview and any of its subsidiaries, without Dime's prior written
consent, authorizes, recommends or proposes an agreement to engage in an
Acquisition Transaction with a third party;
. a third party has made a bona fide proposal to Lakeview or its
shareholders to engage in an Acquisition Transaction and such proposal
has been publicly announced;
. a third party has filed with the SEC a registration statement or tender
offer materials with respect to a potential exchange offer or tender
offer that would constitute an Acquisition Transaction, or filed a
preliminary proxy statement with the SEC with respect to a potential
vote by its shareholders to approve the issuance of shares to be offered
in such an exchange or tender offer; or
. Lakeview willingly breaches any covenant or obligation contained in the
merger agreement after a third party has made an Acquisition Proposal,
and following such breach Dime is entitled to terminate the merger
agreement.
As used in the stock option agreement, the term "Acquisition Transaction"
means: (1) a merger or consolidation or any similar transaction, involving
Lakeview or Lakeview Savings Bank (other than certain mergers involving only
Lakeview and its subsidiaries); (2) a purchase, lease or other acquisition of
25% or more of the assets of Lakeview or any of its subsidiaries; or (3) a
purchase or other acquisition of securities representing 15% or more of the
voting power of the outstanding common stock of Lakeview or any of its
subsidiaries.
The stock option agreement generally defines the term "Triggering Event" to
mean any of the following events or transactions: (1) the acquisition by a
third party of beneficial ownership of 25% or more of the then outstanding
Lakeview common stock; or (2) Lakeview or any of its subsidiaries, without
Dime's prior written consent, enters into an agreement to engage in an
Acquisition Transaction with a third party or the Lakeview Board recommends
that the shareholders of Lakeview approve or accept any Acquisition
Transaction, other than the merger; provided that for purposes of the
definition of "Triggering Event," the percentage referred to in clause (3) of
the definition of "Acquisition Transaction" above shall be 25% rather than 15%.
The stock option agreement defines the term "Exercise Termination Event" to
mean any of: (1) the Effective Time; (2) termination of the merger agreement in
accordance with its terms, if it occurs prior to the occurrence of an Initial
Triggering Event; provided that this would not include a termination by Dime if
Lakeview willfully breaches, and does not timely cure any breach of, a
representation, warranty, covenant or other agreement contained in the merger
agreement and the breach would be reasonably likely to result in a Material
Adverse Effect (as defined in the merger agreement); or (3) the passage of 18
months (subject to extension in order to obtain required regulatory approvals)
after termination of the merger agreement if the termination follows the
occurrence of a Preliminary Event.
Under no circumstances can Dime exercise the option at any time when Dime is
in breach of any of its covenants or agreements contained in the merger
agreement if as a result of Dime's breach Lakeview would be entitled to
terminate the merger agreement. The stock option agreement will automatically
terminate upon the termination of the merger agreement by Lakeview as a result
of a breach by Dime of its covenants or agreements contained therein.
33
<PAGE>
If the option becomes exercisable, it may be exercised in whole or in part
within three months following the applicable Triggering Event. Dime's right to
exercise the option and certain other rights under the stock option agreement
are subject to an extension in order to obtain required regulatory approvals
and comply with applicable regulatory waiting periods and to avoid liability
under Section 16(b) of the Exchange Act. The Option Price and the number of
shares issuable under the option are subject to adjustment in the event of
specified changes in the capital stock of Lakeview.
Upon the occurrence of a Triggering Event that occurs prior to an Exercise
Termination Event, Dime will have certain registration rights with respect to
the shares of Lakeview common stock issued or issuable pursuant to the option.
The stock option agreement also provides that at any time after a "Repurchase
Event" (as defined below), upon request, Lakeview shall be obligated to
repurchase the option and all or any part of the shares issuable under the
option. The repurchase of the option shall be at a price per share equal to the
amount by which the Market/Offer Price (as defined in the stock option
agreement) exceeds the Option Price (as adjusted). A repurchase of any shares
issuable under the option shall be at a price per share equal to the
Market/Offer Price. The term "Repurchase Event" is defined to mean: (1) the
acquisition by any third party of beneficial ownership of 50% or more of the
outstanding shares of Lakeview common stock or (2) the consummation of an
Acquisition Transaction; provided that for purposes of the definition of
"Repurchase Event," the percentage referred to in clause (3) of the definition
of "Acquisition Transaction" above shall be 50% rather than 15%.
The stock option agreement also provides that Dime may, at any time within 90
days after a Repurchase Event, surrender the option (and any shares issuable
under the option held by Dime) for a cash surrender fee (the "Surrender Fee")
equal to $5.5 million (1) plus, if applicable, Dime's aggregate purchase price
actually paid for any shares issuable under the option and (2) minus, if
applicable, the sum of (x) the amount of the net cash profit received by Dime
from the sale of shares issuable under the option to any third party and (y)
the amount of any fee paid pursuant to the merger agreement. Dime may not
exercise its right to surrender the option and receive the Surrender Fee if
Lakeview has previously repurchased the option (or any portion thereof) or any
shares issuable under the option as described in the preceding paragraph.
If prior to an Exercise Termination Event, Lakeview enters into certain
transactions in which it is not the surviving corporation, certain fundamental
changes in the capital stock of Lakeview occur, or Lakeview sells all or
substantially all of its or certain of its subsidiaries' assets, the option
will be converted into or exchangeable for an option (the "Substitute Option"),
at Dime's election, of either (1)(A) the continuing or surviving person of a
consolidation or merger with Lakeview, (B) the acquiring person in a plan of
exchange in which Lakeview is acquired, (C) Lakeview in a merger or plan of
exchange in which Lakeview is the acquiring person, or (D) the transferee of
all or substantially all of the assets of Lakeview or its significant
subsidiary or (2) any person that controls any such entity. The Substitute
Option must have the same terms and conditions as the option. However, if the
terms of the Substitute Option cannot, for legal reasons, be the same as those
of the option, the terms of the Substitute Option must be as similar as
possible and in no event less advantageous to Dime.
Arrangements such as the stock option agreement are customarily entered into
in connection with corporate mergers and acquisitions in an effort to increase
the likelihood that the transactions will be consummated in accordance with
their terms, and to compensate the person granted the option for the efforts
undertaken and the expenses and losses incurred by it if the transaction is not
completed. The stock option agreement may have the effect of discouraging
offers by third parties to acquire Lakeview prior to the merger, even if such
persons were prepared to offer to pay consideration to Lakeview shareholders
that has a higher current market price than the shares of Dime common stock to
be received by such holders pursuant to the merger agreement.
To the best knowledge of each of Dime and Lakeview, no event giving rise to
the right to exercise the option has occurred as of the date of this proxy
statement/prospectus.
34
<PAGE>
Shareholder Agreements
As a condition and an inducement to Dime's entering into the merger
agreement, the directors and executive officers of Lakeview, who are entitled
to vote approximately 27% of the outstanding shares of Lakeview common stock,
have entered into shareholder agreements with Dime. Under the shareholder
agreements, the directors and executive officers have agreed to vote their
shares in favor of approval of the merger agreement and not to vote any of
their shares in favor of any other Acquisition Proposal. A copy of the form of
shareholder agreement executed by each of these directors and executive
officers is attached to this document as Appendix C. These persons have also
agreed to take all reasonable actions to consummate the merger and, with
limited exceptions, not to sell or otherwise transfer any Lakeview shares owned
by them unless the buyer or transferee also agrees to vote such shares in favor
of approval of the merger agreement.
No Dissenters' Appraisal Rights
Lakeview shareholders will not be entitled to dissenters' appraisal rights in
connection with the merger.
DESCRIPTION OF DIME CAPITAL STOCK
The following summary of certain provisions of the Amended and Restated
Certificate of Incorporation of Dime and Dime's by-laws and of the Rights
Agreement (as defined below) is not intended to be complete and is qualified in
its entirety by reference to such documents, each of which is an exhibit to the
Registration Statement filed with the SEC of which this proxy
statement/prospectus is a part. See "Where You Can Find More Information."
Authorized Stock
Dime's certificate of incorporation authorizes 350 million shares of Dime
common stock, and 40 million shares of preferred stock.
Common Stock
The shares of Dime common stock entitle the holders thereof (1) to dividends
when, as and if declared by the Dime Board, subject to any rights of any
holders of Dime preferred stock that may be outstanding, (2) to one vote per
share on each matter submitted to Dime stockholders for their vote and (3) to
participate equally in the assets of Dime remaining after a liquidation,
dissolution or winding-up of Dime. Holders of Dime common stock are not
entitled to preemptive rights.
Dividends. Dime's ability to pay dividends is limited by certain restrictions
imposed on Delaware corporations. Under these restrictions, dividends may be
paid only out of Dime's surplus, as defined by the DGCL, or if there is no
surplus, Dime's net profits for the fiscal year in which the dividend is
declared and/or the preceding fiscal year.
Most of Dime's cash flow comes from dividends and other capital
distributions, if any, from Dime Savings Bank, and such dividends and other
capital contributions are subject to regulatory restrictions. See "Certain
Regulatory Considerations--Regulatory Capital Requirements."
Dime Preferred Stock
Shares of Dime preferred stock may be issued in one or more series as
determined by the Dime Board. The Dime Board will determine by resolution the
powers, designations, preferences and relative, participating, optional or
other rights, if any, and the qualifications, limitations or restrictions of
any series of Dime preferred stock, including the number of shares, dividend
rights, redemption rights, liquidation preferences, voting rights and
conversion rights. At present, there are no shares of Dime preferred stock
outstanding.
35
<PAGE>
Stockholder Protection Rights Plan
Each share of Dime common stock has attached to it one Right (a "Right")
issued pursuant to a Stockholder Protection Rights Agreement, dated as of
October 20, 1995 (the "Rights Agreement"), between Dime and the First National
Bank of Boston, as Rights Agent. Each Right entitles its holder to purchase
one-hundredth of a share of Participating Preferred Stock, par value $0.01 per
share, for $50 (the "Exercise Price"), subject to adjustment, after the close
of business on the earlier of (1) the tenth business day after commencement of
a tender or exchange offer which, if consummated, would result in a person
becoming the Beneficial Owner (as defined in the Rights Agreement) of 20% or
more of the outstanding shares of Dime common stock (an "Acquiring Person") and
(2) the tenth business day after the first date (the "Flip-in Date") of public
announcement that a person has become an Acquiring Person. In any case, this
time is referred to as the "Separation Time."
The Rights will not be exercisable until the business day following the
Separation Time. The Rights will expire on the earlier of (1) the close of
business on November 6, 2005; (2) redemption, as described below; (3) an
exchange for common stock, as described below; or (4) the merger of Dime into
another corporation pursuant to an agreement entered into prior to a Flip-in
Date. The Dime Board may, at any time prior to occurrence of a Flip-in Date,
redeem all the Rights at a price of $0.01 per Right.
If a Flip-in Date occurs, each Right (other than those by the Acquiring
Person or any affiliate or associate of the Acquiring Person or by any
transferees of any of the foregoing), will constitute the right to purchase
shares of Dime common stock having an aggregate market price equal to $100 in
cash, subject to adjustment. In addition, the Dime Board may at any time
between a Flip-in Date and the time that an Acquiring Person becomes the
beneficial owner of more than 50% of the outstanding shares of Dime common
stock elect to exchange the Rights for shares of Dime common stock at an
exchange ratio of one share of Dime common stock per Right.
Dime has agreed not to consolidate or merge, or engage in certain other
transactions, with an Acquiring Person without entering into a supplemental
agreement with the Acquiring Person providing that, upon consummation or
occurrence of the transaction, each Right shall thereafter constitute the right
to purchase common stock of the Acquiring Person having an aggregate market
price equal to $100 in cash, subject to adjustment.
The Rights will not prevent a takeover of Dime. The Rights, however, may have
certain antitakeover effects. The Rights may cause substantial dilution to a
person or group that acquires 20% or more of the outstanding Dime common stock
unless the Rights are first redeemed by the Dime Board. A description of the
Rights Agreement specifying the terms of the Rights has been included in
reports filed by Dime under the Exchange Act. See "Where You Can Find More
Information" on page 48. The foregoing description of the Rights is qualified
in its entirety by reference to the Rights Agreement.
Other Provisions
Board of Directors. Dime's certificate of incorporation and Dime's by-laws
provide that the number of directors will be determined by the Dime Board. The
directors are divided into three classes of as nearly equal size as possible,
with one class elected annually to serve for a term of three years. The
classification of the Dime Board may discourage any takeover of Dime because a
stockholder with a majority interest in Dime would have to wait for at least
two consecutive annual meetings of stockholders to elect a majority of the
members of the Dime Board.
Cumulative Voting. Dime's certificate of incorporation does not authorize
cumulative voting for the election of directors of Dime.
Stockholder Nominations. Dime's certificate of incorporation and Dime's by-
laws provide that stockholder nominations for election of directors at an
annual meeting of stockholders must be stated in writing and filed with the
Secretary of Dime between 60 and 90 days prior to the anniversary of the date
of the notice
36
<PAGE>
mailed to the stockholders in connection with the previous year's annual
meeting. With respect to an election of directors to be held at a special
meeting of stockholders, notice of nomination must be delivered before the
close of business on the seventh day following the date on which notice of such
meeting is first given to stockholders. Dime's by-laws also require that any
notice of nomination by a stockholder provide certain information concerning
the stockholder and his or her nominee, including, among other things, the
information regarding the nominee as would be required to be included in a
proxy statement filed pursuant to the proxy rules of the SEC, and the consent
of the nominee to serve as a director of Dime if elected. The presiding officer
at the meeting may refuse to acknowledge the nomination of any person not made
in compliance with these procedures.
Removal of Directors. Dime's certificate of incorporation and Dime's by-laws
provide that directors may be removed only for cause (defined as a felony
conviction or a final adjudication that a director is liable for gross
negligence or misconduct in the performance of his or her duties to Dime) and
only with the affirmative vote of at least two-thirds of the shares of capital
stock of Dime entitled to vote at an election of directors. In addition, Dime's
certificate of incorporation and Dime's by-laws give a majority of the
directors the ability to remove a director if required by a federal banking
agency.
The provisions of Dime's certificate of incorporation and Dime's by-laws
giving the Dime Board the power to determine the exact number of directors and
to fill any vacancies or newly created positions and allowing removal of
directors only for cause upon the vote of at least two-thirds of the shares
entitled to vote at an election of directors are intended to insure that the
classified board provisions are not circumvented by the removal of incumbent
directors. Furthermore, as discussed below, Dime stockholders do not have the
ability to call special meetings of stockholders; as a result, a stockholder
seeking to have a director removed for cause generally will be able to do so
only at an annual meeting of stockholders. These provisions of Dime's
certificate of incorporation and Dime's by-laws make the removal of any
director more difficult, even if such removal were desired by the stockholders
of Dime. In addition, these provisions of Dime's certificate of incorporation
and Dime's by-laws could make a takeover of Dime more difficult under
circumstances where the potential acquiror seeks to do so through obtaining
control of the Dime Board.
Special Meetings of Stockholders. Dime's certificate of incorporation and by-
laws provide that special meetings of stockholders may be called by the
Chairman of the Board (or, if there is none, the Chief Executive Officer) with
the approval of a majority of the Dime Board or by a majority of the Dime
Board. Special meetings may not be called by stockholders.
The provisions relating to special meetings of stockholders are intended to
enable the Dime Board to determine if it is appropriate for Dime to incur the
expense of a special meeting in order to present a proposal to Dime
stockholders. If the Dime Board determines not to call a special meeting,
stockholder proposals could not be presented to the stockholders for action
until the next annual meeting. In addition, these provisions of Dime's
certificate of incorporation and by-laws could make a takeover of Dime more
difficult under circumstances where the potential acquiror seeks to do so
through obtaining control of the Dime Board.
Action of Stockholders by Written Consent. Dime's certificate of
incorporation permits any action required to be taken at a meeting of Dime
stockholders to be taken without a meeting only if the written consent of 100%
of stockholders is obtained.
The purpose of this provision of Dime's certificate of incorporation is to
prevent any person or persons holding the requisite percentage of the voting
stock of Dime to take corporate action without giving notice to other
stockholders and without the procedures of a stockholder meeting. In a
publicly-held corporation with many stockholders, the practical effect of
requiring 100% of the stockholders to consent to any action is that
stockholders can act only at a duly held stockholder meeting.
Voting at a Meeting. Dime's by-laws provide that when a quorum is present at
any meeting, the vote of the holders of a majority of the stock that has voting
power present in person or represented by proxy will decide any question
brought before the meeting, unless a different vote is required by law, Dime's
certificate of incorporation, a certificate of designation of any series of
Dime preferred stock or Dime's by-laws.
37
<PAGE>
Notice of Stockholder Proposals. Dime's certificate of incorporation and by-
laws provide that proposals by stockholders of business to be considered at an
annual meeting must be stated in writing and filed with the Secretary between
60 and 90 days prior to the anniversary date of the notice of meeting mailed to
stockholders in connection with the previous year's annual meeting. Unless
otherwise determined by the Dime Board, the date for the annual meeting of
stockholders is fixed as the fourth Friday of April.
Dime's by-laws also provide that the notice required to be delivered by a
stockholder who wishes to propose business at an annual meeting must set forth
certain information concerning such stockholder.
Dime's by-laws further provide that the number of proposals that may be
submitted by a stockholder is limited to two and set forth the reasons that a
proposal could be deemed out of order. The types of proposals that Dime does
not have to consider if raised by a stockholder in connection with an annual
meeting include those that would violate laws or regulations, would result in a
breach or violation of contract, would be impossible to accomplish, are not a
proper matter for stockholder action or relate to ordinary business operations.
Limitation of Liability and Indemnification of Directors and Officers. Dime's
certificate of incorporation contains provisions that limit certain types of
causes of action that can be maintained against its directors. Accordingly, in
any action against the directors of Dime, the directors will not be personally
liable to Dime or its stockholders for monetary damages for breach of fiduciary
duty as directors, except for (1) any breach of the directors' duty of loyalty
to Dime or its stockholders, (2) acts or omissions not in good faith or which
involve intentional misconduct or a knowing violation of law, (3) improper
dividends or distributions or (4) transactions involving improper personal
benefit.
Dime provides indemnification rights to any person who is a party to any
action (other than an action by or in the right of Dime) because such person
has served as a director or officer of Dime (or of any other entity, at the
request of Dime) with respect to costs, expenses, judgments, fines and amounts
paid in settlement. Subject to applicable banking laws and regulations, these
indemnification provisions apply if such person acted in good faith and in a
manner he or she reasonably believed to be in (or not opposed to) the best
interests of Dime and, with respect to a criminal action, if such person had no
reasonable cause to believe that his or her conduct was unlawful. These persons
are entitled to indemnification rights in an action by or in the right of Dime
with respect to costs, expenses and amounts paid in settlement, subject to the
same standards, except where there is a finding of liability (in which case
indemnification is permitted only if a court determines that indemnification is
fair and reasonable).
Under Dime's certificate of incorporation, indemnification of the costs and
expenses of defending any action is required to be made to any director or
officer who is successful (on the merits or otherwise) in defending the action.
Furthermore, indemnification also is required to be made with respect to all
amounts referred to in the preceding paragraph, unless a determination is
otherwise made by a majority of disinterested directors that indemnification is
not proper because the director or officer has not met the applicable standard
of conduct.
Dime's certificate of incorporation also permits Dime to indemnify and
advance expenses to its non-officer employees and agents in connection with any
civil, criminal, administrative or investigative actions, suits or proceedings.
Dime's certificate of incorporation also provides that if the DGCL is amended
to expand the permitted indemnification of directors and officers, then Dime
will indemnify directors and officers to the fullest extent permitted by such
amendment.
Amendment of Certificate of Incorporation. Dime's certificate of
incorporation provides that amending, adopting provisions inconsistent with or
repealing certain of its provisions requires the approval of holders of at
least two-thirds of the total votes eligible to be cast at a meeting for the
election of directors. The provisions subject to the two-thirds stockholder
approval requirement include provisions relating to (1) the Dime Board,
38
<PAGE>
(2) special meetings of stockholders, (3) amendment of Dime's by-laws by
stockholders, (4) written consents of stockholders, (5) stockholder proposals
and (6) amendment of the two-thirds stockholders approval requirement itself.
Amendment of any other provision of Dime's certificate of incorporation
requires only a majority of the total votes eligible to be cast at a meeting
for the election of Directors.
Amendment of By-Laws. Dime's certificate of incorporation and Dime's by-laws
provide that Dime's by-laws may be amended by either a resolution adopted by a
majority of the Dime Board or the approval of two-thirds of the total votes
eligible to be cast at a meeting of stockholders.
The requirement of an increased stockholder vote for the amendment of Dime's
by-laws is intended to prevent a stockholder controlling a majority of the Dime
common stock from avoiding the requirements of important provisions of Dime's
by-laws simply by amending or repealing them. Thus, the holders of a minority
of the shares of the Dime common stock could block the future repeal or
modification of the Dime's by-laws even if such action were deemed beneficial
by the holders of more than a majority (although less than two-thirds) of the
Dime common stock.
Business Combinations with Interested Stockholders. Section 203 of the DGCL
is intended to discourage certain takeover practices by impeding the ability of
a hostile acquiror to engage in certain transactions with the target company.
In general, Section 203 provides that a person or entity that owns 15% or
more of the outstanding voting stock of a Delaware corporation (an "Interested
Stockholder") may not consummate a merger or other business combination
transaction with such corporation at any time during the three-year period
following the date such person or entity became an Interested Stockholder,
unless an exemption described below is applicable. The term "business
combination" is defined broadly to cover a wide range of corporate transactions
including mergers, sales of assets, issuances of stock, transactions with
subsidiaries and the receipt of disproportionate financial benefits.
The statute exempts the following transactions from the requirements of
Section 203: (1) any business combination if, prior to the date a person became
an Interested Stockholder, the board of directors approved either the business
combination or the transaction which resulted in the stockholder becoming an
Interested Stockholder, (2) any business combination involving a person who
acquired at least 85% of the outstanding voting stock in the transaction in
which he or she became an Interested Stockholder, with the number of shares
outstanding calculated without regard to those shares owned by the
corporation's directors who are also officers or by certain employee stock
plans, (3) any business combination with an Interested Stockholder that is
approved by the board of directors and by two-thirds of the outstanding voting
stock not owned by the Interested Stockholder, and (4) certain business
combinations that are proposed after the corporation had received other
acquisition proposals and that are approved or not opposed by a majority of
certain continuing members of the board of directors. Dime's certificate of
incorporation does not contain an election, as permitted by Delaware law, to be
exempt from the requirements of Section 203.
Other Factors Affecting Acquisitions of Control. Dime's certificate of
incorporation authorizes the issuance of 350 million shares of Dime common
stock and 40 million shares of Dime preferred stock. The authorized but
unissued shares of Dime common stock and Dime preferred stock provide the Dime
Board with flexibility to effect certain financings, acquisitions, stock
dividends, stock splits and employee stock options without the need for a
stockholder vote. The Dime Board, consistent with its fiduciary duties, could
also authorize the issuance of these shares, and could establish voting,
conversion, liquidation and other rights for the Dime preferred stock being
issued, in an effort to deter attempts to gain control of Dime.
In addition, Dime is subject to federal statutes and regulations concerning
changes in control, or potential changes in control, of depository
institutions. In particular, before any company may acquire control of Dime,
that company must obtain OTS approval. Also, under the Change in Bank Control
Act, before any person may acquire control of Dime, it must submit 60 days'
prior written notice to the OTS and such notice must not be disapproved.
39
<PAGE>
CERTAIN DIFFERENCES IN THE RIGHTS OF DIME
STOCKHOLDERS AND LAKEVIEW SHAREHOLDERS
At the Effective Time, Lakeview shareholders who receive Dime common stock
automatically will become stockholders of Dime, and their rights as
stockholders will be determined by Dime's certificate of incorporation, Dime's
by-laws and the DGCL, instead of by Lakeview's certificate of incorporation and
Lakeview's by-laws and the NJBCA. The following is a summary of the material
differences in the rights of shareholders of Dime and Lakeview. This summary is
necessarily general and does not purport to be a complete discussion of, and is
qualified in its entirety by reference to, the DGCL, the NJBCA, the certificate
of incorporation and by-laws of each corporation, as well as Dime's Rights
Agreement.
Size and Classification of Board of Directors
Dime. Dime's certificate of incorporation provides that the size of the Dime
Board shall be fixed from time to time by a vote of the majority of the
directors then in office. Dime's by-laws provide that the Board of Directors
shall consist of between seven and 24 members. Currently, the Dime Board has 17
members.
Dime's certificate of incorporation and by-laws provide that the Board will
be divided into three classes as nearly equal in number as possible, and the
members of each class shall be elected for a term of three years.
Dime's certificate of incorporation and by-laws provide that vacancies may be
filled by the affirmative vote of a majority of the directors remaining in
office, whether or not a quorum, by the sole remaining director, or, in the
event of the failure of the remaining director or directors to fill a vacancy,
by the stockholders at the next annual meeting of stockholders. Each director
chosen to fill a vacancy will hold office for a term expiring at the annual
meeting of stockholders at which the term expires for the class of directors to
which he or she has been elected.
Lakeview. Lakeview's certificate of incorporation and by-laws provide that
the board of directors of Lakeview shall consist of no fewer than five and no
more than 11 members. Currently, the Lakeview Board has seven members.
Lakeview's certificate of incorporation provides that the Lakeview Board will
be divided into three classes of directors as nearly equal in number as
possible, and the members of each class shall be elected for three years.
Lakeview's certificate of incorporation provides that vacancies may be filled
by a vote of the majority of the directors remaining in office, whether or not
a quorum, or by the sole remaining director, and any director chosen to fill a
vacancy will hold office for a term expiring at the next annual meeting of
shareholders.
Removal of Directors
Dime. Dime's certificate of incorporation and by-laws provide that directors
may be removed only for cause (defined as a felony conviction or an
adjudication that a director is liable for gross negligence or misconduct in
the performance of his or her duties to Dime) and only with the affirmative
vote of at least two-thirds of the shares of capital stock of Dime entitled to
vote at an election of directors. In addition, Dime's certificate of
incorporation and Dime's by-laws give a majority of the Dime Board the ability
to remove a director if such removal is directed by a federal banking agency.
Lakeview. Lakeview's certificate of incorporation provides that any director
or the entire board of directors may be removed for cause, at any time, by the
affirmative vote of the holders of at least 80% of the outstanding shares of
Lakeview capital stock entitled to vote generally in the election of directors
at a meeting of shareholders called for that purpose. In addition, Lakeview's
certificate of incorporation provides that the Lakeview Board may remove
directors for cause and suspend directors pending a final determination that
cause for removal exists. Under the NJBCA, shareholders of a corporation that,
like Lakeview, has a classified board are not permitted to remove directors
without cause.
40
<PAGE>
Amendment of Certificate of Incorporation and By-laws
Dime. Under Dime's certificate of incorporation, amending, adopting
provisions inconsistent with or repealing certain provisions in Dime's
certificate of incorporation requires the approval of the holders of at least
two-thirds of the total votes eligible to be cast at a meeting for the election
of directors. The provisions subject to the two-thirds stockholder approval
requirement include provisions relating to: (1) the Dime Board; (2) special
meetings of stockholders; (3) amendment of Dime's by-laws by stockholders; (4)
written consent of stockholders; (5) stockholder proposals and (6) amendment of
the two-thirds stockholder approval requirement itself. Under the DGCL, all
other amendments of Dime's certificate of incorporation require the affirmative
vote of holders of a majority of the total votes eligible to be cast at a
meeting for the election of directors (unless a class vote is required by the
DGCL).
Dime's certificate of incorporation and Dime's by-laws provide that Dime's
by-laws may be amended by either resolution of the Dime Board or by the
affirmative vote of at least two-thirds of the total votes eligible to be cast
at a meeting for the election of directors.
Lakeview. Under Lakeview's certificate of incorporation, repeal, alteration,
amendment or rescission of certain provisions in Lakeview's certificate of
incorporation requires the approval of the holders of at least 80% of the
outstanding shares of capital stock eligible to be cast at a meeting for the
election of directors. The provisions subject to the 80% shareholder approval
requirement include provisions relating to: (1) preemptive rights; (2) special
meetings of shareholders; (3) shareholder nominations and proposals; (4) size
and classification of the board of directors; (5) removal of directors; (6)
limitations on voting rights; (6) approval of certain business combinations;
(7) liability of directors and officers; (8) indemnification; (9) amendment of
the Lakeview by-laws; and (10) amendment of the two-thirds shareholder approval
requirement itself. Under the NJBCA, all other amendments of Lakeview's
certificate of incorporation require the affirmative vote of holders of a
majority of the total votes eligible to be cast at a meeting for the election
of directors (unless a class vote is required by the NJBCA).
Lakeview's certificate of incorporation provides that Lakeview's by-laws may
be amended by a vote of two-thirds of the Lakeview Board or by a vote of the
holders of 80% of outstanding shares of capital stock eligible to be cast at a
meeting for the election of directors.
Stockholder Nominations and Proposals
Dime. Dime's certificate of incorporation and by-laws provide that proposals
by stockholders of business to be considered at an annual meeting must be
stated in writing and filed with Dime's Secretary between 60 and 90 days prior
to the anniversary date of the notice of meeting mailed to stockholders in
connection with the previous year's annual meeting. The date for the annual
meeting of stockholders is fixed as the fourth Friday in April or such other
date as the Dime Board may direct.
Dime's by-laws further provide that the number of proposals that may be
submitted by a stockholder is limited to two and set forth the reasons that a
proposal could be deemed out of order. The types of proposals that Dime does
not have to consider if raised by a stockholder in connection with an annual
meeting include those that would violate laws or regulations, would result in a
breach or violation of contract, would be impossible to accomplish, are not a
proper matter for stockholder action or relate to ordinary business operations.
Lakeview. Lakeview's by-laws provide that shareholder nominations of
directors and proposals to be considered at any annual or special meeting of
shareholders must be stated in writing and delivered to the Secretary of
Lakeview between 30 and 60 days prior to such meeting. If less than 30 days'
notice of the meeting is given to shareholders, shareholder proposals must be
delivered to the Secretary no later than 10 days following the date that notice
of the meeting was mailed to shareholders.
41
<PAGE>
Special Meetings of Stockholders and Stockholder Action by Written Consent
Dime. Dime's certificate of incorporation and by-laws provide that special
meetings of Dime stockholders may be called by the Chairman of the Board (or,
if there is none, the Chief Executive Officer) with the approval of a majority
of the Dime Board or by a majority of the Dime Board. Special meetings may not
be called by Dime stockholders. Dime's certificate of incorporation permits any
action required to be taken at a meeting of its stockholders to be taken
without a meeting only if the written consent of all stockholders entitled to
vote is obtained.
Lakeview. Lakeview's certificate of incorporation and by-laws provide that a
special meeting of Lakeview shareholders may be called by the Lakeview Board,
by a committee of the Lakeview Board which has been duly authorized to call
such meetings, or by the Chairman of the Board, the Vice-Chairman or the
President. Lakeview's certificate of incorporation and by-laws do not permit
Lakeview shareholders to call a special meeting. However, under the NJBCA, upon
application by the holders of 10% or more of the shares entitled to vote at a
meeting, the Superior Court of New Jersey, for good cause shown, may order that
a special meeting be called. Lakeview's certificate of incorporation provides
that shareholders may take action by the unanimous written consent of all
shareholders entitled to vote; however, in the case of a merger, consolidation,
sale of assets or acquisition of all the capital stock of Lakeview, action may
be taken by written consent only if all shareholders consent in writing or if
all shareholders entitled to vote consent in writing and all other shareholders
are provided with advance notification as required under the NJBCA.
Limitations on Voting
Lakeview's certificate of incorporation provides that no person who
beneficially owns, directly or indirectly, in excess of 10% of the then-
outstanding shares of Lakeview common stock is entitled to vote any shares held
in excess of 10%. Lakeview's certificate of incorporation provides that this
provision may only be amended upon the affirmative vote of 80% of the
outstanding shares of capital stock.
Dime's certificate of incorporation has no such limitation.
Rights Plans
As discussed under "Description of Dime Capital Stock C Stockholder
Protection Rights Plan," each share of Dime common stock has attached to it one
Right issued pursuant to the Rights Agreement.
Lakeview does not have a similar rights agreement.
CERTAIN REGULATORY CONSIDERATIONS
As a savings and loan holding company, Dime is subject to supervision by the
OTS. Dime Savings Bank is a federally chartered savings bank subject to
comprehensive regulation, examination and supervision by the OTS, as the
primary federal regulator of savings associations, and by the FDIC, as the
administrator of the federal deposit insurance funds. A portion of Dime Savings
Bank's deposits is insured by the Savings Association Insurance Fund and a
portion is insured by the Bank Insurance Fund. Dime Savings Bank is required to
file reports with the OTS and the FDIC concerning its activities and financial
condition. Dime Savings Bank is a member of the Federal Home Loan Bank of New
York and is subject to certain limited regulation by the Board of Governors of
the Federal Reserve System.
This section briefly describes some of the key statutory provisions and
regulations applicable to Dime Savings Bank and Dime. This section does not
contain a complete description of all the statutes and regulations affecting
Dime's business. The regulatory scheme has been established primarily for the
protection of depositors and the financial system generally and is not intended
for the protection of stockholders or other creditors.
42
<PAGE>
As a holding company, Dime's ability to pay dividends and make other
distributions is largely dependent on its ability to receive dividends and
other funds from Dime Savings Bank. In addition, Dime's ability to pay
dividends or other distributions on its capital stock is also affected by
statutes and regulations relating to the business of federal savings
associations that have the effect of limiting transfers of funds from Dime
Savings Bank to Dime. The nature and extent of these restrictions depend upon
the institution's level of regulatory capital and its income.
Regulatory Capital Requirements
Under federal statute and OTS regulations, savings associations are required
to comply with three separate capital adequacy standards. These institutions
are required to have "core capital" equal to at least 3% of adjusted total
assets, "tangible capital" equal to at least 1.5% of adjusted total assets and
"total risk-based capital" equal to at least 8% of risk-weighted assets.
"Core capital" includes common stockholders' equity (including common stock,
common stock surplus and retained earnings but excluding any net unrealized
gains or losses, net of related taxes, on certain securities available for
sale), noncumulative perpetual preferred stock and any related surplus and
minority interests in the equity accounts of fully consolidated subsidiaries.
Intangible assets, other than servicing assets ("Servicing Assets") valued in
accordance with applicable regulations and purchased credit card relationships
("PCCRs"), generally must be deducted from core capital. Servicing Assets and
PCCRs may represent in the aggregate up to 100% of core capital, although the
aggregate amount of non-mortgage-related servicing assets and PCCRs may not
exceed 25% of core capital.
"Tangible capital" means core capital less any intangible assets (except for
mortgage servicing assets includable in core capital) and investments in
subsidiaries that are not "includable subsidiaries" (except as permitted by the
regulation).
For purposes of the risk-based capital requirement, "total risk-based
capital" means core capital plus supplementary capital, so long as the amount
of supplementary capital that is used to satisfy the requirement does not
exceed the amount of core capital. "Supplementary capital" includes, among
other things, subordinated debt issued pursuant to OTS regulations, general,
valuation loan and lease loss allowances up to a maximum of 1.25% of risk-
weighted assets, and up to 45% of unrealized gains on certain available-for-
sale equity securities. Risk-weighted assets are determined by multiplying
certain categories of the savings association's assets, including off-balance
sheet equivalents, by an assigned risk weight of 0% to 100% based on the credit
risk associated with those assets as specified in OTS regulations.
As of December 31, 1998, Dime Savings Bank had core capital and tangible
capital of $1.3 billion, which was equal to 5.82% of adjusted total assets, and
total risk-based capital of $1.4 billion, which was equal to 10.37% of risk-
weighted assets, and exceeded the capital requirements imposed by the OTS.
In 1991, Congress enacted the "prompt corrective action" provisions of the
Federal Deposit Insurance Act, which established five capital-based categories
for depository institutions insured by the FDIC: "well capitalized,"
"adequately capitalized," "undercapitalized," "significantly undercapitalized,"
and "critically undercapitalized." The OTS must take certain mandatory action
and may take other discretionary action against savings associations in the
three undercapitalized categories. Under OTS regulations, an institution is
treated as well capitalized if its ratio of total risk-based capital to risk-
weighted assets is 10% or more, its ratio of core capital to risk-weighted
assets is 6% or more, its ratio of core capital to adjusted total assets is 5%
or more and it is not subject to any order or directive by the OTS to meet a
specific capital level. At December 31, 1998, Dime Savings Bank continued to
satisfy the published standards for a well capitalized institution.
Limitations on Capital Distributions
Savings associations may not make capital distributions (or pay management
fees to their holding companies) if, following such distribution, the savings
association will be "undercapitalized" as described
43
<PAGE>
above. In addition, OTS regulations limit a savings association's ability to
pay dividends and make other capital distributions according to its level of
capital and income. For this purpose, "capital distributions" include cash
dividends, payments to repurchase, redeem, retire or otherwise acquire a
savings association's shares, payments to stockholders of another institution
in a cash-out merger, other distributions charged against capital and any other
transaction that the OTS determines to entail a payout of capital. To the
extent that the OTS regulations described below and the prompt corrective
action provisions are inconsistent, the prompt corrective action provisions
control.
Under current OTS regulations, a savings association's ability to pay
dividends and make other capital distributions depends on its level of
regulatory capital as well as its earnings. A savings association that exceeds
its regulatory capital requirements both before and after a proposed dividend
(or other distribution of capital) (a "Tier 1 Institution") and has not been
advised by the OTS that it is in need of more than normal supervision may,
after giving notice to but without the approval of the OTS, make capital
distributions during a calendar year up to the higher of (1) 100% of its net
income to date during the calendar year plus the amount that would reduce by
one-half its "surplus capital ratio" (the percentage by which the institution's
ratio of total capital to assets exceeds the ratio of its fully phased-in
capital requirement to assets) at the beginning of the calendar year or (2) 75%
of its net income over the most recent four-quarter period. In addition, a Tier
1 Institution may make capital distributions in excess of the foregoing limits
if the OTS does not object within 30 days after the institution gives notice to
the OTS. Under OTS regulation, a Tier 3 Institution (an institution that does
not meet its OTS capital requirements) generally cannot make a capital
distribution without the prior written approval of the OTS. A Tier 1
Institution that has been notified by the OTS that it is in need of "more than
normal supervision" must, under OTS regulations, be treated as a Tier 2 or a
Tier 3 Institution. Under OTS regulations, a Tier 2 Institution may, after
prior notice but without the approval of the OTS, make capital distributions in
an amount up to 75% of its net income during the most recent fourth-quarter
period. Dime Savings Bank is currently a Tier 1 Institution. The OTS may also
prohibit a proposed capital distribution that would otherwise be permitted by
the regulation if the OTS determines that the distribution would constitute an
unsafe or unsound practice. In addition, a savings association that has
converted from mutual to stock form (such as Dime Savings Bank) may not declare
or pay a dividend on, or repurchase, any of its capital stock if the effect of
such action would be to reduce the regulatory capital of the institution below
the amount required for its liquidation account.
Beginning on April 1, 1999, OTS regulations dispense with the distinctions
between Tier 1, Tier 2 and Tier 3 Institutions and also eliminate the use of
the "surplus capital ratio" in determining whether an application must be
filed. A savings association will be required to file an application if: (1) it
is not eligible for expedited treatment under the OTS application processing
rules: (2) the total amount of all capital distributions, including the
proposed capital distribution, for the applicable calendar year would exceed an
amount equal to the savings association's net income for that year to date plus
the savings association's retained net income for the preceding two years; (3)
the savings association would not be adequately capitalized under the OTS
capital regulation following the distribution; or (4) the capital distribution
would violate a statute, regulation or agreement with the OTS or a condition
imposed by the OTS. A savings association that is not required to file an
application may be required to file a notice with the OTS under certain
conditions. Assuming that an application is not required, a savings association
will be required to file a notice because it is a subsidiary of a holding
company. The OTS may disapprove an application or notice if the proposed
capital distribution would: (1) make the association undercapitalized,
significantly undercapitalized, or critically undercapitalized; (2) raise
safety or soundness concerns; or (3) violate a statute, regulation, agreement
with the OTS (or with the FDIC), or a condition imposed in an OTS-approved
application or notice.
Also beginning on April 1, 1999, "capital distributions" will include, among
other things, payments to repurchase, redeem, retire or acquire the savings
association's debt instruments included in total capital or payment of cash or
other property to the savings association's owners or affiliates made in
connection with a corporate restructuring. Distributions charged against
capital will only be included if the savings association would not be "well
capitalized" following the distribution.
44
<PAGE>
Transactions with Affiliates
Under federal law and regulation, transactions between a savings association
and its "affiliates," which term includes its holding company and other
companies controlled by its holding company, are subject to quantitative and
qualitative restrictions. Savings associations are restricted in their ability
to engage in certain types of transactions with their affiliates, including
transactions that could provide funds to a holding company for the payment of
capital distributions. These "covered transactions" generally include
. lending or extending credit to an affiliate,
. purchasing assets from an affiliate,
. accepting securities issued by an affiliate as collateral for a loan or
extension of credit, and
. issuing a guarantee, acceptance or letter of credit on behalf of an
affiliate.
Covered transactions are permitted between a savings association and single
affiliate up to 10% of the capital stock and surplus of the association, and
between a savings association and all of its affiliates up to 20% of the
capital stock and surplus of the institution. The purchase of low-quality
assets by a savings association from an affiliate is not permitted. Each loan
or extension of credit to an affiliate by a savings association must be secured
by collateral with a market value ranging from 100% to 130% (depending on the
type of collateral) of the amount of credit extended. Notwithstanding the
foregoing, a savings association is not permitted to make a loan or extension
of credit to any affiliate unless the affiliate is engaged only in activities
that the Federal Reserve Board has determined to be permissible for bank
holding companies. Savings associations also are prohibited from purchasing or
investing in securities issued by an affiliate, other than shares of a
subsidiary. Covered transactions between a savings association and an
affiliate, and certain other transactions with or benefitting an affiliate,
must be on terms and conditions at least as favorable to the institution as
those prevailing at the time for comparable transactions with non-affiliated
companies. This arm's-length requirement applies to all covered transactions,
as well as to (a) the sale of securities or other assets to an affiliate, (b)
the payment of money or the furnishing of services to an affiliate, (c) any
transaction in which an affiliate acts as agent or broker or receives a fee for
its services to the savings association or to any other person, or (d) any
transaction or series of transactions with a third party if any affiliate has a
financial interest in the third party or is a participant in the transaction or
series of transactions.
45
<PAGE>
COMPARATIVE MARKET PRICES AND DIVIDENDS
Dime
Dime common stock is traded on the NYSE under the symbol "DME." The following
table sets forth, for the indicated periods, the high and low sale prices for
Dime common stock as reported on the NYSE Composite Transaction Reporting
System, and the cash dividends declared per share of Dime common stock.
<TABLE>
<CAPTION>
Price
Range Cash Dividends
------------ Declared Per
High Low Share
---- --- --------------
<S> <C> <C> <C>
1996:
First.................................. 12 3/8 10 5/8 0.00
Second................................. 13 3/8 11 1/2 0.00
Third.................................. 14 11 1/8 0.00
Fourth................................. 16 7/8 13 1/2 0.00
1997:
First.................................. 18 1/8 14 1/2 0.00
Second................................. 19 14 7/8 0.04
Third.................................. 22 1/16 16 15/16 0.04
Fourth................................. 30 3/8 20 15/16 0.04
1998:
First.................................. 31 1/4 23 0.04
Second................................. 32 1/2 27 5/8 0.05
Third.................................. 33 1/16 18 1/4 0.05
Fourth................................. 28 17 1/8 0.05
1999:
First (through March 19)............... 27 3/16 22 0.05
</TABLE>
On December 15, 1998, the last trading day before public announcement of the
merger, the closing price per share of Dime common stock on the NYSE was $24
1/4. Past price performance is not necessarily indicative of likely future
price performance. Holders of Dime common stock are urged to obtain current
market quotations for shares of Dime common stock.
The holders of Dime common stock are entitled to receive dividends when and
if declared by the Dime Board out of funds legally available therefor. The Dime
Board periodically considers the payment of dividends on Dime common stock,
taking into account Dime's financial condition and level of net income, Dime's
future prospects, economic conditions, industry practices and other factors,
including restrictions on the payment of dividends.
46
<PAGE>
Lakeview
Lakeview common stock is quoted on the Nasdaq National Market under the
symbol "LVSB." The following table sets forth for the indicated periods the
high and low sale prices for Lakeview common stock as reported on the Nasdaq
National Market, and the cash dividends declared per share of Lakeview common
stock.
<TABLE>
<CAPTION>
Price Range Cash Dividends
----------- Declared Per
High Low Share
----- ----- --------------
<S> <C> <C> <C>
1996:
First......................................... 7.91 7.18 0.0258
Second........................................ 8.13 7.28 0.0258
Third......................................... 9.04 7.84 0.0284
Fourth........................................ 9.55 8.07 0.0284
1997:
First......................................... 12.44 9.21 0.0284
Second........................................ 15.69 11.25 0.0313
Third......................................... 17.13 13.75 0.0313
Fourth........................................ 17.32 13.63 0.0313
1998:
First......................................... 26.75 16.13 0.0625
Second........................................ 26.50 23.75 0.0625
Third......................................... 26.57 23.25 0.0625
Fourth........................................ 29.00 23.00 0.0625
1999:
First......................................... 25.25 11.50 0.0625
Second........................................ 23.88 17.50 0.0625
Third (through March 19)...................... 23.56 20.69 0.0625
</TABLE>
Share data and historical stock prices have been adjusted for a two-for-one
stock split on October 15, 1997 and a 10% stock dividend on November 13, 1996.
EXPERTS
The consolidated financial statements of Dime and its 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 Dime's 1997 Annual Report on Form 10-K
incorporated by reference in this proxy statement/prospectus have been
incorporated by reference herein and in the Registration Statement in reliance
upon the report of KPMG LLP, independent certified public accountants, included
in Dime's 1997 Annual Report on 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 Lakeview as of July 31, 1998 and
1997 and for each of the years in the three-year period ended July 31, 1998,
included in Lakeview's 1998 Annual Report on Form 10-K incorporated by
reference in this proxy statement/prospectus have been incorporated by
reference herein and in the Registration Statement, in reliance upon the report
of KPMG LLP, independent certified public accountants included in Lakeview's
1998 Annual Report on Form 10-K, and incorporated by reference herein, and upon
the authority of said firm as experts in accounting and auditing.
VALIDITY OF DIME COMMON STOCK
The validity of the shares of Dime common stock being offered hereby will be
passed upon for Dime by Sullivan & Cromwell, New York, New York.
47
<PAGE>
OTHER MATTERS
As of the date of this proxy statement/prospectus, the Lakeview Board knows
of no matters that will be presented for consideration at the special meeting
other than as described in this proxy statement/prospectus. However, if any
other matter shall come before the special meeting or any adjournments or
postponements thereof and shall be voted upon, the proposed proxy will be
deemed to confer authority to the individuals named as authorized therein to
vote the shares represented by such proxy as to any such matters that fall
within the purposes set forth in the notice of special meeting as determined by
a majority of the Lakeview Board; provided, however, that no proxy that is
voted against the proposal to approve the merger agreement will be voted in
favor of any adjournment or postponement.
WHERE YOU CAN FIND MORE INFORMATION
Dime has filed with the SEC a Registration Statement under the Securities Act
that registers the distribution to Lakeview shareholders of the shares of Dime
common stock to be issued in connection with the merger. The Registration
Statement, including the attached exhibits and schedules, contains additional
relevant information about Dime and Dime common stock. The rules and
regulations of the SEC allow us to omit certain information included in the
Registration Statement from this proxy statement/prospectus.
In addition, Dime and Lakeview file reports, proxy statements and other
information with the SEC under the Exchange Act. You may read and copy this
information at the following locations of the SEC:
Public Reference Room New York Regional Office Chicago Regional Office
450 Fifth Street, N.W. 7 World Trade Center Citicorp Center
Room 1024 Suite 1300 500 West Madison Street
Washington, D.C. 20549 New York, New York 10048 Suite 1400
Chicago, Illinois 60661-
2511
You may also obtain copies of this information by mail from the Public
Reference Section of the SEC, 450 Fifth Street, N.W., Room 1024, Washington,
D.C. 20549, at prescribed rates. The SEC also maintains an Internet world wide
web site that contains reports, proxy statements and other information about
issuers, like Dime and Lakeview, who file electronically with the SEC. The
address of the site is http://www.sec.gov.
You should also be able to inspect reports, proxy statements and other
information about Dime and Lakeview at the offices of the NYSE, 20 Broad
Street, New York, New York 10005.
The SEC allows Dime and Lakeview to "incorporate by reference" information
into this proxy statement/prospectus. This means that Dime and Lakeview can
disclose important information to you by referring you to another document
filed separately with the SEC. The information incorporated by reference is
considered to be a part of this proxy statement/prospectus, except for any
information that is superseded by information that is included directly in this
document.
This proxy statement/prospectus incorporates by reference the documents
listed below that Dime and Lakeview previously filed with the SEC. They contain
important information about the companies and their financial condition.
Dime SEC Filings Period
- ---------- ----
Annual Report on Form 10-K................
Year ended December 31, 1997
Quarterly Report on Form 10-Q.............
Quarters ended March 31, June 30,
and September 30, 1998
48
<PAGE>
The descriptions of Dime common stock and
Rights set forth in the Dime's
Registration Statements on Form 8-A filed
pursuant to Section 12 of the Exchange
Act, including any amendment or report
filed with the SEC for the purpose of
updating such descriptions.
Current Reports on Form 8-K............... December 16, 1998, January 21,
1999 and January 28, 1999
Lakeview SEC Filings
- ------------- Period
----
Annual Report on Form 10-K................ Fiscal year ended July 31, 1998
Quarterly Reports on Form 10-Q............ Quarters ended October 31, 1998
and January 31, 1999
Current Reports on Form 8-K............... October 8, 1998 and December 17,
1998
Dime incorporates by reference additional documents that it may file with the
SEC between the date of this proxy statement/prospectus and the date of the
special meeting. These documents include periodic reports, such as Annual
Reports on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on
Form 8-K, as well as proxy statements.
Certain financial and other information relating to Lakeview is contained in
this prospectus/proxy statement, including Appendix E.
Dime has supplied all information contained or incorporated by reference in
this proxy statement/prospectus relating to Dime, as well as all pro forma
financial information, and Lakeview has supplied all information relating to
Lakeview.
Documents incorporated by reference are available from Dime and Lakeview
without charge, excluding any exhibits to those documents unless the exhibit is
specifically incorporated by reference as an exhibit in this proxy
statement/prospectus. You can obtain documents incorporated by reference in
this proxy statement/prospectus by requesting them in writing or by telephone
from the appropriate company at the following addresses:
Dime Bancorp, Inc. Lakeview Financial Co.
589 Fifth Avenue, Third Floor 989 McBride Avenue
New York, New York 10017 West Paterson, New Jersey 07424
Attention: Investor Relations Attention: Sandra L. Coulthart
Telephone: (212) 326-6170 Telephone: (973) 890-1234
If you would like to request documents, please do so by April 20 to receive
them before the special meeting. If you request any incorporated documents from
Dime or Lakeview, Dime or Lakeview will mail them to you by first class mail,
or another equally prompt means, within one business day after it receives your
request.
Neither Dime nor Lakeview has authorized anyone to give any information or
make any representation about the merger or our companies that is different
from, or in addition to, that contained in this proxy statement/prospectus or
in any of the materials that have been incorporated into this document.
Therefore, if anyone does give you information of this sort, you should not
rely on it. If you are in a jurisdiction where offers to exchange or sell, or
solicitations of offers to exchange or purchase, the securities offered by this
document or the solicitation of proxies is unlawful, or if you are a person to
whom it is unlawful to direct these types of activities, then the offer
presented in this document does not extend to you. The information contained in
this document speaks only as of the date of this document unless the
information specifically indicates that another date applies.
49
<PAGE>
Appendix A
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
AGREEMENT AND PLAN OF MERGER
dated as of December 15, 1998
between
LAKEVIEW FINANCIAL CORP.
and
DIME BANCORP, INC.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
RECITALS
ARTICLE I
Certain Definitions; Interpretation
<C> <S> <C>
1.01 Certain Definitions................................................. 1
1.02 Interpretation...................................................... 5
ARTICLE II
The Merger
2.01 The Merger.......................................................... 5
(a) Structure and Effects of the Merger............................. 5
(b) Certificate of Incorporation.................................... 5
(c) By-Laws......................................................... 5
(d) Directors....................................................... 5
(e) Officers........................................................ 5
2.02 Reservation of Right to Revise Structure............................ 6
2.03 Effective Time...................................................... 6
2.04 Integration......................................................... 6
ARTICLE III
Consideration
3.01 Consideration....................................................... 6
3.02 Rights as Shareholders; Stock Transfers............................. 8
3.03 Fractional Shares................................................... 8
3.04 Exchange Procedures................................................. 8
3.05 Anti-Dilution Adjustments........................................... 9
3.06 Company Stock Options............................................... 9
ARTICLE IV
Actions Pending the Merger
4.01 Forbearances of the Company. ....................................... 10
4.02 Forbearances of the Acquiror. ...................................... 12
ARTICLE V
Representations and Warranties
5.01 Disclosure Schedules................................................ 13
5.02 Standard............................................................ 13
5.03 Representations and Warranties of the Company....................... 13
5.04 Representations and Warranties of the Acquiror...................... 21
ARTICLE VI
Covenants
6.01 Reasonable Best Efforts............................................. 23
</TABLE>
A-i
<PAGE>
<TABLE>
<CAPTION>
Page
----
<C> <S> <C>
6.02 Shareholder Approvals............................................... 24
6.03 Registration Statement.............................................. 24
6.04 Press Releases...................................................... 25
6.05 Access; Information................................................. 25
6.06 Acquisition Proposals............................................... 25
6.07 Affiliate Agreements................................................ 26
6.08 Takeover Laws....................................................... 26
6.09 No Rights Triggered................................................. 26
6.10 NYSE Listing........................................................ 26
6.11 Regulatory Applications............................................. 26
6.12 Indemnification..................................................... 26
6.13 Accountants' Letters................................................ 27
6.14 Notification of Certain Matters..................................... 28
6.15 Advisory Board...................................................... 28
6.16 Employee Benefits................................................... 28
6.17 Certain Accounting Policies of the Company.......................... 28
6.18 Special Dividend.................................................... 28
ARTICLE VII
Conditions to Consummation of the Merger
7.01 Conditions to Each Party's Obligation to Effect the ................ 29
7.02 Conditions to Obligation of the Company............................. 29
7.03 Conditions to Obligation of the Acquiror............................ 30
ARTICLE VIII
Termination
8.01 Termination......................................................... 31
8.02 Effect of Termination and Abandonment............................... 32
8.03 Termination Fee..................................................... 32
ARTICLE IX
Miscellaneous
9.01 Survival............................................................ 32
9.02 Waiver; Amendment................................................... 32
9.03 Counterparts........................................................ 32
9.04 Governing Law....................................................... 32
9.05 Expenses............................................................ 32
9.06 Notices............................................................. 32
9.07 Entire Understanding; No Third Party Beneficiaries.................. 33
</TABLE>
<TABLE>
<CAPTION>
<C> <S> <C>
EXHIBIT A Form of Stock Option Agreement [See Appendix B]
EXHIBIT B Form of Shareholder Agreement [See Appendix C]
EXHIBIT C List of Persons to Execute Compensation-Related Agreements
[omitted]
EXHIBIT D Form of Subsidiary Combination Agreement [omitted]
EXHIBIT E Form of Affiliate Letter [omitted]
</TABLE>
A-ii
<PAGE>
AGREEMENT AND PLAN OF MERGER, dated as of December 15, 1998 (this
"Agreement"), by and among LAKEVIEW FINANCIAL CORP. (the "Company") and DIME
BANCORP, INC. (the "Acquiror").
RECITALS
A. The Company. The Company is a New Jersey corporation, having its principal
place of business in West Paterson, New Jersey.
B. The Acquiror. The Acquiror is a Delaware corporation, having its principal
place of business in New York, New York.
C. Stock Option Agreement. As a condition and inducement to the Acquiror's
willingness to enter into this Agreement, following the execution and delivery
of this Agreement, the Company shall enter into a Stock Option Agreement with
the Acquiror, in substantially the form of Exhibit A, pursuant to which the
Company shall grant to the Acquiror an option to purchase, under certain
circumstances, shares of Company Common Stock.
D. Shareholder Agreements. As a further condition and inducement to the
willingness of the Acquiror to enter into this Agreement, shareholders of the
Company who are also directors or executive officers of the Company holding the
power to vote in the aggregate approximately 30% of the outstanding shares of
the Company Common Stock have agreed to enter into agreements with the
Acquiror, in the form of Exhibit B hereto, under which each shareholder will
agree to vote in favor of this Agreement.
E. Compensation-Related Agreements. Certain employees and directors of the
Company identified on Exhibit C have agreed to execute agreements related to
certain compensation matters.
F. Intention of the Parties. It is the intention of the parties to this
Agreement that the business combination contemplated hereby be treated as a
"reorganization" under Section 368 of the Internal Revenue Code of 1986, as
amended (the "Code").
G. Board Action. The respective Boards of Directors of each of the Acquiror
and the Company have determined that it is in the best interests of their
respective companies and their shareholders to consummate the business
combination transaction provided for in this Agreement.
NOW, THEREFORE, in consideration of the premises, and of the mutual
covenants, representations, warranties and agreements contained herein, the
parties agree as follows:
ARTICLE I
Certain Definitions; Interpretation
1.01 Certain Definitions. The following terms are used in this Agreement with
the meanings assigned below:
"Acquiror" has the meaning assigned in the preamble to this Agreement.
"Acquiror Certificate" means the Amended and Restated Certificate of
Incorporation of the Acquiror.
"Acquiror Common Stock" means the common stock, par value $0.01 per
share, of the Acquiror.
"Acquiror Preferred Stock" means the preferred stock, par value $1.00 per
share, of the Acquiror.
"Acquiror Rights" means the rights to purchase Acquiror Stock outstanding
from time to time pursuant to the Acquiror Rights Agreement.
"Acquiror Rights Agreement" means the Stockholders Protection Rights
Agreement, dated as of October 20, 1995, between the Acquiror and the First
National Bank of Boston, as Rights Agent.
A-1
<PAGE>
"Acquiror Stock" means, collectively, the Acquiror Common Stock and the
Acquiror Preferred Stock.
"Acquiror's SEC Documents" has the meaning assigned in Section 5.04(g).
"Acquisition Proposal" has the meaning assigned in Section 6.06.
"Agreement" means this Agreement, as amended or modified from time to
time in accordance with Section 9.02.
"Cash Election Shares" has the meaning assigned in Section 3.01(b).
"Closing Date" has the meaning assigned in Section 2.03.
"Code" has the meaning assigned in Recital F.
"Company" has the meaning assigned in the preamble to this Agreement.
"Company Affiliate" has the meaning assigned in Section 6.07.
"Company Board" means the Board of Directors of the Company.
"Company By-Laws" means the Amended and Restated By-laws of the Company.
"Company Certificate" means the Amended and Restated Certificate of
Incorporation of the Company.
"Company Common Stock" means the common stock, par value $2.00 per share,
of the Company.
"Company Meeting" has the meaning assigned in Section 6.02.
"Company Reports" has the meaning assigned in Section 5.03(i).
"Company Stock Option" means each option to purchase shares of Company
Common Stock outstanding under the Company Stock Plans.
"Company Stock Plans" means the Management Stock Bonus Plan and Trust
Agreement and 1993 Stock Option Plan.
"Company's SEC Documents" has the meaning assigned in Section 5.03(g).
"Compensation Plans" has, with respect to any person, the meaning
assigned in Section 5.03(m).
"Consideration" has the meaning assigned in Section 3.01(a).
"Contract" means, with respect to any person, any agreement, indenture,
undertaking, debt instrument, contract, lease or other commitment to which
such person or any of its Subsidiaries is a party or by which any of them
is bound or to which any of their properties is subject.
"Converted Cash Election Shares" has the meaning assigned in Section
3.01(c).
"Converted Stock Election Shares" has the meaning assigned in Section
3.01(c).
"Costs" has the meaning assigned in Section 6.12(a).
"DGCL" means the General Corporation Law of the State of Delaware.
"Disclosure Schedule" has the meaning assigned in Section 5.01.
"DOL" means the United States Department of Labor.
"Effective Date" means the date on which the Effective Time occurs.
"Effective Time" means the date and time at which the Merger becomes
effective.
"Election" has the meaning assigned in Section 3.01(b).
"Election Deadline" has the meaning assigned in Section 3.04(a).
"Election Form" has the meaning assigned in Section 3.01(b).
A-2
<PAGE>
"Environmental Laws" means any federal, state or local law, regulation,
order, decree, permit, authorization, common law or agency requirement with
force of law relating to: (1) the protection or restoration of the
environment, health or safety (in each case as relating to the environment)
or natural resources; or (2) the handling, use, presence, disposal, release
or threatened release of any Hazardous Substance.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"ERISA Affiliate" has, with respect to any person, the meaning assigned
in Section 5.03(m).
"ERISA Affiliate Plan" has the meaning assigned in Section 5.03(m).
"ESOP" has the meaning assigned in Section 6.16.
"Exchange Act" means the Securities Exchange Act of 1934, as amended, and
the rules and regulations thereunder.
"Exchange Agent" has the meaning assigned in Section 3.01(b).
"Exchange Fund" has the meaning assigned in Section 3.04(b).
"Exchange Ratio" has the meaning assigned in Section 3.01(a).
"FDIC" means the Federal Deposit Insurance Corporation.
"Fee" has the meaning assigned in Section 8.03.
"Governmental Authority" means any court, administrative agency or
commission or other federal, state or local governmental authority or
instrumentality.
"Hazardous Substance" means any substance in any concentration that is:
(1) listed, classified or regulated pursuant to any Environmental Law; (2)
any petroleum product or by-product, asbestos-containing material, lead-
containing paint or plumbing, polychlorinated biphenyls, radioactive
materials or radon; or (3) any other substance which is or may be the
subject of regulatory action by any Governmental Authority pursuant to any
Environmental Law.
"Indemnified Party" has the meaning assigned in Section 6.12(a).
"Indemnified Person" has the meaning assigned in Section 5.03(m).
"Insurance Amount" has the meaning assigned in Section 6.12(b).
"Insurance Policies" has the meaning assigned in Section 5.03(s).
"IRS" means the United States Internal Revenue Service.
"Liens" means any charge, mortgage, pledge, security interest,
restriction, claim, lien, or encumbrance.
"Loans" means loans, leases, extensions of credit, commitments to extend
credit and other assets.
"Mailing Date" has the meaning assigned in Section 3.04(a).
"Material Adverse Effect" means, with respect to the Acquiror or the
Company, any effect that (1) is both material and adverse to the financial
position, results of operations or business of the Acquiror and its
Subsidiaries taken as a whole, or the Company and its Subsidiaries taken as
a whole, respectively, other than (A) the effects of any change
attributable to or resulting from changes in economic conditions applicable
to depository institutions generally or in general levels of interest
rates, except to the extent that the effect of such change is materially
more severe for the Acquiror or the Company than for depositary
institutions in general and (B) payments associated with the Merger as
contemplated by this Agreement; or (2) would materially impair the ability
of either the Acquiror or the Company to perform its obligations under this
Agreement or otherwise materially threaten or materially impede the
consummation of the Merger and the other transactions contemplated by this
Agreement.
A-3
<PAGE>
"Merger" has the meaning assigned in Section 2.01.
"Multiemployer Plan" means, with respect to any person, a multiemployer
plan within the meaning of Section 3(37) of ERISA.
"New Certificates" has the meaning assigned in Section 3.04(b).
"NJBCA" means the New Jersey Business Corporation Act.
"NJBD" means the New Jersey Department of Banking and Insurance.
"NYSE" means the New York Stock Exchange, Inc.
"No-Election Shares" has the meaning assigned in Section 3.01(b).
"Old Certificates" has the meaning assigned in Section 3.04(a).
"OTS" means the Office of Thrift Supervision.
"PBGC" means the Pension Benefit Guaranty Corporation.
"Pension Plan" has, with respect to any person, the meaning assigned in
Section 5.03(m).
"Per Share Cash Consideration" has the meaning assigned in Section
3.01(a).
"Per Share Stock Consideration" has the meaning assigned in Section
3.01(a).
"person" means any individual, bank, savings bank, corporation,
partnership, association, joint-stock company, business trust or
unincorporated organization.
"Previously Disclosed" means, with respect to the Company or the
Acquiror, information set forth in such party's Disclosure Schedule.
"Proxy Statement" has the meaning assigned in Section 6.03.
"Registration Statement" has the meaning assigned in Section 6.03.
"Representatives" means, with respect to any person, such person's directors,
officers, employees, legal or financial advisors or any representatives of such
legal or financial advisors.
"Rights" means, with respect to any person, securities or obligations
convertible into or exercisable or exchangeable for, or giving any person
any right to subscribe for or acquire, or any options, calls or commitments
relating to, or any stock appreciation right or other instrument the value
of which is determined in whole or in part by reference to the market price
or value of, shares of capital stock of such person.
"SEC" means the Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended, and the
rules and regulations thereunder.
"Special Dividend" has the meaning assigned in Section 6.18.
"Stock Election Shares" has the meaning assigned in Section 3.01(b).
"Stock Number" has the meaning assigned in Section 3.01(a).
"Stock-Selected No-Election Shares" has the meaning assigned in Section
3.01(c).
"Subsidiary" and "Significant Subsidiary" have the meanings assigned to
them in Rule 1-02 of Regulation S-X of the SEC.
"Subsidiary Combination" has the meaning assigned in Section 2.04.
"Superior Proposal" means an Acquisition Proposal made by a third party
after the date hereof which, in the good faith judgment of the Company
Board, taking into account the various legal, financial and regulatory
aspects of the proposal and the person making such proposal, (1) if
accepted, is significantly more likely than not to be consummated, and (2)
if consummated, is reasonably likely to result in a materially more
favorable transaction than the Merger for the Company and its shareholders
and other relevant constituencies.
A-4
<PAGE>
"Surviving Corporation" has the meaning assigned in Section 2.01.
"Takeover Laws" has the meaning assigned in Section 5.03(e).
"Taxes" means all taxes, charges, fees, levies or other assessments,
however denominated, including, without limitation, all net income, gross
income, gross receipts, sales, use, ad valorem, goods and services,
capital, transfer, franchise, profits, license, withholding, payroll,
employment, employer health, excise, estimated, severance, stamp,
occupation, property or other taxes, custom duties, fees, assessments or
charges of any kind whatsoever, together with any interest and any
penalties, additions to tax or additional amounts imposed by any taxing
authority whether arising before, on or after the Effective Date.
"Tax Returns" has the meaning assigned in Section 5.03(p).
"TRA" has the meaning assigned in Section 5.03(m).
"Treasury Stock" has the meaning assigned in Section 5.03(b).
1.02 Interpretation. When a reference is made in this Agreement to Sections,
Exhibits or Schedules, such reference shall be to a Section of, or Exhibit or
Schedule to, this Agreement unless otherwise indicated. The table of contents
and headings contained in this Agreement are for reference purposes only and
are not part of this Agreement. Whenever the words "include," "includes" or
"including" are used in this Agreement, they shall be deemed to be followed by
the words "without limitation." No rule of construction against the
draftsperson shall be applied in connection with the interpretation or
enforcement of this Agreement. Whenever this Agreement shall require a party to
take an action, such requirement shall be deemed to constitute and undertaking
by such party to cause its Subsidiaries, and to use its reasonable best efforts
to cause its other affiliates, to take appropriate action in connection
therewith. References to "knowledge" of a person means knowledge after
reasonable diligence in the circumstances. References herein to "transaction
contemplated by this Agreement" shall be deemed to include a reference to the
Subsidiary Combination and the transactions contemplated by the Stock Option
Agreement.
ARTICLE II
The Merger
2.01 The Merger. At the Effective Time, the business combination contemplated
by this Agreement shall occur and in furtherance thereof:
(a) Structure and Effects of the Merger. The Company shall merge with and
into the Acquiror, and the separate corporate existence of the Company
shall thereupon cease (the "Merger"). The Acquiror shall be the surviving
corporation in the Merger (sometimes hereinafter referred to as the
"Surviving Corporation") and shall continue to be governed by the laws of
the State of Delaware, and the separate corporate existence of the Acquiror
with all its rights, privileges, immunities, powers and franchises shall
continue unaffected by the Merger. The Merger shall have the effects
specified in the DGCL and NJBCA.
(b) Certificate of Incorporation. The certificate of incorporation of the
Surviving Corporation shall be the certificate of incorporation of the
Acquiror as in effect immediately prior to the Effective Time, until duly
amended in accordance with the terms thereof and the DGCL.
(c) By-Laws. The by-laws of the Surviving Corporation shall be the by-
laws of the Acquiror as in effect immediately prior to the Effective Time,
until duly amended in accordance with the terms thereof and the certificate
of incorporation referred to in section 2.01(b).
(d) Directors. The directors of the Surviving Corporation shall be the
directors of the Acquiror immediately prior to the Effective Time, and such
directors shall hold office until such time as their successors shall be
duly elected and qualified.
(e) Officers. The officers of the Surviving Corporation shall be the
officers of the Acquiror immediately prior to the Effective Time.
A-5
<PAGE>
2.02 Reservation of Right to Revise Structure. At the Acquiror's election,
the Merger may alternatively be structured so that (i) the Company is merged
with and into any other direct or indirect wholly owned subsidiary of the
Acquiror or (ii) any direct or indirect wholly owned subsidiary of the Acquiror
is merged with and into the Company; provided, however, that no such change
shall (a) alter or change the amount or kind of the Consideration or the
treatment of the holders of Company Stock Options, (b) prevent the parties from
obtaining the opinions of Malizia, Spidi, Sloane & Fisch, P.C. and Sullivan &
Cromwell referred to in Sections 7.02(d) and 7.03(d), respectively, or (c)
materially impede or delay consummation of the transactions contemplated by
this Agreement. In the event of such an election, the parties agree to execute
an appropriate amendment to this Agreement in order to reflect such election.
2.03 Effective Time. The Merger shall become effective upon the filing, in
the office of the Secretary of State of the State of Delaware, of a certificate
of merger in accordance with Section 251 of the DGCL and, in the office of the
Secretary of State of the State of New Jersey, of a certificate of merger in
accordance with Section 14A: 10-4.1 of the NJBCA, or at such later date and
time as may be set forth in such certificates. Subject to the terms of this
Agreement, the parties shall cause the Merger to become effective (1) on the
date that is the fifth full NYSE trading day (the "Closing Date") to occur
after the last of the conditions set forth in Article VII (other than
conditions relating solely to the delivery of documents dated the Effective
Date) shall have been satisfied or waived in accordance with the terms of this
Agreement (or, at the election of the Acquiror, on the last business day of the
month in which such day occurs), or (2) on such date as the parties may agree
in writing.
2.04 Integration. At the Effective Time, the parties hereto currently intend
to effectuate, or cause to be effectuated, the combination (the "Subsidiary
Combination") of the business of The Dime Savings Bank of New York, FSB, with
that of Lakeview Savings Bank, pursuant to a merger agreement substantially in
the form attached hereto as Exhibit D. The Company agrees to cooperate with the
Acquiror and to take all reasonable actions prior to or following the Effective
Time, including executing all requisite documentation, as may be requested by
the Acquiror to effect the Subsidiary Combination. The Company also agrees to
cooperate with the Acquiror and to take all reasonable restructuring steps for
regulatory purposes, as may be requested by the Acquiror to merge or otherwise
consolidate such legal entities to the extent desirable for regulatory or other
reasons.
ARTICLE III
Consideration
3.01 Consideration. (a) Subject to the terms and conditions of this
Agreement, at the Effective Time:
(1) Each share of Company Common Stock issued and outstanding immediately
prior to the Effective Time (other than shares held as treasury stock of
the Company and shares held directly or indirectly by Acquiror, except
shares held in a fiduciary capacity or in satisfaction of a debt previously
contracted) shall become and be converted into the right to receive, at the
election of each holder thereof, but subject to the election and allocation
procedures of Sections 3.01(b) and (c), the other provisions of this
Section 3.01 and possible adjustment as set forth in Section 3.05, either:
(A) 0.9 (the "Exchange Ratio") of a share of Acquiror Common Stock
(the "Per Share Stock Consideration"), or
(B) $24.26 in cash (such sum, the "Per Share Cash Consideration" and
together with the Per Share Stock Consideration, the "Consideration");
provided, that the aggregate number of shares of Acquiror Common Stock that
shall be issued in the Merger (the "Stock Number") shall equal as nearly as
practicable the product of (a) sixty-five percent (65%), (b) the Exchange
Ratio, and (c) the number of shares of Company Common Stock outstanding as
of the Effective Time.
A-6
<PAGE>
(2) Each share of the Company Common Stock that, immediately prior to the
Effective Time, is held as treasury stock of the Company or held directly
or indirectly by Acquiror, other than shares held in a fiduciary capacity
or in satisfaction of a debt previously contracted, shall by virtue of the
Merger be cancelled and retired and shall cease to exist, and no exchange
or payment shall be made therefor.
(b) Subject to the allocation procedures set forth in Section 3.01(c), each
record holder of Company Common Stock will be entitled (1) to elect to receive
Acquiror Common Stock for all or some of the shares of Company Common Stock
("Stock Election Shares") held by such record holder, (2) to elect to receive
cash for all or some of the shares of Company Common Stock ("Cash Election
Shares") held by such record holder or (3) to indicate that such holder makes
no such election for all or some of the shares of Company Common Stock ("No-
Election Shares") held by such record holder. All such elections (each, an
"Election") shall be made on a form designed for that purpose by Acquiror and
reasonably acceptable to Company (an "Election Form"). Any shares of Company
Common Stock with respect to which the record holder thereof shall not, as of
the Election Deadline (as defined below), have properly submitted to the
Exchange Agent (as defined below) a properly completed Election Form shall be
deemed to be No-Election Shares. A record holder acting in different capacities
or acting on behalf of other persons in any way shall be entitled to submit an
Election Form for each capacity in which such record holder so acts with
respect to each person for which it so acts. The exchange agent (the "Exchange
Agent") shall be a bank or trust company selected by Acquiror and reasonably
acceptable to the Company.
(c) Not later than the 15th day after the Election Deadline, Acquiror shall
cause the Exchange Agent to effect the allocation among the holders of Company
Common Stock of rights to receive the Per Share Stock Consideration or the Per
Share Cash Consideration in the Merger as follows:
(A) Number of Stock Elections Less Than Stock Number. If the number of
Stock Election Shares (on the basis of Election Forms received as of the
Election Deadline) is less than the Stock Number, then
(i) all Stock Election Shares shall be, as of the Effective Time,
converted into the right to receive the Per Share Stock Consideration,
(ii) the Exchange Agent shall allocate pro rata from among the No-
Election Shares a sufficient number of No-Election Shares such that the
sum of such number and the number of Stock Election Shares shall equal
as closely as practicable the Stock Number, and all such selected
shares ("Stock-Selected No-Election Shares") shall be, as of the
Effective Time, converted into the right to receive the Per Share Stock
Consideration, provided that if the sum of all No-Election Shares and
Stock Election Shares is less than the Stock Number, all No-Election
Shares shall be Stock-Selected No-Election Shares,
(iii) if the sum of Stock Election Shares and No-Election Shares is
less than the Stock Number, the Exchange Agent shall allocate pro rata
from among the Cash Election Shares a sufficient number of Cash
Election Shares such that the sum of such number and the number of
Stock Election Shares and ("Stock-Selected No-Election Shares") shall
equal as closely as practicable the Stock Number, and all such selected
shares ("Converted Cash Election Shares") shall be, as of the Effective
Time, converted into the right to receive the Per Share Stock
Consideration, and
(iv) the No-Election Shares and Cash Election Shares that are not
Stock-Selected No-Election Shares or Converted Cash Election Shares (as
the case may be) shall be, as of the Effective Time, converted into the
right to receive the Per Share Cash Consideration; or
(B) Number of Stock Elections Greater Than Stock Number. If the number of
Stock Election Shares (on the basis of Election Forms received by the
Election Deadline) is greater than the Stock Number, then
(i) all Cash Election Shares and No-Election Shares shall be, as of
the Effective Time, converted into the right to receive the Per Share
Cash Consideration,
A-7
<PAGE>
(ii) the Exchange Agent shall allocate pro rata among the Stock
Election Shares a sufficient number of Cash Election Shares ("Converted
Stock Election Shares") such that the remainder of (x) Stock Election
Shares less (y) the Converted Stock Election Shares shall equal as
closely as practicable the Stock Number, and all Converted Stock
Election Shares shall be, as of the Effective Time, converted into the
right to receive the Per Share Cash Consideration, and
(iii) the Stock Election Shares that are not Converted Stock Election
Shares shall be, as of the Effective Time, converted into the right to
receive the Per Share Stock Consideration.
(C) Exclusion from Allocations in Sections 3.01(c)(A) and (B). For the
avoidance of doubt, cash paid by the Company for options as set forth in
Section 3.06 of this Agreement, at the election of the Company no later
than five days prior to the Closing Date, shall not be utilized in
determining any allocation as set forth in Sections 3.01(c)(A) and (B) of
this Agreement.
3.02 Rights as Shareholders; Stock Transfers. At the Effective Time, holders
of Company Common Stock shall cease to be, and shall have no rights as,
shareholders of the Company, other than the right to receive (a) any dividend
or other distribution with respect to such Company Common Stock with a record
date occurring prior to the Effective Time and (b) the consideration provided
under this Article III. After the Effective Time, there shall be no transfers
on the stock transfer books of the Company or the Surviving Corporation of
shares of Company Common Stock.
3.03 Fractional Shares. Notwithstanding any other provision in this
Agreement, no fractional shares of Acquiror Common Stock and no certificates or
scrip therefor, or other evidence of ownership thereof, will be issued in the
Merger; instead, the Acquiror shall pay to each holder of Company Common Stock
who otherwise would be entitled to a fractional share of Acquiror Common Stock
(after taking into account all Old Certificates delivered by such holder) an
amount in cash (without interest) determined by multiplying such fraction by
the average of the last sale prices of Acquiror Common Stock, as reported by
the NYSE Composite Transactions Reporting System (as reported in The Wall
Street Journal or, if not reported therein, in another authoritative source),
for the five consecutive NYSE full trading days immediately preceding the
Effective Date.
3.04 Exchange Procedures.
(a) Not later than the 30th business day prior to the anticipated
Effective Date or such other date as the parties may agree in writing (the
"Mailing Date"), Acquiror shall mail an Election Form and a letter of
transmittal to each holder of record of Company Common Stock. To be
effective, an Election Form must be properly completed, signed and actually
received by the Exchange Agent not later than 5:00 p.m., New York City
time, on the 20th day after the Mailing Date (the "Election Deadline") and
accompanied by the certificates representing all the shares of Company
Common Stock ("Old Certificates") as to which the Election is being made
(or an appropriate guarantee of delivery by an eligible organization).
Acquiror shall have reasonable discretion, which it may delegate in whole
or in part to the Exchange Agent, to determine whether Election Forms have
been properly completed, signed and timely submitted or to disregard
defects in Election Forms; such decisions of Acquiror (or of the Exchange
Agent) shall be conclusive and binding. Neither Acquiror nor the Exchange
Agent shall be under any obligation to notify any person of any defect in
an Election Form submitted to the Exchange Agent. The Exchange Agent and
Acquiror shall also make all computations contemplated by Section 3.01
hereof, and, after consultation with the Company, all such computations
shall be conclusive and binding on the former holders of Company Common
Stock absent manifest error. Shares of Company Common Stock covered by an
Election Form which is not effective shall be treated as if no Election had
been made with respect to such shares of Company Common Stock. Once an
Election is made it may not be revoked.
(b) At or prior to the Effective Time, the Acquiror shall deposit, or
shall cause to be deposited, with the Exchange Agent, certificates
representing the shares of Acquiror Common Stock ("New Certificates") and
an estimated amount of cash (such cash and New Certificates, together with
any dividends or
A-8
<PAGE>
distributions with a record date occurring after the Effective Date with
respect thereto (without any interest on any such cash, dividends or
distributions), being hereinafter referred to as the "Exchange Fund") to be
issued as Consideration.
(c) The Surviving Corporation shall cause the New Certificates into which
shares of a shareholder's Company Common Stock are converted on the
Effective Date and/or any check in respect of any Per Share Cash
Consideration, fractional share interests or dividends or distributions
which such person shall be entitled to receive to be delivered to such
shareholder upon delivery (if not previously delivered) to the Exchange
Agent of Old Certificates representing such shares of Company Common Stock
(or indemnity satisfactory to the Surviving Corporation and the Exchange
Agent, if any of such certificates are lost, stolen or destroyed) owned by
such shareholder; provided that New Certificates and/or any such check
shall not be issued to any Company Affiliate unless and until such Company
Affiliate has delivered an agreement pursuant to Section 6.07. No interest
will be paid on any Consideration that any such person shall be entitled to
receive pursuant to this Article III upon such delivery.
(d) Notwithstanding the foregoing, neither the Exchange Agent nor any
party hereto shall be liable to any former holder of Company Common Stock
for any amount properly delivered to a public official pursuant to
applicable abandoned property, escheat or similar laws.
(e) No dividends or other distributions on Acquiror Common Stock with a
record date occurring after the Effective Time shall be paid to the holder
of any unsurrendered Old Certificate representing shares of Company Common
Stock converted in the Merger into the right to receive shares of such
Acquiror Common Stock until the holder thereof shall be entitled to receive
New Certificates in exchange therefor in accordance with this Article III,
and no such shares of Company Common Stock shall be eligible to vote until
the holder of Old Certificates is entitled to receive New Certificates in
accordance with this Article III. After becoming so entitled in accordance
with this Article III, the record holder thereof also shall be entitled to
receive any such dividends or other distributions, without any interest
thereon, which theretofore had become payable with respect to shares of
Acquiror Common Stock such holder had the right to receive upon surrender
of the Old Certificate.
(f) Any portion of the Exchange Fund that remains unclaimed by the
shareholders of the Company for six months after the Effective Time shall
be returned to the Acquiror. Any shareholders of the Company who have not
theretofore complied with this Article III shall thereafter look only to
the Acquiror for payment of the shares of Acquiror Common Stock, Per Share
Cash Consideration, cash in lieu of any fractional shares and unpaid
dividends and distributions on the Acquiror Common Stock deliverable in
respect of each share of Company Common Stock such shareholder holds as
determined pursuant to this Agreement, in each case, without any interest
thereon.
3.05 Anti-Dilution Adjustments. Should the Acquiror change (or establish a
record date for changing) the number of shares of Acquiror Common Stock issued
and outstanding prior to the Effective Date by way of a stock split, stock
dividend, recapitalization or similar transaction with respect to the
outstanding Acquiror Common Stock and the record date therefor shall be prior
to the Effective Date, the Exchange Ratio shall be proportionately adjusted.
3.06 Company Stock Options. Prior to the Effective Time, the Company shall
take all action necessary to cause each Company Stock Option, whether vested or
unvested, exercisable or unexercisable, without any action on the part of the
holder to be converted into the right to receive an amount in cash equal to the
product of (1) (A) the excess of $24.26 over (B) the exercise price per share
subject to such Company Stock Option and (2) the number of Shares subject to
such Company Stock Option payable to the holder of such Company Stock Option at
any time during the period commencing on the date hereof and ending immediately
prior to the Effective Time; provided, that the Company shall be entitled to
withhold from such cash payment any amounts required to be withheld by
applicable law. Each Company Stock Option to which this paragraph applies will
be cancelled and shall cease to exist by virtue of such payment.
A-9
<PAGE>
ARTICLE IV
Actions Pending the Merger
4.01 Forbearances of the Company. From the date hereof until the earlier of
the termination of this Agreement or the Effective Time, except as expressly
contemplated by this Agreement or the Disclosure Schedule, without the prior
written consent of the Acquiror, the Company will not, and will cause each of
its Subsidiaries not to:
(a) Ordinary Course. Conduct the business of the Company and its
Subsidiaries other than in the ordinary and usual course (provided,
however, that the Company shall terminate the use of its trading account)
or, to the extent consistent therewith, fail to use reasonable efforts to
preserve intact their business organizations and assets and maintain their
rights, franchises and existing relations with customers, suppliers,
employees and business associates.
(b) Capital Stock. Other than pursuant to Rights Previously Disclosed and
outstanding on the date hereof, (1) issue, sell or otherwise permit to
become outstanding, or authorize the creation of, any additional shares of
Company Common Stock or any Rights with respect to Company Common Stock,
(2) permit any additional shares of Company Common Stock to become subject
to new grants of employee or director stock options, other Rights or
similar stock-based employee rights, (3) repurchase, redeem or otherwise
acquire, directly or indirectly, any shares of Company Common Stock, (4)
effect any recapitalization, reclassification, stock split or like change
in capitalization, or (5) enter into, or take any action to cause any
holders of Company Common Stock to enter into, any agreement, understanding
or commitment relating to the right of holders of Company Common Stock to
vote any shares of Company Common Stock, or cooperate in any formation of
any voting trust relating to such shares.
(c) Dividends, Etc. Make, declare, pay or set aside for payment any
dividend, other than (1) regular quarterly cash dividends on Company Common
Stock in an amount not to exceed $0.0625 per share paid with record and
payment dates consistent with past practice and (2) dividends from wholly
owned Subsidiaries to the Company or another wholly owned Subsidiary of the
Company, as applicable (in each case, except pursuant to Section 6.18,
consistent with past practice), on or in respect of, or declare or make any
distribution on any shares of its capital stock split, combine, redeem,
reclassify, purchase or otherwise acquire, any shares of its capital stock.
(d) Compensation; Employment Contracts; Etc. Enter into, amend, modify,
renew or terminate any employment, consulting, severance or similar
Contracts with any directors, officers, employees of, or independent
contractors with respect to, the Company or its Subsidiaries, or grant any
salary, wage or other increase or increase any employee benefit (including
incentive or bonus payments), except (1) for normal general increases in
salary to individual employees in the ordinary course of business
consistent with past practice, (2) for other changes that are required by
applicable law, or (3) to satisfy Previously Disclosed Contracts existing
on the date hereof (as such Contracts are modified, as applicable, pursuant
to the agreements entered into pursuant to Recital E hereof).
(e) Benefit Plans. Enter into, establish, adopt, amend, modify or
terminate any pension, retirement, stock option, stock purchase, savings,
profit sharing, employee stock ownership, deferred compensation,
consulting, bonus, group insurance or other employee benefit, incentive or
welfare Contract, plan or arrangement, or any trust agreement (or similar
arrangement) related thereto, in respect of any current or former
directors, officers, employees, former employees of, or independent
contractors with respect to, the Company or its Subsidiaries (or any
dependent or beneficiary of any of the foregoing persons), including taking
any action that accelerates the vesting or exercisability of or the payment
or distribution with respect to, stock options, restricted stock or other
compensation or benefits payable thereunder, except, in each such case, (1)
as may be required by applicable law or (2) to satisfy Previously Disclosed
Contracts existing on the date hereof.
A-10
<PAGE>
(f) Dispositions. Except as Previously Disclosed, sell, transfer,
mortgage, lease, encumber or otherwise dispose of or discontinue any
material portion of its assets, business or properties.
(g) Acquisitions. Except (1) pursuant to Previously Disclosed Contracts
existing on the date hereof, (2) for short-term investments for cash
management purposes, (3) pursuant to bona fide hedging transactions, or (4)
by way of foreclosures or otherwise in satisfaction of debts previously
contracted in good faith, in each case in the ordinary and usual course of
business consistent with past practice, neither the Company nor any of its
Subsidiaries will acquire any assets, properties or deposits of another
person in any one transaction or a series of related transactions.
(h) Governing Documents. Amend the Company Certificate, the Company By-
laws or the certificate of incorporation or by-laws (or similar governing
documents) of any of the Company's Subsidiaries.
(i) Accounting Methods. Implement or adopt any change in the accounting
principles, practices or methods used by the Company and its Subsidiaries,
other than as may be required by generally accepted accounting principles,
as concurred with by the Company's independent auditors.
(j) Contracts. Except in the ordinary course of business consistent with
past practice, enter into or terminate any material Contract or amend or
modify in any material respect any of its existing material Contracts.
(k) Claims. Settle any claim, action or proceeding, except for any claim,
action or proceeding involving solely money damages in an amount,
individually or in the aggregate, that is not material to the Company and
its Subsidiaries, taken as a whole.
(l) Risk Management. Except as required by applicable law or regulation:
(1) implement or adopt any material change in its interest rate risk
management and hedging policies, procedures or practices; (2) fail to
follow its existing policies or practices with respect to managing its
exposure to interest rate risk; or (3) fail to use commercially reasonable
means to avoid any material increase in its aggregate exposure to interest
rate risk.
(m) Indebtedness. Other than in the ordinary course of business
(including creation of deposit liabilities, entry into repurchase
agreements, purchases or sales of federal funds, Federal Home Loan Bank
advances, and sales of certificates of deposit) consistent with past
practice, (1) incur any indebtedness for borrowed money, (2) assume,
guarantee, endorse or otherwise as an accommodation become responsible for
the obligations of any other Person or (3) cancel, release, assign or
modify any material amount of indebtedness of any other Person.
(n) Loans. Make any loan or advance (1) other than in the ordinary course
of business consistent with lending policies as in effect on the date
hereof or (2) without prior consultation with Acquiror, other than
residential mortgage loans, in excess of $200,000; provided that in the
case of clause (1) the Company or any of its Subsidiaries may make any such
loan in the event (A) the Company or any of its Subsidiaries has delivered
to Acquiror or its designated representative a notice of its intention to
make such loan and such additional information as Acquiror or its
designated representative may reasonably require and (B) Acquiror or its
designated representative shall not have reasonably objected to such loan
by giving notice of such objection within three business days following the
delivery to Acquiror of the applicable notice of intention.
(o) Adverse Actions. (1) Take any action reasonably likely to prevent or
impede the Merger from qualifying as a reorganization within the meaning of
Section 368 of the Code; or (2) knowingly take any action that is intended
or is reasonably likely to result in (A) any of its representations and
warranties set forth in this Agreement being or becoming untrue in any
material respect at any time at or prior to the Effective Time, (B) any of
the conditions to the Merger set forth in Article VII not being satisfied
or (C) a material breach of any provision of this Agreement; except, in
each case, as may be required by applicable law.
A-11
<PAGE>
(p) Tax Elections. Make any election with respect to Taxes.
(q) Commitments. Agree or commit to do, or enter into any Contract
regarding, anything that would be precluded by clauses (a) through (o)
without first obtaining the Acquiror's consent.
4.02 Forbearances of the Acquiror. From the date hereof until the Effective
Time, except as expressly contemplated by this Agreement, without the prior
written consent of the Company, the Acquiror will not, and will cause each of
its Subsidiaries not to:
(a) Ordinary Course. Conduct the business of the Acquiror and its
Subsidiaries other than in the ordinary and usual course; provided that
this Section 4.02(a) shall in no way affect the ability of the Acquiror or
its Subsidiaries to engage in any business, asset or deposit acquisition or
disposition, or merger, consolidation or other business combination
transaction.
(b) Adverse Actions. (1) Take any action reasonably likely to prevent or
impede the Merger from qualifying as a reorganization within the meaning of
Section 368 of the Code; or (2) knowingly take any action that is intended
or is reasonably likely to result in (A) any of its representations and
warranties set forth in this Agreement being or becoming untrue in any
material respect at any time at or prior to the Effective Time, (B) any of
the conditions to the Merger set forth in Article VII not being satisfied
or (C) a material breach of any provision of this Agreement; except, in
each case, as may be required by applicable law.
(c) Governing Documents. Amend the Acquiror Certificate or the by-laws of
the Acquiror in a manner that would be materially adverse to the holders of
the Acquiror Common Stock.
(d) Commitments. Agree or commit to do, or enter into any Contract
regarding, anything that would be precluded by clauses (a) through (c)
without first obtaining the Company's consent.
ARTICLE V
Representations and Warranties
5.01 Disclosure Schedules. On or prior to the date hereof, the Company has
delivered to the Acquiror and the Acquiror has delivered to the Company a
schedule (respectively, its "Disclosure Schedule") setting forth, among other
things, items the disclosure of which is necessary or appropriate either (1) in
response to an express disclosure requirement contained in a provision hereof
or (2) as an exception to one or more representations or warranties contained
in Section 5.03 or 5.04, respectively, or to one or more of its covenants
contained in Article IV.
5.02 Standard. No representation or warranty of the Company or the Acquiror
contained in Section 5.03 or 5.04 shall be deemed untrue or incorrect, and no
party hereto shall be deemed to have breached a representation or warranty, as
a consequence of the existence of any fact, event or circumstance unless such
fact, event or circumstance, (1) is not Previously Disclosed and (2)
individually or taken together with all other facts, events or circumstances
that should have been Previously Disclosed with respect to any representation
or warranty contained in Section 5.03 or 5.04, has had or is reasonably likely
to have a Material Adverse Effect with respect to the Company or the Acquiror,
respectively.
5.03 Representations and Warranties of the Company Except as Previously
Disclosed in a paragraph of its Disclosure Schedule corresponding to the
relevant paragraph below, the Company hereby represents and warrants to the
Acquiror:
(a) Organization, Standing and Authority. The Company is duly organized,
validly existing and in good standing under the laws of New Jersey, and is
duly qualified to do business and is in good standing in all the
jurisdictions where its ownership or leasing of property or assets or the
conduct of its business requires it to be so qualified.
A-12
<PAGE>
(b) Company Stock. As of the date hereof, the authorized capital stock of
the Company consists solely of 30,000,000 shares of Company Common Stock,
of which 4,818,478 shares are outstanding as of the date hereof. As of the
date hereof, 1,623,026 shares of Company Common Stock are held in treasury
by the Company (collectively, "Treasury Stock"). The outstanding shares of
Company Common Stock have been duly authorized and are validly issued,
fully paid and nonassessable, and subject to no preemptive rights (and were
not issued in violation of any preemptive rights). As of the date hereof,
except as Previously Disclosed, there are no shares of Company Common Stock
authorized and reserved for issuance, the Company does not have any Rights
issued or outstanding with respect to Company Common Stock, and the Company
does not have any commitment to authorize, issue or sell any Company Common
Stock or Rights, except pursuant to this Agreement. The number of shares of
Company Common Stock which are issuable and reserved for issuance upon
exercise of Company Stock Options as of the date hereof and the exercise
price of such Company Stock Options are Previously Disclosed.
(c) Subsidiaries. (1) (A) The Company has Previously Disclosed a list of
all its Subsidiaries together with the jurisdiction of organization of each
such Subsidiary, (B) the Company owns, directly or indirectly, all the
issued and outstanding equity securities of each of its Subsidiaries, (C)
no equity securities of any of its Subsidiaries are or may become required
to be issued (other than to it or its Subsidiaries) by reason of any
Rights, (D) there are no contracts, commitments, understandings or
arrangements by which any of such Subsidiaries is or may be bound to sell
or otherwise transfer any equity securities of any such Subsidiaries (other
than to it or its Subsidiaries), (E) there are no contracts, commitments,
understandings, or arrangements relating to its rights to vote or to
dispose of such securities (other than to it or its Subsidiaries), and (F)
all the equity securities of each such Subsidiary held by the Company or
its Subsidiaries are fully paid and nonassessable and are owned by the
Company or its Subsidiaries free and clear of any Liens.
(2) The Company has Previously Disclosed a list of all equity securities
or similar interests of any person, or any interest in a partnership or
joint venture of any kind owned beneficially, directly or indirectly by it
and the Company has provided to the Acquiror all material information or
agreements pertaining to such interest.
(3) Each of the Company's Subsidiaries has been duly organized and is
validly existing and in good standing under the laws of the jurisdiction of
its organization, and is duly qualified to do business and in good standing
in all the jurisdictions where its ownership or leasing of property or
assets or the conduct of its business requires it to be so qualified.
(d) Corporate Power. The Company and each of its Subsidiaries has the
requisite power and authority to carry on its business as it is now being
conducted and to own all its properties and assets; the Company has the
corporate power and authority to execute, deliver and perform its
obligations under this Agreement and to consummate the transactions
contemplated hereby; and Lakeview Savings Bank has the requisite power and
authority to execute, deliver and perform its obligations as set forth in
the Form of Subsidiary Combination Agreement attached hereto as Exhibit D
and to consummate the transactions contemplated thereby.
(e) Corporate Authority and Action. (1) The Company has the requisite
corporate power and authority, and has taken all corporate action
necessary, in order (A) to authorize the execution and delivery of, and
performance of its obligations under, this Agreement and the Stock Option
Agreement and (B) subject only to receipt of the approval of the plan of
merger contained in this Agreement by the holders of a majority of the
outstanding shares of Company Common Stock, to consummate the Merger. This
Agreement and the Stock Option Agreement each is a valid and legally
binding obligation of the Company, enforceable in accordance with its terms
(except as enforceability may be limited by applicable bankruptcy,
insolvency, reorganization and similar laws of general applicability
relating to or affecting creditors' rights or by general equity
principles).
(2) The Company has taken all action required to be taken by it in order
to exempt this Agreement, the Stock Option Agreement and the transactions
contemplated hereby from, and this Agreement, the
A-13
<PAGE>
Stock Option Agreement and the transactions contemplated hereby each is
exempt from, the requirements of (A) any applicable "moratorium," " control
share," "fair price," or other antitakeover laws and regulation of any
state (collectively, "Takeover Laws"), including Section 14A-10A of the
NJBCA and (B) Articles XIV and XV of the Company Certificate.
(3) The Company has received the opinion of Sandler O'Neill & Partners,
L.P. & Company ("Sandler O'Neill"), dated the date of this Agreement, to
the effect that, as of the date of this Agreement, the Consideration to be
received in the Merger by the shareholders of the Company is fair to the
shareholders of the Company from a financial point of view.
(f) Regulatory Filings; No Defaults. (1) No consents or approvals of, or
filings or registrations with, any Governmental Authority or with any third
party are required to be made or obtained by the Company or any of its
Subsidiaries in connection with the execution, delivery or performance by
the Company of this Agreement, or to consummate the Merger and the other
transactions contemplated hereby, except for (A) the filing with the SEC of
the Proxy Statement in definitive form, (B) the filing of applications and
notices, as applicable, with the OTS, the NJBD and the FDIC with respect to
the Merger and the Subsidiary Combination and (C) the filing of a
certificate of merger with the Secretary of State of the State of Delaware
pursuant to the DGCL and the filing of a certificate of merger with the
Secretary of State of the State of New Jersey pursuant to the NJBCA. As of
the date hereof, the Company is not aware of any reason why the approvals
of all Governmental Authorities necessary to permit consummation of the
transactions contemplated by this Agreement will not be received without
the imposition of a condition or requirement described in Section 7.01(b).
(2) Subject to receipt of the regulatory approvals, and expiration of the
waiting periods, referred to in the preceding paragraph and the making of
required filings under federal and state securities laws, the execution,
delivery and performance of this Agreement and the consummation of the
transactions contemplated hereby do not and will not (A) constitute a
breach or violation of, or a default under, or give rise to any Lien, any
acceleration of remedies or any right of termination under, any law, rule
or regulation or any judgment, decree, order, governmental permit or
license, or Contract of the Company or of any of its Subsidiaries or to
which the Company or any of its Subsidiaries or properties is subject or
bound, (B) constitute a breach or violation of, or a default under, the
Company Certificate or the Company By-laws, or (C) require any consent or
approval under any such law, rule, regulation, judgment, decree, order,
governmental permit or license or Contract.
(g) SEC Documents; Financial Statements. (1) The Company's Annual Reports
on Form 10-K for the fiscal years ended July 31, 1996, 1997 and 1998, and
all other reports, registration statements, definitive proxy statements or
information statements filed or to be filed by the Company or any of its
Subsidiaries subsequent to July 31, 1998 under the Securities Act, or under
Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act, in the form filed
or to be filed (collectively, the "Company's SEC Documents") with the SEC,
as of the date filed, (A) complied or will comply in all material respects
as to form with the applicable requirements under the Securities Act or the
Exchange Act, as the case may be, and (B) did not (or if amended or
superseded by a filing prior to the date of this Agreement, then as of the
date of such filing) and will not contain any untrue statement of a
material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading; and each of the
balance sheets contained in or incorporated by reference into any such SEC
Document (including the related notes and schedules thereto) fairly
presents, or will fairly present, the financial position of the Company and
its Subsidiaries as of its date, and each of the statements of income and
changes in shareholders' equity and cash flows or equivalent statements in
such SEC Documents (including any related notes and schedules thereto)
fairly presents, or will fairly present, the results of operations, changes
in shareholders' equity and changes in cash flows, as the case may be, of
the Company and its Subsidiaries for the periods to which they relate, in
each case in accordance with generally accepted accounting principles
consistently applied during the periods involved, except in each case as
may be noted therein, subject to normal year-end audit adjustments in the
case of unaudited statements.
A-14
<PAGE>
(2) Since July 31, 1998, on a consolidated basis the Company and its
Subsidiaries have not incurred any liability other than in the ordinary
course of business consistent with past practice.
(3) Since July 31, 1998, (A) the Company and its Subsidiaries have
conducted their respective businesses in the ordinary and usual course
consistent with past practice and (B) no event has occurred or circumstance
arisen that, individually or taken together with all other facts, events
and circumstances (described in any paragraph of Section 5.03 or
otherwise), has had or is reasonably likely to have a Material Adverse
Effect with respect to the Company.
(h) Litigation. Except as disclosed in the Company's SEC Documents filed
before the date hereof, no litigation, claim or other proceeding before any
court, arbitrator or Governmental Authority is pending against the Company
or any of its Subsidiaries and, to the Company's knowledge, no such
litigation, claim or other proceeding has been threatened.
(i) Compliance with Laws. The Company and each of its Subsidiaries:
(1) conducts its business in compliance with all applicable federal,
state, local and foreign statutes, laws, regulations, ordinances,
rules, judgments, orders or decrees applicable thereto or to the
employees conducting such businesses, including, without limitation,
the Equal Credit Opportunity Act, the Fair Housing Act, the Home
Mortgage Disclosure Act and all other applicable fair lending laws and
other laws relating to discriminatory business practices;
(2) has all permits, licenses, authorizations, orders and approvals
of, and has made all filings, applications and registrations with, all
Governmental Authorities required in order to permit them to own or
lease their properties and to conduct their businesses as presently
conducted; all such permits, licenses, certificates of authority,
orders and approvals are in full force and effect and, to the Company's
knowledge, no suspension or cancellation of any of them is threatened;
(3) has received, since December 31, 1997, no notification or
communication from any Governmental Authority (A) asserting that the
Company or any of its Subsidiaries is not in compliance with any of the
statutes, regulations, or ordinances that such Governmental Authority
enforces or (B) threatening to revoke any license, franchise, permit,
or governmental authorization (nor, to the Company's knowledge, do
grounds for any of the foregoing exist), or (C) restricting or
disqualifying their activities (except for restrictions generally
imposed by rule, regulation or administrative policy on banking
organizations generally);
(4) is not aware of any pending or threatened investigation, review
or disciplinary proceedings by any Governmental Authority against the
Company, any of its Subsidiaries or any officer, director or employee
thereof;
(5) is not subject to any order or decree issued by, or a party to
any agreement or memorandum of understanding with, or a party to any
commitment letter or similar undertaking to, or subject to any order or
directive by, a recipient of any supervisory letter from or has adopted
any board resolutions at the request of any Governmental Authority, or
been advised by any Governmental Authority that it is considering
issuing or requesting any such agreement or other action or have
knowledge of any pending or threatened regulatory investigation; and
(6) since December 31, 1995, has timely filed all reports,
registrations and statements, together with any amendments required to
be made with respect thereto, that were required to be filed under any
applicable law, regulation or rule, with any applicable Governmental
authority (collectively, the "Company Reports"). As of their respective
dates, the Company Reports complied with the applicable statutes,
rules, regulations and orders enforced or promulgated by the regulatory
authority with which they were filed.
(j) Material Contracts; Defaults. The Company has Previously Disclosed a
complete and accurate list of all material Contracts to which the Company
or any of its Subsidiaries is a party, including the following categories:
A-15
<PAGE>
(1) any Contract that (A) is not terminable at will both without cost
or other liability to the Company or any of its Subsidiaries and upon
notice of ninety (90) days or less and (B) which provides for fees or
other payments in excess of $150,000 per annum or in excess of $250,000
for the remaining term of the Contract;
(2) any Contract with a term beyond the Effective Time under which
the Company or any of its Subsidiaries created, incurred, assumed, or
guaranteed (or may create, incur, assume, or guarantee) indebtedness
for borrowed money (including capitalized lease obligations);
(3) any Contract restricting the conduct of business by the Company
or any of its Subsidiaries;
(4) any Contract to which the Company or any of its Subsidiaries is a
party, on the one hand, and under which any affiliate, officer,
director, employee or equity holder of any of the Company or any of its
Subsidiaries, on the other hand, is a party or beneficiary;
(5) any Contract with respect to the employment of, or payment to,
any present or former directors, officers, employees or consultants;
and
(6) any Contract involving the purchase or sale of assets with a book
value greater than $250,000 entered into since July 31, 1998.
Neither the Company nor any of its Subsidiaries nor, to the Company's
knowledge, any other party thereto is in default under any such Contract
and there has not occurred any event that, with the lapse of time or the
giving of notice or both, would constitute such a default.
(k) IMC. The Company's Disclosure Schedule sets forth all material facts
known to the Company pertaining to the Company's investment in the stock of
and line of credit to Industry Mortgage Company.
(l) Properties. Except as disclosed in the financial statements filed in
its SEC Documents on or before the date hereof, the Company and its
Subsidiaries have good and marketable title, free and clear of all Liens
(other than Liens for current taxes not yet delinquent) to all of the
material properties and assets, tangible or intangible, reflected in such
financial statements as being owned by the Company and its Subsidiaries as
of the dates thereof. All buildings and all fixtures, equipment, and other
property and assets which are material to its business and are held under
leases or subleases by any of the Company and its Subsidiaries are held
under valid leases or subleases enforceable in accordance with their
respective terms (except as enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or other laws affecting
creditors' rights generally and to general equity principles).
(m) Employee Benefit Plans. (1) The Company's Disclosure Schedule
contains a complete list of all bonus, vacation, deferred compensation,
commission-based, pension, retirement, profit-sharing, thrift, savings,
employee stock ownership, stock bonus, stock purchase, restricted stock,
stock appreciation and stock option plans, all employment or severance
contracts, all medical, dental, disability, severance, health and life
plans, all other employee benefit and fringe benefit plans, contracts or
arrangements and any "change of control" or similar provisions in any plan,
contract or arrangement maintained or contributed to by the Company or any
of its Subsidiaries for the benefit of current or former officers,
employees or directors or the beneficiaries or dependents of any of the
foregoing (collectively, the Company's "Compensation Plans"). Neither the
Company Board nor any executive officers of the Company or any of its
Subsidiaries has taken or initiated any formal action to create any
additional material Compensation Plan or to modify, change or terminate any
existing Compensation Plan in any material respect.
(2) With respect to each Compensation Plan, if applicable, the Company
has provided or made available to the Acquiror, true and complete copies of
existing: (A) Compensation Plan documents and amendments thereto; (B) trust
instruments and insurance contracts; (C) two most recent Forms 5500 filed
with the IRS; (D) the most recent actuarial report and financial statement;
(E) the most recent summary plan description; (F) forms filed with the PBGC
(other than for premium payments); (G) the most recent determination letter
issued by the IRS; (H) any Form 5310 or Form 5330 filed with the IRS; (I)
the most
A-16
<PAGE>
recent nondiscrimination tests performed under ERISA and the Code
(including 401(k) and 401(m) tests); and (J) documentation relating to
loans made to the Company's employee stock ownership plan and schedules
supporting all allocations made under such plan and compliance under
Sections 404 and 415 of the Code. Each Form 5500, actuarial report and
financial statement referred to in the preceding sentence accurately
reflects the contributions, liabilities and funding levels of the
applicable Compensation Plan.
(3) Each of the Compensation Plans has been administered and operated in
accordance with the terms thereof and with applicable law, including ERISA,
the Code and the Securities Act. Neither the Company, any of its
Subsidiaries nor any other person for whom indemnification by the Company
or any of its Subsidiaries could apply ("Indemnified Person") has incurred
or is likely to incur fiduciary liability under Part 4 of Title I of ERISA
with respect to any Compensation Plan. Each of the Compensation Plans which
is an "employee pension benefit plan" within the meaning of Section 3(2) of
ERISA ("Pension Plan") and which is intended to be qualified under Section
401(a) of the Code has received a favorable determination letter from the
IRS with respect to "TRA" (as defined in Section 1 of IRS Revenue Procedure
93-39), and, except as Previously Disclosed, the Company is not aware of
any circumstances that would likely result in the revocation or denial of
any such favorable determination letter. None of the Company, any of its
Subsidiaries or an Indemnified Person has engaged in any transaction or
taken any action with respect to any Compensation Plan that has subjected,
or could, to the Company's knowledge, subject the Company or any of its
Subsidiaries or any Indemnified Person to a tax or penalty imposed by
either Section 4975 of the Code or Section 502 of ERISA. There is no
pending or, to the Company's knowledge, threatened litigation or
governmental audit, examination or investigation relating to the Company's
Compensation Plans.
(4) No liability under Title IV of ERISA (other than premiums to the
PBGC) has been or is reasonably expected to be incurred by the Company or
any of its Subsidiaries with respect to any "single-employer plan" (within
the meaning of Section 4001 (a)(15) of ERISA) or Multiemployer Plan
currently or formerly maintained or contributed to by any of them, or the
single-employer plan or Multiemployer Plan of any entity (an "ERISA
Affiliate") which is considered one employer with the Company under Section
4001(a)(14) of ERISA or Section 414(b) or (c) of the Code (an "ERISA
Affiliate Plan"). No notice of a "reportable event," within the meaning of
Section 4043 of ERISA for which the 30-day reporting requirement has not
been waived, has been required to be filed for any Pension Plan or any
ERISA Affiliate within the 12-month period ending on the date hereof. The
PBGC has not instituted proceedings to terminate any Pension Plan or ERISA
Affiliate Plan and, to the Company's knowledge, no condition exists that
presents a material risk that such proceedings will be instituted. To the
knowledge of the Company, there is no pending investigation or enforcement
action by the PBGC, the Department of Labor (the "DOL") or IRS or any other
governmental agency with respect to any Compensation Plan.
(5) All contributions, premiums and payments required to have been made
under the terms of any of the Compensation Plans or applicable law have
been timely made or reflected in the Company's SEC Documents. Neither any
of the Pension Plans nor ERISA Affiliate Plans has an "accumulated funding
deficiency" (whether or not waived) within the meaning of Section 412 of
the Code or Section 302 of ERISA. None of the Company, any of its
Subsidiaries or any ERISA Affiliate has provided, or is required to
provide, security to, nor are there any circumstances requiring, or which
can reasonably be expected to result in, the imposition of any lien on the
assets of the Company or any of its Subsidiaries with respect to, any
Pension Plan or any ERISA Affiliate Plan pursuant to Section 401(a)(29) or
Section 412(n) of the Code or pursuant to ERISA.
(6) Under each Pension Plan which is a single-employer plan, as of the
last day of the most recent plan year ended prior to the date hereof, the
actuarially determined present value of all "benefit liabilities," within
the meaning of Section 4001(a)(16) of ERISA (as determined on the basis of
the actuarial assumptions contained in the Plan's most recent actuarial
valuation), did not exceed the then current value of the assets of such
plan. Under each of the Pension Plans, to the Company's knowledge, there
has been no adverse change in the financial condition of any Pension Plan
(with respect to either assets or benefits) since July 31, 1997.
A-17
<PAGE>
(7) No Compensation Plan provides benefits, including death or medical
benefits, with respect to any employees or former employees of the Company
or any of its Subsidiaries (or their spouses, beneficiaries, or dependents)
beyond the retirement or other termination of service of any such employee
other than (A) coverage mandated by Part 6 of Title I of ERISA or Section
4980B of the Code, (B) retirement or death benefits under any Pension Plan,
(C) disability benefits under any Compensation Plan which is an employee
welfare benefit plan (as defined under Section 3(1) of ERISA) that have
been fully provided for by insurance or otherwise, or (D) benefits in the
nature of severance pay under any Compensation Plan. The Company and its
Subsidiaries may amend or terminate any Compensation Plan which provides
post-retirement or termination of employment benefits at any time without
incurring any liability thereunder. There has been no communication to
employees, former employees or their spouses, beneficiaries or dependents
by the Company or any of its Subsidiaries that promised or guaranteed such
employees retiree health or life insurance or other retiree death benefits
on a permanent basis or promised or guaranteed that any such benefits could
not be modified, eliminated or terminated.
(8) Neither the execution and delivery of this Agreement nor the
consummation of the transactions contemplated hereby including, without
limitation, as a result of any termination of employment prior to, at or
following the Effective Time, will (A) result in any increase in
compensation or any payment (including, without limitation, severance,
golden parachute or otherwise) becoming due to any current or former
director, officer or employee of the Company or any of its Subsidiaries
under any Compensation Plan or otherwise from the Company or any of its
Subsidiaries, (B) increase any benefits otherwise payable under any
Compensation Plan, or (C) result in any acceleration of the time of
payment, funding or vesting of any such benefit.
(9) Neither the Company nor any of its Subsidiaries maintains any
compensation plans, programs or arrangements the payments under which are
or would not reasonably be expected to be deductible as a result of the
limitations under Section 162(m) of the Code and the regulations issued
thereunder. None of the Company, the Surviving Corporation or any of their
respective Subsidiaries will be obligated to make a payment as a result,
directly or indirectly, of the transactions contemplated by this Agreement
that would not reasonably be expected to be deductible as a result of the
limitations under Section 162(m) of the Code and the regulations issued
thereunder.
(10) As a result, directly or indirectly, of the transactions
contemplated by this Agreement (including, without limitation, as a result
of any termination of employment prior to, at or following the Effective
Time), none of the Acquiror, the Company the Surviving Corporation, or any
of their respective Subsidiaries will be obligated to make a payment that
would be characterized as an "excess parachute payment" to an individual
who is a "disqualified individual" (as such terms are defined in Section
280G of the Code), without regard to whether such payment is reasonable
compensation for personal services performed or to be performed in the
future.
(11) The only persons receiving or entitled to receive benefits under the
Lakeview Savings Bank's Supplemental Retirement Plan for Senior Officers
(the "SERP") are Messrs. Kevin J. Coogan, Kevin M. McCloskey and Anthony A.
Gallo. Each of such persons has waived the receipt of any benefits under
the SERP prior to the date hereof and no benefits will be payable to any
person under the SERP.
(n) Labor Matters. Neither the Company nor any of its Subsidiaries is a
party to or is bound by any collective bargaining Contract or understanding
with a labor union or labor organization, nor is the Company or any of its
Subsidiaries the subject of a proceeding asserting that it or any such
Subsidiary has committed an unfair labor practice (within the meaning of
the National Labor Relations Act) or seeking to compel the Company or any
such Subsidiary to bargain with any labor organization as to wages or
conditions of employment, nor is there any strike or other labor dispute
involving it or any of its Subsidiaries pending or, to the Company's
knowledge, threatened, nor is the Company aware of any activity involving
it or any of its Subsidiaries' employees seeking to certify a collective
bargaining unit or engaging in other organizational activity.
A-18
<PAGE>
(o) Environmental Matters. To the Company's knowledge: (1) the Company
and each of its Subsidiaries has complied at all times with applicable
Environmental Laws; (2) no property (including buildings and any other
structures) currently or formerly owned or operated by the Company or any
of its Subsidiaries or in which the Company or any of its Subsidiaries has
a Lien, has been contaminated with, or has had any release of, any
Hazardous Substance except as Previously Disclosed; (3) neither the Company
nor any of its Subsidiaries would reasonably be expected to be ruled to be
the owner or operator under any Environmental Law of any property in which
it has currently or formerly held a Lien; (4) neither the Company nor any
of its Subsidiaries is subject to liability for any Hazardous Substance
disposal or contamination on any other third-party property; (5) neither
the Company nor any of its Subsidiaries has received any notice, demand
letter, claim or request for information alleging any violation of, or
liability under, any Environmental Law; (6) neither the Company nor any of
its Subsidiaries is subject to any order, decree, injunction or other
agreement with any Governmental Authority or any third party relating to
any Environmental Law; (7) the Company, is not aware of any circumstances
or conditions involving the Company or any of its Subsidiaries, any
currently or formerly owned or operated property, or any Lien held by the
Company or any of its Subsidiaries (including the presence of asbestos,
underground storage tanks, lead products, polychlorinated biphenyls or gas
station sites) that would reasonably be expected to result in any claims,
liability or investigations or result in any restrictions on the ownership,
use, or transfer of any property pursuant to any Environmental Law; and (8)
the Company has delivered to the Acquiror copies of all environmental
reports, studies, sampling data, correspondence, filings and other
environmental information in its possession or reasonably available to it
relating to the Company, any of its Subsidiaries, any currently or formerly
owned or operated property or any property in which the Company or any of
its Subsidiaries has held a Lien.
(p) Tax Matters. (1) All returns, declarations, reports, estimates,
information returns and statements required to be filed on or before the
Effective Date under federal, state, local or any foreign tax laws ("Tax
Returns") with respect to the Company or any of its Subsidiaries, have been
or will be timely filed, or requests for extensions have been timely filed
and have not expired; (2) all Tax Returns filed by the Company and its
Subsidiaries are complete and accurate; (3) all Taxes shown to be due and
payable (without regard to whether such Taxes have been assessed) on such
Tax Returns (or, with respect to Tax Returns for which an extension has
been timely filed, will be required to be shown as due and payable when
such Tax Returns are filed) have been paid or adequate reserves have been
established for the payment of such Taxes; (4) no audit or examination or
refund litigation with respect to any such Tax Return is pending or, to the
Company's knowledge, has been threatened; (5) all deficiencies asserted or
assessments made as a result of any examination of a Tax Return of the
Company or any of its Subsidiaries have been paid in full; (6) no waivers
of statute of limitations have been given by or requested with respect to
any Taxes of the Company or its Subsidiaries; (7) the Company and its
Subsidiaries have never been a member of an affiliated, combined,
consolidated or unitary Tax group for purposes of filing any Tax Return
(other than a consolidated group of which the Company was the common
parent); (8) no closing agreements, private letter rulings, technical
advice memoranda or similar agreement or rulings have been entered into or
issued by any taxing authority with respect to the Company or any of its
Subsidiaries; (9) no tax is required to be withheld pursuant to Section
1445 of the Code as a result of the transfer contemplated by this
Agreement; (10) the Company and its Subsidiaries are not bound by any tax
indemnity, tax sharing or tax allocation agreement or arrangement; and (11)
the Company and its Subsidiaries have withheld and paid all Taxes that they
are required to withhold from compensation income of their employees.
(q) Risk Management. All swaps, caps, floors, option agreements, futures
and forward contracts and other similar risk management arrangements,
whether entered into for the Company's own account, or for the account of
one or more of the Company's Subsidiaries or their customers, were entered
into (1) in accordance with prudent business practices and all applicable
laws, rules, regulations and regulatory policies and (2) with
counterparties believed to be financially responsible at the time; and each
of them constitutes the valid and legally binding obligation of the Company
or one of its Subsidiaries, enforceable in accordance with its terms
(except as enforceability may be limited by applicable bankruptcy,
A-19
<PAGE>
insolvency, reorganization, moratorium, fraudulent transfer and similar
laws of general applicability relating to or affecting creditors' rights or
by general equity principles), and are in full force and effect. Neither
the Company nor its Subsidiaries, nor to the Company's knowledge any other
party thereto, is in breach of any of its obligations under any such
agreement or arrangement.
(r) Books and Records. The books and records of the Company and its
Subsidiaries have been fully, properly and accurately maintained in all
material respects, and there are no material inaccuracies or discrepancies
of any kind contained or reflected therein, and they fairly present the
financial position of the Company and its Subsidiaries.
(s) Insurance. The Company's Disclosure Schedule sets forth all of the
insurance policies, binders, or bonds maintained by the Company or its
Subsidiaries ("Insurance Policies"). The Company and its Subsidiaries are
insured with reputable insurers against such risks and in such amounts as
the management of the Company reasonably has determined to be prudent in
accordance with industry practices. All of the Insurance Policies are in
full force and effect; the Company and its Subsidiaries are not in material
default thereunder; and all claims thereunder have been filed in due and
timely fashion.
(t) No Brokers. No action has been taken by the Company that would give
rise to any valid claim against any party hereto for a brokerage
commission, finder's fee or other like payment with respect to the
transactions contemplated by this Agreement, excluding a fee to be paid by
the Company to Sandler O'Neill in an amount and on terms Previously
Disclosed.
(u) Year 2000 Compliance. The Company and its Subsidiaries have taken all
reasonable steps necessary to address the software, accounting and
recordkeeping issues raised in order for the data processing systems used
in the business conducted by the Company and its Subsidiaries to be
substantially Year 2000 compliant on or before the end of 1999.
(v) Disclosure. The information Previously Disclosed or otherwise
provided to the Acquiror in connection with this Agreement does not contain
any untrue statement of a material fact or omit to state any material fact
necessary in order to make the statements contained therein, in the light
of the circumstances in which they are being made, not misleading. The
copies of all documents furnished to the Acquiror hereunder are true and
complete.
5.04 Representations and Warranties of the Acquiror. Except as Previously
Disclosed in a paragraph of its Disclosure Schedule corresponding to the
relevant paragraph below, the Acquiror hereby represents and warrants to the
Company as follows:
(a) Organization, Standing and Authority. The Acquiror is duly organized,
validly existing and in good standing under the laws of Delaware, and is
duly qualified to do business and is in good standing in the jurisdictions
where its ownership or leasing of property or assets or the conduct of its
business requires it to be so qualified.
(b) Acquiror Stock. (1) As of the date hereof, the authorized capital
stock of the Acquiror consists solely of 350,000,000 shares of Acquiror
Common Stock, of which 111,883,481 shares were outstanding as of November
30, 1998, and 40,000,000 shares of Acquiror Preferred Stock, of which no
shares are outstanding as of the date hereof. As of the date hereof, other
than the Acquiror Rights and except as Previously Disclosed, there are no
shares of Acquiror Stock authorized and reserved for issuance, the Acquiror
does not have any Rights issued or outstanding with respect to Acquiror
Stock, and the Acquiror does not have any commitment to authorize, issue or
sell any Acquiror Stock or Rights, except pursuant to this Agreement. The
number of shares of Acquiror Common Stock which are issuable and reserved
for issuance upon exercise of any employee or director stock options to
purchase shares of Acquiror Common Stock, and the number and terms of any
Rights, as of November 30, 1998, are Previously Disclosed in the Acquiror's
Disclosure Schedule.
A-20
<PAGE>
(2) The shares of Acquiror Common Stock to be issued as Consideration,
when issued in accordance with the terms of this Agreement, will be duly
authorized, validly issued, fully paid and nonassessable and free of
preemptive rights, with no personal liability attaching to the ownership
thereof.
(c) Subsidiaries. Each of the Acquiror's Significant Subsidiaries has
been duly organized and is validly existing and in good standing under the
laws of the jurisdiction of its organization, and is duly qualified to do
business and in good standing in the jurisdictions where its ownership or
leasing of property or the conduct of its business requires it to be so
qualified.
(d) Corporate Power. The Acquiror and each of its Significant
Subsidiaries has the requisite power and authority to carry on its business
as it is now being conducted and to own all its properties and assets; the
Acquiror has the corporate power and authority to execute, deliver and
perform its obligations under this Agreement and to consummate the
transactions contemplated hereby; and The Dime Savings Bank of New York,
FSB has the requisite power and authority to execute, deliver and perform
its obligations as set forth in the Form of Subsidiary Combination
Agreement attached hereto as Exhibit D and to consummate the transactions
contemplated thereby.
(e) Corporate Authority. The Acquiror has the requisite corporate power
and authority, and has taken all corporate action necessary in order to
authorize the execution and delivery of, and performance of its obligations
under, this Agreement and the Stock Option Agreement and to consummate the
Merger. This Agreement and the Stock Option Agreement each is a valid and
legally binding agreement of the Acquiror enforceable in accordance with
its terms (except as enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, and similar laws of general
applicability relating to or affecting creditors' rights or by general
equity principles).
(f) Regulatory Approvals; No Defaults. (1) No consents or approvals of,
or filings or registrations with, any Governmental Authority or with any
third party are required to be made or obtained by the Acquiror or any of
its Subsidiaries in connection with the execution, delivery or performance
by the Acquiror of this Agreement or to consummate the Merger except for
(A) the filing of applications and notices, as applicable, with the OTS,
the NJBD and the FDIC with respect to the Merger and the Subsidiary
Combination; (B) approval of the listing on the NYSE of the Acquiror Common
Stock to be issued in the Merger (and related Acquiror Rights); (C) the
filing and declaration of effectiveness of the Registration Statement; (D)
the filing of a certificate of merger with the Secretary of State of the
State of Delaware pursuant to the DGCL and the filing of a certificate of
merger with the Secretary of State of the State of New Jersey pursuant to
the NJBCA; and (E) such filings as are required to be made or approvals as
are required to be obtained under the securities or "Blue Sky" laws of
various states in connection with the issuance of Acquiror Common Stock in
the Merger. As of the date hereof, the Acquiror is not aware of any reason
why the approvals of all Governmental Authorities necessary to permit
consummation of the transactions contemplated hereby will not be received
without the imposition of a condition or requirement described in Section
7.01(b).
(2) Subject to receipt of the regulatory approvals, and expiration of the
waiting periods, referred to in the preceding paragraph and the making of
all required filings under federal and state securities laws, the
execution, delivery and performance of this Agreement and the consummation
of the transactions contemplated hereby do not and will not (A) constitute
a breach or violation of, or a default under, or give rise to any Lien, any
acceleration of remedies or any right of termination under, any law, rule
or regulation or any judgment, decree, order, governmental permit or
license, or Contract of the Acquiror or of any of its Subsidiaries or to
which the Acquiror or any of its Subsidiaries or properties is subject or
bound, (B) constitute a breach or violation of, or a default under, the
certificate of incorporation or by-laws (or similar governing documents) of
the Acquiror or any of its Subsidiaries, or (C) require any consent or
approval under any such law, rule, regulation, judgment, decree, order,
governmental permit or license, agreement, indenture or instrument.
(g) SEC Documents; Financial Statements. (1) The Acquiror's Annual
Reports on Form 10-K for the fiscal years ended December 31, 1995, 1996 and
1997, and all other reports, registration statements,
A-21
<PAGE>
definitive proxy statements or information statements filed or to be filed
by the Acquiror subsequent to December 31, 1997 under the Securities Act,
or under Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act, in the
form filed or to be filed (collectively, the "Acquiror's SEC Documents")
with the SEC, as of the date filed, (A) complied or will comply in all
material respects as to form with the applicable requirements under the
Securities Act or the Exchange Act, as the case may be, and (B) did not (or
if amended or superseded by a filing prior to the date of this Agreement,
then as of the date of such filing) and will not contain any untrue
statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein, in the light
of the circumstances under which they were made, not misleading; and each
of the balance sheets contained in or incorporated by reference into any
such SEC Document (including the related notes and schedules thereto)
fairly presents, or will fairly present, the financial position of the
Acquiror and its Subsidiaries as of its date, and each of the statements of
income and changes in shareholders' equity and cash flows or equivalent
statements in such SEC Documents (including any related notes and schedules
thereto) fairly presents, or will fairly present, the results of
operations, changes in shareholders' equity and changes in cash flows, as
the case may be, of the Acquiror and its Subsidiaries for the periods to
which they relate, in each case in accordance with generally accepted
accounting principles consistently applied during the periods involved,
except in each case as may be noted therein, subject to normal year-end
audit adjustments in the case of unaudited statements.
(2) Since December 31, 1997, no event has occurred or circumstance arisen
that, individually or taken together with all other facts, circumstances
and events (described in any paragraph of Section 5.04 or otherwise), has
had or is reasonably likely to have a Material Adverse Effect with respect
to the Acquiror.
(3) Since December 31, 1997, the Acquiror has carried on its business in
the ordinary course consistent with past practice except for actions that
are permitted pursuant to the proviso of Section 4.02(a).
(h) Litigation. Except as disclosed in the Acquiror's SEC Documents filed
before the date hereof, no litigation, claim or other proceeding before any
court, arbitrator or Governmental Authority is pending against the Acquiror
or any of its Subsidiaries and, to the Acquiror's knowledge, no such
litigation, claim or other proceeding has been threatened.
(i) Compliance with Laws. The Acquiror and each of its Subsidiaries:
(1) conducts its business in compliance with all applicable federal,
state, local and foreign statutes, laws, regulations, ordinances, rules,
judgments, orders or decrees applicable thereto or to the employees
conducting such businesses, including, without limitation, the Equal Credit
Opportunity Act, the Fair Housing Act, the Community Reinvestment Act, the
Home Mortgage Disclosure Act and all other applicable fair lending laws and
other laws relating to discriminatory business practices;
(2) has all permits, licenses, authorizations, orders and approvals of,
and has made all filings, applications and registrations with, all
Governmental Authorities that are required in order to permit them to
conduct their businesses substantially as presently conducted; all such
permits, licenses, certificates of authority, orders and approvals are in
full force and effect and, to the best of its knowledge, no suspension or
cancellation of any of them is threatened;
(3) has received, since December 31, 1997 no notification or
communication from any Governmental Authority (A) asserting that the
Acquiror or any of its Subsidiaries is not in compliance with any of the
statutes, regulations or ordinances that such Governmental Authority
enforces; (B) threatening to revoke any license, franchise, permit or
governmental authorization (nor, to the Acquiror's knowledge, do any
grounds for any of the foregoing exist) or (C) restricting or disqualifying
their activities (except for restrictions generally imposed by rule,
regulation or administrative policy on banking organizations generally);
and
A-22
<PAGE>
(4) is not subject to any order or decree issued by, or a party to any
agreement or memorandum of understanding with, or a party to any commitment
letter or similar undertaking to, or subject to any order or directive by,
a recipient of any supervisory letter from or has adopted any board
resolutions at the request of any Governmental Authority, or been advised
by any Governmental Authority that it is considering issuing or requesting
any such agreement or other action or have knowledge of any pending or
threatened regulatory investigation.
(j) No Brokers. No action has been taken by the Acquiror that would give
rise to any valid claim against any party hereto for a brokerage
commission, finder's fee or other like payment with respect to the
transactions contemplated by this Agreement, excluding a fee to be paid by
the Acquiror to Credit Suisse First Boston.
(k) Disclosure. The information Previously Disclosed or otherwise
provided to the Company in connection with this Agreement does not contain
any untrue statement of a material fact or omit to state any material fact
necessary in order to make the statements contained therein, in the light
of the circumstances in which they are being made, not misleading. The
copies of all documents furnished to the Company hereunder are true and
complete.
ARTICLE VI
Covenants
6.01 Reasonable Best Efforts. Subject to the terms and conditions of this
Agreement, each of the Company and the Acquiror agrees to use its reasonable
best efforts in good faith to take, or cause to be taken, all actions, and to
do, or cause to be done, all things necessary, proper or desirable, or
advisable under applicable laws, so as to permit consummation of the Merger as
promptly as practicable and otherwise to enable consummation of the
transactions contemplated hereby and shall cooperate fully with the other party
hereto to that end.
6.02 Shareholder Approvals. The Company agrees to take, in accordance with
applicable law, applicable stock exchange rules, the Company Certificate and
the Company By-Laws, all action necessary to convene an appropriate meeting of
shareholders of the Company to consider and vote upon the approval and adoption
of this Agreement and any other matters required to be approved by the
Company's shareholders for consummation of the Merger and the transactions
contemplated hereby, and to solicit shareholder approval and adoption
(including any adjournment or postponement, the "Company Meeting"), as promptly
as practicable after the Registration Statement is declared effective. The
Company Board is recommending and, unless the Company Board, after having
consulted with and considered the written advice of outside counsel to the
Company Board, has determined in good faith that to do so would result in a
failure by the directors to discharge properly their fiduciary duties in
accordance with New Jersey law, the Company Board will continue to recommend
that the Company's shareholders approve this Agreement and take any other
action required to permit consummation of the transactions contemplated hereby.
6.03 Registration Statement. (a) The Acquiror agrees to prepare a
registration statement on Form S-4 (the "Registration Statement"), to be filed
by the Acquiror with the SEC in connection with the issuance of Acquiror Common
Stock (and related Acquiror Rights) in the Merger (including the proxy
statement and prospectus and other proxy solicitation materials of the Company
constituting a part thereof (the "Proxy Statement") and all related documents).
The Company agrees to cooperate, and to cause its Subsidiaries to cooperate,
with the Acquiror, its counsel and its accountants, in preparation of the
Registration Statement and the Proxy Statement; and, provided that the Company
and its Subsidiaries have cooperated as required above, the Acquiror agrees to
file the Proxy Statement in preliminary form with the SEC as promptly as
reasonably practicable, and to file the Registration Statement with the SEC as
soon as reasonably practicable after any SEC comments with respect to the
preliminary Proxy Statement are resolved. Each of the Company and the Acquiror
agrees to use its reasonable best efforts to cause the Registration Statement
to be declared effective
A-23
<PAGE>
under the Securities Act as promptly as reasonably practicable after filing
thereof. The Acquiror also agrees to use all reasonable best efforts to obtain
all necessary state securities law or "Blue Sky" permits and approvals required
to carry out the transactions contemplated by this Agreement. The Company
agrees to furnish to the Acquiror all information concerning the Company, its
Subsidiaries, officers, directors and shareholders as may be reasonably
requested in connection with the foregoing.
(b) Each of the Company and the Acquiror agrees, as to itself and its
Subsidiaries, that none of the information supplied or to be supplied by it for
inclusion or incorporation by reference in (1) the Registration Statement will,
at the time the Registration Statement and each amendment or supplement
thereto, if any, becomes effective under the Securities Act, contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein not misleading, and
(2) the Proxy Statement and any amendment or supplement thereto will, at the
date of mailing to shareholders and at the time of the Company Meeting, contain
any untrue statement which, at the time and in the light of the circumstances
under which such statement is made, is false or misleading with respect to any
material fact, or omit to state any material fact necessary in order to make
the statements therein not false or misleading or necessary to correct any
statement in any earlier statement in the Proxy Statement or any amendment or
supplement thereto. Each of the Company and the Acquiror further agrees that if
it shall become aware prior to the Effective Date of any information furnished
by it that would cause any of the statements in the Proxy Statement to be false
or misleading with respect to any material fact, or to omit to state any
material fact necessary to make the statements therein not false or misleading,
to promptly inform the other party thereof and to take the necessary steps to
correct the Proxy Statement.
(c) The Acquiror agrees to advise the Company, promptly after the Acquiror
receives notice thereof, 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 Acquiror Stock for
offering or sale in any jurisdiction, of 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.
6.04 Press Releases. Each of the Company and the Acquiror agrees that it will
not, without the prior approval of the other party, issue any press release or
written statement for general circulation relating to the transactions
contemplated hereby (except for any release or statement that, in the written
opinion of outside counsel to the Company, is required by law or regulation and
as to which the Company has used its best efforts to discuss with the Acquiror
in advance, provided that such release or statement has not been caused by, or
is not the result of, a previous disclosure by or at the direction of the
Company or any of its representatives that was not permitted by this
Agreement).
6.05 Access; Information. (a) Each of the Company and the Acquiror agrees
that upon reasonable notice and subject to applicable laws relating to the
exchange of information, it shall afford the other party and the other party's
officers, employees, counsel, accountants and other authorized representatives,
such 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 any party may reasonably request and, during such
period, it shall furnish promptly to such other party (1) a copy of each
material report, schedule and other document filed by it pursuant to the
requirements of federal or state securities or banking laws, and (2) all other
information concerning the business, properties and personnel of it as the
other may reasonably request.
(b) Each of the Company and the Acquiror agrees that it will not, and will
cause its representatives not to, use any information obtained pursuant to this
Section 5.05 for any purpose unrelated to the consummation of the transactions
contemplated by this Agreement. Subject to the requirements of law, each party
will keep confidential, and will cause its representatives to keep
confidential, all information and documents obtained pursuant to this Section
6.05 unless such information (1) was already known to such party, (2) becomes
available to such party from other sources not known by such party to be bound
by a confidentiality obligation, (3) is disclosed with the prior written
approval of the party to which such information pertains or (4) is or
A-24
<PAGE>
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 to be returned to the party
which furnished the same.
(c) No investigation by either party of the business and affairs of the other
shall affect or be deemed to modify or waive any representation, warranty,
covenant or agreement in this Agreement, or the conditions to either party's
obligation to consummate the transactions contemplated by this Agreement.
6.06 Acquisition Proposals. The Company agrees that it shall not, and shall
cause its Subsidiaries and its and its Subsidiaries' officers, directors,
agents, advisors and affiliates not to, solicit or encourage inquiries or
proposals with respect to, or engage in any negotiations concerning, or provide
any confidential information to, or have any discussions with, any person
relating to, any tender or exchange offer, proposal for a merger, consolidation
or other business combination involving the Company or any of its Subsidiaries
or any proposal or offer to acquire in any manner a substantial equity interest
in, or a substantial portion of the assets or deposits of, the Company or any
of its Subsidiaries, other than the transactions contemplated by this Agreement
(any of the foregoing, an "Acquisition Proposal"); provided that, if the
Company is not otherwise in violation of this Section 6.06, the Company Board
may provide information to, and may engage in such negotiations or discussions
with, a person with respect to an Acquisition Proposal, directly or through
representatives, if (a) the Company Board, after having consulted with and
considered the written advice of outside counsel to the Company Board, has
determined in good faith that the provision of such information or the engaging
in such negotiations or discussion is required in order to discharge properly
the directors' fiduciary duties in accordance with New Jersey law and (b) the
Company has received from such person a confidentiality agreement in
substantially the same form as entered into by Acquiror. The Company also
agrees immediately to cease and cause to be terminated any activities,
discussions or negotiations conducted prior to the date of this Agreement with
any parties other than the Acquiror, with respect to any of the foregoing. The
Company shall promptly (within 24 hours) advise the Acquiror following the
receipt by it of any Acquisition Proposal and the substance thereof (including
the identity of the person making such Acquisition Proposal), and advise the
Acquiror of any developments with respect to such Acquisition Proposal
immediately upon the occurrence thereof.
6.07 Affiliate Agreements. Not later than the 15th day prior to the mailing
of the Proxy Statement, the Company shall deliver to the Acquiror a schedule of
each person that, to the Company's knowledge, is or is reasonably likely to be,
as of the date of the Company Meeting, deemed to be an "affiliate" of it (each,
a "Company Affiliate") as that term is used in Rule 145 under the Securities
Act. The Company agrees to use its reasonable best efforts to cause each person
who may be deemed to be a Company Affiliate to execute and deliver to the
Company and the Acquiror on or before the date of mailing of the Proxy
Statement an agreement in the form attached hereto as Exhibit E.
6.08 Takeover Laws. No party shall knowingly take any action that would cause
the transactions contemplated by this Agreement to be subject to requirements
imposed by any Takeover Law and each of them shall take all necessary steps
within its control to exempt (or ensure the continued exemption of) the
transactions contemplated by this Agreement from, or if necessary challenge the
validity or applicability of, any applicable Takeover Law, as now or hereafter
in effect.
6.09 No Rights Triggered. The Company shall take all reasonable steps
necessary to ensure that the entering into of this Agreement and the
consummation of the transactions contemplated hereby and any other action or
combination of actions, or any other transactions contemplated hereby, do not
and will not result in the grant of any rights to any person (a) under the
Company Certificate or the Company By-Laws or (b) under any material agreement
to which it or any of its Subsidiaries is a party (except as expressly
contemplated by the mandatory provisions under its stock option plans, as
applicable).
A-25
<PAGE>
6.10 NYSE Listing. The Acquiror agrees to use its reasonable best efforts to
list, prior to the Effective Date, on the NYSE, subject to official notice of
issuance, the shares of Acquiror Common Stock to be issued to the holders of
Company Common Stock in the Merger.
6.11 Regulatory Applications. (a) The Acquiror and the Company and their
respective Subsidiaries shall cooperate and use their respective reasonable
best efforts to prepare all documentation, to effect all filings and to obtain
all permits, consents, approvals and authorizations of all third parties and
Governmental Authorities necessary to consummate the transactions contemplated
by this Agreement. Each of the Acquiror and the Company agrees that it will
consult with the other party hereto with respect to the obtaining of all
material permits, consents, approvals and authorizations of all third parties
and Governmental Authorities necessary or advisable to consummate the
transactions contemplated by this Agreement and each party will keep the other
party appraised of the status of material matters relating to completion of the
transactions contemplated hereby. Copies of applications and correspondence
with such Governmental Authorities promptly shall be provided to the other
party.
(b) Each of the Acquiror and the Company agrees, upon request, to furnish the
other party with all information concerning itself, its Subsidiaries,
directors, officers and shareholders and such other matters as may be
reasonably necessary or advisable in connection with any filing, notice or
application made by or on behalf of such other party or any of its Subsidiaries
to any third party or Governmental Authority.
6.12 Indemnification. (a) Following the Effective Date and for a period of
six years thereafter, the Acquiror shall indemnify, defend and hold harmless
the present and former directors and officers of the Company and its
Subsidiaries (each, an "Indemnified Party") against all 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 actions or omissions occurring
at or prior to the Effective Time (including, without limitation, the
transactions contemplated by this Agreement), whether asserted or claimed prior
to, at or after the Effective Time, to the fullest extent that the Company is
permitted to indemnify its directors and officers under applicable law, the
Company Certificate and the Company By-Laws as in effect on the date hereof
(and Acquiror shall, or shall cause the Surviving Corporation to, also advance
expenses as incurred to the fullest extent permitted under applicable law
provided the person to whom expenses are advanced provides an undertaking to
repay such advances if it is ultimately determined that such person is not
entitled to indemnification).
(b) For a period of three years from the Effective Time, Acquiror shall use
its reasonable best efforts to provide that portion of director's and officer's
liability insurance that serves to reimburse the present and former officers
and directors of the Company or any of its Subsidiaries (determined as of the
Effective Time) with respect to claims against such directors and officers
arising from facts or events which occurred before the Effective Time, which
insurance shall contain at least the same coverage and amounts, and contain
terms and conditions no less advantageous, as that coverage currently provided
by the Company; provided, however, that in no event shall the Acquiror be
required to expend more than twice the current amount spent by the Company (the
"Insurance Amount") to maintain or procure such directors' and officers'
insurance coverage; provided, further, that if the Acquiror is unable to
maintain or obtain the insurance called for by this Section 6.12(b), the
Acquiror shall use its reasonable best efforts to obtain as much comparable
insurance as is available for the Insurance Amount; provided, further, that
officers and directors of the Company or any Subsidiary may be required to make
application and provide customary representations and warranties to Acquirer's
insurance carrier for the purpose of obtaining such insurance.
(c) Any Indemnified Party wishing to claim indemnification under Section
6.12(a), upon learning of any claim, action, suit, proceeding or investigation
described above, shall promptly notify the Acquiror thereof; provided that the
failure so to notify shall not affect the obligations of the Acquiror under
Section 6.12(a) unless and to the extent that the Acquiror is actually
prejudiced as a result of such failure. In the event of any such claim, action,
suit, proceeding or investigation (whether arising before or after the
Effective Time), (1) the
A-26
<PAGE>
Acquiror or the Surviving Corporation shall have the right to assume the
defense thereof and the Acquiror shall not be liable to such Indemnified
Parties for any legal expenses of other counsel or any other expenses
subsequently incurred by such Indemnified Parties in connection with the
defense thereof, except that if the Acquiror or the Surviving Corporation
elects not to assume such defense or counsel for the Indemnified Parties
advises that there are issues that raise conflicts of interest between the
Acquiror or the Surviving Corporation and the Indemnified Parties, the
Indemnified Parties may retain counsel satisfactory to them, and the Acquiror
or the Surviving Corporation shall pay all reasonable fees and expenses of such
counsel for the Indemnified Parties promptly as statements therefor are
received; provided, however, that the Acquiror shall be obligated pursuant to
this paragraph (c) to pay for only one firm of counsel for all Indemnified
Parties in any jurisdiction unless the use of one counsel for such Indemnified
Parties would present such counsel with a conflict of interest, (2) the
Indemnified Parties will cooperate in the defense of any such matter and (3)
the Acquiror shall not be liable for any settlement effected without its prior
written consent, which consent shall not be unreasonably withheld; and
provided, further, that the Acquiror shall not have any obligation hereunder to
any Indemnified Party when and if a court of competent jurisdiction shall
ultimately determine, and such determination shall have become final and non-
appealable, that the indemnification of such Indemnified Party in the manner
contemplated hereby is prohibited by applicable law.
(d) If the Acquiror or any of its successors or assigns shall consolidate
with or merge into any other entity and shall not be the continuing or
surviving entity of such consolidation or merger or shall transfer all or
substantially all of its assets to any entity, then and in each case, proper
provision shall be made so that the successors and assigns of the Acquiror
shall assume the obligations set forth in this Section 6.12.
6.13 Accountants' Letters. Each of the Company and the Acquiror shall use its
reasonable best efforts to cause to be delivered to the other party, and such
other party's directors and officers who sign the Registration Statement,
letters of KPMG Peat Marwick LLP, independent auditors, dated (1) the date on
which the Registration Statement shall become effective and (20 a date shortly
prior to the Effective Date, and addressed to such other party, and such
directors and officers, in form and substance customary for "comfort" letters
delivered by independent accountants in accordance with Statement of Accounting
Standards No. 72. The Acquiror agrees to bear the expense of the letter
referred to in clause (2) above.
6.14 Notification of Certain Matters. Each of the Company and the Acquiror
shall give prompt notice to the other of any fact, event or circumstance known
to it that (1) is reasonably likely, individually or taken together with all
other facts, events and circumstances known to it, to result in any Material
Adverse Effect with respect to it or (2) would cause or constitute a material
breach of any of its representations, warranties, covenants or agreements
contained herein.
6.15 Advisory Board. The Acquiror agrees to establish, and to maintain for a
period of one year following the Effective Date, an advisory board for New
Jersey on which each person who was a director of the Company immediately prior
to the Effective Time shall be invited to serve. Each person serving on such
advisory board shall be eligible to receive a fee of $20,000 per annum.
6.16 Employee Benefits. Acquiror agrees that the employees of the Company and
its Subsidiaries who are employed by Acquiror or any of its Subsidiaries after
the Effective Date will be provided for at least one year after the Effective
Date with benefits under employee benefit plans during their period of
employment which are no less favorable in the aggregate than those provided by
Acquiror to similarly situated employees of Acquiror and its Subsidiaries.
Acquiror will cause each employee benefit plan of Acquiror and its Subsidiaries
in which employees of the Company and its Subsidiaries are eligible to
participate to take into account for purposes of eligibility and vesting
thereunder, but not for purposes of benefit accrual, the service of such
employees with the Company and its Subsidiaries as if such service were with
Acquiror and its Subsidiaries, to the same extent that such service was
credited under a comparable plan of the Company and its Subsidiaries. Employees
of the Company and its Subsidiaries shall not be subject to any waiting periods
or pre-existing condition limitations under the medical, dental and health
plans of the Company or its Subsidiaries in which they are eligible to
participate. Employees of the Company and its Subsidiaries will retain credit
for unused
A-27
<PAGE>
sick leave and vacation pay which has been accrued as of the Effective Time and
for purposes of determining the entitlement of such employees to sick leave and
vacation pay following the Effective Time, the service of such employees with
the Company and its Subsidiaries shall be treated as if such service was with
the Acquiror and its Subsidiaries.
The Company and its Subsidiaries will comply with applicable law and the
terms of the relevant Compensation Plan with respect to the voting of any
Company Common Stock held by any such Plan. The Company's Employee Stock
Ownership Plan (the "ESOP") may be terminated as of the Effective Date in
accordance with the terms of the ESOP (but not before such date); provided,
however, that no distributions may be made to participants in connection with
such termination except as directed by Acquiror. The Company will adopt
amendments to the ESOP as are reasonably requested by Acquiror in connection
with the termination. Contributions to the ESOP and to any profit sharing,
defined benefit plan or other pension plan maintained by the Company or any of
its Subsidiaries will only be made after the date of this Agreement to the
extent approved in writing in advance by Acquiror.
6.17 Certain Accounting Policies of the Company. Upon the request of the
Acquiror, the Company shall, consistent with generally accepted accounting
principles and regulatory accounting principles, use its best efforts to record
any accounting adjustments required to conform the loan, litigation and other
reserve and real estate valuation policies and practices (including loan
classifications and levels of reserves) of the Company and its Subsidiaries so
as to reflect consistently on a mutually satisfactory basis the policies and
practices of the Acquiror; provided, however, that the Company shall not be
obligated to record any such accounting adjustments (1) unless and until the
Company shall be satisfied that the conditions to the obligation of the parties
to consummate the Merger will be satisfied or waived on or before the Closing
Date, and (2) in no event until the day prior to the Closing Date.
6.18 Special Dividend. Unless otherwise requested by the Acquiror,
immediately prior to the Effective Date, the Company shall cause Lakeview
Savings Bank, to pay in cash the maximum dividend (the "Special Dividend")
permitted to be paid to the Company under applicable law and regulation.
ARTICLE VII
Conditions to Consummation of the Merger
7.01 Conditions to Each Party's Obligation to Effect the Merger. The
respective obligation of each of the Acquiror and the Company to consummate the
Merger is subject to the fulfillment or written waiver by the Acquiror and the
Company prior to the Effective Time of each of the following conditions:
(a) Shareholder Approval. This Agreement shall have been duly adopted by
the affirmative vote of the holders of the requisite number of the
outstanding shares of Company Common Stock entitled to vote thereon in
accordance with applicable law, the Company Articles and the Company By-
laws.
(b) Governmental and Regulatory Consents. All approvals and
authorizations of, filings and registrations with, and notifications to,
all Governmental Authorities required for the consummation of the Merger
and the Subsidiary Combination, and for the prevention of any termination
of any material right, privilege, license or agreement of either the
Acquiror or the Company or their respective Subsidiaries, shall have been
obtained or made and shall be in full force and effect and all waiting
periods required by law shall have expired; provided, however, that none of
the preceding shall be deemed obtained or made if it shall be subject to
any condition or restriction the effect of which would have been such that
the Acquiror would not reasonably have entered into this Agreement had such
condition or restriction been known as of the date hereof.
(c) Third Party Consents. All consents or approvals of all persons, other
than Governmental Authorities, required for or in connection with the
execution, delivery and performance of this Agreement
A-28
<PAGE>
and the consummation of the Merger shall have been obtained and shall be in
full force and effect, unless the failure to obtain any such consent or
approval is not reasonably likely to have, individually or in the
aggregate, a Material Adverse Effect on the Surviving Corporation.
(d) No Injunction. No Governmental Authority of competent jurisdiction
shall have enacted, issued, promulgated, enforced or entered any statute,
rule, regulation, judgment, decree, injunction or other order (whether
temporary, preliminary or permanent) which is in effect and prohibits
consummation of the transactions contemplated by this Agreement.
(e) Registration Statement. The Registration Statement shall have become
effective under the Securities Act and no stop order suspending the
effectiveness of the Registration Statement shall have been issued and no
proceedings for that purpose shall have been initiated or threatened by the
SEC.
(f) Blue Sky Approvals. All permits and other authorizations under the
federal and state securities laws (other than that referred to in Section
7.01(e)) and other authorizations necessary to consummate the transactions
contemplated hereby and to issue the shares of Acquiror Common Stock (and
related Acquiror Rights) to be issued in the Merger shall have been
received and be in full force and effect.
(g) Listing. The shares of Acquiror Common Stock (and related Acquiror
Rights) to be issued in the Merger shall have been approved for listing on
the NYSE, subject to official notice of issuance.
7.02 Conditions to Obligation of the Company. The obligation of the Company
to consummate the Merger is also subject to the fulfillment or written waiver
by the Company prior to the Effective Time of each of the following conditions:
(a) Representations and Warranties. The representations and warranties of
the Acquiror set forth in this Agreement shall be true and correct as of
the date of this Agreement and as of the Effective Date as though made on
and as of the Effective Date (except that representations and warranties
that by their terms speak as of the date of this Agreement or some other
date shall be true and correct only as of such date), and the Company shall
have received a certificate, dated the Effective Date, signed on behalf of
the Acquiror by a senior officer of Acquiror to such effect.
(b) Performance of Obligations of the Acquiror. The Acquiror shall have
performed in all material respects all obligations required to be performed
by it under this Agreement at or prior to the Effective Time, and the
Company shall have received a certificate, dated the Effective Date, signed
on behalf of the Acquiror by a senior officer of the Acquiror to such
effect.
(c) Opinion of Counsel. The Company shall have received an opinion, dated
the Effective Date, of Sullivan & Cromwell, counsel to the Acquiror, to the
effect that the shares of Acquiror Common Stock to be issued as
Consideration, when issued in accordance with the terms hereof, will be
duly authorized, validly issued, fully paid and nonassessable.
(d) Tax Opinion of Company's Counsel. The Company shall have received an
opinion of Malizia, Spidi, Sloane & Fisch, P.C., counsel to the Company, to
the effect that (1) the Merger constitutes a "reorganization" within the
meaning of Section 368 of the Code and (2) no gain or loss will be
recognized by shareholders of the Company to the extent they receive shares
of Acquiror Common Stock as Consideration in exchange for shares of Company
Common Stock.
(e) Accountants' Letters. The Company shall have received the letters
referred to in Section 6.14 from KPMG Peat Marwick LLP, the Acquiror's
independent auditors.
7.03 Conditions to Obligation of the Acquiror. The obligation of the Acquiror
to consummate the Merger is also subject to the fulfillment or written waiver
by the Acquiror prior to the Effective Time of each of the following
conditions:
A-29
<PAGE>
(a) Representations and Warranties. The representations and warranties of
the Company set forth in this Agreement shall be true and correct as of the
date of this Agreement and as of the Effective Date as though made on and
as of the Effective Date (except that representations and warranties that
by their terms speak as of the date of this Agreement or some other date
shall be true and correct only as of such date) and the Acquiror shall have
received a certificate, dated the Effective Date, signed on behalf of the
Company by the Chief Executive Officer and the Chief Financial Officer of
the Company to such effect.
(b) Performance of Obligations of the Company. The Company shall have
performed in all material respects all obligations required to be performed
by it under this Agreement at or prior to the Effective Time, and the
Acquiror shall have received a certificate, dated the Effective Date,
signed on behalf of the Company by the Chief Executive Officer and the
Chief Financial Officer of the Company to such effect.
(c) Payment of Special Dividend. Unless Acquiror otherwise requests,
Lakeview Savings Bank shall have paid the Special Dividend.
(d) Tax Opinion of the Acquiror's Counsel. The Acquiror shall have
received an opinion of Sullivan & Cromwell, counsel to the Acquiror, dated
the Effective Date, to the effect that the Merger constitutes a
"reorganization" within the meaning of Section 368 of the Code.
(e) Accountants' Letters. The Acquiror and its directors and officers who
sign the Registration Statement shall have received the letters referred to
in Section 6.14 from KPMG Peat Marwick LLP, the Company's independent
auditors.
ARTICLE VIII
Termination
8.01 Termination. This Agreement may be terminated and the Merger may be
abandoned:
(a) Mutual Consent. At any time prior to the Effective Time, by the
mutual consent of the Acquiror and the Company, if the Board of Directors
of each so determines by vote of a majority of the members of its entire
Board.
(b) Breach. At any time prior to the Effective Time, by the Acquiror or
the Company, in each case if its Board of Directors so determines by vote
of a majority of the members of its entire Board, in the event of either:
(1) a breach by the other party of any representation or warranty contained
herein, which breach cannot be or has not been cured within 30 days after
the giving of written notice to the breaching party of such breach; or (2)
a breach by the other party of any of the covenants or agreements contained
herein, which breach cannot be or has not been cured within 30 days after
the giving of written notice to the breaching party of such breach and
which breach would be reasonably likely, individually or in the aggregate,
to have a Material Adverse Effect on the breaching party.
(c) Delay. At any time prior to the Effective Time, by the Acquiror or
the Company, in each case 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 September 30, 1999, except to the extent that
the failure of the Merger then to be consummated arises out of or results
from the action or inaction of the party seeking to terminate pursuant to
this Section 8.01(c).
(d) No Approval. By the Company or the Acquiror, in each case if its
Board of Directors so determines by a vote of a majority of the members of
its entire Board, in the event (1) the approval of any Governmental
Authority required for consummation of the Merger and the other
transactions contemplated by this Agreement shall have been denied by final
nonappealable action of such Governmental Authority or (2) any shareholder
approval required by Section 6.02 herein is not obtained at the Company
Meeting.
A-30
<PAGE>
(e) Failure to Recommend, Etc. By the Acquiror, if (1) prior to the
effectiveness of the Registration Statement, the Company Board shall not
have recommended adoption and approval of this Agreement to the Company's
shareholders, (2) at any time prior to the receipt of the approval of the
Company's shareholders contemplated by Section 7.01(a), the Company Board
shall have withdrawn such recommendation or modified or changed such
recommendation in a manner adverse to the interests of the Acquiror
(whether in accordance with Section 6.02 or otherwise) or (3) the Company
Board participates in (or authorizes participation in) negotiations
regarding the substantive terms of an Acquisition Proposal).
(f) Acceptance of Superior Proposal. By the Company, if, without
breaching Section 6.06, the Company shall contemporaneously enter into a
definitive agreement with a third party providing for an Acquisition
Proposal on terms determined in good faith by the Company Board, after
consulting with and considering the written advice of the Company's outside
counsel and financial advisors, to constitute a Superior Proposal;
provided, that the right to terminate this Agreement under this Section
8.01(f) shall not be available to the Company unless it delivers to the
Acquiror (1) written notice of the Company's intention to terminate at
least five days prior to termination and (2) simultaneously with such
termination, the Fee referred to in Section 8.03.
(g) Stock Option Agreement, Shareholder Agreements and Compensation-
Related Agreements. By the Acquiror, if (1) the Stock Option Agreement
shall not have been executed and delivered by the Company by the close of
business on the day following the date of execution of this Agreement; (2)
shareholders of the Company holding the power to vote in the aggregate
approximately 30% of the outstanding shares of Company Common Stock, shall
have not executed and delivered Shareholder Agreements in the form of
Exhibit B hereto by the close of business on the second day following the
date of execution of this Agreement; or (3) the employees identified on
Exhibit C shall not have executed compensation-related agreements as
Previously Disclosed by the Company and the Acquiror by the close of
business on the second day following the date of execution of this
Agreement.
8.02 Effect of Termination and Abandonment. In the event of termination of
this Agreement and the abandonment of the Merger pursuant to this Article VIII,
no party to this Agreement shall have any liability or further obligation to
any other party hereunder except (a) as set forth in Sections 8.03 and 9.01 and
(b) that termination will not relieve a breaching party from liability for any
willful breach of this Agreement giving rise to such termination.
8.03 Termination Fee. If (1) the Acquiror terminates this Agreement pursuant
to Section 8.01(b) (at a time when the Company could not also do so pursuant to
Section 8.01(b)) or Section 8.01(e) or (2) the Company terminates this
Agreement pursuant to Section 8.01(f), then, within five business days of a
termination pursuant to Section 8.01(e) and simultaneously with a termination
pursuant to Section 8.01(f), the Company shall pay the Acquiror by wire
transfer in immediately available funds a fee of $400,000 (the "Fee").
ARTICLE IX
Miscellaneous
9.01 Survival. No representations, warranties, agreements and covenants
contained in this Agreement (1) other than those contained in Sections 6.05(b),
8.02, and 8.03 and in this Article IX, shall survive the termination of this
Agreement if this Agreement is terminated prior to the Effective Time, or (2)
other than those contained in Sections 6.12, 6.15 and in this Article IX, shall
survive the Effective Time.
9.02 Waiver; Amendment. Prior to the Effective Time, any provision of this
Agreement may be (a) waived by the party benefitted by the provision, or (b)
amended or modified at any time, by an agreement in writing executed by both
parties, except that, after approval of the Merger by the shareholders of the
Company, no amendment may be made which under applicable law requires further
approval of such shareholders without obtaining such required further approval.
9.03 Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to constitute an original.
A-31
<PAGE>
9.04 Governing Law. This Agreement shall be governed by, and interpreted in
accordance with, the laws of the State of New York applicable to contracts made
and to be performed entirely within such State.
9.05 Expenses. Subject to Sections 8.03 and 6.13, each party hereto will bear
all expenses incurred by it in connection with this Agreement and the
transactions contemplated hereby, except that printing and postage expenses and
SEC registration fees shall be shared equally between the Company and the
Acquiror.
9.06 Notices. All notices, requests and other communications hereunder to a
party shall be in writing and shall be deemed given (a) on the date of
delivery, if personally delivered or telecopied (with confirmation), (b) on the
first business day following the date of dispatch, if delivered by a recognized
next-day courier service, or (c) on the third business day following the date
of mailing, if mailed by registered or certified mail (return receipt
requested), in each case to such party at its address or telecopy number set
forth below or such other address or numbers as such party may specify by
notice to the parties hereto.
If to the Company, to:
Kevin J. Coogan
President and Chief Executive Officer
Lakeview Financial Corp.
989 McBride Avenue
West Paterson, NJ 07424
Facsimile: (973) 890-1846
With a copy to:
Samuel J. Malizia, Esq.
Malizia, Spidi, Sloane & Fisch, P.C.
One Franklin Square
1301 K Street, N.W.
Suite 700 East
Washington, D.C. 20005
Facsimile: (202) 434-4661
If to the Acquiror, to:
Chief Financial Officer
Dime Bancorp, Inc.
589 Fifth Avenue
3rd Floor
New York, New York 10017
Facsimile: (212) 326-6194
With a copies to:
General Counsel
Dime Bancorp, Inc.
589 Fifth Avenue
3rd Floor
New York, New York 10017
Facsimile: (212) 326-6110
Mitchell S. Eitel, Esq.
Sullivan & Cromwell
125 Broad Street
New York, New York 10004
Facsimile: (212) 558-3588.
A-32
<PAGE>
9.07 Entire Understanding; No Third Party Beneficiaries. This Agreement
(together with the Disclosure Schedules, the Stock Option Agreement and the
Exhibits hereto) represents the entire understanding of the parties hereto with
reference to the transactions contemplated hereby and this Agreement supersedes
any and all other oral or written agreements heretofore made. Except for
Section 6.12, insofar as such Section expressly provides certain rights to the
Indemnified Parties named therein, nothing in this Agreement, expressed or
implied, is intended to confer upon any person, other than the parties hereto
or their respective successors and permitted assigns, any rights, remedies,
obligations or liabilities under or by reason of this Agreement.
* * *
A-33
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed as of the day and year first above written.
LAKEVIEW FINANCIAL CORP.
/s/ Kevin J. Coogan
By:__________________________________
Name: Kevin J. Coogan
Title: President and Chief
Executive Officer
DIME BANCORP, INC.
/s/ Lawrence J. Toal
By:__________________________________
Name: Lawrence J. Toal
Title: President and Chief
Executive Officer
A-34
<PAGE>
Appendix B
STOCK OPTION AGREEMENT
STOCK OPTION AGREEMENT, dated as of December 16, 1998, between LAKEVIEW
FINANCIAL CORP., a New Jersey corporation ("Issuer"), and DIME BANCORP, INC.,
an Delaware corporation ("Grantee").
RECITALS
A. Grantee and Issuer have entered into an Agreement and Plan of Merger,
dated as of December 15, 1998 (as amended, supplemented or replaced from time
to time, the "Merger Agreement") contemplating a business combination between
Issuer and Grantee (the "Merger"). Capitalized terms used in this Agreement and
not defined herein shall have the meanings assigned thereto in the Merger
Agreement.
B. As a condition and inducement to the willingness of Grantee to execute
(and pursue the transactions contemplated by) the Merger Agreement, and in
consideration therefor, Issuer has agreed to grant Grantee the Option (as
defined below).
C. The Board of Directors of Issuer has approved the Merger Agreement and the
transactions contemplated thereby (including the Merger and the grant of the
Option (as defined below)) prior to the date hereof.
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants
and agreements set forth herein and in the Merger Agreement, the parties hereto
agree as follows:
1. Grant of Option. Issuer hereby grants to Grantee an unconditional,
irrevocable option (the "Option") to purchase, subject to the terms hereof, up
to an aggregate of 958,877 fully paid and nonassessable shares of the common
stock, par value $2.00 per share, of Issuer ("Common Stock") at a price per
share equal to $21.50 (such price, as adjusted if applicable, the "Option
Price"); provided that in no event shall the number of shares for which this
Option is exercisable exceed 19.9% of the issued and outstanding shares of
Common Stock. The number of shares of Common Stock that may be received upon
the exercise of the Option and the Option Price are subject to adjustment as
set forth below.
2. Exercise of Option. (a) The Holder (as defined below) may exercise the
Option, in whole or part, if, but only if, both a Preliminary Event (as defined
below) and a Triggering Event (as defined below) occur before the occurrence of
an Exercise Termination Event (as defined below), provided that the Holder
shall have sent the written notice of such exercise (as provided in Section
2(e)) within 90 days following the first Triggering Event to occur (or such
later period as provided in Section 10). Each of the following shall be an
"Exercise Termination Event": (1) the Effective Time of the Merger; (2) the
termination of the Merger Agreement in accordance with the provisions thereof,
if such termination occurs prior to the occurrence of an Preliminary Event and
is not a termination by Grantee pursuant to Section 8.01(b) or (e) of the
Merger Agreement; or (3) the passage of eighteen months (or such longer period
as provided in Section 10) after termination of the Merger Agreement, if such
termination is concurrent with or follows the occurrence of an Preliminary
Event or is a termination by Grantee pursuant to Section 8.01(b) or (e) of the
Merger Agreement. The term "Holder" shall mean the holder or holders of the
Option. Notwithstanding anything to the contrary contained herein, (1) the
Option may not be exercised at any time when Grantee shall be in material
breach of any of its representations, warranties, covenants or agreements
contained in the Merger Agreement such that Issuer shall be entitled to
terminate the Merger Agreement pursuant to Section 8.01(b) thereof and (2) this
Agreement shall automatically terminate upon the termination of the Merger
Agreement by Issuer pursuant to Section 8.01(b) thereof as a result of the
material breach by Grantee of its representations, warranties, covenants or
agreements contained in the Merger Agreement.
B-1
<PAGE>
(b) The term "Preliminary Event" shall mean any of the following events or
transactions occurring on or after the date hereof:
(1) Issuer or any Issuer Subsidiary (as defined below), without having
received Grantee's prior written consent, shall have entered into an
agreement to engage in an Acquisition Transaction (as defined below) with
any person (the term "person" for purposes of this Agreement having the
meaning assigned thereto in Sections 3(a)(9) and 13(d)(3) of the Securities
Exchange Act of 1934, as amended, and the rules and regulations thereunder
(collectively, the "1934 Act")) other than Grantee or any Grantee
Subsidiary (as defined below) or the Board of Directors of Issuer (the
"Issuer Board") shall have recommended that the shareholders of Issuer
approve or accept any Acquisition Transaction other than the Merger. For
purposes of this Agreement:
(A) "Acquisition Transaction" shall mean (x) a merger or
consolidation, or any similar transaction, involving Issuer or an
Issuer Subsidiary (other than mergers, consolidations or similar
transactions (1) involving solely Issuer and/or one or more wholly
owned Subsidiaries of the Issuer or (2) in which the voting securities
of Issuer outstanding immediately prior thereto continue to represent
(by either remaining outstanding or being converted into the voting
securities of the surviving entity of any such transaction) at least
50% of the combined voting power of the voting securities of the Issuer
or the surviving entity outstanding immediately after the consummation
of such merger, consolidation, or similar transaction, provided that
any such transaction is not entered into in violation of the terms of
the Merger Agreement), (y) a purchase, lease or other acquisition of
25% or more of the assets of Issuer or an Issuer Subsidiary, or (z) a
purchase or other acquisition (including by way of merger,
consolidation, share exchange or otherwise) of securities representing
15% or more of the voting power of Issuer or an Issuer Subsidiary;
(B) "Subsidiary" shall have the meaning set forth in Rule 12b-2 under
the 1934 Act;
(C) "Significant Subsidiary" shall have the meaning set forth in Rule
1-02 of Regulation S-X promulgated by the Securities and Exchange
Commission (the "SEC");
(D) "Issuer Subsidiary" shall mean any Significant Subsidiary of
Issuer; and
(E) "Grantee Subsidiary" shall mean any Subsidiary of Grantee.
(2) Any person other than the Grantee, any Grantee Subsidiary or the
Issuer's employee stock ownership plan shall have acquired beneficial
ownership or the right to acquire beneficial ownership of 15% or more of
the outstanding shares of Common Stock (the term "beneficial ownership" for
purposes of this Agreement having the meaning assigned thereto in Section
13(d) of the 1934 Act);
(3) The shareholders of Issuer shall have voted and failed to approve the
Merger Agreement or the Merger at a meeting which has been held for that
purpose or any adjournment or postponement thereof, or such meeting shall
not have been held in violation of the Merger Agreement or shall have been
cancelled prior to termination of the Merger Agreement if, prior to such
meeting (or if such meeting shall not have been held or shall have been
cancelled, prior to such termination), it shall have been publicly
announced that any person (other than Grantee or any Grantee Subsidiary)
shall have made, or disclosed an intention to make, a proposal to engage in
an Acquisition Transaction;
(4) The Issuer Board shall have withdrawn or modified (or publicly
announced its intention to withdraw or modify) in any manner adverse to
Grantee its recommendation that the shareholders of Issuer approve the
transactions contemplated by the Merger Agreement, or Issuer or an Issuer
Subsidiary shall have authorized, recommended or proposed (or publicly
announced its intention to authorize, recommend or propose) an agreement to
engage in an Acquisition Transaction with any person other than Grantee or
a Grantee Subsidiary;
B-2
<PAGE>
(5) Any person other than Grantee or any Grantee Subsidiary shall have
made a proposal to Issuer or its shareholders to engage in an Acquisition
Transaction and such proposal shall have been publicly announced;
(6) Any person other than Grantee or any Grantee Subsidiary shall have
filed with the SEC a registration statement or tender offer materials with
respect to a potential exchange or tender offer that would constitute an
Acquisition Transaction (or filed a preliminary proxy statement with the
SEC with respect to a potential vote by its shareholders to approve the
issuance of shares to be offered in such an exchange or tender offer); or
(7) Issuer shall have willfully breached any covenant or obligation
contained in the Merger Agreement after any person other than Grantee or a
Grantee Subsidiary shall have made a proposal to Issuer or its shareholders
to engage in an Acquisition Transaction, and following such breach Grantee
would be entitled to terminate the Merger Agreement (whether immediately or
after the giving of notice or both).
(c) The term "Triggering Event" shall mean any of the following events or
transactions occurring after the date hereof:
(1) The acquisition by any person (other than Grantee or any Grantee
Subsidiary) of beneficial ownership of 25% or more of the then outstanding
Common Stock; or
(2) The occurrence of the Preliminary Event described in Section 2(b)(1),
except that the percentage referred to in clause (z) of Section 2(b)(1)(A)
shall be 25%.
(d) Issuer shall notify Grantee promptly in writing of the occurrence of any
Preliminary Event or Triggering Event promptly after becoming aware of the
occurrence thereof, it being understood that the giving of such notice by
Issuer shall not be a condition to the right of the Holder to exercise the
Option.
(e) In the event the Holder is entitled to and wishes to exercise the Option
(or any portion thereof), it shall send to Issuer a written notice (the date of
which being herein referred to as the "Notice Date") specifying (1) the total
number of shares it will purchase pursuant to such exercise and (2) a place and
date not earlier than three business days nor later than 60 business days from
the Notice Date for the closing of such purchase (the "Closing Date"); provided
that, if prior notification to or approval of the Office of Thrift Supervision
(the "OTS") or any other regulatory or antitrust agency is required in
connection with such purchase, the Holder shall promptly file the required
notice or application for approval, shall promptly notify Issuer of such
filing, and shall expeditiously process the same and the period of time that
otherwise would run pursuant to this sentence shall run instead from the date
on which any required notification periods have expired or been terminated or
such approvals have been obtained and any requisite waiting period or periods
shall have passed. Any exercise of the Option shall be deemed to occur on the
Notice Date relating thereto.
(f) At the closing referred to in Section 2(e), the Holder shall (1) pay to
Issuer the aggregate purchase price for the shares of Common Stock purchased
pursuant to the exercise of the Option in immediately available funds by wire
transfer to a bank account designated by Issuer and (2) present and surrender
this Agreement to Issuer at its principal executive offices; provided that the
failure or refusal of the Issuer to designate such a bank account or accept
surrender of this Agreement shall not preclude the Holder from exercising the
Option.
(g) At such closing, simultaneously with the delivery of immediately
available funds as provided in Section 2(f), Issuer shall deliver to the Holder
a certificate or certificates representing the number of shares of Common Stock
purchased by the Holder and, if the Option shall have been exercised in part
only, a new Option evidencing the rights of the Holder thereof to purchase the
balance of the shares purchasable hereunder.
(h) Certificates for Common Stock delivered at a closing hereunder may be
endorsed with a restrictive legend that shall read substantially as follows:
B-3
<PAGE>
"The transfer of the shares represented by this certificate is subject to
certain provisions of an agreement, dated as of December , 1998, between
the registered holder hereof and Issuer and to resale restrictions arising
under the Securities Act of 1933, as amended. A copy of such agreement is
on file at the principal office of Issuer and will be provided to the
holder hereof without charge upon receipt by Issuer of a written request
therefor."
It is understood and agreed that: (1) the reference to the resale restrictions
of the Securities Act of 1933, as amended (the "1933 Act") in the above legend
shall be removed by delivery of substitute certificate(s) without such
reference, if the Holder shall have delivered to Issuer a copy of a letter from
the staff of the SEC, or an opinion of counsel, in form and substance
reasonably satisfactory to Issuer, to the effect that such legend is not
required for purposes of the 1933 Act, (2) the reference to the provisions of
this Agreement in the above legend shall be removed by delivery of substitute
certificate(s) without such reference, if the shares have been sold or
transferred in compliance with the provisions of this Agreement and under
circumstances that do not require the retention of such reference in the
reasonable opinion of counsel to the Holder and (3) the legend shall be removed
in its entirety if the conditions in the preceding clauses (1) and (2) are both
satisfied. In addition, such certificates shall bear any other legend as may be
required by law.
(i) Upon the giving by the Holder to Issuer of the written notice of exercise
of the Option provided for under Section 2(e) and the tender of the applicable
purchase price in immediately available funds, the Holder shall be deemed to be
the holder of record of the shares of Common Stock issuable upon such exercise,
notwithstanding that the stock transfer books of Issuer shall then be closed or
that certificates representing such shares of Common Stock shall not then be
actually delivered to the Holder. Issuer shall pay all expenses, and any and
all United States federal, state and local taxes and other charges that may be
payable in connection with the initial preparation, issue and delivery of stock
certificates under this Section 2 in the name of the Holder or its assignee,
transferee or designee.
(j) In the event Issuer does not have sufficient authorized but unissued
shares of Common Stock to permit exercise of the Option, upon the occurrence of
a Triggering Event, for the full number of shares of Common Stock for which the
Holder elects to exercise the Option, the Issuer shall make a cash payment to
the Holder, at the Closing Date specified in, and in accordance with the other
provisions of, this Section 2, in an amount equal to the product of (1) the
difference between the Fair Market Value (as defined below) and the Option
Price and (2) the number of shares of Common Stock subject to the Option for
which the Holder provides notice to Issuer, pursuant to Section 2(e) of this
Agreement, of its election to exercise that the Issuer is unable to deliver due
to insufficient authorized shares. For purposes of this Section 2(j), Fair
Market Value shall mean the average of the "bid" and "ask" prices per share of
Common Stock reported by the Nasdaq National Market (as published in The Wall
Street Journal or, if not published therein, another authoritative source) for
the ten trading days immediately preceding the Closing Date. Upon the payment
of the cash amount calculated pursuant to this Section 2(j), the number of
Option Shares subject to the Option shall be reduced by the number of shares of
Common Stock for which each cash payment is made.
3. Certain Agreements of Issuer. Issuer agrees: (1) 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 Issuer, (2) promptly to take all
action as may from time to time be required (including (x) complying with all
applicable premerger notification, reporting and waiting period requirements
specified in 15 U.S.C. Section 18a and regulations promulgated thereunder and
(y) in the event that, under the Home Owners' Loan Act, as amended (the
"HOLA"), or any state or other federal banking law, prior approval of or notice
to the OTS or to any state or other federal regulatory authority is necessary
before the Option may be exercised, cooperating fully with the Holder in
preparing such applications or notices and providing such information to the
OTS or such state or other federal regulatory authority as they may require) in
order to permit the Holder to exercise the Option and Issuer duly and
effectively to issue shares of Common Stock pursuant hereto and (3) promptly to
take all action provided in Sections 5 and 8 as and when required pursuant to
such Sections.
B-4
<PAGE>
4. Exchange of Option. This Agreement (and the Option granted hereby) are
exchangeable, without expense, at the option of the Holder, upon presentation
and surrender of this Agreement at the principal office of Issuer, for other
Agreements providing for Options of different denominations entitling the
Holder thereof to purchase, on the same terms and subject to the same
conditions as are set forth herein, in the aggregate the same number of shares
of Common Stock purchasable hereunder. The terms "Agreement" and "Option" as
used herein include any Agreements and related Options for which this Agreement
(and the Option granted hereby) may be exchanged. Upon receipt by Issuer from
Holder of evidence reasonably satisfactory to it of the loss, theft,
destruction or mutilation of this Agreement, and (in the case of loss, theft,
destruction or mutilation) of reasonably satisfactory indemnification by
Holder, and upon surrender and cancellation of this Agreement, if mutilated,
Issuer will execute and deliver a new Agreement of like tenor and date in
substitution for the lost, stolen, destroyed or mutilated Agreement.
5. Adjustments. In addition to the adjustment provided for in Section 1, the
number of shares of Common Stock purchasable upon the exercise of the Option
and the Option Price shall be subject to adjustment from time to time as
follows:
(a) In the event of any change in, or distributions in respect of, the
Common Stock by reason of stock dividends, split-ups, mergers,
recapitalizations, combinations, subdivisions, conversions, exchanges of
shares or the like, the type and number of shares of Common Stock
purchasable upon exercise hereof shall be appropriately adjusted and proper
provision shall be made so that, in the event that any additional shares of
Common Stock are to be issued or otherwise become outstanding as a result
of any such change (other than pursuant to an exercise of the Option), the
number of shares of Common Stock that remain subject to the Option shall be
increased so that, after such issuance and together with shares of Common
Stock previously issued pursuant to the exercise of the Option (as adjusted
on account of any of the foregoing changes in the Common Stock), it equals
19.9% of the number of shares of Common Stock then issued and outstanding;
and
(b) Whenever the number of shares of Common Stock purchasable upon
exercise hereof is adjusted as provided in Section 5(a), the Option Price
shall be adjusted by multiplying the Option Price immediately prior to the
adjustment by a fraction, the numerator of which shall be equal to the
number of shares of Common Stock purchasable prior to the adjustment and
the denominator of which shall be equal to the number of shares of Common
Stock purchasable after the adjustment.
6. Registration under Securities Laws. Upon the occurrence of the first
Triggering Event that occurs prior to an Exercise Termination Event, Issuer
shall, at the request of Grantee delivered within twelve months (or such later
period as provided in Section 10) of such Triggering Event (whether on its own
behalf or on behalf of any subsequent Holder of this Option (or part thereof)
or any of the shares of Common Stock issued pursuant hereto), promptly prepare,
file and keep current a registration statement under the 1933 Act covering any
shares issued and issuable pursuant to this Option and shall use its reasonable
best efforts to cause such registration statement to become effective and
remain current in order to permit the sale or other disposition of any shares
of Common Stock issued upon total or partial exercise of this Option ("Option
Shares") in accordance with any plan of disposition requested by Grantee (it
being understood and agreed that Grantee shall use its reasonable efforts to
ensure that any such sale or disposition shall be effected on a widely
distributed basis so that upon consummation thereof, no purchaser or transferee
shall beneficially own more than 2% of the Common Stock then outstanding).
Issuer will use its reasonable best efforts to cause such registration
statement promptly to become effective and then to remain effective for such
period not in excess of 180 days from the day such registration statement first
becomes effective or such shorter time as may be reasonably necessary to effect
such sales or other dispositions. Grantee shall have the right to demand no
more than two such registrations. The Issuer shall bear the costs of such
registrations (including, but not limited to, Issuer's attorneys' fees,
printing costs and filing fees), except for underwriting discounts or
commissions, brokers' fees and the fees and disbursements of Grantee's counsel
related thereto. The foregoing notwithstanding, if, at the time of any request
by Grantee for registration of Option Shares as provided above, Issuer is in
registration with respect to an underwritten public offering by Issuer of
shares of Common Stock,
B-5
<PAGE>
and if in the good faith judgment of the managing underwriter or managing
underwriters, or, if none, the sole underwriter or underwriters, of such
offering the offer and sale of the Option Shares would interfere with the
successful marketing of the shares of Common Stock offered by Issuer, the
number of Option Shares otherwise to be covered in the registration statement
contemplated hereby may be reduced; provided that, after any such required
reduction, the number of Option Shares to be included in such offering for the
account of the Holder shall constitute at least 25% of the total number of
shares to be sold by the Holder and Issuer in the aggregate; and provided,
further, that, if such reduction occurs, then Issuer shall file a registration
statement for the balance as promptly as practicable thereafter as to which no
reduction pursuant to this Section 6 shall be permitted or occur and the Holder
shall thereafter be entitled to one additional registration and the twelve
month period referred to in the first sentence of this section shall be
increased to twenty-four months. Each such Holder shall provide all information
reasonably requested by Issuer for inclusion in any registration statement to
be filed hereunder. If requested by any such Holder in connection with such
registration, Issuer shall become a party to any underwriting agreement
relating to the sale of such shares, but only to the extent of obligating
itself in respect of representations, warranties, indemnities and other
agreements customarily included in such underwriting agreements for Issuer.
Upon receiving any request under this Section 6 from any Holder, Issuer agrees
to send a copy thereof to any other person known to Issuer to be entitled to
registration rights under this Section 6, in each case by promptly mailing the
same, postage prepaid, to the address of record of the persons entitled to
receive such copies. Notwithstanding anything to the contrary contained herein,
in no event shall the number of registrations that Issuer is obligated to
effect be increased by reason of the fact that there shall be more than one
Holder as a result of any assignment or division of this Agreement.
7. Repurchase. (a) At any time after the occurrence of a Repurchase Event (as
defined below) (1) at the request of the Holder, delivered prior to an Exercise
Termination Event (or such later period as provided in Section 10), Issuer (or
any successor thereto) shall repurchase the Option from the Holder at a price
(the "Option Repurchase Price") equal to (A) the amount by which the
market/offer price (as defined below) exceeds the Option Price (B) multiplied
by the number of shares for which this Option may then be exercised and (2) at
the request of the owner of Option Shares from time to time (the "Owner"),
delivered prior to an Exercise Termination Event (or such later period as
provided in Section 10), Issuer (or any successor thereto) shall repurchase
such number of the Option Shares from the Owner as the Owner shall designate at
a price (the "Option Share Repurchase Price") equal to the market/offer price
multiplied by the number of Option Shares so designated. The term "market/offer
price" shall mean the highest of (1) the highest price per share of Common
Stock paid by any person that acquires beneficial ownership of 50% or more of
the then outstanding Common Stock, (2) the price per share of Common Stock to
be paid by any third party pursuant to an agreement with Issuer entered into
after the date hereof and prior to the date the Holder gives notice of the
required repurchase of this Option or the Owner gives notice of the required
repurchase of Option Shares, as the case may be, (3) the highest last sale
price for shares of Common Stock within the six-month period immediately
preceding the date the Holder gives notice of the required repurchase of this
Option or the Owner gives notice of the required repurchase of Option Shares,
as the case may be, or (4) in the event of a sale of all or any substantial
part of Issuer's or Issuer's Subsidiary's assets or deposits, the sum of the
net price paid in such sale for such assets or deposits and the current market
value of the remaining net assets of Issuer or Issuer Subsidiary as determined
by a nationally recognized investment banking firm selected by the Holder or
the Owner, as the case may be, and reasonably acceptable to Issuer, divided by
the number of shares of Common Stock of Issuer outstanding at the time of such
sale on a fully-diluted basis. In determining the market/offer price, the value
of consideration other than cash shall be determined by a nationally recognized
investment banking firm selected by the Holder or Owner, as the case may be,
and reasonably acceptable to Issuer. Notwithstanding anything to the contrary
herein, neither the Option Repurchase Price nor the Option Share Repurchase
Price in the aggregate shall be less than the Surrender Price (as defined in
Section 11).
(b) The Holder and the Owner, as the case may be, may exercise its right to
require Issuer to repurchase the Option and any Option Shares pursuant to this
Section 7 by surrendering for such purpose to Issuer, at its principal office,
a copy of this Agreement or certificates for Option Shares, as applicable,
accompanied by a written notice or notices stating that the Holder or the
Owner, as the case may be, elects to require Issuer to
B-6
<PAGE>
repurchase this Option and/or the Option Shares in accordance with the
provisions of this Section 7. As promptly as practicable, and in any event
within ten business days after the surrender of the Option and/or certificates
representing Option Shares and the receipt of such notice or notices relating
thereto, Issuer shall deliver or cause to be delivered to the Holder the Option
Repurchase Price and/or to the Owner the Option Share Repurchase Price therefor
or the portion thereof that Issuer is not then prohibited under applicable law,
regulation and administrative policy from so delivering.
(c) To the extent that Issuer is prohibited under applicable law or
regulation, or as a consequence of administrative policy, from repurchasing the
Option and/or the Option Shares in full, Issuer shall immediately so notify the
Holder and/or the Owner and thereafter deliver or cause to be delivered, from
time to time, to the Holder and/or the Owner, as appropriate, the portion of
the Option Repurchase Price and the Option Share Repurchase Price,
respectively, that it is no longer prohibited from delivering, within five
business days after the date on which Issuer is no longer so prohibited;
provided that, if Issuer at any time after delivery of a notice of repurchase
pursuant to Section 7(b) is prohibited under applicable law or regulation, or
as a consequence of administrative policy, from delivering to the Holder and/or
the Owner, as appropriate, the Option Repurchase Price and the Option Share
Repurchase Price, respectively, in full (and Issuer hereby undertakes to use
its reasonable best efforts to obtain all required regulatory and legal
approvals and to file any required notices as promptly as practicable in order
to accomplish such repurchase), the Holder or Owner may revoke its notice of
repurchase of the Option and/or the Option Shares whether in whole or to the
extent of the prohibition, whereupon, in the latter case, Issuer shall promptly
(1) deliver to the Holder and/or the Owner, as appropriate, that portion of the
Option Repurchase Price and/or the Option Share Repurchase Price that Issuer is
not prohibited from delivering and (2) deliver, as appropriate, either (A) to
the Holder, a new Agreement evidencing the right of the Holder to purchase that
number of shares of Common Stock obtained by multiplying the number of shares
of Common Stock for which the surrendered Agreement was exercisable at the time
of delivery of the notice of repurchase by a fraction, the numerator of which
is the Option Repurchase Price less the portion thereof theretofore delivered
to the Holder and the denominator of which is the Option Repurchase Price,
and/or (B) to the Owner, a certificate for the Option Shares it is then so
prohibited from repurchasing. If an Exercise Termination Event shall have
occurred prior to the date of the notice by Issuer described in the first
sentence of this Section 7(c), or shall be scheduled to occur at any time
before the expiration of a period ending on the thirtieth day after such date,
the Holder shall nonetheless have the right to exercise the Option until the
expiration of such 30-day period.
(d) For purposes of this Section 7, a "Repurchase Event" shall be deemed to
have occurred upon the occurrence of any of the following events or
transactions after the date hereof:
(1) The acquisition by any person (other than Grantee or any Grantee
Subsidiary) of beneficial ownership of 50% or more of the then outstanding
Common Stock; or
(2) The consummation of any Acquisition Transaction described in Section
2(b) (1) hereof, except that the percentage referred to in clause (z) of
the definition of Acquisition Transaction shall be 50%.
8. Substitute Option. (a) In the event that prior to an Exercise Termination
Event, Issuer shall enter into an agreement (1) to consolidate with or merge
into any person, other than Grantee or a Grantee Subsidiary, or engage in a
plan of exchange with any person, other than Grantee or a Grantee Subsidiary
and Issuer shall not be the continuing or surviving corporation of such
consolidation or merger or the acquirer in such plan of exchange, (2) to permit
any person, other than Grantee or a Grantee Subsidiary, to merge into Issuer or
be acquired by Issuer in a plan of exchange and Issuer shall be the continuing
or surviving or acquiring corporation, but, in connection with such merger or
plan of exchange, the then outstanding shares of Common Stock shall be changed
into or exchanged for stock or other securities of any other person or cash or
any other property or the then outstanding shares of Common Stock shall after
such merger or plan of exchange represent less than 50% of the outstanding
shares and share equivalents of the merged or acquiring company, or (3) to sell
or otherwise transfer all or substantially all of its or any Issuer
Subsidiary's assets to any person, other than Grantee or a Grantee Subsidiary,
then, and in each such case, the agreement governing such transaction shall
B-7
<PAGE>
make proper provision 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 the Holder, of either (A) the Acquiring Corporation (as defined
below) or (B) any person that controls the Acquiring Corporation.
(b) The following terms have the meanings indicated:
(1) "Acquiring Corporation" shall mean (A) the continuing or surviving
person of a consolidation or merger with Issuer (if other than Issuer), (B)
the acquiring person in a plan of exchange in which Issuer is acquired, (C)
the Issuer in a merger or plan of exchange in which Issuer is the
continuing or surviving or acquiring person and (D) the transferee of all
or substantially all of Issuer's assets (or the assets of an Issuer
Subsidiary).
(2) "Substitute Common Stock" shall mean the common stock issued by the
issuer of the Substitute Option upon exercise of the Substitute Option.
(3) "Assigned Value" shall mean the market/offer price, as defined in
Section 7(a).
(4) "Average Price" shall mean the average closing or last sale price (as
the case may be) of a share of the Substitute Common Stock for 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 Issuer is the issuer of the Substitute Option, the Average Price
shall be computed with respect to a share of common stock issued by the
person merging into Issuer or by any company which controls or is
controlled by such person, as the Holder may elect.
(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 the Holder. The issuer of the Substitute Option shall also
enter into an agreement with the then Holder or Holders of the Substitute
Option in substantially the same form as this Agreement (after giving effect
for such purpose to the provisions of Section 9), which agreement shall be
applicable to the Substitute Option.
(d) The Substitute Option shall be exercisable for such number of shares of
Substitute Common Stock as is equal to the Assigned Value multiplied by the
number of shares of Common Stock for which the Option was exercisable
immediately prior to the event described in the first sentence of Section 8(a),
divided by the Average Price. The exercise price of the Substitute Option per
share of Substitute Common Stock shall then be equal to the Option Price
multiplied by a fraction, the numerator of which shall be the number of shares
of Common Stock for which the Option was exercisable immediately prior to the
event described in the first sentence of Section 8(a) and the denominator of
which shall be the number of shares of Substitute Common Stock for which the
Substitute Option is exercisable.
(e) In no event, pursuant to any of the foregoing paragraphs, shall the
Substitute Option be exercisable for more than 19.9% 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 shares of Substitute Common Stock outstanding prior to exercise
but for this Section 8(e), the issuer of the Substitute Option (the "Substitute
Option Issuer") shall make a cash payment to Holder equal to the excess of (1)
the value of the Substitute Option without giving effect to the limitation in
this Section 8(e) over (2) the value of the Substitute Option after giving
effect to the limitation in this Section 8(e). This difference in value shall
be determined by a nationally recognized investment banking firm selected by
the Holder and reasonably acceptable to Issuer.
(f) Issuer shall not enter into any transaction described in Section 8(a)
unless the Acquiring Corporation and any person that controls the Acquiring
Corporation assume in writing all the obligations of Issuer hereunder.
B-8
<PAGE>
9. Repurchase of Substitute Option. (a) At the request of the holder of the
Substitute Option (the "Substitute Option Holder"), the Substitute Option
Issuer shall repurchase the Substitute Option from the Substitute Option Holder
at a price (the "Substitute Option Repurchase Price") equal to (x) the amount
by which the Highest Closing Price (as defined below) exceeds the exercise
price of the Substitute Option (y) multiplied by the number of shares of
Substitute Common Stock for which the Substitute Option may then be exercised,
and at the request of the owner (the "Substitute Share Owner") of shares of
Substitute Common Stock (the "Substitute Shares"), the Substitute Option Issuer
shall repurchase the Substitute Shares at a price (the "Substitute Share
Repurchase Price") equal to the Highest Closing Price multiplied by the number
of Substitute Shares so designated. The term "Highest Closing Price" shall mean
the highest closing or last sale price (as the case may be) for shares of
Substitute Common Stock within the six-month period immediately preceding the
date the Substitute Option Holder gives notice of the required repurchase of
the Substitute Option or the Substitute Share Owner gives notice of the
required repurchase of the Substitute Shares, as applicable.
(b) The Substitute Option Holder and the Substitute Share Owner, as the case
may be, may exercise its respective rights to require the Substitute Option
Issuer to repurchase the Substitute Option and the Substitute Shares pursuant
to this Section 9 by surrendering for such purpose to the Substitute Option
Issuer, at its principal office, the agreement for such Substitute Option (or,
in the absence of such an agreement, a copy of this Agreement) and/or
certificates for Substitute Shares accompanied by a written notice or notices
stating that the Substitute Option Holder or the Substitute Share Owner, as the
case may be, elects to require the Substitute Option Issuer to repurchase the
Substitute Option and/or the Substitute Shares in accordance with the
provisions of this Section 9. As promptly as practicable and in any event
within five business days after the surrender of the Substitute Option and/or
certificates representing Substitute Shares and the receipt of such notice or
notices relating thereto, the Substitute Option Issuer shall deliver or cause
to be delivered to the Substitute Option Holder the Substitute Option
Repurchase Price and/or to the Substitute Share Owner the Substitute Share
Repurchase Price therefor or the portion thereof which the Substitute Option
Issuer is not then prohibited under applicable law, regulation and
administrative policy from so delivering.
(c) To the extent that the Substitute Option Issuer is prohibited under
applicable law or regulation, or as a consequence of administrative policy,
from repurchasing the Substitute Option and/or the Substitute Shares in part or
in full, the Substitute Option Issuer shall immediately so notify the
Substitute Option Holder and/or the Substitute Share Owner and thereafter
deliver or cause to be delivered, from time to time, to the Substitute Option
Holder and/or the Substitute Share Owner, as appropriate, the portion of the
Substitute Option Repurchase Price and/or the Substitute Share Repurchase
Price, respectively, which it is no longer prohibited from delivering, within
five business days after the date on which the Substitute Option Issuer is no
longer so prohibited; provided that, if the Substitute Option Issuer is at any
time after delivery of a notice of repurchase pursuant to Section 9(b)
prohibited under applicable law or regulation, or as a consequence of
administrative policy, from delivering to the Substitute Option Holder and/or
the Substitute Share Owner, as appropriate, the Substitute Option Repurchase
Price and the Substitute Share Repurchase Price, respectively, in full (and the
Substitute Option Issuer shall use its reasonable best efforts to receive all
required regulatory and legal approvals as promptly as practicable in order to
accomplish such repurchase), the Substitute Option Holder and/or Substitute
Share Owner may revoke its notice of repurchase of the Substitute Option or the
Substitute Shares either in whole or to the extent of prohibition, whereupon,
in the latter case, the Substitute Option Issuer shall promptly (1) deliver to
the Substitute Option Holder or Substitute Share Owner, as appropriate, that
portion of the Substitute Option Repurchase Price or the Substitute Share
Repurchase Price that the Substitute Option Issuer is not prohibited from
delivering and (2) deliver, as appropriate, either (A) to the Substitute Option
Holder, a new Substitute Option evidencing the right of the Substitute Option
Holder to purchase that number of shares of the Substitute Common Stock
obtained by multiplying the number of shares of the Substitute Common Stock for
which the surrendered Substitute Option was exercisable at the time of delivery
of the notice of repurchase by a fraction, the numerator of which is the
Substitute Option Repurchase Price less the portion thereof theretofore
delivered to the Substitute Option Holder and the denominator of which is the
Substitute Option Repurchase Price, and/or (B) to the Substitute Share Owner, a
certificate for the Substitute Option Shares it is then so prohibited from
repurchasing. If an Exercise Termination Event shall have occurred prior to the
date of the notice by the Substitute Option Issuer described in the first
sentence of this Section 9(c),
B-9
<PAGE>
or shall be scheduled to occur at any time before the expiration of a period
ending on the thirtieth day after such date, the Substitute Option Holder shall
nevertheless have the right to exercise the Substitute Option until the
expiration of such 30-day period.
10. Extension of Time Periods. The time periods for exercise of certain
rights under Sections 2, 6, 7 and 9 shall be extended: (a) to the extent
necessary to obtain all regulatory approvals for the exercise of such rights
(for so long as the Holder, Owner, Substitute Option Holder or Substitute Share
Owner, as the case may be, is using commercially reasonable efforts to obtain
such regulatory approvals), and for the expiration of all statutory waiting
periods, (b) during the pendency of any temporary restraining order, injunction
or other legal bar to exercise of such rights and (c) to the extent necessary
to avoid liability under Section 16(b) of the 1934 Act by reason of such
exercise.
11. Surrender Value. (a) Grantee in its sole discretion may, at any time
during which Issuer would be required to repurchase the Option or any Option
Shares pursuant to Section 7, surrender the Option (together with any Option
Shares issued to and then owned by the Grantee or any affiliate thereof) to
Issuer in exchange for a cash payment equal to the Surrender Price (as defined
herein); provided, however, that Grantee may not exercise its rights pursuant
to this Section 11 if Issuer has previously repurchased the Option (or any
portion thereof) or any Option Shares pursuant to Section 7. The "Surrender
Price" shall be equal to the sum of (1) $5,500,000 and (2) if applicable, the
aggregate purchase price previously paid pursuant hereto by Grantee with
respect to any Option Shares, minus the sum of (3) if applicable, the amount of
the net cash profit, if any, received by Grantee pursuant to the arm's-length
sale of Option Shares (or any other securities into which such Option Shares
were converted or exchanged) to any party not affiliated with Grantee, and (4)
the amount of any Fee paid pursuant to the Merger Agreement.
(b) Grantee may exercise its right to surrender the Option and any Option
Shares pursuant to this Section 11 by surrendering for such purchase to Issuer,
at its principal office, a copy of this Agreement, together with certificates
for Option Shares, if any, accompanied by a written notice stating (1) that
Grantee elects to surrender the Option and Option Shares, if any, in accordance
with the provisions of this Section 11 and (2) the Surrender Price. Within two
business days after the surrender of the Option and the Option Shares, if
applicable, Issuer shall deliver or cause to be delivered to Grantee the
Surrender Price.
(c) To the extent that the Issuer is prohibited under applicable law or
regulation from paying the Surrender Price to Grantee in full, Issuer shall
immediately so notify Grantee and thereafter deliver, or cause to be delivered,
from time to time, to Grantee, that portion of the Surrender Price that Issuer
is not or no longer prohibited from paying, within two business days after the
date on which Issuer is no longer so prohibited; provided, however, that if
Issuer at any time after delivery of a notice of Surrender pursuant to Section
11(b) is prohibited under applicable law or regulation from paying to Grantee
the Surrender Price in full, (1) Issuer shall (A) use its best efforts to
obtain all required regulatory and legal approvals and to file any required
notices as promptly as practicable in order to make such payments, (B) within
two business days of the submission or receipt of any documents relating to any
such regulatory and legal approvals, provide Grantee with copies of the same,
and (C) keep Grantee advised of both the status of any such request for
regulatory and legal approvals and any discussions with any relevant regulatory
or other third party reasonably related to the same, and (2) Grantee may revoke
such notice of surrender by delivery of a notice of revocation, the Exercise
Termination Event shall be extended to a date six months from the date on which
the Exercise Termination Event would have occurred if not for the provisions of
this Section 11(c) (during which period Grantee may exercise any of its rights
hereunder, including any and all rights pursuant to this Section 11).
(d) Grantee shall have rights substantially identical to those set forth in
paragraphs (a), (b) and (c) of this Section 11 with respect to the Substitute
Option and the Substitute Option Issuer during any period in which the
Substitute Option Issuer would be required to repurchase the Substitute Option
pursuant to Section 9.
12. Representations and Warranties. Issuer hereby represents and warrants to
Grantee as follows:
(a) Issuer has full corporate power and authority to execute and deliver
this Agreement and to consummate the transactions contemplated hereby. The
execution and delivery of this Agreement and the
B-10
<PAGE>
Merger Agreement and the consummation of the transactions contemplated
hereby and thereby have been duly and validly authorized by the Issuer
Board prior to the date hereof and no other corporate proceedings on the
part of Issuer are necessary to authorize this Agreement or to consummate
the transactions so contemplated. This Agreement has been duly and validly
executed and delivered by Issuer.
(b) Issuer has taken all necessary corporate action to authorize and to
permit it to issue, that number of shares of Common Stock equal to the
maximum number of shares of Common Stock issuable hereunder, and all such
shares, upon issuance pursuant thereto, will be duly authorized, validly
issued, fully paid, nonassessable, and will be delivered free and clear of
all claims, liens, encumbrances and security interests and not subject to
any preemptive rights.
13. Assignment. Neither of the parties hereto may assign any of its rights or
obligations under this Agreement or the Option created hereunder to any other
person, without the express written consent of the other party, except that in
the event a Preliminary Event or Triggering Event shall have occurred prior to
an Exercise Termination Event, Grantee, subject to the express provisions
hereof, may assign in whole or in part its rights and obligations hereunder
following the date of such Preliminary Event or Triggering Event; provided that
until the date 15 days following the date on which the OTS has approved an
application by Grantee to acquire the shares of Common Stock subject to the
Option, Grantee may not assign its rights under the Option except in (a) a
widely dispersed public distribution, (b) a private placement in which no one
party acquires the right to purchase in excess of 2% of the voting shares of
Issuer, (c) an assignment to a single party (e.g., a broker or investment
banker) for the sole purpose of conducting a widely dispersed public
distribution on Grantee's behalf, or (d) any other manner approved by the OTS.
14. Filings and Consents. Each of Grantee and Issuer will use its reasonable
best efforts to make all filings with, and to obtain consents of, all third
parties and governmental authorities necessary to the consummation of the
transactions contemplated by this Agreement, including, without limitation,
applying to the OTS under the HOLA for approval to acquire the shares issuable
hereunder, but Grantee shall not be obligated to apply to state banking
authorities for approval to acquire the shares of Common Stock issuable
hereunder until such time, if ever, as it deems appropriate to do so.
15. Specific Performance. The parties hereto acknowledge that damages would
be an inadequate remedy for a breach of this Agreement by either party hereto
and that the obligations of the parties hereto shall be enforceable by either
party hereto through injunctive or other equitable relief. In connection
therewith both parties waive the posting of any bond or similar requirement.
16. Severability. If any term, provision, covenant or restriction contained
in this Agreement is held by a court or a federal or state regulatory agency of
competent jurisdiction to be invalid, void or unenforceable, the remainder of
the terms, provisions and covenants and restrictions contained in this
Agreement shall remain in full force and effect, and shall in no way be
affected, impaired or invalidated. If for any reason such court or regulatory
agency determines that the Holder is not permitted to acquire, or Issuer is not
permitted to repurchase pursuant to Section 7, the full number of shares of
Common Stock provided in Section 1 hereof (as adjusted pursuant to Section 5
hereof), it is the express intention of Issuer to allow the Holder to acquire
or to require Issuer to repurchase such lesser number of shares as may be
permissible, without any amendment or modification hereof.
17. Notices. All notices, requests, claims, demands and other communications
hereunder shall be deemed to have been duly given when delivered in person, by
facsimile transmission, or by registered or certified mail (postage prepaid,
return receipt requested) at the respective addresses or numbers of the parties
set forth in the Merger Agreement.
18. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York, without regard to the
conflict of law principles thereof.
19. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed to be an original, but all of which
shall constitute one and the same agreement.
B-11
<PAGE>
20. Expenses. Except as otherwise expressly provided herein, each of the
parties hereto shall bear and pay all costs and expenses incurred by it or on
its behalf in connection with the transactions contemplated hereunder,
including fees and expenses of its own financial consultants, investment
bankers, accountants and counsel.
21. Entire Agreement, Etc. Except as otherwise expressly provided herein or
in the Merger Agreement, this Agreement contains the entire agreement between
the parties with respect to the transactions contemplated hereunder and
supersedes all prior arrangements or understandings in respect thereof, written
or oral. The terms and conditions of this Agreement shall inure to the benefit
of and be binding upon the parties hereto and their respective successors and
permitted assignees. Nothing in this Agreement, expressed or implied, is
intended to confer upon any party, other than the parties hereto, and their
respective successors and assignees, any rights, remedies, obligations or
liabilities under or by reason of this Agreement, except as expressly provided
herein.
* * *
B-12
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed and delivered as of the first date written above.
DIME BANCORP, INC.
/s/ Lawrence J. Toal
By:__________________________________
Name: Lawrence J. Toal
Title: President and Chief
Executive Officer
LAKEVIEW FINANCIAL CORP.
/s/ Kevin J. Coogan
By:__________________________________
Name: Kevin J. Coogan
Title: President and Chief
Executive Officer
B-13
<PAGE>
Appendix C
FORM OF SHAREHOLDER AGREEMENT
SHAREHOLDER AGREEMENT, dated as of December 15, 1998 (this "Agreement"), by
and between DIME BANCORP, INC. (the "Acquiror") and the shareholder of the
Company (the "Company") identified as the signatory hereto (the "Shareholder").
WHEREAS, the Acquiror is prepared to enter into an agreement and plan of
merger with the Company substantially in the form previously provided to
Shareholder (the "Merger Agreement") simultaneously with the execution of this
Agreement;
WHEREAS, the Acquiror would not enter into the Merger Agreement unless the
Shareholder enters into this Agreement;
WHEREAS, each Shareholder will benefit directly and substantially from the
Merger Agreement.
NOW, THEREFORE, in consideration of the Acquiror's entry into the Merger
Agreement, the Shareholder agrees with the Acquiror as follows:
1. The Shareholder represents and warrants that (a) he, she or it owns or
controls (regardless of in what capacity) the number of shares of the Company
set forth on the signature page hereof (the "Owned Shares") free from any lien,
encumbrance or restriction whatsoever and with full power to vote the Owned
Shares without the consent or approval of any other person and (b) this
Agreement constitutes the valid and legally binding obligation of such
Shareholder, enforceable in accordance with its terms. For all purposes of this
Agreement, Owned Shares shall include any shares of the Company as to which
beneficial ownership is acquired after the execution hereof.
2. The Shareholder irrevocably and unconditionally agrees that he, she or it
will (a) vote all of the Owned Shares in favor of the Merger Agreement and the
merger provided for therein (the "Merger") at any meeting or meetings of the
Company's shareholders called to vote upon the Merger Agreement and the Merger
and (b) will not vote such shares (or otherwise provide a proxy or consent with
respect thereto) in favor of any other Acquisition Proposal (as defined in the
Merger Agreement).
3. The Shareholder agrees that he, she or it will not (a) directly or
indirectly, sell, transfer, pledge, assign or otherwise dispose of, or enter
into any contract, option, commitment or other arrangement or understanding
with respect to the sale, transfer, pledge, assignment or other disposition of,
any of the Owned Shares if the effect thereof is to avoid Shareholder's
obligations hereunder and (b) take any action or omit to take any action which
would prohibit, prevent or preclude Shareholder from performing its obligations
under this Agreement.
4. The Shareholder agrees to take all reasonable actions and make such
reasonable efforts to consummate the Merger and effect the other transactions
contemplated by the Merger Agreement; provided that, only insofar as such
Shareholder is doing so in his or her capacity of a director or officer of the
Company, this Section 4 shall not require Shareholder to take any action that
would constitute a failure by Shareholder properly to discharge his or her
fiduciary duties under applicable law.
5. The Shareholder agrees that irreparable damage would occur in the event
that any of the provisions of this Agreement were not performed by it in
accordance with their specific terms or were otherwise breached. It is
accordingly agreed that the Acquiror shall be entitled to an injunction or
injunctions to prevent breaches of this Agreement by the Shareholder to enforce
specifically the terms and provisions hereof in any court of the United States
or any state having jurisdiction, this being in addition to any other remedy to
which it is entitled at law or in equity, and that the Shareholder waives the
posting of any bond or security in connection with any proceeding related
thereto.
C-1
<PAGE>
6. This Agreement may be executed in one or more counterparts, each of which
shall be deemed to constitute an original. This Agreement shall become
effective when one counterpart signature page has been signed by each party
hereto and delivered to the other party (which delivery may be by facsimile).
7. The Shareholder agrees to execute and deliver all such further documents,
certificates and instruments and take all such further reasonable action as may
be necessary or appropriate, in order to consummate the transactions
contemplated hereby.
8. This Agreement shall terminate upon the later to occur of (a) the first
year anniversary of its execution by Shareholder and (b) the date of
termination of the Merger Agreement.
IN WITNESS WHEREOF, the Shareholder and the Acquiror have duly executed this
Agreement as of the date first above written.
DIME BANCORP, INC.
By:__________________________________
Name:
Title:
SHAREHOLDER
__________________________________ or
_____________________________________
By:__________________________________
Name:
Title:
Number of Owned Shares: _____________
C-2
<PAGE>
Appendix D
Sandler O'Neill
March 22, 1999
Board of Directors
Lakeview Financial Corp.
989 McBride Avenue
West Paterson, NJ 07424
Gentlemen:
Lakeview Financial Corp, ("Lakeview") and Dime Bancorp, Inc. ("Dime") have
entered into an Agreement and Plan of Merger, dated as of December 15, 1998
(the "Agreement"), pursuant to which Lakeview will be merged with and into Dime
(the "Merger"). Upon consummation of the Merger, each share of Lakeview common
stock, par value $2.00 per share, issued and outstanding immediately prior to
the Merger (the "Lakeview Shares"), other than certain shares specified in the
Agreement, will be converted into the right to receive, at the election of the
holder thereof, either (a) 0.9 of a share of Dime common stock, par value $.01
per share (together with the rights attached thereto issued pursuant to the
Stockholders Protection Rights Agreement dated as of October 20, 1995 between
Dime and First National Bank of Boston, as Rights Agent), or (b) $24.26 in
cash, subject to the election, allocation and proration procedures set forth in
the Agreement which generally provide, among other things, that 35% of the
aggregate merger consideration will be paid in cash and 65% will be paid in
stock (the "Merger Consideration"). The terms and conditions of the Merger are
more fully set forth in the Agreement. You have requested our opinion as to the
fairness, from a financial point of view, of the Merger Consideration to the
holders of Lakeview Shares.
Sandler O'Neill & Partners, L.P., as part of its investment banking business,
is regularly engaged in the valuation of financial institutions and their
securities in connection with mergers and acquisitions and other corporate
transactions. In connection with this opinion, we have reviewed, among other
things; (i) the Agreement and exhibits thereto; (ii) the Stock Option
Agreement, dated December 15, 1998, by and between Lakeview and Dime; (iii)
certain publicly available financial statements of Lakeview and other
historical financial information provided by Lakeview that we deemed relevant;
(iv) certain publicly available financial statements of Dime and certain other
publicly available historical financial information that we deemed relevant;
(v) certain internal financial analyses and forecasts of Lakeview prepared by
and reviewed with management of Lakeview and the views of senior management of
Lakeview regarding Lakeview's past and current business, operations, results
thereof, financial condition and future prospects; (vi) the pro forma impact of
the Merger; (vii) the publicly reported historical price and trading activity
for Lakeview's and Dime's common stock, including a comparison of certain
financial and stock market information for Lakeview and Dime with similar
publicly available information for certain other companies the securities of
which are publicly traded; (viii) the financial terms of recent business
combinations in the savings institution industry, to the extent publicly
available; (ix) the current market environment generally and the banking
environment in particular; and (x) such other information, financial studies,
analyses and investigations and financial, economic and market criteria as we
considered relevant.
<PAGE>
Board of Directors
Lakeview Financial Corp.
March 22, 1999 Sandler O'Neill
Page 2
In performing our review, we have assumed and relied upon the accuracy and
completeness of all the financial information, analyses and other information
that was publicly available or otherwise furnished to, reviewed by or discussed
with us, and we do not assume any responsibility or liability for independently
verifying the accuracy or completeness thereof. We did not make an independent
evaluation or appraisal of the specific assets, the collateral securing assets
or the liabilities (contingent or otherwise) of Lakeview or Dime or any of
their subsidiaries, or the collectibility of any such assets, nor have we been
furnished with any such evaluations or appraisals. We did not make an
independent evaluation of the adequacy of the allowance for loan losses of
Lakeview or Dime nor have we reviewed any individual credit files relating to
Lakeview or Dime. We have assumed that the respective allowances for loan
losses for both Lakeview and Dime are adequate to cover such losses and will be
adequate on a pro forma basis for the combined entity. With respect to the
financial projections prepared by and reviewed with management, we have assumed
that they have been reasonably prepared on bases reflecting the best currently
available estimates and judgments of management of the future financial
performance of Lakeview and that such performance will be achieved, and we
express no opinion as to such financial projections or the assumptions on which
they are based. We have also assumed that there has been no material change in
Lakeview's or Dime's assets, financial condition, results of operations,
business or prospects since the date of the most recent financial statements
made available to us. We have assumed in all respects material to our analysis
that Lakeview and Dime will remain as going concerns for all periods relevant
to our analyses, that all of the representations and warranties contained in
the Agreement and all related agreements are true and correct, that each party
to such agreements will perform all of the covenants required to be performed
by such party under such agreements, that the conditions precedent in the
Agreement are not waived and that the Merger will qualify as a tax-free
reorganization for federal income tax purposes.
Our opinion is necessarily based on financial, economic, market and other
conditions as in effect on, and the information made available to us as of, the
date hereof. Events occurring after the date hereof could materially affect
this opinion. We have not undertaken to update, revise or reaffirm this opinion
or otherwise comment upon events occurring after the date hereof. We are
expressing no opinion herein as to what the value of Dime common stock will be
when issued to Lakeview's shareholders pursuant to the Agreement or the prices
at which Lakeview's or Dime's common stock will trade at any time.
We have acted as Lakeview's financial advisor in connection with the Merger
and will receive a fee for our services, a significant portion of which is
contingent upon consummation of the Merger. We will also receive a fee for
rendering this opinion.
In the ordinary course of our business as a broker-dealer, we may purchase
securities from and sell securities to Lakeview and Dime. We may also actively
trade the debt and equity securities of Lakeview and Dime 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.
<PAGE>
Board of Directors
Lakeview Financial Corp.
March 22, 1999 Sandler O'Neill
Page 3
Our opinion is directed to the Board of Directors of Lakeview in connection
with its consideration of
the Merger and does not constitute a recommendation to any stockholder of
Lakeview as to how such stockholder should vote at any meeting of stockholders
called to consider and vote upon the Merger.
Our opinion is not to be quoted or referred to, in whole or in part, in a
registration statement, prospectus,
proxy statement or in any other document, nor shall this opinion be used for
any other purposes, without Sandler O'Neill's prior written consent; provided,
however, that we hereby consent to the inclusion of this opinion as an appendix
to Lakeview's and Dime's Proxy Statement/Prospectus dated the date hereof and
to
the references to this opinion therein.
Based upon and subject to the foregoing, it is our opinion, as of the date
hereof, that the Merger Consideration is fair, from a financial point of view,
to the holders of Lakeview Shares.
Very truly yours,
/s/ Sandler O'Neill & Partners, L.P.
<PAGE>
Appendix E
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-------------------------
FORM 10-K/A
(Mark One)
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
|X| EXCHANGE ACT OF 1934
For the fiscal year ended July 31, 1998
--------------------------------------------------
- or -
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
|_| EXCHANGE ACT OF 1934
For the transition period from to
------------------ ---------------------
Commission Number: 0-25106
-------
LAKEVIEW FINANCIAL CORP.
-------------------------------------------------------
(Exact name of Registrant as specified in its Charter)
<TABLE>
<S> <C>
New Jersey 22-3334052
- --------------------------------------------- ------------------
(State or other jurisdiction of incorporation (I.R.S. Employer
or organization) Identification No.)
1117 Main Street, Paterson, New Jersey 07503
- -------------------------------------- -------------------
(Address of principal executive offices) Zip Code
Registrant's telephone number, including area code: (973) 890-1234
-----------------
Securities registered pursuant to Section 12(b) of the Act: None
-----------------
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $2.00 per share
---------------------------------------
(Title of Class)
</TABLE>
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES X NO
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K (ss.229.405 of this chapter) is not contained herein,
and will not be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. [X]
The aggregate market value of the voting stock held by non-affiliates
of the Registrant, based on the closing price of the registrant's Common Stock
on October 13, 1998 was $38.1 million.
As of October 13, 1998 there were issued and outstanding 4,818,478
shares of the Registrant's Common Stock.
DOCUMENTS INCORPORATED BY REFERENCE
1. Portions of Annual Report to Stockholders for the Fiscal Year Ended July
31, 1998. (Parts II and IV)
2. Portions of Proxy Statement for the 1998 Annual Meeting of Stockholders.
(Part III)
<PAGE>
Part I
Lakeview Financial Corporation (the "Company") may from time to time
make written or oral "forward-looking statements", including statements
contained in the Company's filings with the Securities and Exchange Commission
(including this Annual Report on Form 10-K and the exhibits thereto), in its
reports to stockholders and in other communications by the Company, which are
made in good faith by the Company pursuant to the "safe harbor" provisions of
the Private Securities Litigation Reform Act of 1995.
These forward-looking statements involve risks and uncertainties, such
as statements of the Company's plans, objectives, expectations, estimates and
intentions, that are subject to change based on various important factors (some
of which are beyond the Company's control). The following factors, among others,
could cause the Company's financial performance to differ materially from the
plans, objectives, expectations, estimates and intentions expressed in such
forward-looking statements: the strength of the United States economy in general
and the strength of the local economies in which the Company conducts
operations; the effects of, and changes in, trade, monetary and fiscal policies
and laws, including interest rate policies of the board of governors of the
federal reserve system, inflation, interest rates, market and monetary
fluctuations; the timely development of and acceptance of new products and
services of the Company and the perceived overall value of these products and
services by users, including the features, pricing and quality compared to
competitors' products and services; the willingness of users to substitute
competitors' products and services for the Company's products and services; the
success of the Company in gaining regulatory approval of its products and
services, when required; the impact of changes in financial services' laws and
regulations (including laws concerning taxes, banking, securities and
insurance); technological changes, acquisitions; changes in consumer spending
and saving habits; and the success of the Company at managing the risks
resulting from these factors.
The Company cautions that the listed factors are not exclusive. The
Company does not undertake to update any forward-looking statement, whether
written or oral, that may be made from time to time by or on behalf of the
Company.
Item 1. Business
- -----------------
General
The Company, a New Jersey Corporation, is a unitary savings and loan
holding company. The principal asset of the Company consists of 100% of the
issued and outstanding shares of common stock of Lakeview Savings Bank
("Lakeview" or the "Savings Bank"). On February 27, 1998, the Company acquired
Westwood Financial Corporation ("Westwood"), the holding company of Westwood
Savings Bank ("Westwood Bank"), Westwood, New Jersey. With the completion of the
Westwood Acquisition, the Company added two additional Bergen County branches
and three additional ATM's, bringing the total branch network to ten branches
and nine ATM's. In September 1998, the Company's eleventh branch office was
opened in Fairview, Bergen County, New Jersey.
The principal business of the Savings Bank is the acceptance of savings
deposits from the general public and the origination and purchase of mortgage
loans for the purpose of constructing, financing or refinancing one- to four
family residences and the purchase of mortgage-backed securities. The Savings
Bank also originates home equity loans.
<PAGE>
On October 8, 1998, the Company announced that the Company's Board of
Directors has been evaluating strategic alternatives in order to maximize
shareholder value. Included in the Company strategic alternatives is a possible
sale of the Company; however, at this time, it is not possible to determine
whether the Company will receive any expressions of interest or, if so, whether
any such expressions of interest will be acceptable or result in the Company
entering into negotiations with any potential acquirer. The Company has retained
Sandler O'Neill & Partners, L.P. to assist in its evaluation of its
alternatives. As a matter of policy, the Company does not intend to comment
publicly concerning any proposals that may be received or any possible
negotiations the Company may enter into in connection with any such proposals
until the Company determines that public disclosure would be appropriate.
Competition
The Savings Bank's primary market area consists of Bergen and Passaic
counties in northern New Jersey, and is one of many financial institutions
serving this market area. The competition for deposit products comes from other
insured financial institutions such as commercial banks, thrift institutions and
credit unions in the Savings Bank's market area. Deposit competition also
includes a number of insurance products sold by local agents and investment
products such as mutual funds and other securities sold by local and regional
brokers. Loan competition comes from other insured financial institutions such
as commercial banks, thrift institutions and credit unions.
2
<PAGE>
Lending Activities
Loan Portfolio Data. The following table sets forth the composition of
the Savings Bank's loan portfolio by loan type and security type as of the dates
indicated, including a reconciliation of gross loans receivable after
consideration of the allowance for loan losses, loans in process, and deferred
loan origination fees and costs.
<TABLE>
<CAPTION>
1994 1995 1996 1997 1998
------------------ ------------------- ---------------- ----------------- -------------------
$ % $ % $ % $ % $ %
--- --- --- --- --- --- --- --- --- ---
(Dollars in thousands)
TYPE OF LOAN:
Real Estate Loans:
Construction loans:
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Residential (1-4 family)..........$ 190 .13% $ 915 .63% $ 863 .52% $ -- --% $ 300 .10%
Multi-family/commercial........... 550 .40 -- -- -- -- 377 .16 1,797 .61
-------- ---- ------- ------ ------- ------ ------- ------- ------ -----
Total construction loans.......... 740 .53 915 .63 863 .52 377 .16 2,097 .71
Residential (1-4 family)............ 79,383 57.33 84,051 57.81 84,006 50.35 82,647 36.22 99,184 33.97
Multi-family/Commercial............. 20,879 15.08 22,186 15.26 33,063 19.81 68,192 29.89 79,386 27.19
Commercial loans.................... -- -- -- -- 697 .42 8,982 3.94 14,186 4.86
Home equity, second mortgage and
home improvement loans........ 36,223 26.16 37,221 25.60 46,705 27.99 66,057 28.95 93,633 32.07
Consumer Loans:
Passbook account loans.............. 1,242 .90 1,022 .70 1,517 .91 1,914 .84 3,508 1.20
Student loans....................... 6 -- 1 -- -- -- -- -- -- --
-------- ------ ------- ------ -------- ------ ------- ------- --------- ------
Total loans.........................$138,473 100.00% $145,396 100.00% $166,851 100.00% $228,169 100.00% $291,994 100.00%
======= ====== ======= ====== ======= ====== ======= ====== ======= ======
TYPE OF SECURITY:
Real Estate Loans
1-4 family..........................$116,346 84.02% $119,885 82.46% $124,467 74.60% $133,852 58.66% $174,191 59.66%
Multi-Family/Commercial............... 20,879 15.08 24,488 16.84 40,170 24.07 83,421 36.56 100,109 34.28
Consumer Loans:
Passbook accounts................... 1,242 .90 1,022 .70 1,517 .91 1,914 .84 3,508 1.20
Student loans....................... 6 -- 1 -- -- -- -- -- -- --
Commercial loans...................... -- -- -- -- 697 .42 8,982 3.94 14,186 4.86
-------- ------- -------- ------ ------- ------ ------- ------- ------ ------
Total loans.........................$138,473 100.00% $145,396 100.00% $166,851 100.00% $228,169 100.00% $291,994 100.00%
======= ======= ======= ====== ======= ====== ======= ====== ======= ======
</TABLE>
3
<PAGE>
One- to Four Family Mortgage Loans. The Savings Bank offers first
mortgage loans secured by one- to four family residences in the Savings Bank's
market area. Typically, such residences are single family homes that serve as
the primary residence of the owner. Additionally, this loan category includes a
relatively small amount of loans collateralized by mixed use properties which
are primarily residential, but have some commercial use as well. The Savings
Bank currently offers 15 and 30 year fixed-rate mortgage loans, 15 year balloon
mortgage loans with five to seven year maturities, and adjustable rate mortgage
("ARM") loans with one, three or five year adjustment periods and 15 to 30 year
maturities. The Savings Bank retains ARM loans, 15 year fixed-rate mortgages and
balloon mortgage loans. Fixed-rate loans with more than 15 year maturities are
sold in the secondary market.
Monthly payments on balloon loans are based on a 15 year amortization
schedule. Renewal of balloon mortgage loans is based on the credit history as
well as the current qualification of the borrower at time of renewal. The
Savings Bank offers balloon mortgages in an effort to make its mortgage loan
portfolio more interest rate sensitive. Interest rates charged on fixed-rate
loans are competitively priced based on the local competitive market. Loan
origination fees on these loans are generally up to 2% of the loan amount
depending on the interest rate accepted by the borrower.
Balloon loans pose a different credit risk from 15 year mortgage loans.
The balloon loans mature in five to seven years but payments are based on a
fifteen year amortization schedule. At the time of the loan's maturity, the
borrower must either pay the balloon payment or refinance the loan. If the
borrower is ineligible for refinancing at the time of loan maturity and cannot
make the large balloon payment, the loan will go into default. In the case of
standard mortgage loans, payments are spread out evenly over the term of the
loan, thereby decreasing this credit risk.
The Savings Bank currently offers ARM loans with interest rates that
adjust every one, three or five years with a maximum rate increase cap of 2% per
year, and a lifetime cap of 6%. The interest rate on these mortgages since 1985
has been the U.S. Treasury bill rate plus 3%. As of July 31, 1998, one year,
three year, and five year ARM loans totaled $34.0 million or 34.2% of the one-
to four family portfolio. ARM loans are originated for a term of up to 30 years.
The Savings Bank originates one- to four family residential mortgage loans in
amounts up to 80% of the appraised value of the mortgaged property. The Savings
Bank retains the ARM loans it originates for its loan portfolio.
Generally, ARM loans pose credit risks different than the risks
inherent in fixed-rate loans, primarily because as interest rates rise, the
underlying payments of the borrower rise, thereby increasing the potential for
default. At the same time, the marketability of the underlying property may be
adversely affected by higher interest rates. The Savings Bank attempts to reduce
this credit risk by qualifying ARM loan borrowers based on the first full
interest rate adjustment. The Savings Bank does not originate ARM loans which
provide for negative amortization.
The Savings Bank also offers 15 year fixed-rate mortgage loans.
Interest rates charged on fixed-rate loans are competitively priced based on the
Federal Home Loan Mortgage Corporation ("FHLMC") buy rates. Loan origination
fees on these loans are generally 2% of the loan amount. The Savings Bank
retains these 15 year mortgage loans for its loan portfolio.
4
<PAGE>
Multi-Family and Commercial Real Estate. The Savings Bank originates
multi-family real estate loans usually secured by property located in the
Savings Bank's primary market area. The Savings Bank's commercial real estate
loans are secured by such property as mixed use and office buildings, small
retail stores and industrial buildings. The Savings Bank's multi-family and
commercial real estate loans are five or seven year balloon mortgages with
amortization periods typically of 15 years and loan to value ratios of 80% or
less.
Multi-family and commercial real estate may entail significant
additional credit risks compared to one- to four family residential lending.
Commercial and multi-family real estate mortgage loans may involve large loan
balances to single borrowers or groups of related borrowers. In addition, the
payment experience on loans secured by income producing properties is typically
dependent on the successful operation of the properties and thus may be subject
to a greater extent to adverse conditions in the real estate market or in the
general economy.
Home Equity, Second Mortgage and Home Improvement Loans. The Savings
Bank originates home equity, second mortgage and home improvement loans secured
by one-family residences. These loans generally are originated as adjustable
rate loans which adjust monthly and have terms of from 15 to 30 years. No loan
origination fee is usually charged on these loans. Loans made on owner-occupied,
one-family residences are generally subject to a 70% combined loan-to-value
limitation, including any other outstanding mortgages or liens, and are made at
an adjustable rate of 185 points over the prime rate. Loans on non-owner
occupied properties are limited to a 65% loan to value ratio, and are made at an
adjustable rate of 210 points over the prime rate.
Commercial Loans. On January 12, 1996, the Savings Bank granted to Industry
Mortgage Company ("IMC") a line of credit for $7 million with an interest rate
of 10%. At July 31, 1998, $ 6.8 million was outstanding. To date, such loan is
not in compliance with the Savings Bank's loans to one borrower limit. In
addition, the Company has a 5.40% investment in IMC. See "-- Loans to One
Borrower."
5
<PAGE>
Loan Maturity Table
The following table sets forth the maturity of the Savings Bank's loan
portfolio at July 31, 1998. The table does not include prepayments or scheduled
principal repayments. Prepayments and scheduled principal repayments on loans
totaled $42.0 million during the year ended July 31, 1998. Adjustable-rate
mortgage loans are shown as maturing based on contractual maturities.
<TABLE>
<CAPTION>
Home Equity,
Multi-Family Second Mortgage
1-4 Family and and Home
Real Estate Commercial Improvement Commercial
Mortgage Real Estate(2) Loans(1) Loans Total
-------- -------------- -------- ----- -----
(In thousands)
Amounts Due:
<S> <C> <C> <C> <C> <C>
Within 3 months............... $ 842 $ 2,123 $ 5,625 $ 1,351 $ 9,941
3 months to 1 Year............ 1,275 1,671 4,793 8,910 16,649
------ ------ ------ ------ -------
2,117 3,794 10,418 10,261 26,590
After 1 year:
1 to 3 years................ 6,228 3,771 5,981 1,525 17,505
3 to 5 years................ 6,009 9,144 22,488 2,400 40,041
5 to 10 years............... 19,965 18,581 20,810 - 59,356
10 to 20 years.............. 38,896 41,094 37,144 - 117,134
Over 20 years............... 25,969 5,099 300 - 31,368
------ ------ ------ ------- -------
Total due after one year...... 97,067 77,689 86,723 3,925 265,404
------ ------ ------ ------ -------
Total amount due.............. $99,184 $81,483 $97,141 $14,186 $291,994
====== ====== ====== ====== =======
</TABLE>
- ----------------------------
(1) Also includes passbook and student loans.
(2) Also includes construction loans.
The following table sets forth the dollar amount of all loans due after
July 31, 1999, which have pre-determined interest rates and which have floating
or adjustable interest rates.
<TABLE>
<CAPTION>
Floating or
Fixed Rates Adjustable Rates Total
----------- ---------------- -----
(In thousands)
<S> <C> <C> <C>
One-to four family..................... $ 63,584 $ 33,783 $ 97,367
Multi-family and commercial real estate 21,138 56,251 77,389
Home equity, second mortgage and
home improvement loans............... 56,217 30,506 86,723
Commercial loans....................... - 3,925 3,925
-------- ------- -------
Total................................ $140,939 $124,465 $265,404
======= ======= =======
</TABLE>
6
<PAGE>
Loan Approval Authority and Underwriting. Upon receipt of any loan
application from a prospective borrower, a credit report and verifications are
ordered to confirm specific information relating to the loan applicant's
employment, income and credit standing. An appraisal of the real estate intended
to secure a first mortgage proposed loan is undertaken by an independent fee
appraiser approved by the Board of Directors. In connection with the loan
approval process, the Savings Bank's loan officers analyze the loan applications
and the property involved. All loans are processed at the Savings Bank's office
by the Savings Bank's loan servicing department. The Savings Bank originates
residential first mortgage loans that conform to the FHLMC and Federal National
Mortgage Association ("FNMA") guidelines, so that such loans can be sold if the
Savings Bank desires to do so.
All mortgage loans are underwritten under guidelines and policies
issued by the Board of Directors. The Savings Bank's Loan Committee reviews all
loans and the full Board of Directors then ratifies the actions of the staff and
committee in regard to all loans except consumer loans and passbook loans. Fixed
rate loans with terms of 30 years are immediately sold after funding to FHLMC or
other private secondary mortgage market purchasers depending on the
attractiveness of the pricing.
Loan applicants are promptly notified of the decision of the Savings
Bank by a letter setting forth the terms and conditions of the decision. If
approved, these terms and conditions include the amount of the loan, interest
rate basis, amortization term, a brief description of real estate to be
mortgaged to the Savings Bank, and the notice of requirement of insurance
coverage to be maintained to protect the Savings Bank's interest. The Savings
Bank requires title, fire and casualty insurance for all first mortgage loans,
as well as an escrow account for the payment of real estate taxes. Disability
insurance is available but not required.
Loan Commitments. The Savings Bank generally grants commitments to fund
real estate mortgage loans for periods of up to 90 days at a specified term and
interest rate. These are primarily for fixed-rate loans. The total amount of the
Savings Bank's commitments to originate loans as of July 31, 1998 was $5.3
million.
Loans to One Borrower. Regulations limit loans-to-one borrowers in an
amount equal to 15% of unimpaired capital and unimpaired surplus on an unsecured
basis and an additional amount equal to 10% of unimpaired capital and unimpaired
surplus if the loan is secured by readily marketable collateral. At July 31,
1998, the Savings Bank's maximum loan-to-one borrower limit was $5.4 million and
its largest loans to one borrower relationship was a commercial line of credit
(the "IMC line of credit") with $6.8 million outstanding. The second largest
loans to one borrower relationships are aggregated loans of $5.5 million
outstanding, secured by multi-family properties in Englewood Cliffs and
Glenrock, New Jersey. Such loans were in compliance with regulations applicable
at the time the loans were originated. The Savings Bank is currently in the
process of remedying such non-compliance. Both loans are performing in
accordance with contractual terms.
Non-Performing Loans and Asset Classification. The Savings Bank's
collection policy provides for a late charge to be added to the amount due when
a loan is 15 days past due. The borrower is immediately notified of the
assessment and payment is requested. Periodic contacts are made at 30 day
intervals. At 60 days past due, a letter is sent by the Savings Bank's attorney.
At 120 days, the attorney is authorized to take final action up to initiation of
foreclosure proceedings, if deemed warranted.
7
<PAGE>
Loans are reviewed on a monthly basis and are placed on a non-accrual
status when, in the opinion of management, the collection of additional interest
is doubtful. Loans are placed on a non-accrual status when either principal or
interest is 90 days or more past due. Interest accrued and unpaid at the time a
loan is placed on non-accrual status is charged against interest income.
Subsequent payments are either applied to the outstanding principal balance or
recorded as interest income, depending on the assessment of the ultimate
collectibility of the loan.
The following table sets forth information with respect to the Savings
Bank's non-performing assets for the periods indicated. During the periods
indicated the Savings Bank had no restructured loans within the meaning of
Statement of Financial Accounting Standards No. 15 ("SFAS 15").
<TABLE>
<CAPTION>
At July 31,
-----------------------------------------------------------------------
1994 1995 1996 1997 1998
---- ---- ---- ---- ----
(Dollars In thousands)
<S> <C> <C> <C> <C> <C>
Loans accounted for on a non-accrual basis:
Mortgage loans:
Permanent loans secured by 1-4 family
dwelling units(1)........................ $ 8,362 $ 3,143 $ 2,316 $ 3,007 $ 1,884
All other mortgage loans................... 566 229 101 804 910
--------- --------- --------- ---------- ----------
Total........................................ $ 8,928 $ 3,372 $ 2,417 $ 3,811 $ 2,794
======== ======== ======== ========= =========
Real estate owned (net of allowance)......... $ 3,762 $ 3,608 $ 1,667 $ 1,929 $ 505
======== ======== ======== ========= =========
Other non-performing assets.................. $ -- $ 850 $ 494 $ -- $ --
======== ======== ======== ========= =========
Total non-performing assets.................. $ 12,690 $ 7,830 $ 4,578 $ 5,740 $ 3,299
======== ======== ======== ========= =========
Total non-performing loans to
net loans.................................. 6.56% 2.37% 1.48% 1.70% .97%
==== ==== ==== ==== ====
Total non-performing loans to
total assets............................... 2.16% .80% .53% .75% .47%
==== ==== ==== ==== ====
Total non-performing assets to total assets.. 3.07% 1.87% 1.00% 1.13% .56%
==== ==== ==== ==== ====
</TABLE>
- ------------------------
(1) Includes home equity, home improvement and second mortgage loans.
Management of the Savings Bank regularly reviews the loan portfolio in
order to identify potential problem loans, and classifies any potential problem
loan as a special mention, substandard, doubtful, or loss asset according to the
Department classification of asset regulations. The Savings Bank does not accrue
interest on any loan that is 90 days or more delinquent. Potential problem loans
that have not been recorded as non-accrual loans as of July 31, 1998, totalled
$5.5 million, or .93% of total assets. These loans are accruing but classified
by the Savings Bank as substandard.
For the year ended July 31, 1998, interest income amounting to
approximately $242,000, would have been recognized if interest on loans 90 days
or more in arrears had been recorded based on original contract terms.
8
<PAGE>
Classified Assets. OTS regulations provide for a classification system
for problem assets of insured institutions. Under this classification system,
problem assets of insured institutions are classified as "substandard,"
"doubtful," or "loss." An asset is considered substandard if it is inadequately
protected by the current net worth and paying capacity of the obligor or of the
collateral pledged, if any. Substandard assets include those characterized by
the "distinct possibility" that the insured institution will sustain "some loss"
if the deficiencies are not corrected. Assets classified as doubtful have all of
the weaknesses inherent in those classified as substandard, with the added
characteristic that the weaknesses present make "collection or liquidation in
full," on the basis of currently existing facts, conditions, and values, "highly
questionable and improbable." Assets classified as loss are those considered
"uncollectible" and of such little value that their continuance as assets
without the establishment of a specific loss reserve is not warranted. Assets
may be designated "special mention" because of potential weakness that does not
currently warrant classification in one of the aforementioned categories.
When an insured institution classifies problem assets as either
substandard or doubtful, it may establish general allowances for loan losses in
an amount deemed prudent by management. General allowances represent loss
allowances which have been established to recognize the inherent risk associated
with lending activities, but which, unlike specific allowances, have not been
allocated to particular problem assets. When an insured institution classifies
problem assets as loss, it is required either to establish a specific allowance
for losses equal to 100% of that portion of the asset so classified or to charge
off such amount. An institution's determination as to the classification of its
assets and the amount of its valuation allowances is subject to review by the
OTS, which may order the establishment of additional general or specific loss
allowances. A portion of general loss allowances established to cover possible
losses related to assets classified as substandard or doubtful may be included
in determining an institution's regulatory capital, while specific valuation
allowances for loan losses generally do not qualify as regulatory capital.
In accordance with its classification of assets policy, the Savings
Bank regularly reviews the problem assets in its portfolio to determine whether
any assets require classification in accordance with applicable regulations. At
July 31, 1998, the Savings Bank had classified $686,000 as special mention, $7.4
million as substandard, $678,000 as doubtful, and $38,000 as loss.
Mortgage Loans Purchased from Capital Resources. At July 31, 1998, the
Savings Bank had approximately $2.7 million of residential real estate second
mortgage loans that were acquired from Capital Resources, a now defunct mortgage
company. Of this total amount, $643,000 was classified as non-accrual loans and
$2.0 million was classified as performing loans. However, based upon
management's review, $640,000 of these performing loans were considered
potential problem loans. At July 31, 1998, the Savings Bank allocated $934,000
of the loan loss allowance to the mortgage loans purchased from Capital
Resources.
Real Estate Owned. Real estate acquired by the Savings Bank as a result
of foreclosure or by deed in lieu of foreclosure is classified as real estate
owned until it is sold. Real estate acquired in settlement of loans is initially
recorded at fair value at the date of foreclosure establishing a new cost basis.
After foreclosure, valuations are periodically performed by management and the
real estate is carried at the lower of cost or fair value, minus estimated cost
to sell.
9
<PAGE>
Allowances for Loan Losses. It is management's policy to provide for
losses on unidentified loans in its loan portfolio. A provision for loan losses
is charged to operations based on management's evaluation of the potential
losses that may be incurred in the Savings Bank's loan portfolio. Such
evaluation, which includes a review of all loans of which full collectibility of
interest and principal may not be reasonably assured, considers the Savings
Bank's past loan loss experience, known and inherent risks in the portfolio,
adverse situations that may affect the borrower's ability to repay, estimated
value of any underlying collateral, and current economic conditions.
The following table sets forth the allocation of the Savings Bank's
allowance for loan losses by loan category and the percent of loans in each
category to total loans receivable at the dates indicated. The portion of the
loan loss allowance allocated to each loan category does not represent the total
available for future losses that may occur within the loan category because the
total loan loss allowance is a valuation reserve applicable to the entire loan
portfolio.
10
<PAGE>
Analysis of the Allowances for Losses on Loans and Real Estate Owned
The following tables set forth information with respect to the Savings
Bank's allowance for loan losses and REO at the dates indicated:
<TABLE>
<CAPTION>
At or for the year ended July 31,
--------------------------------------------------------------------------
1994 1995 1996 1997 1998
---- ---- ---- ---- ----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Total loans outstanding, net of allowance............ $136,143 $142,123 $163,457 $224,564 $286,869
======= ======= ======= ======= =======
Average loans outstanding............................ $136,165 $139,442 $155,497 $192,822 $252,935
======= ======= ======= ======= =======
Allowance balance (at beginning of
period)............................................ $ 2,638 $ 1,714 $ 2,535 $ 3,073 $ 3,411
Acquired from Westwood............................... -- -- -- -- 428
Provision (credit):
Residential........................................ 1,842 1,493 384 361 800
Commercial real estate............................. (77) (145) 278 500 550
Consumer........................................... 282 28 2 -- --
Commercial......................................... -- -- -- 100 150
Charge-offs:
Residential........................................ (3,069) (1,381) (418) (610) (614)
Commercial real estate............................. -- -- -- (89) (373)
Consumer........................................... (1) (24) (11) -- --
Recoveries:
Residential........................................ 99 850 303 76 126
------- ------- ------- ------- --------
Allowance balance (at end of period)................. $ 1,714 $ 2,535 $ 3,073 $ 3,411 $ 4,478
======= ======= ======= ======= ========
Allowance for loan losses as a percent
of total loans outstanding, net.................... 1.26% 1.78% 1.88% 1.52% 1.56%
Net loans charged off as a percent of
average loans outstanding.......................... 2.18% .40% .08% .32% .34%
</TABLE>
<TABLE>
<CAPTION>
At or for the year ended July 31,
-------------------------------------------------------------------------
1994 1995 1996 1997 1998
---- ----- ---- ---- ----
(In thousands)
<S> <C> <C> <C> <C> <C>
Total real estate owned, net of allowance........ $ 3,762 $3,608 $1,667 $1,929 $ 505
====== ===== ===== ===== =====
Allowance balance - beginning.................... $ 823 $ 188 $ -- $ -- $ --
Provision........................................ 713 502 654 44 58
Net charge-offs.................................. (1,348) (690) (654) (44) (58)
------ ----- ------ ------ -----
Allowance balance - ending....................... $ 188 $ -- $ -- $ -- $ --
====== ===== ====== ====== =====
</TABLE>
11
<PAGE>
Analysis of the Allowance for Loan Losses
The following table sets forth the allocation of the allowance by
category, which management believes can be allocated only on an approximate
basis. The allocation of the allowance to each category is not necessarily
indicative of future loss and does not restrict the use of the allowance to
absorb losses in any category:
<TABLE>
<CAPTION>
At July 31,
--------------------------------------------------------------------------------------------
1994 1995 1996 1997 1998
------------------ ----------------- ----------------- ----------------- -----------------
Percent of Percent of Percent of Percent of Percent of
Loans in Loans in Loans in Loans in Loans in
Category Category Category Category Category
to Total to Total to Total to Total to Total
Amount Loans Amount Loans Amount Loans Amount Loans Amount Loans
------ ------- ------ -------- ------ ------ ------- ------- ------ -------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Residential(1)........................ $1,458 84.02% $2,420 82.46% $2,689 74.60% $2,681 58.66% $2,880 59.66%
Multi-family/Commercial real estate... 250 15.08 106 16.84 384 24.07 630 36.56 1,348 34.28
Consumer.............................. 6 .90 9 .70 -- .91 -- .84 -- 1.20
Commercial............................ -- -- -- -- -- .42 100 3.94 250 4.86
------- ------ ------ ------ ------ ------ ------ ------ ------ ------
$1,714 100.00% $2,535 100.00% $3,073 100.00% $3,411 100.00% $4,478 100.00%
===== ====== ===== ====== ===== ====== ===== ====== ===== ======
</TABLE>
(1) Includes residential construction, home equity, second mortgage and home
improvement loans.
12
<PAGE>
Investment Activities and Mortgage-Backed Securities
General. Income from investment securities provides a significant
source of income for the Savings Bank. The Savings Bank maintains a portfolio of
investment securities such as U.S. government and agency securities,
non-governmental securities, and interest-bearing deposits, in addition to the
Savings Bank's mortgage-backed securities held to maturity portfolio. The amount
of short-term investments reflects management's response to the significantly
increasing percentage of savings deposits with short maturities. It is the
intention of management to maintain shorter maturities in the Savings Bank's
investment portfolio in order to better match the interest rate sensitivities of
its assets and liabilities. However, during periods of rapidly declining
interest rates, such investments also decline at a faster rate than does the
yield on long-term investments.
Investment decisions are made within policy guidelines established by
the Board of Directors. The investment policy of the Savings Bank established by
the Board of Directors is based on its asset/liability management goals. The
intent of the policy is to establish a portfolio of high quality, diversified
investments in order to optimize net interest income within acceptable limits of
safety and liquidity.
Purchases of securities other than equity securities are generally made
with the intent of holding them to maturity. Currently, the policy is to invest
in instruments with an expected average life of five to ten years, to be held to
maturity. Investments and mortgage-backed securities held to maturity are
recorded at amortized cost. Premiums are amortized and discounts accreted on a
level yield method over the life of the investment.
The Savings Bank maintains a portfolio of investments available for
sale and trading to enhance total return on investments and reduce interest rate
and credit risk. These investments are accounted at market value. The Savings
Bank's Investment Policy designates what securities may be maintained in this
portfolio. The Savings Bank's trading portfolio is comprised of U.S. agency
securities. As of July 31, 1998, there were no trading securities outstanding
and the available for sale portfolio was comprised of mortgage-backed
securities, U.S. agency securities, and equity securities.
Mortgage-Backed Securities. The Savings Bank's mortgage-backed
securities, or pass-through certificates, represent a participation interest in
a pool of single-family mortgages, the principal and interest payments on which
are passed from the mortgage originators, through intermediaries (generally
quasi-governmental agencies) that pool and repackage the participation interest
in the form of securities, to investors such as the Savings Bank. Such
quasi-governmental agencies that guarantee the payment of principal and interest
to investors include the FHLMC, Government National Mortgage Association
("GNMA"), or the Federal National Mortgage Association ("FNMA"). Pass-through
certificates typically are issued with stated principal amounts, and the
securities are backed by pools of mortgages that have loans with interest rates
and maturities that are within a specified range. The underlying pool of
mortgages can be composed of either fixed rate mortgage loans or ARM loans.
Mortgage-backed securities are generally referred to as mortgage participation
certificates or pass-through certificates. As a result, the interest rate risk
characteristics of the underlying pool of mortgages, (i.e., fixed rate or
adjustable rate) as well as prepayment risk, are passed on to the certificate
holder. The life of a mortgage-backed pass-through security is equal to the life
of the underlying mortgages. Mortgage-backed securities issued by FHLMC, FNMA
and GNMA make up a majority of the pass-through market. Generally, the Savings
Bank purchases mortgage-backed securities guaranteed by GNMA and FNMA and
participation certificates issued by the FHLMC. GNMA mortgage-backed securities
are certificates issued
13
<PAGE>
and backed by the GNMA and are secured by interests in pools of mortgages which
are fully insured by the Federal Housing Administration ("FHA") or partially
guaranteed by the Veterans' Administration ("VA"). FHLMC mortgage-backed
securities are participation certificates issued and guaranteed by the FHLMC and
secured by interests in pools of conventional mortgages originated by savings
associations.
Mortgage-backed securities provide for monthly payments of principal
and interest and generally have contractual maturities ranging from five to
thirty years. However, due to expected repayment terms being significantly less
than the underlying mortgage loan pool contractual maturities, the estimated
lives of these securities could be significantly shorter.
The Savings Bank also purchases mortgage-backed securities and
collateralized mortgage obligations ("CMOs") issued by government agencies,
private issuers and financial institutions, some of which are qualified under
the Internal Revenue Code of 1986, as amended (the "Code"), as Real Estate
Mortgage Investment Conduits ("REMICs"). CMOs and REMICs (collectively CMOs)
have been developed in response to investor concerns regarding the uncertainty
of cash flows associated with the prepayment option of the underlying mortgagor
and are typically issued by governmental agencies, governmental sponsored
enterprises and special purpose entities, such as trusts, corporations or
partnerships, established by financial institutions or other similar
institutions. Some CMO instruments are most like traditional debt instruments
because they have stated principal amounts and traditionally defined
interest-rate terms. Purchasers of certain other CMO instruments are entitled to
the excess, if any, of the issuer's cash inflows, including reinvestment
earnings, over the cash outflows for debt service and administrative expenses.
These mortgage related instruments may include instruments designated as
residual interests, which represent an equity ownership interest in the
underlying collateral, subject to the first lien of the investors in the other
classes of the CMO. Certain residual CMO interests may be riskier than many
regular CMO interests to the extent that they could result in the loss of a
portion of the original investment. Moreover, cash flows from residual interests
are very sensitive to prepayments and, thus, contain a high degree of
interest-rate risk.
At July 31, 1998, the Savings Bank's investment in CMOs did not include
any residual interests or interest-only or principal-only securities. As a
matter of policy, the Savings Bank does not invest in residual interests of CMOs
or interest-only and principal-only securities. The CMOs held by the Savings
Bank at July 31, 1998 consisted of floating rate and fixed rate tranches. The
interest rate of a majority of the Savings Bank's floating-rate securities
adjusts monthly and provides the institution with net interest margin protection
in an increasing market interest rate environment. The securities are backed by
mortgages on one-to-four family residential real estate and have contractual
maturities up to 30 years. The securities are primarily PACs and TACs (Planned
and Targeted Amortization Classes) and are designed to provide a specific
principal and interest cash-flow.
Private issued CMOs tend to have greater prepayment and credit risk
than those issued by government agencies or government sponsored enterprises
(e.g., FHLMC, FNMA, and GNMA) generally because they often are secured by jumbo
loans (i.e., loans with aggregate outstanding balances above the limit for
purchases by FHLMC or FNMA). At July 31, 1998, the Savings Bank had CMOs with an
aggregate carrying amount (including discounts and premiums) of $43.4 million,
of which $8.6 million, or 19.8% were privately issued. To minimize the risk of
private issued CMOs, the Savings Bank only purchases those CMOs rated AA or
better by one of the rating agencies.
Mortgage-backed securities generally yield less than the loans which
underlie such securities because of their payment guarantees or credit
enhancements which offer nominal credit risk. In addition,
14
<PAGE>
mortgage-backed and related securities are more liquid than individual mortgage
loans and may be used to collateralize borrowings of the Savings Bank in the
event that the Savings Bank determined to utilize borrowings as a source of
funds. Mortgage-backed securities issued or guaranteed by the GNMA, FNMA or the
FHLMC (except interest-only securities or the residual interests in CMOs) are
weighted at no more than 20.0% for risk-based capital purposes, compared to a
weight of 50.0% to 100.0% for residential loans.
Investment Portfolio
The following table sets forth the carrying value of the Company's
investment portfolio, short-term investments, and Federal Home Loan Bank
("FHLB") stock at the dates indicated. At July 31, 1998, the market value of the
investment securities that are held to maturity was $83.1 million and the market
value of investment securities available for sale was $37.9 million, with a cost
basis of $29.6 million.
<TABLE>
<CAPTION>
At July 31,
-------------------------------------------------------------------------
1994 1995 1996 1997 1998
------ ------ ------ ------ ------
(In thousands)
<S> <C> <C> <C> <C> <C>
Investment Securities:
U.S. agency securities available for sale(1).. $ -- $ -- $ 58,045 $ 48,781 $ 2,995
U.S. agency securities held to maturity....... 61,662 55,738 40,821 42,682 81,965
Mortgage-backed securities held to
maturity..................................... 173,067 175,375 121,462 102,249 101,771
Equity securities available for sale(1)....... 11,269 8,567 12,601 41,846 21,862
Municipal bonds available for sale(1)......... -- -- 3,083 -- --
Municipal bonds held to maturity.............. -- -- -- -- 1,866
GNMA mortgage-backed securities
available for sale(1)....................... -- -- 4,684 4,192 3,352
FNMA/FHLMC CMO securities
available for sale(1)....................... -- -- 2,034 1,489 1,038
Private Issue CMO securities
available for sale(1)....................... -- -- 9,521 9,284 8,620
Equity securities restricted for sale(2)...... -- -- 7,806 -- --
Other Securities.............................. 975 -- -- -- --
------- ------- ------- ------- -------
Total Investment Securities................. 246,973 239,680 260,057 250,523 223,469
Interest-bearing deposits..................... -- 5,632 -- -- --
Federal funds sold............................ 850 -- -- -- 39,900
FHLB stock.................................... 1,856 2,587 2,587 3,550 4,626
------- ------- ------- ------- -------
Total Investments........................... $249,679 $247,899 $262,644 $254,073 $267,995
======= ======= ======= ======= =======
</TABLE>
- ---------------------
(1) Carried at market value.
(2) In 1996, equity securities restricted for sale ("IMC investment") were
carried at cost due to restrictions on the sale or transfer of these
securities. During the fourth quarter ended July 31, 1997, the
restrictions were changed and the securities were reclassified to the
available for sale portfolio and such securities are carried at market
value.
15
<PAGE>
The following table sets forth certain information regarding the
carrying values, weighted average yields and maturities of the Savings Bank's
investment securities portfolio at July 31, 1998 by contractual maturity. The
expected maturities may differ from contractual maturities due to the terms of
the securities which may have callable or prepayment obligations.
<TABLE>
<CAPTION>
After One Through After Five Through Over
One Year or Less Five Years Ten Years Ten Years Totals
----------------- ----------------- ------------------ ---------------- ----------------
Carrying Average Carrying Average Carrying Average Carrying Average Carrying Average
Value Yield Value Yield Value Yield Value Yield Value Yield
-------- ------ -------- ------- -------- -------- -------- ------ -------- ------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
U. S. agency securities available
for sale............................... $ 2,995 5.34% $ -- --% $ -- --% $ -- --% $ 2,995 5.34%
U.S. agency securities held to maturity. 3,500 5.49 1,500 6.71 22,000 7.27 54,965 7.47 81,965 7.32
Mortgage-backed securities held to
maturity............................... 8,887 6.17 25,127 5.83 13,934 6.16 53,823 6.14 101,771 6.07
Equity securities available for sale(1). 21,862 .51 -- -- -- -- -- -- 21,862 .51
Municipal bonds held to maturity........ 1,459 3.55 407 5.25 -- -- -- -- 1,866 3.92
FHLB stock(1)........................... 4,626 7.43 -- -- -- -- -- -- 4,626 7.43
GNMA mortgage-backed securities
available for sale.................... -- -- -- -- -- -- 3,352 8.26 3,352 8.26
FNMA/FHLMC CMO's
available for sale.................... -- -- -- -- -- -- 1,038 6.84 1,038 6.84
Private issue CMO's
available for sale.................... -- -- -- -- -- -- 8,620 6.36 8,620 6.36
Federal funds........................... 39,900 5.50 -- -- -- -- -- -- 39,900 5.50
------ ------- -------- -------- -------
Total................................. $83,229 4.29% $27,034 5.75% $35,934 6.74% $121,798 6.82% $267,995 5.92%
====== ==== ====== ==== ====== ==== ======= ==== ======= ====
</TABLE>
- ------------------
(1) Equity securities and other securities have been classified as maturing in
one year or less, since they have no stated maturity.
16
<PAGE>
Sources of Funds
General. Deposits are the major source of the Savings Bank's funds for
lending and other investment purposes. In addition to deposits, the Savings Bank
derives funds from loan and mortgage-backed securities principal repayments, and
maturities of investment securities. Loan and mortgage-backed securities
payments are a relatively stable source of funds, while deposit inflows are
significantly influenced by general interest rates and money market conditions.
Deposits. The Savings Bank offers a wide variety of deposit accounts,
although a majority of such deposits are in fixed-term, market-rate certificate
accounts. Deposit account terms vary, primarily as to the required minimum
balance amount, the amount of time that the funds must remain on deposit and the
applicable interest rate. The Savings Bank's deposits are typically obtained
from the area in which its offices are located. The Savings Bank had no brokered
certificates of deposits as of July 31, 1998.
Deposit Portfolio. Deposits in the Savings Bank as of July 31, 1998, were
represented by various types of savings programs described below.
<TABLE>
<CAPTION>
Weighted Minimum Percentage of Average
Category Term Average Rates Balance Amount Balance Total Deposits Balance
- -------- ---- ------------- -------------- ------- -------------- -------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
NOW Accounts None 1.31% $ 250 $ 73,335 16.05% $ 61,072
Regular Savings and Club
Accounts None 2.24 100 93,213 20.40 82,427
Money Market Checking
Accounts None 2.35 2,500 10,763 2.36 8,805
Money Market Passbook
Accounts None 2.54 7,500 16,917 3.70 17,289
Certificates of Deposit:
Fixed Term, Fixed Rate 3-6 Months 4.51 2,500 28,324 6.20 31,592
Fixed Term, Fixed Rate 7-12 Months 5.43 500 177,910 38.94 135,921
Fixed Term, Fixed Rate 13-30 5.29 500 39,103 8.56 48,683
Months
Fixed Term, Fixed Rate 31-120 5.43 500 16,600 3.63 16,158
Months
Fixed Term, Variable Rate 18 Months 5.26 500 715 .16 742
------- ------ -------
Total $456,880 100.00% $402,689
======= ====== =======
</TABLE>
17
<PAGE>
Certificates of Deposit with Balances Greater Than $100,000. The
following table indicates the amount of the Savings Bank's certificates of
deposit of $100,000 or more by time remaining until maturity as of July 31,
1998.
Certificates
Maturity Period of Deposits
- --------------- --------------
(In thousands)
Within three months................... $ 8,199
Three through six months.............. 10,454
Six through twelve months............. 10,160
Over twelve months.................... 1,786
------
$30,599
======
Borrowings. Although deposits are the Savings Bank's primary source of
funds, the Savings Bank's policy has been to utilize borrowings as an
alternative or less costly source of funds. The Savings Bank obtains advances
from the FHLB of New York. Such advances are made pursuant to several different
credit programs, each of which has its own interest rate and range of
maturities. The maximum amount that the FHLB of New York will advance to member
institutions, including the Savings Bank, for purposes other than meeting
withdrawals, fluctuates from time to time in accordance with the policies of the
FHLB of New York. The maximum amount of FHLB of New York advances to a member
institution generally is reduced by borrowings from any other source.
The Savings Bank utilizes the Regular Advance Program of the FHLB of
New York under an advances, collateral, pledge and security agreement. The
program offers a wide range of interest rates and maturities on advances that
are collateralized by various assets. At July 31, 1998, the Savings Bank had
$55.0 million outstanding under the Regular Advance Program. The Savings Bank
will continue to use this program in the future to meet long term operating
needs.
The Savings Bank utilizes the FHLB Overnight Line of Credit Program.
The line of credit has a variable rate of interest and matures daily. The
maximum amount that can be borrowed under this program is approximately $62.8
million. The line of credit has a term of one year and expired in August 1998.
This program has the same collateral requirement as the Regular Advance Program.
At July 31, 1998, the Savings Bank had no borrowings outstanding under this
program.
The Savings Bank has a blanket pledge with the FHLB of New York and has
pledged all of its stock in the FHLB, federal funds sold, U.S. agency
securities, certain qualifying loans, and mortgage-backed securities.
18
<PAGE>
The following tables set forth certain information regarding borrowings
by the Savings Bank.
<TABLE>
<CAPTION>
As of July 31,
---------------------------------------------------------------------
1994 1995 1996 1997 1998
---- ---- ---- ---- ----
Weighted average rate paid on:
<S> <C> <C> <C> <C> <C>
FHLB advances/line of credit............................ 4.44% 5.81% 5.79% 5.53% 5.64%
Reverse Repurchase Agreements........................... -- -- 6.33 5.47 --
Line of credit.......................................... -- -- -- 8.00 8.08
ESOP.................................................... 7.54 8.96 9.12 6.16 5.93
</TABLE>
<TABLE>
<CAPTION>
During the Year Ended July 31,
---------------------------------------------------------------------
1994 1995 1996 1997 1998
---- ---- ---- ---- ----
(In thousands)
<S> <C> <C> <C> <C> <C>
Maximum amount of borrowings outstanding during the year:
FHLB advances/line of credit............................ $ 51,909 $ 32,000 $ 50,460 $ 68,500 $89,900
Reverse Repurchase Agreement............................ -- -- 20,000 40,000 --
Line of credit.......................................... -- -- -- 2,000 9,450
ESOP.................................................... 1,100 1,021 859 2,354 8,782
Maximum amount of short-term borrowings outstanding
at any month end with respect to:
FHLB advances/line of credit............................ $36,000 $30,500 $49,450 $67,750 $85,250
Reverse Repurchase Agreement............................ -- -- 20,000 20,000 --
Line of credit.......................................... -- -- -- 2,000 9,450
ESOP.................................................... 1,100 1,021 859 2,354 8,782
</TABLE>
Subsidiaries
Branchview, Inc. ("Branchview")
Branchview, a New Jersey corporation owned by the Company, has a 5.40%
interest in IMC. IMC is a mortgage banking company involved in the origination
and securitization of equity mortgage products. At July 31, 1998, the market
value of the IMC stock was $16.6 million with a cost basis of $7.8 million. On
October 16, 1998, IMC announced that they intend to explore financial and
strategic alternatives including the possible sale of IMC. At such date the
market value of the IMC stock decreased to $1.8 million. For further information
please refer to the Annual Report - Note 22 to the Consolidated Financial
Statements.
Lakeview Mortgage Depot, Inc. ("LMD")
LMD, a New Jersey mortgage corporation, is 90% owned by the Company and
was formed in October 1995. For the year ended July 31, 1998, the Company
recorded net consolidated income before taxes of $62,000. During fiscal 1998,
LMD closed its Pennsylvania office and its sole office is located in New Jersey.
19
<PAGE>
Lakeview Investment Services, Inc. ("LISI")
LISI was organized by the Savings Bank to provide brokerage and
insurance services to the Savings Bank's customers, utilizing the services of
Cross Marketing, Inc., a registered broker dealer. LISI is not a significant
source of revenues or expenses.
Lakeview Credit Card Services, Inc. ("LCCS")
LCCS, a wholly owned subsidiary of the Savings Bank was formed in
January 1996. On October 1, 1996, LCCS entered into a joint venture agreement
with IMC Credit Card, Inc., ("IMCC") a wholly owned subsidiary of IMC, to market
secured credit cards through IMCC's retail loan centers and correspondents. The
Savings Bank dissolved the Agreement during 1998 and LCCS is currently inactive.
North Properties, Inc. ("North Properties")
North Properties, a wholly owned subsidiary of the Savings Bank, was
formed in May 1997 to hold real estate owned properties.
Market Risk
Market risk is the risk of loss from adverse changes in market prices
and rates. The Savings Bank's market risk arises primarily from interest rate
risk inherent in its lending, investment and deposit taking activities. The
Savings Bank's profitability is affected by fluctuations in interest rates. A
sudden and substantial increase in interest rates may adversely impact the
Savings Bank's earnings to the extent that the interest rates borne by assets
and liabilities do not change at the same speed, to the same extent or on the
same basis. To that end, management actively monitors and manages its interest
rate risk exposure.
The principal objective of the Savings Bank's interest rate risk
management is to evaluate the interest rate risk inherent in certain balance
sheet accounts, determine the level of risk appropriate given the Savings Bank's
business strategy, operating environment, capital and liquidity requirements and
performance objectives, and manage the risk consistent with the Board of
Directors' approved guidelines. Through such management, the Savings Bank seeks
to minimize the vulnerability of its operations to changes in interest rates.
The Savings Bank's Board of Directors reviews their interest rate risk position
quarterly. The Savings Bank's Asset/Liability Committee is comprised of the
Savings Bank's senior management under the direction of the Board of Directors,
with senior management responsible for reviewing with the Board of Directors its
activities and strategies, the effect of those strategies on the Savings Bank's
net interest margin, the market value of the portfolio and the effect that
changes in interest rates will have on the Savings Bank's portfolio and the
Savings Bank's exposure limits.
The Savings Bank utilizes the following strategies to manage interest
rate risk: (1) emphasizing the origination and retention of fixed-rate mortgage
loans having terms to maturity of not more than 15 years, adjustable-rate loans
and consumer loans consisting primarily of home equity loans and lines of
credit; (2) selling substantially all fixed-rate conforming mortgage loans with
terms of thirty years without recourse and on a servicing-retained basis; and
(3) investing primarily in adjustable-rate mortgage-backed securities, which may
generally bear lower yields as compared to longer term investments, but which
better position the Savings Bank for increases in market interest rates, and
holding the majority of these securities as available for sale. The Savings Bank
currently does not participate in hedging programs,
20
<PAGE>
interest rate swaps or other activities involving the use of off-balance sheet
derivative financial instruments, but may do so in the future to mitigate
interest rate risk.
Net Portfolio Value. The Savings Bank's interest rate sensitivity in
monitored by management through the use of the inhouse model which estimates the
change in the Savings Bank's net portfolio value ("NPV") over a range of
interest rate scenarios. The NPV is defined as the current market value of
assets, minus the current market value of liabilities, plus or minus the current
value of off-balance sheet items. The market values are estimated through two
cash flow-based valuation methodologies and an option-based valuation model: (1)
static discounted cash flow analysis, (2) an option-based pricing analysis
(modified discounted cash flow analysis to value embedded options), and (3) the
Black-Scholes model to value-off balance sheet items. The change in NPV measures
an institution's vulnerability to changes in interest rates by estimating the
change in the market value of an institution's assets, liabilities, and off-
balance sheet contracts in response to an instantaneous change in the general
level of interest rates.
The following table lists the Savings Bank's percentage changes in NPV
assuming an immediate change of plus or minus of up to 400 basis points from the
level of interest rates at July 31, 1998. As the table shows, increases in
interest rates would result in decreases in the Savings Bank's NPV, while
decreases in interest rates would result in increases in the Savings Bank's NPV.
All market risk instruments presented in this table are held to maturity or
available for sale. The Savings Bank has no trading securities.
<TABLE>
<CAPTION>
Changes In
Market Rate
Interest Rates
In Basis NPV as a % of Portfolio
Points Net Portfolio Value Value of Assets
------------- ---------------------------------- -------------------------
Basis Points
(Rate Shock) Amount $ Change % Change NPV Ratio % Change
------------- --------- ----------- --------- ----------- --------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
+400 35,185 (21,352) (38) 6.68 (316)
+300 42,675 (13,862) (25) 7.90 (194)
+200 48,977 (7,560) (13) 8.85 (99)
+100 54,111 (2,426) (4) 9.57 (27)
0 56,537 - - 9.84 -
-100 60,288 3,751 7 10.29 45
-200 61,319 4,782 8 10.31 47
-300 59,870 3,333 6 9.96 12
-400 59,047 2,510 4 9.70 (14)
</TABLE>
Certain shortcomings are inherent in the methodology used in the above
interest rate risk measurements. Modeling changes in NPV require the making of
certain assumptions which may or may not reflect the manner in which actual
yields and costs respond to changes in market interest rates. In this regard,
the NPV model presented assumes that the composition of the Savings Bank's
interest sensitive assets and liabilities existing at the beginning of a period
remains constant over the period being
21
<PAGE>
measured and also assumes that a particular change in interest rates is
reflected uniformly across the yield curve regardless of the duration to
maturity or repricing of specific assets and liabilities. Accordingly, although
the NPV measurements and net interest income models provide an indication of the
Savings Bank's interest rate risk exposure at a particular point in time, such
measurements are not intended to and do not provide a precise forecast of the
effect of changes in market interest rates on the Savings Bank's net interest
income and will differ from actual results.
The following table shows the Savings Bank's financial instruments that
are sensitive to changes in interest rates, categorized by expected maturity,
and the instruments' fair values at July 31, 1998. Market risk sensitive
instruments are generally defined as on-and-off-balance sheet derivatives and
other financial instruments.
Expected Maturity/Principal Repayment at July 31,
<TABLE>
<CAPTION>
Interest Total Fair
Rates 1999 2000 2001 2002 2003 Thereafter Balance (1) Value
-------- --------- -------- -------- --------- -------- ---------- ----------- ----------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-earning assets
- -----------------------
Mortgage loans.............. 8.33% $ 21,171 $16,660 $17,413 $15,647 $14,709 $95,067 $180,667 $181,433
Home equity, second
mortgage and home
improvements loans........ 9.01% 18,468 9,803 8,568 13,126 11,195 35,981 97,141 97,553
Commercial loans............ 9.88% 10,574 1,477 266 1,375 494 -- 14,186 14,541
Mortgage-backed
securities held
to maturity............... 6.07% 9,646 15,394 24,691 6,033 12,631 33,376 101,771 101,798
Investment securities held
to maturity(1)............ 6.71% 108,773 5,697 1,533 -- -- 12,354 128,357 127,635
Securities available for
sale...................... 3.08% 26,158 1,171 1,054 948 853 7,683 37,867 37,867
Interest-bearing liabilities
- ----------------------------
NOW and money market
accounts.................. 1.38% 2,691 29,767 29,767 10,370 10,370 18,050 101,015 101,015
Savings and clubs
accounts.................. 2.24% -- 27,964 27,964 9,321 9,321 18,643 93,213 93,213
Certificates of deposits.... 5.31% 238,165 17,734 4,855 814 983 101 262,652 266,215
FHLB of New York
advances.................. 5.43% 10,000 30,000 -- -- -- 15,000 55,000 63,086
Line of credit.............. 8.25% 9,928 -- -- -- -- -- 9,928 9,928
ESOP debt................... 8.40% 314 314 314 314 314 7,213 8,783 8,783
</TABLE>
- ---------------
(1) Includes federal funds totaling $39.9 million.
Expected maturities are contractual matures adjusted for prepayments of
principal. The Savings Bank uses certain assumptions to estimate fair values and
expected maturities. For assets, expected maturities are based upon contractual
maturity, call dates, projected repayments and prepayments of principal. The
prepayment experience reflected herein is based on the Savings Bank's historical
experience. The Savings Bank's average Constant Prepayment Rate ("CPR") on its
total fixed-rate portfolio is 10%, and 8% on its adjustable-rate portfolio for
interest-earning assets (excluding investment
22
<PAGE>
securities, which do not have prepayment features). For deposit liabilities, in
accordance with standard industry practice and the Savings Bank's own historical
experience, decay factors used to estimate NOW, money market accounts, and
savings accounts were 0% to 30%, 12.5% to 25% and 0% to 30%, respectively.
Employees
At July 31, 1998, the Savings Bank had 70 full-time and 42 part-time
employees. None of the Savings Bank's employees are represented by a collective
bargaining group. The Savings Bank believes that its relationship with its
employees is good.
REGULATION
Set forth below is a brief description of certain laws which related to
the regulation of the Company and the Savings Bank. The description does not
purport to be complete and is qualified in its entirety by reference to
applicable laws and regulations.
Company Regulation
General. The Company is a unitary savings and loan holding company
subject to regulatory oversight by the OTS. As such, the Company is required to
register and file reports with the OTS and is subject to regulation and
examination by the OTS. In addition, the OTS has enforcement authority over the
Company and its non-savings association subsidiaries, should such subsidiaries
be formed, which also permits the OTS to restrict or prohibit activities that
are determined to be a serious risk to the subsidiary savings association. This
regulation and oversight is intended primarily for the protection of the
depositors of the Association and not for the benefit of stockholders of the
Holding Company.
Qualified Thrift Lender Test. As a unitary savings and loan holding
company, the Company generally is not subject to activity restrictions, provided
the Association satisfies the Qualified Thrift Lender ("QTL") test. If the
Company acquires control of another savings association as a separate
subsidiary, it would become a multiple savings and loan holding company, and the
activities of the Holding Company and any of its subsidiaries (other than the
Association or any other SAIF-insured savings association) would become subject
to restrictions applicable to bank holding companies unless such other
associations each also qualify as a QTL and were acquired in a supervisory
acquisition. See "-- Regulation of the Savings Bank - Qualified Thrift Lender
Test."
Insurance of Deposit Accounts. The deposit accounts held by the Savings
Bank are insured by the SAIF to a maximum of $100,000 for each insured member
(as defined by law and regulation). Insurance of deposits may be terminated by
the FDIC upon a finding that the institution has engaged in unsafe or unsound
practices, is in an unsafe or unsound condition to continue operations or has
violated any applicable law, regulation, rule, order or condition imposed by the
FDIC or the institution's primary regulator.
As a member of the SAIF, the Savings Bank pays an insurance premium to
the FDIC equal to a minimum of 0.23% of its total deposits. The FDIC also
maintains another insurance fund, the Savings Bank Insurance Fund ("BIF"), which
primarily insures commercial bank deposits. In 1996, the annual insurance
premium for most BIF members was lowered to $2,000. The lower insurance premiums
for BIF members placed SAIF members at a competitive disadvantage to BIF
members.
23
<PAGE>
Effective September 30, 1996, federal law was revised to mandate a
one-time special assessment on SAIF members such as the Savings Bank of
approximately .657% of deposits held on March 31, 1995. Beginning January 1,
1997, the deposit insurance assessment for most SAIF members was reduced to
.064% of deposits on an annual basis through the end of 1999. During this same
period, BIF members will be assessed approximately .013% of deposits. After
1999, assessments for BIF and SAIF members should be the same. It is expected
that these continuing assessments for both SAIF and BIF members will be used to
repay outstanding Financing Corporation bond obligations. As a result of these
changes, beginning January 1, 1997, the rate of deposit insurance assessed the
Savings Bank declined by approximately 70%.
Capital Requirements. Under FDIC regulations, the Savings Bank is
required to maintain a minimum leverage capital requirement consisting of a
ratio of Tier 1 capital to total risk-weighted assets of 4%. For institutions
other than those most highly rated by the FDIC, an additional "cushion" of at
least 100 to 200 basis points is required. Tier 1 capital is the sum of common
stockholders' equity, noncumulative perpetual preferred stock (including any
related surplus) and minority investments in certain subsidiaries, less certain
intangible assets, deferred tax assets, certain identified losses and certain
investments in securities subsidiaries. As a SAIF-insured, state-chartered bank,
the Savings Bank must currently also deduct from Tier 1 capital an amount equal
to its investments in, and extensions of credit to, subsidiaries engaged in
certain activities not permissible for national banks.
In addition to the leverage ratio, the Savings Bank must maintain a
minimum ratio of qualifying total capital to risk-weighted assets of at least
8.0%, of which at least four percentage points must be Tier 1 capital.
Qualifying total capital consists of Tier 1 capital plus Tier 2 or supplementary
capital items which include allowances for loan losses in an amount of up to
1.25% of risk-weighted assets, cumulative preferred stock and preferred stock
with a maturity of over 20 years and certain other capital instruments. The
includable amount of Tier 2 capital cannot exceed the institution's Tier 1
capital. Qualifying total capital is further reduced by the amount of the bank's
investments in banking and finance subsidiaries that are not consolidated for
regulatory capital purposes, reciprocal cross-holdings of capital securities
issued by other banks and certain other deductions. Under the FDIC risk-weighted
system, all of a bank's balance sheet assets and the credit equivalent amounts
of certain off-balance sheet items are assigned to risk weight categories. The
aggregate dollar amount of each category is multiplied by the risk weight
assigned to that category. The sum of these weighted values equals the bank's
risk-weighted assets.
Pursuant to New Jersey banking law the minimum leverage capital for a
depository institution is a ratio of Tier 1 capital to total risk-weighted
assets of four percent. However, the Commissioner of the Department may require
a higher ratio for a particular depository institution. New Jersey banking law
requires that a depository institution maintain qualifying capital of at least
eight percent of its risk weighted assets. At least four percent of this
qualifying capital shall be in the form of Tier 1 capital. For purposes of New
Jersey banking law, risk weighted assets, Tier 1 capital, and total assets are
defined in the same manner as in the FDIC regulations.
The Savings Bank was in compliance with both the FDIC and New Jersey
capital requirements at July 31, 1998.
Capital Distributions. Earnings of the Savings Bank appropriated to bad
debt reserves and deducted for Federal income tax purposes are not available for
payment of cash dividends or other distributions to stockholders without payment
of taxes at the then current tax rate by the Savings Bank on the amount of
earnings removed from the reserves for such distributions.
24
<PAGE>
Dividends payable by the Savings Bank to the Company and dividends
payable by the Company to stockholders are subject to various additional
limitations imposed by federal and state laws, regulations and policies adopted
by federal and state regulatory agencies. The Savings Bank is required by
federal law to obtain FDIC approval for the payment of dividends if the total of
all dividends declared by the Savings Bank in any year exceed the total of the
Savings Bank's net profits (as defined) for that year and the retained net
profits (as defined) for the preceding two years, less any required transfers to
surplus. Under New Jersey law, the Savings Bank may not pay dividends unless,
following payment, the capital stock of the Savings Bank would be unimpaired and
(a) the Savings Bank will have a surplus of not less than 50% of its capital
stock, or, if not, (b) the payment of such dividends will not reduce the surplus
of the Savings Bank.
Under applicable regulations, the Savings Bank would be prohibited from
making any capital distributions if, after making the distribution, the Savings
Bank would have: (i) a total risk-based capital ratio of less than 8.0%; (ii) a
Tier 1 risk-based capital ratio of less than 4.0%; or (iii) a leverage ratio of
less than 4.0%, unless a higher ratio is required by the Commissioner of the
Department.
Federal Home Loan Bank System. The Savings Bank is a member of the FHLB
of New York, which is one of 12 regional FHLBs that administers the home
financing credit function of savings institutions. Each FHLB serves as a reserve
or central bank for its members within its assigned region. The FHLB of New York
is funded primarily from proceeds derived from the sale of consolidated
obligations of the FHLB System. The FHLB of New York makes loans to members
(i.e., advances) in accordance with policies and procedures established by the
Board of Directors of the FHLB.
As a member, the Savings Bank is required to purchase and maintain
stock in the FHLB of New York in an amount equal to at least 1% of its aggregate
unpaid residential mortgage loans, home purchase contracts or similar
obligations at the beginning of each year.
Qualified Thrift Lender Test. The Savings Bank must maintain an
appropriate level of certain investments ("Qualified Thrift Investments") and
otherwise qualify as a "Qualified Thrift Lender" ("QTL"), in order to continue
to enjoy full borrowing privileges from the FHLB of New York. The required
percentage of Qualified Thrift Investments is 65% of portfolio assets. In
addition, savings banks may include shares of stock of the Federal Home Loan
Banks, FNMA and FHLMC as qualifying QTL assets. Compliance with the QTL test is
measured on a monthly basis in nine out of every 12 months. As of July 31, 1998,
the Savings Bank was in compliance with its QTL requirement.
Federal Reserve System. The Board of Governors of the Federal Reserve
System (the "FRB") requires all depository institutions to maintain non-interest
bearing reserves at specified levels against their transaction accounts
(primarily checking, NOW and Super NOW checking accounts) and non-personal time
deposits. The balances maintained to meet the reserve requirements imposed by
the FRB may be used to satisfy the liquidity requirements that are imposed by
the NJDB. At July 31, 1998, the Savings Bank met these reserve requirements.
Item 2. Properties and Equipment
- ----------------------------------
The Company and the Savings Bank operate from their main office and 10
branch offices. Of the total, the Savings Bank leases three branch offices and
all other branch offices are owned by the Savings Bank.
25
<PAGE>
Item 3. Legal Proceedings
- --------------------------
There are various claims and lawsuits in which the Company or the
Savings Bank are periodically involved, such as claims to enforce liens,
condemnation proceedings on properties in which the Savings Bank holds security
interests, claims involving the making and servicing of real property loans, and
other issues incident to the Savings Bank's business. In the opinion of
management, no material loss is expected from any of such pending claims or
lawsuits.
Item 4. Submission of Matters to a Vote of Security Holders
- ------------------------------------------------------------
None.
PART II
Item 5. Market for Common Equity and Related Stockholder Matters
- -----------------------------------------------------------------
The information contained in the section captioned "Market For Common
Stock" in the Management Discussion and Analysis of Financial Condition and
Results of Operations of the Company's Annual Report to Shareholders for fiscal
year ended July 31, 1998 (the "Annual Report") is incorporated herein by
reference.
Item 6. Selected Financial Data
- --------------------------------
The information contained in the section captioned "Selected Financial
Data" of the Annual Report is incorporated herein by reference.
Item 7. Management's Discussion and Analysis or Plan of Operation
- ------------------------------------------------------------------
The information contained in the section captioned "Management's
Discussion and Analysis of Financial Condition and Results of Operations" in the
Annual Report is incorporated herein by reference.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
- --------------------------------------------------------------------
Refer to Market Risk disclosure beginning on page 20.
Item 8. Financial Statements
- -----------------------------
The Company's financial statements listed under Item 14 are
incorporated herein by reference.
Item 9. Change In and Disagreements with Accountants on Accounting and Financial
Disclosure
- --------------------------------------------------------------------------------
Not applicable.
26
<PAGE>
PART III
Item 10. Directors and Executive Officers
- ------------------------------------------
The information contained under the sections captioned "Section 16(a)
Beneficial Ownership Reporting Compliance," "I - Information with Respect to
Nominees for Directors, Directors Continuing In Office, and Executive Officers"
and "Biographical Information" in the Proxy Statement is incorporated herein by
reference.
Item 11. Executive Compensation
- --------------------------------
The information contained under the section captioned "Director and
Executive Compensation" in the Proxy Statement is incorporated herein by
reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management
- ------------------------------------------------------------------------
(a) Security Ownership of Certain Beneficial Owners
Information required by this item is incorporated herein by
reference to the first chart in the section captioned "I -
Information with Respect to Nominees for Director, Directors
Continuing in Office, and Executive Officers" in the Proxy
Statement.
(b) Security Ownership of Management
Information required by this item is incorporated herein by
reference to the first chart in the section captioned "I -
Information with Respect to Nominees for Director, Directors
Continuing in Office, and Executive Officers" in the Proxy
Statement.
(c) Management of the Registrant knows of no arrangements,
including any pledge by any person of securities of the
Registrant, the operation of which may at a subsequent date
result in a change in control of the Registrant.
Item 13. Certain Relationships and Related Transactions
- --------------------------------------------------------
The information contained under the section captioned "Certain
Relationships and Related Transactions" in the Proxy Statement is incorporated
herein by reference.
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
- --------------------------------------------------------------------------
(a) Listed below are all financial statements and exhibits filed as
part of this report.
(1) The consolidated balance sheets of Lakeview Financial
Corp. and subsidiaries as of July 31, 1998 and 1997
and the related consolidated statements of income,
stockholders' equity and cash flows for each of the
years in the three year period ended July 31, 1998,
together with the related notes and the independent
auditors' report of KPMG Peat Marwick LLP,
independent certified public accountants.
27
<PAGE>
(2) Schedules omitted as they are not applicable.
(3) Exhibits
The following exhibits are filed as part of this report.
3.1 Certificate of Incorporation of Lakeview Financial
Corp.*
3.2 Bylaws of Lakeview Financial Corp.*
4 Stock Certificate of Lakeview Financial Corp.*
10.1 Form of Lakeview Savings Bank 1993 Stock Option Plans*
10.2 Lakeview Savings Bank Management Stock Bonus Plan and
Trust Agreement*
10.3 Employment Agreements**
10.4 Supplemental Retirement Plan for Senior Officers***
13 Portions of the 1998 Annual Report to Stockholders
21 Subsidiaries of the Registrant (See-"Part I -
Business").
23 Independent Auditors' Consent
27 Financial Data Schedule (electronic filing only)
- ------------------
* Incorporated herein by reference to the registration statement on Form
S-4 (File No. 33-77646).
** Incorporated herein by reference to the Form 10-K for fiscal year ended
July 31, 1994.
*** Incorporated herein by reference to the Form 10-K for fiscal year ended
July 31, 1996.
(b) On October 8, 1998, the Company filed a Form 8-K reporting the
announcement of the Company's evaluation of strategic
alternatives in order to maximize shareholder value.
28
<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 as of October 21, 1998.
LAKEVIEW FINANCIAL CORP.
By: /s/Kevin J. Coogan
------------------------------------
Kevin J. Coogan
President, Chief Executive
Officer and Director
Pursuant to the requirement 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 as of October 21, 1998.
By: /s/Kevin J. Coogan By:
----------------------------------- ----------------------------
Kevin J. Coogan Leo J. Dean
President, Chief Executive Officer Director
and Director
By: /s/Leo J. Costello By: /s/Michael R. Rowe
----------------------------------- ----------------------------
Leo J. Costello Michael R. Rowe
Chairman of the Board Director
By: /s/Robert J. Davenport By: /s/Dennis D. Pedra
----------------------------------- ----------------------------
Robert J. Davenport Dennis D. Pedra
Director Director
By: By: /s/Anthony G. Gallo
----------------------------------- ----------------------------
Vincent A. Scola Anthony G. Gallo
Director Vice President and Chief
Financial Officer
<PAGE>
EXHIBIT 13
<PAGE>
FOCUS '99
Selected Financial Data
The following table sets forth certain information concerning the consolidated
financial condition and operating data of Lakeview Financial Corp. and
Subsidiaries at the dates indicated:
<TABLE>
<CAPTION>
July 31
1994 1995 1996 1997 1998
- ---------------------------------------------------------------------------------------------------------------------------
(Dollars in Thousands, except share data)
<S> <C> <C> <C> <C> <C>
Selected Financial Condition Data:
Total assets................................................. $ 413,725 $ 419,212 $ 457,860 $505,882 $593,856
Loans receivable, net........................................ 136,143 142,123 163,457 224,564 286,869
Mortgage-backed securities held to maturity.................. 173,067 175,375 121,462 102,249 101,771
Investment securities held to maturity....................... 62,637 55,738 40,821 42,682 83,831
Securities available for sale................................ 11,269 8,567 89,967 105,592 37,867
Excess of cost over fair-value of net assets acquired, net... 12,817 11,497 10,176 8,856 18,643
Deposits..................................................... 344,915 343,489 354,247 370,787 456,880
Total borrowings............................................. 19,021 19,859 54,721 63,604 73,711
Stockholders' equity......................................... 46,982 49,440 45,760 61,809 56,607
Stated book value per share (1).............................. 7.30 8.51 9.18 13.71 11.60
Tangible book value per share (1)............................ 5.30 6.53 7.14 11.75 7.78
Selected Operating Data:
Interest income.............................................. $ 18,947 $ 28,430 $ 30,972 $ 32,842 $ 37,377
Interest expense............................................. 7,735 13,539 16,550 17,318 19,802
- ---------------------------------------------------------------------------------------------------------------------------
Net interest income.......................................... 11,212 14,891 14,422 15,524 17,575
Provision for loan losses.................................... 2,047 1,801 664 961 1,500
Other income................................................. 2,609 7,207 7,030 8,102 11,812
Other expense................................................ 6,705 10,266 10,868 13,155(2) 12,852
- ---------------------------------------------------------------------------------------------------------------------------
Income before income taxes................................... 5,069 10,031 9,920 9,510 15,035
Income taxes................................................. 1,813 3,736 3,646 3,449 5,590
- ---------------------------------------------------------------------------------------------------------------------------
Income before accounting changes............................. 3,256 6,295 6,274 6,061 9,445
Cumulative effect of accounting changes...................... 1,315(3) - - - -
- ---------------------------------------------------------------------------------------------------------------------------
Net income................................................... 4,571 6,295 6,274 6,061 9,445
- ---------------------------------------------------------------------------------------------------------------------------
Net income per share (1)
Basic..................................................... N/A 1.05 1.22 1.48 2.51
Diluted................................................... N/A 1.00 1.14 1.30 2.28
Return on average assets..................................... 1.16% 1.50% 1.42% 1.28% 1.74%
Return on average equity..................................... 12.39% 13.08% 13.75% 13.09% 17.17%
Cash dividend per common share (1)........................... .02 .10 .11 .12 .19
Asset Quality Data:
Non-performing loans......................................... $ 8,928 $ 3,372 $ 2,417 $ 3,811 $ 2,794
Other non-performing......................................... - 850 494 - -
Real estate owned (REO)...................................... 3,762 3,608 1,667 1,929 505
- ---------------------------------------------------------------------------------------------------------------------------
Total non-performing assets.................................. 12,690 7,830 4,578 5,740 3,299
- ---------------------------------------------------------------------------------------------------------------------------
Non-performing assets to total assets........................ 3.07% 1.87% 1.00% 1.13% .56%
Loan allowances.............................................. $ 1,714 $ 2,535 $ 3,073 $ 3,411 $ 4,478
REO allowances............................................... 188 - - - -
- ---------------------------------------------------------------------------------------------------------------------------
Total allowances............................................. $ 1,902 $ 2,535 $ 3,073 $ 3,411 $ 4,478
- ---------------------------------------------------------------------------------------------------------------------------
Total allowances to non-performing assets.................... 14.99% 32.38% 67.13% 59.43% 135.74%
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Adjusted for stock dividends and splits.
(2) Includes one time SAIF assessment of $2.2 million or $1.5 million, net of
tax (Note 21).
(3) Reflects implementation of Statement of Financial Standards No. 109,
"Accounting for Income Taxes."
1
<PAGE>
LAKEVIEW FINANCIAL CORP. 1998 ANNUAL REPORT
Management Discussion and Analysis of
Financial Condition and Results of Operation
The Private Securities Litigation Reform Act of 1995 contains safe harbor
provisions regarding forward-looking statements. When used in this discussion,
the words "believes", "anticipates", "contemplates", "expects", and similar
expressions are intended to identify forward-looking statements. Such statements
are subject to certain risks and uncertainties which could cause actual results
to differ materially from those projected. Those risks and uncertainties include
changes in interest rates, risks associated with the effect of opening a new
branch, the ability to control costs and expenses, and general economic
conditions. Lakeview Financial Corp. undertakes no obligation to publicly
release the results of any revisions to those forward looking statements which
may be made to reflect events or circumstances after the date hereof or to
reflect the occurrence of unanticipated events.
GENERAL
Lakeview Financial Corp. is organized as a unitary savings and loan holding
company and owns all of the outstanding capital stock of Lakeview Savings Bank
(collectively, the "Company", or "Lakeview"). The Company also has investments
in five subsidiaries, Branchview, Inc. ("Branchview"), Lakeview Mortgage Depot,
Inc. ("LMD"), LVS, Inc. (LVS), Lakeview Investment Services, Inc. ("LISI"), and
North Properties, Inc. ("North Properties"). Lakeview wholly owns all service
corporations, except for LMD, which is 90% owned. LISI and LVS are currently
inactive. In February 1998, the Company closed its operation of Lakeview Credit
Card Services, Inc. ("LCCS"). LCCS was formed during the 1997 fiscal year for
the purpose of issuing secured credit cards with a national mortgage company.
The alliance was unsuccessful in generating any significant revenues and
resulted in a total pretax loss for fiscal 1998 of approximately $98,000 which
was reflected in other operating expenses in fiscal 1998.
On February 27, 1998, the Company's growth was bolstered by its acquisition of
Westwood Financial Corporation and its wholly owned subsidiary, Westwood Savings
Bank (collectively, "Westwood") a $100.2 million savings institution located in
Westwood, Bergen County, New Jersey. Such acquisition was accounted for under
the purchase method of accounting and thus the common shares of Westwood were
exchanged by Lakeview for $29.25, payable in the aggregate, in the form of 50%
cash and 50% Lakeview's common stock. As a result of such exchange, the Company
issued from treasury 401,343 shares of common stock and paid $10.6 million in
cash. With the completion of the Westwood merger, the Company added two
additional Bergen County branches and three additional ATM's, bringing the total
branch network to ten branches and nine ATM's.
In September 1998, the Company's eleventh branch office was opened in Fairview,
New Jersey. The Company expects that its other operating expenses in 1999 may
increase due to the costs associated with the opening of this new branch.
In October 1998, IMC Mortgage Company, L.P. (IMC), in which the Company has an
equity investment and an unsecured line of credit, announced that they intend to
explore financial and strategic alternatives including the possible sale of IMC.
See Note 22 to the Consolidated Financial Statements.
8
<PAGE>
FINANCIAL CONDITION
The Company's total assets increased $88.0 million or 17.4%, to $593.9 million
at July 31, 1998 from $505.9 million at July 31, 1997 mainly as a result of the
Westwood acquisition, which increased assets $89.6 million, net of $10.6 million
of cash paid for the acquisition. Net loans receivable and deposits grew 27.8%
and 23.2% to $286.9 million and $456.9 million at July 31, 1998, respectively
from $224.6 million and $370.8 million at July 31, 1997, respectively. The
acquisition of Westwood contributed $40.4 million and $89.6 million toward
overall loan and deposit growth, respectively, during fiscal 1998.
Securities available for sale decreased $67.7 million, or 64.1%, to $37.9
million at July 31, 1998 from $105.6 million at July 31, 1997. The decrease was
mainly attributable to sales of $75.4 million, maturities of $46.0 million,
principal repayments of $2.1 million, and a decrease in market value (before
tax) of $14.0 million offset by purchases of $69.8 million.
Investment securities held to maturity increased $41.1 million or 96.4%, to
$83.8 million at July 31, 1998 from $42.7 million at July 31, 1997. The increase
was due to net purchases of $45.1 million, $34.4 million from the acquisition of
Westwood and was offset by $40.4 million of maturities.
Mortgage-backed securities held to maturity decreased $478,000, or .5%, to
$101.8 million at July 31, 1998, from $102.2 million at July 31, 1997. The
decrease in mortgage-backed securities resulted from principal repayments of
$23.3 million, offset by purchases of $6.0 million and $16.7 million from the
acquisition of Westwood.
Borrowings increased $3.6 million to $64.9 million at July 31, 1998 from $61.3
million at July 31, 1997. Borrowed funds are both short-term and long-term and
consist of lines of credit and Federal Home Loan Bank ("FHLB") advances.
Borrowings - ESOP increased $6.4 million to $8.8 million at July 31, 1998 from
$2.4 million at July 31, 1997. The ESOP trust purchased an additional 349,404
shares for $9.0 million. Such funds were borrowed from an unrelated third party.
See Note 15 to the Consolidated Financial Statements.
The net deferred tax liability and unrealized gain on securities available for
sale, net of tax, decreased to $17,000 and $5.3 million at July 31, 1998,
respectively, from $6.1 million and $14.5 million at July 31, 1997,
respectfully. The decrease in these accounts was primarily attributable to the
decrease in the market value of securities available for sale. The majority of
the decrease in such accounts was attributable to Branchview's investment in
Industry Mortgage Company ("IMC"), which consists of approximately 1.7 million
shares of common stock. At July 31, 1998, the market value of IMC decreased to
$16.2 million from $29.9 million at July 31, 1997. At July 31, 1998,
Branchview's cost basis of IMC was $7.8 million. As of October 16, 1998, the
market value of the IMC stock was $1.8 million.
9
<PAGE>
LAKEVIEW FINANCIAL CORP. 1998 ANNUAL REPORT
MARKET FOR COMMON STOCK
Lakeview's common stock is traded on the Nasdaq National Market under the symbol
of "LVSB". At September 30, 1998, Lakeview had approximately 670 shareholders
(not including the number of persons or entities holding stock in nominee or
street name through various brokerage firms). As a result of continued earnings,
there has been a cash dividend since the fourth fiscal quarter in 1994. The cash
dividend paid was $.0235 in the fiscal quarters ended July and October 1994 and
January 1995; $.0258 in the fiscal quarters ended April, July and October 1995
and January 1996; $.0284 in the fiscal quarters ended April, July and October
1996; $.0313 in the fiscal quarters ended January, April, July and October 1997
and January 1998; and $.0625 in the fiscal quarters ended April and July 1998.
On November 13, 1996 and October 15, 1997, respectively, Lakeview paid a 10%
common stock dividend and a 100% stock dividend (in the form of a two for one
common stock split) to all shareholders of record on October 30, 1996 and
October 1, 1997, respectively. Cash dividends, as described above, and market
prices set forth in the table below, have been adjusted for the stock dividends
declared and paid by Lakeview.
Market prices for the quarters ended:
<TABLE>
<CAPTION>
1996 1997 1998
- -------------------------------------------------------------------------------------------------------------------------------
Oct. Jan. Apr. Jul. Oct. Jan. Apr. Jul.
<S> <C> <C> <C> <C> <C> <C> <C> <C>
High $12.44 $ 15.69 $17.13 $ 17.32 $ 26.75 $ 26.50 $26.57 $ 29.00
Low 9.21 11.25 13.75 13.63 16.13 23.75 23.25 23.00
Closing 11.69 15.38 13.82 16.50 24.75 25.00 23.25 23.50
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Lakeview's ability to pay dividends to shareholders is dependent upon the
earnings from investments and dividends it receives from Lakeview Savings Bank
(the "Bank"). Accordingly, restrictions on the Bank's ability to pay cash
dividends directly affects the payment of cash dividends by the Company. The
Bank may not declare or pay a dividend if the effect would cause the Bank's
regulatory capital to be reduced below the amount required for the liquidation
account established in connection with the Bank's conversion from mutual to
stock form or the regulatory capital requirements imposed by the FDIC.
10
<PAGE>
Average Balance Sheet
The following table sets forth certain information relating to the Company's
average balance sheet and reflects the average yields earned on assets and
average costs of liabilities for the periods indicated. Such yields and costs
are derived by dividing income or expense by the average balance of assets or
liabilities, respectively, for the periods presented. Average balances are
derived from daily balances.
<TABLE>
<CAPTION>
Years ended July 31,
- --------------------------------------------------------------------------------------------------------------------------------
1996 1997 1998
- --------------------------------------------------------------------------------------------------------------------------------
(Dollars in thousands)
Interest Average Interest Average Interest Average
Average Income/ Yield/ Average Income/ Yield/ Average Income/ Yield/
Balance Expense Cost Balance Expense Cost Balance Expense Cost
- --------------------------------------------------------------------------------------------------------------------------------
Interest earning assets:
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Loans receivable (1) $155,497 $14,131 9.09% $192,822 $ 16,841 8.73% $252,935 $22,351 8.84%
Mortgage-backed securities
held to maturity 149,373 9,605 6.43 112,464 7,319 6.51 100,263 6,443 6.43
Investment securities
and federal funds (2) 47,672 3,004 6.30 44,241 3,426 7.75 66,371 5,111 7.70
Securities available for
sale (3) 58,719 4,232 7.21 93,307 5,256 5.63 88,548 3,472 3.92
- --------------------------------------------------------------------------------------------------------------------------------
Total interest-earning assets 411,261 30,972 7.53 442,834 32,842 7.42 508,117 37,377 7.36
Non-interest-earning assets 29,502 30,058 34,144
- --------------------------------------------------------------------------------------------------------------------------------
Total assets $440,763 $472,892 $542,261
- --------------------------------------------------------------------------------------------------------------------------------
Interest-bearing liabilities:
Deposits $340,771 $14,064 4.12 $345,829 $ 13,988 4.04 % $380,710 $15,335 4.03%
Borrowings 42,162 2,486 5.89 59,810 3,330 5.57 76,107 4,467 5.87
- --------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing
liabilities 382,933 16,550 4.32 405,639 17,318 4.27 456,817 19,802 4.33
Non-interest bearing
liabilities 12,212 20,939 30,446
- --------------------------------------------------------------------------------------------------------------------------------
Total liabilities 395,145 426,578 487,263
Stockholders' equity 45,618 46,314 54,998
- --------------------------------------------------------------------------------------------------------------------------------
Total liabilities and
stockholders' equity $440,763 $472,892 $542,261
- --------------------------------------------------------------------------------------------------------------------------------
Net interest income $14,422 $ 15,524 $17,575
- --------------------------------------------------------------------------------------------------------------------------------
Interest rate spread (4) 3.21% 3.15% 3.03%
- --------------------------------------------------------------------------------------------------------------------------------
Net yield on interest-
earning assets (5) 3.51% 3.51% 3.46%
- --------------------------------------------------------------------------------------------------------------------------------
Ratio of average interest-
earning assets to average
interest-bearing liabilities 1.08x 1.09x 1.11x
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Average balances include non-accrual loans.
(2) Includes investment securities held to maturity, federal funds sold,
interest bearing deposits in other financial institutions and Federal Home
Loan Bank of New York stock.
(3) At market value.
(4) Interest-rate spread represents the difference between the average yield on
interest-earning assets and the average cost of interest-bearing
liabilities.
(5) Net yield on interest-earning assets represents net interest income as a
percentage of average interest-earning assets.
11
<PAGE>
LAKEVIEW FINANCIAL CORP. 1998 ANNUAL REPORT
Rate/Volume Analysis
The table below sets forth certain information regarding changes in interest
income and interest expense of the Company for the periods indicated. For each
category of interest-earning assets and interest-bearing liabilities,
information is provided on changes attributable to (i) changes in volume
(changes in average volume multiplied by old rate); (ii) changes in rates
(changes in rate multiplied by old average volume); (iii) changes in rate-volume
(changes in rate multiplied by the change in average volume).
<TABLE>
<CAPTION>
Years ended July 31,
- ------------------------------------------------------------------------------------------------------------------------------
1996 vs. 1997 1997 vs. 1998
- ------------------------------------------------------------------------------------------------------------------------------
Increase (Decrease) Increase (Decrease)
Due to Due to
- ------------------------------------------------------------------------------------------------------------------------------
Rate/ Rate/
Volume Rate Volume Net Volume Rate Volume Net
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest income:
Loans receivable.................................. $3,392 $(550) $(132) $2,710 $5,250 $ 198 $ 62 $5,510
Mortgage-backed securities held to maturity....... (2,373) 116 (29) (2,286) (794) (91) 9 (876)
Investment securities and federal funds........... (216) 687 (49) 422 1,714 (19 (10) 1,685
Securities available for sale..................... 2,493 (925) (544) 1,024 (268) (1,597) 81 (1,784)
- ------------------------------------------------------------------------------------------------------------------------------
Total interest income............................... 3,296 (672) (754) 1,870 5,902 (1,509) 142 4,535
Interest expense:
Deposits.......................................... 209 (282) (3) (76) 1,411 (58) (6) 1,347
Borrowings........................................ 1,040 (137) (9) 844 908 179 50 1,137
- ------------------------------------------------------------------------------------------------------------------------------
Total interest expense.............................. 1,249 (419) (62) 768 2,319 121 44 2,484
- ------------------------------------------------------------------------------------------------------------------------------
Net change in net interest income................... $2,047 $(253) $(692) $1,102 $3,583 $(1,630) $ 98 $2,051
==============================================================================================================================
</TABLE>
RESULTS OF OPERATIONS
Net income increased $3.3 million or 55.8%, to $9.4 million for fiscal 1998 from
$6.1 million for fiscal 1997. The increase in net income was partially
attributable to a $65.3 million increase in the average balance of interest
earning assets, which was mainly due to the Westwood acquisition, and was also
due to an increase in securities gains of $3.4 million before tax.
Net income decreased $213,000 or 3.4% to $6.1 million for fiscal 1997 from $6.3
million for fiscal 1996. The decrease in net income was primarily attributable
to the SAIF assessment before taxes of $2.2 million offset by an increase of
$1.1 million in other income. See Notes 21 and 6 to the Consolidated Financial
Statements, respectively.
Net Interest Income: Net interest income is the most significant component of
the Company's income from operations. Net interest income is the difference
between interest received on interest-earning assets (primarily loans and
investment securities) and interest paid on interest-bearing liabilities
(primarily deposits and borrowed funds). Net interest income depends on the
volume and rate earned on interest-earning assets and the volume and rate paid
on interest-bearing liabilities.
Net interest income increased $2.1 million or 13.2% to $17.6 million in 1998
compared to $15.5 million in 1997. The increase was primarily due to growth in
average interest-earning assets to $508.1 million in 1998 from $442.8 million in
1997, partially offset by a decrease in the interest rate spread of 3.03% in
1998 compared to 3.15% in 1997. Net interest margin decreased to 3.46% in 1998
compared to 3.51% in 1997. The majority of the increase in average interest
earning assets was the result of the Westwood acquisition.
The increase in average interest-earning assets from 1997 to 1998 of $65.3
million reflects an increase in average loans of $60.1 million and average
investment securities held to maturity of $22.1 million, offset by a decrease in
average mortgage-backed securities held to maturity and securities
12
<PAGE>
available for sale of $16.9 million. The increase in average interest-earnings
assets was partially funded by the increase in average interest-bearing
liabilities of $51.2 million. This increase in interest-bearing liabilities
reflects the increase in average borrowings of $16.3 million and average
deposits of $34.9 million in 1998, primarily due to the Westwood acquisition.
The interest rate spread declined in 1998 compared to 1997 due to a decline in
the yield on average interest-earning assets to 7.36% in 1998 from 7.42% in
1997. The cost of average interest-bearing liabilities increased to 4.33% in
1998 from 4.27% in 1997. The yield on average interest-earning assets declined
in 1998 due to a decrease in yields on securities available for sale to 3.92% in
1998 from 5.63% in 1997 and mortgage-backed securities held to maturity to 6.43%
in 1998 from 6.51% in 1997. The decline in yield of securities available for
sale was the result of lower rates of interest and dividends. Offsetting these
declines, the yield on loans receivable increased to 8.84% in 1998 from 8.73% in
1997. The increase in yield was the result of changing the mix of the loan
portfolio to higher yielding loans. The increase in the cost of funds was
affected by a 30 basis point increase in the rate paid on borrowings and offset
by a 1 basis point decrease paid on deposits.
Net interest income increased $1.1 million or 7.6% to $15.5 million in 1997
compared to $14.4 million in 1996. The increase was primarily due to growth in
average interest-earning assets to $442.8 million in 1997 from $411.3 million in
1996, partially offset by a decrease in the interest rate spread of 3.15% in
1997 compared to 3.21% in 1996. However, the decline in the interest rate spread
in 1997 did not affect net interest margin. Net interest margin was 3.51% in
1997 and 1996.
The increase in average interest-earning assets of $31.6 million from 1996 to
1997 reflects an increase in average loans of $37.3 million and average
securities available for sale of $34.6 million offset by a decrease in average
mortgage-backed and investment securities held to maturity of $40.3 million. The
increase in average interest-earning assets was partially funded by the increase
in average interest-bearing liabilities of $22.7 million. This increase in
interest-bearing liabilities reflects the increase in borrowings and deposits in
1997.
The interest rate spread declined in 1997 compared to 1996 due to a decline in
the yield on average interest-earning assets to 7.42% in 1997 from 7.53% in 1996
offset by a decrease in the cost of average interest-bearing liabilities to
4.27% in 1997 from 4.32% in 1996. The yield on average interest-earning assets
declined in 1997 due to a decrease in yields on loans to 8.73% in 1997 from
9.09% in 1996 and investment and mortgage-backed securities available for sale
to 5.63% in 1997 from 7.21% in 1996. The decrease in the cost of funds was
affected by a 32 basis point decrease in the rate paid on borrowings and a 8
basis point decrease paid on deposits.
Provision for Loan Losses: The Company recorded a provision for loan losses of
$1.5 million in 1998 compared with $961,000 in 1997 and $664,000 in 1996. The
increase in 1998 was attributable to loan growth primarily due to the Westwood
acquisition and the continued change in the loan mix. The increase in fiscal
1997 was attributable to loan growth and the change in the mix of the loan
portfolio. Management regularly performs an analysis to identify the inherent
risks of loss in its loan portfolio. This evaluation includes evaluations of
concentrations of credit, past loss experience, current economic conditions,
amount and composition of the loan portfolio (including loans being specifically
monitored by management), estimated fair value of underlying collateral, loan
commitments outstanding, delinquencies, and other information available at such
times.
The Company will continue to monitor its allowance for loan losses and make
future adjustments to the allowance through the provision for loan losses as
economic conditions dictate. Management continues to offer a wider variety of
loan products coupled with the continued success of changing the mix of the
products offered in the loan portfolio - from lower yielding loans (i.e., one-
to four family loans) to higher yielding loans (i.e., equity loans, multi-family
(five or more units) buildings, and commercial (non-residential) mortgages. The
Company maintains its allowance for loan losses at a level that it considers to
be adequate to provide for the inherent risk of loss in its loan portfolio,
there can be no assurance that future losses will not exceed estimated amounts
or that additional provisions for loan losses will not be required in future
periods due to the higher degree of credit risk which might result from the
change in the mix of the loan portfolio.
Other Income: Total other income increased $3.7 million or 45.8% to $11.8
million for the year ended July 31, 1998 from $8.1 million for the year ended
July 31, 1997. Realized gains on investments increased $3.4 million to $8.2
million in 1998 from $4.8 million in 1997. This increase resulted from the sale
of Federal National Mortgage Association ("FNMA") stock, Student Loan Mortgage
Association ("SLMA") stock, Federal Home Loan Mortgage Corporation ("FHLMC")
stock and other equity securities during 1998. Gains on sale of loans originated
for sale increased $372,000 to $1.5 million in 1998, from $1.2 million in 1997.
The increase was mainly attributed to the operations of LMD. Loan fees and
service charges increased $294,000 to $1.5 million for the year ended July 31,
1998 from $1.2 million for the year ended July 31, 1997. The increase was due to
increases in NOW account service fees due to an increase in the deposits. The
average balance of NOW
13
<PAGE>
LAKEVIEW FINANCIAL CORP. 1998 ANNUAL REPORT
accounts and money market deposit accounts increased $14.4 million to $69.9
million for the year ended July 31, 1998 from $55.5 million for the year ended
July 31, 1997.
Total other income increased $1.1 million or 15.3% to $8.1 million for the year
ended July 31, 1997 from $7.0 million for the year ended July 31, 1996. Realized
gains on investments increased $2.0 million to $4.8 million in 1997 from $2.8
million in 1996. This increase resulted from the sale of other equity securities
during 1997. Other operating income decreased $1.9 million to $949,000 in 1997
from $2.9 million in 1996. This was mainly attributable to a decrease in other
income from Branchview of $2.4 million. In 1995, Branchview sold its majority
interest in Residential Money Center, a residential mortgage company. See Note 6
to the Consolidated Financial Statements.
Other Expenses: Total other expenses decreased $303,000 or 2.3%, to $12.9
million in 1998 from $13.2 million in 1997. The decrease in other expenses was
primarily due to a $2.2 million decrease in federal deposit insurance premiums
("SAIF recapitalization expenses") offset by increases of $907,000 in
compensation and employee benefits, $328,000 of amortization expenses and
$545,000 in other operating expenses. The decrease in SAIF recapitalization
expenses was due to a one time special assessment levied in fiscal 1997 to
recapitalized the SAIF. See Note 21 to the Consolidated Financial Statements.
Compensation and employee benefits increased $907,000 or 15.9% to $6.6 million
in 1998 from $5.7 million in 1997. The increase was mainly attributable to the
increased staff of the Company with the merger of Westwood. Compensation and
employee benefits increased $1.1 million or 22.8% to $5.7 in 1997 from $4.6
million in 1996. The increase was mainly attributable to the amortization of the
ESOP of $901,000 due to the increase of the market value of the Company's stock
and $410,000 for the hiring of eleven new employees for the Company's
subsidiary, LMD. LMD opened two additional offices during 1997 and closed one in
1998.
Net losses on real estate owned ("REO") for fiscal 1998 remained relatively
constant. REO decreased $715,000 to $206,000 in fiscal 1997 from $921,000 in
fiscal 1996. The decrease was primarily attributed to the decrease in provisions
for REO loss to $44,000 in fiscal 1997 from $655,000 in fiscal 1996. Management
regularly assesses the value of the REO portfolio based on available information
at such times including trends in local real estate markets and appraisals.
Additional provisions for REO losses may be required as the result of this
assessment.
Amortization of the excess of cost over fair value of net assets acquired
increased $328,000 or 24.8% to $1.6 million in 1998 from $1.3 million in 1997.
The increase was mainly attributable to the goodwill associated with the
acquisition of Westwood. Amortization of the excess of cost over fair value of
net assets acquired remained constant for 1996 and 1997.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary sources of funds includes savings deposits, loan
repayments and prepayments, cash flow from operations and borrowings from the
FHLB. The Company uses its capital resources principally to fund loan
originations and purchases, repay maturing borrowings, investment purchases and
for short and long-term liquidity needs. The Company expects to be able to fund
or refinance, on a timely basis, its commitments and long-term liabilities. As
of July 31, 1998, the Company had commitments to fund loans of $5.3 million.
The Company's liquid assets consist of cash and cash equivalents, which include
investments in highly short-term investments. The level of these assets are
dependent on the Company's operating, financing and investment activities during
any given period. At July 31, 1998, cash and cash equivalents totaled $48.7
million.
Net cash provided by operating activities for fiscal 1998 totaled $6.7 million,
as compared to $4.2 million for fiscal 1997 and $3.0 million for fiscal 1996.
Net cash provided by investing activities for fiscal 1998 totaled $57.3 million,
compared to cash used of $24.0 million in 1997 and $41.0 million in 1996. The
increase of $81.3 million in fiscal 1998 was mainly attributed to a net decrease
in loans receivable of $39.2 million and a net decrease in securities available
for sale of $39.8 million. The decrease of $17.0 million in fiscal 1997 was
primarily attributable to an increase in 1996 of net purchases of investment and
mortgage-backed securities of $20.0 million offset by cash used for net loan
originations and purchases of $39.4 million, investment in FHLB stock of $1.0
million, and net proceeds from the sale of investment and mortgage-backed
securities of $40.0 million.
Net cash used in financing activities for the year ended July 31, 1998 totaled
$20.7 million. This was a result of a net decrease in deposits of $4.7 million,
purchase of ESOP shares of $9.0 million and the purchase of treasury stock of
$11.4 million, offset by the exercise of stock options of $2.1 million and the
sale of common stock by the ESOP of $2.3 million.
14
<PAGE>
Net cash provided by financing activities for fiscal 1997 totaled $18.2 million.
This was a result of a net increase in deposits of $16.5 million and an increase
in net borrowings of $8.9 million offset by the purchase of treasury stock of
$6.7 million and ESOP shares of $447,000.
Liquidity may be adversely affected by unexpected deposit outflows, excessive
interest rates paid by competitors, adverse publicity relating to the savings
and loan industry, and similar matters. Management monitors projected liquidity
needs and determines the level desirable, based in part on the Company's
commitment to make loans and management's assessment of the Company's ability to
generate funds. The Company is also subject to federal regulations that impose
certain minimum capital requirements.
YEAR 2000 COMPLIANCE ISSUES
During fiscal 1998, the Company adopted a Year 2000 Compliance Plan (the "Plan")
and established a Year 2000 Compliance Committee (the "Committee"). The
objectives of the Plan and the Committee are to prepare the Company for the new
millennium. As recommended by the Federal Financial Institutions Examination
Council, the Plan encompasses the following phases: Awareness, Assessment,
Renovation, Validation and Implementation. These phases will enable the Company
to identify risks, develop an action plan, perform adequate testing and complete
certification that its processing systems will be Year 2000 ready. Execution of
the Plan is currently on target. The Company is currently in Phase 3,
Renovation, which includes code enhancements, program changes, hardware and
software upgrades and system replacements, if necessary. Concurrently, the
Company is also addressing some issues related to subsequent phases.
Prioritization of the most critical applications has been addressed, along with
contract and service agreements. The primary operating software for the Company
is obtained and maintained by an external provider of software (the "External
Provider"). The Company has maintained ongoing contact with this vendor so that
modification of the software for Year 2000 readiness is a top priority and is
expected to be accomplished, though there is no assurance, by December 31, 1998.
The Company has contacted all other material vendors and suppliers regarding
their Year 2000 state of readiness. Each of these third parties has delivered
written assurance to the Company that they expect to be Year 2000 compliant
prior to the Year 2000. The Company is in the process of contacting all material
customers and non-information technology suppliers (i.e., utility systems,
telephone systems and security systems) regarding their Year 2000 state of
readiness. The Renovation phase is targeted for completion by December 31, 1998.
The Validation phase involves testing of changes to hardware and software,
accompanied by monitoring and testing with vendors. The Validation Phase is
targeted for completion by June 30, 1999. The Implementation Phase is to certify
that systems are Year 2000 ready, along with assurances that any new systems are
compliant on a going-forward basis. The Implementation Phase is targeted for
completion by September 30, 1999.
Costs will be incurred due to the replacement of non-compliant teller hardware
and software. The Company does not anticipate that the related overall costs
will be material in any single year. In total, the Company estimates that its
cost for compliance will amount to approximately $100,000 over the two year
period from 1998-1999, of which approximately $25,000 was incurred as of July
31, 1998. No assurance can be given that the Year 2000 Compliance Plan will be
completed successfully by the Year 2000, in which event the Company could incur
significant costs. If the External Provider is unable to resolve the potential
problem in time, the Company would likely experience significant data processing
delays, mistakes or failures. These delays, mistakes or failures could have a
significant adverse impact on the financial statements of the Company.
Successful and timely completion of the Year 2000 project is based on
management's best estimates derived from various assumptions of future events,
which are inherently uncertain, including the progress and results of the
companies External Provider, testing plans, and all vendors, suppliers and
customer readiness.
IMPACT OF INFLATION AND CHANGING PRICES
Unlike most industrial companies, substantially all the assets of the Company
are monetary in nature. As a result, interest rates have a greater impact on the
Company's performance than do the effects of general levels of inflation.
Interest rates do not necessarily move in the same direction or to the same
extent as the price of goods and services.
<PAGE>
LAKEVIEW FINANCIAL CORP. 1998 ANNUAL REPORT
Lakeview Financial Corp. and Subsidiaries
Consolidated Balance Sheets
As of July 31, 1997 and 1998
<TABLE>
<CAPTION>
1997 1998
- ----------------------------------------------------------------------------------------------------------------------------------
(Dollars in thousands)
<S> <C> <C>
Assets
Cash on hand and in banks....................................................... $ 5,399 $ 8,773
Federal Funds sold (note 12).................................................... - 39,900
- ----------------------------------------------------------------------------------------------------------------------------------
Total cash and cash equivalents................................................. 5,399 48,673
Investment securities held to maturity, market value of $41,935
and $83,109 at July 31, 1997 and 1998, respectively (note 3)................. 42,682 83,831
Securities available for sale (notes 4 and 12).................................. 105,592 37,867
Mortgage-backed securities held to maturity, market value of $102,345
and $101,798 at July 31, 1997 and 1998, respectively (notes 5 and 12)........ 102,249 101,771
Loans receivable, net (notes 6, 7 and 12)....................................... 224,564 286,869
Real estate owned, net (note 8)................................................. 1,929 505
Federal Home Loan Bank of New York Stock, at cost (note 12)..................... 3,550 4,626
Accrued interest receivable (note 9)............................................ 3,476 3,068
Office properties and equipment, net (note 10).................................. 4,028 4,623
Excess of cost over fair value of net assets acquired, net (note 2)............. 8,856 18,643
Other assets.................................................................... 3,557 3,380
- ----------------------------------------------------------------------------------------------------------------------------------
Total assets.................................................................. $ 505,882 $593,856
==================================================================================================================================
Liabilities and Stockholders' Equity
Deposits (note 11).............................................................. 370,787 456,880
Borrowings (note 12)............................................................ 61,250 64,928
Borrowings - Employee Stock Ownership Plan (ESOP) (note 15) .................... 2,354 8,783
Advance payments by borrowers for taxes and insurance........................... 2,259 2,934
Net deferred tax liability (note 13)............................................ 6,094 17
Other liabilities............................................................... 1,329 3,707
- ----------------------------------------------------------------------------------------------------------------------------------
Total liabilities............................................................. 444,073 537,249
Common stock - $2.00 par value; authorized 10,000,000
shares, issued 6,441,504 shares and outstanding 4,509,054
and 4,880,268 shares at July 31, 1997 and 1998............................... 6,441 12,883
Additional paid-in capital...................................................... 33,188 30,905
Retained income................................................................. 28,617 30,500
Treasury stock at cost, 1,932,450 and 1,561,236 shares at
July 31, 1997 and 1998 (note 18)............................................. (17,358) (13,343)
Unrealized gain on securities available for sale, net of tax.................... 14,458 5,306
Unallocated ESOP shares......................................................... (2,407) (8,893)
Unallocated Management Stock Bonus Plan (MSBP) shares........................... (1,130) (751)
- ----------------------------------------------------------------------------------------------------------------------------------
Total stockholders' equity (notes 13, 15, 17 and 18) ........................ 61,809 56,607
Commitments and contingencies (notes 7 and 16)
- ----------------------------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity.................................... $ 505,882 $593,856
==================================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
16
<PAGE>
Lakeview Financial Corp. and Subsidiaries
Consolidated Statements of Income
Years ended July 31, 1996, 1997 and 1998
<TABLE>
<CAPTION>
1996 1997 1998
- ------------------------------------------------------------------------------------------------------------------------
(Dollars in thousands, except share data)
<S> <C> <C> <C>
Interest income:
Loans receivable....................................................... $ 14,131 $ 16,841 $ 22,351
Mortgage-backed securities held to maturity............................ 9,605 7,319 6,443
Investment securities held to maturity and federal funds............... 3,004 3,426 5,111
Securities available for sale.......................................... 4,232 5,256 3,472
- ------------------------------------------------------------------------------------------------------------------------
Total interest income.................................................. 30,972 32,842 37,377
- ------------------------------------------------------------------------------------------------------------------------
Interest expense:
Deposits (note 11)..................................................... 14,064 13,988 15,335
Borrowings............................................................. 2,486 3,330 4,467
- ------------------------------------------------------------------------------------------------------------------------
Total interest expense................................................. 16,550 17,318 19,802
- ------------------------------------------------------------------------------------------------------------------------
Net interest income.................................................... 14,422 15,524 17,575
Provision for loan losses (note 7).................................... 664 961 1,500
- ------------------------------------------------------------------------------------------------------------------------
Net interest income after provision for loan losses...................... 13,758 14,563 16,075
- ------------------------------------------------------------------------------------------------------------------------
Other income:
Loan fees and service charges.......................................... 1,153 1,193 1,487
Net realized gains on sales of securities (note 4)..................... 2,769 4,788 8,191
Gains on sales of loans originated for sale............................ 247 1,172 1,544
Other operating income (note 6)........................................ 2,861 949 590
- ------------------------------------------------------------------------------------------------------------------------
Total other income..................................................... 7,030 8,102 11,812
- ------------------------------------------------------------------------------------------------------------------------
Other Expenses:
Compensation and employee benefits (notes 14 and 15)................... 4,649 5,708 6,615
Office occupancy and equipment expense (note 10)....................... 871 932 984
Net loss on real estate owned (note 8)................................. 921 206 290
Other operating expenses............................................... 3,107 2,770 3,315
SAIF recapitalization assessment (note 21)............................. - 2,219 -
Amortization of the excess of cost over fair value of net
assets acquired (note 2)............................................... 1,320 1,320 1,648
- ------------------------------------------------------------------------------------------------------------------------
Total other expenses................................................... 10,868 13,155 12,852
- ------------------------------------------------------------------------------------------------------------------------
Income before income taxes............................................. 9,920 9,510 15,035
- ------------------------------------------------------------------------------------------------------------------------
Income taxes (note 13)
Current................................................................ 4,112 3,836 5,925
Deferred............................................................... (466) (387) (335)
- ------------------------------------------------------------------------------------------------------------------------
Total income taxes..................................................... 3,646 3,449 5,590
- ------------------------------------------------------------------------------------------------------------------------
Net income............................................................. $ 6,274 $ 6,061 $ 9,445
Net income per common share
Basic.................................................................... $ 1.22 $ 1 49 $ 2.51
Diluted.................................................................. $ 1.14 $ 1.28 $ 2.28
Weighted average number of shares
Basic.................................................................... 5,122,875 4,080,871 3,759,797
Diluted.................................................................. 5,490,546 4,665,542 4,135,006
</TABLE>
See accompanying notes to consolidated financial statements.
17
<PAGE>
LAKEVIEW FINANCIAL CORP. 1998 ANNUAL REPORT
Lakeview Financial Corp. and Subsidiaries
Consolidated Statements of Cash Flows
Years ended July 31, 1996, 1997 and 1998
<TABLE>
<CAPTION>
1996 1997 1998
- -----------------------------------------------------------------------------------------------------------------------
(Dollars in thousands)
<S> <C> <C> <C>
Cash flows from operating activities:
Net income........................................................... $ 6,274 $ 6,061 $ 9,445
Adjustments to reconcile net income to net cash
provided by operating activities:
Amortization of the excess of cost over fair
value of net assets acquired....................................... 1,320 1,320 1,648
Amortization of discounts and premiums, net........................ (474) (374) (2,496)
Provision for loan losses and real estate owned.................... 1,319 1,005 1,558
Gain on sale of loans.............................................. (10) (5) -
Net (gain) loss on sale of real estate owned....................... (26) (48) 3
Net realized gains on sales of securities.......................... (2,769) (4,788) (8,191)
Gains on sales of loans originated for sale........................ (247) (1,172) (1,544)
Purchases of trading securuties.................................... (15,871) (20,776) (25,100)
Proceeds from sale of trading securities........................... 16,147 21,416 25,311
Loans originated for sale.......................................... (5,930) (20,602) (31,757)
Proceeds from loans originated for sale............................ 6,177 21,774 33,301
(Increase) decrease in accrued interest receivable................. (928) 171 1,420
Net (decrease) increase in deferred loan fees...................... (68) (34) 5
(Increase) decrease in other assets................................ (507) 1,627 353
Amortization of ESOP shares........................................ 313 901 566
Amortization of MSBP shares........................................ 446 482 638
(Decrease) increase in other liabilities........................... (2,473) (3,056) 1,208
Depreciation expense, net.......................................... 287 320 337
- ----------------------------------------------------------------------------------------------------- -----------
Net cash provided by operating activities.......................... 2,980 4,222 6,705
- ----------------------------------------------------------------------------------------------------- -----------
Cash flows from investing activities:
Origination of loans............................................... (40,783) (78,889) (62,354)
Principal payments on loans........................................ 20,367 19,657 41,952
Purchase of loans.................................................. (2,687) (3,976) (3,214)
Proceeds from the sale of loans.................................... 925 410 -
Net increase in office properties and equipment.................... (171) (166) (286)
Principal payments on mortgage-backed securities
held to maturity................................................... 25,230 19,382 23,304
Purchases of mortgage-backed securities
held to maturity................................................... (2,773) - (5,983)
Maturities and calls of securities held to maturity................ 41,096 7,000 40,444
Purchase of investment securities held to maturity................. (107,027) (8,812) (45,123)
Proceeds from sale of securities available for sale................ 37,441 51,894 83,420
Purchases of securities available for sale......................... (34,163) (34,873) (69,821)
Proceeds from maturity of securities available for sale............ 18,319 3,000 45,968
Principle payments on securities available for sale................ 1,534 1,785 2,063
Purchases of Federal Home Loan Bank Stock.......................... - (963) (500)
</TABLE>
(continued)
18
<PAGE>
Lakeview Financial Corp. and Subsidiaries
Consolidated Statements of Cash Flows
Years ended July 31, 1996, 1997 and 1998 continued
<TABLE>
<CAPTION>
1996 1997 1998
- ------------------------------------------------------------------------------------------------------------
(Dollars in thousands)
<S> <C> <C> <C>
Cash flows from investing activities, cont.:
Payment for purchase of Westwood Financial
Corporation, net of cash acquired................................ $ - $ - $ 5,724
Proceeds from sale of real estate owned............................ 1,645 593 1,659
- ------------------------------------------------------------------------------------------------------------
Net cash (used in) provided by investing activities............. (41,047) (23,958) 57,253
- ------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Increase (decrease) in deposits.................................. 10,757 16,541 (4,685)
Increase in borrowings........................................... 34,863 8,882 107
Increase in advance payments by borrowers
for taxes and insurance.......................................... 211 547 674
Purchase of treasury stock....................................... (6,685) (6,703) (11,389)
Exercise of stock options........................................ - - 2,121
Sale of common stock by ESOP..................................... - - 2,334
Purchase of shares by ESOP....................................... (1,616) (447) (9,001)
Cash dividends paid.............................................. (582) (587) (845)
- ------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities.............. 36,948 18,233 (20,684)
- ------------------------------------------------------------------------------------------------------------
Net (decrease) increase in cash and cash equivalents............. (1,119) (1,503) 43,274
Cash and cash equivalents at beginning of year..................... 8,021 6,902 5,399
- ------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year........................... $ 6,902 $ 5,399 $ 48,673
- ------------------------------------------------------------------------------------------------------------
Cash paid during the year for:
Interest........................................................... 16,541 17,688 19,112
Income taxes....................................................... 4,768 1,735 4,714
Supplemental disclosure of noncash investing
and financing activities:
Transfer of loans receivable to real estate owned.................. 331 732 295
Charge-off of loans receivable..................................... 429 699 987
Charge-off of real estate owned.................................... 654 44 58
Transfer of investment securities held to maturity
to securities available for sale................................... 80,858 - -
Transfer of mortgage-backed securities held to maturity
to securities available for sale................................... 31,747 - -
Transfer of restricted equity securities to securities
available for sale................................................. - 7,806 -
</TABLE>
See accompanying notes to consolidated financial statements.
19
<PAGE>
LAKEVIEW FINANCIAL CORP. 1998 ANNUAL REPORT
Lakeview Financial Corp. and Subsidiaries
Consolidated Statements of Stockholders' Equity
Years ended July 31, 1996, 1997 and 1998
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
Number Additional
of common Common paid-in
shares stock capital
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at July 31, 1995..................................................... 4,804,904 $ 5,324 $21,734
Net income................................................................... - - -
Cash dividend ($.11 per share)............................................... - - -
Stock dividend (10%)......................................................... 370,486 532 4,158
Purchase of treasury stock................................................... (643,982) - -
Common stock acquired by ESOP................................................ - - -
Amortization of ESOP shares.................................................. - - 169
Amortization of MSBP shares.................................................. - - 126
Change in unrealized loss on securities available for sale, net of tax....... - - -
- --------------------------------------------------------------------------------------------------------------------------------
Balance at July 31, 1996..................................................... 4,531,408 $ 5,856 $26,187
- --------------------------------------------------------------------------------------------------------------------------------
Net income................................................................... - - -
Cash dividend ($.12 per share)............................................... - - -
Stock dividend (10%)......................................................... (497,586) 585 6,256
Purchase of treasury stock................................................... 475,232 - -
Common stock acquired by ESOP................................................ - - -
Amortization of ESOP shares.................................................. - - 554
Amortization of MSBP shares.................................................. - - 191
Change in unrealized gain on securities available for sale, net of tax....... - - -
- --------------------------------------------------------------------------------------------------------------------------------
Balance at July 31, 1997..................................................... 4,509,054 $ 6,441 $ 33,188
- --------------------------------------------------------------------------------------------------------------------------------
Net income................................................................... - - -
Cash dividend ($.19 per share)............................................... - - -
Restatement of par value of common stock..................................... - 6,442 (6,442)
Purchase of treasury stock................................................... (489,053) - -
Common stock acquired by ESOP................................................ - - -
Sale of stock by ESOP........................................................ - - -
Amortization of ESOP shares.................................................. - - 385
Amortization of MSBP shares.................................................. - - 259
Change in unrealized gain on securities available for sale, net of tax....... - - -
Exercise of stock options.................................................... 458,924 - -
Reissuance of treasury stock in connection with acquisition.................. 401,343 - 3,515
- --------------------------------------------------------------------------------------------------------------------------------
Balance at July 31, 1998..................................................... 4,880,268 $12,883 $30,905
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
20
<PAGE>
<TABLE>
<CAPTION>
Unrealized gain Unallocated Unallocated Total
Retained Treasury (loss) on securities ESOP MSBP stockholders'
income stock available for sale shares shares equity
- ---------------------------------------------------------------------------------------------------------------------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
$ 28,982 $ (3,970) $ (55) $ (835) $(1,740) $ 49,440
6,274 - - - - 6,274
(582) - - - - (582)
(4,690) - - - - -
- (6,685) - - - (6,685)
- - - (1,616) - (1,616)
- - - 144 - 313
- - - - 320 446
- - (1,830) - - (1,830)
- ---------------------------------------------------------------------------------------------------------------------------
$ 29,984 $ (10,665) $ (1,885) $(2,307) $(1,420) $ 45,760
- ---------------------------------------------------------------------------------------------------------------------------
6,061 - - - - 6,061
(587) - - - - (587)
(6,841) - - - - -
- (6,703) - - - (6,703)
- - - (447) - (447)
- - - 347 - 901
- - - - 290 481
- - 16,343 - - 16,343
- ---------------------------------------------------------------------------------------------------------------------------
$ 28,617 $ (17,358) $14,458 $(2,407) $(1,130) $ 61,809
- ---------------------------------------------------------------------------------------------------------------------------
9,445 - - - - 9,445
(845) - - - - (845)
- - - - - -
- (11,389) - - - (11,389)
- - - (9,001) - (9,001)
- - - 2,334 - 2,334
- - - 181 - 566
- - - - 379 638
- - (9,152) - - (9,152)
(6,717) 8,839 - - - 2,122
- 6,565 - - - 10,080
- ---------------------------------------------------------------------------------------------------------------------------
$30,500 $ (13,343) $5,306 $(8,893) $ (751) $ 56,607
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements
21
<PAGE>
LAKEVIEW FINANCIAL CORP. 1998 ANNUAL REPORT
Lakeview Financial Corp. and Subsidiaries
Notes to Consolidated Financial Statements
July 31, 1997 and 1998
Note 1
Summary of Significant Accounting Policies
The following items comprise the significant accounting policies which Lakeview
Financial Corp. and Subsidiaries ("Lakeview") used in preparing and presenting
these consolidated financial statements:
Business:
Lakeview provides a full range of retail banking services through its branches
in Passaic and Bergen Counties, New Jersey. Lakeview is subject to competition
from other financial institutions. Lakeview is subject to the regulations of
certain regulatory agencies and undergoes periodic examinations by those
regulatory agencies.
Material estimates that are particularly susceptible to significant change in
the near term relate to the determination of the allowance for loan losses and
the valuation of real estate acquired in connection with foreclosures or in
settlement of loans. It is management's judgment that the allowance for loan and
real estate losses are adequate to provide for potential loan and real estate
losses.
Principles of Consolidation:
The accompanying consolidated financial statements include the accounts of
Lakeview Financial Corp. and its wholly owned subsidiaries, Lakeview Savings
Bank (Bank), LVS, Inc. (LVS), Lakeview Investment Services Inc. (LISI), North
Properties, Inc. (North Properties), Branchview, Inc. (Branchview), and Lakeview
Credit Card Services, Inc. (LCCS), and its 90% owned subsidiary Lakeview
Mortgage Depot, Inc. (LMD). LVS is currently inactive. All significant inter-
company accounts and transactions have been eliminated in consolidation.
Basis of Financial Statement Presentation:
The consolidated financial statements have been prepared in conformity with
generally accepted accounting principles. In preparing the consolidated
financial statements, management is required to make estimates and assumptions
that affect the reported amounts of assets and liabilities as of the dates of
the consolidated balance sheets, and revenues and expenses for the years then
ended. Actual results could differ significantly from those estimates and
assumptions.
Cash and Cash Equivalents:
For purposes of reporting cash flows, cash and cash equivalents include cash on
hand and in banks and federal funds sold.
Investment and Mortgage-Backed Securities:
The Bank classifies debt, readily-marketable equity and mortgage-backed
securities in one of the following categories (i) "held to maturity" (management
has a positive intent and ability to hold to maturity), which are to be reported
at amortized cost; (ii) "trading" (held for current resale), which are to be
reported at fair value with unrealized gains and losses included in earnings and
(iii) "available-for-sale" (all other debt, readily marketable equity and
mortgage-backed securities), which are to be reported at fair value, with
unrealized gains and losses excluded from earnings and reported, net of income
tax, as a separate component of equity.
In November 1995, the Financial Accounting Standards Board ("FASB") issued
"Special Report - "A Guide to Implementation of Statement 115 on Accounting for
Certain Investments in Debt Equity Securities," within which there was offered
transition guidance permitting an enterprise to reassess the appropriateness of
the classifications of all of its securities before December 31, 1995. The Bank
reassessed its classifications, and on December 31, 1995, transferred $112.6
million in amortized cost of investment and mortgage-backed securities to the
available for sale classification. The related net unrealized gain after tax
effect as of the date of transfer was $157,000.
Premiums and discounts on debt and mortgage-backed securities are amortized to
expense and accreted to income, respectively over the estimated life of the
security using a method that approximates the level yield method.
Gains and losses on the sale of securities are based upon the amortized cost of
the security using the specific identification method.
Loans:
Loans are stated at principal amounts outstanding, net of unearned discount and
net deferred loan origination fees and costs. Interest income on loans is
accrued and credited to interest income as earned.
Certain direct costs associated with the loan origination process are netted
against origination fees received, with the net resulting amount accreted over
the estimated lives of the loan using the level-yield method as an adjustment to
the loan's yield.
Loans are generally placed on nonaccrual status when a loan becomes more than 90
days past due or it appears that interest is uncollectible. Previously accrued
and unpaid interest is reversed when a loan is placed on nonaccrual status.
Interest income on nonaccrual loans is recognized only in the period in which it
is ultimately collected. After principal and interest payments have been brought
current and future collectibility is reasonably assured, loans are returned to
accrual status.
22
<PAGE>
The Bank defines the population of impaired loans to be all non-accrual
commercial real estate, multi-family and land loans. Impaired loans are
individually assessed to determine that the loan's carrying value is not in
excess of the fair value of the collateral or the present value of the loan's
expected future cash flows. Smaller balance homogeneous loans that are
collectively evaluated for impairment, such as residential mortgage loans and
installment loans, are specifically excluded from the impaired loan portfolio.
Income recognition policies for impaired loans are the same as non-accrual
loans. Gains and losses on loan sales are recorded using the specific
identification method.
Real Estate Owned:
Real estate owned, acquired through foreclosure or deed in lieu of foreclosure,
is carried at the lower of estimated fair value as determined by current
appraisals, less estimated disposition costs or the balance of the loan on the
property at date of acquisition. Costs relating to the development and
improvement of property are capitalized, whereas those relating to holding
property are charged to expense. Losses are charged to operations as incurred or
when it is determined that the investment in real estate owned is greater than
its estimated net realizable value.
Allowances For Loan Losses And Real Estate Owned:
The allowances for loan losses and real estate owned are based on management's
evaluations of the adequacy of the allowances based on the Bank's past loss
experience, known and inherent risks in the portfolio, adverse situations that
may affect the borrower's ability to repay, estimated value of any underlying
collateral, and current economic conditions. Additions are made to the
allowances through periodic provisions which are charged to earnings. All losses
of principal are charged to the allowances when the loss actually occurs or when
a determination is made that a loss is probable.
Federal Home Loan Bank of New York Stock:
The Bank, as a member of the Federal Home Loan Bank of New York ("FHLB"), is
required to hold shares of capital stock in the FHLB of New York in an amount
equal to 1% of the Bank's outstanding balance of residential mortgage loans or
5% of its outstanding advances from the FHLB of New York, whichever is greater.
Office Properties and Equipment:
Premises, furniture and equipment are stated at cost, less accumulated
depreciation and amortization. Depreciation and amortization charges are
computed using the straight-line method. Premises, furniture and equipment are
depreciated over the estimated useful life of the assets, except for leasehold
improvements, which are amortized over the term of the lease or the estimated
useful life of the asset, if shorter. Estimated useful lives are ten to forty
years for premises, and three to ten years for furniture and equipment.
Expenditures for maintenance and repairs are expensed as incurred. The costs of
major renewals and improvements are capitalized. Premises and major items of
furniture and equipment are removed from the property accounts upon disposition
at their carrying amount, and gains or losses on such transactions are included
in other income or expense.
Excess of Cost Over Fair Value of Net Assets Acquired:
The excess of cost over fair value of net assets acquired is amortized to
expense over the expected life of the acquired assets using the straight-line
method. Core deposit studies regarding the retention of the deposits acquired
are performed by the Bank on an annual basis. After reviewing the results of the
core deposit studies, a write-down of the core deposit premium may be recognized
if the current balance of the core deposit premium is overstated.
Stock Option Plans:
Lakeview applies the "intrinsic value based method" as described in Accounting
Principles Board ("APB") Opinion No.25 "Accounting for Stock Issued to
Employees," and related interpretations in accounting for its stock-based
compensation. Accordingly, no compensation cost has been recognized for the
stock option plans.
Income Taxes:
Lakeview accounts for income taxes through recognition of deferred tax
liabilities and assets for the expected future tax consequences of events that
have been included in the financial statements or tax returns. Under this
method, deferred tax liabilities and assets are determined based on the
difference between the financial statement and tax bases of assets and
liabilities using enacted tax rates in effect for the year in which the
differences are expected to be settled (see Note 13).
Net Income Per Share:
Basic net income per share is computed based upon income available to common
shareholders divided by the weighted average number of common shares outstanding
for the period. Diluted net income per share is calculated based on net income
available to common stockholders divided by the average weighted shares
outstanding including common stock equivalents utilizing the treasury stock
method.
The following reconciles the weighted average number of common shares
outstanding used to calculate basic and diluted net income per share. The
weighted average number of shares has been adjusted for all stock dividends and
splits.
23
<PAGE>
LAKEVIEW FINANCIAL CORP. 1998 ANNUAL REPORT
<TABLE>
<CAPTION>
1996 1997 1998
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Weighted Average Number of Common Shares
Outstanding - Basic 5,122,875 4,080,871 3,759,797
Effect of Dilutive Securities:
Qualified Stock Options 199,291 320,020 117,678
Non-Qualified Stock Options 103,986 203,952 252,332
MSBP Shares 64,394 50,699 5,199
Weighted Average Number of Common Shares
Outstanding - Diluted 5,490,546 4,665,542 4,135,006
- ------------------------------------------------------------------------------------------------
</TABLE>
Reclassifications:
Certain reclassifications have been made to the 1996 and 1997 amounts to conform
to the 1998 presentation.
Note 2
Acquisitions:
On February 27, 1998, Lakeview acquired Westwood Financial Corporation
("Westwood"), a New Jersey Savings Bank, in a transaction accounted for under
the purchase method of accounting. At February 27, 1998, Westwood had total
assets of $100.2 million (primarily investments of $34.4 million, mortgage-
backed securities of $16.7 million and loans of $40.4 million) and deposits and
stockholder's equity of $89.6 million and $8.1 million, respectively. Lakeview
paid $10.6 million in cash and issued 401,343 shares of stock for a value of
$10.1 million resulting in goodwill of $10.4 million. Goodwill is being
amortized on a straight-line basis over a 15 year period. Total amortization
charged to date amounts to $289,000 for the year ended July 31, 1998. The July
31, 1998 consolidated financial statements of Lakeview include the assets,
liabilities and results of operations of Westwood since the acquisition date.
The following supplemental schedule presents the pro forma results of operations
for 1997 and 1998 as though the companies had combined at the beginning of 1997
and 1998, after giving effect to certain adjustments, including amortization of
goodwill. The pro forma results of operations do not necessarily reflect the
results of operations that would have occurred had Lakeview and Westwood
constituted a single entity during such periods.
<TABLE>
<CAPTION>
Years ended July 31,
1997 1998
- -----------------------------------------------------------------------------
(Unaudited)
(Dollars in thousands except share data)
<S> <C> <C>
Net interest income...................... $18,092 $ 18,824
Net income............................... 5,475 9,122
Earnings per share
Basic ................................. $ 1.16 $ 2.21
Diluted................................ $ 1.03 $ 2.02
</TABLE>
On April 22, 1994, the Bank acquired certain assets and assumed certain
liabilities of Prospect Park Federal Savings Bank, a failed savings bank, from
the Resolution Trust Corporation. The excess of cost over the fair value of the
net assets acquired amounted to $12.4 million and is being amortized on a
straight-line basis over ten years. Total amortization charged to date amounts
to $5.4 million at July 31, 1998. The Bank also had a core deposit premium of
$1.1 million from a prior acquisition which is being amortized on a straight
line basis over 15 years, which has total amortization of $621,000 at July 31,
1998.
24
<PAGE>
Note 3
Investment Securities Held to Maturity:
The amortized cost and estimated market values of investment securities held to
maturity as of July 31, 1997 and 1998 are as follows (in thousands)
<TABLE>
<CAPTION>
Gross Gross Estimated
Amortized unrealized unrealized market
cost gains losses value
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
July 31, 1997:
FHLB structured notes.......... $22,574 $ 2 $ (562) $22,014
FHLMC structured notes......... 14,108 11 (173) 13,946
FNMA structured notes.......... 6,000 21 (46) 5,975
- ----------------------------------------------------------------------------------------
$42,682 $ 34 $ (781) 41,935
- ----------------------------------------------------------------------------------------
July 31, 1998:
FHLB structured notes.......... $44,122 $ 134 $ (480) $43,776
FHLMC structured notes......... 31,830 161 (512) 31,479
FFCB structured notes.......... 1,000 3 - 1,003
US treasury structured notes... 500 2 - 502
Municipal bonds................ 1,866 4 - 1,870
FNMA structured notes.......... 4,513 - (34) 4,479
- ----------------------------------------------------------------------------------------
$83,831 $ 304 $(1,027) $83,109
- ----------------------------------------------------------------------------------------
</TABLE>
The yield on the structured notes increases periodically over the five or ten
year term of the security. However, the issuer has the option to repay these
securities as the yield adjusts.
The amortized cost and estimated market values of investment securities held to
maturity at July 31, 1998, by contractual maturity, are shown below (in
thousands):
<TABLE>
<CAPTION>
Estimated
Amortized market
cost value
- --------------------------------------------------------------------------
<S> <C> <C>
Due in one year or less.................... $ 4,959 $ 4,962
Due after one year through five years...... 1,907 1,918
Due after five years through ten years..... 22,000 22,174
Due after ten years........................ 54,965 54,055
- --------------------------------------------------------------------------
$ 83,831 $83,109
- --------------------------------------------------------------------------
</TABLE>
25
<PAGE>
LAKEVIEW FINANCIAL CORP. 1998 ANNUAL REPORT
Note 4
Securities Available for Sale:
The amortized cost and estimated market values of securities available for sale
at July 31, 1997 and 1998 are as follows (in thousands):
<TABLE>
<CAPTION>
Gross Gross Estimated
Amortized unrealized unrealized market
cost gains losses value
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
July 31, 1997:
U.S. Agency Securities............... $ 48,931 $ 9 $(159) $ 48,781
GNMA Mortgage-backed Securities...... 3,980 212 - 4,192
FNMA/FHLMC/REMICs.................... 1,440 55 (6) 1,489
Private Issue REMICs................. 9,378 - (94) 9,284
Equity Securities.................... 19,406 22,700 (260) 41,846
- ---------------------------------------------------------------------------------------
$ 83,135 22,976 $(519) $105,592
- ---------------------------------------------------------------------------------------
July 31, 1998:
U.S. Agency Securities............... $ 3,000 $ - $ (5) $ 2,995
GNMA Mortgage-backed Securities...... 3,177 175 - 3,352
FNMA/FHLMC/REMICs.................... 980 58 - 1,038
Private issue REMICs................. 8,639 11 (30) 8,620
Equity Securities.................... 13,787 8,410 (335) 21,862
- ---------------------------------------------------------------------------------------
$ 29,583 $ 8,654 $(370) $37,867
- ---------------------------------------------------------------------------------------
</TABLE>
The amortized cost and estimated market values of debt securities available for
sale at July 31, 1998, by contractual maturity, are shown below (in thousands):
<TABLE>
<CAPTION>
Estimated
Amortized market
cost value
- ----------------------------------------------------------------------
<S> <C> <C>
Due in one year or less............... $ 3,000 $ 2,995
Due after ten years................... 12,796 13,010
- ----------------------------------------------------------------------
$ 15,796 $ 16,005
- ----------------------------------------------------------------------
</TABLE>
During the years ended July 31, 1996, 1997, and 1998, proceeds from sale of
securities available for sale amounted to $37.4 million, $51.9 million, and
$83.4 million, respectively, resulting in gross gains of $2.5 million, $4.1
million, and $8.0 million, respectively.
During the years ended July 31, 1996, 1997, and 1998, proceeds from sale of
trading securities amounted to $16.1 million, $21.4 million, and $25.3 million,
respectively, resulting in gross gains of $276,000, $640,000 and $211,000,
respectively.
26
<PAGE>
Note 5
Mortgage-Backed Securities Held to Maturity
The amortized cost and estimated market values of mortgage-backed securities
held to maturity at July 31, 1997 and 1998 are as follows (in thousands):
<TABLE>
<CAPTION>
Gross Gross Estimated
Amortized unrealized unrealized market
cost gains losses value
- ------------------------------------------------------------------------
July 31, 1997:
<S> <C> <C> <C> <C>
FHLMC................ $ 40,306 $ 424 $ (396) $ 40,334
FNMA................. 32,149 558 (156) 32,551
FNMA/FHLMC/REMICs.... 29,794 285 (619) 29,460
- ------------------------------------------------------------------------
$102,249 $ 1,267 $ (1,171) $102,345
- ------------------------------------------------------------------------
July 31, 1998:
GNMA................. $ 7,122 $ 153 $ - 7,275
FHLMC................ 34,001 351 (126) 34,226
FNMA................. 26,843 276 (31) 27,088
FNMA/FHLMC/REMICs.... 33,805 246 (842) 33,209
- ------------------------------------------------------------------------
$101,771 $ 1,026 $ (999) $101,798
- ------------------------------------------------------------------------
</TABLE>
The amortized cost and market value of mortgage-backed securities held to
maturity at July 31, 1998, are shown below by contractual maturity. The expected
maturities will differ from contractual maturities because borrowers may have
the right to call or prepay obligations with or without penalties (in
thousands).
<TABLE>
<CAPTION>
Estimated
Amortized market
cost value
- -----------------------------------------------------------------------------
<S> <C> <C>
Due in one year or less........................ $ 8,887 $ 11,914
Due after one year through five years.......... 25,127 22,145
Due after five years through ten years......... 13,934 13,934
Due after ten years............................ 53,823 53,805
- -----------------------------------------------------------------------------
$ 101,771 $ 101,798
- -----------------------------------------------------------------------------
</TABLE>
Note 6
Investments Held By Subsidiary
On February 6, 1995, Branchview sold a majority of the assets of Residential
Money Centers ("RMC"), a residential mortgage company which originates and sells
mortgages in the secondary market, to an unrelated third party for a gain of
$3.8 million, of which $3.4 million was recorded as a gain in 1995 and is
reflected in other operating income. In July 1995, Branchview purchased the
remaining partnership interest of RMC, for $1.5 million, and became the sole
owner of RMC. RMC owned a 9.09% limited partnership interest in Industry
Mortgage Company, L.P. ("IMC").
IMC is a specialized consumer finance company engaged in purchasing,
originating, servicing and selling home equity loans secured primarily by first
liens on one-to-four family residential properties.
On June 25, 1996, IMC completed a reorganization plan whereby the limited
partners received restricted common stock in exchange for their partnership
interest in connection with a public offering of unrestricted common stock.
Immediately prior to the reorganization, Branchview purchased a limited
partner's half share interest in IMC for $4.8 million. As a result of the
reorganization, Branchview received 830,928 shares of restricted common stock in
exchange for its limited partnership interest. The offering price of the common
stock was $18.00 per share. Included in other income in 1996 is approximately
$2.3 million representing Lakeview's share of partnership earnings in IMC prior
to its reorganization.
27
<PAGE>
LAKEVIEW FINANCIAL CORP. 1998 ANNUAL REPORT
On February 13, 1997, IMC paid a 2 for 1 stock split raising Branchview's share
total to 1,661,856 shares at July 31, 1997, with a then current price of $18 per
share for a total market value of $29.9 million. During 1997, Lakeview purchased
an additional 40,000 shares of IMC stock for $586,000. The underwriters of the
secondary public offering requested a lock up period which stated that no
restricted Shareholders may dispose of any shares under SEC Rule 144 for 90 days
following the closing date of the offering (July 23, 1997). No restricted
shareholder was permitted to dispose of more than 8% of that shareholder's
holdings of common stock in any calendar month, essentially eliminating
restrictions on the sale of stock beyond one year. As a result of the change in
the restriction, at July 31, 1997, Lakeview transferred the IMC shares of stock
with a cost of $8.4 million into Securities Available for Sale with a market
value of $30.6 million.
At July 31, 1998, the market value of the IMC stock, based on the quoted market
price per share, was $16.6 million, resulting in an unrealized gain, net of tax,
of $5.3 million, which is included in Stockholders' Equity.
On January 12, 1996, Lakeview granted a unsecured line of credit to IMC for $7
million with an interest rate of 10%. As of July 31, 1998, $6.8 million was
outstanding. For the fiscal year ended July 31, 1998, interest income on this
line of credit amounted to $689,000.
Note 7
Loans Receivable, Net
A comparative summary of loans receivable at July 31, 1997 and 1998 is as
follows (in thousands):
<TABLE>
<CAPTION>
1997 1998
- -----------------------------------------------------------
<S> <C> <C>
Loan balances by type:
Real estate...................... $216,896 $272,203
Construction..................... 377 2,097
Consumer......................... 1,914 3,508
Commercial....................... 8,982 14,186
- -----------------------------------------------------------
228,169 291,994
- -----------------------------------------------------------
Less:
Allowance for loan losses........ 3,411 4,478
Loans in process................. - 448
Net deferred loan fees........... 194 199
- -----------------------------------------------------------
$224,564 $286,869
- -----------------------------------------------------------
</TABLE>
The Bank serviced loans for others in the approximate amount of $13.8 million,
$14.5 million and $11.3 million at July 31, 1996, 1997 and 1998, respectively.
A comparative summary of non-accrual loans at July 31, 1997 and 1998 is as
follows (dollars in thousands):
<TABLE>
<CAPTION>
1997 1998
- -------------------------------------------------------------------------------------
No. Amount No. Amount
- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Non-accrual loans.................................... 46 $3,811 39 $2,794
Percentage of non-accrual loans to total loans, net.. 1.7% 1.0%
- -------------------------------------------------------------------------------------
</TABLE>
An analysis of the allowance for loan losses for the years ended July 31, 1996,
1997 and 1998 is as follows (in thousands):
<TABLE>
<CAPTION>
1996 1997 1998
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance at beginning of year..................... $2,535 $3,073 $3,411
Provision for loan losses........................ 664 961 1,500
Charge-offs...................................... (429) (699) (987)
Recoveries....................................... 303 76 126
Acquired from Westwood........................... - - 428
- --------------------------------------------------------------------------------
Balance at end of year........................... $3,073 $3,411 $4,478
- --------------------------------------------------------------------------------
</TABLE>
28
<PAGE>
For the years ended July 31, 1996, 1997 and 1998, additional interest income
before taxes amounting to approximately $201,000, $256,000, and $242,000,
respectively, would have been recognized if interest on non-accrual loans had
been recorded based on original terms.
The Bank had $650,000 and $910,000 of impaired loans at July 31, 1997 and 1998,
respectively. These loans had an allowance for loan loss of $76,000 and
$168,000, at July 31, 1997 and 1998, respectively. The average balance of the
impaired loans for 1996, 1997 and 1998 was $574,000, $471,000 and $558,000,
respectively. Interest income recognized on the impaired loans for 1996, 1997
and 1998 amounted to $25,000, $38,000 and $0, respectively.
The Bank uses the same credit policies and collateral requirements in making
commitments and conditional obligations as it does for on-balance sheet
loans. Commitments to extend credit are agreements to lend to customers as
long as there is no violation of any condition established in the contract.
Commitments generally have fixed expiration dates or other termination clauses
and may require payment of a fee. Since the commitments may expire without being
drawn upon, the total commitment amounts do not necessarily represent future
cash requirements. The Bank evaluates each customer's creditworthiness on a
case-by-case basis. The amount of collateral obtained, if deemed necessary by
the Bank upon extension of credit, is based on management's credit evaluation of
the borrower. Collateral held varies but primarily includes residential
properties. Outstanding loan commitments, at July 31, 1997 and 1998 amounted to
$6.1 million and $5.3 million, respectively. At July 31, 1998, adjustable rate
loan commitments amounted to $4.7 million and fixed rate loan commitment
amounted to $669,000.
Note 8
Real Estate Owned, Net
Activity in the allowance for losses on real estate owned for the years ended
July 31, 1996, 1997 and 1998 is as follows (in thousands):
<TABLE>
<CAPTION>
1996 1997 1998
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance at beginning of year................................ $ - $ - $ -
Provision charged to operations............................. 654 44 58
Charge-offs, net............................................ (654) (44) (58)
- ----------------------------------------------------------------------------------------------------
Balance at end of year...................................... $ - $ - $ -
- ----------------------------------------------------------------------------------------------------
</TABLE>
Net loss on real estate owned activities for the years ended July 31, 1996, 1997
and 1998 consists of the following (in thousands):
<TABLE>
<CAPTION>
1996 1997 1998
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Provision for real estate owned losses....................... $654 $ 44 $58
Net loss on sale of real estate owned and related expenses... 267 162 232
- -----------------------------------------------------------------------------------------------
$921 $206 $ 290
- -----------------------------------------------------------------------------------------------
</TABLE>
Note 9
Accrued Interest Receivable
Accrued interest receivable at July 31, 1997 and 1998, respectively, is
summarized as follows (in thousands):
<TABLE>
<CAPTION>
1997 1998
- --------------------------------------------------------------------------------
<S> <C> <C>
Investment securities held to maturity................. $ 908 $ 681
Securities available for sale.......................... 630 107
Mortgage-backed securities held to maturity............ 555 546
Loans receivable, net.................................. 1,383 1,734
- --------------------------------------------------------------------------------
3,476 $3,068
- --------------------------------------------------------------------------------
</TABLE>
29
<PAGE>
LAKEVIEW FINANCIAL CORP. 1998 ANNUAL REPORT
Note 10
Office Properties and Equipment, net
Office properties and equipment, net, at July 31, 1997 and 1998 consists of the
following (in thousands):
<TABLE>
<CAPTION>
1997 1998
- --------------------------------------------------------------------------------
<S> <C> <C>
Land.......................................... $ 793 $ 926
Building and building improvements............ 3,636 4,156
Furniture and equipment....................... 986 1,246
Automobiles................................... 99 101
- --------------------------------------------------------------------------------
5,514 6,429
- --------------------------------------------------------------------------------
Less accumulated depreciation................. 1,486 1,806
- --------------------------------------------------------------------------------
$4,028 $4,623
- --------------------------------------------------------------------------------
</TABLE>
Office occupancy and equipment expense includes rentals for premises and
equipment of $177,000, $187,000 and $199,000 for the years ended July 31, 1996,
1997 and 1998, respectively.
Note 11
Deposits
Deposit balances at July 31, 1997 and 1998 are summarized as follows (dollars in
thousands):
<TABLE>
<CAPTION>
1997 1998
- --------------------------------------------------------------------------------------------------------------------
Interest Weighted % Interest Weighted %
Rate average of Rate Average of
Ranges rate Amount Total Ranges Rate Amount Total
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
NOW accounts, DDA and
money market deposits...... 0-2.35% 1.67% $ 79,150 21.35 0-2.35% 1.38% $101,015 22.11
Savings deposits........... 0-2.55 2.38 75,966 20.48 0-2.85% 2.24 93,213 20.40
Certificates of deposit.... 2.40-8.15 5.17 215,671 58.17 2.40-8.15 5.31 262,652 57.49
- ---------------------------------------------------------------------------------------------------------------------
$370,787 100.00 $456,880 100.00
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
Certificates of deposit greater than $100,000 total approximately $24.0 million
and $30.6 million at July 31, 1997 and 1998, respectively.
The contractual maturities of certificates of deposit at July 31, 1997 and 1998
are as follows (in thousands):
<TABLE>
<CAPTION>
1997 1998
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Within one year................................. $189,026 $239,069
One to two years................................ 18,836 17,474
Two to three years.............................. 5,208 4,595
Three to four years............................. 2,155 554
Four to five years.............................. 306 859
Thereafter...................................... 140 101
- ---------------------------------------------------------------------------------------------------------------------
$215,671 $262,652
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
30
<PAGE>
Interest expense on deposits for the years ended July 31, 1996, 1997 and 1998
consists of the following (in thousands):
<TABLE>
<CAPTION>
1996 1997 1998
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Certificates of deposit............................ $10,881 $10,909 $12,103
Passbook and club accounts......................... 2,385 2,262 2,322
NOW and money market accounts...................... 798 817 910
- ----------------------------------------------------------------------------------------------------------
$14,064 $13,988 $15,335
- ----------------------------------------------------------------------------------------------------------
</TABLE>
Note 12
Borrowings
Borrowings at July 31, 1997 and 1998 consist of the following (in thousands):
<TABLE>
<CAPTION>
Interest
1997 1998 Rate Maturity
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
FHLB of New York Advance.............................. $17,000 $ - 5.85% Aug. 7, 1997
FHLB of New York Advance.............................. 22,000 - 6.00 Sept. 2, 1997
FHLB of New York Line of Credit....................... 20,250 - 6.13 Aug. 1, 1997
Line of Credit........................................ 2,000 - 8.00 Aug. 1, 1996
FHLB of New York Advance.............................. - 10,000 5.96 Nov.25, 1998
FHLB of New York Advance.............................. - 10,000 5.43 Nov.17, 2000
FHLB of New York Advance.............................. - 20,000 5.40 Nov.17, 2000
FHLB of New York Advance.............................. - 5,000 5.33 June 1, 2005
FHLB of New York Advance.............................. - 10,000 5.01 March 17, 2008
Lines of Credit....................................... - 9,928 8.25 Aug. 3, 1998
- ----------------------------------------------------------------------------------------------------------------
$61,250 $64,928
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
The Bank has a blanket pledge with the FHLB of New York and has pledged all of
its stock in the FHLB, federal funds sold, U. S. agency securities, certain
qualifying loans, and mortgage-backed securities.
At July 31, 1998, Lakeview had a line of credit with one major national
broker/dealer and one commercial bank which totaled $8.6 million and $1.3
million, respectively. During the years ended July 31, 1997 and 1998, the
maximum month-end balance of the lines of credits were $2.0 million and $10.7
million, respectively. The average amounts outstanding under the lines of credit
during July 31, 1997 and 1998 were $506,000 and $7.0 million. Interest paid on
the lines of credit in fiscal 1997 and 1998 was $48,000 and $565,000,
respectively.
Note 13
Income Taxes
Income tax expense for the years ended July 31, 1996, 1997 and 1998 is comprised
of the following (in thousands):
<TABLE>
<CAPTION>
1996 1997 1998
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Current:
Federal.......................................... $3,583 $3,467 $5,437
State............................................ 529 369 488
- -------------------------------------------------------------------------------------------------------------
$4,112 $3,836 $5,925
- -------------------------------------------------------------------------------------------------------------
Deferred:
Federal.......................................... (438) (355) (307)
State............................................ (38) (32) (28)
- --------------------------------------------------------------------------------------------------------------
(466) (387) (335)
- --------------------------------------------------------------------------------------------------------------
Total income tax expense $3,646 $3,449 $5,590
- --------------------------------------------------------------------------------------------------------------
</TABLE>
31
<PAGE>
LAKEVIEW FINANCIAL CORP. 1998 ANNUAL REPORT
If certain conditions were met, under tax law that existed prior to 1996, thrift
institutions, in determining taxable income, were allowed a special bad debt
deduction based on a percentage of taxable income before such deduction.
Lakeview prepares and files its tax return on a calendar year basis. Lakeview
used the experience method in preparing their Federal Income Tax return for
calendar year 1995 and 1994. The tax bad debt reserve method was repealed for
tax years beginning after 1995. Lakeview must instead use the direct charge-off
method to compute its bad debt deduction.
Upon repeal, Lakeview is generally required to recapture into income the portion
of its bad debt reserve (other than supplemental reserves) that exceeds its base
year (December 31, 1987) reserves. The recapture amount generally will be taken
into income ratably (on a straight-line basis) over a six-year period.
Lakeview has not recognized a deferred tax liability of approximately $1.3
million for bad debt reserves for tax purposes which arose in tax years
beginning before December 31, 1987 (i.e., base year). A deferred tax liability
will be recognized if Lakeview expects that charges to the bad debt reserves,
other than the losses on loans or recomputation of bad debt deductions resulting
from operating loss carrybacks to prior years, would result in taxable income.
Lakeview does not anticipate any such recognition in the foreseeable future.
A reconciliation of expected income tax expense (computed by multiplying the
U.S. Federal corporate income tax rate of 34% to income before income taxes) and
total income tax expense for the years ended July 31, 1996, 1997 and 1998 is as
follows (in thousands):
<TABLE>
<CAPTION>
1996 1997 1998
- -------------------------------------------------------------------------------------
<S> <C> <C> <C>
Expected income tax expense........................... $3,373 $3,233 $5,112
Dividends received deduction.......................... (88) (56) (58)
State income taxes, net of Federal tax benefit........ 324 222 304
Amortization of the excess of cost over fair
value of net assets acquired ......................... 37 50 121
Other................................................. - - 111
- --------------------------------------------------------------------------------------
Total income tax expense.............................. $3,646 $3,449 $5,590
- --------------------------------------------------------------------------------------
</TABLE>
The tax effects of temporary differences that give rise to significant portions
of the deferred tax asset (liability) at July 31, 1997 and 1998 are as follows
(in thousands):
<TABLE>
<CAPTION>
1997 1998
- --------------------------------------------------------------------------------
<S> <C> <C>
Deferred tax assets:
Premium on deposits................................... $ - $ 419
Management stock bonus plan........................... 172 131
Allowance for loan losses............................. 1,210 1,599
Loan fees............................................. 70 72
Uncollected interest.................................. 111 161
Accrued bonus......................................... 76 76
Excess of cost over fair value of net assets acquired. 485 636
Supplemental Executive Retirement Plan expense........ 65 135
Other................................................. 26 22
- --------------------------------------------------------------------------------
$ 2,215 $ 3,251
- --------------------------------------------------------------------------------
Deferred tax liabilities:
Intangible assets..................................... 193 167
Depreciation expense.................................. 94 82
Unrealized gain on securities available for sale...... 7,999 2,977
Other................................................. 23 42
- --------------------------------------------------------------------------------
...................................................... 8,309 3,268
Net deferred liability................................ $(6,094) $ (17)
- --------------------------------------------------------------------------------
</TABLE>
Management believes, based upon current facts, that it is more likely than not
that there will be sufficient taxable income in future years to realize the
deferred tax assets. However, there can be no assurances about the levels of
future earnings.
32
<PAGE>
Note 14
Employee Benefit Plans
Defined Benefit Plan
Lakeview has in effect a noncontributory defined benefit plan covering
substantially all of its employees upon their becoming eligible. The benefits
are based on years of service and compensation.
Net pension benefit for the years ended July 31, 1996, 1997 and 1998 includes
the following (in thousands):
<TABLE>
<CAPTION>
1996 1997 1998
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost - benefits earned during the period..... $ 37 $ 62 $ 69
Interest cost on projected benefit obligation........ 38 46 56
Return (loss) on plan assets......................... (83) (414) 582
Net amortization and deferral........................ (45) 296 (741)
- --------------------------------------------------------------------------------
Total pension benefit................................ $ (53) $ (10) $ (34)
- --------------------------------------------------------------------------------
</TABLE>
The following table sets forth the plan's funded status at July 31, 1997 and
1998 (in thousands):
<TABLE>
<CAPTION>
1997 1998
- --------------------------------------------------------------------------------
<S> <C> <C>
Actuarial present value of obligations - accumulated benefit
obligation, including vested benefits of $641 and $771
at July 31, 1997 and 1998, respectively..................... $ 675 $ 855
Projected benefit obligation................................ 731 935
Plan assets at fair value (primarily equities).............. 1,608 980
Plan assets in excess of projected benefit obligation....... 877 45
Unrecognized net transition obligation...................... (60) (51)
Unrecognized prior service cost............................. (37) (34)
Unrecognized deferred (gain)loss............................ (722) 132
- --------------------------------------------------------------------------------
Prepaid pension cost........................................ $ 58 $ 92
- --------------------------------------------------------------------------------
</TABLE>
The weighted average discount rate used in determining the actuarial present
value of the projected benefit obligation was 6.50% in fiscal 1997 and 6.00% in
fiscal 1998. The assumed long-term rate of return on plan assets was 7.25% in
fiscal 1997 and 1998, and the assumed rate of increase in future compensation
levels was 5.50% in fiscal 1997 and 5.00% in fiscal 1998.
Supplemental Executive Retirement Plan
During fiscal year 1996, Lakeview implemented a Supplemental Executive
Retirement Plan ("SERP"), which provides a post-employment supplemental
retirement benefit to the participant's Pension Plans Annual Benefit. The SERP
is not a tax-qualified employee benefit plan. The SERP expense was $84,000,
$97,000 and $195,000 for the years ended July 31, 1996, 1997 and 1998.
33
<PAGE>
LAKEVIEW FINANCIAL CORP. 1998 ANNUAL REPORT
Note 15
Stock Benefit Plans
Stock Option Plan:
At July 31, 1998, Lakeview has a stock-based compensation plan, which is
described below. Lakeview applies APB Opinion No. 25 and related interpretations
in accounting for its plan. Accordingly, no compensation cost is recognized for
its stock option plan. Had compensation cost for Lakeview's stock option plans
been determined consistent with Statement of Financial Accounting Standards No.
123 "Stock Based Compensation," (SFAS 123) Lakeview's net income and net income
per share would have been reduced to the pro forma amounts indicated below (in
thousands, except per share amounts):
<TABLE>
<CAPTION>
1996 1997 1998
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net Income As reported $6,274 $6,061 $9,445
Pro forma 5,951 5,941 9,445
Basic net income As reported 1.22 1.49 2.51
Pro forma 1.16 1.46 2.51
Diluted net income As reported 1.14 1.28 2.28
Pro forma 1.08 1.27 2.28
</TABLE>
The fair value of each option is estimated on the date of grant using the
Black-Scholes option-pricing model with the following weighted-average
assumptions used for grants in 1996 and 1997, respectively; dividend yield of
.75% for both years; expected volatility of 20% for both years; risk-free
interest rates of 5.48% and 6.34%. The effects of applying SFAS 123 on the pro
forma net income may not be representative of the effect on the pro forma income
for future years.
Lakeview adopted a stock option and incentive plan (Option Plan). Pursuant to
the Option Plan, stock options may be granted to directors and officers of the
Bank. Options granted under the Option Plan may be either options that qualify
as Incentive Stock Options as defined in Section 422 of the Internal Revenue
Code of 1986 (the Code), as amended, or options that do not qualify.
Exercise prices of the options range from $3.76 to $14.75 per share. All options
have been adjusted to reflect stock dividends and splits. At July 31, 1998,
501,024 stock options were outstanding, and 458,924 stock options were exercised
during this period.
A summary of the status of Lakeview's stock option plans as of July 31, 1996,
1997, and 1998, and changes during the years then ended is presented below:
<TABLE>
<CAPTION>
Shares under Weighted - avg.
option exercise price
- --------------------------------------------------------------------------------
<S> <C> <C>
Outstanding at July 31, 1995..................... 723,928 $ 3.96
Grant in fiscal year ended July 31, 1996......... 196,020 7.28
- --------------------------------------------------------------------------------
Outstanding at July 31, 1996..................... 919,948 4.67
Grant in fiscal year ended July 31, 1997......... 40,000 12.33
- --------------------------------------------------------------------------------
Outstanding at July 31, 1997..................... 959,948 4.99
Exercised in fiscal year ended July 31, 1998..... 458,924 4.58
- --------------------------------------------------------------------------------
Outstanding at July 31, 1998..................... 501,024 $ 5.37
- --------------------------------------------------------------------------------
</TABLE>
34
<PAGE>
FOCUS '99
The following table summarizes information about stock options outstanding at
July 31, 1998.
<TABLE>
<CAPTION>
Range of Number Weighted Weighted Number Weighted
exercise of options average remaining average of options average
prices outstanding contractual life exercise price excercised exercise price
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$ 3.76 289,894 5.4 years $ 3.76 354,174 $ 3.76
5.64 39,930 6.3 years 5.64 39,930 5.64
7.28 145,200 7.4 years 7.28 50,820 7.28
12.06 - 14.75 26,000 8.5 years 12.27 14,000 12.06
- ------------------------------------------------------------------------------------------------------------------------------
501,024 $ 5.37 458,924 $ 4.58
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The purpose of the Stock Option Plan is to provide additional incentive to
certain officers, directors and key employees by facilitating their purchase of
a stock interest in Lakeview. The Stock Option Plan provides for a term of ten
years, after which no awards may be made, unless earlier terminated by the Board
of Directors pursuant to the Stock Option Plan. Options become immediately
vested in the event of death, disability or a "change-in-control" of Lakeview or
the Bank.
Employee Stock Ownership Plan ("ESOP"):
Lakeview established an ESOP for the benefit of employees who meet the
eligibility requirements which include having completed one year of service with
the Bank and having attained age 21. The ESOP Trust purchased 110,000 shares of
common stock in Lakeview's initial public offering with proceeds from a loan
from an unaffiliated lender. On July 31, 1996 the ESOP Trust purchased an
additional 84,744 shares for $1.6 million. During the fiscal year ended July 31,
1997, the ESOP Trust purchased an additional 15,000 shares for $447,000. During
the fiscal year ended July 31, 1998, the ESOP Trust purchased an additional
349,404 shares for $9 million.
The ESOP debt as of July 31, 1997 and 1998 was $2.4 million and $8.8 million,
respectively, and bears an interest rate equal to the prime rate less .10%, as
published in the Wall Street Journal. Lakeview makes cash contributions to the
ESOP on an annual basis sufficient to enable the ESOP to make the required debt
payments to the unaffiliated lender. Dividends declared on ESOP shares are used
to purchase additional common shares of Lakeview, for inclusion in the Plan, as
Plan assets.
As the debt is repaid, shares are released from collateral and allocated to
qualified employees based on the proportion of debt service paid in the year.
Lakeview accounts for its ESOP in accordance with Statement of Position 93-6.
Accordingly, the shares pledged as collateral are reported as unallocated ESOP
shares in the Consolidated Balance Sheets. As shares are released from
collateral, Lakeview reports compensation expense equal to the current market
price of the shares, and the shares become outstanding for net income per share
computations.
Lakeview recognized $313,000, $901,000 and $566,000 in compensation expense for
the years ended July 31, 1996, 1997, and 1998, respectively. Lakeview allocated
32,303, 35,649 and 16,757 shares for the years ended July 31, 1996, 1997 and
1998. The ESOP has 548,255 shares remaining at July 31, 1998 with a fair market
value of $12.9 million.
Management Stock Bonus Plans ("MSBP"):
Lakeview adopted the MSBP for directors and management to enable the Bank to
attract and retain experienced and capable personnel in key positions of
responsibility. A total of 585,640 shares of restricted stock were purchased on
December 22, 1993, Lakeview's initial public offering, as adjusted for stock
dividends and splits. Allocated restricted stock is payable over a five-year
vesting period, at 20% per year, beginning in the year of the award. The MSBP
shares are recorded as a contra equity account excluded from stockholders'
equity. Lakeview recognizes compensation expense in the amount of the cost of
the common stock at the acquisition date, pro rata over the years during which
the shares are payable and recorded as an addition to stockholders' equity.
Compensation expense attributable to the MSBPs amounted to $320,000, $290,000
and $379,000 in 1996, 1997 and 1998, respectively. The shares are entitled to
all voting and other stockholder rights, except that the shares, while
restricted, cannot be sold, pledged or otherwise disposed of, and are required
to be held in escrow. Lakeview has 199,807 shares remaining at July 31, 1998,
190,147 of which are unallocated.
If a holder of restricted stock under the MSBP terminates employment for reasons
other than death, disability, or retirement following five years of service or
change of control in Lakeview or the Bank, such employee forfeits all rights to
any allocated shares which are still restricted. If termination is caused by
death, disability, retirement or change in control of Lakeview or the Bank, all
allocated shares become unrestricted.
35
<PAGE>
LAKEVIEW FINANCIAL CORP. 1998 ANNUAL REPORT
Note 16
Commitments and Contingencies
At July 31, 1998, the Bank was obligated under non-cancelable operating leases
for premises and equipment as follows (in thousands):
<TABLE>
<CAPTION>
- ------------------------------------------------------------
<S> <C>
1999....................................................$252
2000.................................................... 229
2001.................................................... 217
2002.................................................... 882
2003.................................................... 41
- ------------------------------------------------------------
</TABLE>
In the normal course of business, there are various outstanding legal
proceedings and claims. In the opinion of management, after consultation with
legal counsel, the disposition of such legal proceedings and claims will not
materially affect Lakeview's consolidated financial position.
Note 17
Regulatory Matters
The Bank is subject to various regulatory capital requirements administered by
the federal banking agencies. Failure to meet minimum capital requirements can
initiate certain mandatory - and possibly additional discretionary - actions by
regulators that, if undertaken, could have a direct material effect on the
Bank's financial statements. Under capital adequacy guidelines and the
regulatory framework for prompt corrective action, the Bank must meet specific
capital guidelines that involve quantitative measures of Bank's assets,
liabilities, and certain off-balance-sheet items as calculated under regulatory
accounting practices. The Bank's capital amounts and classification are also
subject to qualitative judgments by the regulators about components, risk
weightings, and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Bank to maintain minimum amounts and ratios. Total and Tier I
capital (as defined in the regulations) to risk-weighted assets (as defined),
and of Tier I capital (as defined) to average assets (as defined). Management
believes, as of July 31, 1998, that the Bank meets all capital adequacy
requirements to which it is subject.
As of July 31, 1998, the most recent notification from the Federal Deposit
Insurance Corporation categorized the Bank as well capitalized under the
regulatory framework for prompt corrective action. To be categorized as well
capitalized the Bank must maintain minimum total risk-based, Tier I risk-based,
Tier I leverage ratios as set forth in the table below. There are no conditions
or events since that notification that management believes have changed the
institution's category.
The Bank's actual capital amounts and ratios are also presented in the following
table (dollars in thousands).
<TABLE>
<CAPTION>
Required To be well capitalized
for capital under prompt corrective
Actual adequacy purposes action provision
- --------------------------------------------------------------------------------------------------------
Amount Ratio Amount Ratio Amount Ratio
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
As of July 31, 1997:
Total capital (to risk-weighted assets)..... $45,129 17.0% $21,246 8.0% $26,557 10.0%
Tier 1 capital (to risk-weighted assets).... 36,121 13.6 10,623 4.0 15,934 6.0
Tier 1 capital (to average assets).......... 36,121 7.6 19,108 4.0 23,885 5.0
- --------------------------------------------------------------------------------------------------------
As of July 31, 1998:
Total capital (to risk-weighted assets).... $51,418 15.0% $27,416 8.0% $34,270 10.0%
Tier 1 capital (to risk-weighted assets).... 31,651 9.2 13,708 4.0 20,562 6.0
Tier 1 capital (to average assets).......... 31,651 5.8 21,888 4.0 27,360 5.0
- --------------------------------------------------------------------------------------------------------
</TABLE>
36
<PAGE>
FOCUS '99
Note 18
Stock Repurchase Program
Lakeview has repurchased shares beginning on October 28, 1994, under its stock
repurchase programs. The repurchased shares have been held as treasury stock and
are available for general corporate purposes. Lakeview has completed the
repurchase of 489,053 shares totaling $11.4 million for the year ended July 31,
1998.
Note 19
Fair Value of Financial Instruments
Statement of Accounting Standards No. 107, "Disclosure about Fair Value of
Financial Instruments" (SFAS 107), requires disclosures of information about the
fair value of all financial instruments. The fair value of a financial
instrument is the amount at which the asset or obligation could be exchanged in
a current transaction between willing parties, other than in a forced or
liquidation sale. Fair value estimates are made at a specific point in time
based on relevant market information and information about the financial
instruments. Such estimates do not include any premium or discount that could
result from offering for sale at one time Lakeview's entire holdings of a
particular financial instrument. Because no market value exists for a
significant portion of the financial instruments, fair value estimates are based
on judgments regarding future expected loss experience, current economic
conditions, risk characteristics of various financial instruments, and other
assumptions, many of which involve circumstances outside the control of
management. Because of the uncertainties surrounding these factors and
assumptions, the reported fair values represent estimates only and, therefore,
cannot be compared to the historical accounting model. Changes in assumptions or
methodologies could significantly affect the estimates of fair value.
Fair value estimates presented are based on financial instruments both on- and
off-balance sheet, and no attempt has been made to estimate the value of
anticipated future business, and the value of assets and liabilities that are
not considered financial instruments. In addition, the tax consequences related
to the realization of the unrealized gains and losses can have a potential
effect on fair value estimates and have not been considered in any of the
estimates. The fair value information supplements the basic financial statements
and other traditional financial data presented throughout the financial
statements, and the aggregate fair value of financial instruments presented does
not represent the underlying value of Lakeview taken as a whole and should not
be compared with the fair value of other financial institutions, which may
differ depending on the assumptions used and the valuation techniques employed.
The following methods and assumptions were used to estimate the fair value of
significant financial instruments at July 31, 1997 and 1998:
Financial Assets:
The carrying amount of cash and cash equivalents is considered to approximate
fair value. The fair values of securities available for sale, mortgage-backed
securities held to maturity and investment securities held to maturity are based
on quoted market prices. The fair value of loans represents the present value of
the estimated future cash flows discounted at estimates of market interest rates
adjusted for criteria discussed above. Fair value of significant nonperforming
loans is generally based on the estimated cash flows which are discounted
employing a rate that incorporates the risk associated with such cash flows. The
fair value of the FHLB stock is the same as its carrying value.
Financial Liabilities:
The carrying amounts of deposit liabilities payable on demand are considered to
approximate fair value. The fair value of fixed maturity deposits was estimated
by discounting estimated future cash flows using rates currently offered for
deposit products with similar maturities. For short-term borrowings, the
carrying amounts are considered to approximate fair value. Long-term borrowings
fair values are discounted using rates available on borrowings with similar
terms and maturities.
37
<PAGE>
LAKEVIEW FINANCIAL CORP. 1998 ANNUAL REPORT
Off-balance-sheet Financial Instruments:
The fair value of commitments to extend credit is estimated using the fees
currently charged to enter into similar arrangements.
The carrying amounts and related fair values at July 31, 1997 and 1998 are as
follows (in thousands):
<TABLE>
<CAPTION>
Carrying amount Fair value
- ----------------------------------------------------------------------------------
<S> <C> <C>
1997:
Financial assets:
Cash and cash equivalents........................ $ 5,399 $ 5,399
Investment securities held to maturity........... 42,682 41,935
Securities available for sale.................... 105,592 105,592
Mortgage-backed securities held to maturity...... 102,249 102,345
Loans receivable, net............................ 224,564 229,260
Federal Home Loan Bank of New York stock......... 3,550 3,550
Financial liabilities:
Deposits......................................... 370,787 374,661
Borrowings....................................... 63,604 63,604
1998:
Financial assets:
Cash and cash equivalents......................... $ 48,673 $ 48,673
Investment securities held to maturity............ 83,831 83,109
Securities available for sale..................... 37,867 37,867
Mortgage-backed securities held to maturity....... 101,771 101,798
Loans receivable, net............................. 286,869 293,526
Federal Home Loan Bank of New York stock.......... 4,626 4,626
Financial liabilities:
Deposits.......................................... 456,880 460,443
Borrowings........................................ 73,711 81,796
</TABLE>
Note 20
Recent Accounting Pronouncements
Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive
Income" (SFAS 130) establishes standards for reporting and displaying of
comprehensive income and its components in a full set of general purpose
financial statements. Under SFAS 130, comprehensive income is divided into net
income and other comprehensive income. Other comprehensive income includes items
previously recorded directly in equity, such as unrealized gains or losses on
securities available for sale. Prior period financial statements need to be
reclassified to reflect the applications of the provisions of SFAS 130. SFAS 130
is effective for fiscal years beginning after December 15, 1997. The adoption of
SFAS 130 is not expected to have a material impact on Lakeview's financial
statement presentation.
Statement of Financial Accounting Standards No. 132, "Employers Disclosures
about Pensions and Other Post-retirement Benefits" (SFAS 132), revises
employers' disclosures about pension and other post-retirement benefit plans. It
does not change the measurement or recognition of those plans. It standardizes
the disclosure requirements for pensions and other post-retirement benefits to
the extent practicable, requires additional information in changes in the
benefit obligations and fair value of plan asset that will facilitate financial
analysis and eliminates certain required disclosures of previous accounting
pronouncements. SFAS 132 is effective for fiscal years beginning after December
15, 1997. Restatement of disclosures for earlier periods is required unless the
information is not readily available. The adoption of SFAS 132 is not expected
to have a significant impact on Lakeview's financial statement presentation or
footnote disclosure.
38
<PAGE>
Statement of Financial Accounting Standards No. 133 "Accounting for Derivative
Instruments and Hedging Activities" (SFAS 133) establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts, (collectively referred to as
derivatives) and for hedging activities. It requires that an entity recognize
all derivatives as either assets or liabilities in the statement of financial
position and measure those instruments at fair value. SFAS 133 is effective for
all fiscal quarters of fiscal years beginning after June 15, 1999. Initial
application of SFAS 133 should be as of the beginning of an entity's fiscal
quarter; on that date, hedging relationships must be designated anew and
documented pursuant to the provisions of this statement. Earlier application of
all of the provisions of SFAS 133 is encouraged, but it is permitted only as of
the beginning of any fiscal quarter that begins after issuance of the statement.
This statement should not be applied retroactively to financial statements of
prior periods. Lakeview has not determined the impact, if any, SFAS 133 will
have on Lakeview's consolidated financial statements.
Note 21
Savings Association Insurance Fund ("SAIF")
Recapitalization Assessment
On September 30, 1996, the President signed into law the Deposit Insurance Funds
Act of 1996 (the "Funds Act") which, among other things, imposes a special
one-time assessment on SAIF member institutions, including the Bank, to
recapitalize the SAIF. As required by the Funds Act, the FDIC imposed a special
assessment of 65.7 basis points on SAIF assessable deposits held as of March 31,
1995, payable November 27, 1996. The special assessment was recognized as an
expense on September 30, 1996 and is tax deductible. The Bank incurred a pre tax
charge of $2.2 million in 1997 as a result of the FDIC special assessment. The
Bank paid $794,000, $582,000 and $255,000 in Federal deposit insurance premiums
for the fiscal years ended July 31, 1996, 1997 and 1998, respectively.
Note 22
Subsequent Event
Lakeview, including its subsidiary Branchview, Inc., has an equity investment
with a cost basis of $8.4 million in IMC Mortgage Company, L.P. (IMC). In
addition, Lakeview has an unsecured line of credit to IMC for $7 million as of
July 31, 1998 (see Note 6).
IMC reached an agreement on October 15, 1998 for a $33 million standby revolving
credit facility with a lender and certain affiliates of the lender. The facility
is available to provide working capital for a period of up to 90 days, during
which time IMC intends to explore financial and strategic alternatives including
the possible sale of IMC. The terms of the new facility result in a substantial
dilution of existing common stockholders' equity equating to a minimum of 40%,
up to a maximum of 90%, on a fully diluted basis, depending on when, or whether,
a change of control transaction occurs, as described below. Lakeview's equity
investment in IMC represents approximately 5.5% of IMC's outstanding common
shares.
IMC has also entered into intercreditor arrangements with its three
largest warehouse and residual certificate lenders which have agreed to a
"standstill" keeping their facilities in place for up to 90 days in order for
IMC to explore its financial alternatives. In addition, IMC has entered into a
forbearance and intercreditor agreement with respect to its $95 million
revolving bank credit facility, which has matured by its terms. That agreement
provides that the lender will take no collection action fo 45 days, extending
for an additional 45 days (to a total of 90 days) if a letter of intent to
effectuate a change of control has been entered into by IMC during the initial
45-day period.
In view of, among other things, reductions in available cash and credit
resources, IMC has retained an investment banker to advise it as to financial
and strategic alternatives. IMC is actively working with the investment banker
to seek a long-term investor in IMC or a sale or similar transaction resulting
in a change of control of IMC.
In light of, among other things, the factors noted above, IMC does not expect to
meet earnings expectations for the quarter ended September 30, 1998, and
presently anticipates the possibility of a third quarter loss.
As of October 16, 1998, the market value of the IMC stock held by Lakeview,
based on the quoted market price per share, was $1.8 million, resulting in an
unrealized loss, net of tax, of $4.0 million.
Management of Lakeview cannot presently predict what effect the actions of IMC,
as described above, will have on the collectibility of the outstanding line of
credit and recoverability of their equity investment.
Note 23
Parent Company Only
At fiscal year end 1998, Lakeview Financial Corp. (Parent) had three active
subsidiaries: Lakeview Savings Bank, Branchview, Inc., and Lakeview Mortgage
Depot, Inc. The earnings of the subsidiaries are recognized by the Parent using
the equity method of accounting. Accordingly, earnings of the subsidiaries are
recorded as increases in the Parent's investment in the subsidiaries and
dividends paid reduce the Parent's investment in the subsidiaries. The following
information should be read in conjunction with other Notes to the Consolidated
Financial Statements.
39
<PAGE>
LAKEVIEW FINANCIAL CORP. 1998 ANNUAL REPORT
<TABLE>
<CAPTION>
Condensed Financial Statements (Parent Only)
1997 1998
Condensed Balance Sheets ------------------------------------
(Dollars in thousands)
<S> <C> <C>
Assets
Cash on hand and in banks........................................... $ 168 $ 107
Investments in subsidiaries......................................... 63,456 60,227
Securities available for sale....................................... 720 1,390
Excess of cost over fair value of assets acquired, net.............. - (990)
Other assets........................................................ 297 357
- ------------------------------------------------------------------------------------------------------------
Total assets........................................................ $ 64,641 $ 61,091
- ------------------------------------------------------------------------------------------------------------
Liabilities and Stockholders' Equity
Borrowings......................................................... 2,000 4,307
Other liabilities.................................................. 832 177
Stockholders' equity............................................... 61,809 56,607
- ------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity......................... $ 64,641 $ 61,091
- ------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Condensed Statements of Income 1996 1997 1998
------------------------------------
<S> <C> <C> <C>
Dividends from subsidiaries.......................................... $ 7,651 $ 5,551 $ 8,700
Other income......................................................... - 13 6
- ------------------------------------------------------------------------------------------------------------
Total income......................................................... 7,651 5,564 8,706
Interest expense..................................................... - 47 459
Amortization of excess cost over fair value of net
assets acquired, net................................................. - - (28)
Other expense........................................................ 35 61 86
- ------------------------------------------------------------------------------------------------------------
Total expense........................................................ 35 108 517
Income before income taxes and equity of undistributed
income of subsidiaries............................................... 7,616 5,456 8,189
Income tax expense (benefit)......................................... 2 (12) -
Equity in undistributed income (loss) of subsidiaries................ (1,340) 593 1,256
- ------------------------------------------------------------------------------------------------------------
Net income........................................................... $ 6,274 $ 6,061 $ 9,445
- ------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Condensed Statement of Cash Flows 1996 1997 1998
---------------------------------------
Cash flows from operating activities:
<S> <C> <C> <C>
Net income......................................................... $ 6,274 $ 6,061 $ 9,445
Adjustments to reconcile net income to net cash
provided by operating activities:
Equity in undistributed (income) loss from subsidiary.............. 1,340 (593) (1,256)
(Decrease) increase in investment in subsidiaries.................. (250) (150) 150
Amortization of excess of cost over fair value of.
assets acquired, net............................................... - - (28)
Increase in other assets........................................... - (351) (60)
(Increase) decrease in other liabilities........................... (5) 832 (655)
- ------------------------------------------------------------------------------------------------------------
Net cash provided by operating activity............................ 7,359 5,799 7,596
- ------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Payment for purchase of Westwood Financial
Corporation, net of cash acquired.................................. - - 1,148
Purchase of securities available for sale.......................... - (585) (1,000)
- ------------------------------------------------------------------------------------------------------------
Net cash used in investing activities.............................. - (585) 148
- ------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Cash dividends paid................................................ (582) (587) (845)
Purchase of treasury stock......................................... (6,685) (6,703) (11,389)
Exercise of stock options.......................................... - - 2,122
Increase in borrowings............................................. - 2,000 2,307
- ------------------------------------------------------------------------------------------------------------
Net cash used in financing activities................................. (7,267) (5,290) (7,805)
- ------------------------------------------------------------------------------------------------------------
Net change in cash and cash equivalents............................... 92 (76) (61)
Cash and cash equivalents at beginning of period...................... 152 244 168
- ------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period............................ $ 244 $ 168 $ 107
- ------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
Note 24
Quarterly Financial Data (Unaudited)
The following table contains quarterly financial data for the years ended July
31, 1997 and 1998 (dollars in thousands):
<TABLE>
<CAPTION>
First Second Third Fourth
Year Ended July 31, 1997 Quarter Quarter Quarter Quarter Total
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Interest Income................................. $ 8,058 $ 7,983 $ 8,372 $ 8,429 $32,842
Interest Expense................................ 4,209 4,357 4,312 4,440 17,318
- -----------------------------------------------------------------------------------------------------------------------
Net Interest Income............................. 3,849 3,626 4,060 3,989 15,524
Provision for Loan Losses....................... 105 256 300 300 961
- -----------------------------------------------------------------------------------------------------------------------
Net Interest Income After Provision
for Loan Losses................................. 3,744 3,370 3,760 3,689 14,563
Other Income.................................... 1,614 3,166 972 2,350 8,102
Other Expense................................... 4,801 2,649 2,847 2,858 13,155
Income Before Income Taxes...................... 557 3,887 1,885 3,181 9,510
Income Taxes.................................... 211 1,417 546 1,275 3,449
- -----------------------------------------------------------------------------------------------------------------------
Net Income...................................... $ 346 $ 2,470 $ 1,339 $ 1,906 $ 6,061
Net Income Per Share:
Basic........................................ $ 0.08 $ 0.60 $ 0.33 $ 0.48 $ 1.49
Diluted...................................... $ 0.05 $ 0.52 $ 0.29 $ 0.42 $ 1.28
</TABLE>
<TABLE>
<CAPTION>
First Second Third Fourth
Year Ended July 31, 1998 Quarter Quarter Quarter Quarter Total
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Interest Income................................. $ 8,971 $8,683 $ 9,645 $ 10,078 $ 37,377
Interest Expense................................ 4,636 4,664 5,084 5,418 19,802
- ----------------------------------------------------------------------------------------------------------------------------
Net Interest Income............................. 4,335 4,019 4,561 4,661 17,575
Provision for Loan Losses....................... 301 300 449 450 1,500
- ----------------------------------------------------------------------------------------------------------------------------
Net Interest Income After Provision
for Loan Losses................................. 4,034 3,719 4,112 4,211 16,075
Other Income.................................... 745 3,371 3,587 4,109 11,812
Other Expense................................... 2,823 3,027 3,133 3,869 12,852
Income Before Income Taxes...................... 1,956 4,063 4,566 4,450 15,035
Income Taxes.................................... 690 1,515 1,524 1,861 5,590
- ----------------------------------------------------------------------------------------------------------------------------
Net Income...................................... $ 1,266 $ 2,548 $ 3,042 $ 2,589 $ 9,445
- ----------------------------------------------------------------------------------------------------------------------------
Net Income Per Share:
Basic........................................ $ 0.28 $ 0.75 $ 0.83 $ 0.65 $ 2.51
Diluted...................................... $ 0.29 $ 0.63 $ 0.75 $ 0.61 $ 2.28
</TABLE>
<PAGE>
LAKEVIEW FINANCIAL CORP. 1998 ANNUAL REPORT
INDEPENDENT AUDITORS' REPORT
[LOGO OF KPMG PEAT MARWICK LLP]
The Board of Directors and Stockholders
Lakeview Financial Corp. and Subsidiaries
Paterson, New Jersey:
We have audited the accompanying consolidated balance sheets of Lakeview
Financial Corp. and Subsidiaries as of July 31, 1997 and 1998, and the related
consolidated statements of income, stockholders' equity, and cash flows for each
of the years in the three-year period ended July 31, 1998. These consolidated
financial statements are the responsibility of the Corporation's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Lakeview Financial
Corp. and Subsidiaries as of July 31, 1997 and 1998, and the results of their
operations and their cash flows for each of the years in the three-year period
ended July 31, 1998 in conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
Short Hills, New Jersey
September 2, 1998, except as
to Note 22, which is as of
October 16, 1998
42
<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
--- SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: January 31, 1999
OR
--- TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________________ to __________________
Commission file number: 0-25106
Lakeview Financial Corp.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
New Jersey 22-3334052
---------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1117 Main Street Paterson, New Jersey 07503
-------------------------------------------
(Address of principal executive offices, zip code)
(973) 742-3060
--------------
(Registrant's telephone number, including area code)
NOT APPLICABLE
--------------------------------------------
(Former name, former address, and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
--- ---
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date: March 1, 1999
-------------
Class Outstanding
--------- ----------------
$2.00 par value common stock 4,873,938 shares
<PAGE>
LAKEVIEW FINANCIAL CORP. and SUBSIDIARIES
CONTENTS
<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION Page
<S> <C>
Item 1: Financial Statements
Unaudited Consolidated Balance Sheets as of
January 31, 1999 and July 31, 1998 3
Unaudited Consolidated Statements of (Loss) Income for the
Three Months Ended January 31, 1999 and 1998 4
Unaudited Consolidated Statements of (Loss) Income for the
Six Months Ended January 31, 1999 and 1998 5
Unaudited Consolidated Statements of Cash Flows for the Six
Months Ended January 31, 1999 and 1998 6
Notes to Unaudited Consolidated Financial Statements 8
Item 2: Management's Discussion and Analysis of Financial
Condition and Results of Operations 12
Item 3: Quantitative and Qualitative Disclosure About Market Risk 17
PART II- OTHER INFORMATION
Item 1: Legal Proceedings 18
Item 2: Changes in Securities 18
Item 3: Defaults Upon Senior Securities 18
Item 4: Submission of Matters to a Vote of Security Holders 18
Item 5: Other Information 18
Item 6: Exhibits and Reports on Form 8-K 18
Signatures 19
</TABLE>
2
<PAGE>
LAKEVIEW FINANCIAL CORP. AND SUBSIDIARIES
- -----------------------------------------
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEETS
AS OF JANUARY 31, 1999 AND JULY 31, 1998
- ----------------------------------------
(dollars in thousands except share data) (Unaudited) (Unaudited)
January 1999 July 1998
------------ -----------
<S> <C> <C>
Assets
- ------
Cash on hand and in banks $ 11,513 $ 8,773
Federal funds sold 0 39,900
--------- ---------
Total cash and cash equivalents 11,513 48,673
Investment securities held to maturity 125,732 83,831
Securities available for sale 16,281 37,867
Mortgage-backed securities held to maturity 89,368 101,771
Loans receivable, net 287,220 286,869
Real estate owned, net 342 505
Federal Home Loan Bank of New York stock, at cost 4,626 4,626
Accrued interest receivable 3,134 3,068
Office properties and equipment, net 4,724 4,623
Excess of cost over fair value of assets acquired, net 17,590 18,643
Net deferred tax asset 4,825 0
Other assets 7,823 3,380
--------- ---------
Total assets $ 573,178 $ 593,856
========= =========
Liabilities and Stockholders' Equity
- ------------------------------------
Deposits $ 462,133 $ 456,880
Borrowings 48,206 64,928
Borrowings - Employee Stock Option Plan (ESOP) 8,300 8,783
Advance payments by borrowers for taxes and insurance 2,951 2,934
Other liabilities 2,016 3,724
--------- ---------
Total liabilities 523,606 537,249
Stockholders' Equity
- --------------------
Common stock: $2.00 par value; authorized 10,000,000 shares,
issued 6,441,504 shares and outstanding 4,873,938 shares at
January 31, 1999 and 4,880,268 shares at July 31, 1998 12,883 12,883
Additional paid-in capital 31,883 30,905
Retained income 26,911 30,500
Accumulated other comprehensive (loss) income (170) 5,306
Treasury stock at cost, 1,567,566 at January 31, 1999 and
1,561,236 at July 31, 1998 (13,230) (13,343)
Unallocated ESOP shares (8,705) (8,893)
Unallocated Management Stock Bonus Plan (MSBP) shares 0 (751)
--------- ---------
Total stockholders' equity 49,572 56,607
Total liabilities and stockholders' equity $ 573,178 $ 593,856
========= =========
Stated book value per share $ 10.17 $ 11.60
Tangible book value per share $ 6.56 $ 7.78
</TABLE>
3
<PAGE>
LAKEVIEW FINANCIAL CORP. AND SUBSIDIARIES
- -----------------------------------------
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF (LOSS) INCOME
FOR THE THREE MONTHS ENDED JANUARY 31, 1999 AND 1998
- ----------------------------------------------------
(dollars in thousands except share data) (Unaudited) (Unaudited)
1999 1998
----------- ------------
<S> <C> <C>
Interest income:
Loans receivable $ 6,143 $ 5,150
Mortgage-backed securities held to maturity 1,497 1,556
Investment securities held to maturity and federal funds 2,185 947
Securities available for sale 230 1,030
----------- -----------
Total interest income 10,055 8,683
Interest expense:
Deposits 4,292 3,527
Borrowings 860 1,137
----------- -----------
Total interest expense 5,152 4,664
Net interest income 4,903 4,019
Provision for loan losses 225 300
----------- -----------
Net interest income after provision for loan losses 4,678 3,719
Other (expense) income:
Loan fees and service charges 401 344
Net realized gains on sale of securities 91 2,425
Write down on securities available for sale (7,687) --
Gains on sale of loans originated for sale 196 449
Other operating income 131 153
----------- -----------
Total other (expense) income (6,868) 3,371
Other expense:
Compensation and employee benefits 1,887 1,542
Office occupancy and equipment expense 326 226
Net loss from real estate owned 28 112
Other operating expense 915 817
Amortization of the excess of cost over fair value of net assets acquired 527 330
----------- -----------
Total other expense 3,683 3,027
(Loss) income before income tax (benefit) expense (5,873) 4,063
Income tax (benefit) expense (1,922) 1,515
----------- -----------
Net (loss) income ($ 3,951) $ 2,548
=========== ===========
Net (loss) income per share:
Basic ($ 0.95) $ 0.75
Diluted ($ 0.89) $ 0.63
Weighted average number of shares outstanding:
Basic 4,174,014 3,413,557
Diluted 4,421,949 4,072,682
</TABLE>
4
<PAGE>
LAKEVIEW FINANCIAL CORP. AND SUBSIDIARIES
- -----------------------------------------
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF (LOSS) INCOME
FOR THE SIX MONTHS ENDED JANUARY 31, 1999 AND 1998
- --------------------------------------------------
(dollars in thousands except share data) (Unaudited) (Unaudited)
1999 1998
----------- -----------
<S> <C> <C>
Interest income:
Loans receivable $ 12,335 $ 10,333
Mortgage-backed securities held to maturity 3,140 3,192
Investment securities held to maturity and federal funds 3,993 1,885
Securities available for sale 600 2,244
-------- --------
Total interest income 20,068 17,654
Interest expense:
Deposits 8,572 7,095
Borrowings 1,920 2,205
-------- --------
Total interest expense 10,492 9,300
Net interest income 9,576 8,354
Provision for loan losses 450 601
-------- --------
Net interest income after provision for loan losses 9,126 7,753
Other (expense) income:
Loan fees and service charges 806 667
Net realized gains on sale of securities 3,392 2,412
Write down on securities available for sale (7,687) -
Gains on sale of loans originated for sale 431 741
Other operating income 278 297
-------- --------
Total other (expense) income (2,780) 4,117
Other expense:
Compensation and employee benefits 3,567 3,051
Office occupancy and equipment expense 650 456
Net loss from real estate owned 63 154
Other operating expense 1,781 1,530
Amortization of the excess of cost over fair value of net assets acquired 1,053 660
-------- --------
Total other expense 7,114 5,851
(Loss) income before income tax (benefit) expense (768) 6,019
Income tax (benefit) expense (12) 2,205
-------- --------
Net (loss) income ($756) $ 3,814
======== ========
Net (loss) income per share:
Basic ($0.18) $ 1.06
Diluted ($0.17) $ 0.90
Weighted average number of shares outstanding:
Basic 4,193,102 3,589,622
Diluted 4,468,891 4,234,288
</TABLE>
5
<PAGE>
LAKEVIEW FINANCIAL CORP. AND SUBSIDIARIES
- -----------------------------------------
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JANUARY 31, 1999 AND 1998
- --------------------------------------------------
(dollars in thousands) (Unaudited) (Unaudited)
1999 1998
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net (loss) income ($756) $3,814
Adjustment to reconcile net income to net cash (used in)
provided by operating activities :
Amortization of excess of cost over fair value of assets acquired 1,053 660
Amortization of discounts and premiums, net (2,231) (655)
Provision for loan losses 450 601
Provision for losses on real estate owned 15 33
(Gain) loss on sale of real estate owned (19) 4
Net realized gain on sale of securities available for sale (3,284) (2,256)
Net realized gain on sale of trading securities (108) (156)
Gains on sale of loans originated for sale (431) (741)
Purchase of trading securities (7,963) (10,548)
Proceeds from sale of trading securities 8,071 10,704
Writedown on securities available for sale 7,687 -
Loans originated for sale (13,765) (12,286)
Proceeds from sales of loans originated for sale 14,196 13,027
(Increase) decrease in accrued interest receivable (66) 474
Decrease in deferred loan fees (17) (10)
(Increase) decrease in other assets (4,443) 32
Increase in net deferred asset (4,825) -
Amortization of ESOP shares 233 1,237
Amortization of MSBP shares 1,744 231
(Decrease) increase in other liabilities 1,285 (11)
Depreciation expense, net 234 156
-------- --------
Net cash (used in) provided by operating activities: (2,940) 4,310
Cash flows from investing activities:
Loan origination net of principal payments (770) (15,056)
Purchase of Federal Home Loan Bank stock - (500)
Purchase of securities available for sale (45,671) (23,454)
Proceeds from sale of securities available for sale 50,426 17,411
Proceeds from maturity of securities available for sale 3,000 22,968
Principal payments on securities available for sale 904 1,098
Purchase of investment securities held to maturity (70,028) (5,830)
Proceeds from maturity of investment securities held to maturity 30,096 15,945
Purchase of mortgage-backed securities held to maturity (5,000) -
Principal payments on mortgage-backed securities held to maturity 17,519 8,891
Proceeds from sale of real estate owned 167 339
Increase in office properties and equipment (335) (94)
--------- ---------
Net cash (used in) provided by investing activities (19,692) 21,718
</TABLE>
6
<PAGE>
LAKEVIEW FINANCIAL CORP. AND SUBSIDIARIES
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
FOR THE SIX MONTHS ENDED JANUARY 31, 1999 AND 1998
(dollars in thousands) (Unaudited) (Unaudited)
1999 1998
----------- -----------
<S> <C> <C>
Cash flows from financing activities:
Increase (decrease) in deposits 5,381 (10,128)
Decrease in borrowings (17,205) (2,977)
Increase in advance payments by borrowers for taxes, net 17 332
Purchase of treasury stock (2,809) (10,214)
Exercise of stock options 677 144
Sale of common stock by ESOP 0 (2,793)
Purchase of common stock by ESOP 0 2,326
Cash dividends paid (589) (270)
-------- --------
Net cash used in financing activities (14,528) (23,580)
Net change in cash and cash equivalents (37,160) 2,448
Cash and cash equivalents at beginning of period 48,673 5,400
-------- --------
Cash and cash equivalents at end of period $ 11,513 $ 7,848
======== ========
Cash paid during period for:
Interest on deposits $ 8,782 $ 6,877
Income taxes $ 1,250 $ 1,623
Supplemental disclosures of non-cash investing activities:
Transfer of loans receivable to real estate owned $ 0 $ 220
</TABLE>
7
<PAGE>
LAKEVIEW FINANCIAL CORP. and SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements
(1) Basis of Presentation
The consolidated financial statements include the accounts of Lakeview Financial
Corp. (the "Company"), its wholly owned active subsidiaries, Lakeview Savings
Bank (the "Savings Bank"), Branchview, Inc., LVS, Inc., LISI, Inc., North
Properties, and its 90% owned subsidiary, Lakeview Mortgage Depot, Inc. All
significant intercompany balances and transactions have been eliminated in
consolidation.
These consolidated financial statements were prepared in accordance with
instructions for Form 10-Q and therefore, do not include all disclosures
necessary for a complete presentation of the consolidated balance sheets,
statements of (loss) income, and statements of cash flows in conformity with
generally accepted accounting principles. However, all adjustments which are, in
the opinion of management, necessary for the fair presentation of the interim
financial statements have been included and all such adjustments are of a normal
recurring nature. The results of operations for the three and six months ended
January 31, 1999 are not necessarily indicative of the results that may be
expected for the fiscal year July 31, 1999 or any other interim period.
These statements should be read in conjunction with the consolidated financial
statements and related notes which are incorporated by reference in the
Company's Annual Report on Form 10-K for the year ended July 31, 1998.
(2) Merger Agreement
On December 16, 1998, Dime Bancorp, Inc. (the "Dime"), New York, New York
announced it had entered into a definitive agreement to acquire the Company.
Under the terms of the agreement, holders of the Company's common stock may
elect to receive either 0.9 of a share of Dime common stock or $24.26 in cash
for each outstanding share of the Company's common stock, subject to a
requirement that, in the aggregate, 65% of the Company's outstanding shares will
be exchanged for Dime common stock and the remaining shares will be exchanged
for cash. The elections of the Company's shareholders will be subject to
allocation and pro-ration if either type of the merger consideration is over-
subscribed. The transaction is expected to close during the second quarter of
calendar 1999.
(3) Net (Loss) Income Per Share
In accordance with Statement of Financial Accounting Standards No. 128
(AStatement 128"), Earnings Per Share, the following table reconciles the
weighted average number of common shares outstanding used to calculate basic and
diluted net (loss) income per share.
8
<PAGE>
<TABLE>
<CAPTION>
For the three For the six
months ended months ended
January 31 January 31
-------------------- -----------------
1999 1998 1999 1998
<S> <C> <C> <C> <C>
Weighted Average Number
of Common Shares
Outstanding - Basic 4,174,014 3,413,557 4,193,102 3,589,622
Effective of Dilutive Securities
Qualified Stock Options 654 371,266 565 364,776
Non-Qualified Stock Options 200,167 249,351 204,554 242,093
MSBP Shares 47,114 38,508 70,670 37,797
--------- --------- --------- ---------
Weighted Average Number
of Common Shares
Outstanding - Diluted 4,421,949 4,072,682 4,468,891 4,234,288
========= ========= ========= =========
</TABLE>
(4) Comprehensive Income
Effective August 1, 1998, the Company adopted the provisions of Statement of
Financial Accounting Standards No. 130, Reporting Comprehensive Income (ASFAS
130"). SFAS 130 establishes standards for reporting and display of comprehensive
income and its components in a full set of general purpose financial statements.
Under SFAS 130, comprehensive income is divided into net income and other
comprehensive income. Other comprehensive income includes items previously
recorded directly in equity, such as unrealized gains or losses on securities
available for sale. Comparative financial statements for earlier periods are
reclassified to reflect application of the provisions of SFAS 130.
SFAS 130 requires total comprehensive income and its components to be displayed
on the face of a financial statement for annual financial statements. For
interim financial statements, SFAS 130 requires only total comprehensive income
to be reported and allows such disclosure to be presented in the notes to the
interim financial statements. Total comprehensive income for the applicable
periods is shown below (in thousands).
For the three For the six
months ended months ended
January 31 January 31
---------------- -----------------
1999 1998 1999 1998
Total Comprehensive
Loss $ (798) $(6,852) $(6,232) $(5,753)
9
<PAGE>
(5) Non Performing Loans and the Allowance for Loan Losses
Non performing assets at January 31, 1999, and July 31, 1998, are as follows, in
thousands:
January 31, 1999 July 31,1998
---------------- ------------
Non accrual loans $3,526 $2,794
Real estate owned, net 342 505
------ ------
Total non-performing assets $3,868 $3,299
====== ======
Non-accrual loans as a percentage
of total loans 1.23% .97%
Non-performing assets as a percentage
of total assets .67% .56%
An analysis of the allowance for loan losses for the six month period ended
January 31, 1999 and 1998 is as follows, in thousands:
For the six For the six
months ended months ended
January 31, 1999 January 31, 1998
---------------- ----------------
Balance at beginning of period $4,478 $3,411
Provision charged to operations 450 601
Charge-offs (160) (587)
Recoveries 60 18
------ ------
Balance at end of period $4,828 $3,443
====== ======
(6) Other Events
As previously disclosed, the Company, including its subsidiary Branchview, Inc.,
had an equity investment with a cost basis of $7.7 million in IMC Mortgage
Company ("IMC"). As of January 31, 1999, the market value of the IMC stock was
$679,000, resulting in an unrealized loss, net of tax, of $7.0 million. Because
of the following events, management determined that its investment in IMC was
permanently impaired and recognized a loss, net of tax, of $5.1 million, or
$1.15 per diluted share.
As previously disclosed, on October 16, 1998, IMC entered into a loan agreement
(the "Greenwich Loan Agreement") with Greenwich and certain of its affiliates
that provided IMC a $33 million standby revolving credit facility for a period
of up to 90 days. In consideration for providing the facility, Greenwich
received, among other things, exchangeable preferred stock representing the
equivalent of 40% of IMC's common stock.
10
<PAGE>
The Greenwich Loan Agreement provides that under certain circumstances, upon IMC
entering into a definitive agreement which effectuates a change of control of
IMC, Greenwich may elect either to (a) receive repayment of the loan facility,
plus accrued interest at 10% per annum, and a take-out premium or (b) exchange
its loans for additional exchangeable preferred stock. The additional preferred
stock that would be issued to Greenwich would represent the equivalent of 50% of
the IMC common stock outstanding (in addition to the 40% issued to Greenwich on
execution of the Greenwich Loan Agreement). If Greenwich and IMC consummate the
transactions contemplated by the Merger Agreement, the Merger will supersede any
rights Greenwich has under the Greenwich Loan Agreement to exchange its loans
for equity in IMC or to receive the premium on repayment of the loan facility
contemplated by the Greenwich Loan Agreement.
Also as previously disclosed, on October 16, 1998, IMC had entered into an
intercreditor agreement with a lender under its revolving bank credit facility.
On February 18, 1999, Greenwich purchased at a discount from that lender its
interests in the revolving credit facility, which, on that date, had a principal
amount outstanding of $87.5 million.
Simultaneously with the execution of the Merger Agreement, IMC entered into
amended and restated intercreditor agreements with three of its major warehouse
lenders and with Greenwich relating to the revolving credit bank facility, the
Greenwich Loan Agreement and the Amendment. Under those agreements, the lenders
agreed to keep their respective facilities in place for a period of up to
seventeen months if the Merger is consummated within five months. If the Merger
is not consummated within a five-month period, after that period, those lenders
would no longer be subject to the requirements of the amended and restated
intercreditor agreements and would be free to take action, if desired, under
their respective loan agreements.
IMC entered into an Agreement and Plan of Merger (the "Merger Agreement") with
Greenwich Street Capital Partners II, L.P. ("Greenwich") and IMC 1999
Acquisition Co., Inc., a subsidiary owned by Greenwich and certain of its
affiliates ("Merger Sub"), on February 19, 1999. Under the Merger Agreement,
Merger Sub will merge with and into IMC (the "Merger"). As a result of the
Merger, Greenwich will receive newly issued IMC common stock equal to 93.5% of
the total common stock on a fully diluted basis, leaving the existing common
shareholders of IMC with 6.5% of the common stock outstanding after the Merger.
No payment will be made to IMC's common shareholders in this transaction. Upon
the consummation of the Merger, Greenwich will enter into an amendment and
restatement of its existing loan agreement with IMC, pursuant to which Greenwich
will make available to IMC an additional $40 million in working capital
facilities, which includes $5 million that was made available to IMC pursuant to
an amendment, dated as of February 11, 1999 (the "Amendment"), to the Greenwich
Loan Agreement ( as defined below). The Merger is subject to a number of
conditions including approval by IMC's shareholders. There is no assurance that
this transaction will be consummated.
11
<PAGE>
The Company has an unsecured line of credit to IMC for $5.9 million as of
January 31, 1999. The Company can not presently predict what effect the actions
of IMC, as described above, will have on the collectibility of the outstanding
line of credit.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Overview
- --------
Lakeview Financial Corp. (the "Company") is organized as a unitary savings and
loan holding company and owns all of the outstanding capital stock of Lakeview
Savings Bank (the "Savings Bank"). The business of the Savings Bank and
therefore, the Company, is the acceptance of deposits from the general public
and the origination and purchase of mortgage loans in Northern New Jersey. The
Savings Bank has eleven office locations located in Bergen and Passaic Counties,
New Jersey. The Company also has investments in three service corporations,
Branchview, Inc., LVS, Inc. and Lakeview Mortgage Depot, Inc.
On December 16, 1998, Dime Bancorp, Inc. (the "Dime"), New York, New York
announced it had entered into a definitive agreement to acquire the Company.
Under the terms of the agreement, holders of the Company's common stock may
elect to receive either 0.9 of a share of Dime common stock or $24.26 in cash
for each outstanding share of the Company's common stock, subject to a
requirement that, in the aggregate, 65% of the Company's outstanding shares will
be exchanged for Dime common stock and the remaining shares will be exchanged
for cash. The elections of the Company's shareholders will be subject to
allocation and pro-ration if either type of the merger consideration is over-
subscribed. The transaction is expected to close during the second calendar
quarter of 1999.
For the three and six months ended January 31, 1999, the Company incurred a net
loss of approximately $3,951,000 and $756,000, respectively. Management
determined that its investment in IMC Mortgage Co. ("IMC") was permanently
impaired and recognized a loss (net of taxes) of $5.1 million, or $1.15 per
diluted share. See Note 6 to the Unaudited Consolidated Financial Statements.
Without the recognition of the permanent impairment of the IMC investment, the
Company would have recognized net income for the three and six months ended
January 31, 1999, of $1.1 million, or $.26 per diluted share and $4.3 million,
or $.97, per diluted share, respectively.
Comparison of Financial Condition at January 31, 1999 and July 31, 1998
- -----------------------------------------------------------------------
Total assets decreased $20.7 million, or 3.5%, to $573.2 million at January 31,
1999, from $593.9 million at July 31, 1998.
12
<PAGE>
The investment securities held to maturity increased $41.9 million, or 50.0%, to
$125.7 million at January 31, 1999 from $83.8 million at July 31, 1998. The
increase was due to $70.0 million of purchases and accretion of discounts of
$2.0 million, offset by maturities of $30.1 million.
Securities available for sale decreased $21.6 million, or 57.0%, to $16.3
million at January 31, 1999 from $37.9 million at July 31, 1998. Of the $21.6
million decrease, $16.6 million was associated with the IMC investment, as
discussed herein. $50.4 million of sales, $3.0 million from maturity of
securities in the portfolio, and $904 thousand of principal repayments,
offsetting such decrease in the portfolio were $45.7 million in purchases.
Mortgage-backed securities decreased $12.4 million, or 12.2%, to $89.4 million
at January 31, 1999, from $101.8 million at July 31, 1998. This was attributed
to principal repayments of $17.5 million, offset by purchases of $5.0 million.
Cash and cash equivalents decreased $37.2 million, or 76.3%, to $11.5 million at
January 31, 1999, from $48.7 million at July 31, 1998. The decrease was used to
pay down borrowings.
Borrowings decreased $16.7 million or 25.8%, to $48.2 million at January 31,
1999, from $64.9 million at July 31, 1998. The decrease in borrowings was
related to the decreases in cash and cash equivalents and principal repayments
of mortgage-backed securities held to maturity.
Comparison of Operating Results For The Three Months Ended January 31, 1999 and
- --------------------------------------------------------------------------------
1998
- ----
Interest Income: Total interest income increased $1.4 million or 15.8% to $10.1
million for the three months ended January 31, 1999, compared to $8.7 million
for the comparable 1998 period. Average interest earning assets increased $58.1
million to $530.4 million for the three month period in 1999 from $472.3 million
for the comparable 1998 period. The increase reflects an increase in average
loans of $53.6 million, average investments and mortgage-backed securities held
to maturity of $75.4 million offset by a decrease in securities available for
sale of $70.9 million.
Interest Expense: Total interest expense increased $488,000 or 10.5% to $5.2
million for the three months ended January 31, 1999 compared to $4.7 million for
the comparable 1998 period. Average interest-bearing liabilities increased $70.6
million to $493.8 million for the three month period in 1999 from $423.2 million
for the comparable 1998 period. Of this increase, average deposits increased
$87.1 million and average borrowings decreased $16.5 million.
13
<PAGE>
Net Interest Income: Net interest income increased $884,000 or 22.0% to $4.9
million for the three months ended January 31, 1999 compared to $4.0 million for
the comparable 1998 period. During the three months ended January 31, 1999, the
Company's interest rate spread decreased to 3.11%, compared to 3.22% for the
same period in 1998. A 7 basis point decline in the cost of funds and a 4 basis
point increase in the yield on earning assets was the primary reason for the
increase.
Provision For Loan Losses: The provision for loan losses decreased $75,000, or
25.0%, to $225,000 for the three months ended January 31, 1999, compared to
$300,000 for the same period ended January 31, 1998. Management regularly
accesses the credit risk of the loan portfolio based on information available at
such times, including trends in the local real estate market and levels of non-
performing loans and assets. The assessment of the adequacy of the allowance for
loan losses involves subjective judgement regarding future events and thus there
can be no assurance that additional provisions for loan losses will not be
required in future periods.
Other (Expense) Income: Other (expense) income decreased $10.2 million during
the second quarter of 1999 to an expense of $6.9 million, from income of $3.4
million. As discussed herein, the decline in other income was primarily the
result of the write-off of the IMC investment.
Other Expense: Other expense increased $656,000, or 21.7%, to $3.7 million for
the three months ended January 31, 1999, from $3.0 million for the three months
ended January 31, 1998. Compensation increased $345,000, to $1.9 million for the
three months ended January 31, 1999 as compared to $1.5 million for the three
months ended January 31, 1998. The increase was mainly attributable to the
increased staff of the Company with the merger of Westwood, the Bank's new
branch office which opened in September 1998, in Fairview, New Jersey.
Compensation expense also increase due to the acceleration of the Management
Stock Bonus Plan ("MSBP") due to the pending merger with the Dime. Office
occupancy and equipment expense increased $100,000, or 44.2% to $326,000 from
$226,000 in 1998. The increase is mainly attributable to the branches associated
with the acquisition of Westwood and the opening of the new branch office.
Amortization of the excess of cost over fair value of net assets acquired
increased $197,000 or 59.7% to $527,000 from $330,000 in 1998. The increase was
mainly attributable to the goodwill associated with the acquisition of Westwood.
Comparison of Operating Results For The Six Months Ended January 31, 1999 and
- -----------------------------------------------------------------------------
1998
- ----
Interest Income: Total interest income increased $2.4 million or 13.7% to $20.1
million for the six months ended January 31, 1999, compared to $17.7 million for
the comparable 1998 period. Average interest earning assets increased $60.3
million to $536.2 million for the six month period in 1999 from $475.9 million
for the comparable 1998 period. The
14
<PAGE>
increase reflects an increase in average loans of $57.4 million, average
investments and mortgage-backed securities held to maturity of $67.3 million
offset by a decrease in securities available for sale of $64.4 million.
Interest Expense: Total interest expense increased $1.2 million or 12.8% to
$10.5 million for the six months ended January 31, 1999 compared to $9.3 million
for the comparable 1998 period. Average interest-bearing liabilities increased
$75.2 million to $496.4 million for the six month period in 1999 from $421.2
million for the comparable 1998 period. Of this increase, average deposits
increased $83.1 million and average borrowings decreased $7.9 million.
Net Interest Income: Net interest income increased $1.2 million or 14.6% to $9.6
million for the six months ended January 31, 1999 compared to $8.4 million for
the comparable 1998 period. During the six months ended January 31, 1999, the
Company's interest rate spread increased to 3.26%, compared to 3.22% for the
same period in 1998. A 8 basis point decline in the cost of funds offset by a 4
basis point decrease in the yield on earning assets was the primary reason for
the increase.
Provision For Loan Losses: The provision for loan losses decreased $151,000, or
25.1%, to $450,000 for the six months ended January 31, 1999, compared to
$601,000 for the same period ended January 31, 1998. Management regularly
accesses the credit risk of the loan portfolio based on information available at
such times, including trends in the local real estate market and levels of non-
performing loans and assets. The assessment of the adequacy of the allowance for
loan losses involves subjective judgement regarding future events and thus there
can be no assurance that additional provisions for loan losses will not be
required in future periods.
Other (Expense) Income: Other (expense) income decreased $6.9 million during the
six months ended January 31, 1999 to an expense of $2.8 million, from income of
$4.1 million for the same period in 1998. As discussed herein, the decline was
primarily from the write-off of the IMC investment.
Other Expense: Other expense increased $1.3 million, or 21.6%, to $7.1 million
for the six months ended January 31, 1999, from $5.3 million for the six months
ended January 31, 1998. Compensation increased $516,000, to $3.6 million for the
six months ended January 31, 1999 as compared to $3.1 million for the six months
ended January 31, 1998. The increase was mainly attributable to the increased
staff of the Company with the merger of Westwood, the Bank's new branch office
which opened in September 1998, in Fairview, New Jersey. Compensation expense
also increased due to the acceleration of the MSBP's due to the pending merger
with the Dime. Office occupancy and equipment expense increased $194,000, or
42.5% to $650,000 from $456,000 in 1998. The increase is mainly attributable to
the branches associated with the acquisition of Westwood and the opening of the
new branch office. Amortization of the excess of cost over fair value of net
assets
15
<PAGE>
acquired increased $393,000 or 59.5% to $1.1 million from $660,000 in 1998. The
increase was mainly attributable to the goodwill associated with the acquisition
of Westwood.
Year 2000 Compliance Issues
- ---------------------------
During fiscal 1998, the Company adopted a Year 2000 Compliance Plan (the "Plan")
and established a Year 2000 Compliance Committee (the "Committee"). The
objectives of the Plan and the Committee are to prepare the Company for the new
millennium. As recommended by the Federal Financial Institutions Examination
Council, the Plan encompasses the following phases: Awareness, Assessment,
Renovation, Validation and Implementation. These phases will enable the Company
to identify risks, develop an action plan, perform adequate testing and complete
certification that its processing systems will be Year 2000 ready. Execution of
the Plan is currently on target. The Company is currently in the process of
developing a Contingency Plan (the "Plan") specific to the Year 2000. The Plan
will address the actions that would be undertaken if critical business functions
cannot be carried out in the normal manner upon entering the next century due to
the computer system or supplier failure.
Costs will be incurred due to the replacement of non-compliant teller hardware
and software. The Company does not anticipate that the related overall costs
will be material in any single year. As of January 31, 1999, total costs
incurred to date for the Year 2000 were $28,000. No assurance can be given that
the Year 2000 Compliance Plan will be completed successfully by the Year 2000,
in which event the Company could incur significant costs.
Successful and timely completion of the Year 2000 project is based on
management's best estimates derived from various assumptions of future events,
which are inherently uncertain, including the progress and results of the
Company's third-party service provider, testing plans, and all vendors,
suppliers and customer readiness.
Liquidity and Capital Resources
- -------------------------------
The Savings Bank's primary sources of funds includes savings deposits, loan
repayments and prepayments, cash flow from operations and borrowings from the
Federal Home Loan Bank of New York ("FHLB"). The Savings Bank uses its capital
resources principally to fund loan origination and purchases, repay maturing
borrowings, purchase of securities, and for short and long-term liquidity needs.
The Savings Bank expects to be able to fund or refinance, on a timely basis, its
commitments and long-term liabilities.
The Savings Bank's liquid assets consist of cash and cash equivalents, which
include investments in highly liquid short-term investments. The level of these
assets are dependent on the Savings Bank's operating, financing and investment
activities during any
16
<PAGE>
given period. At January 31, 1999, cash and cash equivalents totaled $11.5
million.
The Savings Bank anticipates that it will have sufficient funds available to
meet its current commitments. As of January 31, 1999, the Savings Bank had
commitments to fund loans of $8.5 million.
The Savings Bank had leverage, Tier 1, and risk-based capital ratios of 5.5%,
9.5%, and 10.8% at January 31, 1999, which exceeded the FDIC's respective
minimum requirements of 4.00%, 4.00% and 8.00%.
Quantitative and Qualitative Disclosure About Market Risk
- ---------------------------------------------------------
There were no significant changes for the six months ended January 31, 1999 from
the information presented in the annual report on Form 10-K for the year ended
July 31, 1998, concerning quantitative and qualitative disclosures about market
risk.
17
<PAGE>
LAKEVIEW FINANCIAL CORP. AND SUBSIDIARIES
PART II
ITEM 1. LEGAL PROCEEDINGS
From time to time, the Savings Bank is a party to legal
proceedings in the ordinary course of business wherein it
enforces its security interest in loans. Neither the
Registrant nor the Savings Bank was engaged in any legal
proceeding of a material nature as of January 31, 1999.
ITEM 2. CHANGES IN SECURITIES
Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
ITEM 5. OTHER MATERIALLY IMPORTANT EVENTS
Not applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
Exhibit 27. Financial Data Schedule (included in electronic
filing only).
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Lakeview Financial Corp.
Date: March 15, 1999
/s/ Kevin J. Coogan
--------------------------------------
Kevin J. Coogan
President and CEO
(Principal Executive Officer)
Date: March 15, 1999 /s/ Anthony G. Gallo
--------------------------------------
Anthony G. Gallo
Vice President and CFO
(Principal Financial Officer)
19
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Dime Certificate of Incorporation provides that Dime will 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, whether civil,
criminal, administrative or investigative (including, to the extent permitted
by applicable banking law and regulation, an action by or in the right of Dime)
by reason of the fact that such person is or was or has agreed to become a
director or officer of Dime, or is or was serving at the request of Dime as a
director, officer, partner, trustee, administrator or fiduciary of another
corporation, partnership, joint venture, trust, employee benefit plan or other
enterprise, or by reason of any action alleged to have been taken or omitted in
any such capacity, against costs, charges, expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by such person in connection with such action, suit or proceeding and
any appeal therefrom, if such person acted in good faith and in a manner he or
she reasonably believed to be in, or not opposed to, the best interests of
Dime, and, with respect to any criminal action or proceeding, had no reasonable
cause to believe his or her conduct was unlawful. The termination of any
action, suit or proceeding by judgment, order, settlement, conviction or upon a
plea of nolo contendere or its equivalent shall not, of itself, create a
presumption that the person did not act in good faith and in a manner which he
or she reasonably believed to be in, or not opposed to, the best interests of
Dime, and, with respect to any criminal action or proceeding, had reasonable
cause to believe that his or her conduct was unlawful. However, no
indemnification shall be made in respect of any claim, issue or matter as to
which such person was adjudged to be liable to Dime unless and only to the
extent that the Court of Chancery of Delaware or the court in which such action
or claim was brought shall determine upon application that, despite the
adjudication of such liability but in view of all the circumstances of the
case, such person is fairly and reasonably entitled to indemnification for such
costs, charges and expenses which the Court of Chancery or such other court
shall deem proper.
The Dime Certificate of Incorporation further states that the indemnification
provided therein will not be deemed exclusive of any other rights to which
those indemnified may be entitled, and will continue as to a person who has
ceased to be a director, officer, employee or agent and will inure to the
benefit of the heirs and personal representatives of such a person.
Dime is incorporated under the laws of Delaware. Section 145 of the DGCL
permits a corporation to indemnify its directors and officers against expenses
(including attorneys' fees), judgments, fines and amounts paid in settlements
actually and reasonably incurred by them in connection with any action, suit or
proceeding brought by third parties, if such directors or officers acted in
good faith and in a manner they reasonably believed to be in or not opposed to
the best interests of the corporation and, with respect to any criminal action
or proceeding, had no reason to believe their conduct was unlawful. In a
derivative action, i.e., one by or in the right of the corporation,
indemnification may be made only for expenses actually and reasonably incurred
by directors and officers in connection with the defense or settlement of an
action or suit, and only with respect to a matter as to which they will have
acted in good faith and in a manner they reasonably believed to be in or not
opposed to the best interests of the corporation, except that no
indemnification will be made if such person will have been adjudged liable to
the corporation, unless and only to the extent that the court in which the
action or suit was brought will determine upon application that the defendant
officers or directors are fairly and reasonably entitled to indemnity for such
expenses despite such adjudication of liability.
<PAGE>
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits (See exhibit index immediately preceding the exhibits for the
page number where each exhibit can be found)
<TABLE>
<CAPTION>
Exhibit
Number Description of Exhibits
------- -----------------------
<C> <S> <C>
2.1 --Agreement and Plan of Merger, dated as of December 15, 1998,
by and between Lakeview Financial Corp. and Dime Bancorp, Inc.
(included as Appendix A to the Proxy Statement/Prospectus
contained in this Registration Statement*).
3.1 --Amended and Restated Articles of Incorporation (Exhibit 3.1 to
Dime Bancorp, Inc.'s Form 10-Q for the quarter ended March 31,
1998, File No. 1-13094*).
3.2 --Bylaws (Exhibit 3 to Dime Bancorp, Inc.'s Form 10-Q for the
quarter ended June 30, 1997, File No.
1-13094*).
4.1 --Amended and Restated Articles of Incorporation (Exhibit 3.1 to
Dime Bancorp, Inc.'s Form 10-Q for the quarter ended March 31,
1998, File No. 1-13094*).
4.2 --Bylaws (Exhibit 3 to Dime Bancorp, Inc.'s Form 10-Q for the
quarter ended June 30, 1997, File No.
1-13094*).
4.3 --Stockholder Protection Rights Agreement, dated as of October
20, 1995, between Dime Bancorp, Inc. and First National Bank of
Boston, as Rights Agent (Exhibit 1 to Dime Bancorp, Inc.'s
Registration Statement on Form 8-A filed with the Commission on
November 3, 1995*).
4.4 --All instruments defining the rights of holders of long-term
debt of Dime Bancorp, Inc. and its subsidiaries. (Not filed
pursuant to (4)(iii) of Item 601(b) of Regulation S-K; to be
furnished upon request of the Commission.)
5.1 --Opinion of Sullivan & Cromwell, including consent.**
8.1 --Opinion of Sullivan & Cromwell as to certain tax matters,
including consent.**
8.2 --Opinion of Malizia, Spidi, Sloane & Fisch as to certain tax
matters, including consent.**
23.1 --Consent of Sullivan & Cromwell (appears in Opinion, Exhibit
5.1).
23.2 --Consent of Sullivan & Cromwell (appears in Opinion, Exhibit
8.1).
23.3 --Consent of Malizia, Spidi, Sloane & Fisch (appears in Opinion,
Exhibit 8.2).
23.4 --Consent of KPMG LLP.
23.5 --Consent of KPMG LLP.
23.6 --Consent of Sandler O'Neill & Partners, L.P.
24.1 --Powers of Attorney.**
99.1 --Form of Proxy Card.**
</TABLE>
- --------
* Incorporated herein by reference
** Previously filed
(b) Financial Statement Schedules
Schedules are omitted because they are not required or are not applicable, or
the required information is shown in the financial statements or notes thereto.
ITEM 22. UNDERTAKINGS.
(a) The undersigned Registrant hereby undertakes:
(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- 2
<PAGE>
(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 20 percent change in
the maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement.
(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) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the
registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Exchange Act (and, where applicable, each filing of an employee benefit plan's
annual report pursuant to Section 15(d) of the Exchange Act) that is
incorporated by reference in the registration statement 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.
(c) That prior to any public reoffering of the securities registered
hereunder through use of a Prospectus which is a part of this Registration
Statement, by any person or party who is deemed to be an underwriter within the
meaning of Rule 145(c), the Registrant undertakes that such reoffering
Prospectus will contain the information called for by the applicable
registration form with respect to reofferings by persons who may be deemed
underwriters, in addition to the information called for by the other Items of
the applicable form.
(d) That every Prospectus (a) that is filed pursuant to paragraph (c)
immediately preceding, or (b) that purports to meet the requirements of Section
10(a)(3) of the Securities Act of 1933 and is used in connection with an
offering of securities subject to Rule 415, will be filed as a part of an
amendment to the Registration Statement and will not be used until such
amendment is effective, and that, for purposes 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.
(e) Insofar as indemnification 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 (See Item 20), or
otherwise, the Registrant has been advised that in the opinion of the
Commission such indemnification is against public policy as expressed in the
Securities Act of 1933 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 of
whether such indemnification by it is against public policy as expressed in the
Securities Act of 1933 and will be governed by the final adjudication of such
issue.
II-3
<PAGE>
(f) The undersigned Registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the Prospectus pursuant to
Items 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.
(g) The undersigned Registrant hereby undertakes 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-4
<PAGE>
SIGNATURES
The Registrant, pursuant to the requirements of the Securities Act of 1933,
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this amendment to be
signed on its behalf by the undersigned, thereunto duly authorized, in The City
of New York, State of New York, on this 22 day of March, 1999.
Dime Bancorp, Inc.
(Registrant)
/s/ Lawrence J. Toal
By___________________________________
Lawrence J. Toal
Chief Executive Officer, President
and Chief Operating Officer
Pursuant to the requirements of the Securities Act of 1933, this amendment
has been signed by the following persons in the following capacities as of
March 22, 1999.
<TABLE>
<S> <C> <C>
</TABLE>
Signature Title
/s/ Lawrence J. Toal Chief Executive
- ------------------------------------- Officer, President,
Lawrence J. Toal Chief Operating
Officer and Chairman
of the Board
(Principal Executive
Officer)
A Director
*
- -------------------------------------
Derrick D. Cephas
A Director
*
- -------------------------------------
Frederick C. Chen
A Director
*
- -------------------------------------
J. Barclay Collins II
A Director
*
- -------------------------------------
Richard W. Dalrymple
A Director
*
- -------------------------------------
James F. Fulton
<PAGE>
<TABLE>
<S> <C> <C>
</TABLE>
Signature Title
A Director
*
- -------------------------------------
James M. Large, Jr.
A Director
*
- -------------------------------------
Virginia M. Kopp
A Director
*
- -------------------------------------
Fred B. Koons
A Director
*
- -------------------------------------
John Morning
A Director
*
- -------------------------------------
Margaret Osmer-McQuade
A Director
*
- -------------------------------------
Sally Hernandez-Pinero
A Director
*
- -------------------------------------
Dr. Paul A. Qualben
A Director
*
- -------------------------------------
Eugene G. Schulz, Jr.
A Director
*
- -------------------------------------
Howard Smith
A Director
*
- -------------------------------------
Dr. Norman R. Smith
A Director
*
- -------------------------------------
Ira T. Wender
/s/ Anthony R. Burriesci Chief Financial
- ------------------------------------- Officer (Principal
Anthony R. Burriesci Financial Officer)
/s/ John F. Kennedy Controller
- ------------------------------------- (Principal
John F. Kennedy Accounting Officer)
*By Lawrence J. Toal
Attorney-in-Fact
/s/ Lawrence J. Toal
_________________________________
Lawrence J. Toal
Attorney-in-Fact
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description of Exhibits
------- -----------------------
<C> <S>
2.1 --Agreement and Plan of Merger, dated as of December 15, 1998, by and
between Lakeview Financial Corp. and Dime Bancorp, Inc. (included as
Appendix A to the Proxy Statement/Prospectus contained in this
Registration Statement*).
3.1 --Amended and Restated Articles of Incorporation (Exhibit 3.1 to Dime
Bancorp, Inc.'s Form 10-Q for the quarter ended March 31, 1998, File
No. 1-13094*).
3.2 --Bylaws (Exhibit 3 to Dime Bancorp, Inc.'s Form 10-Q for the quarter
ended June 30, 1997, File No.
1-13094*).
4.1 --Amended and Restated Articles of Incorporation (Exhibit 3.1 to Dime
Bancorp, Inc.'s Form 10-Q for the quarter ended March 31, 1998, File
No. 1-13094*).
4.2 --Bylaws (Exhibit 3 to Dime Bancorp, Inc.'s Form 10-Q for the quarter
ended June 30, 1997, File No.
1-13094*).
4.3 --Stockholder Protection Rights Agreement, dated as of October 20,
1995, between Dime Bancorp, Inc. and First National Bank of Boston,
as Rights Agent (Exhibit 1 to Dime Bancorp, Inc.'s Registration
Statement on Form 8-A filed with the Commission on November 3,
1995*).
4.4 --All instruments defining the rights of holders of long-term debt of
Dime Bancorp, Inc. and its subsidiaries. (Not filed pursuant to
(4)(iii) of Item 601(b) of Regulation S-K; to be furnished upon
request of the Commission.)
5.1 --Opinion of Sullivan & Cromwell, including consent.**
8.1 --Opinion of Sullivan & Cromwell as to certain tax matters, including
consent.**
8.2 --Opinion of Malizia, Spidi, Sloane & Fisch as to certain tax matters,
including consent.**
23.1 --Consent of Sullivan & Cromwell (appears in Opinion, Exhibit 5.1).
23.2 --Consent of Sullivan & Cromwell (appears in Opinion, Exhibit 8.1).
23.3 --Consent of Malizia, Spidi, Sloane & Fisch (appears in Opinion,
Exhibit 8.2).
23.4 --Consent of KPMG LLP.
23.5 --Consent of KPMG LLP.
23.6 --Consent of Sandler O'Neill & Partners, L.P.
24.1 --Powers of Attorney (included on the signature page of this
Registration Statement).**
99.1 --Form of Proxy Card.**
</TABLE>
- --------
* Incorporated herein by reference
** Previously filed
<PAGE>
Exhibit 23.4
Independent Auditors' Consent
The Board of Directors
Dime Bancorp, Inc.:
We consent to the use of our report dated January 19, 1998, incorporated by
reference in Amendment No. 1 to the Registration Statement on Form S-4 of
Dime Bancorp, Inc., relating to our audit of the consolidated statements of
financial condition of Dime Bancorp, Inc. and subsidiaries as of December 31,
1997 and 1996, and the related consolidated statements of income, changes in
stockholders' equity and cash flows for each of the years in the three-year
period ended December 31, 1997, and to the reference to our Firm under the
heading "Experts" in the Registration Statement.
/s/ KPMG LLP
New York, New York
March 22, 1999
<PAGE>
Exhibit 23.5
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
Lakeview Financial Corp.
We consent to incorporation by reference herein in the Proxy
Statement/Prospectus of Lakeview Financial Corp. and Dime Bancorp, Inc. of our
report dated September 2, 1998, except as to Note 22, which is as of October 16,
1998, relating to the consolidated balance sheets of Lakeview Financial Corp.
and Subsidiaries as of July 31, 1998 and 1997, and the related consolidated
statements of income, stockholders' equity and cash flows for each of the years
in the three-year period ending July 31, 1998, which report is included in the
July 31, 1998 Annual Report on Form 10-K of Lakeview Financial Corp., and to the
reference to our Firm under the heading "Experts" in the Proxy
Statement/Prospectus.
KPMG LLP
/s/ KPMG LLP
Short Hills, New Jersey
March 22, 1999
<PAGE>
EXHIBIT 23.6
CONSENT OF SANDLER O'NEILL & PARTNERS, L.P.
We hereby consent to the inclusion of our opinion letter to the Board of
Directors of Lakeview Financial Corp. (the "Company") as an Appendix to the
Proxy Statement/Prospectus relating to proposed merger of the Company with
Dime Bancorp, Inc. contained in the Registration Statement on Form S-4 as
filed with the Securities and Exchange Commission on the date hereof, and to
the references to our firm and such opinion in such Proxy Statement/Prospectus.
In giving such consent, we do not admit that we come within the category of
persons whose consent is required under Section 7 of the Securities Act of 1933,
as amended (the "Act"), or the rules and regulations of the Securities and
Exchange Commission thereunder (the "Regulations"), nor do we admit that we are
experts with respect to any part of such Registration Statement within the
meaning of the term "experts" as used in the Act or the Regulations.
/s/ Sandler O'Neill & Partners, L.P.
March 22, 1999
