SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. 1)
Filed by the Registrant [X]
Filed by a Party other than the Registrant
Check the appropriate box:
[ ] Preliminary Proxy Statement [ ] Confidential, for Use of the Commission Only
(as permitted by Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
SFS Bancorp, Inc.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[ ] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which
the filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[X] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the form or schedule and the date of its filing.
(1) Amount previously paid:
(2) Form, Schedule or Registration Statement no.:
(3) Filing Party:
(4) Date Filed:
<PAGE>
[SFS Bancorp, Inc. letterhead]
July 21, 1999
Dear Fellow Stockholder:
We cordially invite you to attend a special meeting of the stockholders
of SFS Bancorp, Inc. The meeting will be held at our main office located at
251-263 State Street, Schenectady, New York, on Wednesday, August 25, 1999 at
10:00 a.m., Eastern Time.
At the special meeting, you will be asked to adopt a Merger Agreement
which provides for us to be merged into Hudson River Bancorp, Inc. Upon
completion of the merger, each outstanding share of our common stock (other than
shares as to which dissenters' rights have been asserted and duly perfected in
accordance with Delaware law and other than treasury shares and certain shares
held by Hudson or us) will be converted into and represent the right to receive
$25.10 in cash without any interest thereon.
Completion of the merger is subject to certain conditions,
including receipt of various regulatory approvals and adoption of the Merger
Agreement by the affirmative vote of a majority of our outstanding shares of
common stock.
We urge you to read the attached proxy statement carefully. It describes
the Merger Agreement in detail and includes a copy of the Merger Agreement as
Appendix A.
Your Board of Directors has unanimously approved the Merger Agreement and
recommends that you vote "FOR" the merger because the Board believes it to be in
the best interests of our stockholders.
It is very important that your shares be represented at the special
meeting. Whether or not you plan to attend, please complete, date and sign the
enclosed proxy card and return it promptly in the postage-paid envelope we have
provided.
On behalf of the Board, I thank you for your prompt attention to this
important matter.
Sincerely,
Joseph H. Giaquinto, Chairman of the Board,
President and Chief Executive Officer
<PAGE>
SFS Bancorp, Inc.
251-263 State Street
Schenectady, New York 12305
(518) 395-2300
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON AUGUST 25, 1999
NOTICE IS HEREBY GIVEN that a special meeting of stockholders of SFS
Bancorp, Inc. ("SFS") will be held at SFS' main office located at 251-263 State
Street, Schenectady, New York, on August 25, 1999, commencing at 10:00 a.m.,
Eastern Time.
A proxy card and a proxy statement for the meeting are enclosed. The
meeting is for the purpose of considering and acting upon:
1. The adoption of the Agreement and Plan of Merger (the "Merger
Agreement") dated as of May 17, 1999, between SFS and Hudson River Bancorp, Inc.
("Hudson"), pursuant to which (a) a to-be- formed interim subsidiary of Hudson
will be merged with and into SFS (the "Merger"), with SFS as the surviving
corporation and, immediately thereafter, SFS will be merged with and into
Hudson; and (b) each outstanding share of common stock of SFS (other than shares
as to which dissenters' rights have been asserted and duly perfected in
accordance with Delaware law and other than treasury shares and certain shares
held by Hudson or us) shall be converted into and represent the right to receive
$25.10 in cash, as described in the proxy statement and in the Merger Agreement,
which is attached as Appendix A thereto; and
2. Such other matters as may properly come before the meeting or any
adjournments or postponements thereof. We are not aware of any other business to
come before the meeting.
Our stockholders of record at the close of business on July 8, 1999 are
the stockholders entitled to vote at the meeting and any adjournments or
postponements thereof.
You are requested to complete, sign and date the enclosed proxy card,
which is solicited on behalf of the Board of Directors, and to mail it promptly
in the enclosed postage-paid envelope. The proxy card will not be used if you
attend and vote at the meeting in person. If you are a stockholder whose shares
are not registered in your name, you will need additional documentation from the
holder of record of your shares to vote in person at the meeting. The prompt
return of proxies will save us the expense of further requests for proxies.
By Order of the Board of Directors,
Joseph H. Giaquinto, Chairman of the Board,
President and Chief Executive Officer
Schenectady, New York
July 21, 1999
YOUR BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED THE MERGER AGREEMENT AND
RECOMMENDS THAT YOU VOTE "FOR" ADOPTION OF THE MERGER AGREEMENT.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Introduction........................................................................... 1
Incorporation of Certain Documents By Reference........................................ 2
Summary................................................................................ 3
SFS Bancorp, Inc. Stock Prices and Dividend Information................................ 6
Selected Consolidated Financial and Other Information of SFS........................... 7
The Special Meeting.................................................................... 9
The Merger............................................................................. 10
General.......................................................................... 10
Background of the Merger......................................................... 11
Reasons for the Merger; Recommendation
of the Board of Directors...................................................... 12
Opinion of Charles Webb.......................................................... 12
Merger Price; Treatment of Options............................................... 16
Surrender of Certificates........................................................ 16
Representations and Warranties................................................... 16
Conditions to the Merger......................................................... 17
Conduct of Business Prior to the Closing Date.................................... 18
Required Approvals............................................................... 19
Waiver and Amendment............................................................. 20
Stock Option Agreement........................................................... 20
Termination...................................................................... 23
Interests of Certain Persons in the Merger....................................... 24
Dissenters' Rights of Appraisal.................................................. 25
Certain Federal Income Tax Consequences.......................................... 28
Accounting Treatment of the Merger............................................... 29
Expenses of the Merger........................................................... 29
Beneficial Ownership of SFS Common Stock by Certain Beneficial Owners
and Management....................................................................... 30
Stockholder Proposals.................................................................. 32
Other Matters.......................................................................... 32
Appendix A -- Agreement and Plan of Merger (excluding the exhibits thereto)............ A-1
Appendix B -- Opinion of SFS' Financial Advisor........................................ B-1
Appendix C -- Statutory Dissenters' Rights............................................. C-1
Appendix D -- Stock Option Agreement................................................... D-1
</TABLE>
ii
<PAGE>
SFS BANCORP, INC.
PROXY STATEMENT
INTRODUCTION
This proxy statement is being furnished to the stockholders of SFS
Bancorp, Inc. ("SFS") in connection with the solicitation of proxies by our
Board of Directors for use at the special meeting of stockholders, and any
adjournment or postponement thereof, to be held at the time and place set forth
in the accompanying notice of special meeting. It is anticipated that the
mailing of this proxy statement and the enclosed proxy card will commence on or
about July 21, 1999.
At the special meeting, stockholders of SFS will be asked to approve and
adopt an Agreement and Plan of Merger (the "Merger Agreement") dated as of May
17, 1999, a copy of which is attached hereto as Appendix A.
Upon the completion of the merger of a to-be-formed wholly owned interim
subsidiary of Hudson River Bancorp, Inc. ("Hudson") with and into SFS (the
"Merger"), each outstanding share of our common stock (other than shares as to
which dissenters' rights have been asserted and duly perfected in accordance
with Delaware law and other than treasury shares and certain shares held by
Hudson or us) will be converted into and represent the right to receive $25.10
in cash without any interest thereon (the "Merger Price"). For a more complete
description of the Merger Agreement and the terms of the Merger, see "The
Merger."
Our common stock is listed on The Nasdaq National Market under the
symbol "SFED." On May 17, 1999, the last full trading day prior to the public
announcement of the execution of the Merger Agreement, the closing sales price
per share of our common stock on The Nasdaq National Market as reported in the
Wall Street Journal was $21.625. The last reported closing sales price per share
of our common stock as of July 13, 1999, the latest practicable trading day
before the printing of this proxy statement, was $24.25. See "SFS Bancorp, Inc.
Stock Prices and Dividend Information."
All stockholders are urged to read this proxy statement carefully and in
its entirety.
1
<PAGE>
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
This proxy statement incorporates by reference the following documents
filed by us (File No. 0-25994) with the Securities and Exchange Commission
("SEC") pursuant to the Securities Exchange Act of 1934:
1. Our Annual Report on Form 10-KSB for the year ended December 31,
1998 (including certain information contained in our proxy
statement dated March 12, 1999, used in connection with our 1999
annual meeting of stockholders and incorporated by reference in
the Form 10-KSB, and the portions of our 1998 Annual Report to
Stockholders incorporated by reference herein pursuant to clause
4 below);
2. Our Quarterly Report on Form 10-QSB for the quarter ended March
31, 1999;
3. Our Current Report on Form 8-K dated May 26, 1999; and
4. The following portions of our Annual Report to Stockholders for
the year ended December 31, 1998: management's discussion and
analysis of financial condition and results of operation (pages 4
through 19); selected consolidated financial information (pages 2
and 3); and audited consolidated financial statements and notes
thereto (pages 20 through 55).
Accompanying this proxy statement are our 1998 Annual Report to
Stockholders and Quarterly Report on Form 10-QSB for the quarter ended March 31,
1999.
The Merger Agreement (excluding the exhibits thereto) is included
herewith as Appendix A and is incorporated by reference herein. Discussions of
the terms and conditions of the Merger Agreement are summary in nature, and we
urge you to read the Merger Agreement for a more complete discussion of the
terms and conditions of the merger, the Merger Agreement and related
transactions.
Any statement contained herein, in any supplement hereto or in a
document incorporated by reference herein shall be modified or superseded for
purposes of this proxy statement to the extent that a statement contained
herein, in any supplement hereto or in any subsequently filed document which
also is incorporated by reference herein modifies or supersedes such statement.
Any such statement so modified or superseded shall not be deemed, except as so
modified or superseded, to constitute a part of this proxy statement or any
supplement hereto.
Also incorporated herein by reference are the documents attached hereto
as Appendices B, C and D to this proxy statement. See also "Other Matters"
regarding the incorporation by reference of our future Exchange Act reports.
This proxy statement incorporates by reference documents filed by us
with the SEC which are not presented herein or delivered herewith. These
documents are available, upon written or oral request, from David J. Jurczynski,
Chief Financial Officer, SFS Bancorp, Inc., 251-263 State Street, Schenectady,
New York 12305; telephone number (518) 395-2300. We will furnish copies (without
exhibits unless the exhibits have been specifically incorporated by reference)
free of charge by first class mail or other equally prompt means within one
business day of receipt of such request. In order to ensure timely delivery of
such documents, any request should be made by August 11, 1999.
2
<PAGE>
SUMMARY
The following is a summary of certain information contained elsewhere or
incorporated by reference in this proxy statement. This summary is not intended
to be a complete statement of the matters described herein and is qualified in
its entirety by the more detailed information contained in this proxy statement
and the accompanying appendices. We urge you to read this proxy statement and
the appendices hereto in their entirety.
The Parties to the Merger
SFS and Schenectady Federal
SFS is a Delaware corporation which was organized in 1995 to become the
holding company for Schenectady Federal Savings Bank ("Schenectady Federal").
SFS owns all of the outstanding stock of Schenectady Federal. Schenectady
Federal is principally engaged in the business of attracting deposits from the
general public and using such deposits, together with funds generated from
operations, to originate one- to four-family residential mortgage, home equity
and, to a much lesser extent, consumer and other loans in its market area.
Schenectady Federal also invests in mortgage-backed securities, investment
securities (consisting primarily of U.S. government and agency obligations) and
other permissible investments.
Schenectady Federal is a community-oriented financial institution
offering a variety of financial services to meet the needs of the communities it
serves. Schenectady Federal conducts business in Schenectady County through its
main office located at 251-263 State Street in Schenectady, New York and three
branch offices located in the Hannaford Plaza in Glenville, New York and in the
Bellevue and Upper Union Street areas of Schenectady, New York. Schenectady
County is part of the four-county Capital District Region which also includes
the counties of Albany, Rensselaer and Saratoga. Schenectady Federal's primary
market area for deposits consists of communities within Schenectady County,
while its primary market area for lending extends to Albany, Rensselaer and
Saratoga Counties and, to a lesser extent, Warren County.
Schenectady Federal is a federally chartered stock savings bank and its
operations are regulated by the Office of Thrift Supervision. At March 31, 1999,
SFS had total assets of $176.1 million, total deposits of $149.1 million and
total stockholders' equity of $23.8 million.
Our executive offices are located at 251-263 State Street, Schenectady,
New York 12305, and our telephone number at that address is (518) 395-2300.
For additional information concerning our financial condition and
results of operations, see "Selected Consolidated Financial and Other
Information of SFS."
Hudson and Hudson River Bank & Trust Company
Hudson is a Delaware corporation which was organized in March 1998 to
become the holding company for Hudson River Bank & Trust Company ("Hudson River
Bank"). Hudson owns all of the outstanding stock of Hudson River Bank, which
converted from mutual to stock form on July 1, 1998. The principal business of
Hudson River Bank is attracting deposits from customers within its market area
and investing those funds primarily in loans and, to a lesser extent, in
investment securities.
3
<PAGE>
Hudson River Bank is a community-oriented financial institution with 13
full-service branches in its primary market area of Columbia, Rensselaer,
Albany, Schenectady and Dutchess Counties. The executive offices of Hudson and
Hudson River Bank are located at One Hudson City Centre, Hudson, New York 12534,
and their telephone number is (518) 828-4600.
At March 31, 1999, Hudson had total assets of $881.1 million, total
deposits of $591.8 million and total stockholders' equity of $219.3 million.
The Merger
General
Pursuant to the Merger Agreement, a to-be-formed interim wholly-owned
subsidiary of Hudson will be merged with and into us, and we will then be merged
with and into Hudson, with Hudson as the surviving corporation. Each outstanding
share of our common stock (other than shares as to which dissenters' rights have
been asserted and duly perfected in accordance with Delaware law and other than
treasury shares or certain shares held by Hudson or us) will be converted into
and represent the right to receive $25.10 in cash without any interest thereon.
In addition, each outstanding option to purchase our common stock ("SFS Option")
(other than the option granted by us to Hudson in conjunction with the execution
of the Merger Agreement) shall be cancelled, and each holder shall be entitled
to receive an amount determined by multiplying the excess of the Merger Price
over the applicable exercise price per share of such option by the number of
shares of SFS common stock subject to such SFS Option. Immediately subsequent to
the Merger, Schenectady Federal will be merged with and into Hudson River Bank.
Opinion of Charles Webb
We have received a written opinion from Charles Webb & Company, a
Division of Keefe, Bruyette & Woods, Inc. ("Charles Webb"), dated as of May 17,
1999 and updated as of the date of this proxy statement, to the effect that the
consideration to be paid to our stockholders pursuant to the Merger Agreement is
fair to our stockholders from a financial point of view. A copy of the fairness
opinion of Charles Webb is attached hereto as Appendix B and should be read in
its entirety. See "The Merger Opinion of Charles Webb."
Recommendation of the Board of Directors of SFS
Our Board of Directors has determined that the Merger is in the best
interests of our stockholders and, accordingly, has unanimously approved the
Merger. Our Board of Directors unanimously recommends that you vote FOR the
Merger Agreement. See "The Merger - Reasons for the Merger; Recommendation of
the Board of Directors."
Conditions to the Merger
Completion of the Merger is subject to several conditions, including
approval of the Merger Agreement by our stockholders, the receipt of all
required regulatory approvals, the absence of any order, judgment or decree or
any suit, action or proceeding, pending or threatened, which seeks to restrain
or prohibit the Merger, the continued accuracy of the representations and
warranties of each party to the Merger
4
<PAGE>
Agreement, and the delivery of certain documents contemplated by the Merger
Agreement. See "The Merger - Conditions to the Merger."
Dissenters' Rights
Pursuant to Section 262 of the Delaware General Corporation Law (the
"DGCL"), any holder of our common stock who does not wish to accept the
consideration to be paid pursuant to the Merger Agreement may dissent from the
Merger and elect to have the fair value of his common stock (exclusive of any
element of value arising from the accomplishment or expectation of the Merger)
judicially determined and paid to him in cash, provided that he complies with
the provisions of Section 262. A copy of Section 262 is included as Appendix C
hereto and incorporated by reference herein. Failure to follow such provisions
precisely may result in a loss of dissenters' rights. See "The Merger -
Dissenters' Rights of Appraisal."
Certain Federal Income Tax Consequences
The payment of cash for our common stock and for outstanding options
pursuant to the terms of the Merger Agreement will be a taxable transaction to
our stockholders and optionees for federal income tax purposes and may also be a
taxable transaction under state, local and other tax laws. Our stockholders and
optionees are urged to consult their personal tax advisors regarding the tax
consequences of the proposed transaction as it may relate to them. See "The
Merger - Certain Federal Income Tax Consequences."
Accounting Treatment of the Merger
The Merger will be accounted for as a purchase for accounting purposes.
See "The Merger - Accounting Treatment of the Merger."
Interests of Certain Persons in the Merger
Hudson and Hudson River Bank will appoint Joseph H. Giaquinto,
President, Chief Executive Officer and the Chairman of the Board of SFS and
Schenectady Federal, to their respective Boards of Directors upon completion of
the Merger, and Hudson will nominate Mr. Giaquinto to be elected to a three-year
term at the annual meeting of Hudson's stockholders to be held in the year 2000.
The vesting of all unvested stock options and restricted stock awards held by
the directors and officers of SFS will be accelerated as of the date our
stockholders approve the Merger Agreement. In addition, the change in control
provisions in the employment, change in control and supplemental executive
retirement agreements with our executive officers will result in cash payments
aggregating approximately $3.0 million to our five executive officers (including
$1.1 million to be paid over time), plus the reimbursement to Mr. Giaquinto of
federal excise taxes. Mr. Giaquinto and his spouse will also receive health
benefits for their respective lives, and Mr. Giaquinto will receive $175,000
over three years pursuant to a Non-Competition Agreement that was a condition to
Hudson's obligations under the Merger Agreement. Three executive officers or
employees will receive additional cash payments aggregating $229,000 pursuant to
the Merger Agreement. Hudson has also agreed to indemnify the directors and
officers of SFS and each of our subsidiaries after the effective time of the
Merger to the fullest extent which we or any of our subsidiaries would have been
permitted to do so and to provide liability insurance to our directors and
officers for a period of six years after the effective time. See "The Merger -
Interests of Certain Persons in the Merger."
<PAGE>
Other than as summarized above and set forth in the referenced section,
no director or executive officer of SFS or Hudson has any direct or indirect
material interest in the Merger, except to the extent that our directors and
executive officers beneficially own our common stock.
5
<PAGE>
SFS BANCORP, INC. STOCK PRICES AND DIVIDEND INFORMATION
Our common stock is quoted on The Nasdaq National Market under the
symbol "SFED." The following table sets forth the reported high and low sales
prices of shares of our common stock as reported on The Nasdaq National Market
and the quarterly cash dividends per share declared, for the periods indicated.
The stock prices do not include retail mark-ups, markdowns or commissions.
<TABLE>
<CAPTION>
SFS Common Stock
----------------------------------------------------
High Low Dividends
---------------- ---------------- ---------------
<S> <C> <C> <C>
1997 Calendar Year
First Quarter $18.125 $14.75 $.06
Second Quarter 17.50 16.00 .07
Third Quarter 23.25 16.875 .07
Fourth Quarter 28.00 21.50 .07
1998 Calendar Year
First Quarter 27.50 20.75 .08
Second Quarter 26.25 21.00 .08
Third Quarter 29.00 19.75 .08
Fourth Quarter 27.75 20.25 .08
1999 Calendar Year
First Quarter 22.00 18.25 .09
Second Quarter 24.25 18.25 .09
Third Quarter
(through July 13, 1999) 24.313 24.063 (1)
</TABLE>
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(1) We declared a dividend of $.09 per share on July 14, 1999, which is
payable on August 16, 1999 to our stockholders of record at the close of
business on July 30, 1999.
The last reported sales prices per share of our common stock on (a) May
17, 1999, the last full trading day preceding public announcement of the signing
of the Merger Agreement and (b) July 13, 1999, the last practicable date prior
to the printing of this proxy statement, were $21.625 and $24.25 per share,
respectively.
As of July 8, 1999, the 1,207,755 outstanding shares of our common stock
were held by approximately 264 record owners.
You are urged to obtain current market quotations for our common stock,
to the extent possible, prior to the special meeting.
6
<PAGE>
SELECTED CONSOLIDATED FINANCIAL AND OTHER INFORMATION OF SFS
<TABLE>
<CAPTION>
At December 31,
At March 31, ---------------------------------------------------------------
1999 1998 1997 1996 1995 1994
-----------------------------------------------------------------------------
(In thousands)
Selected Financial Condition Data:
<S> <C> <C> <C> <C> <C> <C>
Total assets................. $176,077 $178,167 $174,428 $164,888 $166,529 $150,837
Cash and cash equivalents.... 3,519 3,812 2,176 2,896 10,453 6,468
Securities available for sale 15,790 16,954 4,067 1,990 7,976 7,776
Investment securities........ 10,551 11,661 28,979 36,180 43,076 38,893
FHLB stock................... 1,466 1,338 1,338 1,215 1,117 1,123
Loans receivable, net........ 140,612 140,210 133,786 118,455 100,921 93,703
Real estate owned............ 263 271 111 178 200 204
Deposits..................... 149,084 150,578 150,469 140,616 139,671 138,299
Advance payments by borrowers for
taxes and insurance........ 1,051 1,425 1,281 1,160 1,402 1,270
Stockholders' equity......... 23,814 23,610 21,431 21,671 24,261 10,046
</TABLE>
<TABLE>
<CAPTION>
Three Months
Ended March 31, Year Ended December 31,
------------------------------------------------------------------------------------
1999 1998 1998 1997 1996 1995 1994
------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Selected Operating Data: (In thousands)
Total interest income....... $3,083 $3,186 $12,751 $12,368 $11,867 $11,523 $9,849
Total interest expense...... 1,530 1,714 6,902 6,623 6,187 6,236 5,077
----- ----- ------- ------- ------- ------- ------
Net interest income......... 1,553 1,472 5,849 5,745 5,680 5,287 4,772
Provision for loan losses... 15 30 120 120 120 370 120
------- ------- -------- -------- ------- ------- -------
Net interest income after
provision for loan losses. 1,538 1,442 5,729 5,625 5,560 4,917 4,652
Noninterest income.......... 108 105 2,462 423 333 280 137
Noninterest expense......... 1,106 1,086 4,638 4,288 5,169 3,986 4,063
----- ----- ------ ------- ------ ------ -----
Income before taxes......... 540 461 3,553 1,760 724 1,211 726
Income tax expense (benefit) 221 191 1,438 692 (106) 356 215
------ ------ ------- -------- ------ -------- ------
Net income................ $ 319 $ 270 $ 2,115 $ 1,068 $ 830 $ 855 $ 511
====== ====== ======= ======= ====== ====== ======
</TABLE>
7
<PAGE>
<TABLE>
<CAPTION>
At or For the Three
Months Ended March 31, Year Ended December 31,
----------------------------------------------------------------------------------
1999(1) 1998(1) 1998 1997 1996 1995 1994
----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Selected Financial Ratios and Other
Data:
Performance Ratios:
Return on assets (ratio of net income
to average total assets)..... 0.74% 0.63% 1.20% 0.63% 0.50% 0.53% 0.34%
Net interest rate spread....... 3.15 3.02 2.88 2.96 2.95 2.93 3.06
Net interest margin............ 3.66 3.52 3.40 3.46 3.51 3.36 3.26
Ratio of noninterest expense to
average total assets......... 2.56 2.54 2.63 2.51 3.13 2.48 2.72
Ratio of net interest income to
noninterest expense.......... 140.46 135.49 126.11 133.97 109.89 131.29 116.50
Return on equity (ratio of net income
to average equity)........... 5.76 5.18 9.74 5.04 3.73 5.07 5.31
Liquidity ratio at end of period 17.09 21.91 19.24 19.72 22.58 32.45 19.57
Efficiency ratio............... 66.59 68.86 67.87 69.52 85.96 71.60 82.77
Asset Quality Ratios:
Non-performing assets to total assets,
at end of period............. 0.59 0.75 0.64 0.84 0.61 0.62 1.93
Allowance for loan losses to non-
performing loans, at period end 126.10 68.28 110.76 57.78 77.07 68.18 31.79
Allowance for loan losses to total
loans........................ 0.68 0.61 0.67 0.58 0.54 0.56 0.91
Capital Ratios:
Stockholders' equity to total assets at
end of period................ 13.53 12.36 13.25 12.29 13.14 14.57 6.66
Average stockholders' equity to
average total assets......... 12.85 12.16 12.31 12.43 13.48 10.50 6.43
Ratio of average interest-earning
assets to average interest-bearing
liabilities.................. 114.21 112.35 112.84 112.68 114.72 110.84 105.75
Number of full service offices... 4 4 4 4 3 3 3
</TABLE>
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(1) Annualized where appropriate.
8
<PAGE>
THE SPECIAL MEETING
Place, Time and Date
The special meeting is scheduled to be held at 10:00 a.m., Eastern Time,
on August 25, 1999, at our main office located at 251-263 State Street,
Schenectady, New York.
Matters to Be Considered
At the special meeting, or any adjournment or postponement thereof, our
stockholders will be asked to approve a proposal to adopt the Merger Agreement
and the transactions contemplated thereby. Our stockholders also may consider
and vote upon such other matters as are properly brought before the special
meeting. As of the date hereof, we know of no business that will be presented
for consideration at the special meeting, other than the matters described in
this proxy statement.
Record Date; Vote Required
Only our stockholders of record at the close of business on July 8, 1999
(the "Record Date") are entitled to notice of and to vote at the special
meeting. As of the Record Date, there were 1,207,755 shares of our common stock
outstanding and entitled to vote at the special meeting.
Each outstanding share of our common stock will be entitled to cast one
vote per share at the special meeting. Such vote may be exercised in person or
by properly executed proxy. The presence, in person or by properly executed
proxy, of the holders of a majority of our outstanding shares of common stock
entitled to vote at the special meeting is necessary to constitute a quorum.
Abstentions and broker non-votes will be treated as shares present at the
special meeting for purposes of determining the presence of a quorum.
The affirmative vote of the holders of at least a majority of our
outstanding shares of common stock entitled to vote at the special meeting is
required for adoption of the Merger Agreement. As a result, abstentions and
broker non-votes will have the same effect as votes against the adoption of the
Merger Agreement.
Approval of the Merger Agreement by our stockholders is a condition to
completion of the Merger. See "The Merger - Conditions to the Merger."
Beneficial Ownership of SFS Common Stock
As of the Record Date, our directors and executive officers and their
affiliates beneficially owned in the aggregate 87,708 shares (excluding stock
options) of our common stock, or 7.3% of our outstanding shares of common stock
entitled to vote at the special meeting. Our directors and executive officers
have each agreed to vote their shares in favor of the Merger Agreement.
Proxies
Shares of our common stock represented by properly executed proxies
received prior to or at the special meeting will, unless such proxies have been
revoked, be voted at the special meeting and any adjournments or postponements
thereof in accordance with the instructions indicated in the proxies. If no
instructions are indicated on a properly executed proxy, the shares will be
voted FOR the adoption of the Merger Agreement.
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Any proxy given pursuant to this solicitation or otherwise may be
revoked by the person giving it at any time before it is voted by delivering to
Richard D. Ammian, Secretary of SFS, at 251-263 State Street, Schenectady, New
York 12305 or at the special meeting on or before the taking of the vote at the
special meeting, a written notice of revocation bearing a later date than the
proxy or a later dated proxy relating to the same shares of common stock or by
attending the special meeting and voting in person. Attendance at the special
meeting will not by itself constitute the revocation of a proxy.
If any other matters are properly presented at the special meeting for
consideration, the persons named in the proxy or acting thereunder will have
discretion to vote on such matters in accordance with their best judgment. As of
the date hereof, we know of no such other matters.
In addition to solicitation by mail, our directors, officers and
employees, who will not receive additional compensation for such services, may
solicit proxies from our stockholders, personally or by telephone, telegram or
other forms of communication. Brokerage houses, nominees, fiduciaries and other
custodians will be requested to forward soliciting materials to beneficial
owners and will be reimbursed for their reasonable expenses incurred in sending
proxy material to beneficial owners. We will bear our own expenses in connection
with the solicitation of proxies for the special meeting.
You are requested to complete, date and sign the accompanying form of
proxy and to return it promptly in the enclosed postage-paid envelope.
You should not forward stock certificates with your proxy cards.
Our Independent Auditors Will Be Available at the Meeting
Our independent auditors, KPMG LLP, will have one or more
representatives at the special meeting who will have an opportunity to make a
statement, if they so desire, and who will be available to respond to
appropriate questions.
THE MERGER
The information in this proxy statement concerning the terms of the
Merger is qualified in its entirety by reference to the full text of the Merger
Agreement, which is attached hereto as Appendix A and incorporated by reference
herein. All stockholders are urged to read the Merger Agreement in its entirety.
General
As soon as possible after the conditions to consummation of the Merger
described below have been satisfied or waived, and unless the Merger Agreement
has been terminated as provided below, SFS and Hudson will file a Certificate of
Merger with the Secretary of State of the State of Delaware. The Merger will
become effective at the time and on the date of the filing of the Certificate of
Merger with the Secretary of State of Delaware, unless a later date and time is
specified as the Effective Time in such Certificate of Merger. Pursuant to the
Merger Agreement, an interim subsidiary of Hudson will first be merged with and
into us, with us surviving as a subsidiary of Hudson. Immediately following the
Merger, we will then be merged with and into Hudson, with Hudson being the
surviving entity and continuing with its current name. Thereafter, Schenectady
Federal will merge with and into Hudson River Bank with Hudson River Bank being
the survivor thereof.
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Upon consummation of the Merger, our stockholders will be entitled to
receive the Merger Price in consideration for each of their shares of SFS common
stock held and thereupon shall cease to be stockholders of SFS, and our separate
existence and corporate organization shall cease. Hudson shall succeed to all
the rights and property of SFS. The members of the Board of Directors of Hudson
and Joseph H. Giaquinto, currently the President and Chairman of the Board of
SFS and Schenectady Federal, shall be the members of the Board of Directors of
Hudson as of the Effective Time. See also "- Interests of Certain Persons in the
Merger."
Background of the Merger
In January 1998, following a presentation to our Board of Directors by
Charles Webb, we engaged Charles Webb to assist us in evaluating a possible sale
or merger of SFS as a means to enhance stockholder value. During February 1998,
Charles Webb assisted us in the preparation of confidential marketing materials.
Charles Webb then contacted 15 financial institutions or their holding companies
to determine their initial interest in SFS. The confidential marketing materials
were sent to seven of those companies after they executed a confidentiality
agreement. The companies were initially instructed to provide their preliminary
indications of interest to Charles Webb by March 27, 1998.
In April 1998, we authorized further negotiations with a bank holding
company which had submitted a preliminary proposal and also requested Charles
Webb to contact additional institutions. Charles Webb then contacted five
additional financial institutions or their holding companies.
In June 1998, we reviewed two proposals that had been received, and we
authorized management and Charles Webb to negotiate a definitive agreement with
a bank holding company. Because we were unable to resolve a number of issues
with the bank holding company, including the amount of shares our stockholders
would receive, in July 1998 we terminated those negotiations and instead entered
into a definitive merger agreement with the other prospective acquiror, Cohoes
Savings Bank, on July 31, 1998.
Cohoes Savings Bank was a mutual savings bank that was in the process of
converting from mutual to stock form. Regulatory filings for both the conversion
of Cohoes Savings Bank and the acquisition of SFS were filed in September 1998.
However, due to significant declines in the market values of institutions
undertaking mutual to stock conversions, and regulatory concerns regarding the
amount of stock that the new holding company for Cohoes would have issued to our
stockholders, the definitive agreement with Cohoes Savings Bank was terminated
on October 23, 1998. Cohoes Savings paid us a $2 million termination fee.
In March 1999, we authorized Charles Webb to commence the marketing
process again. Charles Webb contacted five financial institutions or their
holding companies that had previously expressed an interest, as well as a sixth
institution that had approached Charles Webb. Five of these institutions
executed confidentiality agreements and received confidential marketing
materials in March 1999. Two companies submitted preliminary indications of
interest to Charles Webb in April 1999. In April 1999, our Board of Directors
reviewed the two proposals and authorized management and Charles Webb to
negotiate a definitive agreement with Hudson, whose proposal was at a higher
price than the other proposal.
<PAGE>
Hudson then conducted a further due diligence review of SFS, and our
management negotiated the terms of a definitive agreement with the assistance of
our legal counsel and investment banker. On May 17, 1999, our Board of Directors
reviewed the proposed definitive Merger Agreement with our legal counsel and
Charles Webb. The Board of Directors considered all factors deemed relevant,
including the price per share. Our Board also considered and relied upon Charles
Webb's opinion that the Merger Price is fair to our
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<PAGE>
stockholders from a financial point of view. The Board of Directors determined
that the proposed Merger is in the best interests of SFS and our stockholders,
and the Board unanimously approved the Merger Agreement. SFS and Hudson publicly
announced the Merger after the close of trading on May 17, 1999.
Reasons for the Merger; Recommendation of the Board of Directors
Our Board of Directors believes that the terms of the Merger Agreement,
which are the product of arm's length negotiations between representatives of
Hudson and SFS, are in the best interests of SFS and our stockholders. In the
course of reaching its determination, our Board of Directors considered the
following factors:
(a) the Merger Price to be paid to our stockholders in relation to the
market value, book value, earnings per share and dividend rates of our common
stock,
(b) information concerning our financial condition, results of
operations, capital levels, asset quality and prospects,
(c) industry and economic conditions,
(d) the impact of the Merger on the depositors, employees, customers and
communities served by us through expanded commercial, consumer and retail
banking products and services,
(e) the opinion of our financial advisor as to the fairness of the
Merger Price from a financial point of view to the holders of our common stock,
(f) the general structure of the transaction and the compatibility of
management and business philosophy,
(g) the likelihood of receiving the requisite regulatory approvals in a
timely manner, and
(h) the ability of the combined enterprise to compete in relevant
banking and non-banking markets.
In making its determination, our Board of Directors did not ascribe any relative
or specific weights to the factors which it considered.
Our Board of Directors believes that the Merger is in the best interest
of SFS and our stockholders. The Board of Directors unanimously recommends that
our stockholders vote for the adoption of the Merger Agreement.
Opinion of Charles Webb
Charles Webb was retained by us to evaluate our strategic alternatives
as part of a stockholder enhancement program and to evaluate any specific
proposals that might be received regarding an acquisition of SFS. Charles Webb,
as part of its investment banking business, is regularly engaged in the
evaluation of businesses and securities in connection with mergers and
acquisitions, negotiated underwritings, and distributions of listed and unlisted
securities. Charles Webb is familiar with the market for common stocks of
publicly traded banks, savings institutions and bank and savings institution
holding companies. Our Board of Directors selected Charles Webb on the basis of
the firm's reputation and its experience and expertise in
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<PAGE>
transactions similar to the Merger and its prior work for and relationship with
SFS. Except as described herein, Charles Webb is not affiliated with SFS, Hudson
or their respective affiliates.
Pursuant to its engagement, Charles Webb was asked to render an opinion
as to the fairness, from a financial point of view, of the Merger Price to our
stockholders. Charles Webb delivered a fairness opinion dated as of May 17, 1999
to our Board of Directors that the Merger Price is fair to our stockholders from
a financial point of view. No limitations were imposed by us upon Charles Webb
with respect to the investigations made or procedures followed by Charles Webb
in rendering its opinion.
Charles Webb updated its opinion as of the date of this proxy statement.
The full text of the opinion, which sets forth certain assumptions made, matters
considered and limitations on the reviews undertaken, is attached as Appendix B
to this proxy statement and should be read in its entirety. Charles Webb has
consented to the following summary of its opinion and to the entire opinion
being attached hereto as Appendix B. The summary of the opinion of Charles Webb
set forth in this proxy statement is qualified in its entirety by reference to
the opinion. Such opinion does not constitute a recommendation by Charles Webb
to any SFS stockholder as to how such stockholder should vote with respect to
the Merger.
In rendering its opinion, Charles Webb performed the following acts:
(1) reviewed the financial and business data which we supplied to it,
including our annual reports and proxy statements for the years ended December
31, 1998, 1997 and 1996, and our quarterly report on Form 10-QSB for the quarter
ended March 31, 1999;
(2) reviewed Hudson's annual report and proxy statement for the year
ended March 31, 1998 and Hudson's Form 10-Q for the quarter ended December 31,
1998;
(3) discussed with senior management and our Board of Directors the
current position and prospective outlook for SFS;
(4) considered historical quotations and the prices of recorded
transactions in our common stock since 1996;
(5) reviewed the financial and stock market data of other savings
institutions, particularly in the mid-Atlantic region of the United States, and
the financial and structural terms of several other recent transactions
involving mergers and acquisitions of savings institutions or proposed changes
of control of comparably situated companies; and
(6) reviewed certain other information which it deemed relevant.
In rendering its opinion, Charles Webb assumed and relied upon the
accuracy and completeness of the information provided to it by SFS and Hudson
and obtained by it from public sources. In its review, with the consent of our
Board, Charles Webb did not undertake any independent verification of the
information provided to it, nor did it make any independent appraisal or
evaluation of the assets and liabilities of SFS or Hudson, or of potential or
contingent liabilities of SFS or Hudson. With respect to the financial
information, including forecasts received from us, Charles Webb assumed (with
our consent) that such information had been reasonably prepared reflecting the
best currently available estimates and judgment of our management. Charles Webb
also assumed that no restrictions or conditions would be imposed by regulatory
authorities
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<PAGE>
that would have a material adverse effect on the contemplated benefits of the
Merger to SFS or the ability to consummate the Merger.
Analysis of Recent Comparable Acquisitions. In rendering its opinion,
Charles Webb analyzed pending acquisitions of thrift institutions, including
those transactions deemed comparable to the Merger. Charles Webb compared the
acquisition price relative to five industry-accepted ratios: deal price to
tangible book value, deal price to last twelve months' earnings, deal price to
total assets, deal price to total deposits, and premium to core deposits. The
analysis included a comparison of the average, median high and low of the above
ratios for pending acquisitions, based on the following three comparable groups:
(1) all pending thrift acquisitions; (2) pending thrift acquisitions with the
selling thrift having a return on average equity greater than 12% and a return
on average assets greater than 1%; and (3) pending thrift acquisitions with the
selling thrift having a return on average equity less than 7% and a return on
average assets less than 1%. Charles Webb primarily relied on pending comparable
transactions as opposed to completed comparable transactions as the merger and
acquisition premiums received by selling institutions have changed since the
stock market correction in prices for financial institution equities which
occurred in August and September of 1998. Further, the pending comparable
transactions were split into two groups by performance of the selling
institution (as measured by return on equity and return on assets) as recent
transaction pricing has delineated pricing between strong performing
institutions and the remainder of the thrift industry. For the quarter ended
March 31, 1999, SFS reported an annualized return on equity of 5.76% and a
return on assets of 0.74%.
No company or transaction used as a comparison in this analysis is
identical to SFS, Hudson River or the Merger. Accordingly, an analysis of the
results of the foregoing 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 value of the companies to which they are being compared.
The information in the following table summarizes the material
information analyzed by Charles Webb with respect to the Merger. The summary
does not purport to be a complete description of the analysis performed by
Charles Webb in rendering its opinion. Selecting portions of Charles Webb's
analysis or isolating certain aspects of the comparable transactions without
considering all analyses and factors could create an incomplete or potentially
misleading view of the evaluation process.
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<PAGE>
<TABLE>
<CAPTION>
Price to (1)
--------------------------------------------------------------------
Last Core
Tangible 12 Months Deposit
Book Value EPS Assets Deposits Premium
----------------- ----------- ------------- ------------- ----------
<S> <C> <C> <C> <C> <C>
Consideration - $25.10 per share 133.4% 18.0% 21.3% 5.3%
Based on actual LTM earnings (2) 15.5x
Based on core LTM earnings (2) 28.3x
All Pending Deals
33 deals
Average 220.8% 22.5x 21.4% 30.8% 17.4%
Median 194.8% 23.5x 19.5% 26.0% 12.2%
High 414.3% 30.0x 43.4% 76.7% 38.8%
Low 106.2% 10.0x 9.4% 13.5% 2.6%
Pending Deals - Selling Thrifts with ROAE > 12% and ROAA >1%
6 Deals
Average 344.1% 22.5x 27.6% 38.2% 31.1%
Median 346.8% 23.5x 29.1% 40.3% 32.0%
High 414.3% 30.0x 33.3% 43.6% 38.8%
Low 289.8% 10.0x 20.0% 26.0% 18.9%
Pending Deals - Selling Thrifts with ROAE < 7% and ROAA <1%
10 Deals
Average 147.4% 30.4x 15.2% 21.8% 7.2%
Median 158.8% 28.7x 15.0% 24.1% 6.7%
High 173.8% 47.8x 21.3% 26.6% 12.2%
Low 106.2% 16.5x 10.1% 13.5% 2.6%
</TABLE>
- -------------
(1) Financial data as of March 31, 1999.
The summary contained herein provides a summary description of the
material analyses prepared by Charles Webb in connection with the rendering of
its opinion. The preparation of a fairness opinion is not necessarily
susceptible to partial analysis or summary description. Charles Webb believes
that its analysis and the summary set forth above must be considered as a whole
and that selecting portions of its analysis without considering all analyses, or
selecting part of the above summary, without considering all factors and
analyses, would create an incomplete view of the process underlying the analysis
set forth in Charles Webb's presentation and opinion. The ranges of valuations
resulting from any particular analysis described above should not be taken to be
Charles Webb's view of the actual value of SFS or Hudson River. The fact that
any specific analysis has been referred to in the summary above is not meant to
indicate that such analysis was given greater weight than any other analysis.
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<PAGE>
In preparing its analysis, Charles Webb made numerous assumptions with
respect to industry performance, business and economic conditions and other
matters, many of which are beyond the control of Charles Webb and SFS. The
analyses performed by Charles Webb are not necessarily indicative of actual
values or future results, which may be significantly more or less favorable than
suggested by such analyses and do not purport to be appraisals or reflect the
prices at which a business may be sold or the prices at which any securities may
trade at the present time or at any time in the future. In addition, as
described above, Charles Webb's opinion, along with its presentation to the SFS
board of directors, was just one of the many factors taken into consideration by
the SFS board of directors in approving the Merger Agreement.
Pursuant to its engagement letter with SFS, Charles Webb will receive a
fee equal to 1.0% of the cash consideration paid to SFS shareholders. As of the
date of this proxy statement, Charles Webb has received $50,000 of such fee. The
remainder is due upon closing of the Merger. SFS has also agreed to indemnify
Charles Webb against certain liabilities, including liabilities under the
federal securities laws, and to reimburse Charles Webb for certain out-of-pocket
expenses.
Merger Price; Treatment of Options
Upon completion of the Merger, each outstanding share of our common
stock (other than shares as to which dissenters' rights have been asserted and
duly perfected in accordance with Delaware law and other than treasury shares
and certain shares held by Hudson or us) shall be converted into and represent
the right to receive $25.10 in cash without any interest thereon, representing
the Merger Price. In addition, each holder of an SFS Option then outstanding
shall receive cash in settlement thereof from Hudson in an amount determined by
multiplying the excess of the $25.10 per share Merger Price over the applicable
exercise price per share of such option, multiplied by the number of shares of
our common stock subject to such SFS Option. The cash will be paid by Hudson
when the holder of the SFS Option executes an agreement cancelling the SFS
Option in exchange for the cash payment. The aggregate amount of the Merger
Price to be paid in connection with the Merger is expected to be approximately
$31.7 million, assuming none of the outstanding SFS Options are exercised prior
to completion of the Merger.
Surrender of Certificates
Within five business days after the completion of the Merger, Registrar
& Transfer Company, acting as the exchange agent of Hudson, will mail to all
holders of record of our common stock a letter of transmittal, together with
instructions for the exchange of their common stock certificates for cash. Until
so exchanged, each certificate representing our common stock outstanding
immediately prior to the completion of the Merger shall be deemed for all
purposes to evidence the right to receive the Merger Price, consisting of cash
in the amount of $25.10 into which each such share is to be converted. You
should not send in your certificates of SFS common stock until you receive
further instructions.
<PAGE>
Representations and Warranties
The Merger Agreement contains representations and warranties of SFS and
Hudson which are customary in merger transactions, including, but not limited
to, representations and warranties concerning:
(1) the organization and capitalization of SFS and Hudson and our
respective subsidiaries;
(2) the due authorization, execution, delivery and enforceability of
the Merger Agreement;
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(3) the consents or approvals required, and the lack of conflicts or
violations under applicable certificates of incorporation,
charters, bylaws, instruments and laws, with respect to the
transactions contemplated by the Merger Agreement;
(4) the absence of material adverse changes;
(5) the documents filed by the parties with the SEC and other
regulatory agencies;
(6) the conduct of business in the ordinary course and absence of
certain changes; and
(7) the financial statements of the respective parties.
We also made certain additional representations and warranties regarding
environmental matters, the adequacy of insurance coverage, taxes, employee
benefit plans, certain contracts, properties, the accuracy of the information in
this proxy statement, that our data processing systems are Year 2000 compliant,
compliance with laws and the allowance for loan losses and real estate owned
maintained by us. Hudson has also represented that it will have the funds
necessary to pay the amounts required of it under the Merger Agreement. The
representations and warranties of Hudson and SFS will not survive beyond the
Effective Time if the Merger is consummated, and, if the Merger Agreement is
terminated without consummation of the Merger, there will be no liability on the
part of any party except that no party shall be relieved from any liability
arising out of a willful breach of any covenant, undertaking, representation or
warranty in the Merger Agreement.
Conditions to the Merger
The respective obligations of the parties to consummate the Merger are
subject to the satisfaction or waiver of the following conditions specified in
the Merger Agreement:
o the receipt of all necessary regulatory approvals,
o approval of the Merger Agreement by the requisite vote of our
stockholders,
o the compliance with or satisfaction of all representations,
warranties, covenants and conditions set forth in the Merger
Agreement,
o the absence of any order, decree or injunction, or any
proceeding initiated by a governmental entity seeking an order,
decree or injunction, enjoining or prohibiting consummation of
the Merger or the other transactions contemplated by the Merger
Agreement,
o the receipt of certain certificates, and
o that no more than 15% of the outstanding shares of our common
stock shall be subject to dissenters' rights of appraisal with
respect to the Merger, provided, however, that, for purposes of
computing the 15% limit in this condition, the shares of no more
than one stockholder holding more than 7.5% of the outstanding
shares of our common stock shall be counted.
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There can be no assurance that the conditions to consummation of the
Merger will be satisfied or waived.
Conduct of Business Prior to the Closing Date
Under the terms of the Merger Agreement, we and each of our subsidiaries
will conduct our businesses and engage in transactions only in the ordinary
course and consistent with past practice or to the extent otherwise contemplated
under the Merger Agreement, except with the prior written consent of Hudson. We
also will use our reasonable efforts to:
(1) preserve our business organization and that of our subsidiaries
intact,
(2) keep available to ourself and Hudson the present services of our
employees and those of our subsidiaries, and
(3) preserve for ourself and Hudson the goodwill of our customers
and those of our subsidiaries and others with whom business relationships exist.
We also agreed, among other things, that, except as contemplated by the
Merger Agreement or unless Hudson provides its consent, we will not, and will
cause Schenectady Federal not to,
(a) pay any dividends to our stockholders except for regular
quarterly dividends of up to $.09 per share, but only to the extent that such
dividends can be funded out of current earnings,
(b) issue any shares of our capital stock (other than pursuant to
the exercise of existing SFS Options or the option we granted to Hudson),
repurchase our common stock or effect any change in our capitalization,
(c) amend our Certificate of Incorporation, Bylaws or similar
organizational documents (except as specifically contemplated by the Merger
Agreement),
(d) increase the compensation of any of our directors, officers or
employees or pay bonuses except for, among other things, bonuses under our
existing incentive plan, merit increases in accordance with past practices and
normal cost-of-living increases,
(e) enter into, or modify, any employee benefit, incentive or
welfare plan or arrangement,
(f) originate or purchase any loan in excess of $350,000,
(g) enter into any transaction not in the ordinary course of business,
any agreement or arrangement relating the borrowing of money by us (except
certain borrowings used in the ordinary course of business and consistent with
past practice), any agreement or arrangement relating to employment or
consultancy or any amendment of such agreements (other than the extension for
one year of the existing employment agreements and change in control severance
agreements at SFS, except for Mr. Giaquinto's employment agreement) or any
agreement with a labor union,
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(h) make any change in our accounting methods unless required by
generally accepted accounting practices or changes in law or regulation,
(i) make any capital expenditures in excess of $17,500 individually
or $37,500 in the aggregate (with certain exceptions),
(j) file applications or enter into any contract with respect to
branch locations,
(k) acquire equity interests in any other business or entity, except
limited amounts of marketable equity securities in the ordinary course of
business,
(l) enter into any agreement granting preferential rights to
purchase any of our assets,
(m) make any material change in our lending or investment policies,
except as required by law or regulatory authorities or, in accordance with safe
and sound banking practices, as necessitated by changes in interest rates,
(n) enter into certain hedging or similar contracts or arrangements,
(o) take any action that would result in a breach of any of our
representations and warranties in the Merger Agreement or that would materially
impede or delay the consummation of the Merger, or
(p) agree to do any of the aforementioned actions.
In addition, we have agreed not to solicit inquiries or proposals from,
or furnish information to or participate in any discussions or negotiations
with, third parties concerning any merger, acquisition or sale acquisition of
all or substantially all of our assets or equity interests. We are required to
notify Hudson immediately if we receive any such inquires or proposals.
Notwithstanding the foregoing, we are permitted to engage in discussions or
negotiations with third parties if, after having consulted with outside legal
counsel, we determine that the failure to do so may cause our Board of Directors
to breach its fiduciary duties under applicable law.
Required Approvals
Various approvals of the New York State Department of Banking, the
Federal Deposit Insurance Corporation and the Office of Thrift Supervision
("OTS") are required in order to consummate the Merger.
Applications for these approvals have been filed and are currently pending.
There can be no assurances that the requisite regulatory approvals will be
received in a timely manner, in which event the consummation of the Merger may
be delayed. In the event the Merger is not consummated on or before November 30,
1999, the Merger Agreement may be terminated by either Hudson or us. There can
be no assurance as to the receipt or timing of such approvals.
It is a condition to the consummation of the Merger that the regulatory
approvals be obtained without any non-standard condition or requirement that,
individually or in the aggregate, would so materially reduce the economic or
business benefits of the transactions contemplated by the Merger Agreement to
Hudson that had such condition or requirement been known, Hudson, in its
reasonable judgment, would not have entered into the Merger Agreement. There can
be no assurance that any such approvals will not contain terms,
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<PAGE>
conditions or requirements which cause such approvals to fail to satisfy such
condition to the consummation of the Merger.
Waiver and Amendment
Prior to the completion of the Merger, Hudson and SFS may extend the
time for performance of any obligations under the Merger Agreement, waive any
inaccuracies in the representations and warranties contained in the Merger
Agreement and waive compliance with any covenant, agreement or, to the extent
permitted by law, any condition of the Merger Agreement. However, after our
stockholders have adopted the Merger Agreement, no waiver can modify the amount
or form of consideration to be provided to our stockholders or otherwise
materially adversely affect our stockholders without the approval of the
affected stockholders.
The Merger Agreement may be amended or supplemented at any time by
mutual agreement of Hudson and SFS, provided that any such amendment or
supplement after our stockholders have adopted the Merger Agreement is subject
to the same condition in the last sentence of the preceding paragraph.
Stock Option Agreement
The following is a summary of the material provisions of the Stock
Option Agreement, dated as of May 17, 1999 (the "Stock Option Agreement"), by
and between SFS and Hudson, which is attached hereto as Appendix D. The
following summary is qualified in its entirety by reference to the Stock Option
Agreement.
Execution of the Stock Option Agreement was a condition to Hudson's
execution of the Merger Agreement. Pursuant to the Stock Option Agreement, we
granted to Hudson an option (the "Hudson Option") to purchase up to 240,485
shares (the "Option Shares") of our common stock (representing 19.9% of our then
issued and outstanding shares of common stock without giving effect to the
shares that may be issued upon exercise of such option) at an exercise price of
$20.50 per share (the "Exercise Price"), subject to adjustment under certain
circumstances. The number of Option Shares has been reduced slightly to 240,343
shares. Exercise of the Hudson Option is subject to the terms and conditions set
forth in the Stock Option Agreement.
The Stock Option Agreement provides that Hudson may exercise the Hudson
Option, in whole or in part, subject to regulatory approval, if both an Initial
Triggering Event (as defined below) and a Subsequent Triggering Event (as
defined below) shall have occurred prior to the occurrence of an Exercise
Termination Event (as defined below); provided that Hudson shall have sent to us
written notice of such exercise within six months following such Subsequent
Triggering Event (subject to extension as provided in the Stock Option
Agreement). The terms Initial Triggering Event and Subsequent Triggering Event
generally relate to attempts by one or more third parties to acquire a
significant interest in SFS. Any exercise of the Stock Option will be deemed to
occur on the date such notice is sent.
For purposes of the Stock Option Agreement, the term "Initial Triggering
Event" means the occurrence of any of the following events or transactions on or
after May 17, 1999:
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<PAGE>
(1) without Hudson's prior written consent, we enter into an agreement
to engage in, or our Board recommends, an Acquisition Transaction (as defined
below) with any person or group (other than Hudson or any subsidiary of Hudson);
(2) any person, other than Hudson or any subsidiary of Hudson, acquires
beneficial ownership, or the right to acquire beneficial ownership, of 10% or
more of our outstanding shares of common stock;
(3) a public announcement is made that any person (other than Hudson or
any subsidiary of Hudson) has made, or publicly disclosed an intention to make,
a proposal to engage in an Acquisition Transaction;
(4) (a) our Board withdraws or modifies (or publicly announces its
intention to withdraw or modify) in any manner adverse in any respect to Hudson
the Board's recommendation that our stockholders approve the transactions
contemplated by the Merger Agreement, (b) without having received Hudson's prior
written consent, we authorize, recommend or propose (or publicly announce our
intention to authorize, recommend or propose) an agreement to engage in an
Acquisition Transaction with any person other than Hudson or any subsidiary of
Hudson, or (c) we provide information to or engage in negotiations with a third
party relating to a possible Acquisition Transaction;
(5) any person other than Hudson or any subsidiary of Hudson 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 stockholders to approve the issuance of
shares to be offered in such an exchange offer);
(6) we willfully breach any covenant or obligation contained in the
Merger Agreement in anticipation of engaging in an Acquisition Transaction, and
such breach (a) would entitle Hudson to terminate the Merger Agreement (whether
immediately or after the giving of notice or passage of time or both) and (b)
shall not have been cured prior to Hudson's notice of its intention to exercise
the Hudson Option; or
(7) any person other than Hudson or any subsidiary of Hudson and other
than in connection with a transaction to which Hudson has given its prior
written consent shall have filed an application or notice with the OTS or other
federal or state thrift or bank regulatory or antitrust authority, which
application or notice has been accepted for processing, for approval to engage
in an Acquisition Transaction.
The term "Acquisition Transaction" means any of the following events:
o a merger or consolidation, or any similar transaction, involving
us or any of our subsidiaries (other than mergers,
consolidations or similar transactions involving only us and/or
one or more of our wholly-owned subsidiaries),
o a purchase, lease or other acquisition or assumption of all or a
substantial portion of the assets or deposits of us or any of
our subsidiaries, or
o a purchase or other acquisition (including by way of merger,
consolidation, share exchange or otherwise) of securities
representing 10% or more of the voting power of us or any of our
subsidiaries.
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The term "Subsequent Triggering Event" means the occurrence of either of
the following events or transactions after May 17, 1999:
(1) the acquisition by any person, other than Hudson or any
subsidiary of Hudson, of beneficial ownership of 20% or more of
our then outstanding shares of common stock; or
(2) the occurrence of the first Initial Triggering Event described
above, except that the percentage referred to in the last bullet
of the above definition of "Acquisition Transaction" shall be
20%.
The Hudson Option will expire upon the occurrence of an "Exercise
Termination Event," defined as:
(1) the Effective Time of the Merger;
(2) termination of the Merger Agreement in accordance with the
provisions thereof if such termination occurs prior to the
occurrence of an Initial Triggering Event, except for a
termination by Hudson as the result of a willful breach of a
material covenant or undertaking in the Merger Agreement or of
any of our representations and warranties therein ("Listed
Termination"); or
(3) the passage of 12 months (or such longer period as may be
provided in the Stock Option Agreement) after termination of the
Merger Agreement if such termination follows the occurrence of an
Initial Triggering Event or is a Listed Termination.
The closing of a purchase of shares pursuant to the Stock Option
Agreement is subject to the obtaining of all necessary governmental approvals
including, without limitation, any approvals required from the OTS.
As of the date of this proxy statement, to the best knowledge of Hudson
and us, no Initial Triggering Event or Subsequent Triggering Event has occurred.
The Stock Option Agreement provides that, upon the occurrence of a
Subsequent Triggering Event that occurs prior to an Exercise Termination Event,
Hudson may demand that we promptly prepare, file and keep current a registration
statement under the Securities Act covering the Option Shares and use our
reasonable efforts to cause such registration statement to become effective and
remain current in order to permit the disposition of the Option Shares by the
holder.
Under the Stock Option Agreement, at any time after the first occurrence
of a Repurchase Event (as defined in the Stock Option Agreement) and prior to an
Exercise Termination Event, Hudson may request us to repurchase the Hudson
Option and any Option Shares purchased pursuant thereto at an aggregate price
specified in the Stock Option Agreement.
The Stock Option Agreement provides that in no event shall Hudson's
Total Profit (as defined in the Stock Option Agreement) exceed $1,600,000 and,
if it otherwise would exceed such amount, Hudson, at its sole election, shall
either:
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<PAGE>
o reduce the number of shares of our common stock subject to the
Hudson Option,
o deliver to us for cancellation Option Shares previously
purchased by Hudson,
o pay cash to us, or
o any combination thereof, so that Hudson's actually realized
Total Profit shall not exceed $1,600,000 after taking into
account the foregoing actions.
The Stock Option Agreement also provides that the Hudson Option may not be
exercised for a number of shares as would, as of the date of exercise, result in
a Notional Total Profit (as defined in the Stock Option Agreement) of more than
$1,600,000, provided that this provision shall not restrict any exercise of the
Hudson Option permitted on any subsequent date.
The Stock Option Agreement is intended to increase the likelihood that
the Merger will be consummated in accordance with the terms of the Merger
Agreement and may have the effect of discouraging competing offers to the
Merger.
Termination
The Merger Agreement may be terminated prior to the Effective Time by:
(a) the mutual written consent of the parties; or
(b) by Hudson or SFS if
(1) the other party has in any material respect breached the
Merger Agreement, and such breach has not been timely
cured after notice;
(2) any necessary governmental approval is denied, unless such
denial is due to a breach of the party seeking to
terminate;
(3) if a final, nonappealable order of a governmental entity
prohibits any transaction contemplated by the Merger
Agreement;
(4) our stockholders do not approve the Merger Agreement,
unless the failure of such occurrence is due to the
failure of the party seeking to terminate to perform its
obligations under the Merger Agreement; or
(5) the Merger is not completed by November 30, 1999 unless
the failure of such occurrence is due to a breach of the
party seeking to terminate.
In the event of a termination of the Merger Agreement, the Merger
Agreement shall thereafter become void and have no effect, and there shall be no
liability on the part of any party to the Merger Agreement or their respective
officers and directors, except that:
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<PAGE>
(a) certain provisions regarding confidential information and
expenses shall survive and remain in full force and effect; and
(b) a breaching party shall not be relieved of liability or damages
for any willful breach giving rise to such termination.
Interests of Certain Persons in the Merger
Hudson and Hudson River Bank will appoint Joseph H. Giaquinto,
President, Chief Executive Officer and the Chairman of the Board of SFS and
Schenectady Federal, to their respective Boards of Directors upon completion of
the Merger, and Hudson will nominate Mr. Giaquinto to be elected to a three-year
term at the annual meeting of Hudson's stockholders to be held in the year 2000.
As of July 8, 1999, there were an aggregate of 123,785 stock options to
purchase our common stock outstanding under our Stock Option Plan. Of these
stock options, 69,369 are currently exercisable. The remaining SFS Options for
54,416 shares will become fully vested and exercisable as of the date our
stockholders approve the Merger Agreement. In addition, each holder of an SFS
Option outstanding upon completion of the Merger shall receive cash in
settlement thereof from Hudson in an amount determined by multiplying the excess
of the $25.10 per share Merger Price over the applicable exercise price per
share of such option, multiplied by the number of shares of our common stock
subject to such SFS Option. See "Beneficial Ownership of SFS Common Stock by
Certain Beneficial Owners and Management" for the amount of vested and unvested
stock options held by our directors and executive officers.
As of July 8, 1999, an aggregate of 20,332 shares of our common stock
have been awarded to our directors and executive officers pursuant to our
Recognition and Retention Plan and have not yet vested. All unvested awards will
become fully vested as of the date our stockholders approve the Merger
Agreement, and upon completion of the Merger each holder of such vested stock
will be entitled to a cash payment equal to the $25.10 per share Merger Price
multiplied by the number of shares of such vested stock. See "Beneficial
Ownership of SFS Common Stock by Certain Beneficial Owners and Management" for
the amount of unvested awards held by our directors and executive officers.
As of June 30, 1999, the SFS ESOP held 71,760 shares of SFS common stock
which had not yet been allocated to participants and which were pledged as
collateral for the remaining $717,600 loan to the SFS ESOP. The ESOP will be
terminated upon completion of the Merger, at which time the loan will be repaid
with the cash received by the ESOP in the Merger. Based on the number of
unallocated shares and the current loan balance, the ESOP will have $1.1 million
of cash after repayment of the loan, which cash will be allocated to the
participants after a favorable termination letter is received from the Internal
Revenue Service.
Hudson has agreed to honor each of our employment agreements, change in
control severance agreements, Change of Control Benefit Plan, Officer Severance
Compensation Plan and Supplemental Executive Retirement Plan. Pursuant to the
change in control provisions in these agreements and plans, our five executive
officers will receive cash payments aggregating approximately $3.0 million,
including $2.0 million to Mr. Giaquinto. The amount to Mr. Giaquinto includes
$1.1 million that will be paid over varying periods of time ranging up to 36
months after completion of the Merger, and for purposes of this proxy statement
these future payments have not been reduced to a present value amount. In
addition, because
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<PAGE>
Mr. Giaquinto's severance exceeds three times his average compensation for the
last five years, he will be subject to federal excise taxes and will be
reimbursed for such taxes. Mr. Giaquinto and his spouse will also receive health
benefits for their respective lives. Mr. Ammian, a director, Senior Vice
President and Secretary of SFS, will receive $20,000 per year for seven years as
compensation for pension benefits that he would have otherwise earned. An
executive officer and another employee will receive stay bonuses of $51,000 and
$38,000, respectively, if they remain employed by Schenectady Federal Bank
immediately prior to completion of the Merger.
Mr. Giaquinto has entered into a Non-Competition Agreement with Hudson
pursuant to which he has agreed not to engage in the banking or financial
services business (or own, manage, operate, control or provide services to
companies engaged in such business) other than on behalf of Hudson and its
affiliates within Albany, Saratoga, Rensselaer and Schenectady Counties, New
York. This agreement not to compete by Mr. Giaquinto expires upon the earlier of
(a) three years after he ceases to be a director of, or a consultant to, either
Hudson or Hudson River Bank, or (b) Mr. Giaquinto reaching the age of 65. Hudson
will pay Mr. Giaquinto $4,861 per month for 36 months pursuant to this
agreement, for an aggregate of $175,000.
In the Merger Agreement, Hudson has agreed to indemnify the directors
and officers of SFS and each of our subsidiaries after the completion of the
Merger to the fullest extent which we or any of our subsidiaries would have been
permitted to do so under our respective Certificate of Incorporation, Charter or
Bylaws. In addition, all limitations of liability existing in favor of such
individuals in the Certificate of Incorporation, Charter or Bylaws of SFS or any
of our subsidiaries, arising out of matters existing or occurring at or prior to
the completion of the Merger, shall survive the Merger and shall continue in
full force and effect. Hudson has also agreed to provide, for a period of not
less than six years after completion of the Merger, an insurance and
indemnification policy that provides our directors and officers with coverage no
less favorable than the coverage we currently provide, to the extent that such
insurance may be purchased or kept in full force without any material increase
in the premiums currently paid by Hudson for its directors' and officers'
liability insurance. If such insurance is not available without a material
increase in cost, then Hudson may substitute single premium tail coverage with
policy limits equal to our existing annual coverage limits, to the extent such
coverage is available at a cost not in excess of 150% of our current annual
premium.
The Merger Agreement provides that officers and employees of SFS and
Schenectady Federal who become employees of Hudson or Hudson River Bank after
the Merger will be entitled to participate in Hudson's employee benefit plans
maintained generally for the benefit of its employees. Hudson will credit our
employees for their years of service with us and our subsidiaries for purposes
of vesting and eligibility under Hudson's plans, but not for the purpose of
accrual of benefits or allocation of employer contributions. If Hudson or its
subsidiaries terminates the employment of any of our employees (other than those
covered by an employment or change in control severance agreement or plan)
within six months following completion of the Merger for other than cause, then
Hudson will provide a cash severance equal to the employee's regular salary for
one week multiplied by the total number of whole years (up to a maximum of eight
years) of such employee's employment by us.
Dissenters' Rights of Appraisal
Pursuant to Section 262 of the Delaware General Corporation Law
("DGCL"), any holder of our common stock who does not wish to accept the
consideration to be paid pursuant to the Merger Agreement may dissent from the
Merger and elect to have the fair value of his shares of common stock (exclusive
of any
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<PAGE>
element of value arising from the accomplishment or expectation of the Merger)
judicially determined and paid to him in cash, provided that he complies with
the provisions of Section 262.
The following is a brief summary of the statutory procedures to be
followed by a holder of our common stock in order to dissent from the Merger and
perfect appraisal rights under the DGCL. This summary is not intended to be
complete and is qualified in its entirety by reference to Section 262, the text
of which is attached as Appendix C to this proxy statement.
If any holder of our common stock elects to exercise his right to
dissent from the Merger and demand appraisal, such stockholder must satisfy each
of the following conditions:
(1) such stockholder must deliver a written demand for appraisal of
his shares to us before the taking of the vote with respect to the Merger
Agreement (this written demand for appraisal must be in addition to and separate
from any proxy or vote against the Merger Agreement; neither voting against,
abstaining from voting nor failing to vote on the Merger Agreement will
constitute a demand for appraisal within the meaning of Section 262);
(2) such stockholder must not vote in favor of the Merger Agreement
(a failure to vote will satisfy this requirement, but a vote in favor of the
Merger Agreement, by proxy or in person, or the return of a signed proxy which
does not specify a vote against approval and adoption of the Merger Agreement or
a direction to abstain, will constitute a waiver of such stockholder's right of
appraisal and will nullify any previously filed written demand for appraisal);
and
(3) such stockholder must continuously hold such shares from the
date of the demand through the completion of the Merger.
If any stockholder fails to comply with any of these conditions and the
Merger becomes effective, he will be entitled to receive the consideration
provided for in the Merger Agreement, but will have no appraisal rights with
respect to his shares of SFS common stock.
All written demands for appraisal should be delivered to: Richard D.
Ammian, Secretary, SFS Bancorp, Inc., 251-263 State Street, Schenectady, New
York 12305, before the taking of the vote concerning the Merger Agreement at the
special meeting, and should be executed by, or on behalf of the holder of
record. Such demand must reasonably inform us of the identity of the stockholder
and that such stockholder is thereby demanding appraisal of his shares.
To be effective, a demand for appraisal must be executed by or for the
stockholder of record who held such shares on the date of making such demand,
and who continuously holds such shares through the completion of the Merger,
fully and correctly, as such stockholder's name appears on his stock
certificate(s) and cannot be made by the beneficial owner if he does not also
hold the shares of record. The beneficial holder must, in such case, have the
registered owner submit the required demand in respect of such shares.
If our common stock is owned of record in a fiduciary capacity, such as
by a trustee, guardian or custodian, execution of a demand for appraisal should
be in such capacity. If our common stock is owned of record by more than one
person, as in a joint tenancy in common, such demand must be executed by or for
all joint owners. An authorized agent, including one of two or more joint
owners, may execute the
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<PAGE>
demand for appraisal for a stockholder of record; however, the agent must
identify the record owner or owners and expressly disclose the fact that, in
executing the demand, he is acting as agent for the record owner. A record
owner, such as a broker, who holds our common stock as a nominee for others may
exercise his right of appraisal with respect to the shares held for one or more
beneficial owners, while not exercising such right for other beneficial owners.
In such case, the written demand should set forth the number of shares as to
which the record owner dissents. Where no number of shares is expressly
mentioned, the demand will be presumed to cover all shares of our common stock
in the name of such record owner.
Within ten days after the completion of the Merger, Hudson (as the
surviving corporation in the Merger) must give written notice that the Merger
has become effective to each stockholder who filed a written demand for
appraisal and who did not vote in favor of the Merger Agreement. Within 120 days
after the completion of the Merger, but not thereafter, either Hudson, or any
holder of shares of our common stock who has complied with the requirements of
Section 262, may file a petition with the Delaware Court of Chancery (the "Court
of Chancery") demanding a determination of the value of the shares of our common
stock held by all stockholders entitled to appraisal. Hudson does not presently
intend to file such a petition. In as much as Hudson has no obligation to file
such a petition, the failure of a stockholder to do so within the period
specified could nullify such stockholder's previous written demand for
appraisal. In any event, at any time within 60 days after the completion of the
Merger (or at any time thereafter with the written consent of Hudson, and the
approval of the Court of Chancery), any stockholder who has demanded appraisal
has the right to withdraw the demand and to accept payment of the consideration
provided in the Merger Agreement.
Within 120 days after the completion of the Merger, any stockholder who
has complied with the provisions of Section 262 to that point in time will be
entitled to receive from the surviving corporation, upon written request, a
statement setting forth the aggregate number of shares not voted in favor of the
Merger Agreement and with respect to which demands for appraisal have been
received and the aggregate number of holders of such shares. Hudson must mail
such statement to the stockholder within ten days of receipt of such request.
If a petition for appraisal is duly filed by a stockholder and a copy
thereof is delivered to Hudson, Hudson will then be obligated within 20 days to
provide the Court of Chancery with a duly verified list containing the names and
addresses of all stockholders who have demanded an appraisal of their shares and
with whom agreement as to the value of such shares has not been reached. After
notice to such stockholders, the Court of Chancery is empowered to conduct a
hearing upon a petition to determine those stockholders who have complied with
Section 262 and who have become entitled to appraisal rights under that section.
The Court of Chancery may require the stockholders who demanded payment for
their shares to submit their stock certificates to the Register in Chancery for
notation thereon of the pendency of the appraisal proceedings; and if any
stockholder fails to comply with such direction, the Court of Chancery may
dismiss the proceedings as to such stockholder.
After determination of the stockholder entitled to an appraisal, the
Court of Chancery will appraise the shares of our common stock, determining
their fair value exclusive of any element of value arising from the
accomplishment and expectation of the Merger. When the value is so determined,
the Court will direct the payment by Hudson of such value, with interest
thereon, simple or compound, if the Court so determines, to the stockholders
entitled to receive the same, upon surrender to Hudson by such stockholders of
the certificates representing such SFS common stock.
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In determining fair value, the Court of Chancery will take into account
all relevant factors. In Weinberger v. UOP, Inc., decided February 1, 1983, the
Delaware Supreme Court expanded the factors that could be considered in
determining fair value in an appraisal proceeding, stating that "proof of value
by any techniques or methods which are generally considered acceptable in the
financial community and otherwise admissible in court" should be considered, and
that "fair price obviously requires consideration of all relevant factors
involving the value of a company." The Delaware Supreme Court stated that, in
making this determination of fair value, the Court of Chancery must consider
market value, asset value, dividends, earnings prospects, the nature of the
enterprise and any other facts which could be ascertained as of the date of the
merger that throw any light on future prospects of the merged corporation.
Section 262 provides that fair value is to be "exclusive of any element
of value arising from the accomplishment or expectation of the merger." In
Weinberger, the Delaware Supreme Court construed Section 262 to mean that
"elements of future value, including the nature of the enterprise which are
known or susceptible of proof as of the date of the merger and not the product
of speculation, may be considered." Stockholders considering seeking appraisal
should bear in mind that the fair market value of their shares of SFS common
stock determined under Section 262 could be more than, the same as or less than
the consideration they are to receive pursuant to the Merger Agreement if they
do not seek appraisal of their shares of SFS common stock, and that an opinion
of an investment banking firm as to fairness is not an opinion as to fair value
under Section 262.
Costs of the appraisal proceeding may be assessed against the parties
thereto by the court as the court deems equitable in the circumstances. Upon the
application of any stockholder, the court may determine the amount of interest,
if any, to be paid upon the value of the stock of the stockholder entitled
thereto. Upon application of a stockholder, the court may order all or a portion
of the expenses incurred by any stockholder in connection with the appraisal
proceeding, including, without limitation, reasonable attorneys' fees and the
fees and expenses of experts, to be charged pro rata against the value of all
shares entitled to appraisal. Any stockholder who has demanded appraisal rights
will not, after the completion of the Merger, be entitled to vote the stock
subject to such demand or to receive the payment of the consideration provided
for in the Merger Agreement. However, if no petition for an appraisal is filed
within 120 days after the completion of the Merger or if such stockholder
delivers to Hudson a written withdrawal of his demand for an appraisal and an
acceptance of the Merger, either within 60 days after the completion of the
Merger or thereafter with the written approval of Hudson, then the right of such
stockholder to an appraisal will cease. Notwithstanding the foregoing, no
appraisal proceeding in the Court of Chancery will be dismissed as to any
stockholder without the approval of the court, and such approval may be
conditioned upon such terms as the court deems just.
Failure to comply strictly with these procedures will cause the
stockholder to lose his dissenters' rights. Consequently, any stockholder who
desires to exercise his dissenters' right is urged to consult a legal advisor
before attempting to exercise such rights.
Certain Federal Income Tax Consequences
The exchange of our common stock for cash pursuant to the terms of the
Merger Agreement will be a taxable transaction for federal income tax purposes
under the Code, and may also be a taxable transaction under state, local and
other tax laws. Similarly, any stockholders of SFS who exercise their
dissenters' appraisal rights and receive cash in exchange for their shares of
SFS common stock will realize and recognize income for federal tax purposes and
may recognize income under state, local and other tax laws. A
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stockholder of SFS will recognize gain or loss equal to the difference between
the amount of cash received by the stockholder pursuant to the Merger and the
tax basis in the SFS common stock exchanged by such stockholder pursuant to the
Merger. Gain or loss must be determined separately for each block of SFS common
stock (i.e., shares of SFS common stock acquired by the stockholder at the same
time and price) exchanged pursuant to the Merger.
Gain or loss recognized by the stockholder exchanging his or her SFS
common stock pursuant to the Merger or pursuant to the exercise of dissenters'
rights will be capital gain or loss if such SFS common stock is a capital asset
in the hands of the stockholder. If the SFS common stock has been held for more
than one year, the gain or loss will be long-term. Capital gains recognized by
an exchanging individual stockholder generally will be subject to tax at the top
marginal rate applicable to the stockholder (up to a maximum of 39.6% for
short-term capital gains and 20% for long-term capital gains), and capital gains
recognized by an exchanging corporate stockholder generally will be subject to
tax at a maximum rate of 35%.
The exchange of outstanding stock options to acquire SFS common stock
for cash pursuant to the terms of the Merger Agreement will also be a taxable
transaction for federal income tax purposes under the Code and may also be a
taxable transaction under state, local and other laws. Generally, each optionee
will recognize ordinary income equal to the amount of cash received by the
optionee pursuant to the Merger in exchange for cancellation of his stock
options.
The federal income tax discussion set forth above is based upon current
law and is intended for general information only. Each SFS stockholder and
optionee is urged to consult his tax advisor concerning the specific tax
consequences of the Merger to such stockholder or optionee, including the
applicability and effect of state, local or other tax laws and of any proposed
changes in the Code.
Accounting Treatment of the Merger
The Merger will be accounted for as a purchase for financial reporting
purposes. Under this method of accounting, Hudson will record the acquisition of
SFS at its cost at the completion of the Merger, which cost would include the
cash paid in the Merger and all direct acquisition costs. The acquisition cost
will be allocated to the acquired assets and liabilities of SFS based upon their
fair values at the completion of the Merger in accordance with generally
accepted accounting principles. Acquisition cost in excess of the fair values of
the net assets acquired, if any, will be recorded as an intangible asset and
amortized for financial accounting purposes. The reported income of Hudson will
include the operations of SFS after the completion of the Merger.
Expenses of the Merger
All out-of-pocket costs and expenses incurred in connection with the
Merger (including, but not limited to, counsel fees) shall be paid by the party
incurring such costs and expenses.
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BENEFICIAL OWNERSHIP OF SFS COMMON STOCK
BY CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Stockholders of record as of the close of business on July 8, 1999 will
be entitled to one vote for each share of our common stock then held. As of that
date, we had 1,207,755 shares of common stock issued and outstanding. The
following table sets forth information regarding share ownership of:
(1) those persons or entities known by management to beneficially own
more than five percent of the our common stock,
(2) each member of our Board of Directors, and
(3) all directors and executive officers of SFS and Schenectady
Federal as a group.
<TABLE>
<CAPTION>
Shares Beneficially Percent
Name of Beneficial Owner Owned(1)(2)(3) of Class
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
Wellington Management Company, LLP(4) 118,100 9.8%
75 State Street
Boston, Massachusetts 02109
First Financial Fund, Inc. ("FFF")(5) 118,100 9.8
One Seaport Plaza-25th Floor
New York, New York 10022
Tontine Financial Partners, L.P.(6) 97,300 8.1
Tontine Management, L.L.C.
Tontine Overseas Associates, L.L.C.
Jeffrey L. Gendell
200 Park Avenue, Suite 3900
New York, New York 10166
John Hancock Advisors, Inc.(7) 79,000 6.5
John Hancock Mutual Life Insurance Company
John Hancock Subsidiaries, Inc.
The Berkeley Financial Group
101 Huntington Avenue
Boston, Massachusetts 02199
SFS Bancorp, Inc. Stock Ownership Plan(8) 119,600 9.9
251-263 State Street
Schenectady, New York 12305
Directors of SFS:
Joseph H. Giaquinto 46,080(9) 3.7
Richard D. Ammian 22,918(10) 1.9
John F. Assini, M.D. 16,279(11) 1.3
Gerald I. Klein 16,302(12) 1.3
Robert A. Schlansker 19,242 1.6
All directors and executive officers of SFS and Schenectady
Federal as a group (8 persons) 149,004 11.7
</TABLE>
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- -------------------------
(1) Based upon information furnished by the respective entities or persons,
including filings under the Exchange Act. Pursuant to rules promulgated
under the Exchange Act, a person is deemed to beneficially own shares of
our common stock if he or she directly or indirectly has or shares (a)
voting power, which includes the power to vote or to direct the voting
of the shares, or (b) investment power, which includes the power to
dispose or direct the disposition of the shares. Unless otherwise
indicated, the named beneficial owner has sole voting power and sole
investment power with respect to the indicated shares.
(2) Under applicable regulations, a person is deemed to have beneficial
ownership of any shares of our common stock which may be acquired within
60 days of the Record Date pursuant to the exercise of outstanding stock
options. Shares of our common stock which are subject to stock options
are deemed to be outstanding for the purpose of computing the percentage
of outstanding common stock owned by such person or group but not deemed
outstanding for the purpose of computing the percentage of common stock
owned by any other person or group. The amounts set forth in the table
include shares which may be received upon the exercise of stock options
within 60 days of the Record Date based on their original vesting
schedule as follows: for each of Messrs. Assini, Klein and Schlansker,
4,485 shares; for Mr. Ammian, 11,213 shares; for Mr. Giaquinto, 22,425
shares; and for all directors and executive officers as a group, 61,296
shares. In addition, Messrs. Assini, Klein and Schlansker each hold
unvested options to purchase 2,990 shares of our common stock, Messrs.
Ammian and Giaquinto hold unvested options for 7,474 and 14,950 shares,
respectively, and all directors and executive officers as a group hold
unvested options for 50,828 shares.
(3) Excludes restricted shares granted pursuant to our Amended and Restated
Recognition and Retention Plan and not yet vested as follows: for each
of Messrs. Assini, Klein and Schlansker, 1,196 shares; for Mr. Ammian,
2,990 shares; for Mr. Giaquinto, 5,980 shares; and for all directors and
executive officers as a group, 20,332 shares.
(4) Wellington Management Company reported sole voting and dispositive power
over no shares, shared voting power over no shares and shared
dispositive power of 118,100 shares.
(5) FFF reported sole voting power over 118,100 shares and shared
dispositive power over 118,100 shares.
(6) Tontine Financial Partners, L.P. reported shared voting and shared
dispositive power over 87,800 shares. Tontine Management, L.L.C.
reported shared voting and shared dispositive power over 87,800 shares.
Tontine Overseas Associates, L.L.C. reported shared voting and shared
dispositive power over 9,500 shares. Jeffrey L. Gendell reported sole
voting and sole dispositive power over 9,800 shares and voting and
shared dispositive power over 97,300 shares.
(7) John Hancock Advisors, Inc. reported sole voting and dispositive power
over all 79,000 shares. John Hancock Mutual Life Insurance Company, John
Hancock Subsidiaries, Inc., and The Berkely Financial Group (the parent
companies of John Hancock Advisors, Inc.) reported indirect beneficial
ownership of these shares.
(8) The amount reported represents shares held by the SFS ESOP, of which
47,840 shares have been allocated to accounts of participants as of the
Record Date (July 8, 1999). The amounts reported for Messrs. Giaquinto,
Schlansker and Ammian include 6,035, 2,963 and 3,620 shares of our
common stock, respectively, allocated to their respective accounts under
the SFS ESOP. First Bankers Trust Company, N.A., Quincy, Illinois, the
trustee of the SFS ESOP, may be deemed to beneficially own the shares
held by the SFS ESOP which have not been allocated to accounts of
participants.
(9) Includes 3,130 shares owned jointly with Mr. Giaquinto's spouse.
(10) Includes 3,760 shares owned jointly with Mr. Ammian's spouse.
(11) Includes 1,000 shares owned jointly with Mr. Assini's spouse.
(12) Includes 2,502 shares owned jointly with Mr. Klein's spouse and 3,009
shares held solely by his spouse.
31
<PAGE>
STOCKHOLDER PROPOSALS
If the Merger is not consummated prior to the next regularly scheduled
annual meeting of our stockholders, any proposal which a stockholder wishes to
have included in our proxy materials for the next annual meeting of stockholders
must be received at our main office located at 251-263 State Street,
Schenectady, New York, 12305, no later than November 15, 1999. Any such proposal
shall be subject to the requirements of the proxy rules adopted under the
Exchange Act. Otherwise, any stockholder proposal to take action at such meeting
must be received at our main office located at 251-263 State Street,
Schenectady, New York, 12305 by February 16, 2000; provided, however, that in
the event that the date of the annual meeting is held before March 27, 2000 or
after June 13, 2000, the stockholder proposal must be received not later than
the close of business on the later of the 60th day prior to such annual meeting
or the tenth day following the day on which notice of the date of the annual
meeting was mailed or public announcement of the date of such meeting was first
made. All stockholder proposals must also comply with our bylaws and Delaware
law.
OTHER MATTERS
Our Board of Directors is not aware of any business to come before the
special meeting other than those matters described above in this proxy
statement. However, if any other matter should properly come before the special
meeting, it is intended that holders of the proxies will act in accordance with
their best judgment.
Regan & Associates, Inc., a professional proxy soliciting firm, will
assist us in the solicitation of proxies. We will pay Regan & Associates a fee
of $3,500 for its services, plus expenses not to exceed $1,750. We will bear the
cost of solicitation of proxies. We will reimburse brokerage firms and other
custodians, nominees and fiduciaries for reasonable expenses incurred by them in
sending proxy materials to the beneficial owners of our common stock. In
addition to solicitation by mail, our directors, officers and regular employees
may solicit proxies personally or by telegraph or telephone without additional
compensation.
Under "Incorporation of Certain Documents by Reference," we incorporate
wby reference various documents previously filed by us under the Exchange Act
All documents that we file pursuant to Sections 13(a), 13(c), 14 or15(d) of the
Exchange Act after the date of this proxy statement and before the date of the
special meeting of stockholders are also incorporated by reference into this
proxy statement.
32
<PAGE>
Appendix A
AGREEMENT AND PLAN OF MERGER
between
HUDSON RIVER BANCORP, INC.
and
SFS BANCORP, INC.
dated as of May 17, 1999
A - 1
<PAGE>
AGREEMENT AND PLAN OF MERGER
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I
DEFINITIONS........................................................................A-6
ARTICLE II
THE MERGER........................................................................A-11
2.1 The Corporate Merger.....................................................A-11
2.2 Effective Time; Closing..................................................A-11
2.3 Treatment of Capital Stock...............................................A-11
2.4 Shareholder Rights; Stock Transfers......................................A-12
2.5 Options..................................................................A-12
2.6 Exchange Procedures......................................................A-12
2.7 Dissenting Shares........................................................A-14
2.8 Additional Actions.......................................................A-14
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF SFS BANCORP, INC................................A-14
3.1 Capital Structure........................................................A-14
3.2 Organization, Standing and Authority of Seller...........................A-15
3.3 Ownership of Seller Subsidiaries.........................................A-15
3.4 Organization, Standing and Authority of Seller Subsidiaries..............A-15
3.5 Authorized and Effective Agreement.......................................A-16
3.6 Securities Documents and Regulatory Reports..............................A-17
3.7 Financial Statements.....................................................A-17
3.8 Material Adverse Change..................................................A-18
3.9 Environmental Matters....................................................A-18
3.10 Tax Matters..............................................................A-18
3.11 Legal Proceedings........................................................A-19
3.12 Compliance with Laws.....................................................A-19
3.13 Certain Information......................................................A-20
3.14 Employee Benefit Plans...................................................A-20
3.15 Certain Contracts........................................................A-22
3.16 Brokers and Finders......................................................A-22
3.17 Insurance................................................................A-22
3.18 Properties...............................................................A-23
3.19 Labor....................................................................A-23
3.20 Allowance for Loan Losses................................................A-23
3.21 Year 2000 Compliant......................................................A-23
3.22 Material Interests of Certain Persons....................................A-24
3.23 Fairness Opinion.........................................................A-24
3.24 Disclosures..............................................................A-24
</TABLE>
A - 2
<PAGE>
<TABLE>
<CAPTION>
ARTICLE IV
<S> <C>
REPRESENTATIONS AND WARRANTIES OF HUDSON RIVER
BANCORP.........................................................................A-24
4.1. Capital Structure........................................................A-24
4.2 Organization, Standing and Authority of Buyer............................A-25
4.3 Ownership of Buyer Subsidiaries..........................................A-25
4.4 Organization, Standing and Authority of Buyer Subsidiaries...............A-25
4.5 Authorized and Effective Agreement.......................................A-26
4.6 Securities Documents and Regulatory Reports..............................A-27
4.7 Financial Statements.....................................................A-27
4.8 Material Adverse Change..................................................A-28
4.9 Legal Proceedings........................................................A-28
4.10 Certain Information......................................................A-28
4.11 Brokers and Finders......................................................A-28
4.12 Disclosures..............................................................A-28
4.13 Financial Resources......................................................A-29
ARTICLE V
COVENANTS.........................................................................A-29
5.1 Reasonable Best Efforts..................................................A-29
5.2 Shareholder Meeting......................................................A-29
5.3 Regulatory Matters.......................................................A-29
5.4 Investigation and Confidentiality........................................A-30
5.5 Press Releases...........................................................A-31
5.6 Business of the Parties..................................................A-31
5.7 Certain Actions..........................................................A-34
5.8 Current Information......................................................A-34
5.9 Indemnification; Insurance...............................................A-35
5.10 Directors After the Corporate Merger.....................................A-35
5.11 Employees and Employee Benefit Plans.....................................A-36
5.12 Liquidation..............................................................A-38
5.13 Bank Merger..............................................................A-38
5.14 Organization of Merger Sub...............................................A-38
5.15 Conforming Entries.......................................................A-39
5.16 Integration of Policies..................................................A-39
5.17 Disclosure Supplements...................................................A-39
5.18 Failure to Fulfill Conditions............................................A-40
ARTICLE VI
CONDITIONS PRECEDENT..............................................................A-40
6.1 Conditions Precedent - Buyer and Seller..................................A-40
6.2 Conditions Precedent - Seller............................................A-41
6.3 Conditions Precedent - Buyer.............................................A-41
</TABLE>
A - 3
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
ARTICLE VII
TERMINATION, WAIVER AND AMENDMENT.................................................A-42
7.1 Termination..............................................................A-42
7.2 Effect of Termination....................................................A-43
7.3 Survival of Representations, Warranties and Covenants....................A-43
7.4 Waiver...................................................................A-44
7.5 Amendment or Supplement..................................................A-44
ARTICLE VIII
MISCELLANEOUS.....................................................................A-44
8.1 Expenses.................................................................A-44
8.2 Entire Agreement.........................................................A-44
8.3 No Assignment............................................................A-45
8.4 Notices..................................................................A-45
8.5 Alternative Structure....................................................A-46
8.6 Interpretation...........................................................A-46
8.7 Counterparts.............................................................A-46
8.8 Governing Law............................................................A-46
8.9 Severability.............................................................A-46
</TABLE>
Exhibit A Form of Plan of Liquidation
Exhibit B Form of Plan of Bank Merger
Exhibit C Form of Stock Option Agreement
Exhibit D Form of Voting Agreement
Exhibit E Form of Non-Competition Agreement
A - 4
<PAGE>
AGREEMENT AND PLAN OF MERGER
Agreement and Plan of Merger (the "Agreement"), dated as of May 17,
1999, by and between Hudson River Bancorp, Inc. ("Buyer"), a Delaware
corporation, and SFS Bancorp, Inc. ("Seller") a Delaware corporation.
W I T N E S S E T H:
WHEREAS, the Boards of Directors of Buyer and Seller have determined to
consummate the business combination transactions provided for herein, subject to
the terms and conditions set forth herein; and
WHEREAS, to effect the acquisition, Buyer will form a new interim
corporation organized under the laws of the State of Delaware, which will be a
wholly-owned direct subsidiary of Buyer ("Merger Sub"), and Merger Sub will be
merged with and into Seller (the "Corporate Merger"), with Seller the surviving
corporation and a wholly-owned subsidiary of Buyer (the "Surviving
Corporation"). Immediately upon the Corporate Merger becoming effective, the
Surviving Corporation will adopt a plan of complete liquidation substantially in
the form attached hereto as Exhibit A (the "Plan of Liquidation"), pursuant to
which the Surviving Corporation will merge with and into Buyer (the
"Liquidation"). Immediately thereafter, Schenectady Federal Savings Bank
("Seller Bank"), a federally-chartered savings bank and a wholly-owned
subsidiary of Seller, will be merged (the "Bank Merger") with and into Hudson
River Bank & Trust Company ("Buyer Bank"), a savings bank chartered under the
laws of the State of New York and a wholly-owned subsidiary of Buyer, with Buyer
Bank the surviving bank, pursuant to a plan of merger substantially in the form
attached hereto as Exhibit B (the "Bank Merger Agreement") (the Corporate
Merger, the Liquidation and the Bank Merger are sometimes hereinafter
collectively referred to as the "Merger"); and
WHEREAS, as an inducement to and condition to Buyer's willingness to
enter into this Agreement, Seller will grant to Buyer concurrently with the
execution and delivery of this Agreement an option pursuant to a stock option
agreement (the "Stock Option Agreement") attached hereto as Exhibit C; and
WHEREAS, as a condition to, and simultaneously with, the execution of
this Agreement, Buyer and the directors of Seller will enter into Voting
Agreements in the form attached hereto as Exhibit D; and
WHEREAS, the parties desire to provide for certain undertakings,
conditions, representations, warranties and covenants in connection with the
transactions contemplated hereby.
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants and agreements herein contained, the parties hereto do hereby agree as
follows:
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<PAGE>
ARTICLE I
DEFINITIONS
The following terms shall have the meanings ascribed to them for all
purposes of this Agreement.
"BIF" shall mean the Bank Insurance Fund administered by the FDIC or any
successor thereto.
"Buyer Common Stock" shall mean the common stock, par value $0.01 per
share, of Buyer.
"Buyer Financial Statements" shall mean (i) the consolidated balance
sheets (including related notes and schedules, if any) of Buyer as of March 31,
1998, 1997 and 1996 and the consolidated income statements and statements of
changes in equity and cash flows (including related notes and schedules, if any)
of Buyer for each of the three years ended March 31, 1998, 1997 and 1996, as
filed by Buyer in its Securities Documents, and (ii) the consolidated balance
sheets (including related notes and schedules, if any) of Buyer and the
consolidated income statements and statements of changes in equity and cash
flows (including related notes and schedules, if any) of Buyer included in
Securities Documents filed by Buyer with respect to the periods ended subsequent
to March 31, 1998.
"Buyer Options" shall mean options to purchase shares of Buyer Common
Stock granted pursuant to the Buyer Option Plan.
"Buyer Option Plan" shall mean the Stock Option and Incentive Plan of
Buyer, as amended and as in effect as of the date hereof.
"Buyer Preferred Stock" shall mean the shares of preferred stock, par
value $0.01 per share, of Buyer.
"Cause" shall mean termination because of the employee's material
personal dishonesty in the conduct of his duties, gross incompetence, willful
misconduct, breach of fiduciary duty involving personal profit, intentional
failure to perform stated duties or willful violation of any law, rule or
regulation (other than traffic violations or similar offenses).
"Certificate" shall have the meaning set forth in Section 2.6 hereof.
"Certificate of Merger" shall have the meaning set forth in Section 2.2
hereof.
"Closing" shall have the meaning set forth in Section 2.2 hereof.
"Closing Date" shall have the meaning set forth in Section 2.2 hereof.
"Code" shall mean the Internal Revenue Code of 1986, as amended.
"CRA" shall mean the Community Reinvestment Act.
A - 6
<PAGE>
"Department" shall mean the New York State Department of Banking.
"Dissenting Shares" shall have the meaning set forth in Section 2.7
hereof.
"DGCL" shall mean the General Corporation Law of the State of Delaware,
as amended.
"DOJ" shall mean the United States Department of Justice.
"Effective Time" shall mean the date and time specified pursuant to
Section 2.2 hereof as the effective time of the Corporate Merger.
"Environmental Claim" shall mean any written notice from any
Governmental Entity or third party alleging potential liability (including,
without limitation, potential liability for investigatory costs, cleanup costs,
governmental response costs, natural resources damages, property damages,
personal injuries or penalties) arising out of, based on, or resulting from the
presence, or release into the environment, of any Materials of Environmental
Concern.
"Environmental Laws" shall mean any federal, state or local law,
statute, ordinance, rule, regulation, code, license, permit, authorization,
approval, consent, order, judgment, decree, injunction or agreement with any
Governmental Entity relating to (i) the protection, preservation or restoration
of the environment (including, without limitation, air, water vapor, surface
water, groundwater, drinking water supply, surface soil, subsurface soil, plant
and animal life or any other natural resource), and/or (ii) the use, storage,
recycling, treatment, generation, transportation, processing, handling,
labeling, production, release or disposal of Materials of Environment Concern.
The term Environmental Law includes without limitation (i) the Comprehensive
Environmental Response, Compensation and Liability Act, as amended, 42 U.S.C.
ss.9601, et seq; the Resource Conservation and Recovery Act, as amended, 42
U.S.C. ss.6901, et seq; the Clean Air Act, as amended, 42 U.S.C. ss.7401, et
seq; the Federal Water Pollution Control Act, as amended, 33 U.S.C. ss.1251, et
seq; the Toxic Substances Control Act, as amended, 15 U.S.C. ss.9601, et seq;
the Emergency Planning and Community Right to Know Act, 42 U.S.C. ss.1101, et
seq; the Safe Drinking Water Act, 42 U.S.C. ss.300f, et seq; and all comparable
state and local laws, and (ii) any common law (including without limitation
common law that may impose strict liability) that may impose liability or
obligations for injuries or damages due to, or threatened as a result of, the
presence of or exposure to any Materials of Environmental Concern.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974,
as amended.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
"Exchange Agent" shall have the meaning set forth in Section 2.6 hereof.
"FDIA" shall mean the Federal Deposit Insurance Act, as amended.
"FDIC" shall mean the Federal Deposit Insurance Corporation or any
successor thereto.
"Federal Reserve Board" shall mean the Board of Governors of the Federal
Reserve System.
A - 7
<PAGE>
"FHLB" shall mean the Federal Home Loan Bank of New York.
"GAAP" shall mean generally accepted accounting principles.
"Governmental Entity" shall mean any federal or state court,
administrative agency or commission or other governmental authority or
instrumentality.
"HOLA" shall mean the Home Owners' Loan Act, as amended.
"IRS" shall mean the Internal Revenue Service or any successor thereto.
"Liquidation Surviving Corporation" shall have the meaning set forth in
Section 5.12 hereof.
"Material Adverse Effect" shall mean, with respect to any party, any
effect that is material and adverse to the financial condition, results of
operations or business of that party and its Subsidiaries taken as whole, or
that materially impairs the ability of any party to consummate the Corporate
Merger, the Liquidation, the Bank Merger or any of the other transactions
contemplated by this Agreement, provided, however, that Material Adverse Effect
shall not be deemed to include the impact of (a) changes in laws and regulations
or interpretations thereof that are generally applicable to the banking or
savings industries, (b) changes in GAAP that are generally applicable to the
banking or savings industries, (c) expenses incurred in connection with the
transactions contemplated hereby, including any termination of the Seller
Pension Plan, (d) actions or omissions of a party (or any of its Subsidiaries)
taken with the prior informed written consent of the other party or parties in
contemplation of the transactions contemplated hereby or (e) changes
attributable to or resulting from changes in general economic conditions,
including changes in the prevailing level of interest rates.
"Materials of Environmental Concern" shall mean pollutants,
contaminants, wastes, toxic substances, petroleum and petroleum products and any
other materials regulated under Environmental Laws.
"Merger Consideration" shall have the meaning set forth in Section
2.3(c) hereof.
"Merger Sub" shall mean a Delaware corporation to be organized as a
subsidiary of Buyer.
"Merger Sub Common Stock" shall mean the common stock, par value $0.01
per share, of Merger Sub.
"NASD" shall mean the National Association of Securities Dealers, Inc.
"NYBL" shall mean the New York Banking Law.
"OTS" shall mean the Office of Thrift Supervision of the U.S. Department
of the Treasury or any successor thereto.
"PBGC" shall mean the Pension Benefit Guaranty Corporation, or any
successor thereto.
A - 8
<PAGE>
"Previously Disclosed" shall mean disclosed (i) in a disclosure schedule
delivered at least one day prior to the date hereof from the disclosing party to
the other party specifically referring to the appropriate section of this
Agreement and describing in reasonable detail the matters contained therein, or
(ii) a supplement to the disclosure schedule dated after the date hereof from
the disclosing party specifically referring to this Agreement and describing in
reasonable detail the matters contained therein and delivered by the other party
pursuant to Section 5.17 hereof.
"Proxy Statement" shall mean the proxy statement to be delivered to
shareholders of Seller in connection with the solicitation of their approval of
this Agreement and the transactions contemplated hereby.
"Rights" shall mean warrants, options, rights, convertible securities
and other arrangements or commitments which obligate an entity to issue or
dispose of any of its capital stock or other ownership interests.
"SAIF" shall mean the Savings Association Insurance Fund administered by
the FDIC or any successor thereto.
"SEC" shall mean the Securities and Exchange Commission.
"Securities Act" shall mean the Securities Act of 1933, as amended.
"Securities Documents" shall mean all reports, offering circulars, proxy
statements, registration statements and all similar documents filed, or required
to be filed, pursuant to the Securities Laws.
"Securities Laws" shall mean the Securities Act; the Exchange Act; the
Investment Company Act of 1940, as amended; the Investment Advisers Act of 1940,
as amended; the Trust Indenture Act of 1939, as amended, and the rules and
regulations of the SEC promulgated thereunder.
"Seller Bank 401(k)" shall mean the 401(k) Savings Plan in RSI
Retirement Trust of the Bank, as amended and as in effect as of the date hereof.
"Seller Bank Officer Severance Compensation Plan" shall mean the Officer
Severance Compensation Plan of the Bank, as amended and as in effect as of the
date hereof.
"Seller Bank SERP" shall mean the Restated Executive Supplemental
Retirement Plan and Compensation Continuation Agreement dated March 23, 1988
between the Bank and Joseph H.
Giaquinto, as amended and as in effect as of the date hereof.
"Seller Change of Control Benefit Plan" shall mean the Change of Control
Benefit Plan of Seller, as amended and as in effect as of the date hereof.
"Seller Common Stock" shall mean the common stock, par value $0.01 per
share, of Seller.
"Seller Employee Plans" shall have the meaning set forth in Section
3.14(a) hereof.
A - 9
<PAGE>
"Seller ESOP" shall mean the Seller Employee Stock Ownership Plan and
Trust, as amended and as in effect as of the date hereof.
"Seller Financial Statements" shall mean (i) the consolidated balance
sheets (including related notes and schedules, if any) of Seller as of December
31, 1998, 1997 and 1996 and the consolidated statements of income, changes in
stockholders' equity and cash flows (including related notes and schedules, if
any) of Seller for each of the three years ended December 31, 1998, 1997 and
1996 as filed by Seller in its Securities Documents, and (ii) the consolidated
balance sheets of Seller (including related notes and schedules, if any) and the
consolidated statements of income, changes in stockholders' equity and cash
flows (including related notes and schedules, if any) of Seller included in the
Securities Documents filed by Seller with respect to the periods ended
subsequent to December 31, 1998.
"Seller Incentive Plan" shall mean the Incentive Compensation Plan for
1999 of Seller, as amended and as in effect as of the date hereof.
"Seller Options" shall mean options to purchase shares of Seller Common
Stock granted pursuant to the Seller Option Plan.
"Seller Option Plan" shall mean the Amended and Restated Stock Option
and Incentive Plan of Seller, as amended and as in effect as of the date hereof.
"Seller Pension Plan" shall mean the Retirement Income Plan of the Bank,
as amended and as in effect as of the date hereof.
"Seller Preferred Stock" shall mean the shares of preferred stock, par
value $0.01 per share, of Seller.
"Seller Restricted Stock" shall mean Seller Common Stock subject to
restrictions pursuant to the Seller Restricted Stock Plan.
"Seller Restricted Stock Plan" shall mean the Amended and Restated
Recognition and Retention Plan of Seller, as amended and as in effect as of the
date hereof.
"Superintendent" shall mean the Superintendent of the Department.
"Subsidiary" and "Significant Subsidiary" shall have the meanings set
forth in Rule 1-02 of Regulation S-X of the SEC.
"Surviving Bank" shall have the meaning set forth in Section 5.13
hereof.
"Surviving Corporation Common Stock" shall mean the shares of common
stock, par value $0.01 per share, of the Surviving Corporation.
"Year 2000 Compliant" shall have the meaning set forth in Section 3.21
hereof.
Other terms used herein are defined in the preamble and elsewhere in
this Agreement.
A - 10
<PAGE>
ARTICLE II
THE MERGER
2.1 The Corporate Merger
(a) Subject to the terms and conditions of this Agreement, at the
Effective Time, Merger Sub shall be merged with and into Seller in accordance
with the provisions of Section 251 of the DGCL, and the separate corporate
existence of Seller shall cease. Seller shall be the Surviving Corporation of
the Corporate Merger, and shall continue its corporate existence under the laws
of the State of Delaware. The name of the Surviving Corporation shall be as
stated in the Certificate of Incorporation of Seller immediately prior to the
Effective Time.
(b) The Certificate of Incorporation and Bylaws of Seller as in effect
immediately prior to the Effective Time shall be the Certificate of
Incorporation and Bylaws, respectively, of the Surviving Corporation, until
amended or repealed in accordance with their terms and applicable law.
(c) The directors and officers of Merger Sub immediately prior to the
Effective Time shall be the directors and officers, respectively, of the
Surviving Corporation, each to hold office in accordance with the Certificate of
Incorporation and Bylaws of the Surviving Corporation and applicable law.
2.2 Effective Time; Closing
The Corporate Merger shall become effective upon the occurrence of the
filing of a certificate of merger with the Secretary of State of the State of
Delaware (the "Certificate of Merger"), unless a later date and time is
specified as the effective time in such Certificate of Merger (the "Effective
Time"). A closing (the "Closing") shall take place immediately prior to the
Effective Time at 10:00 a.m., Eastern Time, following the satisfaction or
waiver, to the extent permitted hereunder, of the conditions to the consummation
of the Corporate Merger specified in Article VI of this Agreement (the "Closing
Date"), at such place and on such date as the parties may mutually agree upon.
2.3 Treatment of Capital Stock
Subject to the provisions of this Agreement, at the Effective Time,
automatically by virtue of the Corporate Merger and without any action on the
part of any shareholder:
(a) each share of Merger Sub Common Stock issued and outstanding or held
in treasury immediately prior to the Effective Time shall automatically convert
into a share of the Surviving Corporation and become an issued and outstanding
or treasury share of Surviving Corporation Common Stock;
(b) each share of Buyer Common Stock issued and outstanding or held in
treasury immediately prior to the Effective Time shall remain issued and
outstanding or held in treasury and continue to be an identical issued and
outstanding or treasury share of Buyer Common Stock; and
(c) each share of Seller Common Stock (other than Dissenting Shares),
issued and outstanding immediately prior to the Effective Time shall cease to be
outstanding and shall be
A - 11
<PAGE>
converted into and become the right to receive $25.10 in cash without interest
(the "Merger Consideration"); provided that notwithstanding any other provision
of this Agreement, each share of Seller Common Stock issued and outstanding
immediately prior to the Effective Time which is then owned beneficially or as
of record by Seller (including treasury shares) or Buyer or any of their
respective Subsidiaries (other than shares held in a fiduciary capacity for the
benefit of third parties or as a result of debts previously contracted) shall,
by virtue of the Corporate Merger, be canceled and retired without any
consideration therefor and without any conversion thereof.
2.4 Shareholder Rights; Stock Transfers
At the Effective Time, holders of Seller Common Stock shall cease to be
and shall have no rights as shareholders of Seller, other than to receive the
Merger Consideration for each share held. After the Effective Time, there shall
be no transfers on the stock transfer books of Seller or the Surviving
Corporation of shares of Seller Common Stock and if Certificates are presented
for transfer after the Effective Time, they shall be delivered to Buyer or the
Exchange Agent for cancellation against delivery of the Merger Consideration as
provided therefor in this Agreement.
No interest shall be paid on the Merger Consideration.
2.5 Options
Each holder of an option to purchase Seller Common Stock (other than
Buyer) outstanding on the date hereof and remaining outstanding at the Effective
Time shall receive from Buyer, as of the Effective Time, whether or not the
option is then exercisable, a cash payment in an amount equal to the product of
(i) the number of shares of Seller Common Stock subject to such option at the
Effective Time and (ii) the excess, if any, of $25.10 over the exercise price
per share of such option, net of any cash which must be withheld under federal
and state income and employment tax requirements. Such cash payments shall be in
consideration for, and shall result in, the settlement and cancellation of all
such options. As a condition to the receipt of a cash payment in cancellation of
options, each option holder shall execute a cancellation agreement in form and
substance reasonably satisfactory to Buyer.
2.6 Exchange Procedures
(a) Buyer shall designate an exchange agent, reasonably acceptable to
Seller, to act as agent (the "Exchange Agent") for purposes of conducting the
exchange procedure as described herein. No later than five business days
following the Effective Time, Buyer shall cause the Exchange Agent to mail or
make available to each holder of record of a certificate or certificates which
immediately prior to the Effective Time represented issued and outstanding
shares of Seller Common Stock (the "Certificates") (i) a notice and letter of
transmittal (which shall specify that delivery shall be effected and risk of
loss and title to the Certificates shall pass only upon proper delivery of such
Certificates to the Exchange Agent) advising such holder of the effectiveness of
the Corporate Merger and the procedure for surrendering to the Exchange Agent
such Certificate or Certificates in exchange for the Merger Consideration.
(b) At or prior to the Effective Time, Buyer shall deliver to the
Exchange Agent an amount of cash equal to the aggregate Merger Consideration.
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(c) Each holder of an outstanding Certificate or Certificates (other
than holders of Dissenting Shares) who surrenders such Certificate or
Certificates to the Exchange Agent will, upon acceptance thereof by the Exchange
Agent, be entitled to the Merger Consideration for each share represented by the
Certificate(s). The Exchange Agent shall accept such Certificates upon
compliance with such reasonable terms and conditions as the Exchange Agent may
impose to effect an orderly exchange thereof in accordance with normal exchange
practices. Each outstanding Certificate which is not surrendered to the Exchange
Agent in accordance with the procedures provided for herein shall, except as
otherwise herein provided, until duly surrendered to the Exchange Agent be
deemed to evidence ownership of only the right to receive the Merger
Consideration for each share represented by the Certificate.
(d) The Exchange Agent shall not be obligated to deliver the Merger
Consideration until the holder surrenders the Certificate or Certificates as
provided in this Section 2.6, or, in default thereof, an appropriate affidavit
of loss and indemnity agreement and/or a bond as may be required in each case by
the Exchange Agent. If any check is to be issued in a name other than that in
which the Certificate is registered, it shall be a condition of the issuance
thereof that the Certificate so surrendered shall be properly endorsed or
accompanied by an executed form of assignment separate from the Certificate and
otherwise in proper form for transfer and that the person requesting such
exchange pay to the Exchange Agent any transfer or other tax required by reason
of the issuance of a check in any name other than that of the registered holder
of the certificate surrendered or otherwise establish to the satisfaction of the
Exchange Agent that such tax has been paid or is not payable.
(e) Any portion of the cash delivered to the Exchange Agent by Buyer
pursuant to Section 2.6(b) that remains unclaimed by the shareholders of Seller
for six months after the Closing Date shall be delivered by the Exchange Agent
to Buyer. Any shareholders of Seller who have not theretofore complied with
Section 2.6(c) shall thereafter look only to Buyer for the Merger Consideration.
If outstanding Certificates are not surrendered or the payment for them is not
claimed prior to the date on which such payment would otherwise escheat to or
become the property of any Governmental Entity, the unclaimed items shall, to
the extent permitted by abandoned property and any other applicable law, become
the property of Buyer (and to the extent not in its possession shall be
delivered to it), free and clear of all claims or interest of any person
previously entitled to such property. Neither the Exchange Agent nor any party
to this Agreement shall be liable to any holder of Seller Common Stock
represented by any Certificate for any consideration paid to a public official
pursuant to applicable abandoned property, escheat or similar laws. Buyer and
the Exchange Agent shall be entitled to rely upon the stock transfer books of
Seller to establish the identity of those persons entitled to receive the Merger
Consideration, which books shall be conclusive with respect thereto. In the
event of a dispute with respect to ownership of Seller Common Stock represented
by any Certificate, Buyer and the Exchange Agent shall be entitled to deposit
any Merger Consideration represented thereby in escrow with an independent third
party and thereafter be relieved with respect to any claims thereto.
(f) Buyer shall be entitled to deduct and withhold from consideration
otherwise payable pursuant to this Agreement to any holder of Certificates, such
amounts as it is required to deduct and withhold with respect to the making of
such payment under the Code, or any provision of state, local or foreign tax
law. To the extent that amounts are so withheld by Buyer, such withheld amounts
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shall be treated for all purposes of this Agreement as having been paid to the
holder of the Certificates in respect of which such deduction and withholding
was made.
2.7 Dissenting Shares
(a) "Dissenting Shares" means any shares held by any holder of Seller
Common Stock who becomes entitled to payment of the fair value of such shares
under the DGCL. Any holders of Dissenting Shares shall be entitled to payment
for such shares only to the extent permitted by and in accordance with the
provisions of the DGCL; provided, however, that if, in accordance with the DGCL,
any holder of Dissenting Shares shall forfeit such right to payment of the fair
value of such shares, such shares shall thereupon be deemed to have been
converted into and to have become exchangeable for, as of the Effective Time,
the right to receive the Merger Consideration.
(b) Seller shall give Buyer (i) prompt notice of any written objections
to the Corporate Merger and any written demands for the payment of the fair
value of any shares, withdrawals of such demands, and any other instruments
served pursuant to the DGCL received by Seller and (ii) the opportunity to
participate in all negotiations and proceedings with respect to such demands
under the DGCL. Seller shall not voluntarily make any payment with respect to
any demands for payment of fair value and shall not, except with the prior
written consent of Buyer, settle or offer to settle any such demands.
2.8 Additional Actions
If, at any time after the Effective Time, Buyer shall consider that any
further assignments or assurances in law or any other acts are necessary or
desirable to (i) vest, perfect or confirm, of record or otherwise, in Buyer its
right, title or interest in, to or under any of the rights, properties or assets
of Seller acquired or to be acquired by Buyer as a result of, or in connection
with, the Merger, or (ii) otherwise carry out the purposes of this Agreement,
Seller and its proper officers and directors shall be deemed to have granted to
Buyer an irrevocable power of attorney to execute and deliver all such proper
deeds, assignments and assurances in law and to do all acts necessary or proper
to vest, perfect or confirm title to and possession of such rights, properties
or assets in Buyer and otherwise to carry out the purposes of this Agreement;
and the proper officers and directors of Buyer are fully authorized in the name
of Seller or otherwise to take any and all such action.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF SFS BANCORP, INC.
Seller represents and warrants to Buyer as follows, except as Previously
Disclosed:
3.1 Capital Structure
The authorized capital stock of Seller consists of 2,500,000 shares of
Seller Common Stock and 500,000 shares of Seller Preferred Stock. As of the date
hereof, 1,208,472 shares of Seller Common Stock are issued and outstanding,
287,245 shares of Seller Common Stock are held in treasury, and no shares of
Seller Preferred Stock are issued and outstanding. All outstanding shares of
Seller Common Stock have been duly authorized and validly issued and are fully
paid and
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nonassessable, and none of the outstanding shares of Seller Common Stock has
been issued in violation of the preemptive rights of any person, firm or entity.
Except (i) for Seller Options to acquire not more than 123,785 shares of Seller
Common Stock as of the date hereof, a schedule of which has been Previously
Disclosed, (ii) with respect to the Stock Option Agreement, and (iii) 21,766
unvested shares of Seller Restricted Stock as of the date hereof, a schedule of
which has been Previously Disclosed, there are no Rights authorized, issued or
outstanding with respect to the capital stock of Seller.
3.2 Organization, Standing and Authority of Seller
Seller is a corporation duly organized, validly existing and in good
standing under the laws of the State of Delaware, with full corporate power and
authority to own or lease all of its properties and assets and to carry on its
business as now conducted, and Seller is duly licensed or qualified to do
business and is in good standing in each jurisdiction in which its ownership or
leasing of property or the conduct of its business requires such licensing or
qualification, except where the failure to be so licensed, qualified or in good
standing would not have a Material Adverse Effect on Seller. Seller is duly
registered as a savings and loan holding company under the HOLA and the
regulations of the OTS thereunder. Seller has heretofore delivered to Buyer true
and complete copies of the Certificate of Incorporation and Bylaws of Seller as
in effect as of the date hereof.
3.3 Ownership of Seller Subsidiaries
Seller has Previously Disclosed the name, jurisdiction of incorporation
and percentage ownership of each direct or indirect Seller Subsidiary and
identified Seller Bank as its only Significant Subsidiary. Except for (x)
capital stock of Seller Subsidiaries, (y) securities and other interests held in
a fiduciary capacity and beneficially owned by third parties or taken in
consideration of debts previously contracted and (z) securities and other
interests which are Previously Disclosed, Seller does not own or have the right
to acquire, directly or indirectly, any outstanding capital stock or other
voting securities or ownership interests of any corporation, bank, savings
association, partnership, joint venture or other organization, other than
investment securities representing not more than 5% of any entity. The
outstanding shares of capital stock or other ownership interests of each Seller
Subsidiary have been duly authorized and validly issued, are fully paid and
nonassessable, and are directly owned by Seller free and clear of all liens,
claims, encumbrances, charges, pledges, restrictions or rights of third parties
of any kind whatsoever. No rights are authorized, issued or outstanding with
respect to the capital stock or other ownership interests of Seller Subsidiaries
and there are no agreements, understandings or commitments relating to the right
of Seller to vote or to dispose of such capital stock or other ownership
interests.
3.4 Organization, Standing and Authority of Seller Subsidiaries
Each of the Seller Subsidiaries is a savings bank, corporation or
partnership duly organized, validly existing and in good standing under the laws
of the jurisdiction in which it is organized with full power and authority to
own or lease all of its properties and assets and to carry on its business as
now conducted, and each of the Seller Subsidiaries is duly licensed or qualified
to do business and is in good standing in each jurisdiction in which its
ownership or leasing of property or the conduct of its business requires such
licensing or qualification, except where the failure to be so licensed,
qualified or in good standing would not have a Material Adverse Effect on
Seller. The deposit
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accounts of Seller Bank are insured by the SAIF to the maximum extent permitted
by the FDIA and Seller Bank has paid all deposit insurance premiums and
assessments required by the FDIA and the regulations thereunder. Seller has
heretofore delivered to Buyer true and complete copies of the Charter and Bylaws
of Seller Bank as in effect as of the date hereof.
3.5 Authorized and Effective Agreement
(a) Seller has all requisite power and authority to enter into this
Agreement and (subject to receipt of all necessary governmental approvals and
the approval of Seller's shareholders of this Agreement) to perform all of its
respective obligations hereunder. The execution and delivery of this Agreement
and the consummation of the transactions contemplated hereby have been duly
authorized, advised and approved by all necessary corporate action in respect
thereof on the part of Seller, except for the approval of this Agreement by
Seller's shareholders. This Agreement has been duly and validly executed and
delivered by Seller and, assuming due authorization, execution and delivery by
Buyer, constitutes a legal, valid and binding obligation of Seller, enforceable
against Seller in accordance with its terms, subject, as to enforceability, to
bankruptcy, insolvency and other laws of general applicability relating to or
affecting creditors' rights and to general equity principles.
(b) Neither the execution and delivery of this Agreement or the Stock
Option Agreement, nor consummation of the transactions contemplated hereby or
thereby, nor compliance by Seller with any of the provisions hereof or thereof
(i) does or will conflict with or result in a breach of any provisions of the
Certificate of Incorporation or Bylaws of Seller or the equivalent documents of
any Seller Subsidiary, subject to the deletion of Section 8A of Seller Bank's
Federal Stock Charter, (ii) violate, conflict with or result in a breach of any
term, condition or provision of, or constitute a default (or an event which,
with notice or lapse of time, or both, would constitute a default) under, or
give rise to any right of termination, cancellation or acceleration with respect
to, or result in the creation of any lien, charge or encumbrance upon any
property or asset of Seller or any Seller Subsidiary pursuant to, any material
note, bond, mortgage, indenture, deed of trust, license, lease, agreement or
other instrument or obligation to which Seller or an Seller Subsidiary is a
party, or by which any of their respective properties or assets may be bound or
affected, or (iii) subject to receipt of all required governmental and
shareholder approvals, violates any order, writ, injunction, decree, statute,
rule or regulation applicable to Seller or any Seller Subsidiary.
(c) To the best knowledge of Seller, except for (i) the filing of
applications and notices with and the approvals of the OTS, the FDIC and the
Federal Reserve Board, (ii) the filing of applications with the Department and
the approvals of the Superintendent, (iii) the filing and clearance of the Proxy
Statement relating to the meeting of shareholders of Seller to be held pursuant
to Section 5.2 hereof with the SEC, (iv) the approval of this Agreement and the
transactions contemplated hereby by the requisite vote of the shareholders of
Seller, (v) the filing of the Certificate of Merger with the Secretary of State
of the State of Delaware in connection with the Corporate Merger, (vi) the
filing of a Certificate of Merger with the Secretary of State of the State of
Delaware in connection with the Liquidation, (vii) the filing of a plan of
merger by the Superintendent in connection with the Bank Merger, and (viii)
review of the Merger by the DOJ under federal antitrust laws, no consents or
approvals of or filings or registrations with any Governmental Entity or with
any third party are necessary on the part of Seller or Seller Bank in connection
with (x) the execution and delivery by Seller of this Agreement and the
consummation of the transactions contemplated hereby, (y) the execution and
delivery by Seller, as the Surviving
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Corporation, of the Plan of Liquidation, and the consummation of the
transactions contemplated thereby and (z) the execution and delivery by Seller
Bank of the Bank Merger Agreement and the consummation of the transactions
contemplated thereby.
(d) As of the date hereof, neither Seller nor Seller Bank is aware of
any reasons relating to Seller or Seller Bank (including without limitation CRA
compliance) why all consents and approvals shall not be procured from all
regulatory agencies having jurisdiction over the transactions contemplated by
this Agreement, the Plan of Liquidation and the Bank Merger Agreement as shall
be necessary for (i) consummation of the transactions contemplated by this
Agreement, the Plan of Liquidation and the Bank Merger Agreement and (ii) the
continuation by Buyer after the Effective Time of the business of each of Seller
and Seller Bank, respectively, as such business is carried on immediately prior
to the Effective Time, free of any conditions or requirements which, in the
reasonable opinion of Buyer, could have a Material Adverse Effect on Seller or
Buyer or materially impair the value of Seller or Seller Bank to Buyer.
3.6 Securities Documents and Regulatory Reports
(a) Since January 1, 1996, Seller has timely filed with the SEC and the
NASD all Securities Documents required by the Securities Laws and such
Securities Documents complied in all material respects with the Securities Laws
and did not contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading.
(b) Since January 1, 1996, each of Seller and Seller Bank has duly filed
with the OTS and any other applicable federal or state banking authority, as the
case may be, the reports required to be filed under applicable laws and
regulations and such reports were in all material respects complete and accurate
and in compliance with the requirements of applicable laws and regulations. In
connection with the most recent examinations of Seller and Seller Bank by the
OTS, neither Seller nor Seller Bank was required to correct or change any
action, procedure or proceeding which Seller or Seller Bank believes has not
been corrected or changed as required as of the date hereof and which could have
a Material Adverse Effect on Seller.
3.7 Financial Statements
(a) Seller has previously delivered or made available to Buyer accurate
and complete copies of Seller Financial Statements, which are accompanied by the
audit reports of KPMG, LLP, independent certified public accountants with
respect to Seller. The Seller Financial Statements, as well as the Seller
Financial Statements to be delivered pursuant to Section 5.8 hereof, fairly
present or will fairly present, as the case may be, the consolidated financial
condition of Seller as of the respective dates set forth therein, and the
consolidated income, changes in stockholders' equity and cash flows of Seller
for the respective periods or as of the respective dates set forth therein.
(b) Each of the Seller Financial Statements referred to in Section
3.7(a) has been or will be, as the case may be, prepared in accordance with GAAP
consistently applied during the periods involved, except as stated therein. The
audits of Seller have been conducted in all material respects in accordance with
generally accepted auditing standards. The books and records of Seller and the
Seller Subsidiaries are being maintained in material compliance with applicable
legal and accounting
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requirements, and such books and records accurately reflect in all material
respects all dealings and transactions in respect of the business, assets,
liabilities and affairs of Seller and its Subsidiaries.
(c) Except and to the extent (i) reflected, disclosed or provided for in
the consolidated balance sheets of Seller as of December 31, 1998 (including
related notes), (ii) of liabilities incurred since December 31, 1998 in the
ordinary course of business and (iii) of liabilities incurred in connection with
consummation of the transactions contemplated by this Agreement, neither Seller
nor any Seller Subsidiary has any liabilities, whether absolute, accrued,
contingent or otherwise.
3.8 Material Adverse Change
Since March 31, 1999, (i) Seller and its Subsidiaries have conducted
their respective businesses in the ordinary and usual course (excluding the
incurrence of expenses in connection with this Agreement and the transactions
contemplated hereby) and (ii) no event has occurred or circumstance arisen that,
individually or in the aggregate, has had or is reasonably likely to have a
Material Adverse Effect on Seller.
3.9 Environmental Matters
(a) To the best of Seller's knowledge, Seller and its Subsidiaries are
in compliance with all Environmental Laws, except for any violations of any
Environmental Law which would not, singly or in the aggregate, have a Material
Adverse Effect on Seller. Neither Seller nor any Seller Subsidiary has received
any communication alleging that Seller or any Seller Subsidiary is not in such
compliance and, to the best knowledge of Seller, there are no present
circumstances that would prevent or interfere with the continuation of such
compliance.
(b) To the best of Seller's knowledge, none of the properties owned,
leased or operated by Seller or a Seller Subsidiary has been or is in violation
of or liable under any Environmental Law, except any such violations or
liabilities which would not singly or in the aggregate have a Material Adverse
Effect on Seller.
(c) To the best of Seller's knowledge, there are no past or present
actions, activities, circumstances, conditions, events or incidents that could
reasonably form the basis of any Environmental Claim or other claim or action or
governmental investigation that could result in the imposition of any liability
arising under any Environmental Law against Seller or a Seller Subsidiary or
against any person or entity whose liability for any Environmental Claim Seller
or a Seller Subsidiary has or may have retained or assumed either contractually
or by operation of law, except such which would not have a Material Adverse
Effect on Seller.
(d) Except in the ordinary course of its loan underwriting activities,
Seller has not conducted any environmental studies during the past five years
with respect to any properties owned by it or a Seller Subsidiary as of the date
hereof.
3.10 Tax Matters
(a) Seller and its Subsidiaries have timely filed all federal, state and
local (and, if applicable, foreign) income, franchise, bank, excise, real
property, personal property and other tax
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returns required by applicable law to be filed by them (including, without
limitation, estimated tax returns, income tax returns, information returns and
withholding and employment tax returns) and have paid, or where payment is not
required to have been made, have set up an adequate reserve or accrual for the
payment of, all taxes required to be paid in respect of the periods covered by
such returns and, as of the Effective Time, will have paid, or where payment is
not required to have been made, will have set up an adequate reserve or accrual
for the payment of, all material taxes for any subsequent periods ending on or
prior to the Effective Time. Neither Seller nor any Seller Subsidiary will have
any material liability for any such taxes in excess of the amounts so paid or
reserves or accruals so established.
(b) All federal, state and local (and, if applicable, foreign) income,
franchise, bank, excise, real property, personal property and other tax returns
filed by Seller and its Subsidiaries are complete and accurate in all material
respects. Neither Seller nor any Seller Subsidiary is delinquent in the payment
of any tax, assessment or governmental charge or has requested any extension of
time within which to file any tax returns in respect of any fiscal year or
portion thereof. The federal, state and local income tax returns of Seller and
its Subsidiaries have been audited by the applicable tax authorities for all
periods ended through December 31, 1994 (or are closed to examination due to the
expiration of the applicable statute of limitations) and no deficiencies for any
tax, assessment or governmental charge have been proposed, asserted or assessed
(tentatively or otherwise) against Seller or any Subsidiary as a result of such
audits or otherwise which have not been settled and paid. There are currently no
agreements in effect with respect to Seller or any Subsidiary to extend the
period of limitations for the assessment or collection of any tax. As of the
date hereof, no audit, examination or deficiency or refund litigation with
respect to such return is pending or, to the best of Seller's knowledge,
threatened.
(c) Neither Seller nor any Seller Subsidiary (i) is a party to any
agreement providing for the allocation or sharing of taxes, (ii) is required to
include in income any adjustment pursuant to Section 481(a) of the Code by
reason of a voluntary change in accounting method initiated by Seller or any
Subsidiary (nor does Seller have any knowledge that the IRS has proposed any
such adjustment or change of accounting method) or (iii) has filed a consent
pursuant to Section 341(f) of the Code or agreed to have Section 341(f)(2) of
the Code apply.
3.11 Legal Proceedings
Except as Previously Disclosed, there are no actions, suits, claims,
governmental investigations or proceedings instituted, pending or, to the best
knowledge of Seller, that are unasserted or threatened against Seller or any of
its Subsidiaries or against any asset, interest or right of Seller or any of its
Subsidiaries, or against any officer, director or employee of any of them that
in any such case, if decided adversely, would have a Material Adverse Effect on
Seller. Neither Seller nor any Seller Subsidiary is a party to any order,
judgment or decree, other than in connection with ordinary, routine litigation
and foreclosures which would not individually or in the aggregate have a
Material Adverse Effect on Seller.
3.12 Compliance with Laws
(a) Each of Seller and the Seller Subsidiaries has all permits,
licenses, certificates of authority, orders and approvals of, and has made all
filings, applications and registrations with, all
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Governmental Entities that are required in order to permit it to carry on its
business as it is presently being conducted and the absence of which could
reasonably be expected to have a Material Adverse Effect on Seller; all such
permits, licenses, certificates of authority, orders and approvals are in full
force and effect and will not be adversely affected by virtue of the
consummation of the Merger; and to the best knowledge of Seller, no suspension
or cancellation of any of the same is threatened.
(b) Neither Seller nor any Seller Subsidiary is in violation of its
respective Certificate of Incorporation, Charter or Bylaws, or of any applicable
federal, state or local law or ordinance or any order, rule or regulation of any
Governmental Entity (including, without limitation, all banking (including all
regulatory capital requirements), truth-in-lending, usury, fair credit
reporting, consumer protection, securities, municipal securities, safety,
health, environmental, zoning, anti- discrimination, antitrust, and wage and
hour laws, ordinances, orders, rules and regulations), or in default with
respect to any order, writ, injunction or decree of any court, or in default
under any order, license, regulation or demand of any Governmental Entity, any
of which violations or defaults could reasonably be expected to have a Material
Adverse Effect on Seller; and neither Seller nor any Seller Subsidiary has
received any notice or communication from any Governmental Entity asserting that
Seller or any Seller Subsidiary is in violation of any of the foregoing which
could reasonably be expected to have a Material Adverse Effect on Seller or, to
the best knowledge of Seller, on Buyer. Neither Seller nor any Seller Subsidiary
is subject to any regulatory or supervisory cease and desist order, agreement,
written directive, memorandum of understanding or written commitment (other than
those of general applicability to savings banks or holding companies thereof
issued by Governmental Entities), and neither of them has received any written
communication requesting that it enter into any of the foregoing.
3.13 Certain Information
None of the information relating to Seller and its Subsidiaries supplied
or to be supplied by them for inclusion in the Proxy Statement, as of the date
such Proxy Statement is mailed to shareholders of Seller and up to and including
the date of the meeting of shareholders to which such Proxy Statement relates,
will contain any untrue statement of a material fact or omit to state a material
fact necessary to make the statements therein, in light of the circumstances
under which they were made, not misleading, provided that information as of a
later date shall be deemed to modify information as of an earlier date.
3.14 Employee Benefit Plans
(a) Seller has Previously Disclosed all stock option, employee stock
purchase and stock bonus plans, qualified pension or profit-sharing plans, any
deferred compensation, consultant, bonus or group insurance contract or any
other incentive, health and welfare or employee benefit plan or agreement
maintained for the benefit of employees or former employees of Seller or any
Seller Subsidiary (the "Seller Employee Plans"), whether written or oral, and
Seller has previously furnished to Buyer accurate and complete copies of the
same (including amendments and agreements relating thereto) together with, in
the case of qualified plans, (i) the most recent actuarial and financial reports
prepared with respect thereto, (ii) the most recent annual reports filed with
any Governmental Entity with respect thereto, and (iii) all rulings and
determination letters and any open requests for rulings or letters that pertain
thereto.
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(b) None of Seller, any Seller Subsidiary, any Seller Employee Plan
constituting an "employee pension benefit plan" within the meaning of Section
3(2) of ERISA ("Seller Defined Benefit Plan") or, to the best of Seller's
knowledge, any fiduciary of such Seller Defined Benefit Plan, has incurred any
material liability to the PBGC or the IRS with respect to any such Seller
Defined Benefit Plan. To the best of Seller's knowledge, no reportable event
under Section 4043(b) of ERISA has occurred with respect to any Seller Defined
Benefit Plan.
(c) Neither Seller nor any Seller Subsidiary participates in or has
incurred any liability under Section 4201 of ERISA for a complete or partial
withdrawal from a multi-employer plan (as such term is defined in ERISA).
(d) A favorable determination letter has been issued by the IRS with
respect to each Seller Defined Benefit Plan which is intended to qualify under
Section 401 of the Code to the effect that such Seller Defined Benefit Plan is
qualified under Section 401 of the Code, and the trust associated with such
Seller Defined Benefit Plan is tax exempt under Section 501 of the Code. No such
letter has been revoked or, to the best of Seller's knowledge, is threatened to
be revoked, and Seller does not know of any ground on which such revocation may
be based. Neither Seller nor any Seller Subsidiary has any liability under any
such Seller Defined Benefit Plan that is not reflected on the consolidated
statement of financial condition of Seller at December 31, 1998 or the notes
thereto included in Seller Financial Statements, other than liabilities incurred
in the ordinary course of business in connection therewith subsequent to the
date thereof.
(e) To the best of Seller's knowledge, no prohibited transaction (which
shall mean any transaction prohibited by Section 406 of ERISA and not exempt
under Section 408 of ERISA or Section 4975 of the Code) has occurred with
respect to any Seller Employee Plan which would result in the imposition,
directly or indirectly, of a material excise tax under Section 4975 of the Code
or otherwise have a Material Adverse Effect on Seller.
(f) Full payment has been made (or proper accruals have been
established) of all contributions which are required for periods prior to the
date hereof, and full payment will be so made (or proper accruals will be so
established) of all contributions which are required for periods after the date
hereof and prior to the Effective Time, under the terms of each Seller Employee
Plan or ERISA; except as disclosed in the Seller Financial Statements, no
accumulated funding deficiency (as defined in Section 302 of ERISA or Section
412 of the Code), whether or not waived, exists with respect to any Seller
Defined Benefit Plan, and there is no "unfunded current liability" (as defined
in Section 412 of the Code) with respect to any Seller Defined Benefit Plan.
(g) To the best of Seller's knowledge, Seller Employee Plans have been
operated in compliance in all material respects with the applicable provisions
of ERISA, the Code, all regulations, rulings and announcements promulgated or
issued thereunder and all other applicable governmental laws and regulations.
All contributions required to be made to Seller Employee Plans at the date
hereof have been made, and all contributions required to be made to Seller
Employee Plans as of the Effective Time will have been made as of such date.
(h) There are no pending or, to the best knowledge of Seller, threatened
claims (other than routine claims for benefits) by, on behalf of or against any
of Seller Employee Plans or any trust related thereto or any fiduciary thereof.
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3.15 Certain Contracts
(a) Neither Seller nor a Subsidiary is a party to, is bound or affected
by, receives, or is obligated to pay, benefits under (i) any agreement,
arrangement or commitment, including without limitation any agreement, indenture
or other instrument, relating to the borrowing of money by Seller or a
Subsidiary (other than in the case of Seller Bank deposits, FHLB advances,
federal funds purchased and securities sold under agreements to repurchase in
the ordinary course of business) or the guarantee by Seller or a Subsidiary of
any obligation, other than by Seller Bank in the ordinary course of its banking
business, (ii) any agreement, arrangement or commitment relating to the
employment of a consultant or the employment, election or retention in office of
any present or former director, officer or employee of Seller or a Subsidiary,
(iii) any agreement, arrangement or understanding pursuant to which any payment
(whether of severance pay or otherwise) became or may become due to any
director, officer or employee of Seller or a Subsidiary upon execution of this
Agreement or upon or following consummation of the transactions contemplated by
this Agreement (either alone or in connection with the occurrence of any
additional acts or events); (iv) any agreement, arrangement or understanding
pursuant to which Seller or a Subsidiary is obligated to indemnify any director,
officer, employee or agent of Seller or a Subsidiary; (v) any agreement,
arrangement or understanding to which Seller or a Subsidiary is a party or by
which any of the same is bound which limits the freedom of Seller or a
Subsidiary to compete in any line of business or with any person; (vi) any
assistance agreement, supervisory agreement, memorandum of understanding,
consent order, cease and desist order or condition of any regulatory order or
decree with or by the OTS, the FDIC or any other regulatory agency; or (vii) any
agreement, arrangement or understanding which would be required to be filed as
an exhibit to Seller's Annual Report on Form 10-K under the Exchange Act and
which has not been so filed.
(b) Neither Seller nor any Seller Subsidiary is in default or in
non-compliance, which default or non-compliance could reasonably be expected to
have a Material Adverse Effect on Seller, under any contract, agreement,
commitment, arrangement, lease, insurance policy or other instrument to which it
is a party or by which its assets, business or operations may be bound or
affected, whether entered into in the ordinary course of business or otherwise
and whether written or oral, and there has not occurred any event that with the
lapse of time or the giving of notice, or both, would constitute such a default
or non-compliance.
3.16 Brokers and Finders
Except for Charles Webb & Company, neither Seller nor any Seller
Subsidiary nor any of their respective directors, officers or employees, has
employed any broker or finder or incurred any liability for any broker or finder
fees or commissions in connection with the transactions contemplated hereby.
3.17 Insurance
Each of Seller and its Subsidiaries is insured for reasonable amounts
with financially sound and reputable insurance companies against such risks as
companies engaged in a similar business would, in accordance with good business
practice, customarily be insured and has maintained all insurance required by
applicable laws and regulations.
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3.18 Properties
All real and personal property owned by Seller or its Subsidiaries or
presently used by any of them in its respective business is in good condition
(ordinary wear and tear excepted) and is sufficient to carry on the business of
Seller and its Subsidiaries in the ordinary course of business consistent with
their past practices. Seller has good and marketable title free and clear of all
liens, encumbrances, charges, defaults or equities (other than equities of
redemption under applicable foreclosure laws) to all of its properties and
assets, real and personal, except (i) liens for current taxes not yet due or
payable, (ii) pledges to secure deposits and other liens incurred in the
ordinary course of its banking business, (iii) such imperfections of title,
easements and encumbrances, if any, as are de minimis in character amount or
extent and (iv) as reflected on the consolidated balance sheet of Seller as of
March 31, 1999 included in the Seller Financial Statements. All real and
personal property which is material to Seller's business on a consolidated basis
and leased or licensed by Seller or a Subsidiary is held pursuant to leases or
licenses which are valid and enforceable in accordance with their respective
terms and such leases will not terminate or lapse prior to the Effective Time.
All improved real property owned by Seller or its Subsidiaries is in compliance
with all applicable zoning laws.
3.19 Labor
No work stoppage involving Seller or a Subsidiary is pending or, to the
best knowledge of Seller, threatened. Neither Seller nor a Subsidiary is
involved in or, to the best knowledge of Seller, threatened with or affected by,
any labor dispute, arbitration, lawsuit or administrative proceeding involving
the employees of Seller or a Subsidiary which could have a Material Adverse
Effect on Seller. Employees of Seller and Seller Subsidiaries are not
represented by any labor union nor are any collective bargaining agreements
otherwise in effect with respect to such employees, and to the best of Seller's
knowledge, there have been no efforts to unionize or organize any employees of
Seller or any Seller Subsidiaries during the past five years.
3.20 Allowance for Loan Losses
The allowance for loan losses reflected on Seller's consolidated balance
sheet included in the March 31, 1999 Seller Financial Statements is, or will be
in the case of subsequently delivered Seller Financial Statements, as the case
may be, in the opinion of Seller's management, adequate in all material respects
as of their respective dates under the requirements of GAAP to provide for
reasonably anticipated losses on outstanding loans, net of recoveries. The real
estate owned reflected on the consolidated balance sheet included in the March
31, 1999 Seller Financial Statements is, or will be in the case of subsequently
delivered Seller Financial Statements, as the case may be, carried at the lower
of cost or fair value, less estimated costs to sell, as required by GAAP.
3.21 Year 2000 Compliant.
Except as Previously Disclosed, all hardware, firmware, software and
computer systems of Seller and its Subsidiaries are Year 2000 Compliant (as
defined below) and shall continue to function in accordance with their intended
purpose without material error or material interruption during and after the
year 2000. For purposes of this Agreement, "Year 2000 Compliant" means that the
hardware, firmware, software and computer systems (i) will completely and
accurately address,
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produce, store and calculate data involving dates beginning with January 1, 2000
and will not produce abnormally ending or incorrect results involving such dates
as used in any forward or regression dated based functions; and (ii) will
provide that all "date"-related functionalities and data fields include the
indication of century and millennium, and will perform calculations which
involve a four-digit year.
3.22 Material Interests of Certain Persons.
(a) Except as set forth in Seller's Proxy Statement for its 1999 Annual
Meeting of Stockholders, no officer, director or employee of Seller, any Seller
Subsidiary or any "associate" (as such term is defined in Rule 14a-1 under the
Exchange Act) or related interest of any such person has any material interest
in any material contract or property (real or personal, tangible or intangible),
used in, or pertaining to, the business of Seller or any Subsidiary of Seller.
(b) Except as Previously Disclosed or as set forth in Seller's Proxy
Statement for its 1999 Annual Meeting of Stockholders there are no loans from
Seller or any Seller Subsidiary to any officer, director or employee of Seller,
any Seller Subsidiary or any associate or related interest of any such person
("Insider Loans"). All outstanding Insider Loans from Seller or any Seller
Subsidiary were made in the ordinary course of business and on substantially the
same terms as those prevailing at the time for comparable transactions with
third parties and were, with respect to executive officers and directors,
approved by the appropriate board of directors in accordance with applicable law
and regulations.
3.23 Fairness Opinion
Seller has received the opinion from Charles Webb & Company to the
effect that, as of the date hereof, the consideration to be received by
shareholders of Seller pursuant to this Agreement is fair, from a financial
point of view, to such shareholders.
3.24 Disclosures
None of the representations and warranties of Seller or any of the
written information or documents furnished or to be furnished by Seller to Buyer
in connection with or pursuant to this Agreement or the consummation of the
transactions contemplated hereby, when considered as a whole, contains or will
contain any untrue statement of a material fact, or omits or will omit to state
any material fact required to be stated or necessary to make any such
information or document, in light of the circumstances, not misleading.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF HUDSON RIVER BANCORP, INC.
Buyer represents and warrants to Seller as follows, except as Previously
Disclosed:
4.1. Capital Structure
The authorized capital stock of Buyer consists of 40,000,000 shares of
Buyer Common Stock and 5,000,000 shares of Buyer Preferred Stock. As of the date
hereof, 17,370,250 shares of Buyer
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Common Stock are issued and outstanding, 483,500 shares of Buyer Common Stock
are held in treasury, and no shares of Buyer Preferred Stock are issued and
outstanding. All outstanding shares of Buyer Common Stock have been duly
authorized and validly issued and are fully paid and nonassessable, and none of
the outstanding shares of Buyer Common Stock has been issued in violation of the
preemptive rights of any person, firm or entity. Except for Buyer Options to
acquire not more than 1,243,689 shares of Buyer Common Stock as of the date
hereof, a schedule of which has been Previously Disclosed, there are no Rights
authorized, issued or outstanding with respect to the capital stock of Buyer.
4.2 Organization, Standing and Authority of Buyer
Buyer is a corporation duly organized, validly existing and in good
standing under the laws of the State of Delaware, with full corporate power and
authority to own or lease all of its properties and assets and to carry on its
business as now conducted, and Buyer is duly licensed or qualified to do
business and is in good standing in each jurisdiction in which its ownership or
leasing of property or the conduct of its business requires such licensing or
qualification, except where the failure to be so licensed, qualified or in good
standing would not have a Material Adverse Effect on Buyer. Buyer is duly
registered as a savings and loan holding company under the HOLA and the
regulations of the OTS thereunder. Buyer has heretofore delivered to Seller true
and complete copies of the Certificate of Incorporation and Bylaws of Buyer as
in effect as of the date hereof.
4.3 Ownership of Buyer Subsidiaries
Buyer has Previously Disclosed the name, jurisdiction of incorporation
and percentage ownership of each direct or indirect Buyer Subsidiary and
identified Buyer Bank as its only Significant Subsidiary. Except for (x) capital
stock of Buyer Subsidiaries, (y) securities and other interests held in a
fiduciary capacity and beneficially owned by third parties or taken in
consideration of debts previously contracted and (z) securities and other
interests which are Previously Disclosed, Buyer does not own or have the right
to acquire, directly or indirectly, any outstanding capital stock or other
voting securities or ownership interests of any corporation, bank, savings
association, partnership, joint venture or other organization, other than
investment securities representing not more than 5% of any entity. The
outstanding shares of capital stock or other ownership interests of each Buyer
Subsidiary have been duly authorized and validly issued, are fully paid and
nonassessable, and are directly owned by Buyer free and clear of all liens,
claims, encumbrances, charges, pledges, restrictions or rights of third parties
of any kind whatsoever. No rights are authorized, issued or outstanding with
respect to the capital stock or other ownership interests of Buyer Subsidiaries
and there are no agreements, understandings or commitments relating to the right
of Buyer to vote or to dispose of such capital stock or other ownership
interests.
4.4 Organization, Standing and Authority of Buyer Subsidiaries
Each of the Buyer Subsidiaries is a savings bank, corporation or
partnership duly organized, validly existing and in good standing under the laws
of the jurisdiction in which it is organized, with full power and authority to
own or lease all of its properties and assets and to carry on its business as
now conducted, and each of the Buyer Subsidiaries is duly licensed or qualified
to do business and is in good standing in each jurisdiction in which its
ownership or leasing of property or the conduct of its business requires such
licensing or qualification, except where the failure to be so
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licensed, qualified or in good standing would not have a Material Adverse Effect
on Buyer. The deposit accounts of Buyer Bank are insured by the BIF and the SAIF
to the maximum extent permitted by the FDIA and Buyer Bank has paid all deposit
insurance premiums and assessments required by the FDIA and the regulations
thereunder. Buyer has heretofore delivered to Seller true and complete copies of
the Charter and Bylaws of Buyer Bank as in effect as of the date hereof.
4.5 Authorized and Effective Agreement
(a) Buyer has all requisite power and authority to enter into this
Agreement and (subject to receipt of all necessary governmental approvals) to
perform all of its respective obligations hereunder. The execution and delivery
of this Agreement and the consummation of the transactions contemplated hereby
have been duly authorized, advised and approved by all necessary corporate
action in respect thereof on the part of Buyer. This Agreement has been duly and
validly executed and delivered by Buyer and, assuming due authorization,
execution and delivery by Seller constitutes a legal, valid and binding
obligation of Buyer, enforceable against Buyer in accordance with its terms,
subject, as to enforceability, to bankruptcy, insolvency and other laws of
general applicability relating to or affecting creditors' rights and to general
equity principles.
(b) Neither the execution and delivery of this Agreement or the Stock
Option Agreement, nor consummation of the transactions contemplated hereby nor
compliance by Buyer with any of the provisions hereof (i) does or will conflict
with or result in a breach of any provisions of the Certificate of Incorporation
or Bylaws of Buyer or the equivalent documents of any Buyer Subsidiary, (ii)
violate, conflict with or result in a breach of any term, condition or provision
of, or constitute a default (or an event which, with notice or lapse of time, or
both, would constitute a default) under, or give rise to any right of
termination, cancellation or acceleration with respect to, or result in the
creation of any lien, charge or encumbrance upon any property or asset of Buyer
or any Buyer Subsidiary pursuant to, any material note, bond, mortgage,
indenture, deed of trust, license, lease, agreement or other instrument or
obligation to which Buyer or any Buyer Subsidiary is a party, or by which any of
their respective properties or assets may be bound or affected, or (iii) subject
to receipt of all required governmental approvals, violates any order, writ,
injunction, decree, statute, rule or regulation applicable to Buyer or any Buyer
Subsidiary.
(c) To the best knowledge of Buyer, except for (i) the filing of
applications and notices with and the approvals of the OTS, the FDIC and the
Federal Reserve Board, (ii) the filing of applications with the Department and
the approvals of the Superintendent, (iii) the filing of the Certificate of
Merger with the Secretary of State of the State of Delaware in connection with
the Corporate Merger, (iv) the filing of a Certificate of Merger with the
Secretary of State of the State of Delaware in connection with the Liquidation,
(v) the filing of a plan of merger by the Superintendent in connection with the
Bank Merger, and (vi) review of the Merger by the DOJ under federal antitrust
laws, no consents or approvals of or filings or registrations with any
Governmental Entity or with any third party are necessary on the part of Buyer,
Merger Sub or Buyer Bank in connection with (x) the execution and delivery by
Buyer of this Agreement, and the consummation of the transactions contemplated
hereby, (y) the execution and delivery by Buyer of the Plan of Liquidation, and
the consummation of the transactions contemplated thereby, and (z) the execution
and delivery by Buyer Bank of the Bank Merger Agreement and the consummation of
the transactions contemplated thereby.
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(d) As of the date hereof, neither Buyer nor Buyer Bank is aware of any
reasons relating to Buyer or Buyer Bank (including without limitation CRA
compliance) why all consents and approvals shall not be procured from all
regulatory agencies having jurisdiction over the transactions contemplated by
this Agreement, the Plan of Liquidation and the Bank Merger Agreement as shall
be necessary for (i) consummation of the transactions contemplated by this
Agreement, the Plan of Liquidation and the Bank Merger Agreement and (ii) the
continuation by Buyer after the Effective Time of the business of each of Seller
and Seller Bank, respectively, as such business is carried on immediately prior
to the Effective Time, free of any conditions or requirements which, in the
reasonable opinion of Buyer could have a Material Adverse Effect on Seller or
Buyer or which materially impair the value of Seller or Seller Bank to Buyer.
4.6 Securities Documents and Regulatory Reports.
(a) Since March 9, 1998, Buyer has timely filed with the SEC and the
NASD all Securities Documents required by the Securities Laws and such
Securities Documents complied in all material respects with the Securities Laws
and did not contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading.
(b) Each of Buyer and Buyer Bank has since March 9, 1998 and January 1,
1996, respectively, duly filed with the OTS, the Department and any other
applicable federal or state banking authority, as the case may be, the reports
required to be filed under applicable laws and regulations and such reports were
in all material respects complete and accurate and in compliance with the
requirements of applicable laws and regulations. In connection with the most
recent examinations of Buyer and Buyer Bank by the OTS and Department, neither
Buyer nor Buyer Bank was required to correct or change any action, procedure or
proceeding which Buyer or Buyer Bank believes has not been corrected or changed
as required as of the date hereof and which could have a Material Adverse Effect
on Buyer.
4.7 Financial Statements
(a) Buyer has previously delivered or made available to Seller accurate
and complete copies of the Buyer Financial Statements, which are accompanied by
the audit reports of KPMG, LLP, independent certified public accountants with
respect to Buyer. The Buyer Financial Statements, as well as the Buyer Financial
Statements to be delivered pursuant to Section 5.8 hereof, fairly present or
will fairly present, as the case may be, the consolidated financial condition of
Buyer as of the respective dates set forth therein, and the consolidated income,
changes in equity and cash flows of Buyer for the respective periods or as of
the respective dates set forth therein.
(b) Each of the Buyer Financial Statements referred to in Section 4.7(a)
has been or will be, as the case may be, prepared in accordance with GAAP
consistently applied during the periods involved, except as stated therein. The
audits of Buyer have been conducted in all material respects in accordance with
generally accepted auditing standards. The books and records of Buyer and the
Buyer Subsidiaries are being maintained in material compliance with applicable
legal and accounting requirements, and all such books and records accurately
reflect in all material respects all dealings and transactions in respect of the
business, assets, liabilities and affairs of Buyer and its Subsidiaries.
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(c) Except to the extent (i) reflected, disclosed or provided for in the
consolidated balance sheets of Buyer as of March 31, 1998 (including related
notes), (ii) of liabilities incurred since March 31, 1998 in the ordinary course
of business and (iii) of liabilities incurred in connection with consummation of
the transaction contemplated by this Agreement, neither Buyer nor any Buyer
Subsidiary has any liabilities, whether absolute, accrued, contingent or
otherwise.
4.8 Material Adverse Change
Since March 31, 1999, (i) Buyer and its Subsidiaries have conducted
their respective businesses in the ordinary and usual course (excluding the
incurrence of expenses in connection with this Agreement and the transactions
contemplated hereby) and (ii) no event has occurred or circumstance arisen that,
individually or in the aggregate, has had or is reasonably likely to have a
Material Adverse Effect on Buyer.
4.9 Legal Proceedings
Except as Previously Disclosed, there are no actions, suits, claims,
governmental investigations or proceedings instituted, pending or, to the best
knowledge of Buyer, that are unasserted or threatened against Buyer or any of
its Subsidiaries or against any asset, interest or right of Buyer or any of its
Subsidiaries, or against any officer, director or employee of any of them that
in any such case, if decided adversely, would have a Material Adverse Effect on
Buyer. Neither Buyer nor any Buyer Subsidiary is a party to any order, judgment
or decree.
4.10 Certain Information
None of the information relating to Buyer and its subsidiaries supplied
or to be supplied by them for inclusion in the Proxy Statement, as of the date
such Proxy Statement is mailed to shareholders of Seller and up to and including
the date of the meeting of shareholders to which such Proxy Statement relates,
will contain any untrue statement of a material fact or omit to state a material
fact necessary to make the statements therein, in light of the circumstances
under which they were made, not misleading, provided that information as of a
later date shall be deemed to modify information as of an earlier date.
4.11 Brokers and Finders
Neither Buyer nor any Buyer Subsidiary, nor any of their respective
directors, officers or employees, has employed any broker or finder or incurred
any liability for any broker or finder fees or commissions in connection with
the transactions contemplated hereby.
4.12 Disclosures
None of the representations and warranties of Buyer or any of the
written information or documents furnished or to be furnished by Buyer to Seller
in connection with or pursuant to this Agreement or the consummation of the
transactions contemplated hereby, when considered as a whole, contains or will
contain any untrue statement of a material fact, or omits or will omit to state
any material fact required to be stated or necessary to make any such
information or document, in light of the circumstances, not misleading.
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4.13 Financial Resources
Buyer has the financial wherewithal and has, or will have prior to the
Effective Time, sufficient internal funds to perform its obligations under this
Agreement. Buyer and Buyer Bank are, and will be immediately following the
Merger, in material compliance with all applicable capital, debt and financial
and non-financial regulations of state and federal banking agencies having
jurisdiction over them.
ARTICLE V
COVENANTS
5.1 Reasonable Best Efforts
Subject to the terms and conditions of this Agreement, each of Seller
and Buyer (i) shall 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 or advisable under applicable laws and regulations so as to permit and
otherwise enable consummation of the Merger as promptly as reasonably
practicable, it being the intention of the parties that the Liquidation and the
Bank Merger be consummated following the Effective Time in accordance with
Sections 5.12 and 5.13 hereof, and (ii) shall cooperate fully with each other to
that end. Seller shall use its reasonable best efforts in good faith to cause
the Federal Stock Charter of Seller Bank to be amended to delete Section 8A
thereof immediately prior to the Effective Time.
5.2 Shareholder Meeting
Seller shall take all action necessary to properly call and convene a
meeting of its shareholders as soon as practicable after the date hereof to
consider and vote upon this Agreement and the transactions contemplated hereby.
The Board of Directors of Seller will recommend that the shareholders of Seller
approve this Agreement and the transactions contemplated hereby, provided that
the Board of Directors of Seller may fail to make such recommendation, or
withdraw, modify or change any such recommendation, if such Board of Directors,
after having consulted with and considered the advice of outside counsel, has
determined that the making of such recommendation, or the failure to withdraw,
modify or change such recommendation, would constitute a breach of the fiduciary
duties of such directors under applicable law.
5.3 Regulatory Matters
(a) The parties hereto shall promptly cooperate with each other in the
preparation and filing of the Proxy Statement relating to the meeting of
shareholders of Seller to be held pursuant to Section 5.2 of this Agreement.
Each of Buyer and Seller shall use its reasonable best efforts to have the Proxy
Statement approved for mailing in definitive form as promptly as practicable and
thereafter Seller shall promptly mail to its shareholders the Proxy Statement.
(b) The parties hereto shall cooperate with each other and use their
reasonable best efforts to promptly prepare and file within 45 days after the
date hereof or as soon thereafter as is reasonably practicable, all necessary
documentation, to effect all applications, notices, petitions and filings, and
to obtain as promptly as practicable all permits, consents, approvals and
authorizations of all
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Governmental Entities and third parties which are necessary or advisable to
consummate the transactions contemplated by this Agreement. Buyer and Seller
shall have the right to review in advance, and to the extent practicable each
will consult with the other on, in each case subject to applicable laws relating
to the exchange of information, all the information which appears in any filing
made with or written materials submitted to any third party or any Governmental
Entity in connection with the transactions contemplated by this Agreement. In
exercising the foregoing right, each of the parties hereto shall act reasonably
and as promptly as practicable. The parties hereto agree that they will consult
with each other with respect to the obtaining of all permits, consents,
approvals and authorizations of all third parties and Governmental Entities
necessary or advisable to consummate the transactions contemplated by this
Agreement and each party will keep the other apprised of the status of matters
relating to completion of the transactions contemplated herein. The parties
hereto agree that they will use their reasonable best efforts to cause the
Closing Date to occur by September 30, 1999.
(c) Buyer and Seller shall, upon request, furnish each other with all
information concerning themselves, their respective Subsidiaries, directors and
officers, the shareholders of Seller and such other matters as may be reasonably
necessary or advisable in connection with any statement, filing, notice or
application made by or on behalf of Buyer, Buyer Bank, Merger Sub, Seller or
Seller Bank to any Governmental Entity in connection with the transactions
contemplated hereby.
(d) Buyer and Seller shall promptly furnish each other with copies of
written communications received by Buyer or Seller, as the case may be, or any
of their respective Subsidiaries from, or delivered by any of the foregoing to,
any Governmental Entity in respect of the transactions contemplated hereby.
5.4 Investigation and Confidentiality
(a) Each party shall permit the other party and its representatives
reasonable access to its properties and personnel, and shall disclose and make
available to such other party, upon such other party's reasonable request, all
books, papers and records relating to the assets, stock ownership, properties,
operations, obligations and liabilities of it and its Subsidiaries, including,
but not limited to, all books of account (including the general ledger), tax
records, minute books of meetings of boards of directors (and any committees
thereof) and shareholders, organizational documents, bylaws, material contracts
and agreements, filings with any regulatory authority, accountants' work papers,
litigation files, loan files, plans affecting employees, and any other business
activities or prospects in which the other party may have a reasonable interest,
provided that such access and any such reasonable request shall be reasonably
related to the transactions contemplated hereby and, in the reasonable opinion
of the respective parties providing such access, not unduly interfere with
normal operations. Each party and its Subsidiaries shall make their respective
directors, officers, employees and agents and authorized representatives
(including counsel and independent public accountants) available to confer with
the other party and its representatives, provided that such access shall be
reasonably related to the transactions contemplated hereby and shall not unduly
interfere with normal operations.
(b) All information furnished previously in connection with the
transactions contemplated by this Agreement or pursuant hereto shall be treated
as the sole property of the party
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furnishing the information until consummation of the transactions contemplated
hereby and, if such transactions shall not occur, the party receiving the
information shall either destroy or return to the party which furnished such
information all documents or other materials containing, reflecting or referring
to such information, shall use its best efforts to keep confidential all such
information, and shall not directly or indirectly use such information for any
competitive or other commercial purposes. The obligation to keep such
information confidential shall continue for five years from the date the
proposed transactions are abandoned but shall not apply to (i) any information
which (x) the party receiving the information can establish was already in its
possession prior to the disclosure thereof by the party furnishing the
information; (y) was then generally known to the public; or (z) became known to
the public through no fault of the party receiving the information; or (ii)
disclosures pursuant to a legal requirement or in accordance with an order of a
court of competent jurisdiction, provided that the party which is the subject of
any such legal requirement or order shall use its best efforts to give the other
party at least ten business days prior notice thereof.
5.5 Press Releases
Buyer and Seller shall agree with each other as to the form and
substance of any press release related to this Agreement or the transactions
contemplated hereby, and consult with each other as to the form and substance of
other public disclosures which may relate to the transactions contemplated by
this Agreement, provided, however, that nothing contained herein shall prohibit
either party, following notification to the other party, from making any
disclosure which is required by law or regulation.
5.6 Business of the Parties
(a) During the period from the date of this Agreement and continuing
until the Effective Time, except as expressly contemplated or permitted by this
Agreement or with the prior written consent of Buyer, Seller and its
Subsidiaries shall carry on their respective businesses in the ordinary course
consistent with past practice. During such period, Seller also will use all
reasonable efforts to (x) preserve its business organization and that of Seller
Bank intact, (y) keep available to itself and Buyer the present services of the
employees of Seller and Seller Bank and (z) preserve for itself and Buyer the
goodwill of the customers of Seller and Seller Bank and others with whom
business relationships exist. Without limiting the generality of the foregoing,
except with the prior written consent of Buyer or as expressly contemplated
hereby, between the date hereof and the Effective Time, Seller shall not, and
shall cause each Seller Subsidiary not to:
(i) declare, set aside, make or pay any dividend or other
distribution (whether in cash, stock or property or any combination
thereof) in respect of Seller Common Stock, except for regular quarterly
cash dividends at a rate per share of Seller Common Stock not in excess
of $.09 per share, but only to the extent that such dividends may be
funded out of current earnings; provided, however, that nothing
contained herein shall be deemed to affect the ability of a Subsidiary
to pay dividends on its capital stock to Seller;
(ii) issue any shares of its capital stock, other than (i) upon
exercise of Seller Options referred to in Section 3.1 hereof or, (ii)
pursuant to the Stock Option Agreement, or issue, grant, modify or
authorize any Rights; purchase any shares of
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Seller Common Stock; or effect any recapitalization, reclassification,
stock dividend, stock split or like change in capitalization;
(iii) amend its Certificate of Incorporation, Bylaws or similar
organizational documents, other than as contemplated by Section 5.1
hereof; impose, or suffer the imposition, on any share of stock or other
ownership interest held by Seller in a Subsidiary of any lien, charge or
encumbrance or permit any such lien, charge or encumbrance to exist; or
waive or release any material right or cancel or compromise any material
debt or claim;
(iv) increase the rate of compensation of any of its directors,
officers or employees, or pay or agree to pay any bonus or severance to,
or provide any other new employee benefit or incentive to, any of its
directors, officers or employees, except (i) as may be required pursuant
to Previously Disclosed commitments existing on the date hereof, (ii) as
may be required by law, (iii) merit increases in accordance with past
practices, normal cost-of-living increases and normal increases related
to promotions or increased job responsibilities and (iv) that
immediately prior to the Effective Time, Seller may pay bonuses under
the Seller Incentive Plan in amounts as provided under such plan,
provided that if the Effective Time is prior to December 31, 1999, then
the amount for 1999 shall be pro rated for the period from January 1,
1999 to the Effective Time;
(v) enter into or, except as may be required by law and for
amendments contemplated by Section 5.11 hereof, modify any Seller
Employee Plan or other employee benefit, incentive or welfare contract,
plan or arrangement, or any trust agreement related thereto, in respect
of any of its directors, officers or employees; or make any
contributions to any Seller Defined Benefit Plan or the Seller ESOP
(other than as required by law or regulation or in a manner and amount
consistent with past practices);
(vi) originate or purchase any loan in excess of $350,000;
(vii) enter into (w) any transaction, agreement, arrangement or
commitment not made in the ordinary course of business, (x) any
agreement, indenture or other instrument relating to the borrowing of
money by Seller or a Subsidiary or guarantee by Seller or any Seller
Subsidiary of any such obligation, except in the case of Seller Bank for
deposits, FHLB advances, federal funds purchased and securities sold
under agreements to repurchase in the ordinary course of business
consistent with past practice, (y) any agreement, arrangement or
commitment relating to the employment of an employee or consultant, or
amend any such existing agreement, arrangement or commitment, provided
that Seller and Seller Bank may employ an employee or consultant in the
ordinary course of business if the employment of such employee or
consultant is terminable by Seller or Seller Bank at will without
liability, other than as required by law; and provided that the term of
the employment agreements and change in control severance agreements
existing as of the date hereof (other than the employment agreement with
Mr. Giaquinto) may be extended for an additional one
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year as of the anniversary date of such agreements in accordance with
the provisions thereof; or (z) any contract, agreement or understanding
with a labor union;
(viii) change its method of accounting in effect for the year
ended December 31, 1998, except as required by changes in laws or
regulations or GAAP, or change any of its methods of reporting income
and deductions for federal income tax purposes from those employed in
the preparation of its federal income tax return for such year, except
as required by changes in laws or regulations;
(ix) make any expenditures other than in the ordinary course of
business or in connection with the transactions contemplated by this
Agreement or capital expenditures in excess of $17,500 individually or
$37,500 in the aggregate, other than pursuant to binding commitments
existing on the date hereof and expenditures necessary to maintain
existing assets in good repair; or enter into any new lease of real
property or any new lease of personal property providing for annual
payments exceeding $10,000;
(x) file any applications or make any contract with respect to
branching or site location or relocation;
(xi) acquire in any manner whatsoever (other than to realize upon
collateral for a defaulted loan) control over or any equity interest in
any business or entity, except for investments in marketable equity
securities in the ordinary course of business and not exceeding 5% of
the outstanding shares of any class;
(xii) enter or agree to enter into any agreement or arrangement
granting any preferential right to purchase any of its assets or rights
or requiring the consent of any party to the transfer and assignment of
any such assets or rights;
(xiii) except as necessitated in the reasonable opinion of Seller
due to changes in interest rates, and in accordance with safe and sound
banking practices, change or modify in any material respect any of its
lending or investment policies, except to the extent required by law or
an applicable regulatory authority;
(xiv) except as necessitated in the reasonable opinion of Seller
due to changes in interest rates, and in accordance with safe and sound
banking practices, enter into any futures contract, option contract,
interest rate caps, interest rate floors, interest rate exchange
agreement or other agreement for purposes of hedging the exposure of its
interest-earning assets and interest-bearing liabilities to changes in
market rates of interest;
(xv) take any action that would result in any of the
representations and warranties of Seller contained in this Agreement not
to be true and correct in any material respect at the Effective Time or
that would cause any of the conditions of Sections 6.1 or 6.3 hereof not
to be satisfied;
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(xvi) take any action that would materially impede or delay the
consummation of the transactions contemplated by this Agreement or the
ability of Buyer or Seller to perform its covenants and agreements under
this Agreement; or
(xvii) agree to do any of the foregoing.
(b) Except with the prior written consent of Seller or as expressly
contemplated hereby, between the date hereof and the Effective Time, Buyer shall
not, and shall cause each Buyer Subsidiary not to:
(i) take any action that would result in any of the
representations and warranties of Buyer contained in this Agreement not
to be true and correct in any material respect at the Effective Time or
that would cause any of the conditions of Sections 6.1 or 6.2 hereof not
to be satisfied;
(ii) take any action that would materially impede or delay the
consummation of the transactions contemplated by this Agreement or the
ability of Buyer or Seller to perform its covenants and agreements under
this Agreement; or
(iii) agree to do any of the foregoing.
5.7 Certain Actions
Seller shall not, and shall cause each Seller Subsidiary not to, solicit
or encourage inquiries or proposals with respect to, furnish any information
relating to, or participate in any negotiations or discussions concerning, any
acquisition, purchase of all or a substantial portion of the assets of, or any
equity interest in, Seller or a Subsidiary (other than with Buyer or an
affiliate thereof), provided, however, that the Board of Directors of Seller may
furnish such information or participate in such negotiations or discussions if
such Board of Directors, after having consulted with and considered the advice
of outside counsel, has determined that the failure to do the same may cause the
members of such Board of Directors to breach their fiduciary duties under
applicable law. Seller will promptly inform Buyer orally and in writing of any
such request for information or of any such negotiations or discussions, as well
as instruct its and its Subsidiaries' directors, officers, representatives and
agents to refrain from taking any action prohibited by this Section 5.7.
5.8 Current Information
During the period from the date hereof to the Effective Time, each of
Buyer and Seller shall, upon the request of the other party, cause one or more
of its designated representatives to confer on a monthly or more frequent basis
with representatives of the other party regarding its financial condition,
operations and business and matters relating to the completion of the
transactions contemplated hereby. As soon as reasonably available, but in no
event more than two business days after filing, Buyer and Seller will deliver to
the other party all reports filed by them under the Exchange Act subsequent to
the date hereof. Buyer and Seller also will deliver to the other party each call
report or similar report filed by them with the FDIC or the OTS concurrently
with the filing of such call report. Within 25 days after the end of each month,
Seller and Buyer will deliver to the
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other party an unaudited consolidated balance sheet and an unaudited
consolidated statement of income, without related notes, for such month prepared
in accordance with GAAP.
5.9 Indemnification; Insurance
(a) From and after the Effective Time, Buyer agrees to indemnify and
hold harmless the past and present directors and officers of Seller and its
Subsidiaries (the "Indemnified Parties") for all acts or omissions occurring at
or prior to the Effective Time to the same extent such persons are indemnified
and held harmless under the respective Certificate of Incorporation, Charter or
Bylaws of Seller and its Subsidiaries in the form in effect at the date of this
Agreement, and such duties and obligations shall continue in full force and
effect for so long as they would (but for the Merger) otherwise survive and
continue in full force and effect. Without limiting the foregoing, all
limitations of liability existing in favor of the Indemnified Parties in the
Certificate of Incorporation, Charter or Bylaws of Seller or any Seller
Subsidiary as of the date hereof, to the extent permissible under applicable law
as of the date hereof, arising out of matters existing or occurring at or prior
to the Effective Time, shall survive the Merger and shall continue in full force
and effect. Buyer will provide, or cause to be provided, for a period of not
less than six years from the Effective Time, an insurance and indemnification
policy that provides the officers and directors of Seller and its Subsidiaries
immediately prior to the Effective Time coverage no less favorable than as
currently provided by Seller to such officers and directors, to the extent such
insurance may be purchased or kept in full force without any material increase
in the cost of the premium currently paid by Buyer for its directors' and
officers' liability insurance (provided that if such insurance is not available
without such a material increase, Buyer will substitute or cause Seller to
substitute therefor to the extent available at a cost not in excess of 150% of
the current annual premium cost of Seller's existing directors and officers'
insurance, single premium tail coverage with policy limits equal to Seller's
existing annual coverage limits). At the request of Buyer, Seller shall use
reasonable efforts to procure the insurance coverage referred to in the
preceding sentence prior to the Effective Time.
(b) In the event that Buyer or any of its respective successors or
assigns (i) consolidates with or merges into any other person and shall not be
the continuing or surviving corporation or entity of such consolidation or
merger or (ii) transfers all or substantially all of its properties and assets
to any person, then, and in each such case the successors and assigns of such
entity shall assume the obligations set forth in this Section 5.9, which
obligations are expressly intended to be for the irrevocable benefit of, and
shall be enforceable by, each director and officer covered hereby.
5.10 Directors After the Corporate Merger
Buyer agrees to take all action necessary to appoint, effective as of
the Effective Time and prior to the Liquidation, Joseph H. Giaquinto as a
director of Buyer and Buyer Bank. At its annual meeting of stockholders to be
held in the year 2000, Buyer will propose and recommend to its stockholders that
Mr. Giaquinto be elected to the Board of Directors of Buyer for a three-year
term. For as long as he is willing to serve, Buyer will cause Mr. Giaquinto to
remain a director of Buyer Bank for at least three years after the Effective
Time. Mr. Giaquinto shall not be entitled to any new awards under any stock
option or restricted stock plan of Buyer.
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5.11 Employees and Employee Benefit Plans
(a) It is the intention of Buyer that within a reasonable period of time
following the Effective Time (i) it will provide former full time employees of
Seller or Seller Bank who remain employed by Buyer or Buyer Bank following the
Effective Time with employee benefit plans substantially similar in the
aggregate to those provided to similarly situated employees of Buyer, (ii) any
such employees will receive credit for years of service with Seller or any of
its Subsidiaries prior to the Effective Time for the purpose of eligibility and
vesting (but not for the purpose of accrual of benefits or allocation of
employer contributions) and (iii) Buyer shall cause any and all pre-existing
condition limitations (to the extent such limitations did not apply to a
pre-existing condition under any Seller Employee Plan) and eligibility waiting
periods under group health plans to be waived with respect to such participants
and their eligible dependents.
(b) To the extent that Buyer or a Buyer Subsidiary terminates the
employment of any Seller or Seller Bank employee (other than those employees who
receive payments pursuant to Section 5.11(c) or (d) hereof), other than for
Cause, within six months following the Effective Time, Buyer shall, or shall
cause a Buyer Subsidiary to, provide severance benefits in a cash amount equal
to such employee's regular salary for a one-week period (as in effect
immediately prior to the Effective Time) multiplied by the total number of whole
years of such employee's employment (up to a maximum of eight years) at Seller,
Buyer and any Subsidiary of either, provided, however that in no event shall
Buyer or a Buyer Subsidiary have any obligation to provide severance benefits to
any Seller or Seller Bank employee whose termination of employment occurs due to
resignation or discharge for Cause or who is entitled to severance benefits or
the equivalent thereof under the terms of the Bank Officer Severance
Compensation Plan or an individual contract with Seller or Seller Bank.
(c) Buyer agrees to honor each of the employment agreements, change in
control severance agreements, Seller Change of Control Benefit Plan, Seller Bank
Officer Severance Compensation Plan and Seller Bank SERP listed on Disclosure
Schedule 5.11(c) hereto, provided that Buyer shall be obligated for only such
payments and benefits thereunder as are set forth on Disclosure Schedule
5.11(c), subject in all respects to the assumptions and qualifications set forth
on such Schedule. In each case, the payment of benefits shall be subject to the
receipt by Buyer from such executive of an acknowledgment and a release
described in Section 5.11(d) below relating to his agreements and benefits.
Buyer agrees that the Corporate Merger shall constitute a "Change in Control"
and that the Effective Time shall be the "Date of Termination" as such terms are
defined in the employment agreements and change in control severance agreements.
(d) In the sole discretion of Buyer or a Buyer Subsidiary, as
applicable, payments made by it in full and complete satisfaction of obligations
of Seller or Seller Bank under any Seller Employee Plan or under any agreement
referred to in Disclosure Schedule 5.11(c) hereto shall be subject to the
recipient's delivery to Buyer or a Buyer Subsidiary, as applicable, of (i) a
written acknowledgment signed by such recipient that the payment or payments and
benefits to be made to him or her is in full and complete satisfaction of all
liabilities and obligations thereunder of Seller, Seller Bank, Buyer or any
Buyer Subsidiary, and each of their respective affiliates, directors, officers,
employees and agents, and (ii) a release by such recipient of all such parties
from further liability in connection with the particular Seller Employee Plan or
agreement, as applicable.
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(e) As of the Effective Time or as soon as practicable thereafter, the
loan to the Seller ESOP shall be repaid in full with the cash consideration
received from Buyer for the unallocated shares of Seller Common Stock held in
the Seller ESOP in the amount equal to the Merger Consideration multiplied by
the number of unallocated shares of Seller Common Stock held by the Seller ESOP,
and any unallocated portion of the consideration remaining after such repayment
shall be allocated to the Seller ESOP accounts of the employees of Seller and
its Subsidiaries who are participants and beneficiaries (such individuals
hereinafter referred to as the "ESOP Participants") as earnings and not as
"annual additions," in accordance with the terms of the Seller ESOP as amended.
As of the Effective Time, the Seller ESOP shall be terminated. Neither the Buyer
nor any Buyer Subsidiary shall become a party to the Seller ESOP within the
meaning of Section 13.2 of the Seller ESOP. The current administrator of the
Seller ESOP, or another administrator selected by Seller, shall continue to
administer the Seller ESOP subsequent to the Effective Time, and the current
Trustee of the Seller ESOP, or such other trustee(s) selected by Seller or the
administrators, shall continue to be the Trustee subsequent to the Effective
Time. Buyer agrees not to amend the Seller ESOP subsequent to the Effective Time
in any manner that would change or expand the class of persons entitled to
receive benefits under the Seller ESOP. Following the receipt of a favorable
determination letter from the IRS as to the tax qualified status of the Seller
ESOP upon its termination under Section 401(a) and 4975(e)(7) of the Code (the
"Final Determination Letter"), distributions of the account balances under the
Seller ESOP shall be made to the ESOP Participants. From and after the date
hereof, in anticipation of such termination and distribution, Buyer and Seller
prior to the Effective Time, and Buyer after the Effective Time, shall use their
best efforts to apply for and obtain a favorable Final Determination Letter from
the IRS. In the event that Buyer and Seller, prior to the Effective Time, and
Buyer after the Effective Time, reasonably determine that the Seller ESOP cannot
obtain a favorable Final Determination Letter, or that the amounts held therein
cannot be so applied, allocated or distributed without causing the Seller ESOP
to lose its qualified status, Seller prior to the Effective Time and Buyer after
the Effective Time shall take such action as they may reasonably determine with
respect to the distribution of account balances to the ESOP Participants,
provided that the assets of the Seller ESOP shall be held or paid solely for the
benefit of the ESOP Participants and provided further that in no event shall any
portion of the amounts held in the Seller ESOP revert, directly or indirectly,
to Seller or any affiliate thereof, or to Buyer or any affiliate thereof. All
ESOP Participants shall fully vest and have a nonforfeitable interest in their
accounts under the Seller ESOP determined as of the termination date.
(f) At the Effective Time, the Bank 401(k) shall be continued in effect,
provided that Buyer may elect to terminate the Bank 401(k) or merge it with a
tax-qualified plan maintained by Buyer; and provided further, that at the
request of Buyer made within 30 business days of the date hereof, Seller shall
cause the Bank 401(k) to be terminated at or immediately prior to the Effective
Time in accordance with applicable law and in a manner that will not result in
the imposition of any liability or responsibility upon Buyer or any of its
Subsidiaries.
(g) At the Effective Time, the Seller Defined Benefit Plan shall be
continued in effect, provided that Buyer may elect to terminate the Seller
Defined Benefit Plan or merge it with a tax-qualified plan maintained by Buyer;
provided that any merger of the Seller Defined Benefit Plan shall not reduce or
change any benefits that were vested immediately prior to such merger; and
provided further, that at the request of Buyer made within 60 days of the date
hereof, Seller shall cause the Seller Defined Benefit Plan to be terminated at
or immediately prior to the Effective Time in accordance with applicable law and
in a manner that will not result in the imposition of any
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liability or responsibility upon Buyer or any of its Subsidiaries. Seller agrees
to cause its Group Annuity Contract to be amended as soon as practicable after
the date hereof, but in no event more than 30 days from the date hereof, to
provide that annuity contracts will not be purchased with respect to future
retirees under the Seller Defined Benefit Plan, other than as set forth on
Disclosure Schedule 5.11(c) hereto.
(h) Mr. Giaquinto shall have executed and delivered to Buyer as of the
date hereof a Non- Competition Agreement in the form of Exhibit E hereto.
5.12 Liquidation
Buyer and Seller shall take, and shall cause their Subsidiaries to take,
all necessary and appropriate actions, including causing Seller, as the
Surviving Corporation, to enter into the Plan of Liquidation, to cause Seller,
as the Surviving Corporation, to merge with and liquidate into Buyer immediately
after the Corporate Merger, or at such other time thereafter as may be
determined by Buyer in its sole discretion. Buyer shall be the surviving
corporation in the Liquidation (the "Liquidation Surviving Corporation"), and
shall continue its existence under the laws of the State of Delaware. The name
of the Liquidation Surviving Corporation shall be Hudson River Bancorp, Inc. The
directors and executive officers of the Liquidation Surviving Corporation upon
consummation of the Liquidation shall be the directors and executive officers of
Buyer immediately prior to the consummation of the Liquidation. Upon
consummation of the Liquidation, the separate corporate existence of Seller, as
the Surviving Corporation, shall cease.
5.13 Bank Merger
Buyer and Seller shall take, and shall cause their subsidiaries to take,
all necessary and appropriate actions, including causing Seller Bank and Buyer
Bank to enter into the Bank Merger Agreement, to cause Seller Bank to merge with
and into Buyer Bank immediately after the Liquidation, or at such other time
thereafter as may be determined by Buyer in its sole discretion. Buyer Bank
shall be the surviving bank in the Bank Merger (the "Surviving Bank"), and shall
continue its existence under the laws of the State of New York as a wholly-owned
subsidiary of Buyer. The name of the Surviving Bank shall be Hudson River Bank &
Trust Company. The directors and executive officers of the Surviving Bank upon
consummation of the Bank Merger shall be the directors and executive officers of
Buyer Bank immediately prior to the consummation of the Bank Merger. Upon
consummation of the Bank Merger, the separate existence of Seller Bank shall
cease.
5.14 Organization of Merger Sub
Buyer shall cause Merger Sub to be organized under the DGCL as soon as
practicable hereafter. Following the organization, the Board of Directors of
Merger Sub shall approve this Agreement and the transactions contemplated
hereby, whereupon Merger Sub shall become a party to, and be bound by, this
Agreement, and Buyer shall approve this Agreement in its capacity as the sole
stockholder of Merger Sub.
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5.15 Conforming Entries
(a) Seller recognizes that Buyer may have adopted different loan,
accrual and reserve policies (including loan classifications and levels of
reserves for possible loan losses). Subject to applicable laws, from and after
the date of this Agreement to the Effective Time, Seller and Buyer shall consult
and cooperate with each other with respect to conforming the loan, accrual and
reserve policies of Seller and the Seller Subsidiaries to those policies of
Buyer, as specified in each case in writing to Seller, based upon such
consultation and subject to the conditions in Section 5.15(c) below.
(b) Subject to applicable laws and regulations, Seller and Buyer shall
consult and cooperate with each other with respect to determining, as specified
in a written notice from Buyer to Seller, based upon such consultation and
subject to the conditions in Section 5.15(c) below, the amount and the timing
for recognizing for financial accounting purposes Seller's expenses of the
Merger and the restructuring charges relating to or to be incurred in connection
with the Merger.
(c) Subject to applicable laws and regulations, Seller shall (i)
establish and take such reserves and accruals at such time as Buyer shall
reasonably request to conform Seller's loan, accrual and reserve policies to
Buyer's policies, and (ii) establish and take such accruals, reserves and
charges in order to implement such policies and to recognize for financial
accounting purposes such expenses of the Merger and restructuring charges
related to or to be incurred in connection with the Merger, in each case at such
times as are reasonably requested by Buyer; provided, however, that on the date
such reserves, accruals and charges are to be taken, Buyer shall certify to
Seller that all conditions to Buyer's obligation to consummate the Merger set
forth in Sections 6.1 and 6.3 hereof (other than the delivery of certificates,
opinions and other instruments and documents to be delivered at the Closing or
otherwise to be dated at the Effective Time, the delivery of which shall
continue to be conditions to Buyer's obligation to consummate the Merger) have
been satisfied or waived; and provided, further, that Seller shall not be
required to take any such action that is not consistent with GAAP and regulatory
accounting principles.
(d) No reserves, accruals or charges taken in accordance with this
Section 5.15 may be a basis to assert a violation of a breach of a
representation, warranty or covenant of Seller herein.
5.16 Integration of Policies
During the period from the date hereof to the Effective Time, Seller and
Seller Bank shall, and shall cause their directors, officers and employees to,
and shall make all reasonable efforts to cause their respective data processing
service providers to, cooperate and assist Buyer in connection with an
electronic and systematic conversion of all applicable data regarding Seller to
Buyer's system of electronic data processing. In furtherance of the foregoing,
Seller shall make reasonable arrangements during normal business hours to permit
representatives of Buyer to train Seller and Seller Bank employees in Buyer's
system of electronic data processing.
5.17 Disclosure Supplements
From time to time prior to the Effective Time, each party shall promptly
supplement or amend any materials Previously Disclosed and delivered to the
other party pursuant hereto with
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respect to any matter hereafter arising which, if existing, occurring or known
at the date of this Agreement, would have been required to be set forth or
described in materials Previously Disclosed to the other party or which is
necessary to correct any information in such materials which has been rendered
materially inaccurate thereby; no such supplement or amendment to such materials
shall be deemed to have modified the representations, warranties and covenants
of the parties for the purpose of determining whether the conditions set forth
in Article VI hereof have been satisfied.
5.18 Failure to Fulfill Conditions
In the event that either of the parties hereto determines that a
condition to its respective obligations to consummate the transactions
contemplated may not be fulfilled on or prior to the termination of this
Agreement, it will promptly notify the other party. Each party will promptly
inform the other party of any facts applicable to it that would be likely to
prevent or materially delay approval of the Corporate Merger, Liquidation or
Bank Merger or any of the other transactions contemplated hereby by any
Governmental Entity or third party or which would otherwise prevent or
materially delay consummation of such transactions.
ARTICLE VI
CONDITIONS PRECEDENT
6.1 Conditions Precedent - Buyer and Seller
The respective obligations of Buyer and Seller to effect the
transactions contemplated hereby shall be subject to satisfaction of the
following conditions at or prior to the Effective Time.
(a) All corporate action necessary to authorize the execution and
delivery of this Agreement and consummation of the Merger and the other
transactions contemplated hereby shall have been duly and validly taken by
Buyer, Merger Sub and Seller, including without limitation adoption of this
Agreement by the requisite vote of the shareholders of Seller.
(b) All approvals and consents from any Governmental Entity the approval
or consent of which is required for the consummation of the Merger and the other
transactions contemplated hereby shall have been received and all statutory
waiting periods in respect thereof shall have expired; and Buyer, Buyer Bank,
Seller and Seller Bank shall have procured all other approvals, consents and
waivers of each person (other than the Governmental Entities referred to above)
whose approval, consent or waiver is necessary to the consummation of the Merger
and the other transactions contemplated hereby and the failure of which to
obtain would have the effects set forth in the following proviso clause;
provided, however, that no approval or consent referred to in this Section
6.1(b) shall be deemed to have been received if it shall include any
non-standard condition or requirement that, individually or in the aggregate,
would so materially reduce the economic or business benefits of the transactions
contemplated by this Agreement to Buyer that had such condition or requirement
been known, Buyer, in its reasonable judgment, would not have entered into this
Agreement.
(c) None of Buyer, Buyer Bank, Merger Sub, Seller or Seller Bank shall
be subject to any statute, rule, regulation, injunction or other order or decree
which shall have been enacted, entered, promulgated or enforced by any
governmental or judicial authority which prohibits, restricts
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or makes illegal consummation of the Corporate Merger, the Liquidation, the Bank
Merger or the other transactions contemplated hereby.
6.2 Conditions Precedent - Seller
The obligations of Seller to effect the transactions contemplated hereby
shall be subject to satisfaction of the following conditions at or prior to the
Effective Time unless waived by Seller pursuant to Section 7.4 hereof.
(a) The representations and warranties of Buyer set forth in Article IV
hereof shall be true and correct in all material respects as of the date of this
Agreement and as of the Closing Date as though made on and as of the Closing
Date, or on the date when made in the case of a representation and warranty
which specifically relates to an earlier date.
(b) Buyer shall have performed in all material respects all obligations
and complied with all covenants required to be performed and complied with by it
pursuant to this Agreement on or prior to the Effective Time.
(c) Buyer shall have delivered to Seller a certificate, dated the date
of the Closing and signed by its President and Chief Executive Officer and by
its Chief Financial Officer, to the effect that the conditions set forth in
Sections 6.2(a) and 6.2(b) have been satisfied.
(d) No proceeding initiated by any Governmental Entity seeking an order,
injunction or decree issued by any court or agency of competent jurisdiction or
other legal restraint or prohibition preventing the consummation of the Merger
or the other transactions contemplated hereby shall be pending.
(e) Buyer shall have furnished Seller with such certificates of its
respective officers or others and such other documents to evidence fulfillment
of the conditions set forth in Sections 6.1 and 6.2 as such conditions relate to
Buyer as Seller may reasonably request.
6.3 Conditions Precedent - Buyer
The obligations of Buyer to effect the transactions contemplated hereby
shall be subject to satisfaction of the following conditions at or prior to the
Effective Time unless waived by Buyer pursuant to Section 7.4 hereof.
(a) The representations and warranties of Seller set forth in Article
III hereof shall be true and correct in all material respects as of the date of
this Agreement and as of the Closing Date as though made on and as of the
Closing Date, or on the date when made in the case of a representation and
warranty which specifically relates to an earlier date.
(b) Seller shall have performed in all material respects all obligations
and covenants required to be performed by it pursuant to this Agreement on or
prior to the Effective Time.
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(c) Seller shall have delivered to Buyer a certificate, dated the date
of the Closing and signed by its President and Chief Executive Officer and by
its Chief Financial Officer, to the effect that the conditions set forth in
Sections 6.3(a) and 6.3(b) have been satisfied.
(d) No proceeding initiated by any Governmental Entity seeking an order,
injunction or decree issued by any court or agency of competent jurisdiction or
other legal restraint or prohibition preventing the consummation of the Merger
or the other transactions contemplated hereby shall be pending.
(e) Seller shall have furnished Buyer with such certificates of its
officers or others and such other documents to evidence fulfillment of the
conditions set forth in Sections 6.1 and 6.3 as such conditions relate to Seller
as Buyer may reasonably request.
(f) No more than 15% of the outstanding shares of Seller Common Stock
shall be Dissenting Shares, provided, however, that for purposes of this
condition, the Dissenting Shares of no more than one shareholder holding in
excess of 7.5% of the outstanding shares of Seller Common Stock shall be counted
in calculating such 15%.
(g) The Federal Stock Charter of Seller Bank shall have been amended to
delete Section 8A thereof.
(h) Mr. Giaquinto shall have executed and delivered the Non-Competition
Agreement in the form of Exhibit E hereto.
ARTICLE VII
TERMINATION, WAIVER AND AMENDMENT
7.1 Termination
This Agreement may be terminated:
(a) at any time on or prior to the Effective Time, by the mutual
consent in writing of the parties hereto;
(b) at any time on or prior to the Effective Time, by Buyer in writing
if Seller has, or by Seller in writing if Buyer has, in any material respect,
breached any material covenant or undertaking contained herein or any
representation or warranty contained herein, in any case if such breach has not
been cured by the earlier of 30 days after the date on which written notice of
such breach is given to the party committing such breach or the Effective Time;
(c) at any time, by either Buyer or Seller in writing, (i) if any
application for prior approval of a Governmental Entity which is necessary to
consummate the Merger or the other transactions contemplated hereby is denied or
withdrawn at the request or recommendation of the Governmental Entity which must
grant such approval, unless within the 25-day period following such denial or
withdrawal a petition for rehearing or an amended application has been filed
with the applicable Governmental Entity, provided, however, that no party shall
have the right to terminate
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this Agreement pursuant to this Section 7(c)(i) if such denial or request or
recommendation for withdrawal shall be due to the failure of the party seeking
to terminate this Agreement to perform or observe the covenants and agreements
of such party set forth herein, or (ii) if any Governmental Entity of competent
jurisdiction shall have issued a final nonappealable order enjoining or
otherwise prohibiting the consummation of the Merger or the other transactions
contemplated by this Agreement;
(d) at any time, by either Buyer or Seller in writing, if the
shareholders of Seller do not approve this Agreement after a vote taken thereon
at a meeting duly called for such purpose (or at any adjournment thereof) unless
the failure of such occurrence shall be due to the failure of the party seeking
to terminate to perform or observe in any material respect its agreements set
forth herein to be performed or observed by such party at or before the
Effective Time; and
(e) by either Buyer or Seller in writing if the Effective Time has not
occurred by the close of business on November 30, 1999, provided that this right
to terminate shall not be available to any party whose failure to perform an
obligation in breach of such party's obligations under this Agreement has been
the cause of, or resulted in, the failure of the Merger to be consummated by
such date.
For purposes of this Section 7.1, termination by Buyer also shall be
deemed to be termination on behalf of the Merger Sub.
7.2 Effect of Termination
In the event that this Agreement is terminated pursuant to Section 7.1
hereof, this Agreement shall become void and have no effect, except that (i) the
provisions relating to confidentiality set forth in Section 5.4(b) and expenses
set forth in Section 8.1, and this Section 7.2, shall survive any such
termination and (ii) a termination pursuant to Section 7.1(b), (c), (d) or (e)
shall not relieve the breaching party from any liability or damages arising out
of its willful breach of any provision of this Agreement giving rise to such
termination.
7.3 Survival of Representations, Warranties and Covenants
All representations, warranties and covenants in this Agreement or in
any instrument delivered pursuant hereto or thereto shall expire on, and be
terminated and extinguished at, the Effective Time other than covenants that by
their terms are to be performed after the Effective Time (including without
limitation the covenants set forth in Sections 2.6, 2.8, 5.9, 5.10, 5.11, 5.12
and 5.13 hereof), provided that no such representations, warranties or covenants
shall be deemed to be terminated or extinguished so as to deprive Buyer or
Seller (or any director, officer or controlling person of either thereof) of any
defense at law or in equity which otherwise would be available against the
claims of any person, including, without limitation, any shareholder or former
shareholder of either Buyer or Seller.
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7.4 Waiver
Each party hereto by written instrument signed by an executive officer
of such party, may at any time (whether before or after approval of this
Agreement by the shareholders of Seller) extend the time for the performance of
any of the obligations or other acts of the other party hereto and may waive (i)
any inaccuracies of the other party in the representations or warranties
contained in this Agreement or any document delivered pursuant hereto, (ii)
compliance with any of the covenants, undertakings or agreements of the other
party, (iii) to the extent permitted by law, satisfaction of any of the
conditions precedent to its obligations contained herein or (iv) the performance
by the other party of any of its obligations set forth herein, provided that any
such waiver granted, or any amendment or supplement pursuant to Section 7.5
hereof executed after shareholders of Seller have approved this Agreement, shall
not modify either the amount or form of the consideration to be provided hereby
to the holders of Seller Common Stock upon consummation of the Corporate Merger
or otherwise materially adversely affect such shareholders without the approval
of the shareholders who would be so affected.
7.5 Amendment or Supplement
This Agreement may be amended or supplemented at any time by mutual
agreement of the parties hereto, subject to the proviso to Section 7.4 hereof.
Any such amendment or supplement must be in writing and authorized by or under
the direction of the Board of Directors of each of the parties hereto.
ARTICLE VIII
MISCELLANEOUS
8.1 Expenses
Each party hereto shall bear and pay all costs and expenses incurred by
it in connection with the transactions contemplated by this Agreement, including
fees and expenses of its own financial consultants, investment bankers,
accountants and counsel, provided that notwithstanding anything to the contrary
contained in this Agreement, neither Buyer nor Seller shall be released from any
liabilities or damages arising out of its willful breach of any provision of
this Agreement.
8.2 Entire Agreement
This Agreement and the Stock Option Agreement contain the entire
agreement among the parties with respect to the transactions contemplated hereby
and supersede all prior arrangements or understandings with respect thereto,
written or oral, other than documents referred to herein and therein. The terms
and conditions of this Agreement shall inure to the benefit of and be binding
upon the parties hereto and their respective successors. Nothing in this
Agreement, expressed or implied, is intended to confer upon any party, other
than the parties hereto, and their respective successors, any rights, remedies,
obligations or liabilities other than as set forth in Sections 5.9, 5.10 and
5.11 hereof.
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8.3 No Assignment
None of the parties hereto may assign any of its rights or obligations
under this Agreement to any other person.
8.4 Notices
All notices or other communications which are required or permitted
hereunder shall be in writing and sufficient if delivered personally, telecopied
(with confirmation) or sent by overnight mail service or by registered or
certified mail (return receipt requested), postage prepaid, addressed as
follows:
If to Buyer:
Hudson River Bancorp, Inc.
One Hudson City Center
Hudson, New York 12534
Attn: Carl A. Florio
President
Fax: (518) 828-0082 Ext. 302
With a required copy to:
Silver, Freedman & Taff, L.L.P.
1100 New York Avenue, N.W.
Washington, DC 20005
Attn: Robert L. Freedman, P.C.
Christopher R. Kelly, P.C.
Fax: (202) 682-0354
If to Seller:
SFS Bancorp, Inc.
251-263 State Street
Schenectady, New York 12305
Attn: Joseph H. Giaquinto
President
Fax: (518) 395-2397
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With a required copy to:
Elias, Matz, Tiernan & Herrick L.L.P.
734 15th Street, N.W.
Washington, DC 20005
Attn: Raymond A. Tiernan, Esq.
Gerald F. Heupel, Jr., Esq.
Fax: (202) 347-2172
8.5 Alternative Structure
Notwithstanding any provision of this Agreement to the contrary, Buyer
may, with the written consent of Seller, which shall not be unreasonably
withheld, elect, subject to the filing of all necessary applications and the
receipt of all required regulatory approvals, to modify the structure of the
acquisition of Seller set forth herein, provided that (i) the consideration to
be paid to the holders of Seller Common Stock is not thereby changed in kind or
reduced in amount as a result of such modification and (ii) such modification
will not materially delay or jeopardize receipt of any required regulatory
approvals or any other condition to the obligations of Buyer set forth in
Sections 6.1 and 6.3 hereof.
8.6 Interpretation
The captions contained in this Agreement are for reference purposes only
and are not part of this Agreement.
8.7 Counterparts
This Agreement may be executed in any number of counterparts, and each
such counterpart shall be deemed to be an original instrument, but all such
counterparts together shall constitute but one agreement.
8.8 Governing Law
This Agreement shall be governed by and construed in accordance with the
laws of the State of Delaware applicable to agreements made and entirely to be
performed within such jurisdiction.
8.9 Severability
Any term, provision, covenant or restriction contained in this Agreement
held to be invalid, void or unenforceable, shall be ineffective to the extent of
such invalidity, voidness or unenforceability, but neither the remaining terms,
provisions, covenants or restrictions contained in this Agreement nor the
validity or enforceability thereof in any other jurisdiction shall be affected
or impaired thereby. Any term, provision, covenant or restriction contained in
this Agreement that is so found to be so broad as to be unenforceable shall be
interpreted to be as broad as is enforceable.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed in counterparts by their duly authorized officers and their corporate
seal to be hereunto affixed and attested by their officers thereunto duly
authorized, all as of the day and year first above written.
SFS BANCORP, INC.
Attest:
/s/ Richard D. Ammian By: /s/ Joseph H. Giaquinto
- --------------------- -----------------------
Richard D. Ammian Joseph H. Giaquinto
Secretary President
HUDSON RIVER BANCORP, INC.
Attest:
/s/ Holly Rappleyea By: /s/ Carl A. Florio
- ------------------- ----------------------
Holly Rappleyea Carl A. Florio
Secretary President
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Appendix B
Charles Webb & Company
A Division of
KEEFE, BRUYETTE & WOODS, INC.
July 21, 1999
Board of Directors
SFS Bancorp, Inc.
251-263 State Street
Schenectady, New York 12305
Dear Gentlemen:
You have requested our opinion as an independent investment banking firm
regarding the fairness, from a financial point of view, to the stockholders of
SFS Bancorp, Inc. ("SFS"), of the consideration to be received by such
stockholders in the merger (the "Merger") between SFS and Hudson River Bancorp,
Inc. ("Hudson River"). We have not been requested to opine as to, and our
opinion does not in any manner address, SFS's underlying business decision to
proceed with or effect the Merger.
Pursuant to the Agreement and Plan of Merger, dated May 17, 1999, between SFS
and Hudson River (the "Agreement"), at the effective time of the Merger, Hudson
River will acquire all of SFS's issued and outstanding shares of common stock
(1,207,755 shares as of the date hereof). The holders of SFS common stock will
receive $25.10 in cash for each share of SFS common stock. In addition, the
holders of unexercised and outstanding options awarded pursuant to the SFS Stock
Option Plan will receive, for each share subject to such option, a cash payment
pursuant to the calculation described in Section 2.5 of the Agreement. The
complete terms of the proposed transaction are described in the Agreement, and
this summary is qualified in its entirety by reference thereto.
Charles Webb & Company, a Division of Keefe, Bruyette & Woods, Inc., as part of
its investment banking business, is regularly engaged in the evaluation of
businesses and securities in connection with mergers and acquisitions,
negotiated underwritings, and distributions of listed and unlisted securities.
We are familiar with the market for common stocks of publicly traded banks,
savings institutions and bank and savings institution holding companies.
In connection with this opinion we reviewed certain financial and other business
data supplied to us by SFS: Annual Reports and Proxy Statements for the years
ended December 31, 1996, 1997, and
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Board of Directors
SFS Bancorp, Inc.
July 21, 1999
Page 2
1998; quarterly financial statements (unaudited) for the quarter ended March 31,
1999; and other information we deemed relevant. We discussed with senior
management and the board of directors of SFS the current position and
prospective outlook for SFS. We reviewed financial and stock market data of
other savings institutions, particularly in the Northeast region of the United
States, and the financial and structural terms of several other recent
transactions involving mergers and acquisitions of savings institutions or
proposed changes of control of comparably situated companies.
For Hudson River, we reviewed: the annual report and proxy statement for the
fiscal year ended March 31, 1998; quarterly financial statements (unaudited) for
the quarter ended December 31, 1998; and certain other information we deemed
relevant.
For purposes of this opinion we have relied, without independent verification,
on the accuracy and completeness of the material furnished to us by SFS and
Hudson River and the material otherwise made available to us, including
information from published sources, and we have not made any independent effort
to verify such data. With respect to the financial information, including asset
valuations we received from SFS, we assumed (with your consent) that they had
been reasonably prepared reflecting the best currently available estimates and
judgment of SFS management. In addition, we have not made or obtained any
independent appraisals or evaluations of the assets or liabilities, and
potential and/or contingent liabilities of SFS and Hudson River. We have further
relied on the assurances of management of SFS and Hudson River that they are not
aware of any facts that would make such information inaccurate or misleading. We
express no opinion on matters of a legal, regulatory, tax or accounting nature
or the ability of the Merger, as set forth in the Agreement, to be consummated.
In rendering our opinion, we have assumed that in the course of obtaining the
necessary approvals for the Merger, no restrictions or conditions will be
imposed that would have a material adverse effect on the contemplated benefits
of the Merger to SFS or the ability to consummate the Merger. Our opinion is
based on the market, economic and other relevant considerations as they exist
and can be evaluated on the date hereof.
Consistent with the engagement letter with you, we have acted as financial
advisor to SFS in connection with the Merger and will receive a fee for such
services, a portion of which is contingent upon the consummation of the Merger.
In addition, SFS has agreed to indemnify us for certain liabilities arising out
of our engagement by SFS in connection with the Merger.
Based upon and subject to the foregoing, as outlined in the foregoing paragraphs
and based on such other matters as we considered relevant, it is our opinion
that as of the date hereof, the consideration to be received by the stockholders
of SFS in the Merger is fair, from a financial point of view, to the
stockholders of SFS.
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Board of Directors
SFS Bancorp, Inc.
July 21, 1999
Page 3
This opinion may not, however, be summarized, excerpted from or otherwise
publicly referred to without our prior written consent, although this opinion
may be included in its entirety in the proxy statement of SFS used to solicit
stockholder approval of the Merger. It is understood that this letter is
directed to the Board of Directors of SFS in its consideration of the Agreement,
and is not intended to be and does not constitute a recommendation to any
stockholder as to how such stockholder should vote with respect to the Merger.
Very truly yours,
/s/Charles Webb & Company
Charles Webb & Company,
a Division of Keefe, Bruyette, & Woods, Inc.
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Appendix C
Statutory Dissenters' Rights under the Delaware General Corporation Law
262 APPRAISAL RIGHTS.--(a) Any stockholder of a corporation of this
State who holds shares of stock on the date of the making of a demand pursuant
to subsection (d) of this section with respect to such shares, who continuously
holds such shares through the effective date of the merger or consolidation, who
has otherwise compiled with subsection (d) of this section and who has neither
voted in favor of the merger or consolidation nor consented thereto in writing
pursuant to ss.228 of this title shall be entitled to an appraisal by the Court
of Chancery of the fair value of the stockholder's shares of stock under the
circumstances described in subsections (b) and (c) of this section. As used in
this section, the word "stockholder" means a holder of record of stock in a
stock corporation and also a member of record of a nonstock corporation; the
words "stock" and "share" mean and include what is ordinarily meant by those
words and also membership or membership interest of a member of a nonstock
corporation; and the words "depository receipt" mean a receipt or other
instrument issued by a depository representing an interest in one or more
shares, or fractions thereof, solely of stock of a corporation, which stock is
deposited with the depository.
(b) Appraisal rights shall be available for the shares of any class or
series of stock of a constituent corporation in a merger or consolidation to be
effected pursuant to ss.251 (other than a merger effected pursuant to ss.251(g)
of this title), ss.252, ss.254, ss.257, ss.258, ss.263 or ss.264 of this title:
(1) Provided, however, that no appraisal rights under this section shall
be available for the shares of any class or series of stock, which stock, or
depository receipts in respect thereof, at the record date fixed to determine
the stockholders entitled to receive notice of and to vote at the meeting of
stockholders to act upon the agreement of merger or consolidation, were either
(i) listed on a national securities exchange or designated as a national market
system security on an interdealer quotation system by the National Association
of Securities Dealers, Inc. or (ii) held of record by more than 2,000 holders;
and further provided that no appraisal rights shall be available for any shares
of stock of the constituent corporation surviving a merger if the merger did not
require for its approval the vote of the stockholders of the surviving
corporation as provided in subsection (f) of ss.251 of this title.
(2) Notwithstanding paragraph (1) of this subsection, appraisal rights
under this section shall be available for the shares of any class or series of
stock of a constituent corporation if the holders thereof are required by the
terms of an agreement of merger or consolidation pursuant to ss.ss.251, 252,
254, 257, 258, 263 and 264 of this title to accept for such stock anything
except:
a. Shares of stock of the corporation surviving or resulting from
such merger or consolidation, or depository receipts in respect thereof;
b. Shares of stock of any other corporation, or depository
receipts in respect thereof, which shares of stock (or depository receipts in
respect thereof) or depository receipts at the effective date of the merger or
consolidation will be either listed on a national securities exchange or
designated as a national market system security on an interdealer quotation
system by the National Association of Securities Dealers, Inc. or held of record
by more than 2,000 holders;
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c. Cash in lieu of fractional shares or fractional depository
receipts described in the foregoing subparagraphs a. and b. of this paragraph;
or
d. Any combination of the shares of stock, depository receipts and
cash in lieu of fractional shares or fractional depository receipts described in
the foregoing subparagraphs a., b. and c. of this paragraph.
(3) In the event all of the stock of a subsidiary Delaware
corporation party to a merger effected under ss.253 of this title is not owned
by the parent corporation immediately prior to the merger, appraisal rights
shall be available for the shares of the subsidiary Delaware corporation.
(c) Any corporation may provide in its certificate of incorporation
that appraisal rights under this section shall be available for the shares of
any class or series of its stock as a result of an amendment to its certificate
of incorporation, any merger or consolidation in which the corporation is a
constituent corporation or the sale of all or substantially all of the assets of
the corporation. If the certificate of incorporation contains such a provision,
the procedures of this section, including those set forth in subsections (d) and
(e) of this section, shall apply as nearly as is practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which appraisal rights
are provided under this section is to be submitted for approval at a meeting of
stockholders, the corporation, not less than 20 days prior to the meeting, shall
notify each of its stockholders who was such on the record date for such meeting
with respect to shares for which appraisal rights are available pursuant to
subsections (b) or (c) hereof that appraisal rights are available for any or all
of the shares of the constituent corporations, and shall include in such notice
a copy of this section. Each stockholder electing to demand the appraisal of
such stockholder's shares shall deliver to the corporation, before the taking of
the vote on the merger or consolidation, a written demand for appraisal of such
stockholder's shares. Such demand will be sufficient if it reasonably informs
the corporation of the identity of the stockholder and that the stockholder
intends thereby to demand the appraisal of such stockholder's shares. A proxy or
vote against the merger or consolidation shall not constitute such a demand. A
stockholder electing to take such action must do so by a separate written demand
as herein provided. Within 10 days after the effective date of such merger or
consolidation, the surviving or resulting corporation shall notify each
stockholder of each constituent corporation who has complied with this
subsection and has not voted in favor of or consented to the merger or
consolidation of the date that the merger or consolidation has become effective;
or
(2) If the merger or consolidation was approved pursuant to ss.228
or ss.253 of this title, each constituent corporation, either before the
effective date of the merger or consolidation or within ten days thereafter,
shall notify each of the holders of any class or series of stock of such
constituent corporation who are entitled to appraisal rights of the approval of
the merger or consolidation and that appraisal rights are available for any or
all shares of such class or series of stock of such constituent corporation, and
shall include in such notice a copy of this section; provided that, if the
notice is given on or after the effective date of the merger or consolidation,
such notice shall be given
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by the surviving or resulting corporation to all such holders of any class or
series of stock of a constituent corporation that are entitled to appraisal
rights. Such notice may, and, if given on or after the effective date of the
merger or consolidation, shall, also notify such stockholders of the effective
date of the merger or consolidation. Any stockholder entitled to appraisal
rights may, within 20 days after the date of mailing of such notice, demand in
writing from the surviving or resulting corporation the appraisal of such
holder's shares. Such demand will be sufficient if it reasonably informs the
corporation of the identity of the stockholder and that the stockholder intends
thereby to demand the appraisal of such holder's shares. If such notice did not
notify stockholders of the effective date of the merger or consolidation, either
(i) each such constituent corporation shall send a second notice before the
effective date of the merger or consolidation notifying each of the holders of
any class or series of stock of such constituent corporation that are entitled
to appraisal rights of the effective date of the merger or consolidation or (ii)
the surviving or resulting corporation shall send such a second notice to all
such holders on or within 10 days after such effective date; provided, however,
that if such second notice is sent more than 20 days following the sending of
the first notice, such second notice need only be sent to each stockholder who
is entitled to appraisal rights and who has demanded appraisal of such holder's
shares in accordance with this subsection. An affidavit of the secretary or
assistant secretary or of the transfer agent of the corporation that is required
to give either notice that such notice has been given shall, in the absence of
fraud, be prima facie evidence of the facts stated therein. For purposes of
determining the stockholders entitled to receive either notice, each constituent
corporation may fix, in advance, a record date that shall be not more than 10
days prior to the date the notice is given, provided, that if the notice is
given on or after the effective date of the merger or consolidation, the record
date shall be such effective date. If no record date is fixed and the notice is
given prior to the effective date, the record date shall be the close of
business on the day next preceding the day on which the notice is given.
(e) Within 120 days after the effective date of the merger or
consolidation, the surviving or resulting corporation or any stockholder who has
complied with subsections (a) and (d) hereof and who is otherwise entitled to
appraisal rights, may file a petition in the Court of Chancery demanding a
determination of the value of the stock of all such stockholders.
Notwithstanding the foregoing, at any time within 60 days after the effective
date of the merger or consolidation, any stockholder shall have the right to
withdraw such stockholder's demand for appraisal and to accept the terms offered
upon the merger or consolidation. Within 120 days after the effective date of
the merger or consolidation, any stockholder who has complied with the
requirements of subsections (a) and (d) hereof, upon written request, shall be
entitled to receive from the corporation surviving the merger or resulting from
the consolidation a statement setting forth the aggregate number of shares not
voted in favor of the merger or consolidation and with respect to which demands
for appraisal have been received and the aggregate number of holders of such
shares. Such written statement shall be mailed to the stockholder within 10 days
after such stockholder's written request for such a statement is received by the
surviving or resulting corporation or within 10 days after expiration of the
period for delivery of demands for appraisal under subsection (d) hereof,
whichever is later.
(f) Upon the filing of any such petition by a stockholder, service
of a copy thereof shall be made upon the surviving or resulting corporation,
which shall within 20 days after such service
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file in the office of the Register in Chancery in which the petition was filed a
duly verified list containing the names and addresses of all stockholders who
have demanded payment for their shares and with whom agreements as to the value
of their shares have not been reached by the surviving or resulting corporation.
If the petition shall be filed by the surviving or resulting corporation, the
petition shall be accompanied by such a duly verified list. The Register in
Chancery, if so ordered by the Court, shall give notice of the time and place
fixed for the hearing of such petition by registered or certified mail to the
surviving or resulting corporation and to the stockholders shown on the list at
the addresses therein stated. Such notice shall also be given by 1 or more
publications at least 1 week before the day of the hearing, in a newspaper of
general circulation published in the City of Wilmington, Delaware or such
publication as the Court deems advisable. The forms of the notices by mail and
by publication shall be approved by the Court, and the costs thereof shall be
borne by the surviving or resulting corporation.
(g) At the hearing on such petition, the Court shall determine the
stockholders who have complied with this section and who have become entitled to
appraisal rights. The Court may require the stockholders who have demanded an
appraisal for their shares and who hold stock represented by certificates to
submit their certificates of stock to the Register in Chancery for notation
thereon of the pendency of the appraisal proceedings; and if any stockholder
fails to comply with such direction, the Court may dismiss the proceedings as to
such stockholder.
(h) After determining the stockholders entitled to an appraisal, the
Court shall appraise the shares, determining their fair value exclusive of any
element of value arising from the accomplishment or expectation of the merger or
consolidation, together with a fair rate of interest, if any, to be paid upon
the amount determined to be the fair value. In determining such fair value, the
Court shall take into account all relevant factors. In determining the fair rate
of interest, the Court may consider all relevant factors, including the rate of
interest which the surviving or resulting corporation would have had to pay to
borrow money during the pendency of the proceeding. Upon application by the
surviving or resulting corporation or by any stockholder entitled to participate
in the appraisal proceeding, the Court may, in its discretion, permit discovery
or other pretrial proceedings and may proceed to trial upon the appraisal prior
to the final determination of the stockholder entitled to an appraisal. Any
stockholder whose name appears on the list filed by the surviving or resulting
corporation pursuant to subsection (f) of this section and who has submitted
such stockholder's certificates of stock to the Register in Chancery, if such is
required, may participate fully in all proceedings until it is finally
determined that such stockholder is not entitled to appraisal rights under this
section.
(i) The Court shall direct the payment of the fair value of the
shares, together with interest, if any, by the surviving or resulting
corporation to the stockholders entitled thereto. Interest may be simple or
compound, as the Court may direct. Payment shall be so made to each such
stockholder, in the case of holders of uncertificated stock forthwith, and the
case of holders of shares represented by certificates upon the surrender to the
corporation of the certificates representing such stock. The Court's decree may
be enforced as other decrees in the Court of Chancery may be
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enforced, whether such surviving or resulting corporation be a corporation of
this State or of any state.
(j) The costs of the proceeding may be determined by the Court and
taxed upon the parties as the Court deems equitable in the circumstances. Upon
application of a stockholder, the Court may order all or a portion of the
expenses incurred by any stockholder in connection with the appraisal
proceeding, including, without limitation, reasonable attorney's fees and the
fees and expenses of experts, to be charged pro rata against the value of all
the shares entitled to an appraisal.
(k) From and after the effective date of the merger or
consolidation, no stockholder who has demanded appraisal rights as provided in
subsection (d) of this section shall be entitled to vote such stock for any
purpose or to receive payment of dividends or other distributions on the stock
(except dividends or other distributions payable to stockholders of record at a
date which is prior to the effective date of the merger or consolidation);
provided, however, that if no petition for an appraisal shall be filed within
the time provided provided in subsection (e) of this section, or if such
stockholder shall deliver to the surviving or resulting corporation a written
withdrawal of such stockholder's demand for an appraisal and an acceptance of
the merger or consolidation, either within 60 days after the effective date of
the merger or consolidation as provided in subsection (e) of this section or
thereafter with the written approval of the corporation, then the right of such
stockholder to an appraisal shall cease. Notwithstanding the foregoing, no
appraisal proceeding in the Court of Chancery shall be dismissed as to any
stockholder without the approval of the Court, and such approval may be
conditioned upon such terms as the Court deems just.
(l) The shares of the surviving or resulting corporation to which
the shares of such objecting stockholders would have been converted had they
assented to the merger or consolidation shall have the status of authorized and
unissued shares of the surviving or resulting corporation.
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Appendix D
STOCK OPTION AGREEMENT
STOCK OPTION AGREEMENT, dated as of May 17, 1999, between Hudson River
Bancorp, Inc., a Delaware corporation ("Grantee"), and SFS Bancorp, Inc., a
Delaware corporation ("Issuer").
W I T N E S S E T H:
WHEREAS, Grantee and Issuer have entered into an Agreement and Plan of
Merger on even date herewith (the "Merger Agreement");
WHEREAS, as a condition and an inducement to Grantee to enter into the
Merger Agreement, Issuer has agreed to grant Grantee the Option (as hereinafter
defined); and
WHEREAS, the Board of Directors of Issuer has approved the grant of
the Option and the Merger Agreement;
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. (a) Issuer hereby grants to Grantee an unconditional, irrevocable option
(the "Option") to purchase, subject to the terms hereof, up to an aggregate of
240,485 fully paid and nonassessable shares of the common stock, par value $.01
per share, of Issuer ("Common Stock") at a price per share of $20.50; provided,
however, that in the event Issuer issues or agrees to issue any shares of Common
Stock (other than shares of Common Stock issued pursuant to stock options
granted pursuant to any employee benefit plan prior to the date hereof) at a
price less than such price per share (as adjusted pursuant to subsection (b) of
Section 5), such price shall be equal to such lesser price (such price, as
adjusted if applicable, the "Option Price"); provided, further, 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 without giving effect to any
shares subject to or issued pursuant to the Option. The number of shares of
Common Stock that may be received upon the exercise of the Option and the Option
Price are subject to adjustment as herein set forth.
(b) In the event that any additional shares of Common Stock are issued or
otherwise become outstanding after the date of this Agreement (other than as
permitted or contemplated by the Merger Agreement, other than pursuant to this
Agreement and other than pursuant to an event described in Section 5(a) hereof),
the number of shares of Common Stock subject to the Option shall be increased so
that, after such issuance, such number together with any shares of Common Stock
previously issued pursuant hereto, equals 19.9% of the number of shares of
Common Stock then issued and outstanding without giving effect to any shares
subject or issued pursuant to the Option. Nothing contained in this Section l(b)
or elsewhere in this Agreement shall be deemed to authorize Issuer to issue
shares in breach of any provision of the Merger Agreement.
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2. (a) The Holder (as hereinafter defined) may exercise the Option, in
whole or part, and from time to time, if, but only if, both an Initial
Triggering Event (as hereinafter defined) and a Subsequent Triggering Event (as
hereinafter defined) shall have occurred prior to the occurrence of an Exercise
Termination Event (as hereinafter defined), provided that the Holder shall have
sent the written notice of such exercise (as provided in subsection (e) of this
Section 2) within six months following the first Subsequent Triggering Event to
occur (or such later period as provided in Section 10). Each of the following
shall be an Exercise Termination Event: (i) the Effective Time (as defined in
the Merger Agreement); (ii) termination of the Merger Agreement in accordance
with the provisions thereof if such termination occurs prior to the occurrence
of an Initial Triggering Event, except a termination by Grantee pursuant to
Section 7.1(b) of the Merger Agreement where the breach by Issuer giving rise to
the termination was willful (a "Listed Termination"); or (iii) the passage of 12
months (or such longer period as provided in Section 10) after termination of
the Merger Agreement if such termination follows the occurrence of an Initial
Triggering Event or is a Listed Termination (provided that if an Initial
Triggering Event continues or occurs beyond such termination and prior to the
passage of such 12-month period, the Exercise Termination Event shall be 12
months from the expiration of the Last Triggering Event but in no event more
than 18 months after such Merger Agreement termination). The "Last Triggering
Event" shall mean the last Initial Triggering Event to expire. The term "Holder"
shall mean the holder or holders of the Option. Notwithstanding anything to the
contrary contained herein, the Option may not be exercised at any time when
Grantee shall be in willful material breach of any of its covenants or
agreements contained in the Merger Agreement such that Issuer shall be entitled
to terminate the Merger Agreement pursuant to Section 7.1(b) thereof as a result
of such a willful material breach.
(b) The term "Initial Triggering Event" shall mean any of the following
events or transactions occurring on or after the date hereof:
(i) Issuer or any Significant Subsidiary (as defined in Rule 1-02 of
Regulation S-X promulgated by the Securities and Exchange Commission (the
"SEC")) (an "Issuer Subsidiary"), without having received Grantee's prior
written consent, shall have entered into an agreement to engage in an
Acquisition Transaction (as hereinafter defined) with any person (the term
"person" for purposes of this Agreement having the meaning assigned thereto
in Sections 3(a)(9) and 13(d)(3) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), and the rules and regulations thereunder)
other than Grantee or any of its Subsidiaries (each a "Grantee Subsidiary")
or the Board of Directors of Issuer (the "Issuer Board") shall have
recommended that the shareholders of Issuer approve or accept any
Acquisition Transaction with any person other than Grantee or a Grantee
Subsidiary. For purposes of this Agreement, (a) "Acquisition Transaction"
shall mean (x) a merger or consolidation, or any similar transaction,
involving Issuer or any Issuer Subsidiary (other than mergers,
consolidations or similar transactions involving solely Issuer and/or one
or more wholly-owned (except for directors' qualifying shares and a de
minimis number of other shares) Subsidiaries of the Issuer, provided, any
such transaction is not entered into in violation of the terms of the
Merger Agreement, (y) a purchase, lease or other acquisition or assumption
of all or any substantial part of the assets or deposits of Issuer or any
Issuer Subsidiary, or (z) a
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purchase or other acquisition (including by way of merger, consolidation,
share exchange or otherwise) of securities representing 10% or more of the
voting power of Issuer or any Issuer Subsidiary and (b) "Subsidiary" shall
have the meaning set forth in Rule 12b-2 under the Exchange Act;
(ii) Any person other than the Grantee or any Grantee Subsidiary shall
have acquired beneficial ownership or the right to acquire beneficial
ownership of 10% 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 Exchange Act, and the
rules and regulations thereunder);
(iii)It shall have been publicly announced that any person (other than
Grantee or any of its Subsidiaries) shall have made, or publicly disclosed
an intention to make, a proposal to engage in an Acquisition Transaction;
(iv) (x) The Issuer Board shall have withdrawn or modified (or
publicly announced its intention to withdraw or modify) in any manner
adverse in any respect to Grantee its recommendation that the shareholders
of Issuer approve the transactions contemplated by the Merger Agreement,
(y) Issuer or any Issuer Subsidiary, without having received Grantee's
prior written consent, shall have authorized, recommended, 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, or (z) Issuer shall have provided
information to or engaged in negotiations with a third party relating to a
possible Acquisition Transaction.
(v) 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 offer);
(vi) Issuer shall have willfully breached any covenant or obligation
contained in the Merger Agreement in anticipation of engaging in an
Acquisition Transaction, and such breach (y) would entitle Grantee to
terminate the Merger Agreement (whether immediately or after the giving of
notice or passage of time or both) and (z) shall not have been cured prior
to the Notice Date (as defined below); or
(vii)Any person other than Grantee or any Grantee Subsidiary and other
than in connection with a transaction to which Grantee has given its prior
written consent shall have filed an application or notice with the Office
of Thrift Supervision (the "OTS") or other federal or state thrift or bank
regulatory or antitrust authority, which application or notice has been
accepted for processing, for approval to engage in an Acquisition
Transaction.
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(c) The term "Subsequent Triggering Event" shall mean any of the following
events or transactions occurring after the date hereof:
(i) The acquisition by any person (other than Grantee or any Grantee
Subsidiary) of beneficial ownership of 20% or more of the then outstanding
Common Stock; or
(ii) The occurrence of the Initial Triggering Event described in
clause (i) of subsection (b) of this Section 2, except that the percentage
referred to in clause (z) of the second sentence thereof shall be 20%.
(d) Issuer shall notify Grantee promptly in writing of the occurrence of
any Initial Triggering Event or Subsequent Triggering Event (together, a
"Triggering Event"), 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 (i) the
total number of shares it will purchase pursuant to such exercise and (ii) a
place and date not earlier than three business days nor later than 60 business
days from the Notice Date for the closing of such purchase (the "Closing Date");
provided, that if prior notification to or approval of the 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 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 subsection (e) of this Section 2, the
Holder shall (i) 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 (ii)
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 subsection (f) of this Section 2, 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 should be
exercised in part only, a new Option evidencing the rights of the Holder thereof
to purchase the balance of the shares purchasable hereunder, and the Holder
shall deliver to Issuer a copy of this Agreement and a letter agreeing that the
Holder will not offer to sell or otherwise dispose of such shares in violation
of applicable law or the provisions of this Agreement.
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(h) Certificates for Common Stock delivered at a closing hereunder may be
endorsed with a restrictive legend that shall read substantially as follows:
"The transfer of the shares represented by this certificate is subject
to certain provisions of an agreement between the registered holder hereof
and 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: (i) the reference to the resale restrictions
of the Securities Act of 1933, as amended (the "Securities 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 Securities Act; (ii) the reference to the provisions of this
Agreement in the above legend shall be removed by delivery of substitute
certificate(s) without such reference if the shares have been sold or
transferred in compliance with the provisions of this Agreement and under
circumstances that do not require the retention of such reference in the opinion
of counsel to the Holder; and (iii) the legend shall be removed in its entirety
if the conditions in the preceding clauses (i) and (ii) are both satisfied. In
addition, such certificates shall bear any other legend as may be required by
law.
(i) Upon the giving by the Holder to Issuer of the written notice of
exercise of the Option provided for under subsection (e) of this Section 2, the
tender of the applicable purchase price in immediately available funds and the
tender with a copy of this Agreement to Issuer, the Holder shall be deemed,
subject to the receipt of any necessary regulatory approvals, 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 preparation, issue and delivery of stock
certificates under this Section 2 in the name of the Holder or its assignee,
transferee or designee.
3. Issuer agrees: (i) that it shall at all times maintain, free from
preemptive rights, sufficient authorized but unissued or treasury shares of
Common Stock so that the Option may be exercised without additional
authorization of Common Stock after giving effect to all other options,
warrants, convertible securities and other rights to purchase Common Stock; (ii)
that it will not, by charter amendment or through reorganization, consolidation,
merger, dissolution or sale of assets, or by any other voluntary act, avoid or
seek to avoid the observance or performance of any of the covenants,
stipulations or conditions to be observed or performed hereunder by Issuer;
(iii) 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, under the Savings and
Loan Holding Company Act or any state or other federal thrift or banking law,
prior approval of or notice to the
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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 (iv) promptly to take all action
provided herein to protect the rights of the Holder against dilution.
4. 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 of evidence reasonably satisfactory to it of
the loss, theft, destruction or mutilation of this Agreement, and (in the case
of loss, theft or destruction) of reasonably satisfactory indemnification, and
upon surrender and cancellation of this Agreement, if mutilated, Issuer will
execute and deliver a new Agreement of like tenor and date. Any such new
Agreement executed and delivered shall constitute an additional contractual
obligation on the part of Issuer, whether or not the Agreement so lost, stolen,
destroyed or mutilated shall at any time be enforceable by anyone.
5. In addition to the adjustment in the number of shares of Common Stock
that are purchasable upon exercise of the Option pursuant to Section 1 of this
Agreement, the number of shares of Common Stock purchasable upon the exercise of
the Option and the Option Price shall be subject to adjustment from time to time
as provided in this Section 5.
(a) In the event of any change in Issuer Common Stock by reason of a stock
dividend, stock split, split-up, recapitalization, combination, exchange of
shares or similar transaction, the type and number of shares or securities
subject to the Option shall be adjusted appropriately, and proper provision
shall be made in the agreements governing such transaction so that Holder shall
receive, upon exercise of the Option, the number and class of shares or other
securities or property that Holder would have received in respect of Issuer
Common Stock if the Option had been exercised immediately prior to such event,
or the record date therefor, as applicable. If any additional shares of Issuer
Common Stock are issued after the date of this Agreement (other than as
permitted or contemplated by the Merger Agreement, other than pursuant to an
event described in the first sentence of this Section 5(a) or other than
pursuant to this Agreement), the number of shares of Issuer Common Stock subject
to the option shall be adjusted so that, after such issuance it, together with
any shares of Issuer Common Stock previously issued pursuant hereto, equals
19.9% of the number of shares of Issuer Common Stock then issued and
outstanding, without giving effect to any shares subject to or issued pursuant
to the Option.
(b) Whenever the number of shares of Common Stock purchasable upon exercise
hereof is adjusted as provided in this Section 5, the Option Price shall be
adjusted by multiplying the Option
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Price 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. Upon the occurrence of a Subsequent Triggering Event that occurs prior
to an Exercise Termination Event, Issuer shall, at the request of Grantee
delivered within six months (or such later period as provided in Section 10) of
such Subsequent 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
shelf registration statement under the Securities Act covering this Option and
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 this
Option and any shares of Common Stock issued upon total or partial exercise of
this Option ("Option Shares") in accordance with any plan of disposition
requested by Grantee. 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 6 months 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 two such registrations, provided that any second registration
shall be requested by Grantee within 12 months (or such later period as provided
in Section 10) following the occurrence of the Subsequent Triggering Event. 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
the Option or Option Shares as provided above, Issuer is in registration with
respect to an underwritten public offering by Issuer of shares of Common Stock,
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, however, that after any such
required reduction the number of Option Shares to be included in such offering
for the account of all Holders shall constitute at least 25% of the total number
of shares to be sold by the Holders and Issuer in the aggregate; and provided
further, however, 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
12-month period referred to above shall be increased to 24 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
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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. (a) At any time after the occurrence of a Repurchase Event (as defined
below) (i) 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 the amount by which (A) the
Market/Offer Price (as defined below) exceeds (B) the Option Price, multiplied
by the number of shares for which this Option may then be exercised and (ii) at
the request of 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 (i) the price per share of Common Stock at
which a tender or exchange offer therefor has been made, (ii) the price per
share of Common Stock paid or to be paid by any third party, other than Grantee
or a Grantee Subsidiary, pursuant to an agreement with Issuer of the kind
described in Section 2(b)(i) hereof, (iii) the highest closing 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 (iv)
in the event of a sale of all or any substantial part of Issuer's assets or
deposits, the sum of the price paid in such sale for such assets or deposits and
the current market value of the remaining assets of Issuer 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.
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.
(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 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 five 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 and regulation from so
delivering.
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(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, however, that if
Issuer at any time after delivery of a notice of repurchase pursuant to
paragraph (b) of this Section 7 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 either in whole or
to the extent of the prohibition, whereupon, in the latter case, Issuer shall
promptly (i) 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 (ii) deliver, as appropriate,
either (A) to the Holder, a new Stock Option 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 Stock
Option Agreement was exercisable at the time of delivery of the notice of
repurchase by a fraction, the numerator of which is the Option Repurchase Price
less the portion thereof theretofore delivered to the Holder and the denominator
of which is the Option Repurchase Price, 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 subsection (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:
(i) 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
(ii) the consummation of any Acquisition Transaction described in
Section 2(b)(i) hereof, except that the percentage referred to in clause
(z) shall be 50%.
8. (a) In the event that prior to an Exercise Termination Event, Issuer
shall enter into an agreement (i) 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, (ii) 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
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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 (iii) to sell or otherwise transfer all or a substantial part of its
or the Issuer Subsidiary's assets or deposits to any person, other than Grantee
or a Grantee Subsidiary, then, and in each such case, the agreement governing
such transaction shall 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 (x) the Acquiring Corporation
(as hereinafter defined) or (y) any person that controls the Acquiring
Corporation.
(b) The following terms have the meanings indicated:
(i) "Acquiring Corporation" shall mean (i) the continuing or surviving
person of a consolidation or merger with Issuer (if other than Issuer),
(ii) the acquiring person in a plan of exchange in which Issuer is
acquired, (iii) the Issuer in a merger or plan of exchange in which Issuer
is the continuing or surviving or acquiring person, and (iv) the transferee
of all or a substantial part of Issuer's assets or deposits (or the assets
or deposits of the Issuer Subsidiary).
(ii) "Substitute Common Stock" shall mean the common stock issued by
the issuer of the Substitute Option upon exercise of the Substitute Option.
(iii)"Assigned Value" shall mean the Market/Offer Price, as defined in
Section 7.
(iv) "Average Price" shall mean the average closing price 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
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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
clause (e), the issuer of the Substitute Option (the "Substitute Option Issuer")
shall make a cash payment to Holder equal to the excess of (i) the value of the
Substitute Option without giving effect to the limitation in this clause (e)
over (ii) the value of the Substitute Option after giving effect to the
limitation in this clause (e). This difference in value shall be determined by a
nationally recognized investment banking firm selected by the Holder, or the
Owner, as the case may be, and reasonably acceptable to the Acquiring
Corporation.
(f) Issuer shall not enter into any transaction described in subsection (a)
of this Section 8 unless the Acquiring Corporation and any person that controls
the Acquiring Corporation assume in writing all the obligations of Issuer
hereunder.
9. (a) At the request of the holder of the Substitute Option (the
"Substitute Option Holder"), the issuer of the Substitute Option (the
"Substitute Option Issuer") shall repurchase the Substitute Option from the
Substitute Option Holder at a price (the "Substitute Option Repurchase Price")
equal to the amount by which (i) the Highest Closing Price (as hereinafter
defined) exceeds (ii) the exercise price of the Substitute Option, 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 price 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
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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, in either case, the portion thereof which the
Substitute Option Issuer is not then prohibited under applicable law and
regulation 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, however, that if the Substitute Option Issuer is at any time after
delivery of a notice of repurchase pursuant to subsection (b) of this Section 9
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 (i) 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
(ii) 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
subsection (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 Substitute Option
Holder shall nevertheless have the right to exercise the Substitute Option until
the expiration of such 30-day period.
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10. The 30-day, 6-month, 12-month, 18-month or 24-month periods for
exercise of certain rights under Sections 2, 6, 7, 9 and 12 shall be extended:
(i) to the extent necessary to obtain all regulatory approvals for the exercise
of such rights, and for the expiration of all statutory waiting periods; and
(ii) to the extent necessary to avoid liability under Section 16(b) of the
Exchange Act by reason of such exercise.
11. 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 consummation of the
transactions contemplated hereby 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
reserve and to permit it to issue, and at all times from the date hereof through
the termination of this Agreement in accordance with its terms will have
reserved for issuance upon the exercise of the Option, that number of shares of
Common Stock equal to the maximum number of shares of Common Stock at any time
and from time to time issuable hereunder, and all such shares, upon issuance
pursuant thereto, will be duly authorized, validly issued, fully paid,
nonassessable, and will be delivered free and clear of all claims, liens,
encumbrance and security interests and not subject to any preemptive rights.
12. Grantee hereby represents and warrants to Issuer that:
(a) Grantee has all requisite corporate power and authority to enter into
this Agreement and, subject to any approvals or consents referred to herein, to
consummate the transactions contemplated hereby. The execution and delivery of
this Agreement and the consummation of the transactions contemplated hereby have
been duly authorized by all necessary corporate action on the part of Grantee.
This Agreement has been duly executed and delivered by Grantee.
(b) The Option is not being, and any shares of Common Stock or other
securities acquired by Grantee upon exercise of the Option will not be, acquired
with a view to the public distribution thereof and will not be transferred or
otherwise disposed of except in a transaction registered or exempt from
registration under the Securities Act.
13. 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 Subsequent 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; provided, however,
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
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in (i) a widely dispersed public distribution, (ii) a private placement in which
no one party acquires the right to purchase in excess of 2% of the voting shares
of Issuer, (iii) 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 (iv) any other manner approved by the OTS.
14. 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.
15. (a) Notwithstanding any other provision of this Agreement, in no event
shall the Grantee's Total Profit (as hereinafter defined) exceed $1,600,000 and,
if it otherwise would exceed such amount, the Grantee, at its sole election,
shall either (a) reduce the number of shares of Common Stock subject to this
Option, (b) deliver to Issuer for cancellation Option Shares previously
purchased by Grantee, (c) pay cash to Issuer, or (d) any combination thereof, so
that Grantee's actually realized Total Profit shall not exceed $1,600,000 after
taking into account the foregoing actions.
(b) Notwithstanding any other provision of this Agreement, this Option may
not be exercised for a number of shares as would, as of the date of exercise,
result in a Notional Total Profit (as defined below) of more than $1,600,000;
provided that nothing in this sentence shall restrict any exercise of the Option
permitted hereby on any subsequent date.
(c) As used herein, the term "Total Profit" shall mean the aggregate amount
(before taxes) of the following: (i) the amount received by Grantee pursuant to
Issuer's repurchase of the Option (or any portion thereof) pursuant to Section
7, (ii) (x) the amount received by Grantee pursuant to Issuer's repurchase of
Option Shares pursuant to Section 7, less (y) Grantee's purchase price for such
Option Shares, (iii) (x) the net cash amounts received by Grantee pursuant to
the sale of Option Shares (or any other securities into which such Option Shares
are converted or exchanged) to any unaffiliated party, less (y) the Grantee's
purchase price of such Option Shares, (iv) any amounts received by Grantee on
the transfer of the Option (or any portion thereof) to any unaffiliated party,
and (v) any amount equivalent to the foregoing with respect to the Substitute
Option.
(d) As used herein, the term 'Notional Total Profit" with respect to any
number of shares as to which Grantee may propose to exercise this Option shall
be the Total Profit determined as of the date of such proposed exercise assuming
that this Option were exercised on such date for such number of shares and
assuming that such shares, together with all other Option Shares held by Grantee
and its affiliates as of such date, were sold for cash at the closing market
price for the Common Stock as of the close of business on the preceding trading
day (less customary brokerage commissions).
16. (a) Grantee may, at any time following a Repurchase Event and prior to
the occurrence of an Exercise Termination Event (or such later period as
provided in Section 10), relinquish the Option (together with any Option Shares
issued to and then owned by Grantee) to Issuer in
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<PAGE>
exchange for a cash fee equal to the Surrender Price; provided, however, that
Grantee may not exercise its rights pursuant to this Section 16 if Issuer has
repurchased the Option (or any portion thereof) or any Option Shares pursuant to
Section 7. The "Surrender Price" shall be equal to $1,600,000 (i) plus, if
applicable, Grantee's purchase price with respect to any Option Shares and (ii)
minus, if applicable, the excess of (A) the net cash amounts, if any, received
by Grantee pursuant to the arms' length sale of Option Shares (or any other
securities into which such Option Shares were converted or exchanged) to any
unaffiliated party, over (B) Grantee's purchase price of such Option Shares.
(b) Grantee may exercise its right to relinquish the Option and any Option
Shares pursuant to this Section 16 by surrendering 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 (i) that Grantee elects to
relinquish the Option and Option Shares, if any, in accordance with the
provisions of this Section 16 and (ii) the Surrender Price. The Surrender Price
shall be payable in immediately available funds on or before the second business
day following receipt of such notice by Issuer.
(c) To the extent that Issuer is prohibited under applicable law or
regulation, or as a consequence of administrative policy, 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,
the portion of the Surrender Price that it is no longer prohibited from paying,
within five 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 paragraph (b) of this Section 16 is prohibited
under applicable law or regulation, or as a consequence of administrative
policy, from paying to Grantee the Surrender Price in full, (i) Issuer shall (A)
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 make such payments, (B) within five 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, as well as any discussions with
any relevant regulatory or other third party reasonably related to the same and
(ii) Grantee may revoke such notice of surrender by delivery of a notice of
revocation to Issuer and, upon delivery of such 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 16(c) (during which period Grantee may exercise any
of its rights hereunder, including any and all rights pursuant to this Section
16).
17. 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.
18. 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
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<PAGE>
this Agreement shall remain in full force and effect, and shall in no way be
affected, impaired or invalidated. If forany 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 l(a) hereof (as adjusted pursuant to Section
l(b) or 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.
19. All notices, requests, claims, demands and other communications
hereunder shall be deemed to have been duly given when delivered in person, by
fax, telecopy, or by registered or certified mail (postage prepaid, return
receipt requested) at the respective addresses of the parties set forth in the
Merger Agreement.
20. This Agreement shall be governed by and construed in accordance with
the laws of the State of Delaware, without regard to the conflict of law
principles thereof (except to the extent that mandatory provisions of Federal
law are applicable).
21. 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.
22. 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.
23. 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 with respect thereof, written or oral. The terms
and conditions of this Agreement shall inure to the benefit of and be binding
upon the parties hereto and their respective successors and permitted assignees.
Nothing in this Agreement, expressed or implied, is intended to confer upon any
party, other than the parties hereto, and their respective successors except as
assignees, any rights, remedies, obligations or liabilities under or by reason
of this Agreement, except as expressly provided herein.
24. Capitalized terms used in this Agreement and not defined herein shall
have the meanings assigned thereto in the Merger Agreement.
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<PAGE>
IN WITNESS WHEREOF, each of the parties has caused this Agreement to be
executed on its behalf by its officers thereunto duly authorized, all as of the
date first above written.
ATTEST: HUDSON RIVER BANCORP, INC.
/s/ Holly Rappleyea By: /s/ Carl A. Florio
- ------------------- ------------------
Holly Rappleyea Carl A. Florio
Secretary President
ATTEST: SFS BANCORP, INC.
/s/ Richard D. Ammian By: /s/ Joseph H. Giaquinto
- --------------------- -----------------------
Richard D. Ammian Joseph H. Giaquinto
Secretary President
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SFS BANCORP, INC. REVOCABLE PROXY
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF SFS
BANCORP, INC. ("SFS") FOR THE SPECIAL MEETING OF STOCKHOLDERS TO BE HELD ON
AUGUST 25, 1999, OR AT ANY ADJOURNMENT OR POSTPONEMENT THEREOF.
The undersigned stockholder of SFS hereby appoints the Board of
Directors of SFS or any successors thereto as proxies, with full powers of
substitution, to represent and to vote as proxy, as designated, all shares of
common stock of SFS held of record by the undersigned at the close of business
on July 8, 1999 at the special meeting of stockholders to be held at the main
office of SFS Bancorp, Inc. located at 251-263 State Street, Schenectady, New
York, on Wednesday, August 25, 1999, at 10:00 a.m., Eastern Time, or at any
adjournment or postponement thereof, upon the matters described in the
accompanying Notice of Special Meeting and Proxy Statement and upon such other
matters as may properly come before the special meeting.
This proxy, when properly executed, will be voted in the manner directed
herein by the undersigned stockholder. If no direction is given, this proxy will
be voted FOR Proposal 1.
The undersigned hereby acknowledges receipt of the Notice of Special
Meeting of Stockholders and the Proxy Statement for the special meeting.
PLEASE MARK, SIGN AND DATE THIS PROXY ON THE REVERSE SIDE
AND RETURN IT IN THE ENCLOSED ENVELOPE.
<PAGE>
The Board of Directors unanimously recommends a vote "FOR" Proposal 1.
1. Approval of the Agreement and Plan of Merger, dated as of May 17, 1999,
by and between SFS Bancorp, Inc. and Hudson River Bancorp, Inc. (the
"Merger Agreement"), pursuant to which SFS Bancorp, Inc. will be
acquired by Hudson River Bancorp, Inc.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
In their discretion, the proxies are authorized to vote with respect to
approval of the minutes of the last meeting of stockholders, matters incident to
the conduct of the meeting, and upon such other matters as may properly come
before the meeting.
Dated: , 1999
-----------------
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Signature(s)
Please sign exactly as your
name appears hereon. Joint
owners should each sign. If
signing as attorney,
executor, administrator,
trustee or guardian, please
include your full title.
Corporate or partnership
proxies should be signed by
an authorized officer.
