AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 9, 1998
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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FIRST EMPIRE STATE CORPORATION
(Exact name of registrant as specified in charter)
NEW YORK 6712 16-0968385
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
ONE M&T PLAZA
BUFFALO, NEW YORK 14240
(716) 842-5445
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
RICHARD A. LAMMERT, ESQUIRE
SENIOR VICE PRESIDENT AND GENERAL COUNSEL
FIRST EMPIRE STATE CORPORATION
ONE M&T PLAZA
BUFFALO, NEW YORK 14240
(716) 842-5390
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
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COPIES TO:
STEVEN KAPLAN, ESQ. WILLIAM S. RUBENSTEIN, ESQ.
ARNOLD & PORTER SKADDEN, ARPS, SLATE, MEAGHER & FLOM
555 TWELFTH STREET, N.W. LLP
WASHINGTON, DC 20004 919 THIRD AVENUE
(202) 942-5998 NEW YORK, NEW YORK 10022
(212) 735-3000
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the effective date of the Registration Statement.
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If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box / /
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CALCULATION OF REGISTRATION FEE
PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE AGGREGATE REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED PER UNIT(2) OFFERING PRICE(2) FEE(3)
Common Stock ($5.00 Par Value)............. 1,510,000 $455.16 $687,284,472 $202,749
(1) The number of shares to be registered is based upon an estimate of the
maximum number of shares of Common Stock of the Registrant that may be
issued to holders to Common Stock of ONBANCorp, Inc. ("ONBANCorp") pursuant
to the Merger Agreements (as defined herein).
(2) The registration fee was computed pursuant to Rule 457(f)(1) under the
Securities Act of 1933, as amended, based upon the average of the high and
low prices of the ONBANCorp Common Stock on the Nasdaq National Market on
February 5, 1998 divided by 0.161, the number of shares of the Common Stock
of the Registrant to be exchanged for each share of ONBANCorp Common Stock
in the proposed Merger to which this Registration Statement relates.
(3) In accordance with Rule 457(b), the total registration fee of $202,749 has
been reduced by $179,700, which was previously paid on December 16, 1997
upon filing under the Securities Exchange Act of 1934, as amended, of
preliminary copies of proxy materials of the Registrant and ONBANCorp.
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THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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FIRST EMPIRE STATE CORPORATION
FEBRUARY 9, 1998
Dear First Empire Stockholder:
You are cordially invited to attend a Special Meeting of the stockholders of
First Empire State Corporation ("First Empire") to be held on Tuesday, March 17,
1998 beginning at 11:00 a.m., local time, at M&T Center, One Fountain Plaza, in
Buffalo, New York.
At the Special Meeting, you will be asked to consider and vote upon the
proposed acquisition of ONBANCorp, Inc. ("ONBANCorp") through the merger of
ONBANCorp with and into First Empire's wholly owned subsidiary, Olympia
Financial Corp. (the "Merger") and the issuance of up to 1,510,000 shares of
common stock of First Empire in connection therewith. In the Merger, ONBANCorp
stockholders may elect to receive $69.50 in cash or 0.161 of a share of First
Empire common stock for each of their ONBANCorp shares (subject to the
limitations described in the enclosed Joint Proxy Statement). Approximately
12,712,196 shares of ONBANCorp stock currently are outstanding.
ONBANCorp, a Delaware corporation, is a registered bank holding company
headquartered in Syracuse, New York with total assets of $5.3 billion as of
December 31, 1997. Its subsidiary banks are OnBank & Trust Co., a commercial
bank headquartered in Syracuse, New York with 59 branches in the Syracuse,
Rochester and Albany areas, and Franklin First Savings Bank, a savings bank
headquartered in Wilkes-Barre, Pennsylvania with 19 branches in the greater
Wilkes-Barre area. Following consummation of the Merger, both of these banks
will be merged into First Empire's wholly owned subsidiary commercial bank,
Manufacturers and Traders Trust Company. Among other anticipated benefits, the
Merger presents a unique opportunity for First Empire to create the largest
banking franchise, based on deposits, in Central and Western New York State,
with a significant presence in many other New York markets and in Northeast
Pennsylvania. The Merger will result in very few branch consolidations since
there is little overlap between the retail branch networks. In addition, the
Merger will generate substantial synergies by reducing costs associated with
duplicative operations and enhancing revenue growth through the marketing of
First Empire's products and services to ONBANCorp's customers. Based on the
assumptions and subject to the qualifications described in the enclosed Joint
Proxy Statement, we expect the Merger, excluding one-time costs, to be accretive
to earnings on a cash basis in 1998.
Your Board of Directors has approved the consummation of the proposed
transaction subject to stockholder approval and certain other conditions, and
recommends that you vote FOR the Merger which requires the issuance of
additional shares of First Empire common stock. The Board reached this decision
after careful consideration of a number of factors. The enclosed Joint Proxy
Statement details these factors and also explains the proposed Merger in greater
detail. Please read it carefully.
I urge you to take the time now to consider this very important matter and
vote. In order to make sure that your vote is represented, indicate your vote on
the enclosed proxy form, date and sign it, and return it in the enclosed
envelope regardless of whether you plan to attend the meeting. If you do attend
the meeting, you may revoke your proxy at the meeting and vote in person.
Cordially,
Robert G. Wilmers
Chairman of the Board, President
and Chief Executive Officer
ONBANCorp, Inc.
February 9, 1998
Dear ONBANCorp Stockholder:
You are cordially invited to attend a special meeting of stockholders of
ONBANCorp, Inc. ("ONBANCorp") to be held on March 17, 1998 at 10:00 a.m., at the
Marriott Hotel located at 6302 Carrier Parkway, East Syracuse, New York 13057.
At the special meeting, you will be asked to consider and vote upon a proposal
to approve and adopt a reorganization agreement and related merger agreement
(together, the "Merger Agreement") which provide for the merger (the "Merger")
of ONBANCorp with a wholly owned subsidiary of First Empire State Corporation
("First Empire").
Upon consummation of the Merger, each outstanding share of ONBANCorp common
stock will be converted into the right to receive, at the election of the holder
thereof, either (a) $69.50 in cash without interest or (b) 0.161 of a share (the
"Exchange Ratio") of First Empire common stock (together with a cash payment in
lieu of any fractional share). Each stockholder's election will be subject to
the allocation and election procedures set forth in the Merger Agreement as
described in the attached Joint Proxy Statement, which provide generally that
the number of shares of ONBANCorp Common Stock to be converted into First Empire
common stock in the Merger will be not less than 60% nor more than 70% of the
total number of shares of ONBANCorp common stock outstanding at the time of the
Merger, with the remaining outstanding shares of ONBANCorp common stock being
converted into the per share cash consideration of $69.50. Based on the Exchange
Ratio and the closing price of First Empire common stock on the American Stock
Exchange on February 5, 1998 of $477.06 per share, the value of the per share
stock consideration payable by First Empire in the Merger would be $76.81. The
market price of First Empire common stock may change prior to and following
consummation of the Merger.
The proposed Merger has been unanimously approved by your Board of
Directors. Your Board of Directors has determined that the Merger is in the best
interests of ONBANCorp and its stockholders and unanimously recommends that you
vote FOR approval of the Merger Agreement. The investment banking firm of
Sandler O'Neill & Partners, L.P. has issued to your Board of Directors a written
opinion dated the date of the attached Joint Proxy Statement to the effect that,
as of such date, the consideration to be received by ONBANCorp stockholders
pursuant to the Merger Agreement is fair to ONBANCorp stockholders from a
financial point of view.
Consummation of the Merger is subject to certain conditions, including the
approval of the Merger Agreement by the requisite vote of ONBANCorp's
stockholders, the approval of the issuance of the shares to be issued in the
Merger by the requisite vote of First Empire stockholders, and the approval of
the Merger by the State of New York Banking Board.
Specific information regarding the special meeting and the Merger is
contained in the enclosed Notice of ONBANCorp special meeting and Joint Proxy
Statement. Please read these materials carefully.
ONBANCorp is also sending to you a Form of Election/Letter of Transmittal to
be used to express your preference with respect to the form of consideration you
wish to receive in the Merger. Please note that the deadline for receipt of the
Form of Election/Letter of Transmittal is March 24, 1998.
It is very important that your shares be represented at the ONBANCorp
special meeting, whether or not you plan to attend in person. The affirmative
vote of holders of a majority of the outstanding shares of ONBANCorp common
stock entitled to vote at the special meeting is required to approve the Merger
Agreement. Therefore, I urge you to execute, date and return the enclosed proxy
card in the enclosed postage paid envelope as soon as possible to assure that
your shares will be voted at the special meeting.
On behalf of the Board of Directors, I thank you for your support and urge
you to vote FOR approval of the Merger Agreement.
Sincerely,
Robert J. Bennett
Chairman, President and
Chief Executive Officer
FIRST EMPIRE STATE CORPORATION
ONE M&T PLAZA
BUFFALO, NEW YORK 14240
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
MARCH 17, 1998
To The Stockholders of
First Empire State Corporation:
A Special Meeting of Stockholders (the "First Empire Special Meeting") of
First Empire State Corporation ("First Empire") will be held at M&T Center, One
Fountain Plaza, in Buffalo, New York on Tuesday, March 17, 1998 at 11:00 a.m.
for the following purposes:
1. To consider and vote upon a proposal to approve an Agreement and Plan
of Reorganization ("Reorganization Agreement") among ONBANCorp, Inc.
("ONBANCorp"), First Empire and its wholly owned subsidiary, Olympia
Financial Corp. ("Olympia"), and a related Agreement and Plan of Merger
("Plan of Merger" and, collectively, with the Reorganization Agreement, the
"Merger Agreements"), a copy of each of which is included in Appendix A to
the accompanying Joint Proxy Statement, pursuant to which (i) ONBANCorp will
be merged with and into Olympia; (ii) subject to the allocation and election
procedures set forth in the Merger Agreements, each outstanding share of
common stock of ONBANCorp, par value $1.00 per share, will be converted, at
the election of the holder thereof, into the right to receive either $69.50
in cash without interest or 0.161 of a share of the common stock of First
Empire, par value $5.00 per share, with cash in lieu of any fractional
share; and (iii) up to 1,510,000 shares of First Empire Common Stock will be
issued in connection with the proposed merger (the matters being voted on
constituting the "First Empire Proposal"); and
2. To transact such other business as may properly come before the
meeting or any adjournments or postponements thereof.
Stockholders of record at the close of business on February 3, 1998 are
entitled to notice of and to vote at the First Empire Special Meeting or any
adjournments or postponements thereof.
By Order of the Board of Directors,
Marie King
Corporate Secretary
Buffalo, New York
February 9, 1998
IMPORTANT
YOUR VOTE IS IMPORTANT. IN ORDER TO ASSURE YOUR REPRESENTATION AT THE FIRST
EMPIRE SPECIAL MEETING, PLEASE MARK, SIGN, DATE AND RETURN THE ENCLOSED PROXY AS
SOON AS POSSIBLE IN THE ENCLOSED ENVELOPE. NO POSTAGE IS REQUIRED FOR MAILING IN
THE UNITED STATES.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE STOCKHOLDERS VOTE TO
APPROVE THE FIRST EMPIRE PROPOSAL.
ONBANCORP, INC.
101 SOUTH SALINA STREET
P.O. BOX 4983
SYRACUSE, NEW YORK 13221
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
MARCH 17, 1998
NOTICE IS HEREBY GIVEN that a Special Meeting of stockholders (the
"ONBANCorp Special Meeting") of ONBANCorp, Inc. ("ONBANCorp"), a Delaware
corporation, will be held at the Marriott Hotel located at 6302 Carrier Parkway,
East Syracuse, New York on March 17, 1998 at 10:00 a.m. local time, for the
following purposes:
1. To consider and vote upon a proposal (the "Merger Proposal") to
approve and adopt an Agreement and Plan of Reorganization, dated as of
October 28, 1997 ("Reorganization Agreement"), among ONBANCorp, First Empire
State Corporation, a New York corporation ("First Empire"), and Olympia
Financial Corp., a wholly owned subsidiary of First Empire ("Olympia"), and
a related Agreement and Plan of Merger, dated as of October 28, 1997 (the
"Plan of Merger" and, collectively, with the Reorganization Agreement, the
"Merger Agreements") (a copy of each of which is included in Appendix A to
the accompanying Joint Proxy Statement-Prospectus), pursuant to which, among
other things, (i) ONBANCorp will be merged with and into Olympia and (ii)
each outstanding share of common stock of ONBANCorp, par value $1.00 per
share ("ONBANCorp Common Stock"), together with the rights attached thereto
issued pursuant to the Rights Agreement dated as of September 25, 1989
between ONBANCorp and The Bank of New York, will be converted into the right
to receive, at the election of the holder thereof but subject to the
allocation and election procedures set forth in the Merger Agreements,
either (a) $69.50 in cash without interest or (b) 0.161 of a share of the
common stock of First Empire, par value $5.00 per share ("First Empire
Common Stock"), and cash in lieu of any fractional share. As described in
the attached Joint Proxy Statement-- Prospectus, the Merger Agreements
generally provide that the number of shares of ONBANCorp Common Stock to be
converted into First Empire Common Stock in the Merger will be not less than
60% nor more than 70% of the total number of shares of ONBANCorp Common
Stock outstanding at the time of the Merger, with the remaining outstanding
shares of ONBANCorp Common Stock being converted into the per share cash
consideration of $69.50.
2. To transact such other business as may properly come before the
ONBANCorp Special Meeting or any adjournments or postponements thereof.
Pursuant to ONBANCorp's Bylaws, the Board of Directors of ONBANCorp has
fixed February 3, 1998 as the record date for the determination of stockholders
entitled to notice of and to vote at the ONBANCorp Special Meeting and at any
adjournments or postponements thereof. Only holders of record of ONBANCorp
Common Stock at the close of business on the record date are entitled to vote at
the ONBANCorp Special Meeting. A list of ONBANCorp stockholders entitled to vote
at the ONBANCorp Special Meeting will be available for examination for any
purpose germane to the ONBANCorp Special Meeting, during ordinary business
hours, at the principal executive offices of ONBANCorp, located at 101 South
Salina Street, Syracuse, New York, for ten days prior to the ONBANCorp Special
Meeting.
Pursuant to Section 262 of the Delaware General Corporation Law (the
"DGCL"), holders of ONBANCorp Common Stock who comply with the requirements of
Section 262 of the DGCL will have the right to dissent from the Merger and to
obtain payment of the fair value of their shares. A copy of Section 262 of the
DGCL is attached as Appendix E to the accompanying Joint Proxy Statement-
Prospectus. Reference is made to the section entitled "PROPOSED
MERGER--Dissenters' Rights" in the attached Joint Proxy Statement-Prospectus for
a discussion of the procedures to be followed in asserting dissenters' rights in
connection with the proposed merger under Section 262 of the DGCL.
Your vote is important regardless of the number of shares you own. Each
stockholder, even though he or she now plans to attend the ONBANCorp Special
Meeting, is requested to sign, date and return the enclosed proxy card without
delay in the enclosed postage-paid envelope. You may revoke your proxy at any
time prior to its exercise. Any stockholder present at the ONBANCorp Special
Meeting or at any adjournments or postponements thereof may revoke his or her
proxy and vote personally on each matter brought before the ONBANCorp Special
Meeting.
By Order of the Board of Directors,
David M. Dembowski
Secretary
Syracuse, New York
February 9, 1998
IMPORTANT
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE FOR THE MERGER
PROPOSAL.
PLEASE DATE AND SIGN THE ENCLOSED PROXY AND MAIL IT PROMPTLY IN THE ENCLOSED
POSTAGE-PAID RETURN ENVELOPE.
FIRST EMPIRE STATE CORPORATION
AND
ONBANCORP, INC.
JOINT PROXY STATEMENT
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FIRST EMPIRE STATE CORPORATION
PROSPECTUS
(UP TO 1,510,000 SHARES OF COMMON STOCK)
This Joint Proxy Statement-Prospectus ("Joint Proxy Statement") is being
furnished to stockholders of First Empire State Corporation ("First Empire") and
stockholders of ONBANCorp, Inc. ("ONBANCorp") in connection with the
solicitation of proxies by the Boards of Directors of First Empire and ONBANCorp
(the "First Empire Board" and the "ONBANCorp Board," respectively) for their use
at their respective special meetings of stockholders, and any adjournments or
postponements thereof, to be held at the time and place set forth in the
accompanying respective notices of special meeting ("Special Meetings"). It is
anticipated that the mailing of this Joint Proxy Statement and the enclosed
proxy card will commence on or about February 12, 1998.
At the respective Special Meetings, stockholders of First Empire and
ONBANCorp will be asked to approve and adopt an Agreement and Plan of
Reorganization (the "Reorganization Agreement") and related Agreement and Plan
of Merger (the "Plan of Merger"), each dated as of October 28, 1997
(collectively, the "Merger Agreements"), copies of which are attached hereto as
Appendix A, providing for the merger ("Merger") of ONBANCorp with and into
Olympia Financial Corp. ("Olympia"), a direct wholly owned subsidiary of First
Empire, and stockholders of First Empire will be asked to approve the issuance
of up to 1,510,000 shares of First Empire common stock in connection with the
Merger (the matters being voted on by the First Empire stockholders and the
ONBANCorp stockholders are referred to herein as the "First Empire Proposal" and
the "ONBANCorp Proposal", respectively).
If both the First Empire Proposal and the ONBANCorp Proposal are approved
and the Merger is consummated, the separate existence of ONBANCorp will cease,
and Olympia, as the surviving corporation ("Surviving Corporation"), will
continue unaffected and unimpaired by the Merger. Following the consummation of
the Merger, OnBank & Trust Co. and Franklin First Savings Bank, each a wholly
owned subsidiary of ONBANCorp, will merge with and into Manufacturers and
Traders Trust Company ("M&T Bank"), which at the time will be a direct wholly
owned subsidiary of the Surviving Corporation (the "Bank Merger").
At the effective time of the Merger (the "Effective Time"), each share of
the common stock of ONBANCorp, par value $1.00 per share ("ONBANCorp Common
Stock"), issued and outstanding immediately prior to the Effective Time (subject
to certain exceptions), together with the rights attached thereto (the "Rights")
issued pursuant to the Rights Agreement dated as of September 25, 1989 (as
amended, the "Rights Agreement") between ONBANCorp and The Bank of New York,
will be converted into the right to receive, at the election of the holder
thereof but subject to the election and allocation procedures set forth in the
Merger Agreements, either (a) $69.50 in cash without interest (the "Cash
Consideration") or (b) 0.161 of a share of the common stock of First Empire, par
value $5.00 per share ("First Empire Common Stock"), and cash in lieu of any
fractional share (the "Stock Consideration"). The consideration to be received
by ONBANCorp stockholders pursuant to the Merger Agreements is sometimes
referred to herein as the "Merger Consideration". Under the terms of the Plan of
Merger, holders of ONBANCorp Common Stock can elect to convert their shares into
First Empire Common Stock (a "Stock Election"), cash (a "Cash Election") or a
combination of the two, subject to the limitation that a person electing to
receive a combination of the two forms of consideration must be able to, and
must, make a Cash Election with respect to at least 100 shares of ONBANCorp
Common Stock and a Stock Election with respect to at least 100 shares of
ONBANCorp Common Stock. A form of election to be used by holders of ONBANCorp
Common Stock is enclosed with the copies of this Joint Proxy Statement being
sent to record holders and is being sent to other holders by their brokers or
other
nominees. All elections of ONBANCorp stockholders are further subject to the
allocation procedures set forth in the Merger Agreements, which provide
generally that the number of shares of ONBANCorp Common Stock to be converted
into First Empire Common Stock in the Merger must be at least 60%, but not more
than 70%, of the total number of shares of ONBANCorp Common Stock issued and
outstanding immediately prior to the Effective Time, excluding certain shares
beneficially owned, directly or indirectly, by ONBANCorp or First Empire. Based
upon data as of February 3, 1998, assuming that 70% of the eligible issued and
outstanding shares of ONBANCorp Common Stock are converted into First Empire
Common Stock, approximately 1,510,000 shares, or $737 million, of First Empire
Common Stock will be issued in connection with the Merger. Such shares will
represent approximately 18% of the total number of shares of First Empire Common
Stock issued and outstanding after giving effect to the issuance of such shares.
In the event that ONBANCorp stockholders as a whole elect to receive the
Stock Consideration with respect to fewer than 60% or more than 70% of the total
number of outstanding shares of ONBANCorp Common Stock, then the Stock
Consideration and the Cash Consideration will be allocated among the
stockholders of ONBANCorp in a manner that will ensure that the number of issued
and outstanding shares of ONBANCorp Common Stock that are converted into the
Stock Consideration will be 60% or 70%, as the case may be, of the total number
of such shares. In addition, in order that the Merger will not fail to satisfy
continuity of interest requirements under applicable federal income tax
principles relating to reorganizations under Section 368(a) of the Code and that
the tax opinion described under "PROPOSED MERGER--Certain Federal Income Tax
Consequences" can be rendered, First Empire may reduce the number of Outstanding
ONBANCorp Shares that will be converted into the right to receive the Cash
Consideration in accordance with a written agreement which shall be entered into
between First Empire and ONBANCorp on or prior to the Closing Date. For a
description of the method of carrying out the allocation, and for a more
complete description of the Merger Agreements and the terms of the Merger
generally, see "PROPOSED MERGER--Terms of the Merger."
NO GUARANTEE CAN BE MADE THAT ONBANCORP STOCKHOLDERS WILL RECEIVE THE
AMOUNTS OF CASH CONSIDERATION AND/OR STOCK CONSIDERATION THEY ELECT. AS A RESULT
OF THE ALLOCATION PROCEDURES AND OTHER LIMITATIONS DESCRIBED HEREIN AND IN THE
MERGER AGREEMENTS, ONBANCORP STOCKHOLDERS MAY RECEIVE STOCK CONSIDERATION OR
CASH CONSIDERATION IN AMOUNTS THAT VARY FROM THE AMOUNTS SUCH HOLDERS ELECT TO
RECEIVE.
First Empire Common Stock is listed and traded on the American Stock
Exchange ("AMEX") under the symbol "FES". ONBANCorp Common Stock is traded in
the over-the-counter market and price quotations therefor are reported on The
Nasdaq National Market(r) ("NASDAQ/NMS") under the symbol "ONBK". The closing or
last reported sale prices per share of First Empire Common Stock and ONBANCorp
Common Stock as of February 5, 1998 (the latest practicable trading day before
the printing of this Joint Proxy Statement) were $477.06 and $72.88,
respectively. See "SUMMARY--Markets and Market Prices." The market prices of
First Empire Common Stock and ONBANCorp Common Stock may change prior to and, in
the case of First Empire, following consummation of the Merger.
Because the market price of First Empire Common Stock may fluctuate prior to
and following the Effective Time and could be greater than or less than $431.68
per share (the approximate price at which the market value of the Stock
Consideration would equal the Cash Consideration of $69.50), the value of the
Stock Consideration could be less than or greater than the value of the Cash
Consideration. In addition, because the tax consequences of receiving the Cash
Consideration will differ from the tax consequences of receiving the Stock
Consideration, ONBANCorp stockholders are urged to read carefully the
information set forth below under "PROPOSED MERGER--Certain Federal Income Tax
Consequences."
ii
All information concerning First Empire contained in this Joint Proxy
Statement has been furnished by First Empire, and all information contained
herein concerning ONBANCorp has been furnished by ONBANCorp.
THE SHARES OF FIRST EMPIRE COMMON STOCK OFFERED HEREBY ARE NOT INSURED BY
THE FEDERAL DEPOSIT INSURANCE CORPORATION ("FDIC"), AND ARE NOT DEPOSITS OR
OTHER OBLIGATIONS OF, OR GUARANTEED BY, ANY BANK SUBSIDIARY OF FIRST EMPIRE.
THE FIRST EMPIRE COMMON STOCK TO BE ISSUED IN THE MERGER HAS NOT BEEN
APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION
("COMMISSION"), ANY STATE SECURITIES AUTHORITY OR OTHER GOVERNMENTAL AGENCY, NOR
HAS THE COMMISSION, ANY STATE SECURITIES AUTHORITY OR OTHER GOVERNMENTAL AGENCY
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS JOINT PROXY STATEMENT. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this Joint Proxy Statement, which also constitutes a prospectus
of First Empire for up to 1,510,000 shares of First Empire Common Stock issuable
in connection with the Merger, is February 9, 1998. This Joint Proxy Statement
does not cover any resales of First Empire Common Stock received by the
stockholders of ONBANCorp upon consummation of the Merger, and no person is
authorized to make use of this Joint Proxy Statement in connection with any such
resale.
ALL STOCKHOLDERS ARE URGED TO READ THIS JOINT PROXY STATEMENT CAREFULLY AND
IN ITS ENTIRETY.
NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION NOT CONTAINED IN THIS JOINT PROXY STATEMENT AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATION SHOULD NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED. THIS JOINT PROXY STATEMENT DOES NOT CONSTITUTE AN OFFER TO
SELL, OR A SOLICITATION OF AN OFFER TO PURCHASE, THE SECURITIES OFFERED BY THIS
JOINT PROXY STATEMENT IN ANY JURISDICTION TO ANY PERSON TO WHOM IT IS UNLAWFUL
TO MAKE SUCH OFFER OR SOLICITATION OF AN OFFER IN SUCH JURISDICTION. NEITHER THE
DELIVERY OF THIS JOINT PROXY STATEMENT NOR ANY DISTRIBUTION OF SECURITIES MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS
BEEN NO CHANGE IN THE AFFAIRS OF FIRST EMPIRE OR ONBANCORP SINCE THE DATE
HEREOF.
AVAILABLE INFORMATION; DOCUMENTS INCORPORATED BY REFERENCE
First Empire (Commission File No. 1-9861) and ONBANCorp (Commission File No.
0-18011) are each subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and, in accordance
therewith, First Empire and ONBANCorp file reports, proxy statements and other
information with the Commission. Such reports, proxy statements and other
information filed by First Empire and ONBANCorp can be inspected and copied at
the Commission's public reference room located at Room 1024, Judiciary Plaza,
450 Fifth Street, N.W., Washington, D.C. 20549, and the Commission's regional
offices in New York (7 World Trade Center, Suite 1300, New York, New York 10048)
and Chicago (CitiCorp Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661), and copies of such material can be obtained from the Public
Reference Section of the Commission at 450 Fifth Street, N.W., Washington, D.C.
20549, at prescribed rates. The Commission maintains a World Wide Web site
(located at http://www.sec.gov) which contains reports, proxy and information
statements and other information regarding First Empire and ONBANCorp. ONBANCorp
Common Stock is listed on the NASDAQ/NMS. Consequently, reports, proxy
statements and other information concerning ONBANCorp may also be inspected at
the offices of the Nasdaq Stock Market, Inc., at 1735 K Street, N.W.,
Washington, D.C. 20006. First Empire Common Stock is listed on the AMEX.
Consequently,
iii
reports, proxy statements and other information concerning First Empire may also
be inspected at the offices of the American Stock Exchange, Inc., 86 Trinity
Place, New York, New York 10006.
First Empire has filed with the Commission a Registration Statement (the
"Registration Statement") on Form S-4 under the Securities Act of 1933, as
amended ("Securities Act"), relating to the securities to be issued in
connection with the Merger. For further information pertaining to the securities
of First Empire to which this Joint Proxy Statement relates, reference is made
to the Registration Statement, including the exhibits and schedules filed as a
part thereof. Under applicable securities laws, certain information contained in
the Registration Statement is not required to be included in the Joint Proxy
Statement. The entire Registration Statement, including exhibits, may be
obtained from the Commission in the manner described above. Statements contained
in this Joint Proxy Statement or in any document incorporated by reference
herein or in the Registration Statement are not necessarily complete, and in
each instance reference is made to the copy of such other documents filed as
exhibits to the Registration Statement, each such statement being qualified in
all respects by such reference.
THIS JOINT PROXY STATEMENT INCORPORATES DOCUMENTS BY REFERENCE RELATING TO
FIRST EMPIRE AND ONBANCORP THAT ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH.
COPIES OF ANY SUCH DOCUMENTS, OTHER THAN EXHIBITS THERETO, ARE AVAILABLE WITHOUT
CHARGE TO ANY PERSON, INCLUDING ANY BENEFICIAL OWNER, TO WHOM THIS JOINT PROXY
STATEMENT IS DELIVERED UPON WRITTEN OR ORAL REQUEST TO, IN THE CASE OF
INFORMATION CONCERNING FIRST EMPIRE, FIRST EMPIRE STATE CORPORATION, ONE M&T
PLAZA, BUFFALO, NEW YORK 14240, ATTENTION: CLIFFORD P. JOHNSON, VICE PRESIDENT,
CORPORATE REPORTING (TELEPHONE: 716-842-5973), OR, IN THE CASE OF INFORMATION
CONCERNING ONBANCORP, ONBANCORP, INC., 101 SOUTH SALINA STREET, SYRACUSE, NEW
YORK 13202, ATTENTION: DAVID M. DEMBOWSKI, SECRETARY (TELEPHONE: 315-424-4400).
IN ORDER TO ENSURE TIMELY DELIVERY OF THE DOCUMENTS, ANY REQUEST SHOULD BE MADE
BY MARCH 6, 1998.
The following documents previously filed by First Empire with the Commission
pursuant to the Exchange Act are incorporated by reference herein:
(1) First Empire's Annual Report on Form 10-K for the year ended December
31, 1996;
(2) First Empire's Quarterly Reports on Form 10-Q for the quarters ended
March 31, June 30 and September 30, 1997;
(3) First Empire's Current Reports on Form 8-K dated as of January 9,
January 31, February 19, May 24, June 6, October 28, 1997 and February 5,
1998; and
(4) the description of First Empire Common Stock contained in a registration
statement on Form 8-A dated March 4, 1988 filed by First Empire pursuant
to Section 12 of the Exchange Act, and any amendment or report filed for
the purpose of updating such description.
The following documents previously filed by ONBANCorp with the Commission
pursuant to the Exchange Act are incorporated by reference herein:
(1) ONBANCorp's Annual Report on Form 10-K for the year ended December 31,
1996;
(2) ONBANCorp's Quarterly Reports on Form 10-Q for the quarters ended March
31, June 30 and September 30, 1997;
(3) ONBANCorp's Current Reports on Form 8-K dated as of October 28, 1997 and
February 5, 1998; and
(4) ONBANCorp's Current Report on Form 8-K dated as of October 6, 1989
(setting forth a description of the Rights issued pursuant to the Rights
Agreement).
All documents filed by First Empire or ONBANCorp pursuant to Sections 13(a),
13(c), 14 and 15(d) of the Exchange Act subsequent to the date hereof and prior
to the dates of the Special Meetings shall be deemed to be incorporated herein
by reference and to be a part hereof from the date of the filing.
iv
Any statement contained in a document incorporated or deemed to be incorporated
by reference herein shall be deemed to be modified or superseded for purposes of
this Joint Proxy Statement to the extent that a statement contained herein or in
any other subsequently filed document which also is or is deemed to be
incorporated by reference herein modifies or supersedes such statement. Any such
statement so modified or superseded shall not be deemed, except as so modified
or superseded, to constitute a part of this Joint Proxy Statement.
THIS JOINT PROXY STATEMENT CONTAINS CERTAIN FORWARD-LOOKING STATEMENTS WITH
RESPECT TO THE FINANCIAL CONDITION, RESULTS OF OPERATIONS AND BUSINESS OF FIRST
EMPIRE FOLLOWING THE CONSUMMATION OF THE MERGER. First Empire has made, and may
continue to make, various forward-looking statements with respect to earnings
per share, cash earnings per share, cost savings related to acquisitions, credit
quality and other financial business matters for 1998 and, in certain instances,
subsequent periods. First Empire cautions that these forward-looking statements
are subject to numerous assumptions, risks and uncertainties, and that
statements for periods subsequent to 1998 are subject to greater uncertainty
because of the increased likelihood of changes in underlying factors and
assumptions. Actual results could differ materially from those expressed in such
forward-looking statements. In addition to those factors disclosed by First
Empire in documents incorporated herein by reference and those factors
identified elsewhere herein, the following factors could cause actual results to
differ materially from those expressed in such forward-looking statements:
expected cost savings from the Merger cannot be fully realized or cannot be
realized within the expected time frame; revenues following the Merger are lower
than expected; competitive pressure among depository institutions increases
significantly; costs or difficulties related to the integration of the business
of First Empire and ONBANCorp are greater than expected; changes in the interest
rate environment reduce interest margins; general economic conditions, either
nationally or in the markets in which the combined company will be doing
business, are less favorable than expected; legislation or regulatory
requirements or changes adversely affect the business in which the combined
company would be engaged; and other "Future Factors" enumerated in First
Empire's Annual Report on Form 10-K for the year ended December 31, 1996 and
incorporated herein by reference. First Empire's forward-looking statements
speak only as of the date on which such statements are made. By making any
forward-looking statements, First Empire assumes no duty to update them to
reflect new, changing or unanticipated events or circumstances.
v
TABLE OF CONTENTS
PAGE
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INTRODUCTION............................................................................................... i
AVAILABLE INFORMATION; DOCUMENTS INCORPORATED BY REFERENCE................................................. iii
THE COMPANIES.............................................................................................. 1
SUMMARY.................................................................................................... 3
MEETING INFORMATION
Date, Place and Time..................................................................................... 16
Record Date; Voting Rights............................................................................... 16
Voting and Revocation of Proxies......................................................................... 17
Solicitation of Proxies.................................................................................. 17
PROPOSED MERGER............................................................................................ 18
Background of and Reasons for the Merger; Recommendations of the Boards of Directors..................... 18
Terms of the Merger...................................................................................... 25
Election Procedures; Surrender of Stock Certificates..................................................... 28
Opinions of Financial Advisors........................................................................... 29
Representations and Warranties; Conditions to the Merger; Waiver......................................... 41
Regulatory Approvals..................................................................................... 42
Covenants; Conduct of Business Pending the Merger........................................................ 43
Effective Date of the Merger; Termination................................................................ 44
Management and Operations After the Merger............................................................... 45
Interests of Certain Persons in the Merger............................................................... 48
Certain Federal Income Tax Consequences.................................................................. 52
Resale of First Empire Common Stock...................................................................... 55
Accounting Treatment..................................................................................... 55
Stock Option Agreement................................................................................... 55
Dissenters' Rights....................................................................................... 57
COMPARISON OF CERTAIN RIGHTS OF HOLDERS OF FIRST EMPIRE COMMON STOCK AND ONBANCORP COMMON STOCK............ 60
RECENT DEVELOPMENTS........................................................................................ 69
CERTAIN REGULATORY CONSIDERATIONS.......................................................................... 71
PRO FORMA CONDENSED FINANCIAL INFORMATION (Unaudited)...................................................... 73
EXPERTS.................................................................................................... 82
LEGAL OPINION.............................................................................................. 82
SUBMISSION OF STOCKHOLDER PROPOSALS........................................................................ 82
APPENDIX A-- AGREEMENT AND PLAN OF REORGANIZATION (INCLUDING AGREEMENT AND PLAN OF MERGER)
APPENDIX B--STOCK OPTION AGREEMENT
APPENDIX C--OPINION OF KEEFE, BRUYETTE & WOODS, INC.
APPENDIX D--OPINION OF SANDLER O'NEILL & PARTNERS, L.P.
APPENDIX E--SECTION 262 OF THE DELAWARE GENERAL CORPORATION LAW
vi
THE COMPANIES
FIRST EMPIRE
First Empire is a New York business corporation which is registered as a
bank holding company under the Bank Holding Company Act of 1956, as amended
("BHCA") and under Article III-A of the New York Banking Law ("Banking Law").
First Empire was incorporated in November 1969. As of December 31, 1997, First
Empire had total consolidated assets of $14.0 billion and total stockholders'
equity of $1.0 billion. First Empire's two wholly owned banking subsidiaries are
M&T Bank, with its principal executive offices in Buffalo, New York and M&T
Bank, National Association ("M&T Bank, N.A."), with its main office at 48 Main
Street, Oakfield, New York 14125. Collectively, the banks offer a wide range of
commercial banking, trust and investment services to their customers.
M&T Bank is a banking corporation which is incorporated and chartered under
the laws of the State of New York. M&T Bank is a member of the Federal Reserve
System and the Federal Home Loan Bank System, and its deposits are insured by
the FDIC up to applicable limits. As of December 31, 1997, M&T Bank represented
95% of the consolidated assets of First Empire. As of the date of this Joint
Proxy Statement, M&T Bank had 178 banking offices located throughout New York
State plus a branch in Nassau, The Bahamas. As a commercial bank, M&T Bank
offers a broad range of financial services to a diverse base of consumers,
businesses, professional clients, governmental entities and financial
institutions located in its markets. Lending is largely focused on consumers
residing in New York State and on New York-based small and medium-size
businesses. However, certain of M&T Bank's subsidiaries conduct lending
activities in markets outside of New York State. M&T Bank also provides other
financial services through its operating subsidiaries, including a consumer
credit company, a mortgage banking subsidiary, a company specializing in
capital-equipment leasing, a company engaged in commercial real estate lending
and servicing activities, a company providing securities brokerage and
investment advisory services and a consumer leasing company. See "PROPOSED
MERGER--Background."
M&T Bank, N.A., is a national bank and a member of the Federal Reserve
System, and its deposits are insured by the FDIC up to applicable limits. M&T
Bank, N.A., commenced operations on October 2, 1995 and offers selected deposit
and loan products on a nationwide basis, primarily through direct mail and
telephone marketing techniques. As of December 31, 1997, M&T Bank, N.A. had
total assets of $703 million.
From time to time, First Empire investigates and holds discussions and
negotiations in connection with possible acquisition transactions with other
banks and financial services entities. At the date hereof, First Empire has not
entered into any agreements or understandings with respect to any significant
transactions of the type referred to above except for the transactions described
herein and in documents incorporated herein by reference. See "AVAILABLE
INFORMATION; DOCUMENTS INCORPORATED BY REFERENCE." If required under applicable
law, or AMEX policy, any such transactions would be subject to regulatory
approval and the approval of stockholders. As of February 3, 1998, there were
3,418 stockholders of record of First Empire Common Stock.
The principal executive offices of First Empire are located at One M&T
Plaza, Buffalo, New York 14240. Its telephone number is (716) 842-5445. For
additional information concerning the business of First Empire and its financial
condition, reference should be made to the First Empire documents incorporated
herein by reference. See "AVAILABLE INFORMATION; DOCUMENTS INCORPORATED BY
REFERENCE."
OLYMPIA
Olympia, a wholly owned subsidiary of First Empire, is a Delaware
corporation created to effectuate the Merger. Its registered office is located
at 1209 Orange Street, Wilmington, Delaware.
1
ONBANCORP
ONBANCorp is a Delaware corporation registered as a bank holding company
under the BHCA. As of December 31, 1997, ONBANCorp had total assets of $5.3
billion and stockholders' equity of $335 million. ONBANCorp has two wholly owned
subsidiary banks: OnBank & Trust Company ("OnBank & Trust"), a New
York-chartered trust company and Franklin First Savings Bank ("Franklin First"),
a Pennsylvania-chartered savings bank (the "ONBANCorp Banks").
The ONBANCorp Banks offer diversified financial services through 78 branches
in the upstate New York communities of Syracuse, Auburn, Rome, Rochester and
Albany, and in Scranton/Wilkes-Barre, Pennsylvania. The principal business of
the ONBANCorp Banks is to accept deposits from the general public and to invest
those deposits, together with funds from borrowings and ongoing operations, in
commercial, consumer and residential mortgage loans. The ONBANCorp Banks
concentrate their efforts in the retail, municipal and commercial banking
businesses. The ONBANCorp Banks offer a variety of deposit and loan products and
trust services designed to meet the needs of residents and businesses of their
market areas, as well as discount brokerage services through Investor Services,
Inc., and non-insured mutual funds and annuities through Liberty Securities
Corporation. As of February 3, 1998, there were 4,378 stockholders of record of
ONBANCorp Common Stock.
The principal executive office of ONBANCorp is located at 101 South Salina
Street, Syracuse, New York 13221-4983. Its telephone number is (315) 424-4400.
For additional information concerning the business of ONBANCorp and its
financial condition, reference should be made to ONBANCorp's documents
incorporated herein by reference. See "AVAILABLE INFORMATION; DOCUMENTS
INCORPORATED BY REFERENCE."
COMBINED COMPANY
On a pro forma basis as of September 30, 1997, the combined company would
have ranked 40th among independent U.S. bank holding companies with $19.5
billion in total consolidated assets. Among other anticipated benefits, the
Merger presents a unique opportunity for First Empire to create the largest
banking franchise, based on deposits, in Central and Western New York State,
with a significant presence in many other New York markets and in northeast
Pennsylvania. The Merger will result in very few branch consolidations since
there is little overlap between the companies' respective retail branch
networks. The Merger will result in a market expansion of M&T Bank to become a
New York State "thruway" franchise with a substantial presence from Buffalo to
New York City, with 236 banking offices in the New York markets. In addition,
the Merger is expected to generate substantial synergies by reducing costs
associated with duplicative operations and enhancing revenue growth through the
marketing of First Empire's products and services to ONBANCorp's customers. See
"PROPOSED MERGER--Management and Operations After the Merger."
2
SUMMARY
This summary is necessarily general and abbreviated and has been prepared to
assist stockholders in their review of this Joint Proxy Statement. This summary
is not intended to be a complete explanation of the matters covered in this
Joint Proxy Statement and is qualified in all respects by reference to the more
detailed information contained elsewhere in this Joint Proxy Statement, the
Appendices hereto and the documents incorporated herein by reference.
Stockholders are urged to read this Joint Proxy Statement and the Appendices
hereto in their entirety.
THE SPECIAL MEETINGS
FIRST EMPIRE. The Special Meeting of First Empire stockholders (the "First
Empire Special Meeting") to consider and vote upon the First Empire Proposal
will be held on March 17, 1998 beginning at 11:00 a.m., local time, at M&T
Center, One Fountain Plaza, in Buffalo, New York. Only holders of record of
First Empire Common Stock at the close of business on February 3, 1998 (the
"First Empire Record Date") will be entitled to notice of and to vote at the
First Empire Special Meeting and any adjournments or postponements thereof. At
such date, there were outstanding and entitled to vote 6,667,664 shares of First
Empire Common Stock.
ONBANCORP. The Special Meeting of ONBANCorp stockholders (the "ONBANCorp
Special Meeting") to consider and vote upon the ONBANCorp Proposal will be held
on March 17, 1998 at 10:00 a.m., local time, at the Marriott Hotel located at
6302 Carrier Parkway, East Syracuse, New York. Only holders of record of
ONBANCorp Common Stock at the close of business on February 3, 1998 (the
"ONBANCorp Record Date") will be entitled to notice of and to vote at the
ONBANCorp Special Meeting and any adjournments or postponements thereof. At such
date, there were outstanding and entitled to vote 12,712,196 shares of ONBANCorp
Common Stock.
For additional information with respect to the Special Meetings and the
voting rights of stockholders, see "MEETING INFORMATION--Record Date; Voting
Rights."
THE PROPOSED MERGER
In accordance with the terms of the Merger Agreements, at the Effective
Time, ONBANCorp will be merged with and into Olympia, the separate existence of
ONBANCorp shall cease and Olympia, as the Surviving Corporation ("Surviving
Corporation"), shall continue unaffected and unimpaired by the Merger. All of
the shares of capital stock of Olympia issued and outstanding immediately prior
to the Effective Time shall constitute all of the then-issued and outstanding
shares of capital stock of the Surviving Corporation. The Surviving Corporation
shall remain a wholly owned subsidiary of First Empire. Following the
consummation of the Merger, First Empire will contribute to the Surviving
Corporation all of the issued and outstanding capital stock of M&T Bank and
immediately thereafter the ONBANCorp Banks will be merged with and into M&T
Bank, which will be the surviving bank and will continue to operate as a wholly
owned subsidiary of Olympia.
Under the Merger Agreements, and subject to the other provisions therein,
each share of ONBANCorp Common Stock issued and outstanding immediately prior to
the Effective Time (other than certain shares owned by ONBANCorp or First Empire
or any of their respective subsidiaries and shares as to which dissenters'
rights have been exercised in accordance with Section 262 of the Delaware
General Corporation Law (the "DGCL")), together with the Rights attached
thereto, shall, by virtue of the Merger, automatically and without any action on
the part of the holder thereof, become and be converted into the right to
receive, at the election of the holder thereof and subject to the election and
allocation procedures set forth in the Merger Agreements, either (i) $69.50 in
cash without interest (the "Cash Consideration") or (ii) 0.161 of a share (the
"Exchange Ratio") of First Empire Common Stock (and cash in lieu of any
fractional share) (the "Stock Consideration"). The consideration to be received
by ONBANCorp stockholders pursuant to the Merger Agreements is sometimes
referred to herein as the "Merger Consideration". Under the terms of the Plan of
Merger, holders of ONBANCorp Common Stock can elect to
3
convert their shares into First Empire Common Stock (a "Stock Election"), cash
(a "Cash Election") or a combination of the two, subject to the limitation that
a person electing to receive a combination of the two forms of consideration
must be able to, and must, make a Cash Election with respect to at least 100
shares of ONBANCorp Common Stock and a Stock Election with respect to at least
100 shares of ONBANCorp Common Stock. All elections of ONBANCorp stockholders
are further subject to the allocation procedures set forth in the Merger
Agreements, which provide generally that the number of shares of ONBANCorp
Common Stock to be converted into First Empire Common Stock in the Merger must
be at least 60%, but not more than 70%, of the total number of shares of
ONBANCorp Common Stock issued and outstanding immediately prior to the Effective
Time, excluding certain shares beneficially owned, directly or indirectly, by
ONBANCorp or First Empire.
In the event that ONBANCorp stockholders as a whole elect to receive the
Stock Consideration with respect to fewer than 60% or more than 70% of the total
number of outstanding shares of ONBANCorp Common Stock, then the Stock
Consideration and the Cash Consideration will be allocated among the
stockholders of ONBANCorp in a manner that will ensure that the number of issued
and outstanding shares of ONBANCorp Common Stock that are converted into the
Stock Consideration will be 60% or 70%, as the case may be, of the total number
of such shares. In addition, in order that the Merger will not fail to satisfy
continuity of interest requirements under applicable federal income tax
principles relating to reorganizations under Section 368(a) of the Code and that
the tax opinion described under "PROPOSED MERGER--Certain Federal Income Tax
Consequences" can be rendered, First Empire may reduce the number of Outstanding
OBC Shares that will be converted into the right to receive the Cash
Consideration in accordance with a written agreement which shall be entered into
between First Empire and ONBANCorp on or prior to the Closing Date. For a
description of the method of carrying out the allocation, and for a more
complete description of the Merger Agreements and the terms of the Merger
generally, see "PROPOSED MERGER--Terms of the Merger."
NO GUARANTEE CAN BE MADE THAT ONBANCORP STOCKHOLDERS WILL RECEIVE THE
AMOUNTS OF CASH CONSIDERATION AND/OR STOCK CONSIDERATION THEY ELECT. AS A RESULT
OF THE ALLOCATION PROCEDURES AND OTHER LIMITATIONS DESCRIBED HEREIN AND
CONTAINED IN THE MERGER AGREEMENTS, ONBANCORP STOCKHOLDERS MAY RECEIVE STOCK
CONSIDERATION OR CASH CONSIDERATION IN AMOUNTS THAT VARY FROM THE AMOUNTS SUCH
HOLDERS ELECT TO RECEIVE.
Because the market price of First Empire Common Stock may fluctuate prior to
and following the Effective Time and could be greater than or less than $431.68
per share (the approximate price at which the market value of the Stock
Consideration would equal the Cash Consideration of $69.50), the market value of
the Stock Consideration could be less than or greater than the value of the Cash
Consideration. See "--Markets and Market Prices." In addition, because the tax
consequences of receiving the Cash Consideration will differ from the tax
consequences of receiving the Stock Consideration, ONBANCorp stockholders are
urged to read carefully the information set forth below under "PROPOSED MERGER--
Certain Federal Income Tax Consequences."
Notwithstanding the foregoing, each holder of shares of ONBANCorp Common
Stock who would otherwise have been entitled to receive a fraction of a share of
First Empire Common Stock (after taking into account all shares of ONBANCorp
Common Stock owned by such holder) will receive, in lieu thereof, cash in an
amount equal to the "market value" of such fraction of a share of First Empire
Common Stock. The "market value" of First Empire Common Stock shall be the
average of the closing prices of First Empire Common Stock on the AMEX Composite
Transactions List (as reported by the Wall Street Journal or other comparable
authoritative source) for the ten trading days preceding the date on which the
Effective Time occurs. No such holder shall be entitled to dividends, voting
rights or any other stockholder right in respect of such fractional share.
The Merger Agreements also provide that, upon consummation of the Merger,
the outstanding stock options (the "ONBANCorp Options") granted under the 1992
ONBANCorp Directors Stock Option Plan,
4
the 1987 Stock Option and Appreciation Rights Plan and the Franklin First
Savings Bank Incentive Plan (collectively, the "ONBANCorp Stock Option Plans")
will be assumed by First Empire, whether vested or unvested. Each ONBANCorp
Option so assumed will continue to have, and be subject to, the same terms and
conditions set forth in the ONBANCorp Stock Option Plan under which it was
granted and as in existence immediately prior to the Effective Date, except that
(i) such ONBANCorp Option will be exercisable for that number of whole shares of
First Empire Common Stock equal to the product of the number of shares of
ONBANCorp Common Stock covered by the ONBANCorp Option multiplied by 0.161 and
(ii) the exercise price per share of First Empire Common Stock will be equal to
the exercise price per share of ONBANCorp Common Stock of such ONBANCorp Option
divided by 0.161. Each holder of an ONBANCorp Option may elect to receive cash
in cancellation of such ONBANCorp Option at the Effective Time without payment
of any consideration by such holder pursuant to the terms of the Merger
Agreements. See "PROPOSED MERGER--Terms Of The Merger."
ELECTION PROCEDURES; SURRENDER OF STOCK CERTIFICATES
An election form (an "Election Form") and other appropriate and customary
transmittal materials are being sent to holders of ONBANCorp Common Stock
concurrently with the mailing of this Joint Proxy Statement. Each Election Form
entitles the holder of shares of ONBANCorp Common Stock to make a Cash Election,
a Stock Election, a Mixed Election or no election. To be effective, a properly
completed Election Form (along with the stockholder's ONBANCorp stock
certificate) must be submitted to the Exchange Agent on or before 5:00 p.m. New
York City time on March 24, 1998 (the "Election Deadline"). Within five business
days after the Effective Time, First Empire will cause the Exchange Agent to
allocate the Cash Consideration and the Stock Consideration among holders of
ONBANCorp Common Stock as set forth in the Merger Agreements. See "PROPOSED
MERGER--Terms of the Merger." ONBANCorp stockholders who do not submit Election
Forms will receive instructions on where to send and surrender their stock
certificates from the Exchange Agent after the Merger is completed. IN ANY
EVENT, ONBANCORP STOCKHOLDERS SHOULD NOT FORWARD THEIR STOCK CERTIFICATES WITH
THEIR PROXY CARDS. See "PROPOSED MERGER--Election Procedures; Surrender of Stock
Certificates" and "--Terms of the Merger."
ONBANCorp Stockholders are not entitled to change the amount of Stock
Consideration and/or Cash Consideration allocated to them in accordance with the
Merger Agreements. Nevertheless, ONBANCorp stockholders having a preference as
to the form of Merger Consideration to be received in exchange for their shares
of ONBANCorp Common Stock should make an election, because shares as to which an
election has been made will be given priority in allocating the Merger
Consideration over shares as to which no election is made. Neither ONBANCorp nor
the ONBANCorp Board makes any recommendation as to whether stockholders should
elect to receive the Cash Consideration or the Stock Consideration in the
Merger. Each holder of ONBANCorp Common Stock must make his or her own decision
with respect to such election.
MANAGEMENT AND OPERATIONS AFTER THE MERGER; INTERESTS OF CERTAIN PERSONS IN THE
MERGER
Following the Merger, those persons serving as directors of First Empire
immediately prior to the Effective Date will continue as directors, except that,
as of the Effective Date, Robert J. Bennett, Chairman of the Board, President
and Chief Executive Officer of ONBANCorp, will be appointed as the Chairman of
the First Empire Board and a member of the Executive Committee of the First
Empire Board, as well as the Vice Chairman of M&T Bank. In addition, four other
directors of ONBANCorp, William F. Allyn, Russell A. King, Peter J. O'Donnell
and John L. Vensel, will join Mr. Bennett on First Empire's and M&T Bank's Board
of Directors. The Merger Agreements also provide that the remaining directors on
the ONBANCorp Board (other than any such persons appointed to the First Empire
Board) will be appointed members of a newly-formed M&T Bank Syracuse Division
Advisory Board, for which each such advisory director will be paid an annual
retainer of $11,000 and meeting attendance fees of $600 for each meeting
attended, and the remaining members of the Board of Directors of Franklin First
(other than any such persons appointed to the First Empire Board) will be
appointed to the Board of Directors of
5
the newly-formed M&T Bank Wilkes-Barre Division Advisory Board, for which each
such advisory director will be paid an annual retainer of $6,000 and meeting
attendance fees of $600 for each meeting attended. The Merger Agreements also
contain provisions relating to, among other things, employee benefits,
indemnification of directors and officers, and directors' and officers'
liability insurance after the Merger. In addition, although not required by the
Merger Agreements, First Empire has entered into employment agreements with Mr.
Bennett and Howard W. Sharp, Senior Executive Vice President of ONBANCorp,
pursuant to which Mr. Bennett will receive a cash hiring bonus of $2,000,000 at
the Effective Time, an annual base salary of not less than $550,000 and a
retention bonus of $1,000,000 on the first anniversary of the Effective Date,
and Mr. Sharp will receive a cash hiring bonus of $750,000 at the Effective
Time, an annual base salary of not less than $200,000 and a retention bonus of
$500,000 on the first anniversary of the Effective Date. First Empire has also
agreed to assume certain existing employment and severance agreements between
ONBANCorp, OnBank & Trust and/or Franklin First and certain executives pursuant
to which, if each such executive were to incur a qualifying termination
thereunder, the aggregate severance payments under such agreements would equal
approximately $7,000,000. See "PROPOSED MERGER--Management and Operations After
the Merger" and "--Interests of Certain Persons in the Merger."
RECOMMENDATION OF THE BOARDS OF DIRECTORS
The Merger has been unanimously approved by the ONBANCorp Board and by the
First Empire Board (with four directors absent). The First Empire Board and the
ONBANCorp Board believe that the Merger is fair to and in the best interests of
their respective stockholders and recommend that their respective stockholders
vote FOR the First Empire Proposal and FOR the ONBANCorp Proposal, respectively.
See "PROPOSED MERGER--Background of and Reasons for the Merger; Recommendations
of the Board of Directors--Recommendation of the First Empire Board;
Recommendation of the ONBANCorp Board."
OPINIONS OF FINANCIAL ADVISORS
Keefe, Bruyette & Woods, Inc. ("Keefe, Bruyette"), First Empire's financial
advisor in connection with the Merger, has rendered its opinion dated the date
of this Joint Proxy Statement, that, as of the date of the opinion, the Merger
Consideration is fair, from a financial point of view, to First Empire and its
stockholders. Sandler O'Neill & Partners, L.P. ("Sandler O'Neill"), ONBANCorp's
financial advisor in connection with the Merger, has also rendered its opinion
dated the date of this Joint Proxy Statement, that, as of such date, the Merger
Consideration is fair, from a financial point of view, to ONBANCorp
stockholders. The summaries of such opinions set forth in this Joint Proxy
Statement are qualified in their entirety by reference to the full text of such
opinions. Copies of the opinions of Keefe, Bruyette and Sandler O'Neill are
attached hereto as Appendices C and D, respectively, and should be read in their
entirety with respect to the procedures followed, assumptions made, matters
considered and limitations and qualifications on the reviews undertaken. The
opinions of Keefe, Bruyette and Sandler O'Neill are directed only to the
consideration to be paid in the Merger and do not constitute a recommendation to
any First Empire or ONBANCorp stockholder as to how such stockholder should vote
at the applicable Special Meeting. See "PROPOSED MERGER--Opinions of Financial
Advisors."
VOTE REQUIRED
FIRST EMPIRE. Although neither applicable New York law nor First Empire's
Certificate of Incorporation requires the stockholders of First Empire to
approve the First Empire Proposal, the rules and regulations of the AMEX require
that the issuance of shares of First Empire Common Stock in connection with the
Merger must be approved by the affirmative vote of holders of a majority of the
votes cast on the First Empire Proposal by the holders of First Empire Common
Stock present in person or by proxy at the First Empire Special Meeting,
assuming a quorum is present. Approval of the First Empire Proposal by the
6
requisite vote of the holders of First Empire Common Stock is a condition to,
and required for, the consummation of the Merger. See "MEETING INFORMATION--
Record Date; Voting Rights."
As of the First Empire Record Date, directors and executive officers of
First Empire and their affiliates had voting power with respect to 1,075,258
shares of First Empire Common Stock, representing approximately 16% of the
aggregate voting power of the then outstanding First Empire Common Stock. Each
such director or executive officer of First Empire has indicated his or her
intention to vote the First Empire Common Stock as to which such person has
voting power for approval of the First Empire Proposal (and, other than those
discussed in the next paragraph, are the only persons to indicate to First
Empire their voting intentions). Other than compensation paid in connection with
their executive duties or service as members of the First Empire Board, no
compensation has been paid to any person who has indicated an intention to vote
in favor of the Merger. In addition, as of the Record Date, First Empire through
the asset management activities of its subsidiary banks, as fiduciaries,
custodians or agents, had sole or shared voting power with respect to 286,322
shares of First Empire Common Stock representing approximately 4% of the
aggregate voting power of the then outstanding First Empire Common Stock. First
Empire's asset management units will vote the shares of First Empire's Common
Stock over which they exercise sole or shared voting authority in accordance
with the terms of the respective governing documents, applicable laws and First
Empire's fiduciary policies. A determination with respect to the manner in which
such shares will be voted will be made following their receipt of this Joint
Proxy Statement.
In addition, as of the First Empire Record Date, ONBANCorp's directors and
executive officers as a group had no voting power with respect to any shares of
First Empire Common Stock.
ONBANCORP. Under applicable Delaware law, approval of the ONBANCorp
Proposal will require the affirmative vote of the holders of a majority of the
outstanding shares of ONBANCorp Common Stock entitled to vote at the Special
Meeting. Approval of the ONBANCorp Proposal by the requisite vote of the holders
of ONBANCorp Common Stock is a condition to, and required for, consummation of
the Merger. See "MEETING INFORMATION--Record Date; Voting Rights."
As of the ONBANCorp Record Date, directors and executive officers of
ONBANCorp and their affiliates had voting power with respect to 246,309 shares
of ONBANCorp Common Stock, representing approximately 1.9% of the shares of
ONBANCorp Common Stock then outstanding. Each such director or executive officer
has indicated his or her intention to vote for the ONBANCorp Proposal. Other
than compensation paid in connection with their executive duties or service as
members of the ONBANCorp Board, no compensation has been paid to any person who
has indicated an intention to vote in favor of the Merger. In addition, as of
the same date, the trust departments of the ONBANCorp Banks, as fiduciary,
custodian or agent, had no voting power with respect to any shares of ONBANCorp
Common Stock.
In addition, as of the ONBANCorp Record Date, First Empire held 12,501
shares of ONBANCorp Common Stock, representing less than 1% of the shares of
ONBANCorp Common Stock outstanding. First Empire intends to vote such shares in
favor of the ONBANCorp Proposal. As of the same date, the trust departments of
First Empire's subsidiary banks held an aggregate of 11,240 shares of ONBANCorp
Common Stock in fiduciary accounts for the benefit of other persons and had
voting power (sole or shared) with respect to of such shares.
CONDITIONS; AMENDMENT; TERMINATION
Consummation of the Merger is subject to satisfaction of certain conditions,
including, among other conditions, approval of the First Empire Proposal and the
ONBANCorp Proposal by the requisite vote of the stockholders of First Empire and
ONBANCorp, respectively; receipt by the parties of the opinion described in
"PROPOSED MERGER--Certain Federal Income Tax Consequences"; and the receipt of
all regulatory approvals required by law or deemed necessary by the parties in
connection with the Merger, which approvals may not include any condition
reasonably determined by the First Empire Board or the
7
ONBANCorp Board to so materially and adversely affect the benefits of the Merger
as to render its consummation inadvisable.
Pursuant to the terms of the Merger Agreements, except for stockholder and
regulatory approval or as otherwise set forth in the next sentence, any of the
conditions to consummation of the Merger may be waived at any time in writing by
the party whose obligation to consummate the Merger is contingent upon
satisfaction of such condition, and the Merger Agreements may be amended at any
time by mutual written agreement of the parties, except that no such waiver or
amendment executed after approval of the Merger Agreements by the stockholders
of First Empire or ONBANCorp shall change the number of shares of First Empire
Common Stock or the amount of cash, as the case may be, into which each share of
ONBANCorp Common Stock may be converted pursuant to the Merger. Notwithstanding
the foregoing, certain conditions to consummation of the Merger cannot be waived
as a matter of law, including the existence of an effective registration
statement or exemption therefrom or the absence of a government order enjoining
or prohibiting consummation of the Merger. See "PROPOSED MERGER--
Representations and Warranties; Conditions to the Merger; Waiver."
In addition, the Merger Agreements may be terminated by either First Empire
or ONBANCorp, either before or after stockholder approval, under certain
circumstances, including ONBANCorp's right to terminate the Merger Agreements
upon the execution by ONBANCorp of a definitive agreement relating to a takeover
proposal, provided that ONBANCorp satisfies certain obligations under the Merger
Agreements. See "PROPOSED MERGER--Representations and Warranties; Conditions to
the Merger; Waiver"; "--Effective Date of the Merger; Termination" and "-- Stock
Option Agreement."
REGULATORY APPROVALS
Under the Merger Agreements, the respective obligations of First Empire,
Olympia and ONBANCorp to consummate the Merger are conditioned upon, among other
things, the receipt of all regulatory approvals required or mutually deemed
necessary in connection with the transactions contemplated by the Merger
Agreements and the Bank Merger Agreement (the "Requisite Regulatory Approvals"),
expiration of all notice and waiting periods required after the grant of any
such approvals and the satisfaction of all pre-consummation conditions contained
in any such approval.
The Requisite Regulatory Approvals include the approval of the Merger and
the Bank Merger by the Board of Governors of the Federal Reserve System (the
"Federal Reserve") and the New York State Banking Board (the "Banking Board").
The Requisite Regulatory Approvals of the Federal Reserve and the Banking Board
have been received. There can be no assurance that there will be no litigation
challenging the granting of any of the Requisite Regulatory Approvals or that
any state attorney general will not attempt to challenge the Merger or the Bank
Merger on antitrust grounds or, if such a challenge is made, as to the result
thereof. See "PROPOSED MERGER Representations and Warranties; Conditions to the
Merger; Waiver" and "--Regulatory Approvals."
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
First Empire and ONBANCorp have received an opinion from Arnold & Porter
with respect to the anticipated material U.S. federal income tax consequences of
the Merger to a holder of ONBANCorp Common Stock. First Empire, Olympia and
ONBANCorp have provided Arnold & Porter with the facts, representations and
assumptions on which it relied in rendering its opinion, which information is
consistent with the state of facts that First Empire, Olympia and ONBANCorp
believe will be existing as of the Effective Date. Based on such facts,
representations and assumptions, Arnold & Porter has opined as set forth below
in "PROPOSED MERGER--Certain Federal Income Tax Consequences." The following is
a summary of the anticipated material U.S. federal income tax consequences to
holders of ONBANCorp Common Stock. Each holder of ONBANCorp Common Stock should
read in full the more detailed description of the anticipated material U.S.
federal income tax consequences under that heading.
8
The Merger has been structured with the intent that it be treated as a
reorganization within the meaning of Section 368(a) of the Internal Revenue Code
of 1986, as amended (the "Code"). The federal income tax consequences of the
Merger to a holder of ONBANCorp Common Stock will depend primarily on whether
the holder exchanges its ONBANCorp Common Stock for solely First Empire Common
Stock (except for cash received in lieu of a fractional share of First Empire
Common Stock), solely cash or a combination thereof.
- If all of the shares of ONBANCorp Common Stock actually owned by a holder
are exchanged solely for cash, the holder generally will recognize capital
gain or loss equal to the difference between the amount of cash received
and the holder's adjusted tax basis in the shares of ONBANCorp Common
Stock surrendered. If, however, such a holder owns any shares of First
Empire Common Stock immediately after the Merger, either actually or
through the constructive ownership rules of the Code, part or all of the
cash received may be treated as ordinary income if the exchange has the
effect of a distribution of a dividend with respect to such holder.
- If all of the shares of ONBANCorp Common Stock actually owned by a holder
are exchanged solely for shares of First Empire Common Stock (and cash in
lieu of a fractional share thereof), the holder will not recognize gain or
loss (except in respect of such cash, as described below).
- If all of the shares of ONBANCorp Common Stock actually owned by a holder
are exchanged for a combination of shares of First Empire Common Stock and
cash (exclusive of any cash received in lieu of a fractional share of
First Empire Common Stock), the holder will recognize gain equal to the
lesser of (i) the amount of such cash received, and (ii) the excess of (A)
the sum of the amount of such cash and the fair market value of the First
Empire Common Stock received (including the fair market value of the
fractional share of First Empire Common Stock deemed received, if any)
over (B) the holder's adjusted tax basis in the shares of ONBANCorp Common
Stock surrendered. Such gain generally will be capital gain, but part or
all of such gain may be treated as ordinary income if the exchange has the
effect of a distribution of a dividend with respect to the holder.
In addition, a holder who receives cash in lieu of a fractional share of
First Empire Common Stock will generally recognize gain or loss measured by the
difference between the amount of such cash and the portion of the basis of the
shares of ONBANCorp Common Stock allocable to such fractional share. The gain
recognized by a holder described in the previous sentence will generally be
capital gain, but part or all of the cash received may be treated as ordinary
income if the receipt of cash has the effect of a distribution of a dividend.
Certain exceptions or other considerations may apply. Each holder of
ONBANCorp Common Stock is urged to consult its tax advisor with respect to the
federal income tax and other tax consequences of the Merger. See "PROPOSED
MERGER--Certain Federal Income Tax Consequences."
ACCOUNTING TREATMENT
The Merger will be accounted for as a purchase transaction under generally
accepted accounting principles. See "PROPOSED MERGER--Accounting Treatment."
DISSENTERS' RIGHTS
Under Delaware law, holders of ONBANCorp Common Stock are entitled to
dissent from the Merger and to receive payment equal to the "fair value" of
their shares upon compliance with Section 262 of the DGCL, the full text of
which is attached as Appendix E to this Joint Proxy Statement. See "PROPOSED
MERGER--Terms of the Merger" and "--Dissenters' Rights." Stockholders of First
Empire are not entitled to dissenters' rights under the New York Business
Corporation Law in connection with the Merger.
9
EFFECTIVE DATE OF THE MERGER
The Effective Date will be the date and time as set forth in the certificate
of merger to be delivered to and filed with the Delaware Secretary of State in
accordance with DGCL. First Empire and ONBANCorp each anticipate that the
Effective Date will occur and the Merger will be consummated on or about April
1, 1998. However, consummation of the Merger could be delayed and there can be
no assurances as to if or when the Merger will be consummated. See "PROPOSED
MERGER--Effective Date of the Merger; Termination."
STOCK OPTION AGREEMENT
In connection with the execution of the Merger Agreements, First Empire and
ONBANCorp have entered into a Stock Option Agreement (the "Stock Option
Agreement") pursuant to which ONBANCorp granted First Empire the option (the
"Option") to purchase up to 2,529,000 shares of authorized but unissued shares
of ONBANCorp Common Stock, which constitutes approximately 19.9% of the shares
of ONBANCorp Common Stock outstanding on the date of the grant, at a price of
$60 per share, such number of shares and exercise price being subject to further
adjustments under certain circumstances. The Option is exercisable only upon the
occurrence and continuation of certain events that could jeopardize consummation
of the Merger pursuant to the terms of the Merger Agreements. The Stock Option
Agreement is intended to increase the likelihood that the Merger will be
consummated in accordance with the terms of the Merger Agreements and may make
it more difficult and more expensive for another person who might be interested
in acquiring ONBANCorp to do so. See "PROPOSED MERGER--Stock Option Agreement"
and the text of the Stock Option Agreement, attached hereto as Appendix B.
COMPARISON OF CERTAIN RIGHTS OF HOLDERS OF FIRST EMPIRE COMMON STOCK AND
ONBANCORP COMMON STOCK
After the Effective Date, those stockholders of ONBANCorp who receive First
Empire Common Stock will become stockholders of First Empire and their rights as
stockholders of First Empire will be governed by First Empire's Certificate of
Incorporation and By-Laws, and by New York law. The rights of ONBANCorp
stockholders currently are governed by ONBANCorp's Certificate of Incorporation
and By-Laws, and by applicable Delaware law. The rights of stockholders of First
Empire are different in certain respects from the rights of stockholders of
ONBANCorp. See "COMPARISON OF CERTAIN RIGHTS OF HOLDERS OF FIRST EMPIRE COMMON
STOCK AND ONBANCORP COMMON STOCK."
MARKETS AND MARKET PRICES
First Empire Common Stock is listed and traded on the AMEX under the symbol
"FES". ONBANCorp Common Stock is traded in the over-the-counter market and price
quotations therefor are reported in the NASDAQ/NMS under the symbol "ONBK".
10
The table below sets forth the high and low sale prices for First Empire
Common Stock and the high and low closing sale prices for ONBANCorp Common Stock
for the periods indicated.
FIRST EMPIRE ONBANCORP
-------------------- --------------------
HIGH LOW HIGH LOW
--------- --------- --------- ---------
1998 QUARTER
First (through February 5, 1998).................................... $ 488.00 $ 429.00 $ 73.94 $ 67.06
1997 QUARTER
First............................................................... $ 336.00 $ 281.00 $ 47.00 $ 35.50
Second.............................................................. 343.50 303.00 51.00 43.00
Third............................................................... 415.00 335.00 58.00 47.25
Fourth.............................................................. 468.00 401.00 70.75 58.50
1996 QUARTER
First............................................................... $ 247.75 $ 209.00 $ 35.00 $ 30.25
Second.............................................................. 247.00 232.00 35.50 30.75
Third............................................................... 258.00 239.00 34.63 28.88
Fourth.............................................................. 289.63 250.00 38.75 34.00
The information presented in the following table reflects the closing price
for First Empire Common Stock and the last reported sale price for ONBANCorp
Common Stock on October 27, 1997, the last trading day preceding the public
announcement of the proposed Merger, and on February 5, 1998 (the latest
practicable trading day before the printing of this Joint Proxy Statement). The
ONBANCorp Common Stock equivalent pro forma per share price is calculated by
multiplying the closing price of First Empire Common Stock on each such date by
the Exchange Ratio of 0.161. The Merger Agreements generally provide that the
number of issued and outstanding shares of ONBANCorp Common Stock that may be
converted into shares of First Empire Common Stock in the Merger cannot be less
than 60% or more than 70% of the total number of such ONBANCorp shares. The
remaining shares of ONBANCorp Common Stock will be converted into the right to
receive $69.50 in cash per share. See "PROPOSED MERGER--Terms of the Merger."
FIRST EMPIRE ONBANCORP ONBANCORP
COMMON COMMON EQUIVALENT PRO
STOCK STOCK FORMA
------------ ------------ --------------
Market Value per share:
October 27, 1997.................................................. $ 417.00 $ 58.875 $ 67.137
February 5, 1998.................................................. $ 477.063 $ 72.875 $ 76.807
No assurance can be given as to what the market price of First Empire Common
Stock will be if and when the Merger is consummated. Because the Exchange Ratio
is fixed and because the market price of the First Empire Common Stock is
subject to fluctuation, the value of the Stock Consideration that holders of
ONBANCorp Common Stock may elect to receive in the Merger may increase or
decrease prior to and following the Merger and could be less than or greater
than $69.50 (the amount of the Cash Consideration). FIRST EMPIRE AND ONBANCORP
STOCKHOLDERS ARE ADVISED TO OBTAIN CURRENT MARKET QUOTATIONS FOR FIRST EMPIRE
COMMON STOCK AND ONBANCORP COMMON STOCK.
11
COMPARATIVE PER SHARE DATA
The following table presents at the dates and for the periods indicated (i)
historical and pro forma consolidated per share data for First Empire Common
Stock, and (ii) historical and equivalent pro forma per share data for ONBANCorp
Common Stock. The information is based upon and should be read in conjunction
with the historical financial statements of First Empire and ONBANCorp
incorporated by reference in this Joint Proxy Statement and the pro forma
consolidated financial information giving effect to the Merger appearing
elsewhere herein. The pro forma data are presented for comparative purposes only
and are not necessarily indicative of the combined financial position or results
of operations which would have been realized had the Merger been consummated as
of the dates or at the beginning of the periods for which the pro forma data are
presented or which will be attained in the future. See "AVAILABLE INFORMATION;
DOCUMENTS INCORPORATED BY REFERENCE" and "PRO FORMA CONDENSED FINANCIAL
INFORMATION (Unaudited)."
HISTORICAL
------------------------ ONBANCORP
FIRST PRO FORMA PRO FORMA
EMPIRE ONBANCORP COMBINED EQUIVALENT(2)
--------- ------------- ----------- -------------
NET INCOME (1)
Nine months ended September 30, 1997...................... $ 18.60 2.79 15.66 $ 2.52
Twelve months ended December 31, 1996..................... 21.08 2.88 16.90 2.72
CASH DIVIDENDS (3)
Nine months ended September 30, 1997...................... 2.40 1.02 2.40 0.39
Twelve months ended December 31, 1996..................... 2.80 1.24 2.80 0.45
BOOK VALUE PER COMMON SHARE
At September 30, 1997..................................... $ 149.31 25.59 193.36 $ 31.13
- ------------------------
(1) Earnings per common share is on a diluted basis. All earnings per share
amounts reflect the implementation of Statement of Financial Accounting
Standards ("SFAS") No. 128, "Earnings Per Share." SFAS No. 128 establishes
new standards for computing and presenting earnings per share and is
effective for financial statements for both interim and annual periods
ending after December 15, 1997. SFAS No. 128 requires that all prior period
earnings per share data be restated to conform with the provisions of the
statement.
(2) The ONBANCorp pro forma equivalent represents the pro forma combined amount
multiplied by the Exchange Ratio of 0.161. See "PRO FORMA CONDENSED
FINANCIAL INFORMATION (Unaudited)".
(3) Pro forma combined dividends per share represent historical dividends per
common share paid by First Empire.
12
SELECTED CONSOLIDATED FINANCIAL DATA
The following tables set forth certain selected historical and selected pro
forma consolidated financial data ("selected financial data") for First Empire
and ONBANCorp. Certain of the historical selected financial data for the five
years ended December 31, 1996 are derived from the respective audited
consolidated financial statements of First Empire and ONBANCorp. The selected
financial data for the nine month periods ended September 30, 1997 and 1996 are
derived from unaudited consolidated interim financial statements and are not
necessarily indicative of the results for the remainder of the year or any
future period. In each management's opinion, their respective consolidated
interim financial statements reflect all adjustments, which are of a normal
recurring nature, necessary for a fair statement of the results for the interim
periods presented. This summary should be read in connection with the financial
statements and other financial information included in documents incorporated
herein by reference. See "AVAILABLE INFORMATION; DOCUMENTS INCORPORATED BY
REFERENCE."
The pro forma selected financial data were developed giving effect to the
Merger using the purchase method of accounting. For a description of the
purchase method of accounting with respect to the Merger and the related effects
on the historical financial statements of First Empire and ONBANCorp, see
"PROPOSED MERGER--Accounting Treatment." The pro forma condensed financial
statements may not be indicative of the financial position or results that
actually would have occurred had the Merger been consummated on the dates or at
the beginning of the periods indicated, or which will be attained in the future.
See "SUMMARY--Comparative Per Share Data" and "PRO FORMA CONDENSED FINANCIAL
INFORMATION (Unaudited)."
PRO FORMA SELECTED COMBINED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
FOR THE NINE FOR THE YEAR
MONTHS ENDED ENDED
SEPTEMBER 30, DECEMBER 31,
1997 1996
----------------- ----------------
SUMMARIZED INCOME STATEMENT DATA:
Net interest income....................................................... $ 507,724 $ 656,515
Provision for possible credit losses...................................... 39,386 51,138
Other income.............................................................. 170,313 208,757
Other expense............................................................. 418,085 560,255
Income taxes.............................................................. 90,368 110,250
----------------- ----------------
Net income.............................................................. $ 130,198 $ 143,629
PER SHARE DATA:
Basic net income (1)...................................................... $ 16.35 $ 17.85
Diluted net income (1).................................................... 15.66 16.90
Book value................................................................ 193.36 185.53
Cash dividends............................................................ $ 2.40 $ 2.80
WEIGHTED AVERAGE NUMBER OF SHARES:
Basic (1)................................................................. 7,964 7,994
Diluted (1)............................................................... 8,315 8,500
AVERAGE BALANCE SHEET DATA:
Total assets.............................................................. $ 18,852,891 $ 18,089,336
Total borrowings.......................................................... 2,242,192 2,430,443
Stockholders' equity...................................................... $ 1,492,966 $ 1,460,865
(1) Restated to conform with the provisions of SFAS No. 128. See
"SUMMARY--Comparative Per Share Data."
13
FIRST EMPIRE STATE CORPORATION
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
NINE MONTHS ENDED
SEPTEMBER 30, YEARS ENDED DECEMBER 31,
---------------------- ---------------------------------------------------------
1997 1996 1996 1995 1994 1993 1992
---------- ---------- ---------- ---------- ---------- ---------- ---------
SUMMARIZED INCOME STATEMENT DATA:
Net interest income.............. $414,585 $394,400 $531,024 $486,424 $468,140 $470,756 $432,879
Provision for possible credit
losses......................... 34,000 31,850 43,325 40,350 60,536 79,958 84,989
Other income..................... 140,088 122,607 170,248 149,538 123,739 110,544 126,226
Other expense.................... 311,060 301,896 408,978 374,439 336,862 327,819 311,338
Income taxes..................... 79,672 72,578 97,866 90,137 77,186 71,531 64,841
---------- ---------- ---------- ---------- ---------- ---------- ---------
Net income..................... $129,941 $110,683 $151,103 $131,036 $117,295 $101,992 $97,937
PER COMMON SHARE DATA:
Basic net income (1)............. $19.59 $16.51 $22.54 $19.61 $16.90 $14.32 $14.01
Diluted net income (1)........... 18.60 15.38 21.08 17.98 15.73 13.42 12.99
Book value....................... 149.31 130.58 135.45 125.33 103.02 99.43 85.79
Cash dividends................... 2.40 2.10 2.80 2.50 2.20 1.90 1.60
WEIGHTED AVERAGE NUMBER OF SHARES:
Basic (1)........................ 6,634 6,651 6,663 6,499 6,729 6,869 6,735
Diluted (1)...................... 6,985 7,194 7,170 7,288 7,459 7,598 7,540
AVERAGE BALANCE SHEET DATA:
Total assets..................... $13,148,101 $12,394,931 $12,478,666 $11,484,754 $10,025,421 $10,390,030 $9,553,875
Total borrowings................. 1,202,898 1,407,190 1,321,767 1,569,514 1,849,818 1,998,165 1,128,497
Stockholders' equity............. 934,969 853,821 863,133 782,520 723,202 670,449 582,569
(1) Restated to conform with the provisions of SFAS No. 128. See
"SUMMARY--Comparative Per Share Data."
14
ONBANCORP, INC.
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
NINE MONTHS ENDED
SEPTEMBER 30, YEARS ENDED DECEMBER 31,
-------------------- -----------------------------------------------------
1997 1996 1996 1995 1994 1993 1992
--------- --------- --------- --------- --------- --------- ---------
SUMMARIZED INCOME
STATEMENT DATA:
Net interest income................. $113,064 $113,667 $152,747 $152,515 $163,629 $156,567 $112,296
Provision for possible credit
losses............................ 5,386 5,850 7,813 6,790 7,638 10,297 5,900
Other income (loss)................. 29,049 27,881 36,262 29,301 (52,689 (1) 46,066 23,073
Other expense....................... 78,145 85,035 110,614 103,462 99,890 98,666 58,783
Income taxes........................ 21,513 20,146 27,618 26,887 708 35,707 29,532
Income before cumulative effect of
accounting change................. 37,069 30,517 42,964 44,677 2,704 57,963 41,154
Cumulative effect of change in
accounting for income taxes....... -- -- -- -- -- 3,400 --
--------- --------- --------- --------- --------- --------- ---------
Net income........................ $37,069 $30,517 $42,964 $44,677 $2,704 $61,363 $41,154
PER COMMON SHARE DATA:
Basic net income (loss) (2)......... $2.82 $2.09 $3.02 $2.88 $(0.15) $4.32 $3.01
Diluted net income (loss) (2)....... 2.79 2.02 2.88 2.76 (0.15) 3.97 2.90
Book value.......................... 25.59 24.14 24.82 24.11 20.82 25.77 20.87
Cash dividends...................... 1.02 0.90 1.24 1.14 1.03 0.69 0.45
WEIGHTED AVERAGE NUMBER
OF SHARES:
Basic (2)........................... 13,132 13,081 12,855 13,967 14,017 13,092 12,610
Diluted (2)......................... 13,288 15,143 14,914 16,178 14,017 15,474 14,197
AVERAGE BALANCE SHEET DATA:
Total assets........................ $5,429,507 $5,328,955 $5,335,387 $6,319,460 $6,397,953 $5,175,685 $3,390,625
Total borrowings.................... 1,029,637 1,123,092 1,099,019 2,046,308 2,464,982 1,695,761 908,933
Stockholders' equity................ 336,407 381,157 376,142 380,386 395,060 373,702 295,496
- ------------------------
(1) Includes an $80 million net loss on the sale of $1.3 billion of assets
available for sale. The proceeds of the sale were used to restructure the
ONBANCorp balance sheet through the purchase of higher yielding assets with
shorter durations and to pay down borrowings.
(2) Restated to conform with the provisions of SFAS No. 128. See
"SUMMARY--Comparative Per Share Data."
15
MEETING INFORMATION
DATE, PLACE AND TIME
The First Empire Special Meeting will be held at 11:00 a.m. on March 17,
1998 at M&T Center, One Fountain Plaza, Buffalo, New York.
The ONBANCorp Special Meeting will be held at 10:00 a.m. on March 17, 1998
at the Marriott Hotel, 6302 Carrier Parkway, East Syracuse, New York.
RECORD DATE; VOTING RIGHTS
FIRST EMPIRE. The close of business on February 3, 1998 has been fixed as
the Record Date for purposes of determining stockholders entitled to notice of,
and to vote at, the First Empire Special Meeting. On that date, there were
issued and outstanding 6,667,664 shares of First Empire Common Stock. The
holders of First Empire Common Stock are entitled to one vote per share.
The rules and regulations of the AMEX require the approval of First Empire
stockholders for the issuance of shares of First Empire Common Stock in
connection with the Merger. The affirmative vote by holders of a majority of the
votes cast on the First Empire Proposal by the holders of First Empire Common
Stock in person or by proxy will be required to approve the First Empire
Proposal, assuming a quorum is present. Under New York law and First Empire's
By-Laws, a quorum is constituted by the presence, in person or by proxy, of a
majority of the shares of First Empire Common Stock entitled to vote at the
First Empire Special Meeting.
First Empire intends to count the shares of First Empire Common Stock
present in person or by proxy at the First Empire Special Meeting but not
voting, and shares of First Empire Common Stock for which it has received
proxies but with respect to which holders of shares have abstained on any
matter, as present at the First Empire Special Meeting for purposes of
determining the presence or absence of a quorum for the transaction of business.
In addition, under applicable exchange rules, brokers who hold shares of First
Empire Common Stock in street name for customers who are the beneficial owners
of such shares are prohibited from giving a proxy to vote shares held for such
customers in favor of the approval of the First Empire Proposal without specific
instruction from such customers. Accordingly, the failure of such customers to
provide instructions with respect to their shares of First Empire Common Stock
to their broker will have the effect of such shares not being voted and
therefore will have no effect on the vote to approve the First Empire Proposal.
Such instances, if any, are referred to as broker non-votes. Nonetheless, broker
non-votes will be counted as being present or represented at the First Empire
Special Meeting for the purposes of establishing a quorum.
ONBANCORP. The close of business on February 3, 1998 has been fixed as the
Record Date for purposes of determining stockholders entitled to notice of, and
to vote at, the ONBANCorp Special Meeting. On the ONBANCorp Record Date, there
were issued and outstanding 12,712,196 shares of ONBANCorp Common Stock entitled
to vote at the ONBANCorp Special Meeting. The holders of ONBANCorp Common Stock
outstanding on the Record Date will be entitled to one vote for each share of
ONBANCorp Common Stock held of record on the ONBANCorp Record Date upon each
matter properly submitted at the ONBANCorp Special Meeting. The affirmative vote
by holders of a majority of the outstanding shares of ONBANCorp Common Stock
entitled to vote at the ONBANCorp Special Meeting is required to approve the
ONBANCorp Proposal under Delaware law. Under Delaware law and ONBANCorp's
By-Laws, a quorum is constituted by the presence, in person or represented by
proxy, of a majority of the shares of ONBANCorp Common Stock issued and
outstanding on the Record Date and entitled to vote at the ONBANCorp Special
Meeting.
ONBANCorp intends to count shares of ONBANCorp Common Stock present in
person at the ONBANCorp Special Meeting but not voting, and shares of ONBANCorp
Common Stock for which it has received proxies but with respect to which holders
of such shares have abstained on any matter, as present at the ONBANCorp Special
Meeting for purposes of determining the presence or absence of a quorum for
16
the transaction of business. However, because the ONBANCorp Proposal requires
the approval of the holders of a majority of the outstanding shares of ONBANCorp
Common Stock, such nonvoting shares and abstentions will have the same effect as
a vote against the ONBANCorp Proposal. In addition, under applicable exchange
rules, brokers who hold shares of ONBANCorp Common Stock in street name for
customers who are the beneficial owners of such shares are prohibited from
giving a proxy to vote shares held for such customers in favor of the approval
of the ONBANCorp Proposal without specific instructions to that effect from such
customers. Accordingly, the failure of such customers to provide instructions
with respect to their shares of ONBANCorp Common Stock to their broker will have
the effect of a vote against the ONBANCorp Proposal. Such "broker non-votes," if
any, will be counted as present for determining the presence or absence of a
quorum for the transaction of business.
VOTING AND REVOCATION OF PROXIES
Shares of First Empire Common Stock or ONBANCorp Common Stock represented by
a proxy properly signed and returned at or prior to the applicable Special
Meeting and not subsequently revoked prior to the vote will be voted at the
applicable Special Meeting in accordance with the instructions thereon. If a
proxy is signed and returned without indicating any voting instructions, the
shares of First Empire Common Stock or ONBANCorp Common Stock represented by
such proxy will be voted FOR approval of the First Empire Proposal in the case
of First Empire stockholders and FOR approval of the ONBANCorp Proposal in the
case of ONBANCorp stockholders.
Any stockholder giving a proxy may revoke it at any time before it is
exercised. In order to revoke a proxy, the stockholder must either give written
notice of such revocation to the Corporate Secretary of First Empire or
ONBANCorp or to the Secretary of the First Empire Special Meeting or the
ONBANCorp Special Meeting, as appropriate, or vote the shares of First Empire
Common Stock or ONBANCorp Common Stock subject to such proxy by a later dated
proxy or by written ballot at the appropriate Special Meeting. Written notices
of revocation may be directed, for First Empire stockholders, to: Marie King,
Corporate Secretary, First Empire State Corporation, One M&T Plaza, Buffalo, New
York 14240, and, for ONBANCorp stockholders, to: David M. Dembowski, Secretary,
ONBANCorp, Inc., 101 South Salina Street, P.O. Box 4983, Syracuse, New York
13221. The presence at a Special Meeting of any stockholder who has given a
proxy will not, in and of itself, revoke the proxy. Any stockholder of record
attending the First Empire Special Meeting or the ONBANCorp Special Meeting may
vote in person whether or not a proxy has been previously given.
The Boards of Directors of First Empire and ONBANCorp are not aware of any
other business to be acted upon at the Special Meeting of their respective
stockholders other than as described herein. It is not anticipated that other
matters will be brought before either Special Meeting. If, however, other
matters are duly brought before either Special Meeting, or any adjournments or
postponements thereof, the persons appointed as proxies will have discretion to
vote or act thereon according to their best judgment. The persons named as
proxies by a stockholder may propose and vote for one or more adjournments or
postponements of the First Empire Special Meeting or ONBANCorp Special Meeting,
as the case may be, to permit another solicitation of proxies in favor of the
First Empire Proposal or the ONBANCorp Proposal, as the case may be; provided,
however, that no proxy which is voted against the ONBANCorp Proposal, in the
case of ONBANCorp stockholders, or against the First Empire Proposal, in the
case of First Empire stockholders, will be voted in favor of any such
adjournment or postponement.
SOLICITATION OF PROXIES
In addition to solicitation of proxies by mail, First Empire and ONBANCorp,
through their directors, officers and regular employees, may also solicit
proxies from the stockholders of First Empire and ONBANCorp, respectively,
personally, by telephone or by telecopy, without additional compensation to such
directors, officers or regular employees and at a nominal cost to First Empire
and ONBANCorp, respectively. Brokerage houses, nominees, fiduciaries and other
custodians have been requested to forward
17
proxy materials to beneficial owners of First Empire Common Stock and ONBANCorp
Common Stock and such parties will be reimbursed for the expenses incurred by
them. ONBANCorp has retained Morrow & Co. to assist in the solicitation of
proxies. It is anticipated that the fee of such firm will not exceed $7,500 plus
reasonable out-of-pocket costs and expenses authorized by ONBANCorp. First
Empire and ONBANCorp each will bear its own expenses in connection with the
solicitation of proxies, except that First Empire and ONBANCorp each will bear
50% of all printing and mailing costs and filing fees associated with this Joint
Proxy Statement.
PROPOSED MERGER
THIS SECTION OF THE JOINT PROXY STATEMENT DESCRIBES MATERIAL ASPECTS OF THE
MERGER. THE DESCRIPTION OF THE MERGER AGREEMENTS AND THE STOCK OPTION AGREEMENT
CONTAINED IN THIS SECTION DOES NOT PURPORT TO BE COMPLETE AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO THE MERGER AGREEMENTS AND THE STOCK OPTION
AGREEMENT, WHICH ARE ATTACHED AS APPENDIX A AND APPENDIX B, RESPECTIVELY, TO
THIS JOINT PROXY STATEMENT AND ARE INCORPORATED HEREIN BY REFERENCE. ALL
STOCKHOLDERS ARE URGED TO READ THE MERGER AGREEMENTS AND THE STOCK OPTION
AGREEMENT CAREFULLY AND IN THEIR ENTIRETY.
BACKGROUND OF AND REASONS FOR THE MERGER; RECOMMENDATIONS OF THE BOARDS OF
DIRECTORS
BACKGROUND.
FIRST EMPIRE. Over the years, First Empire has sought to develop a major
commercial and retail banking franchise, centered in Buffalo and operating
throughout New York State. Since the beginning of 1990, M&T Bank has experienced
significant growth through federally-assisted acquisitions of assets and
liabilities of failed thrift institutions and through unassisted mergers with,
and acquisitions of, depository institutions. In 1990, M&T Bank, in two
federally-assisted transactions, purchased certain assets and assumed certain
liabilities of Monroe Savings Bank, FSB, Rochester, New York (approximately $0.5
billion in deposits and $0.4 billion in loans) and Empire Federal Savings Bank
of America, Buffalo, New York (approximately $1.2 billion in deposits and $0.5
billion in loans). In 1991, M&T Bank purchased certain assets and assumed
certain liabilities of Goldome, a Buffalo, New York savings bank, from the FDIC
as receiver (approximately $2.2 billion in deposits and $1.0 billion in loans).
In 1992, First Empire acquired Central Trust Company, Rochester, New York
(approximately $1.0 billion in deposits and $0.8 billion in loans), and Endicott
Trust Company, Endicott, New York (approximately $0.3 billion in deposits and
$0.2 billion in loans), both banks being merged into M&T Bank. In 1994, First
Empire acquired Ithaca Bancorp, Inc., Ithaca, New York, and its subsidiary,
Citizens Savings Bank, F.S.B. (approximately $0.3 billion in deposits and $0.4
billion in loans). In addition, since 1994, M&T Bank has acquired a number of
branches from other financial institutions in New York State. Consistent with
this strategy, First Empire continues to explore other market expansion
opportunities within New York and contiguous states and has had discussions with
and responded to inquiries from a number of other financial institutions in
addition to those discussed above. Except for the acquisitions discussed above,
however, none of the discussions led to an agreement on the terms of a potential
transaction.
BACKGROUND OF THE MERGER. From time to time the ONBANCorp Board has
considered and analyzed ONBANCorp's strategic alternatives, including prospects
for ONBANCorp continuing as an independent entity and possible business
combination transactions with other financial institutions of various sizes and
the potential effects of such transactions on ONBANCorp and its stockholders,
employees and customers and the communities it serves. In addition, Mr. Bennett
has, from time to time, had informal conversations with representatives of other
financial institutions, including Robert G. Wilmers, the Chairman of the Board,
President and Chief Executive Officer of First Empire, regarding the possibility
of a business combination transaction involving ONBANCorp, but none of such
conversations developed into discussions or negotiations concerning the specific
terms of a business combination transaction. These discussions reflected First
Empire's desire to expand in both Syracuse and Albany, two significant upstate
markets where First Empire's retail banking presence was nominal. ONBANCorp
operates a significant
18
banking network in Syracuse and has a modest presence in Albany. First Empire
therefore considered ONBANCorp a potential merger partner.
In January 1995, ONBANCorp retained Sandler O'Neill to assist ONBANCorp in
its analysis of various strategic alternatives available to it. In its role as
financial advisor, Sandler O'Neill met with the ONBANCorp Board periodically to
review ONBANCorp's strategic alternatives, including the competitive environment
of the financial services industry, strategic alternatives for enhancing
stockholder value on a stand-alone basis, and the merger and acquisition market
for financial institutions generally. In addition, in the ordinary course of its
contacts with representatives of other financial institutions, Sandler O'Neill
periodically received inquiries and had discussions concerning the interest of
such parties in considering a potential business combination transaction with
certain of Sandler O'Neill's financial institution clients, including ONBANCorp.
During 1997, Sandler O'Neill had discussions regarding inquiries with
respect to ONBANCorp's possible interest in a business combination transaction
with each of First Empire and another financial institution (the "Other
Financial Institution"). In September 1997, representatives of Sandler O'Neill
reviewed with Mr. Bennett the discussions with First Empire and the Other
Financial Institution concerning ONBANCorp. Mr. Bennett subsequently met with
each of Mr. Wilmers and the chief executive officer of the Other Financial
Institution to discuss, on a preliminary and nonbinding basis, the strategic
merits and other potential benefits of a business combination transaction
involving ONBANCorp.
Following these meetings, Mr. Bennett determined that the prospect of a
strategic business combination with either First Empire or the Other Financial
Institution warranted further investigation and in late September authorized
Sandler O'Neill to contact each of First Empire and the Other Financial
Institution to explore in more detail the value or range of values of per share
consideration which it would be willing to pay in a business combination
transaction with ONBANCorp. First Empire responded with a preliminary range of
per share consideration having a dollar value in the low to mid-$60s and the
Other Financial Institution responded with a preliminary range of per share
consideration having a dollar value in the upper $60s. Each party's preliminary
indication of interest contemplated a stock-for-stock merger transaction or, in
the case of First Empire, the possibility of a mixture of cash and stock
consideration as an alternative, and was subject to a satisfactory due diligence
investigation of ONBANCorp and approval of such party's Board of Directors.
Mr. Bennett communicated to each of First Empire and the Other Financial
Institution that its range of per share consideration would need to be improved
in order for ONBANCorp to be willing to commence discussions with such party
concerning the terms of a business combination transaction. In furtherance of
that end, in early October 1997 ONBANCorp entered into confidentiality
agreements with each of First Empire and the Other Financial Institution and
provided each with certain nonpublic financial and other information with
respect to ONBANCorp.
Discussions continued periodically over the next several days between
representatives of ONBANCorp and Sandler O'Neill and representatives of each of
First Empire and the Other Financial Institution and their respective financial
advisors concerning the range of per share consideration which such party would
be willing to offer in a business combination transaction with ONBANCorp, the
general possibilities for integrating the companies and the potential synergies
from such integration, the compatibility of the companies' respective franchises
and community banking philosophies, and their respective strategic outlooks and
focus for the future. In mid-October 1997, Mr. Bennett requested each of Mr.
Wilmers and the chief executive officer of the Other Financial Institution to
increase its indicated range of per share values and to reaffirm its willingness
to proceed toward discussions concerning the terms of a business combination
with ONBANCorp. In Mr. Bennett's discussion with Mr. Wilmers, Mr. Wilmers
increased the exchange ratio in First Empire's preliminary indication of
interest to .161 (which equated to approximately $68.25 for ONBANCorp Common
Stock, based upon the then-current price of First Empire Common Stock) and
reaffirmed First Empire's desire to proceed to discuss the terms of a potential
business combination transaction between the two parties. In Mr. Bennett's
discussion with the chief
19
executive officer of the Other Financial Institution, the chief executive
officer of the Other Financial Institution noted that municipal deposits held by
ONBANCorp (which totaled approximately $580 million at September 30, 1997) could
not be held by the Other Financial Institution following a prospective business
combination of their respective subsidiary depository institutions due to
applicable legal restrictions. Subsequently, as a result of its review of this
issue, the Other Financial Institution stated that it was not prepared to
continue discussions with ONBANCorp concerning the terms of a potential business
combination transaction.
Mr. Bennett, after consultation with Sandler O'Neill, determined that the
value implied by the exchange ratio offered by First Empire was sufficient to
allow First Empire to conduct on-site due diligence and warranted ONBANCorp to
proceed to conduct discussions with First Empire concerning the terms of a
strategic business combination. Beginning on October 23 and continuing through
October 26, representatives of First Empire and its financial advisors conducted
a detailed on-site due diligence investigation of ONBANCorp, and representatives
of ONBANCorp and its legal and financial advisors conducted a due diligence
investigation of First Empire. Also during this time, Mr. Bennett apprised
members of the ONBANCorp Board individually regarding the potential merger
transaction with First Empire, initial drafts of the Merger Agreements, the
Stock Option Agreement and the other related documents were prepared,
circulated, reviewed and discussed by the parties and their respective legal and
financial advisors, and discussions continued between the parties with respect
to the financial terms of the proposed merger transaction. In the course of
these discussions First Empire indicated that it would be willing to provide
part of the consideration to be paid to ONBANCorp stockholders in the Merger in
cash.
At a special meeting of the ONBANCorp Board held on October 26, 1997 (the
"October 26 Meeting"), the ONBANCorp Board reviewed and discussed at length
ONBANCorp's strategic alternatives, including the First Empire proposal, which
at that time contemplated a stock-for-stock merger in which ONBANCorp
stockholders would receive 0.161 of a share of First Empire Common Stock in
exchange for each share of ONBANCorp Common Stock (constituting an implied value
of $67.94 per share based on the closing price of First Empire Common Stock on
the AMEX on October 24, 1997). Representatives of Sandler O'Neill reviewed in
detail with the ONBANCorp Board a number of matters relevant to the ONBANCorp
Board's analysis of the proposed transaction with First Empire and other
strategic alternatives available to ONBANCorp, including the general status of
the financial services industry and the regional and local environments in which
ONBANCorp operates, valuation analyses of ONBANCorp and First Empire on a
stand-alone basis and on a pro forma basis as a combined entity, historical
stock price and other financial information for certain publicly-held banking
institutions, and statistical data concerning the terms of recent financial
institution merger and acquisition transactions. Representatives of Sandler
O'Neill reviewed the financial terms of the proposed merger agreement as
negotiated to date and certain financial information and analyses relating to
the proposed transaction assuming that 25% of the shares of ONBANCorp Common
Stock were exchanged for cash in the transaction. Legal counsel to ONBANCorp
reviewed certain legal issues relevant to the ONBANCorp Board's consideration of
the Merger Agreements and the Stock Option Agreement. Mr. Bennett reviewed and
discussed the anticipated benefits of the proposed Merger and its potential
impact on ONBANCorp's stockholders, employees and customers and on the
communities served by ONBANCorp.
At the conclusion of the October 26 Meeting, the ONBANCorp Board authorized
senior management of ONBANCorp to continue negotiations with First Empire
concerning the terms of the proposed transaction (including whether and to what
extent part of the aggregate consideration to be paid to ONBANCorp stockholders
in the Merger would be paid in cash), and scheduled an executive session of the
ONBANCorp Board for the following afternoon to review the terms of the proposed
Merger Agreements and the related agreements with a view towards approval of the
proposed transaction with First Empire and execution of definitive transaction
agreements. Following the conclusion of the October 26 Meeting, discussions and
negotiations continued among ONBANCorp, First Empire and their respective legal
and financial advisors concerning the terms of the proposed business combination
transaction between the parties, including discussions with respect to the
amount of the aggregate merger
20
consideration to ONBANCorp stockholders to be paid in cash, the amount to be
paid in stock and the terms and provisions with respect to the allocation of
such cash and stock consideration among ONBANCorp stockholders.
The ONBANCorp Board met again in executive session in the afternoon on
October 27, 1997 (the "October 27 Meeting"). At the October 27 Meeting, the
ONBANCorp Board reviewed and discussed the strategic alternatives available to
ONBANCorp and the revised terms of the proposed Merger Agreements, Stock Option
Agreement and related agreements (including the terms of the Merger Agreements
relating to the Merger Consideration--See "--Terms of the Merger"). Mr. Bennett
and representatives of Sandler O'Neill discussed the financial and other terms
of the Merger Agreements and the related agreements. Sandler O'Neill reviewed
certain financial data and analyses and delivered its oral opinion to the
ONBANCorp Board to the effect that, as of such date, the consideration to be
received by ONBANCorp stockholders pursuant to the Merger Agreements was fair
from a financial point of view to such stockholders. After review and discussion
of the foregoing matters, the ONBANCorp Board unanimously approved the Merger
Agreements and the Stock Option Agreement.
On October 28, 1997, the First Empire Board met to discuss the final terms
of the transaction, including the Merger Consideration. The results of First
Empire's due diligence were presented and First Empire's legal advisors reviewed
the terms of the proposed Merger Agreements and Stock Option Agreement. Keefe,
Bruyette made a presentation regarding the financial terms and fairness, from a
financial point of view, of the Merger Consideration to First Empire and its
stockholders. After consideration of these factors, among others, the 13 members
of the First Empire Board present at the meeting (with four directors absent)
unanimously approved and authorized execution and delivery of the Merger
Agreements and the Stock Option Agreement.
The Merger Agreements and the Stock Option Agreement were finalized
thereafter and were executed by the parties as of October 28, 1997.
REASONS FOR THE MERGER.
GENERAL. The Merger is intended to create a banking franchise in New York
with enhanced financial resources and product diversity and market presence to
compete more effectively in the market.
Each Board believes that each institution is well managed and possesses
compatible management philosophies, cultures and strategies, and that the strong
capitalization of First Empire following the Merger will better enable the
combined company to take advantage of future opportunities for growth. In
evaluating the Merger, each Board discussed the critical importance of
successfully integrating and building on the strength of the management and
cultures of both companies, and considered the uncertainties inherent in any
combination of two significant companies. No member of the First Empire Board
has any interests in the Merger beyond those of First Empire stockholders
generally. The ONBANCorp Board, in deciding to approve the Merger, was aware of
the interests of certain members of ONBANCorp management and the ONBANCorp Board
in the Merger. See "--Interests of Certain Persons in the Merger."
FIRST EMPIRE. In reaching its decision to approve the Merger Agreements,
the First Empire Board considered that the Merger would create a financial
institution with greater scale, range of services, efficiency, capital, earnings
and growth potential than either First Empire or ONBANCorp would possess on a
stand-alone basis. The First Empire Board also considered that the Merger would
represent a strategic alliance between the two companies and that First Empire
stockholders should realize the expected benefits of such an alliance. Such
benefits include, but are not limited to, the future prospects of the combined
company, the combined company's financial strength, and an enhanced ability to
strengthen existing businesses and offer new products and services to the
customers of ONBANCorp, the cost efficiencies expected to be derived from the
elimination of redundant back office operations and staff functions, the
potential for cross-marketing products and services, the business synergies that
might be
21
realized and the potential effect of the Merger on the perception of the
combined companies' businesses by the financial markets.
ONBANCORP. The ONBANCorp Board's decision to approve and adopt the Merger
Agreements and the Stock Option Agreement reflects its belief that the terms of
the Merger Agreements and the Stock Option Agreement will provide significant
value to all ONBANCorp stockholders and will also enable them to participate in
the opportunities for growth that the ONBANCorp Board believes the Merger will
make possible. In reaching its decision, the ONBANCorp Board considered the
current and prospective economic, regulatory and competitive environment facing
financial institutions generally, the complementary nature of the companies'
respective retail franchises and market areas, the combined company's financial
strengths and earnings prospects and the similarity in ONBANCorp's and First
Empire's respective business strategies and management philosophies and their
commitments to their respective employees and to the respective communities and
customers they serve.
RECOMMENDATION OF THE FIRST EMPIRE BOARD. THE FIRST EMPIRE BOARD BELIEVES
THAT THE MERGER IS FAIR TO, AND IN THE BEST INTERESTS OF, FIRST EMPIRE AND ITS
STOCKHOLDERS. THE FIRST EMPIRE BOARD RECOMMENDS THAT STOCKHOLDERS VOTE "FOR" THE
APPROVAL OF THE FIRST EMPIRE PROPOSAL.
In reaching its conclusion to approve the Merger Agreements, the First
Empire Board consulted with First Empire management, as well as its financial
and legal advisors, and considered the factors described above under "General"
and the following additional factors, which together, constitute all material
factors considered by the First Empire Board:
(i) First Empire's business, operations, financial condition, earnings and
acquisition strategy, including the desirability of expanding into the Syracuse
market, increasing First Empire's presence in the Rochester market and linking
First Empire's operations in Western New York State more effectively with its
presence in New York's Hudson Valley (after the Merger, First Empire would hold
approximately 30% of the deposits in the Syracuse market and approximately 20%
of the deposits in Western and Central New York);
(ii) the opportunity for First Empire to gain entry into the Commonwealth of
Pennsylvania through the acquisition of approximately 19% of the deposits in the
Wilkes-Barre market (see "THE COMPANIES--Combined Company");
(iii) the anticipated pre-tax annual cost savings of approximately $31
million for the combined institution resulting from the Merger (see "--
Management and Operations After the Merger");
(iv) an analysis of the financial impact of the Merger on First Empire,
which indicated that M&T Bank would continue to be "well capitalized," that the
Merger should result in cost savings for technology and operations, corporate
overhead, business line consolidations and occupancy of approximately $31
million; that cash earnings should increase following the 12-month phase-in
period for the anticipated cost savings (see "--Management and Operations after
the Merger--Operations"); and that the projected internal rate of return of
13-14% should exceed the cost of capital of approximately 8.5%;
(v) the ability to use ONBANCorp's customer base and branch network in both
New York and Pennsylvania to offer the full range of First Empire's commercial
and retail banking, trust and other products and services;
(vi) the performance of current ONBANCorp management and the proposed
arrangements with respect to the First Empire Board and the executive management
structure following the Merger, including the roles of Messrs. Bennett and Sharp
(see "--Management and Operations After the Merger" and "--Interests of Certain
Persons in the Merger");
(vii) the Merger Consideration from a number of valuation perspectives, as
presented by Keefe, Bruyette; the October 28, 1997 opinion of Keefe, Bruyette
that the Merger Consideration was fair, from a
22
financial point of view, to First Empire and its stockholders, and a review of
the significant financial information, projections, assumptions and other
information received by, and the significant assumptions and the methodologies
used by, Keefe, Bruyette in arriving at such an opinion (see "--Opinions of
Financial Advisors--First Empire"); and
(viii) the terms of the Merger Agreements and the Stock Option Agreement; the
regulatory and stockholder approval processes; the treatment of the Merger as a
purchase for financial accounting purposes; and the nature of the Merger as a
tax-free reorganization for federal income tax purposes (see "--Certain Federal
Income Tax Consequences").
The foregoing discussion of the information and factors considered by the
First Empire Board is not intended to be exhaustive but includes all material
factors considered by the First Empire Board. In reaching its determination to
approve and recommend the Merger Agreements, the First Empire Board did not
assign relative or specific weights to the foregoing factors, and individual
directors may have given differing weights to different factors. Through its
deliberations, the First Empire Board received the advice of legal counsel.
After deliberating with respect to the Merger and the other transactions
contemplated by the Merger Agreements, considering, among other things, the
matters discussed above and the opinion of referred to above, the First Empire
Board, by unanimous vote of all 13 of the directors present (with four directors
absent), approved the Merger Agreements as being in the best interests of First
Empire and its stockholders and directed that the First Empire Proposal be
submitted to the holders of First Empire Common Stock to vote at the First
Empire Special Meeting. The First Empire Board recommends that holders of First
Empire Common Stock vote FOR approval of the First Empire Proposal.
RECOMMENDATION OF THE ONBANCORP BOARD. THE ONBANCORP BOARD BELIEVES THAT
THE MERGER IS FAIR TO, AND IN THE BEST INTERESTS OF, ONBANCORP AND ITS
STOCKHOLDERS. THE ONBANCORP BOARD UNANIMOUSLY RECOMMENDS THAT ONBANCORP
STOCKHOLDERS VOTE "FOR" THE APPROVAL OF THE ONBANCORP PROPOSAL.
In reaching its determination to approve and adopt the Merger Agreements,
the ONBANCorp Board consulted with ONBANCorp management, as well as ONBANCorp's
financial and legal advisors, and considered the factors described above under
"General" and the following additional factors, which, together, constitute all
material factors considered by the ONBANCorp Board:
(i) the ONBANCorp Board's familiarity with and review of ONBANCorp's
business, financial condition, results of operations and prospects, including,
without limitation, its potential for continued growth and profitability and the
business risks associated therewith;
(ii) the current and prospective environment in which ONBANCorp operates,
including regional and local economic conditions, the competitive environment
for banks and other financial institutions generally and the increasing
consolidation in the financial services industry;
(iii) information concerning the business, financial condition, results of
operations and prospects of First Empire, including the recent performance of
First Empire Common Stock, historical financial data for First Empire, customary
statistical measurements of First Empire's financial performance and the future
prospects for First Empire Common Stock following the Merger;
(iv) the value to be received by holders of ONBANCorp Common Stock pursuant
to the Merger Agreements in relation to the historical trading prices and book
value of ONBANCorp Common Stock, and the fact that the cash election provisions
of the Merger Agreements represent partial protection against a decline in the
market price of First Empire Common Stock and would, subject to the election and
allocation procedures contained therein, provide those ONBANCorp stockholders
who might desire to sell some or all of the shares of First Empire Common Stock
which they would otherwise receive in an all-stock merger with an opportunity to
receive cash in the Merger without having to effect sales of such shares in the
market after the Merger, thereby avoiding brokerage commissions and reducing
some of the market risk inherent in holding shares of a publicly-traded company;
23
(v) the information presented by Sandler O'Neill to the ONBANCorp Board with
respect to the Merger and the opinion of Sandler O'Neill that, as of the date of
such opinion, the consideration to be received by the stockholders of ONBANCorp
pursuant to the Merger Agreements was fair from a financial point of view to
such holders (see "--Opinion of Financial Advisors--ONBANCorp" below);
(vi) the financial and other significant terms of the proposed Merger with
First Empire and the review by the ONBANCorp Board with its legal and financial
advisors of the terms and provisions of the Merger Agreements and the Stock
Option Agreement;
(vii) the expected impact of the Merger on ONBANCorp's business, employees,
customers and communities, the compatibility of the respective businesses,
strategies and management philosophies of First Empire and ONBANCorp, and the
expectation that First Empire will continue to provide quality service to the
customers and communities served by ONBANCorp;
(viii) the prospects for the combined entity following consummation of the
Merger, including the potential synergies expected to result from the Merger and
the anticipated revenue enhancements through the combined company's offering a
more extensive range of products and services to a broader customer base;
(ix) the fact that First Empire has agreed to appoint five ONBANCorp
directors as directors of First Empire upon consummation of the Merger
(including Mr. Bennett, who will be appointed as Chairman of the First Empire
Board), and to appoint the other directors of ONBANCorp and Franklin First to
newly-formed Advisory Boards for M&T Bank in Pennsylvania and Syracuse,
respectively, all of which may be expected to provide a degree of continuity and
involvement by the directors of ONBANCorp following the Merger in the interests
of ONBANCorp's stockholders, customers, employees and communities;
(x) the fact that the Merger is expected to be tax-free for federal income
tax purposes to a holder of ONBANCorp Common Stock to the extent such holder
receives First Empire Common Stock in the Merger rather than cash (see
"--Certain Federal Income Tax Consequences" below) and will provide holders of
ONBANCorp Common Stock with the option, subject to the election and allocation
procedures set forth in the Merger Agreements, to receive cash in exchange for
their ONBANCorp Common Stock and/or to become shareholders of First Empire, an
institution with strong operations and earnings performance; and
(xi) the alternative strategic courses available to ONBANCorp, including
remaining independent and exploring other potential business combination
transactions.
The foregoing discussion of the information and factors considered by the
ONBANCorp Board is not intended to be exhaustive but includes all material
factors considered by the ONBANCorp Board. In reaching its determination to
approve and recommend the Merger, the ONBANCorp Board did not assign any
relative or specific weights to the foregoing factors, and individual directors
may have given differing weights to different factors. Throughout its
deliberations, the ONBANCorp Board received the advice of special counsel. After
deliberating with respect to the Merger and the other transactions contemplated
by the Merger Agreements, considering, among other things, the matters discussed
above and the opinion of Sandler O'Neill referred to above, the ONBANCorp Board,
by unanimous vote, approved and adopted the Merger Agreements, the Stock Option
Agreement and the transactions contemplated thereby, as being in the best
interests of ONBANCorp and its stockholders. The ONBANCorp Board is unanimous in
its recommendation that holders of ONBANCorp Common Stock vote FOR approval and
adoption of the Merger.
For information regarding certain interests of directors and executive
officers of ONBANCorp in the Merger, see "--Management and Operations after the
Merger" and "--Interests of Certain Persons in the Merger."
24
TERMS OF THE MERGER
GENERAL. In accordance with the terms of the Merger Agreements and
applicable Delaware law, ONBANCorp will be acquired by First Empire, on the
Effective Date, through the merger of ONBANCorp with and into Olympia, a direct
wholly owned subsidiary of First Empire. The separate existence of ONBANCorp
will cease, and Olympia, as the surviving entity in the Merger (the "Surviving
Corporation"), will continue unaffected and unimpaired by the Merger. All of the
shares of capital stock of Olympia issued and outstanding prior to the Effective
Date will constitute all of the issued and outstanding shares of capital stock
of the Surviving Corporation. The Surviving Corporation will remain a direct
wholly owned subsidiary of First Empire.
Following the consummation of the Merger, First Empire will contribute to
the Surviving Corporation all of the issued and outstanding capital stock of M&T
Bank, which will thereby become a direct wholly owned subsidiary of the
Surviving Corporation. Immediately thereafter, the ONBANCorp Banks will merge
with and into M&T Bank.
MERGER CONSIDERATION. Also on the Effective Date, and subject to the other
provisions of the Merger Agreements, each share of ONBANCorp Common Stock issued
and outstanding immediately prior to the Effective Time (other than shares of
ONBANCorp Common Stock held directly or indirectly by First Empire or ONBANCorp
or any of their respective subsidiaries other than in a fiduciary capacity or in
respect of a debt previously contracted ("Excluded Shares") and other than
Dissenting Shares (as defined below)), together with the Rights attached
thereto, will, by virtue of the Merger, automatically and without any action on
the part of the holder thereof, become and be converted into the right to
receive, at the election of the holder thereof but subject to the election and
allocation procedures set forth in the Merger Agreements, either (a) $69.50 in
cash without interest or (b) 0.161 of a share of First Empire Common Stock (and
cash in lieu of fractional shares). Under the terms of the Merger Agreements,
holders of ONBANCorp Common Stock can elect to convert their shares into the
Stock Consideration (a "Stock Election"), the Cash Consideration (a "Cash
Election") or a mixture of Cash Consideration and Stock Consideration (a "Mixed
Election"), subject to the limitation that a person electing to receive a
combination of the two forms of consideration must be able to, and must, make a
Cash Election with respect to at least 100 shares of ONBANCorp Common Stock and
a Stock Election with respect to at least 100 shares of ONBANCorp Common Stock.
All elections of ONBANCorp stockholders are further subject to the allocation
procedures set forth in the Merger Agreements, which provide generally that the
number of shares of ONBANCorp Common Stock to be converted into First Empire
Common Stock in the Merger must be at least 60%, but no more than 70% of the
total number of shares of ONBANCorp Common Stock issued and outstanding
immediately prior to the Effective Time other than Excluded Shares and
Dissenting Shares (such shares are referred to herein as the "Outstanding
ONBANCorp Shares"). In the event that ONBANCorp stockholders in the aggregate
elect to receive the Stock Consideration with respect to fewer than 60% or more
than 70% of the total number of Outstanding ONBANCorp Shares, the Plan of Merger
provides for the allocation of the Merger Consideration among shares of
ONBANCorp Common Stock subject to a Cash Election ("Cash Election Shares"),
shares subject to a Stock Election ("Stock Election Shares"), and shares as to
which no election has been made ("Non-Election Shares") as described below.
NO GUARANTEE CAN BE MADE THAT ONBANCORP STOCKHOLDERS WILL RECEIVE THE
AMOUNTS OF CASH CONSIDERATION AND/OR STOCK CONSIDERATION THEY ELECT. AS A RESULT
OF THE ALLOCATION PROCEDURES AND OTHER LIMITATIONS DESCRIBED HEREIN AND IN THE
MERGER AGREEMENTS, ONBANCORP STOCKHOLDERS MAY RECEIVE STOCK CONSIDERATION OR
CASH CONSIDERATION IN AMOUNTS THAT VARY FROM THE AMOUNTS SUCH HOLDERS ELECT TO
RECEIVE.
Because the market price of First Empire Common Stock may fluctuate prior to
and following the Effective Time and could be greater than or less than $431.68
per share (the approximate price at which
25
the market value of the Stock Consideration would equal the Cash Consideration
of $69.50), the value of the Stock Consideration could be less than or greater
than the value of the Cash Consideration. No assurance can be given as to what
the market price of First Empire Common Stock will be if and when the Merger is
consummated, and First Empire and ONBANCorp Stockholders are advised to obtain
current market quotations for the First Empire Common Stock and ONBANCorp Common
Stock. In addition, because the tax consequences of receiving the Cash
Consideration will differ from the tax consequences of receiving the Stock
Consideration, ONBANCorp stockholders are urged to read carefully the
information set forth below under "--Certain Federal Income Tax Consequences."
ALLOCATION. In the event the number of Stock Election Shares (the "Stock
Election Number") exceeds 70% of the total number of Outstanding ONBANCorp
Shares, all Cash Election Shares and Non-Election Shares will be converted into
the right to receive the Cash Consideration and each holder of Stock Election
Shares will receive Stock Consideration in respect of the number of Stock
Election Shares equal to the product obtained by multiplying the number of Stock
Election Shares held by such holder by a fraction, the numerator of which is 70%
of the total number of Outstanding ONBANCorp Shares and the denominator of which
is the total number of Stock Election Shares, with the remaining number of such
holder's Stock Election Shares being converted into the right to receive the
Cash Consideration.
In the event that the Stock Election Number is less than 60% of the total
number of Outstanding ONBANCorp Shares (the amount by which 60% of the total
number of Outstanding ONBANCorp Shares exceeds the Stock Election Number
constituting the "Shortfall Number"), then all Stock Election Shares will be
converted into the right to receive the Stock Consideration and the Non-Election
Shares and Cash Election Shares will be treated as follows:
(A) if the Shortfall Number is less than or equal to the number of
Non-Election Shares, then each holder of Non-Election Shares will receive
the Stock Consideration in respect of that number of Non-Election Shares
equal to the product obtained by multiplying the number of Non-Election
Shares held by such holder by a fraction, the numerator of which is the
Shortfall Number and the denominator of which is the total number of
Non-Election Shares, with the remaining number of such holder's Non-Election
Shares being converted into the right to receive the Cash Consideration; or
(B) if the Shortfall Number exceeds the number of Non-Election Shares,
then all Non-Election Shares will be converted into the right to receive the
Stock Consideration and each holder of Cash Election Shares will receive the
Stock Consideration in respect of that number of Cash Election Shares equal
to the product obtained by multiplying the number of Cash Election Shares
held by such holder by a fraction, the numerator of which is the amount by
which the Shortfall Number exceeds the total number of Non-Election Shares
and the denominator of which is the total number of Cash Election Shares,
with the remaining number of such holder's Cash Election Shares being
converted into the right to receive the Cash Consideration.
If the Stock Election Number is not less that 60% and not more than 70% of
the total number of Outstanding ONBANCorp Shares, then all Cash Election Shares
and Non-Election Shares will be converted into the right to receive the Cash
Consideration and all Stock Election Shares will be converted into the right to
receive the Stock Consideration.
Notwithstanding the foregoing, in order that the Merger will not fail to
satisfy continuity of interest requirements under applicable federal income tax
principles relating to reorganizations under Section 368(a) of the Code and that
the tax opinion described under "PROPOSED MERGER--Certain Federal Income Tax
Consequences" can be rendered (each as reasonably determined by Arnold & Porter,
special tax counsel to First Empire), First Empire may reduce the number of
shares of ONBANCorp Common Stock that will be converted into the right to
receive the Cash Consideration and correspondingly increase the number of shares
of ONBANCorp Common Stock that will be converted into the Stock Consideration,
all in accordance with a written agreement which shall be entered into between
First
26
Empire and ONBANCorp on or prior to the Closing Date. In the event of such
reduction and corresponding increase, holders who make Cash Elections may be
required on a pro rata basis to receive a greater proportion of the Merger
Consideration for their shares in the form of First Empire Common Stock.
DISSENTERS' RIGHTS. Notwithstanding the foregoing, no conversion will be
made in respect of any shares of ONBANCorp Common Stock the holder of which,
pursuant to Section 262 of the DGCL, has properly exercised dissenters' rights
and is entitled to receive payment in accordance with the provisions of Section
262, such holder to have only the rights provided in Section 262 (each such
share, a "Dissenting Share"). For a discussion of the rights of stockholders
under Section 262 and the procedures for exercising such rights, see
"--Dissenters' Rights." If any such holder of Dissenting Shares shall have
failed to perfect or effectively withdrawn or lost such holder's right to
receive payment for such holder's shares pursuant to Section 262 of the DGCL
prior to the Election Deadline, all of such shares of ONBANCorp Common Stock
will thereupon be deemed to be Non-Election Shares. If any such holder of
Dissenting Shares shall have so failed to perfect or effectively withdrawn or
lost such holder's right to receive payment for such holder's shares pursuant to
Section 262 of the DGCL on or after the Election Deadline, each of such holder's
shares of ONBANCorp Common Stock shall be deemed to have been converted into and
to have become, as of the Effective Time, the right to receive the Stock
Consideration or the Cash Consideration or a combination thereof as determined
by First Empire in its sole discretion.
NO FRACTIONAL SHARES. Notwithstanding the foregoing, each holder of shares
of ONBANCorp Common Stock who would otherwise have been entitled to receive a
fraction of a share of First Empire Common Stock (after taking into account all
shares of ONBANCorp Common Stock owned by such holder) will receive, in lieu
thereof, cash in an amount equal to the "market value" of such fraction of a
share of First Empire Common Stock. The "market value" of First Empire Common
Stock shall be the average of the closing prices of First Empire Common Stock on
the AMEX Composite Transactions List (as reported by the Wall Street Journal or
other comparable authoritative source) for the ten trading days preceding the
date on which the Effective Time occurs. No such holder will be entitled to
dividends, voting rights or any other stockholder right in respect of such
fractional share.
TREATMENT OF OPTIONS. First Empire has agreed to assume each outstanding
ONBANCorp Option granted under the ONBANCorp Stock Option Plans. Each ONBANCorp
Option so assumed by First Empire shall continue to have, and be subject to, the
same terms and conditions set forth in the ONBANCorp Stock Option Plan under
which it was granted and as in existence immediately prior to the Effective
Date, except that (i) such ONBANCorp Option will be exercisable for that number
of shares of First Empire Common Stock equal to the product of the number of
shares of ONBANCorp Common Stock covered by such ONBANCorp Option multiplied by
0.161, provided that any fractional shares of First Empire Common Stock
resulting from such multiplication will be rounded down to the nearest share and
(ii) the exercise price per share of First Empire Common Stock will be equal to
the exercise price per share of ONBANCorp Common Stock of such ONBANCorp Option
divided by 0.161, provided that such exercise price will be rounded up to the
nearest cent.
Each holder of an ONBANCorp Option which is vested as of the Effective Time
may elect to receive, in cancellation of such ONBANCorp Option at the Effective
Date, and without payment of any consideration by such holder, an amount of cash
computed by (i) multiplying the average closing price of First Empire Common
Stock for the ten trading days immediately preceding the Effective Date by 0.105
(i.e., the Exchange Ratio of 0.161 times 65%, which is the midpoint of the
percentage of total shares of ONBANCorp Common Stock that could be converted
into First Empire Common Stock in the Merger); (ii) adding $24.33 (i.e., the
Cash Consideration of $69.50 times 35%, which is the midpoint of the percentage
of total shares of ONBANCorp Common Stock that could be converted into the right
to receive cash) to the product obtained in clause (i); (iii) subtracting from
the sum obtained in the preceding clause (ii) the per share exercise price of
such ONBANCorp Option; and (iv) multiplying the difference
27
obtained in the preceding clause (iii) by the number of shares of ONBANCorp
Common Stock covered by the ONBANCorp Option being canceled.
For additional information, see "--Interests of Certain Persons in the
Merger--Stock Options."
In the event that prior to the Effective Date the outstanding shares of
First Empire Common Stock shall have been increased, decreased or changed into
or exchanged for a different number or kind of shares or securities by
reorganization, recapitalization, reclassification, stock dividend, stock split
or other like changes in First Empire's capitalization, then an appropriate and
proportionate adjustment shall be made in the Stock Consideration (including the
Exchange Ratio) and the formulas relating to the roll-over or cash-out of
ONBANCorp Options contained in the Merger Agreements.
ELECTION PROCEDURES; SURRENDER OF STOCK CERTIFICATES
Concurrently with the mailing of this Joint Proxy Statement, an election
form ("Election Form") is being sent to holders of ONBANCorp Common Stock
together with other appropriate and customary transmittal materials, which
materials specify that delivery will be effected, and risk of loss and title to
the certificates representing ONBANCorp Common Stock ("Certificates") will pass
only upon proper delivery of such Certificates to the exchange agent, currently
BankBoston, N.A. (the "Exchange Agent").
Each Election Form shall entitle the holder of the ONBANCorp Common Stock to
make a Cash Election, Stock Election, Mixed Election or Non-Election as
described above. See "--Terms of the Merger."
To be effective, a properly completed Election Form must be submitted to the
Exchange Agent on or before 5:00 p.m. New York City time on March 24, 1998 (the
"Election Deadline"). An Election Form will be deemed properly completed only if
accompanied by one or more Certificates representing all shares of ONBANCorp
Common Stock covered by such Election Form, together with the duly executed
transmittal materials included in the Election Form. ONBANCorp stockholders may
change their election at any time prior to the Election Deadline by written
notice received by the Exchange Agent prior to the Election Deadline or by
withdrawal of their Certificates prior to the Election Deadline. All elections
will be revoked automatically if the Exchange Agent is notified in writing by
First Empire and ONBANCorp that the Merger Agreements have been terminated.
ONBANCorp stockholders who do not submit a properly completed Election Form or
revoke their Election Form prior to the Election Deadline will have their shares
of ONBANCorp Common Stock designated as Non-Election Shares. First Empire will
cause the Certificates that have been revoked to be promptly returned without
charge to the ONBANCorp stockholder submitting the Election Form upon written
request to that effect from the person who submitted the Election Form. Within
five business days after the Effective Time, First Empire will cause the
Exchange Agent to allocate the Cash Consideration and the Stock Consideration
among the holders of ONBANCorp Common Stock according to the allocation
procedures set forth above.
In the case of ONBANCorp stockholders who do not submit their Certificates
with Election Forms, as soon as practicable after the Effective Date, the
Exchange Agent will mail to all such holders of ONBANCorp Common Stock a letter
of transmittal, together with instructions for the exchange of their ONBANCorp
Common Stock Certificates for the Merger Consideration. Until so exchanged, each
Certificate representing shares of ONBANCorp Common Stock outstanding
immediately prior to the Effective Date that have been converted into shares of
First Empire Common Stock will be deemed for all purposes to evidence ownership
of the number of shares of First Empire Common Stock into which such shares have
been converted; provided, however, that no dividends or other distributions
declared after the Effective Date with respect to First Empire Common Stock will
be paid to the holder of any unsurrendered Certificate until the holder
surrenders that Certificate.
ONBANCorp stockholders will not be entitled to change the amount of Stock
Consideration and/or Cash Consideration allocated to them in accordance with the
Merger Agreements. Nevertheless,
28
ONBANCorp stockholders having a preference as to the form of Merger
Consideration to be received in exchange for their shares of ONBANCorp Common
Stock should make an election, because shares as to which an election has been
made will be given priority in allocating the Merger Consideration over shares
as to which no election is made. All shares as to which no election is made will
be converted into the right to receive the Cash Consideration unless ONBANCorp
stockholders elect the Stock Consideration with respect to less than 60% of the
Outstanding ONBANCorp Shares. If the Stock Election is less than 60%, then
non-electing shareholders will receive the Stock Consideration with respect to
some or all of their shares on a pro rata basis, as described above. See
"--Terms of the Merger--Allocation." Neither ONBANCorp nor the ONBANCorp Board
makes any recommendation as to whether stockholders should elect to receive the
Cash Consideration or the Stock Consideration in the Merger. Each holder of
ONBANCorp Common Stock must make his or her own decision with respect to such
election.
OPINIONS OF FINANCIAL ADVISORS
FIRST EMPIRE. On October 17, 1997, First Empire engaged Keefe, Bruyette to
act as its financial advisor in connection with the Merger. Pursuant to the
terms of its engagement, Keefe, Bruyette agreed to assist First Empire in
analyzing, structuring, negotiating and effecting a transaction with ONBANCorp.
First Empire selected Keefe, Bruyette because Keefe, Bruyette is a nationally
recognized investment banking firm with substantial experience in transactions
similar to the Merger and is familiar with First Empire and its business, having
provided financial advisory and investment banking services to First Empire on a
number of occasions over the past several years. As part of its investment
banking business, Keefe, Bruyette is continually engaged in the valuation of
businesses and their securities in connection with mergers and acquisitions.
As part of its engagement, representatives of Keefe, Bruyette attended the
meeting of the First Empire Board held on October 28, 1997 at which the First
Empire Board considered and approved the Merger Agreements. At the October 28,
1997 meeting, Keefe, Bruyette rendered an oral opinion (subsequently confirmed
in writing) that, as of such date, the Merger Consideration was fair to First
Empire and its stockholders from a financial point of view. Such opinion was
reconfirmed in writing as of the date of this Joint Proxy Statement.
The full text of Keefe, Bruyette's updated written opinion, dated as of the
date of this Joint Proxy Statement, is attached as Appendix C to this Joint
Proxy Statement and is incorporated herein by reference. The description of the
opinion set forth herein is qualified in its entirety by reference to Appendix
C. First Empire stockholders are urged to read the opinion in its entirety for a
description of the procedures followed, assumptions made, matters considered,
and qualifications and limitations on the review undertaken by Keefe, Bruyette
in connection therewith.
KEEFE, BRUYETTE'S OPINION IS DIRECTED TO THE FIRST EMPIRE BOARD AND
ADDRESSES ONLY THE MERGER CONSIDERATION. IT DOES NOT ADDRESS THE UNDERLYING
BUSINESS DECISION TO PROCEED WITH THE MERGER AND DOES NOT CONSTITUTE A
RECOMMENDATION TO ANY FIRST EMPIRE STOCKHOLDER AS TO HOW SUCH STOCKHOLDER SHOULD
VOTE AT THE SPECIAL MEETING WITH RESPECT TO THE MERGER OR ANY OTHER MATTER
RELATED THERETO.
Keefe, Bruyette has informed First Empire that in arriving at its written
opinion, Keefe, Bruyette, among other things: (a) reviewed First Empire's Annual
Reports on Form 10-K and related audited financial information for the three
fiscal years ended December 31, 1996 and First Empire's quarterly reports on
Form 10-Q and related unaudited financial information for the quarterly periods
ended June 30, 1997 and March 31, 1997; (b) reviewed ONBANCorp's Annual Reports
on Form 10-K and related audited financial information for the five fiscal years
ended December 31, 1996 and ONBANCorp's quarterly reports on Form 10-Q and
related unaudited financial information for the quarterly periods ended March
31, 1997, and June 30, 1997; (c) reviewed certain limited financial information,
including
29
financial forecasts, relating to the respective businesses, earnings, assets and
prospects of First Empire and ONBANCorp furnished to Keefe, Bruyette by senior
management of First Empire and ONBANCorp as well as projected revenue
enhancements, cost savings and related expenses expected to result from the
Merger (the "Expected Benefits") furnished to it by senior management of First
Empire; (d) conducted certain limited discussions with members of senior
management of First Empire and ONBANCorp concerning the respective businesses,
financial condition, earnings, assets, liabilities, operations, regulatory
condition, financial forecasts, contingencies and prospects of First Empire and
ONBANCorp and their respective views as to the future financial performance of
First Empire, ONBANCorp, and the combined entity, as the case may be, following
the Merger; (e) reviewed the historical market prices and trading activity for
First Empire Common Stock and ONBANCorp Common Stock and compared them with that
of certain publicly traded companies which Keefe, Bruyette deemed to be
relevant; (f) compared the respective results of operations of First Empire and
ONBANCorp with those of certain companies which Keefe, Bruyette deemed to be
relevant; (g) compared the proposed financial terms of the Merger contemplated
by the Merger Agreements with the financial terms of certain other mergers and
acquisitions which Keefe, Bruyette deemed to be relevant; (h) reviewed the
amount and timing of the Expected Benefits following the Merger as prepared, and
discussed it with senior management of First Empire; (i) considered, based upon
information provided by First Empire's senior management, the pro forma impact
of the Merger on the earnings and book value per share, consolidated
capitalization and certain balance sheet and profitability ratios of First
Empire; (j) reviewed the Merger Agreements; and (k) reviewed such other
financial studies and analyses and performed such other investigations and took
into account such other matters as Keefe, Bruyette deemed necessary.
In preparing its opinion, Keefe, Bruyette, with First Empire's consent,
assumed and relied on the accuracy and completeness of all financial and other
information supplied or otherwise made available to it by First Empire and
ONBANCorp, including that contemplated in the preceding paragraph, and Keefe,
Bruyette has not assumed responsibility for independently verifying such
information or undertaken an independent evaluation or appraisal of the assets
or liabilities, contingent or otherwise, of First Empire or ONBANCorp or any of
their subsidiaries, nor has it been furnished any such evaluation or appraisal.
Keefe, Bruyette is not an expert in the evaluation of allowances for loan
losses, and, with First Empire's consent, it has not made an independent
evaluation of the adequacy of the allowance for loan losses of First Empire or
ONBANCorp, nor has it reviewed any individual credit files relating to First
Empire or ONBANCorp, and, with First Empire's consent, it assumed that the
respective aggregate allowances for loan losses for both First Empire and
ONBANCorp are adequate to cover such losses and will be adequate on a pro forma
basis for the combined entity. In addition, it has not conducted any physical
inspection of the properties or facilities of First Empire or ONBANCorp. With
First Empire's consent, Keefe, Bruyette also assumed and relied upon the senior
management of First Empire and ONBANCorp as to the reasonableness and
achievability of the financial forecasts (and the assumptions and bases
therefor) provided to, and discussed with, Keefe, Bruyette. In that regard,
Keefe, Bruyette has assumed with First Empire's consent that such forecasts,
including without limitation, financial forecasts, evaluations of contingencies,
Expected Benefits resulting from the Merger and projections regarding
underperforming and non-performing assets, net charge-offs, adequacy of
reserves, future economic conditions and results of operations, reflect the best
currently available estimates and judgments of the senior management of First
Empire and ONBANCorp and/or the combined entity, as the case may be. Keefe,
Bruyette's opinion is predicated on the Merger receiving the tax and accounting
treatment contemplated in the Merger Agreements. Keefe, Bruyette's opinion was
necessarily based on economic, market and other conditions as in effect on, and
the information made available to it as of, the date of its opinion.
Keefe, Bruyette's opinion was rendered without regard to the necessity for,
or level of, any restrictions, obligations, undertakings or divestitures which
may be imposed or required in the course of obtaining regulatory approval for
the Merger.
30
In connection with rendering its opinion dated October 28, 1997, Keefe,
Bruyette performed a variety of financial analyses, consisting of those
summarized below. The summary set forth below does not purport to be a complete
description of the analyses performed by Keefe, Bruyette in this regard,
although it describes all material analyses performed by Keefe, Bruyette. The
preparation of a fairness opinion involves various determinations as to the most
appropriate and relevant methods of financial analysis and the application of
these methods to the particular circumstances and, therefore, such an opinion is
not readily susceptible to a partial analysis or summary description.
Accordingly, notwithstanding the separate factors summarized below, Keefe,
Bruyette believes that its analyses must be considered as a whole and that
selecting portions of its analyses and factors considered by it, without
considering all analyses and factors, or attempting to ascribe relative weights
to some or all such analyses and factors, could create an incomplete view of the
evaluation process underlying Keefe, Bruyette's opinion.
In performing its analyses, Keefe, Bruyette made numerous assumptions with
respect to industry performance, general business and economic conditions and
other matters, many of which are beyond the control of ONBANCorp, First Empire
and Keefe, Bruyette. The analyses performed by Keefe, Bruyette are not
necessarily indicative of actual values or future results, which may be
significantly more or less favorable than suggested by such analyses. Such
analyses were prepared solely as part of Keefe, Bruyette's analysis of the
fairness to the stockholders of First Empire of the Merger Consideration and
were provided to the First Empire Board in connection with the delivery of
Keefe, Bruyette's opinion. Keefe, Bruyette gave the various analyses described
below approximately similar weight and did not draw any specific conclusions
from or with regard to any one method of analysis. With respect to the
comparison of selected companies analysis and the analysis of selected merger
transactions summarized below, no company utilized as a comparison is identical
to First Empire or ONBANCorp. Accordingly, an analysis of comparable companies
and comparable business combinations is not mathematical; rather it involves
complex considerations and judgments concerning the differences in financial and
operating characteristics of the companies and other factors that could affect
the public trading values or announced merger transaction values, as the case
may be, of the companies concerned. The analyses do not purport to be appraisals
or to reflect the process at which First Empire and ONBANCorp might actually 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, Keefe, Bruyette's
opinion is just one of many factors taken into consideration by the First Empire
Board.
The projections furnished to Keefe, Bruyette and used by it in certain of
its analyses were prepared by the senior management of First Empire and
ONBANCorp. First Empire and ONBANCorp do not publicly disclose internal
management projections of the type provided to Keefe, Bruyette in connection
with its review of the Merger, and as a result, such projections were not
prepared with a view towards public disclosure. The projections were based on
numerous variables and assumptions which are inherently uncertain, including,
without limitation, factors related to general economic and competitive
conditions and accordingly, actual results could vary significantly from those
set forth in such projections.
The following is a summary of the material analyses presented by Keefe,
Bruyette to the First Empire Board on October 28, 1997 in connection with its
October 28, 1997 opinion.
TRANSACTION SUMMARY. Keefe, Bruyette calculated the merger consideration to
be paid pursuant to the Exchange Ratio and cash portion of the transaction as a
multiple of ONBANCorp's book value and estimated 1997 and 1998 earnings. This
computation assumed the Keefe, Bruyette Research Department's 1997 and 1998
ONBANCorp earnings per share estimates, respectively, of $3.55 and $4.10, an
Exchange Ratio of 0.161 of a share of First Empire common stock per share of
ONBANCorp common stock applied to 60% of ONBANCorp shares, and a fixed price of
$69.50 cash for each remaining ONBANCorp share. Based on such assumptions, this
analysis indicated ONBANCorp stockholders would receive consideration from First
Empire worth $68.76 for each share of ONBANCorp Common Stock held, and that such
amount would represent a multiple of 2.69 times book value per share, and 16.77
times estimated 1998 earnings per share.
31
PRO FORMA MERGER ANALYSIS. Keefe, Bruyette performed pro forma merger
analyses that combined projected income statement and balance sheet information
for both First Empire and ONBANCorp. These projections were discussed with the
management of First Empire and ONBANCorp. Assumptions regarding the accounting
treatment, acquisition adjustments, cost savings, revenue enhancements, stock
option treatment and other factors were used to calculate the financial impact
that the acquisition would have on certain projected financial results of First
Empire. Because the transaction will be accounted for using the purchase method
of accounting, Keefe, Bruyette focused its analysis on cash earnings per share.
This analysis indicated that the Merger is expected to increase First Empire's
projected 1998 cash earnings per share and book value. Cash earnings per share
for these purposes was defined as the sum of net income plus annual amortization
expenses for intangible assets, including goodwill arising from acquisitions,
divided by fully diluted shares outstanding. This analysis was based on the
Keefe, Bruyette Research Department's estimates of First Empire's 1998 earnings
per share and on certain management estimates of expected cost savings, revenue
enhancements and nonrecurring charges to be incurred by First Empire in
connection with the Merger. The actual results achieved by the combined company
may vary from the projected results and the variations may be material.
INTERNAL RATE OF RETURN ANALYSIS. Keefe, Bruyette performed an internal
rate of return analysis to determine a range of returns on First Empire's
initial equity investment in ONBANCorp. For the purpose of this analysis, such
projections gave effect to estimated after-tax cost savings and after-tax
financing costs estimated by management of First Empire, and allocated to
ONBANCorp. The present value of total free cash flows from the equity investment
was determined by adding (a) the present value of the estimated future
divendable excess earnings that ONBANCorp could generate in the five year period
from 1998 to 2002, and (b) the present value of the terminal value of the
ONBANCorp Common Stock at the end of year 2002. To determine a projected
dividend stream to First Empire, Keefe, Bruyette assumed that all excess capital
of ONBANCorp (defined for the purposes of the internal rate of return analysis
as capital in excess of that needed to maintain a 7.00% leverage ratio for
ONBANCorp) was distributed to stockholders of First Empire on an annual basis.
The assumptions which formed the basis of this analysis included an earnings per
share of $3.77 and $4.37, respectively, in 1998 and 1999, a 9.75% earnings per
share growth rate in 2000, and an 11.00% earnings per share growth rate
thereafter for ONBANCorp on a stand-alone basis. The earnings per share
estimates of $3.77 and $4.37, respectively, in 1998 and 1999 were based on the
Keefe, Bruyette Research Department's earnings per share estimates, adjusted for
certain asset sale transactions that Keefe, Bruyette assumed would occur
following completion of the Merger. The terminal values of ONBANCorp's Common
Stock at the end of 2002 were determined by applying a range of three projected
price-to-earnings multiples (12x, 13x and 14x) to projected net income for
ONBANCorp for the year 2002. Keefe, Bruyette presented a table showing the
foregoing analysis with a range in size of the initial equity investment from
60% to 70%, and range of terminal cashflow multiples from 12x to 14x; this
resulted in annual returns from 14.41% for a merger in which 70% of the
consideration paid was in the form of First Empire Common Stock and a 12x
terminal price to earnings multiple was assumed to 18.50% for a merger in which
60% of the consideration paid was in the form of First Empire Common Stock and a
14x terminal price to earnings multiple was assumed.
SELECTED TRANSACTION ANALYSIS. Keefe, Bruyette analyzed certain merger and
acquisition transactions for financial institutions based upon the tangible book
premium to core deposits, and the acquisition price (at announcement) relative
to stated book value, stated tangible book value, latest twelve months earnings,
1998 projected earnings, and assets. The information analyzed was compiled by
Keefe, Bruyette from both internal sources and a data firm that monitors and
publishes transaction summaries and descriptions of mergers and acquisitions in
the financial services industry. The analysis included a review and comparison
of the average book value multiples and earnings multiples represented by a
sample of recently completed or announced transactions, as segmented into: (a)
selected transactions announced after January 1, 1997 in which the seller was a
bank and the announced deal value was greater than $1 billion; (b) selected
transactions announced after January 1, 1997 in which the seller was a bank and
the announced deal value was between $500 million and $1 billion; (c) selected
transactions announced after January 1, 1997 in
32
which the seller was a thrift and the announced deal value was greater than $500
million. The following transactions comprised group (a): Banc One Corp./First
Commerce Corp., NationsBank Corp./Barnett Banks Inc., First Union Corp./Signet
Banking Corp., Wachovia Corp./Central Fidelity, First Bank System/ US Bancorp,
and Allied Irish Banks/Dauphin Deposit Corp.; group (b): CNB Bancshares
Inc./Pinnacle Financial, Wachovia Corp./Jefferson Bankshares, and Huntington
Bancshares/First Michigan Bank Corp.; and group (c): Peoples Heritage Financial
Group/CFX Corporation, North Fork Bancorporation/New York Bancorp, H.F. Ahmanson
& Co./Coast Savings Financial, Star Banc Corp./Great Financial Corp, Charter One
Financial/RCSB Financial, Marshall & Ilsley/Security Capital Corp., Washington
Mutual/ Great Western Financial, Summit Bancorp/Collective Bancorp.
Keefe, Bruyette's analyses of these acquisitions indicated that (a) among
the 1997 acquisition of banks with deal value greater than $1 billion, the
consideration paid to the acquired party's stockholders averaged 325% of book
value per share, 375% of tangible book value per share, 23.69 times latest
twelve months earnings per share, 18.11 times estimated 1998 earnings per share,
and a deposit premium of 31.37%; (b) among the 1997 acquisition of banks with
deal value between $500 million and $1 billion, the consideration paid to the
acquired party's stockholders averaged 307% of book value per share, 335% of
tangible book value per share, 22.61 times latest twelve months earnings per
share, 16.44 times estimated 1998 earnings per share, and a deposit premium of
22.65% (excluding CNB Bancshares/Pinnacle Financial); (c) among the 1997
acquisition of thrifts with deal value greater than $500 million, the
consideration paid to the acquired party's stockholders averaged 254% of book
value per share, 265% of tangible book value per share, 22.47 times latest
twelve months earnings per share (excluding Washington Mutual/Great Western),
15.16 times estimated 1998 earnings per share, and a deposit premium of 21.10%;
assuming an Exchange Ratio of 0.161 of a share of First Empire common stock for
each share of ONBANCorp common stock applied to 60% of ONBANCorp shares, a price
per share of First Empire common stock of $424.00, and Cash Consideration of
$69.50 for the remaining 40% of ONBANCorp shares, the consideration to be
received by ONBANCorp stockholders in the Merger will be 269% of book value per
share, 281% of tangible book value, 21.83 times latest twelve months earnings
per share, 16.77 times estimated 1998 earnings per share, 16.31% of total assets
and deposit premiums of 14.34%.
CASH EARNINGS PER SHARE ANALYSIS. Keefe, Bruyette calculated the impact of
the Merger on First Empire's cash earnings per share. For First Empire, this
computation assumed the Keefe, Bruyette Research Department's 1998 and 1999
earnings per share estimates, respectively, of $27.15 and $29.07, and earnings
growth rates in 2000, 2001 and 2002, respectively, of 7.00%, 7.25% and 7.50%.
For ONBANCorp, the assumptions were 1998 and 1999 earnings per share,
respectively, of $3.77 and $4.37(see "--Internal Rate of Return Analysis,"
above), an earnings growth rate of 9.75% in 2000, and an 11.00% earnings growth
rate in both 2001 and 2002. First Empire's cash earnings per share were shown to
increase relative to the stand-alone case by 4.4% in 1998, and improve yearly
relative to stand-alone projections, with a 12.2% relative increase in 2002.
CASH EARNINGS PER SHARE COMPARED TO EARNINGS PER SHARE ANALYSIS. Using
estimates from Keefe, Bruyette's Research Department, Keefe, Bruyette separately
analyzed the percentage difference between the cash earnings per share estimates
and earnings per share estimates for banks with market capitalizations greater
than $2 billion and for thrifts with market capitalizations greater than $1
billion. Banks were segmented into four categories: (a) those with differences
between cash earnings per share and earnings per share greater than 10%, (b)
those with differences between cash earnings per share and earnings per share
between 5% and 10%, (c) those with differences between cash earnings per share
and earnings per share less than 5%, and (d) those with no difference between
cash earnings per share and earnings per share. For the 6 banks in category (a),
the median price to cash earnings multiple was 15.08 times, median price to
earnings multiple was 16.81 times, and the median difference was 11.63%; for the
17 banks in category (b), the median price to cash earnings multiple was 15.15
times, median price to earnings multiple was 16.15 times, and the median
difference was 7.37%; for the 25 banks in category (c), the median price to cash
earnings multiple was 15.23 times, median price to earnings multiple was 15.74
times, and the median difference was 3.33%; for the 8 banks in category (d), the
median price to earnings multiple was
33
15.48 times. Thrifts were segmented into two categories: (a) those with
differences between cash earnings per share and earnings per share greater than
10%, and (b) those with differences between cash earnings per share and earnings
per share less than 10%. For the 5 thrifts in category (a), the median price to
cash earnings multiple was 13.21 times, median price to earnings multiple was
15.99 times, and the median difference was 13.30%; for the 7 thrifts in category
(b), the median price to cash earnings multiple was 14.28 times, median price to
earnings multiple was 14.35 times, and the median difference was 0.00%. Keefe,
Bruyette's analyses indicated that increased differences in cash earnings per
share and earnings per share figures do not necessarily lead to significantly
decreased trading multiples for stock prices for banks based on cash earnings
per share.
In connection with its opinion dated as of the date of this Joint Proxy
Statement, Keefe, Bruyette performed procedures to update, as necessary, certain
of the analyses described above and reviewed the assumptions on which such
analyses described above were based and the factors considered in connection
therewith. Keefe, Bruyette did not perform any analyses in addition to those
described above in updating its October 28, 1997 opinion.
Keefe, Bruyette has been retained by the Board of Directors of First Empire
as an independent contractor to act as financial adviser to First Empire with
respect to the Merger. Keefe, Bruyette, as part of its investment banking
business, is continually engaged in the valuation of banking businesses and
their securities in connection with mergers and acquisitions, negotiated
underwritings, competitive biddings, secondary distributions of listed and
unlisted securities, private placements and valuations for estate, corporate and
other purposes. As specialists in the securities of banking companies, Keefe,
Bruyette has experience in, and knowledge of, the valuation of banking
enterprises. In the ordinary course of its business as a broker-dealer, Keefe,
Bruyette may, from time to time, purchase securities from, and sell securities
to, First Empire and ONBANCorp and as a market maker in securities, Keefe,
Bruyette may from time to time have a long or short position in, and buy or
sell, debt or equity securities of First Empire and ONBANCorp for Keefe,
Bruyette's own account and for the accounts of its customers. Keefe, Bruyette
previously served as lead manager for ONBANCorp's January 30, 1997 offering of
$60 million of capital trust securities, as co-manager for First Empire's
January 28, 1997 offering of $150 million of capital trust securities, as
co-manager for First Empire's June 5, 1997 offering of $100 million of capital
trust securities, as co-manager for M&T Bank's July 3, 1995 offering of $100
million of subordinated debt securities and as advisor to First Empire in its
July 1, 1992 acquisition of Central Trust Co. and Endicott Trust Co.
First Empire and Keefe, Bruyette have entered into a letter agreement dated
October 27, 1997 relating to the services to be provided by Keefe, Bruyette for
its services in connection with the Merger. First Empire has agreed to pay
Keefe, Bruyette fees as follows: a cash fee of $250,000 following the signing of
the definitive agreement contemplating the consummation of the Merger, and an
additional cash fee of $250,000 at the consummation of the Merger. Pursuant to
the Keefe, Bruyette engagement agreement, First Empire also agreed to reimburse
Keefe, Bruyette for reasonable out-of-pocket expenses and disbursements incurred
in connection with its retention and to indemnify Keefe, Bruyette against
certain liabilities, including liabilities under the federal securities laws.
ONBANCORP. Pursuant to letter agreements dated January 2, 1995 and January
10, 1997, ONBANCorp retained Sandler O'Neill as an independent financial advisor
to assist the ONBANCorp Board in its analysis of the various strategic
alternatives available to ONBANCorp and in connection with its consideration of
possible business combinations with a second party. Sandler O'Neill is a
nationally recognized investment banking firm whose principal business specialty
is banks and savings institutions and, as part of its investment banking
business, is regularly engaged in the valuation of such businesses and their
securities in connection with mergers and acquisitions and other corporate
transactions.
Pursuant to the terms of the January 10, 1997 agreement, Sandler O'Neill
acted as financial advisor to ONBANCorp in connection with the Merger. In
connection therewith, the ONBANCorp Board requested Sandler O'Neill to render
its opinion as to the fairness, from a financial point of view, of the
consideration
34
to be received by the holders of ONBANCorp Common Stock in the Merger. At the
October 27, 1997 meeting at which the ONBANCorp Board approved and adopted the
Merger Agreements, Sandler O'Neill delivered to the ONBANCorp Board its oral
opinion, subsequently confirmed in writing, that, as of such date, the
consideration to be received by the holders of ONBANCorp Common Stock pursuant
to the Merger Agreements was fair, from a financial point of view, to such
stockholders. Sandler O'Neill has also delivered to the ONBANCorp Board a
written opinion, dated the date of this Joint Proxy Statement (the "Sandler
O'Neill Fairness Opinion"), which is substantially identical to the October 27,
1997 opinion. THE FULL TEXT OF THE SANDLER O'NEILL FAIRNESS OPINION, WHICH SETS
FORTH THE PROCEDURES FOLLOWED, ASSUMPTIONS MADE, MATTERS CONSIDERED AND
QUALIFICATIONS AND LIMITATIONS ON THE REVIEW UNDERTAKEN IN CONNECTION WITH
RENDERING SUCH OPINION, IS ATTACHED AS APPENDIX D TO THIS JOINT PROXY STATEMENT
AND IS INCORPORATED HEREIN BY REFERENCE. THE DESCRIPTION OF SUCH OPINION SET
FORTH HEREIN IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO APPENDIX D. HOLDERS OF
SHARES OF ONBANCORP COMMON STOCK ARE URGED TO READ THE SANDLER O'NEILL FAIRNESS
OPINION IN ITS ENTIRETY IN CONNECTION WITH THEIR CONSIDERATION OF THE PROPOSED
MERGER.
THE SANDLER O'NEILL FAIRNESS OPINION WAS PROVIDED TO THE ONBANCORP BOARD FOR
ITS INFORMATION AND IS DIRECTED ONLY TO THE FAIRNESS, FROM A FINANCIAL POINT OF
VIEW, OF THE CONSIDERATION TO BE RECEIVED BY THE HOLDERS OF SHARES OF ONBANCORP
COMMON STOCK PURSUANT TO THE MERGER AGREEMENTS. IT DOES NOT ADDRESS THE
UNDERLYING BUSINESS DECISION OF ONBANCORP TO ENGAGE IN THE MERGER OR ANY OTHER
ASPECT OF THE MERGER AND DOES NOT CONSTITUTE A RECOMMENDATION TO ANY HOLDER OF
SHARES OF ONBANCORP COMMON STOCK AS TO HOW SUCH STOCKHOLDER SHOULD VOTE AT THE
ONBANCORP SPECIAL MEETING WITH RESPECT TO THE MERGER OR ANY OTHER MATTER RELATED
THERETO.
In connection with rendering its October 27, 1997 opinion, Sandler O'Neill
performed a variety of financial analyses. The following is a summary of all
such material analyses, but does not purport to be a complete description of all
of the analyses underlying Sandler O'Neill's opinion. The preparation of a
fairness opinion is a complex process involving subjective judgments and is not
necessarily susceptible to a partial analysis or summary description. Sandler
O'Neill believes that its analyses must be considered as a whole and that
selecting portions of such analyses and the factors considered therein, without
considering all factors and analyses, could create an incomplete view of the
analyses and processes underlying its opinion. In performing its analyses,
Sandler O'Neill made numerous assumptions with respect to industry performance,
business and economic conditions and various other matters, many of which cannot
be predicted and are beyond the control of ONBANCorp, First Empire and Sandler
O'Neill. Any estimates contained in Sandler O'Neill's analyses are not
necessarily indicative of future results or values, which may be significantly
more or less favorable than such estimates. Estimates on the values of companies
do not purport to be appraisals or necessarily reflect the prices at which
companies or their securities may actually be sold.
STOCK TRADING HISTORY. Sandler O'Neill reviewed the history of the reported
trading prices and volume of ONBANCorp Common Stock and First Empire Common
Stock, and the relationship between the movements in the prices of ONBANCorp
Common Stock and First Empire Common Stock, respectively, to movements in
certain stock indices, including the Standard & Poor's 500 Index (the "S&P 500
Index"), the Nasdaq Banking Index and selected composite groups of publicly
traded commercial banks (identified below). During the one-year period ended
October 23, 1997, the ONBANCorp Common Stock outperformed the S&P 500 Index, the
Nasdaq Banking Index and its peer group index, and the First Empire Common Stock
outperformed the S&P 500 Index and performed on par with the Nasdaq Banking
Index and peer group index.
ANALYSIS OF SELECTED PUBLICLY TRADED COMPANIES. Sandler O'Neill used
publicly available information to compare selected financial and market
information, including balance sheet composition, asset quality ratios, loan
loss reserve levels, profitability, capital adequacy, dividends and trading
multiples, for ONBANCorp and two selected composite groups of publicly traded
commercial banks. The first group consisted of ONBANCorp and the following eight
publicly traded regional commercial banks (the "Regional Group"): Mercantile
Bankshares Corp.; Keystone Financial Inc.; North Fork Bancorporation,
35
Inc.; Wilmington Trust Corp.; Riggs National Corp.; Valley National Bancorp;
Fulton Financial Corp.; and Susquehanna Bancshares Inc. Sandler O'Neill also
compared ONBANCorp to a group of 12 publicly traded commercial banks which had a
return on average equity (based on last twelve months' earnings) of greater than
15.5% and a price to tangible book value (based on October 22, 1997 stock
prices) of greater than 290% (the "Highly-Valued Group"). The Highly-Valued
Group was comprised of the following institutions: TCF Financial Corp.; Zions
Bancorp; Synovus Financial Corp.; Provident Financial Group Inc.; North Fork
Bancorporation, Inc.; Wilmington Trust Corp.; Valley National Bancorp;
Cullen/Frost Bankers Inc.; City National Corp.; National Commerce Bancorp.;
Commerce Bancorp Inc.; and U.S. Trust Corp. The analysis compared publicly
available financial information for ONBANCorp and the median data for each of
the Regional Group and the Highly-Valued Group as of and for each of the years
ended December 31, 1992 through December 31, 1996 and as of and for the twelve
months ended September 30, 1997 (although in some cases the information was as
of or for the twelve months ended June 30, 1997). The following comparisons are
based on September 30, 1997 financial information (or in some cases June 30,
1997 financial information).
The total assets of ONBANCorp were $5.5 billion, compared to $5.5 billion
for the Regional Group and $5.5 billion for the Highly-Valued Group. The annual
growth rate of assets for ONBANCorp was 3.2%, compared to a growth rate of 8.0%
for the Regional Group and 15.8% for the Highly-Valued Group. The total equity
of ONBANCorp was $325.2 million, compared to $464.1 million for the Regional
Group and $492.0 million for the Highly-Valued Group. The tangible equity to
total assets ratio was 5.61% for ONBANCorp, compared to 8.41% for the Regional
Group and 7.36% for the Highly-Valued Group. The net loans to total assets ratio
for ONBANCorp was 50.3% compared to 67.7% for the Regional Group and 61.7% for
the Highly-Valued Group. The cash and securities to total assets ratio was 44.5%
for ONBANCorp, compared to 28.3% for the Regional Group and 29.1% for the
Highly-Valued Group. Total deposits were $4.0 billion for ONBANCorp, compared to
$4.1 billion for the Regional Group and $4.5 billion for the Highly-Valued
Group. ONBANCorp had a gross loans to total deposits ratio of 70.1%, compared to
87.9% for the Regional Group and 83.1% for the Highly-Valued Group. The total
borrowings to total assets ratio for ONBANCorp was 18.8%, compared to 8.4% for
the Regional Group and 17.9% for the Highly-Valued Group. The ratio of
non-performing loans to gross loans was 0.95% for ONBANCorp, compared to 0.63%
for the Regional Group and 0.54% for the Highly-Valued Group. The ratio of non-
performing loans to total assets for ONBANCorp was 0.48%, compared to 0.40% for
the Regional Group and 0.28% for the Highly-Valued Group. The ratio of
non-performing assets to total assets for ONBANCorp was 0.76%, compared to 0.43%
for the Regional Group and 0.39% for the Highly-Valued Group. The ratio of loan
loss reserves to non-performing loans was 146.4% for ONBANCorp, compared to
272.1% for the Regional Group and 299.5% for the Highly-Valued Group. The ratio
of loan loss reserves to gross loans for ONBANCorp was 1.39%, compared to 1.47%
for the Regional Group and 1.51% for the Highly-Valued Group. The net interest
margin of ONBANCorp was 3.08%, compared to 4.57% for the Regional Group and
4.61% for the Highly-Valued Group. The ratio of non-interest income to average
assets for ONBANCorp was 0.59%, compared to 0.84% for the Regional Group and
1.94% for the Highly-Valued Group. The ratio of non-interest expense to average
assets was 1.92% for ONBANCorp, compared to 3.06% for the Regional Group and
3.72% for the Highly-Valued Group. The efficiency ratio of ONBANCorp was 52.9%,
compared to 52.9% for the Regional Group and 57.1% for the Highly-Valued Group.
The return on average assets was 0.92% for ONBANCorp, compared to 1.45% for the
Regional Group and 1.56% for the Highly-Valued Group. The return on average
equity was 14.45% for ONBANCorp, compared to 14.45% for the Regional Group and
19.94% for the Highly-Valued Group. Based on closing prices as of October 22,
1997, the price to tangible book value per share for ONBANCorp was 253%,
compared to 286% for the Regional Group and 394% for the Highly-Valued Group.
Based on closing prices as of October 22, 1997, the price to earnings per share
multiple based upon the twelve months ended September 30, 1997 was 17.0x for
ONBANCorp, compared to 20.3x for the Regional Group and 19.3x for the
Highly-Valued Group. The dividend payout ratio was 37.4% for ONBANCorp, compared
to 42.5% for the Regional Group and 34.3% for the Highly-Valued Group.
36
Sandler O'Neill also used publicly available information to perform a
similar comparison of selected financial and market information for First Empire
and two different composite groups of selected commercial banks. The first group
consisted of First Empire and the following nine publicly traded commercial
banks (the "Peer Group"): Summit Bancorp; Huntington Bancshares Inc.; Fifth
Third Bancorp; Star Banc Corp.; Provident Financial Group Inc.; Mercantile
Bankshares Corp.; Keystone Financial Inc.; North Fork Bancorporation, Inc.; and
Wilmington Trust Corp. Sandler O'Neill also compared First Empire to a group of
12 publicly traded commercial banks which had a return on average equity (based
on last twelve months' earnings) of greater than 15.5% and a price to tangible
book value (based on October 23, 1997 stock prices) of greater than 290% (the
"Large Highly-Valued Group"). The Large Highly-Valued Group was comprised of the
following institutions: Firstar Corp.; AmSouth Bancorp.; First Security Corp.;
Marshall & Ilsley Corp.; First Tennessee National Corp.; Old Kent Financial
Corp.; First American Corp.; TCF Financial Corp.; Zions Bancorp; Synovus
Financial Corp.; First Commercial Corp.; and North Fork Bancorporation, Inc. The
analysis compared publicly available financial information for First Empire and
the median data for each of the Peer Group and the Large Highly-Valued Group as
of and for each of the years ended December 31, 1992 through December 31, 1996
and as of and for the twelve months ended September 30, 1997 (although in some
cases the information was as of or for the twelve months ended June 30, 1997).
The following comparisons are based on September 30, 1997 financial information
(or in some cases June 30, 1997 financial information).
The total assets of First Empire were $13.7 billion, compared to $8.9
billion for the Peer Group and $12.2 billion for the Large Highly-Valued Group.
The annual growth rate of assets for First Empire was 6.7%, compared to a growth
rate of 7.4% for the Peer Group and 9.4% for the Large Highly-Valued Group. The
total equity of First Empire was $981.6 million, compared to $898.1 million for
the Peer Group and $914.2 million for the Large Highly-Valued Group. The
tangible equity to total assets ratio was 7.04% for First Empire, compared to
8.18% for the Peer Group and 7.14% for the Large Highly-Valued Group. The net
loans to total assets ratio for First Empire was 80.4%, compared to 68.2% for
the Peer Group and 64.4% for the Large Highly-Valued Group. The cash and
securities to total assets ratio was 15.9% for First Empire, compared to 27.2%
for the Peer Group and 29.2% for the Large Highly-Valued Group. Total deposits
were $11.2 billion for First Empire, compared to $6.8 billion for the Peer Group
and $8.5 billion for the Large Highly-Valued Group. First Empire had a gross
loans to total deposits ratio of 100.6%, compared to 93.3% for the Peer Group
and 89.1% for the Large Highly-Valued Group. The total borrowings to total
assets ratio for First Empire was 9.0%, compared to 17.2% for the Peer Group and
16.5% for the Large Highly-Valued Group. The ratio of non-performing loans to
gross loans was .50% for First Empire, compared to 0.63% for the Peer Group and
0.55% for the Large Highly-Valued Group. The ratio of non-performing loans to
total assets for First Empire was 0.41%, compared to 0.34% for the Peer Group
and 0.34% for the Large Highly-Valued Group. The ratio of non-performing assets
to total assets for First Empire was 0.47%, compared to 0.42% for the Peer Group
and 0.39% for the Large Highly-Valued Group. The ratio of loan loss reserves to
non-performing loans was 487.99% for First Empire, compared to 317.38% for the
Peer Group and 287.00% for the Large Highly-Valued Group. The ratio of loan loss
reserves to gross loans for First Empire was 2.42% compared to 1.53% for the
Peer Group and 1.57% for the Large Highly-Valued Group. The net interest margin
of First Empire was 4.41%, compared to 4.51% for the Peer Group and 4.40% for
the Large Highly-Valued Group. The ratio of non-interest income to average
assets for First Empire was 1.43%, compared to 1.44% for the Peer Group and
2.30% for the Large Highly-Valued Group. The ratio of non-interest expense to
average assets was 3.21% for First Empire, compared to 2.99% for the Peer Group
and 3.71% for the Large Highly-Valued Group. The efficiency ratio of First
Empire was 55.5%, compared to 49.3% for the Peer Group and 58.4% for the Large
Highly-Valued Group. The return on average assets was 1.31% for First Empire,
compared to 1.53% for the Peer Group and 1.44% for the Large Highly-Valued
Group. The return on average equity was 18.44% for First Empire, compared to
18.54% for the Peer Group and 18.09% for the Large Highly-Valued Group. Based on
closing prices as of October 23, 1997, the price to tangible book value per
share for First Empire was 287%, compared to 372% for the Peer Group and 377%
for the Large Highly-Valued Group. Based on closing prices as of October 23,
1997, the price to earnings per share multiple based upon
37
the twelve months ended September 30, 1997 was 17.4x for First Empire, compared
to 21.5x for the Peer Group and 19.4x for the Large Highly-Valued Group. The
dividend payout ratio was 12.8% for First Empire, compared to 40.7% for the Peer
Group and 36.6% for the Large Highly-Valued Group.
ANALYSIS OF SELECTED MERGER TRANSACTIONS. Using publicly available data,
Sandler O'Neill reviewed 112 transactions announced from January 1, 1997 to
October 21, 1997 involving publicly traded commercial banks nationwide as
acquired institutions with transaction values over $15 million ("Nationwide
Transactions") and 10 transactions announced from January 1, 1997 to October 21,
1997 involving publicly traded commercial banks in the Mid-Atlantic region
(Maryland, New Jersey, New York and Pennsylvania) as acquired institutions with
transaction values over $15 million ("Regional Transactions"). Sandler O'Neill
also reviewed 21 transactions announced from January 1, 1997 to October 21, 1997
involving publicly traded commercial banks nationwide as acquired institutions
with transaction values between $100 million and $2 billion ("Large Nationwide
Transactions") and six transactions announced from January 1, 1996 to October
21, 1997 involving publicly traded commercial banks in the Mid-Atlantic region
as acquired institutions with transaction values between $100 million and $2
billion ("Large Regional Transactions").
Sandler O'Neill reviewed the ratios of transaction value to last twelve
months' net income, transaction value to tangible book value, transaction value
to book value, tangible book premium to core deposits and transaction value to
total deposits in each transaction and computed high, low, mean and median
ratios and premiums for the respective groups of transactions. These multiples
were applied to ONBANCorp's financial information as of and for the twelve
months ended September 30, 1997. Based upon the median multiples for Nationwide
Transactions, Sandler O'Neill derived an imputed range of values per share of
ONBANCorp Common Stock of $58.61 to $80.10. Based upon the median multiples for
Regional Transactions, Sandler O'Neill derived an imputed range of values per
share of ONBANCorp Common Stock of $53.92 to $75.71. Based upon the median
multiples for Large Nationwide Transactions, Sandler O'Neill derived an imputed
range of values per share of ONBANCorp Common Stock of $62.59 to $90.88. Based
upon the median multiples for Large Regional Transactions, Sandler O'Neill
derived an imputed range of values per share of ONBANCorp Common Stock of $64.29
to $100.94.
No company involved in the transactions included in the above analysis is
identical to ONBANCorp and no transaction included in the above analysis is
identical to the Merger. Accordingly, any consideration of the results of the
foregoing analysis is not mathematical; rather, it involves complex
considerations and judgments concerning differences in the financial and
operating characteristics of the companies involved in the transactions as
compared to ONBANCorp and First Empire and the terms of the transactions as
compared to the Merger.
DISCOUNTED DIVIDEND STREAM AND TERMINAL VALUE ANALYSIS. Sandler O'Neill
also performed an analysis which estimated the future stream of after-tax
dividend flows of ONBANCorp through 2001 under various circumstances, assuming
that ONBANCorp performed in accordance with the earnings forecasts of its
management and certain variations thereof. To approximate the terminal value of
ONBANCorp Common Stock at December 31, 2001, Sandler O'Neill applied price to
earnings multiples ranging from 12x to 22x and applied multiples of tangible
book value ranging from 175% to 325%. The dividend income streams and terminal
values were then discounted to present values using different discount rates
(ranging from 10% to 18%), chosen to reflect different assumptions regarding
required rates of return of holders or prospective buyers of ONBANCorp Common
Stock. This analysis, assuming the current dividend payout ratio and
management's earnings forecasts, indicated an imputed range of values per share
of ONBANCorp Common Stock of between $34.40 and $79.64 when applying the price
to earnings multiples, and an imputed range of values per share of ONBANCorp
Common Stock of between $30.47 and $79.41 when applying multiples of tangible
book value. In connection with its analysis, Sandler O'Neill extensively used
sensitivity analyses to illustrate the effects changes in the underlying
assumptions (including variations with respect to the growth rate of assets, net
interest spread, non-interest income, non-interest expenses and dividend payout
ratio) would have on the resulting present value, and discussed these changes
with the ONBANCorp Board.
38
PRO FORMA MERGER ANALYSIS. Sandler O'Neill performed pro forma merger
analyses that combined First Empire's and ONBANCorp's current and projected
income statements and balance sheets based on projections provided by the senior
managements of First Empire and ONBANCorp, respectively. Assumptions and
analyses of the economic environment, accounting and tax treatment, acquisition
adjustments, operating efficiencies and other adjustments were used to arrive at
a base case pro forma analysis to determine the pro forma effect of the Merger
on First Empire. In analyzing the projections of First Empire's earnings per
share calculated in accordance with generally accepted accounting principles
("GAAP"), cash earnings per share and tangible book value per share, Sandler
O'Neill assumed that the stock portion of the Merger Consideration represented
70% of the aggregate consideration and that the cash portion of the Merger
Consideration represented 30% of the aggregate consideration received by the
holder of a share of ONBANCorp Common Stock. This analysis indicated that the
Merger would be dilutive to First Empire's earnings per share calculated in
accordance with GAAP and First Empire's tangible book value per share and
accretive to First Empire's cash earnings per share in 1998. This analysis was
based on estimates of expected cost savings and other consolidation efficiencies
to be achieved following the Merger, and numerous other assumptions, including
assumptions with respect to the anticipated expenses and non-recurring charges
to be incurred by First Empire and ONBANCorp in connection with the Merger. The
actual results achieved by the combined company will vary from the projected
results and the variations may be material.
In connection with rendering its oral opinion dated October 27, 1997,
Sandler O'Neill reviewed, among other things: (i) the Merger Agreements and
exhibits thereto; (ii) the Stock Option Agreement; (iii) ONBANCorp's audited
consolidated financial statements and management's discussion and analysis of
financial condition and results of operations contained in its annual report to
shareholders for the fiscal year ended December 31, 1996; (iv) First Empire's
audited consolidated financial statements and management's discussion and
analysis of financial condition and results of operations contained in its
annual report to shareholders for the year ended December 31, 1996; (v)
ONBANCorp's unaudited consolidated financial statements and management's
discussion and analysis of the financial condition and results of operations
contained in its Quarterly Report on Form 10-Q for the quarters ended March 31,
1997 and June 30, 1997; (vi) First Empire's unaudited consolidated financial
statements and management's discussion and analysis of financial condition and
results of operations contained in its Quarterly Report on Form 10-Q for the
quarters ended March 31, 1997 and June 30, 1997; (vii) certain preliminary
financial information prepared by the senior management of ONBANCorp concerning
ONBANCorp's financial condition and results of operations for the quarter ended
September 30, 1997; (viii) certain preliminary financial information prepared by
the senior management of First Empire concerning First Empire's financial
condition and results of operations for the quarter ended September 30, 1997;
(ix) certain financial analyses and forecasts of ONBANCorp prepared by and
reviewed with management of ONBANCorp and the views of senior management of
ONBANCorp regarding ONBANCorp's past and current business operations, results
thereof, financial condition and future prospects; (x) certain financial
analyses and forecasts of First Empire prepared by and reviewed with management
of First Empire and the views of senior management of First Empire regarding
First Empire's past and current business operations, results thereof, financial
condition, and future prospects; (xi) the pro forma impact of the Merger; (xii)
the historical reported price and trading activity for First Empire Common Stock
and ONBANCorp Common Stock, including a comparison of certain financial and
stock market information for First Empire and ONBANCorp with similar publicly
available information for certain other companies the securities of which are
publicly traded; (xiii) the financial terms of recent business combinations in
the banking industry; the current market environment generally and the banking
environment in particular; and (xiv) such other information, financial studies,
analyses and investigations, and financial, economic, and market criteria as
Sandler O'Neill considered relevant. In connection with rendering its opinion,
Sandler O'Neill was not asked to, and did not, solicit indications of interest
in a potential transaction from other third parties.
39
In connection with rendering the Sandler O'Neill Fairness Opinion, Sandler
O'Neill confirmed the appropriateness of its reliance on the analyses used to
render its October 27, 1997 oral opinion by performing procedures to update
certain of such analyses and by reviewing the assumptions upon which such
analyses were based and the factors considered in connection therewith.
In performing its reviews, Sandler O'Neill assumed and relied upon, without
independent verification, the accuracy and completeness of all the financial
information, analyses and other information that was publicly available or
otherwise furnished to, reviewed by or discussed with it, and Sandler O'Neill
does not assume any responsibility or liability for the accuracy or completeness
thereof. Sandler O'Neill did not make an independent evaluation or appraisal of
the specific assets, the collateral securing assets or the liabilities
(contingent or otherwise) of ONBANCorp or First Empire or any of their
subsidiaries, or the collectibility of any such assets, nor was it furnished
with any such evaluations or appraisals (relying, where relevant, on the
analyses and estimates of ONBANCorp and First Empire). Sandler O'Neill is not an
expert in the evaluation of allowances for loan losses and it has not made an
independent evaluation of the adequacy of the allowance for loan loses of
ONBANCorp or First Empire, nor has it reviewed any individual credit files
relating to ONBANCorp or First Empire. With ONBANCorp's consent, Sandler O'Neill
has assumed that the respective aggregate allowances for loan losses for both
ONBANCorp's and First Empire are adequate to cover such losses and will be
adequate on a pro forma basis for the combined entity. In addition, Sandler
O'Neill has not conducted any physical inspection of the properties or
facilities of ONBANCorp or First Empire. With respect to the financial
projections reviewed with each company's management, Sandler O'Neill assumed,
with ONBANCorp's consent, that they had been reasonably prepared on bases
reflecting the best currently available estimates and judgments of the
respective managements of the respective future financial performances of
ONBANCorp and First Empire and that such performances will be achieved.
Sandler O'Neill's opinion was necessarily based upon market, economic and
other conditions as they existed on, and could be evaluated as of, the date of
such opinion. Sandler O'Neill assumed, in all respects material to its analysis,
that all of the representations and warranties contained in the Merger
Agreements and all related agreements are true and correct, that each party to
such agreements will perform all of the covenants required to be performed by
such party under such agreements and that the conditions precedent in the Merger
Agreements are not waived. Sandler O'Neill also assumed, with ONBANCorp's
consent, that there has been no material change in ONBANCorp's and First
Empire's assets, financial condition, results of operations, business, or
prospects since the date of the last financial statements filed pursuant to the
requirements of the Exchange Act, that ONBANCorp and First Empire will remain as
going concerns for all periods relevant to its analyses and that the Merger will
qualify as a tax-free reorganization for federal income tax purposes.
Under the January 10, 1997 letter agreement between ONBANCorp and Sandler
O'Neill (the "Letter Agreement"), ONBANCorp will pay Sandler O'Neill a
transaction fee in connection with the Merger, a substantial portion of which is
contingent upon the consummation of the Merger. Under the terms of the Letter
Agreement, ONBANCorp will pay Sandler O'Neill a transaction fee equal to a
percentage of the aggregate purchase price paid in the transaction. As of the
date of this Joint Proxy Statement, ONBANCorp would pay Sandler O'Neill a
transaction fee equal to 0.65% of the aggregate purchase price paid in the
transaction. Assuming the closing price of First Empire Common Stock on February
5, 1998, and assuming that the Stock Consideration is exchanged for 65% of the
Outstanding ONBANCorp Shares, Sandler O'Neill's fee would be approximately $5.9
million, of which $300,000 has been paid, $300,000 will be paid upon approval of
the Merger Agreements by ONBANCorp's stockholders and the remainder will be paid
when the Merger is consummated. ONBANCorp has also paid Sandler O'Neill a fee of
$500,000 for rendering its fairness opinion, all of which amount will be
credited towards the fee payable to Sandler O'Neill upon consummation of the
Merger. ONBANCorp has also agreed to reimburse Sandler O'Neill for its
reasonable out-of-pocket expenses incurred in connection with its engagement and
to indemnify Sandler O'Neill and its affiliates and their respective partners,
directors, officers, employees, agents, and controlling persons against certain
expenses and liabilities, including liabilities under securities laws.
40
Sandler O'Neill has in the past provided and continues to provide other
financial advisory services to ONBANCorp and has received and will receive its
customary compensation for such services. In the ordinary course of its
business, Sandler O'Neill may actively trade the debt and/or equity securities
of ONBANCorp and First Empire and their respective affiliates for its own
account and for the accounts of customers and, accordingly, may at any time hold
a long or short position in such securities.
REPRESENTATIONS AND WARRANTIES; CONDITIONS TO THE MERGER; WAIVER
The Reorganization Agreement contains representations and warranties by
First Empire and ONBANCorp regarding, among other things, their capitalization,
organization, ownership and capitalization of their subsidiaries, qualification
to do business, authority to enter into the Merger Agreements, regulatory
filings, financial statements, compliance with applicable laws and regulations,
loans, taxes, employee benefit plans, certain contracts, undisclosed
liabilities, properties, the accuracy of information prepared and provided by
them in connection with the Merger and the absence of certain legal proceedings
and other events, including material adverse changes in the parties' respective
businesses, financial condition or results of operations.
The respective obligations of First Empire, Olympia and ONBANCorp to
consummate the Merger are subject to the fulfillment, at or prior to the
Effective Date, of the following conditions: (i) approval of the First Empire
Proposal and the ONBANCorp Proposal by the requisite vote of the stockholders of
First Empire and ONBANCorp, respectively; (ii) receipt of all Requisite
Regulatory Approvals, expiration of all notice and waiting periods required
after the grant of any such approvals and the satisfaction of all pre-
consummation conditions contained in any such approval; provided, however, that
no such approval shall have imposed any condition or requirement which, in the
reasonable opinion of the First Empire Board or ONBANCorp Board so materially
and adversely affects the anticipated economic and business benefits to First
Empire or ONBANCorp, respectively, of the transactions contemplated by the
Reorganization Agreement as to render consummation of such transaction
inadvisable; (iii) the effectiveness of the Registration Statement (including
any post-effective amendment thereto) and the absence of any threatened or
pending proceeding by the Commission to suspend the effectiveness of such
Registration Statement; (iv) receipt of all state securities "Blue Sky" permits
or other authorizations, or confirmations as to the availability of an exemption
from registration requirements as may be necessary; (v) to the extent that any
lease, license, loan, financing agreement or other contract or agreement to
which ONBANCorp or any ONBANCorp Subsidiary is a party requires the consent of
or waiver from the other party thereto as a result of the transactions
contemplated by Merger Agreements, the obtainment of such consent or waiver,
unless the failure to obtain any such consents or waivers, individually or in
the aggregate, would not have a Material Adverse Effect (as defined below) on
ONBANCorp; (vi) the absence of any order, decree or injunction of a court or
agency of competent jurisdiction which enjoins or prohibits the consummation of
the transactions contemplated by the Merger Agreements; (vii) approval for
listing on the AMEX of the shares of First Empire Common Stock to be issued in
the Merger, subject to official notice of issuance; (viii) the receipt by First
Empire and ONBANCorp of an opinion of First Empire's special tax counsel
regarding certain federal income tax consequences of the Merger, including that
the Merger will qualify as a reorganization within the meaning of Section 368(a)
of the Code, as described in "--Certain Federal Income Tax Consequences"; (ix)
the representations and warranties of the other party to the Merger Agreements
must be true and correct in all material respects as of the date of the Merger
Agreements and as of the Closing Date (as defined in "--Effective Date of
Merger; Termination") as though made as of the Closing Date (or on the date when
made in the case of any representation and warranty which specifically relates
to an earlier date); provided, however, that in determining the satisfaction of
this condition, no effect will be given to any exceptions in such
representations and warranties relating to materiality or Material Adverse
Effect and the condition be deemed to be satisfied unless the failure of such
representations and warranties to be so true and correct constitutes,
individually or in the aggregate, a Material Adverse Effect on the party making
such representations and warranties; (x) the other party must have in all
material respects performed all obligations and complied with all covenants
required by the Merger
41
Agreements to be performed or complied with by such party at or prior to the
Closing Date; (xi) receipt of customary certificates, legal opinions, auditor's
"comfort letters," approvals and consents; and (xii) dissenters' rights may not
have been exercised with respect to more than 10% of the outstanding shares of
ONBANCorp Common Stock.
"Material Adverse Effect" means, with respect to ONBANCorp or First Empire,
as the case may be, a material adverse effect on the business, results of
operations or financial condition of such party and its subsidiaries taken as a
whole or a material adverse effect on such party's ability to consummate the
transactions contemplated hereby; provided, however, that in determining whether
a Material Adverse Effect has occurred there will be excluded any effect on the
referenced party the cause of which is (i) any change in banking or similar
laws, rules or regulations of general applicability or interpretations thereof
by courts or governmental authorities, (ii) any change in generally accepted
accounting principles or regulatory accounting requirements applicable to banks,
thrifts or their holding companies generally and (iii) any action or omission of
ONBANCorp or First Empire or any subsidiary of either of them taken with the
prior written consent of First Empire or ONBANCorp as applicable, in
contemplation of the Merger.
Except with respect to any required stockholder or regulatory approval and
certain other conditions described below, First Empire and ONBANCorp,
respectively, by written instrument signed by an executive officer of such
party, may at any time (whether before or after approval of the Merger
Agreements by the stockholders of First Empire and ONBANCorp) extend the time
for the performance of any of the obligations or other acts of ONBANCorp, on the
one hand, or First Empire or Olympia, on the other hand, and may waive any
inaccuracies in the representations or warranties made by the other party in the
Merger Agreements, compliance with any of the covenants, undertakings or
agreements of such party, or satisfaction of any of the conditions precedent to
its obligations, contained in the Merger Agreements, or the performance by such
other party of any of its obligations set out in the Merger Agreements;
provided, however, that no such waiver executed after approval of Merger
Agreements by the stockholders of First Empire or ONBANCorp may change the
number of shares of First Empire Common Stock or the amount of cash into which
shares of ONBANCorp Common Stock will be converted pursuant to the Merger.
Certain conditions to the consummation of the Merger cannot be waived as a
matter of law, including the existence of an effective registration statement,
the absence of a government order enjoining or prohibiting consummation of the
Merger or any other transaction contemplated by the Merger Agreements and the
receipt of all required "Blue Sky" permits or other authorizations.
REGULATORY APPROVALS
The Merger is subject to the approval of the Federal Reserve under the BHCA
and the Banking Board under the Banking Law. The Bank Merger is subject to the
approval of the Federal Reserve under the Bank Merger Act ("BMA"). On January 9,
1998, the Federal Reserve approved both the Merger and the Bank Merger. On
February 5, 1998, the Banking Board approved both the Merger and the Bank
Merger. First Empire has been informed by the Pennsylvania Department of Banking
that no approval for the Merger or the Bank Merger is required under the
Commonwealth of Pennsylvania Banking Code, although prior notice to the
Pennsylvania Department of Banking and the Pennsylvania Department of State is
required in order to effect the Bank Merger. A copy of the application filed
with the Federal Reserve for approval of the Bank Merger under the BMA is also
required to be filed with the Pennsylvania Banking Department pursuant to the
FDIA.
First Empire and ONBANCorp are not aware of any governmental approvals or
actions that are required for consummation of the Merger and the Bank Merger
except as described above. Should any such approval or action be required, it is
presently contemplated that such approval or action would be sought. The Merger
and the Bank Merger will not proceed in the absence of any such approval or
action and there can be no assurance that all such approvals will be obtained.
Further, if approved, there can be no assurance as to date of such approvals, or
that such approvals will not be conditioned upon matters that would cause the
ONBANCorp Board or the First Empire Board to abandon the Merger. Likewise, there
42
can be no assurance that there will be no legal challenges to the Merger or the
Bank Merger, including attempts by any state attorney general to challenge these
transactions on antitrust grounds, or if such a challenge is made, as to the
result thereof. See"--Representations and Warranties; Conditions to the Merger;
Waiver," "--Effective Date of the Merger; Termination" and "CERTAIN REGULATORY
CONSIDERATIONS."
COVENANTS; CONDUCT OF BUSINESS PENDING THE MERGER
Under the terms of the Merger Agreements, both First Empire and ONBANCorp
have agreed to use all reasonable efforts to obtain as soon as practicable all
consents and approvals of any persons necessary or desirable for the
consummation of the Merger and the Bank Merger, including, but not limited to,
obtaining the approval of their respective stockholders and all Requisite
Regulatory Approvals. Neither First Empire nor ONBANCorp may take any action
that would substantially impair the prospects of completing the Merger pursuant
to the Merger Agreements, or that would adversely affect the qualification of
the Merger as a reorganization within the meaning of Section 368(a) of the Code.
In the event that either First Empire or ONBANCorp has taken any action that
would adversely affect such qualification, each party is obligated to take such
action as the other party may reasonably request to cure such effect to the
extent curable without a Material Adverse Effect on any of the parties. However,
nothing contained in the Merger Agreements may preclude First Empire from
exercising its rights under the Stock Option Agreement. See "--Stock Option
Agreement."
The Merger Agreements provide that ONBANCorp will, and will cause each of
its subsidiaries to, use its reasonable best efforts to preserve its properties,
business and relationships with customers, employees and others and to carry on
its respective business in the usual, regular and ordinary course in
substantially the same manner as conducted prior to the execution of the Merger
Agreements. In addition, ONBANCorp may not, without the prior written consent of
First Empire, except as otherwise provided in the Merger Agreements, increase
the compensation or fringe benefits of its directors, officers or employees
except in a manner consistent with past practice; declare or pay any dividends
or other distributions on capital stock other than its regular quarterly cash
dividend on ONBANCorp Common Stock in an amount not in excess of $0.34 per
share; or take other specified actions, other than in the ordinary course of
business, that might impact the financial condition or business of the entity.
In addition, the Reorganization Agreement provides that neither ONBANCorp
nor its subsidiaries or any of its officers, directors, employees or agents may
directly or indirectly solicit, initiate or encourage any inquiries relating to,
or the making of any proposal which would constitute a "takeover proposal" (as
defined below), or, except to the extent legally required for the discharge of
the fiduciary duties of the ONBANCorp Board, recommend or endorse any takeover
proposal, or participate in any discussions or negotiations, or provide third
parties with any nonpublic information, relating to any such inquiry or proposal
or otherwise facilitate any effort or attempt to make or implement a takeover
proposal; provided, however, that ONBANCorp may communicate information about
such takeover proposal to its stockholders if, in the judgment of the ONBANCorp
Board, based on the advice of outside counsel, such communication is required
under applicable law. ONBANCorp will notify First Empire immediately if any such
inquiries or takeover proposals are received by, any such information is
requested from, or any such negotiations or discussions are sought to be
initiated or continued with ONBANCorp, and ONBANCorp will promptly inform First
Empire in writing of all the relevant details with respect to the foregoing. The
Reorganization Agreement defines a "takeover proposal" as any tender or exchange
offer, proposal for a merger, consolidation or other business combination
involving ONBANCorp or any subsidiary of ONBANCorp or any proposal or offer to
acquire in any manner a substantial equity interest in, or a substantial portion
of the assets of ONBANCorp or any subsidiary of ONBANCorp other than the
transaction contemplated or permitted by the Merger Agreements or the Stock
Option Agreement.
43
EFFECTIVE DATE OF THE MERGER; TERMINATION
The Effective Date will be the date and time as set forth in the certificate
of merger to be delivered and filed with the Delaware Secretary of State in
accordance with the DGCL, on the Closing Date. The "Closing Date" will be the
first business day following the satisfaction of the conditions to the
consummation of the Merger (other than such conditions relating to the receipt
of officers' certificates and legal opinions) or such later date during such
month in which such business day occurs (or, if such business day occurs within
five days prior to the end of such month, during the following month) thereafter
as may be specified by First Empire.
First Empire and ONBANCorp each anticipate that the Merger will be
consummated by the end of the first quarter of 1998. However, consummation of
the Merger could be delayed as a result of delays in obtaining the Requisite
Regulatory Approvals or the satisfaction of those conditions. There can be no
assurances as to if or when such approvals will be obtained or that the Merger
will be consummated. See "--Regulatory Approvals."
The Merger Agreements may be terminated, either before or after approval by
the stockholders of First Empire and ONBANCorp: (i) at any time on or prior to
the Effective Date, by the mutual consent in writing of the parties thereto;
(ii) at any time on or prior to the Closing Date, by ONBANCorp, on one hand, or
First Empire and Olympia, on the other hand, if the other party or parties have,
in any material respect, breached any covenant or agreement or representation or
warranty contained in the Merger Agreements and 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 Closing Date and such breach
would entitle the non-breaching party not to consummate the transactions under
the terms of the Merger Agreements; (iii) at any time, by any party, if the
applications for regulatory approvals (see "--Regulatory Approvals") have been
denied, and the time period for appeals and requests for reconsideration has
run, or if any governmental entity of competent jurisdiction has issued a final
nonappealable order enjoining or otherwise prohibiting the Merger; (iv) at any
time, by any party if the stockholders of First Empire or ONBANCorp do not
approve the transactions contemplated in the Merger Agreements at the Special
Meetings; (v) by any party, if the Closing has not occurred by the close of
business on September 30, 1998, unless the failure of the Closing to occur by
such date is due to the failure of the party seeking to terminate the Merger
Agreements to perform or observe its covenants and agreements set forth in the
Merger Agreements; or (vi) by ONBANCorp, upon the execution by ONBANCorp of a
definitive agreement relating to a "takeover proposal", provided that (X)
ONBANCorp has complied with its obligations under the Merger Agreements with
respect to takeover proposals, (Y) the ONBANCorp Board has determined, after
having received the advice of its outside legal counsel and the advice of its
financial advisor, that such action is necessary for the ONBANCorp Board to act
in a manner consistent with its fiduciary duties under applicable law, and (Z)
concurrent with its notification of termination, ONBANCorp has made an
irrevocable and unconditional offer to First Empire in writing to repurchase the
Option from First Empire at any time within 30 days following the date of such
offer at a price equal to the amount by which (A) the Market/Offer Price (as
defined below) exceeds (B) the Option Price (see "--Stock Option Agreement")
multiplied by the number of shares for which the Option may then be exercised
(subject to a cap on such repurchase price of $43.6 million), with an
undertaking by ONBANCorp to effect such repurchase by wire transfer of
immediately available funds to an account designated by First Empire within two
business days following ONBANCorp's receipt of a written notice from First
Empire (pursuant to the Merger Agreements) of its election to tender the Option
to ONBANCorp for repurchase and the applicable repurchase price. "Market/Offer
Price" means the highest of (i) the price per share of ONBANCorp Common Stock at
which a tender offer or exchange offer therefor has been made, (ii) the price
per share of ONBANCorp Common Stock to be paid by any third party pursuant to an
agreement with ONBANCorp, (iii) the highest closing price for shares of
ONBANCorp Common Stock within the six-month period immediately preceding the
date First Empire gives notice of the required repurchase of the Option in
accordance with the Merger Agreements or (iv) in the event of a sale of all or a
substantial portion of ONBANCorp's
44
assets, the sum of the price paid in such sale for such assets and the current
market value of the remaining assets of ONBANCorp as determined by a nationally
recognized investment banking firm divided by the number of shares of ONBANCorp
Common Stock outstanding at the time of such sale. In determining the
Market/Offer Price, the value of consideration other than cash will be
determined by a nationally recognized investment banking firm. See "--Stock
Option Agreement."
MANAGEMENT AND OPERATIONS AFTER THE MERGER
BOARD OF DIRECTORS. The Merger Agreements provide that, following the
Merger, those persons serving as directors of First Empire and Olympia
immediately prior to the Effective Date will continue as directors of those
respective entities, except that, as of the Effective Date, the First Empire
Board will elect Mr. Bennett, as the Chairman of the First Empire Board, and a
member of the Executive Committee of the First Empire Board. Four other
individuals serving as directors of ONBANCorp prior to the Effective Date,
William F. Allyn, Russel A. King, Peter J. O'Donnell and John L. Vensel, will
join Mr. Bennett on the First Empire Board. See "--Interests of Certain Persons
in the Merger--First Empire Board of Directors."
The Merger Agreements also provide that, following the consummation of the
Merger, OnBank & Trust and Franklin First will be merged with and into M&T Bank
and Mr. Bennett will be appointed the Vice Chairman of the Board of Directors of
M&T Bank. In addition, Messrs. Allyn, King, O'Donnell and Vensel will also join
Mr. Bennett on the Board of Directors of M&T Bank.
The Merger Agreements further provide that members of the ONBANCorp Board
(other than any such persons appointed to the First Empire Board) will be
appointed members of a newly-formed M&T Bank Syracuse Division Advisory Board,
and members of the Board of Directors of Franklin First (other than any such
persons appointed to the First Empire Board) will be appointed to the
newly-formed M&T Bank Wilkes-Barre Division Advisory Board. See "--Interests of
Certain Persons in the Merger--Advisory Boards."
Information regarding the current directors of First Empire and ONBANCorp is
included in documents incorporated herein by reference. See "AVAILABLE
INFORMATION; DOCUMENTS INCORPORATED BY REFERENCE."
MANAGEMENT. First Empire and Mr. Bennett have entered into an Employment
Agreement pursuant to which Mr. Bennett will serve in the capacities described
above under "--Board of Directors." In addition, First Empire and Howard W.
Sharp, Senior Executive Vice President of ONBANCorp, have entered into an
Employment Agreement whereby Mr. Sharp will become the President of the Syracuse
Division of M&T Bank with the duties of overseeing and managing all the
commercial and municipal banking activities of M&T Bank in the Syracuse
metropolitan area. See "--Interests of Certain Persons in the Merger--Existing
Employment Agreements" and "--New Employment Agreements."
OPERATIONS. The First Empire Board believes that the Merger will allow
First Empire to extend to adjacent markets the banking network from which it
successfully markets commercial, retail, and trust products. First Empire
believes that the combined First Empire/ONBANCorp entity will have even greater
financial strength, operational efficiencies, profitability, cash flow and
potential for growth than First Empire would have on its own.
With the proposed combination with ONBANCorp, First Empire will become the
leading bank holding company in Central and Western New York with approximately
$10 billion in deposits in that region. The ONBANCorp branches in Syracuse and
Albany will also connect First Empire's Western New York networks with its
Hudson Valley network, providing First Empire with a meaningful presence in all
major upstate New York centers of commerce. Overall, First Empire's pro forma
deposits would aggregate $15 billion.
45
In addition, the First Empire Board has concluded that the Merger presents
significant opportunities for net cost savings and operating efficiencies as a
result of, among other things, consolidation of systems, business lines, and
administrative and back office functions.
Assuming that all cost savings measures and operating efficiencies are
implemented (which are expected to require a 12-month phase-in period following
the consummation of the Merger), First Empire believes that the annual cost to
First Empire to operate ONBANCorp as part of a combined entity would be
approximately $31 million less than ONBANCorp's current annualized operating
expenses of $100 million (first nine months of 1997 annualized). First Empire
estimated the potential cost savings based on a business line analysis of
ONBANCorp. First Empire's management also used its general knowledge of the
marketplace in which First Empire and ONBANCorp compete. With respect to each
cost category, First Empire not only looked at ONBANCorp's direct costs, but
also estimated the amount of any incremental indirect costs, such as changes in
shared resources and facilities to be required by business line. First Empire
has reviewed its analysis in light of information on ONBANCorp's expenses
provided by ONBANCorp and, following such review, believes its analysis is
reasonable. The table below represents First Empire management's estimate of the
net cost savings available in the Merger.
COST SAVINGS
($ IN MILLIONS)
-----------------
Technology and Operations..................................................... $ 12
Corporate Overhead............................................................ 10
Business Line Consolidations.................................................. 7
Occupancy..................................................................... 2
---
Total......................................................................... $ 31
---
---
The annual cost savings set forth above are on a fully phased-in basis.
First Empire's management estimates that savings achieved during the first 12
months following consummation of the Merger would represent approximately
two-thirds of the fully phased-in savings. The preceding does not take into
account the additional cost of the amortization of intangibles created in
purchase accounting and also excludes various one-time items, including purchase
accounting adjustments which, among others, include an estimated $21 million in
pre-tax Merger-related charges and an estimated $6 million, pre-tax, in
writedowns of fixed assets to be disposed of (see "PRO FORMA CONDENSED FINANCIAL
INFORMATION (Unaudited)"), as well as an additional $13 million, pre-tax, in
operating expenses and $4 million, pre-tax, of other expenditures associated
with merging the two companies. There can, however, be no assurance that any
specific level of cost savings will be achieved or that such cost savings will
be achieved within the time period contemplated. The Merger and
conversion-related charges could also differ from those estimated by First
Empire.
The anticipated cost savings are expected to result from (i) the proximity
of First Empire's operations in Buffalo, Rochester and the Hudson Valley, to
ONBANCorp's operations in Syracuse, Albany and Wilkes-Barre, (ii) consolidation
of systems and related elimination of outsourcing costs, (iii) modest operations
overlap in Rochester, (iv) merger of OnBank & Trust and Franklin First into M&T
Bank, and (v) economies of scale.
First Empire also believes the Merger will create revenue enhancement
synergies. First Empire is the leading banker to middle market and small
business in greater Buffalo and strongly positioned in such business in greater
Rochester, despite only entering that market in 1990. In addition to traditional
lending and deposit taking, First Empire has invested heavily in cash management
services, introduced a corporate credit card and is a leading auto floor plan
lender. First Empire believes it can use ONBANCorp's office network in greater
Syracuse, Albany, and Wilkes-Barre to expand those businesses.
46
In retail banking, First Empire's relationship banking emphasis should allow
it to expand business with ONBANCorp's customers. First Empire also will
actively provide investment products such as mutual funds and annuities, and,
with a full array of trust products, First Empire also believes it can expand on
ONBANCorp's Trust Business. As a result, First Empire believes it will increase
ONBANCorp's revenues faster than ONBANCorp would have been able to do
independently.
EMPLOYEES. On and after the Effective Date (or as soon thereafter as may be
practicable), all persons who are employed by ONBANCorp and/or any of the
ONBANCorp subsidiaries on such date ("ONBANCorp Employees") will be employed
upon terms and conditions (including benefits) which in the aggregate are no
less favorable with respect to their employment by First Empire and its
subsidiaries after the Effective Date than those generally afforded to other
employees of First Empire holding similar positions, subject to the terms and
conditions under which those employee benefits are made available to such
employees, and provided that, for purposes of determining eligibility for and
vesting of such employee benefits only (and not for pension benefit accrual
purposes) and, if applicable, for purposes of satisfying any waiting periods
concerning preexisting conditions and the satisfaction of any "copayment" or
deductible requirements, service with ONBANCorp or a subsidiary of ONBANCorp or
any predecessor thereto prior to the Effective Date will be treated as service
with an "employer" to the same extent as if such persons had been employees of
First Empire. The above will not be construed to limit the ability of First
Empire and its affiliates to terminate the employment of any employee or to
review employee benefits programs from time to time and to make such changes as
they deem appropriate or to require First Empire or its affiliates to provide
employees or former employees of ONBANCorp or any of its subsidiaries with
post-retirement medical benefits more favorable than those provided to newly
hired employees at First Empire. First Empire has agreed to honor, or to cause
the appropriate subsidiaries of First Empire to honor, in accordance with their
terms, all employment, severance and employee benefit plans, contracts,
agreements, arrangements and understandings of ONBANCorp or any of its
subsidiaries as provided in the Merger Agreements, provided, however, that First
Empire will not be prevented from amending or terminating any such plan,
contract, agreement, arrangement or understanding in accordance with its terms.
The continued coverage of the ONBANCorp Employees under the employee benefit
plans maintained by ONBANCorp and/or subsidiaries of ONBANCorp immediately prior
to the Effective Date (the "ONBANCorp Plans") during a transition period will be
deemed to provide the ONBANCorp Employees with benefits that are no less
favorable than those offered to other employees of First Empire and its
subsidiaries, provided that, after the Effective Date, there is no material
reduction (determined on an overall basis) in the benefits provided under the
ONBANCorp Plans.
The parties are working to identify operational efficiencies that may be
obtained through the consolidation of the entities in the Merger. It is
anticipated that some positions may be eliminated following the Effective Date
and First Empire is not under any continuing obligation with respect to the
employment of any specific employee of ONBANCorp or its subsidiaries other than
officers whose employment contracts are being assumed. See "--Interests of
Certain Persons in the Merger--Existing Employment Agreements" and "--New
Employment Agreements."
YEAR 2000 INITIATIVES. First Empire currently is working to resolve the
potential impact of "Year 2000" issues on the processing of date-sensitive
information by its computer systems. The Year 2000 issues relate to the ability
of computer systems to be able to distinguish date data between the twentieth
and twenty-first centuries. Management anticipates that First Empire's computer
systems will be Year 2000 compliant by the end of 1998 and has a planned program
to test for such compliance. First Empire also could be adversely affected if
its customers rely on data processing systems that are not Year 2000 compliant
prior to the end of 1999. First Empire, therefore, is taking a proactive role to
work with its data processing vendors and to provide information to its
commercial customers regarding Year 2000 issues.
The costs that have been incurred by First Empire in addressing its
potential Year 2000 problems have not had a material adverse impact on First
Empire's financial position, results of operations or cash flows.
47
However, the inability of First Empire or its customers to resolve Year 2000
issues in a timely manner could result in a material financial risk. Management
believes that First Empire is devoting appropriate resources to resolve its Year
2000 issues in a timely manner and does not currently expect that doing so will
have a material adverse impact on First Empire's financial position, results of
operations or cash flows in the future.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
GENERAL. Certain members of ONBANCorp's management and the ONBANCorp Board
may be deemed to have certain interests in the Merger that are in addition to
their interests as stockholders of ONBANCorp generally. The ONBANCorp Board was
aware of these interests and considered them, among other matters, in approving
the Merger Agreements and the transactions contemplated thereby. The Merger will
constitute a "Change in Control" for purposes of all of the arrangements
described below.
FIRST EMPIRE BOARD OF DIRECTORS. Pursuant to the Merger Agreements, the
First Empire Board will appoint as directors of First Empire, as of the
Effective Date, Mr. Bennett, and Messrs. Allyn, King, O'Donnell and Vensel.
Information regarding the current directors of First Empire and ONBANCorp is
included in documents incorporated herein by reference. See "AVAILABLE
INFORMATION; DOCUMENTS INCORPORATED BY REFERENCE." The First Empire Board also
will appoint Mr. Bennett as Chairman of the First Empire Board and as a member
of the Executive Committee of First Empire as of the Effective Date. First
Empire has also agreed to cause M&T Bank's Board of Directors to appoint as
directors of M&T Bank Mr. Bennett and four other individuals selected by the
ONBANCorp Board from among persons who are members of the ONBANCorp Board prior
to the Effective Date, provided that each of such four individuals must be
reasonably acceptable to First Empire, and to appoint Mr. Bennett as Vice
Chairman of the M&T Bank Board of Directors as of the Effective Date. As of the
date of this Joint Proxy Statement, the ONBANCorp Board has not selected any of
such individuals for such positions.
ADVISORY BOARDS. The Merger Agreements provide that, unless prohibited by
applicable law, promptly following the Effective Date, First Empire will cause,
for a period of not less than twenty-four months after the Effective Date, those
persons who are members of the ONBANCorp Board on the Effective Date (other than
those persons who will be appointed to the First Empire Board in accordance with
the terms of the Merger Agreements) to be appointed or elected as members of the
newly-formed M&T Bank Syracuse Division Advisory Board. Such advisory board will
meet not less frequently than 10 times per year and will advise M&T Bank on
deposit and lending activities in OnBank & Trust's market area. Each such
advisory director will be paid an annual retainer of $11,000 and meeting
attendance fees of $600 for each meeting actually attended. M&T Bank will have
no obligation to continue the services of any advisory director who acts in a
manner detrimental to M&T Bank.
In addition, unless prohibited by applicable law, promptly following the
Effective Date, First Empire will cause, for a period of not less than
twenty-four months after the Effective Date, those persons who are members of
the Board of Directors of Franklin First on the Effective Date (other than any
such persons who will be appointed to the First Empire Board in accordance with
the terms of the Merger Agreements) to be appointed or elected as members of the
newly-formed M&T Bank Wilkes-Barre Division Advisory Board. Such advisory board
will meet not less frequently than 10 times per year and will advise M&T Bank on
deposit and lending activities in Franklin First's market area. Each such
advisory director will be paid an annual retainer of $6,000 and meeting
attendance fees of $600 for each meeting actually attended. M&T Bank will have
no obligation to continue the services of any advisory director who acts in a
manner detrimental to M&T Bank.
EXISTING EMPLOYMENT AGREEMENTS. ONBANCorp and OnBank & Trust currently are
parties to an employment agreement with Mr. Bennett. In connection with the
execution of the Merger Agreements, Mr. Bennett has waived all rights under his
existing employment agreement in consideration for receipt of
48
a cash hiring bonus from First Empire at the Effective Time and the execution of
a new employment agreement with First Empire. See "--New Employment Agreements"
below.
ONBANCorp and Franklin First are parties to an employment agreement with
Thomas H. van Arsdale, the President and Chief Executive Officer of Franklin
First. Pursuant to the terms of his employment agreement, upon a voluntary
termination of his employment with Franklin First for Good Reason within three
years following a Change in Control (each as defined therein), Mr. van Arsdale
will be entitled to receive certain severance benefits described below. The
Merger Agreements provide that, for purposes of Mr. van Arsdale's employment
agreement, upon consummation of the Merger, a Change in Control will be deemed
to have occurred and Mr. van Arsdale will be deemed to have Good Reason to
terminate his employment thereunder. As a result, should Mr. van Arsdale
voluntarily terminate his employment at or within three years after the
Effective Time, he will be entitled to the following benefits: a lump sum cash
payment equal to three times his annual base salary (currently $235,000) plus
three times the greater of the bonus awarded to Mr. van Arsdale for the year
most recently ended prior to the date of termination or the mean average bonus
awarded to Mr. van Arsdale during the three most recently ended years preceding
the date of termination; a right to elect to be paid a cash lump sum in an
amount equal to the excess of the fair market value (as defined in the
employment agreement) of the common stock underlying all his stock options
(whether or not vested) over the aggregate exercise price thereof in
cancellation of such options; and continued life, health, accident and dental
insurance for the balance of the three years following the Effective Time
(provided, that such benefits will be reduced to the extent benefits are made
available by another employer).
EXISTING SEVERANCE AGREEMENTS. ONBANCorp and OnBank & Trust are parties to
severance agreements with Messrs. David M. Dembowski, Howard W. Sharp and Robert
J. Berger, which agreements became effective as of June 30, 1990. OnBank & Trust
is also party to severance agreements with Mr. Lance D. Mattingly, effective as
of June 5, 1995, and Mr. James P. McMahon, effective as of December 23, 1996.
Each of the foregoing agreements is referred to herein as a "Severance
Agreement," and each of the officers that are parties thereto (other than Mr.
Sharp, who waived all rights under his Severance Agreement in connection with
the execution of a new employment agreement with First Empire (see "--New
Employment Agreements" below)) are referred to herein as "Executives." Each of
the Severance Agreements provides that if the applicable Executive's employment
is terminated within three years following a Change in Control (as defined in
the Severance Agreements) due to (i) discharge without Cause (as defined in the
Severance Agreements), or (ii) the Executive's voluntary resignation for Good
Reason (as defined in the Severance Agreements), then the Executive will be
entitled to receive certain severance benefits. The Merger Agreements provide
that, for purposes of the Severance Agreements, upon consummation of the Merger,
a Change in Control will be deemed to have occurred and each of the Executives
will be deemed to have Good Reason to terminate his employment thereunder.
Accordingly, upon any such Executive's voluntary termination of employment at or
within three years after the Effective Time, such Executive will be entitled to
receive: (a) a lump sum cash payment equal to three times the sum of (i) such
Executive's annual base compensation in effect at the time of termination and
(ii) the higher of the bonus awarded to such Executive for the performance year
most recently ended prior to the date of termination or the mean average bonus
awarded to such Executive during the three most recently ended performance years
prior to the date of termination, (b) in lieu of the Executive's outstanding
stock options, a cash lump sum payment equal to the value of the "aggregate
spread" of all of such Executive's outstanding stock options (whether vested or
unvested), (c) a lump sum cash payment equal to the excess, if any, of the
present value of his benefits under the Retirement Plan calculated as if he had
been employed for an additional three years (at his highest annual rate of
compensation applicable during his last twelve months of employment) over the
present value of the benefits to which he would actually be entitled under the
Retirement Plan, (d) a lump sum cash payment equal to three times the matching
contribution made by ONBANCorp for the Executive's account under the 401(k) Plan
during the year immediately preceding termination, (e) a continuation of
employee welfare benefits for the shorter of three additional years or until
such time as the Executive obtains comparable benefits elsewhere, (f)
outplacement consulting
49
services upon request and (g) a gross-up payment for any excise tax payments
required by Section 4999 of the Code (which imposes excise taxes on certain
payments made in connection with a change in control if the payments exceed
certain limits). To ensure that the benefits set forth in the Severance
Agreements will be received without the Executive actually incurring litigation
costs, ONBANCorp and/or OnBank & Trust and each of the Executives have entered
into a letter agreement which provides that, upon demand by the Executive,
ONBANCorp will establish an irrevocable standby letter of credit providing for
$200,000 of credit, to assist the Executive in paying for any such litigation
costs, for five years.
NEW EMPLOYMENT AGREEMENTS. In connection with the execution of the Merger
Agreements, First Empire entered into new employment agreements with Mr. Bennett
and Mr. Sharp. Pursuant to the employment agreement with Mr. Bennett (the
"Bennett Employment Agreement"), at the Effective Date, Mr. Bennett's existing
employment agreement with ONBANCorp and OnBank & Trust will terminate and be of
no further force or effect, and in consideration for such termination, Mr.
Bennett will receive a cash hiring bonus from First Empire of $2,000,000 at the
Effective Time. The term of the Bennett Employment Agreement will commence at
the Effective Date and terminate July 1, 2001 (the "Employment Period"), during
which time Mr. Bennett will serve as Chairman of First Empire and as Vice
Chairman of M&T Bank. Under the Bennett Employment Agreement, Mr. Bennett will
receive an annual base salary of not less than $550,000 and annual bonuses at
least equal to those of the most highly compensated member of the Management
Group of First Empire, and will be eligible to receive other equity- and
non-equity-based bonuses and awards which will be at least equal to 70% of the
amount of such awards made to the most highly compensated member of the
Management Group of First Empire. First Empire will also pay to Mr. Bennett a
bonus (the "Retention Bonus") equal to $1,000,000 on the first anniversary of
the Effective Date.
If Mr. Bennett's employment is terminated during the Employment Period by
First Empire without Cause or by Mr. Bennett with Good Reason (each as defined
in the Bennett Employment Agreement), he will be entitled to receive (a) the
Retention Bonus, if not previously paid, (b) the total amount of the annual base
salary and annual bonuses that would have been payable to him for the balance of
the Employment Period, (c) a continuation of employee welfare benefits for the
shorter of three additional years or until such time as Mr. Bennett obtains
comparable benefits elsewhere, (d) outplacement consulting services upon request
and (e) a lump sum cash payment equal to the excess, if any, of the present
value of his benefits under the First Empire Retirement Plan and his
supplemental executive retirement plan (collectively, the "Bennett Pension
Plans"), calculated as if he had been employed for the remainder of the term of
the Bennett Employment Agreement (at his highest annual rate of salary
applicable during employment with ONBANCorp and First Empire) over the present
value of the benefits to which he would actually be entitled under the Bennett
Pension Plans.
Pursuant to Mr. Sharp's employment agreement with First Empire (the "Sharp
Employment Agreement") at the Effective Date, Mr. Sharp's existing Severance
Agreement with ONBANCorp and OnBank & Trust will terminate and be of no further
force or effect, and in consideration for such termination, Mr. Sharp will
receive a cash hiring bonus from First Empire of $750,000 at the Effective Time.
The term of the Sharp Employment Agreement will commence on the Effective Date
and will continue until the second anniversary thereof (the "Sharp Employment
Period"), during which time Mr. Sharp will serve as President of the Syracuse
Division of M&T Bank. Under the Sharp Employment Agreement, Mr. Sharp will
receive an annual base salary of not less than $200,000 and a bonus (the "Sharp
Retention Bonus") equal to $500,000 on the first anniversary of the Effective
Date. He will also receive an annual bonus of not less than $100,000, payable at
the same time and in the same manner as the annual bonuses with respect to 1998
are payable to the other regional division presidents of M&T Bank.
If Mr. Sharp's employment is terminated during the Sharp Employment Period
by First Empire without Cause or by Mr. Sharp with Good Reason (each as defined
in the Sharp Employment Agreement), he will be entitled to receive (a) the Sharp
Retention Bonus, if not previously paid, (b) the total amount of
50
the annual base salary and annual bonuses that would have been payable to him
for the balance of the Sharp Employment Period, (c) a continuation of employee
welfare benefits for the shorter of three additional years or until such time as
Mr. Sharp obtains comparable benefits elsewhere, (d) outplacement consulting
services upon request and (e) a lump sum of cash payment equal to the excess, if
any, of the present value of his benefits under the First Empire Retirement Plan
and any other defined benefit pension plan in which he participates
(collectively, the "Sharp Pension Plans"), calculated as if he had been employed
for the remainder of the term of the Sharp Employment Agreement (at his highest
annual rate of salary applicable during employment with ONBANCorp and First
Empire) over the present value of the benefits to which he would actually be
entitled under the Sharp Pension Plans.
INDEMNIFICATION AND INSURANCE. The Merger Agreements provide that for a
period of six years following the Effective Date, First Empire will provide
indemnification, to the fullest extent permitted by law, to any person who,
prior to the Effective Date is, has at any time been or becomes a director or
officer of ONBANCorp, with respect to claims arising in whole or in part out of
or pertaining to (i) the fact that such person is or was a director, officer or
employee of ONBANCorp or any subsidiary of ONBANCorp or any of their respective
predecessors or (ii) the Reorganization Agreement, the Plan of Merger, the Stock
Option Agreement, or any of the transactions contemplated thereby. The
Reorganization Agreement also provides that all rights to indemnification and
all limitations on liabilities existing in favor of the directors, officers and
employees of ONBANCorp and its subsidiaries as provided in their respective
Certificates of Incorporation, bylaws or similar governing documents as in
effect on the date of the Merger Agreements with respect to matters occurring
prior to the Effective Date will survive the Merger and will continue in full
force and effect and will be honored by such entities or their respective
successors as if they were the indemnifying party thereunder, without any
amendment thereto, for a period of six years following the Effective Date.
In addition, First Empire has agreed to use its best efforts, for a period
of not less than three years following the Effective Date, to cause those
persons who served as directors or officers of ONBANCorp or its subsidiaries, on
or before the Effective Date, to be covered by ONBANCorp's existing directors'
and officers' liability insurance policy against liabilities and claims (and
related expenses) made against them resulting from their service as such prior
to the Effective Date, or comparable substitute coverage if reasonably available
at reasonable cost. In no event will First Empire be obligated to provide
insurance coverage to an insured person on more favorable terms than those terms
upon which such insurance currently is provided to him or her in such capacities
or to expend more than 150% of the amount currently expended by ONBANCorp to
maintain such insurance coverage. ONBANCorp has agreed to renew any such
existing insurance or to purchase any "discovery period" insurance provided for
thereunder at First Empire's request.
RETENTION BONUSES. ONBANCorp may pay, or direct the payment of, retention
bonuses to selected officers of ONBANCorp, in an aggregate amount not to exceed
$1 million, upon such terms and conditions as ONBANCorp deems appropriate and
concurred with by First Empire, whose concurrence will not be unreasonably
withheld. Such bonuses will be paid to such selected officers in two equal
portions, with the first payment to be made by ONBANCorp at the Effective Time
and the second payment to be made by First Empire six months following the
Effective Time. Messrs. Thomas F. Ferguson, Randy J. Wiley, William M. LeBeau
and Lance D. Mattingly will receive retention bonuses of $30,000, $35,000,
$25,000 and $30,000, respectively. Mr. Mattingly's entire retention bonus will
be paid six months after the Effective Time.
STOCK OPTIONS. Each ONBANCorp Option granted under the ONBANCorp Stock
Option Plans which is outstanding immediately prior to the Effective Time,
whether vested or unvested, will be assumed by First Empire, as described in
"--Terms of the Merger." In addition, each holder of an ONBANCorp Option
immediately prior to the Effective Time may elect to receive, in cancellation of
such ONBANCorp Option at the Effective Time, and without payment of any
consideration by such holder, an amount of cash
51
computed as described above in "--Terms of the Merger." Any such election must
be made by the holder of an ONBANCorp Option not later than the close of
business on the Effective Date.
In addition, ONBANCorp Options granted to ONBANCorp directors pursuant to
the 1992 ONBANCorp Directors' Stock Option Plan (the "Director Plan") become
fully exercisable upon the optionee's termination of service as a director on
account of death, disability or retirement, and expire on the first anniversary
of the optionee's termination of service as a director. Generally, the
consummation of the Merger could be deemed to constitute the termination of
service of all ONBANCorp directors for purposes of the Director Plan. However,
First Empire and ONBANCorp have agreed that, for purposes of the Director Plan,
service as a member of the Board of Directors of First Empire or as a member of
an advisory board of M&T Bank after the Effective Time will be deemed to
constitute continued service as a director of ONBANCorp.
PRORATED LTIP PAYMENTS. At the Effective Time, ONBANCorp will make payments
to participants under the 1991 Long Term Incentive Plan (the "LTIP") in
accordance with the terms of such plans of their prorated incentive awards with
respect to the 1996-1998, 1997-1999 and 1998-2000 performance cycles in amounts
not to exceed $450,000 in the aggregate. The participants in the LTIP are
Messrs. Bennett, Berger, Dembowski, LeBeau, Sharp, van Arsdale and Wiley (and,
for the 1997-1999 and 1998-2000 performance cycles only, Mr. Mattingly).
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following discussion represents the opinion of Arnold & Porter, special
tax counsel to First Empire, with respect to the anticipated material U.S.
federal income tax consequences of the Merger to a holder of ONBANCorp Common
Stock. First Empire, Olympia and ONBANCorp have provided Arnold & Porter with
the facts, representations and assumptions on which it has relied in rendering
its opinion, which information is consistent with the state of facts that First
Empire, Olympia and ONBANCorp believe will be existing as of the Effective Date.
This discussion is based on laws, regulations, rulings and judicial decisions as
they exist on the date of this Joint Proxy Statement. These authorities are all
subject to change and such change may be made with retroactive effect. Arnold &
Porter cannot give any assurance that, after any such change, its opinion would
not be different, and does not undertake any responsibility to update or
supplement its opinion except as set forth below. This discussion is not a
complete description of the federal income tax consequences of the Merger and
may not apply to a holder subject to special treatment under the Code, such as a
holder that is a financial institution, an insurance company, a dealer in
securities or foreign currencies, a trader in securities, a tax-exempt
organization or a person who acquired shares of ONBANCorp Common Stock pursuant
to the exercise of an employee stock option or otherwise as compensation. In
addition, the discussion applies only to a holder of ONBANCorp Common Stock
holding such stock as a capital asset and who is a U.S. person (as defined in
Section 7701 (a) (30) of the Code) (a "Holder"). No ruling will be requested
from the Internal Revenue Service (the "Service") regarding the tax consequences
of the Merger. Moreover, this discussion is not binding on the Service and would
not prevent the Service from challenging the U.S. federal income tax treatment
of the Merger. In addition, this discussion does not address the state, local or
foreign tax consequences of the Merger.
BECAUSE OF THE COMPLEXITIES OF THE TAX LAWS IN GENERAL, AND THE COMPLEXITIES
OF THE TAX CONSEQUENCES ASSOCIATED WITH THE RECEIPT OF CASH IN THE MERGER IN
PARTICULAR, EACH HOLDER OF ONBANCORP COMMON STOCK IS URGED TO CONSULT ITS TAX
ADVISOR WITH RESPECT TO THE FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES
OF THE MERGER.
Consummation of the Merger is conditioned upon the receipt by First Empire
and ONBANCorp of an opinion of Arnold & Porter, special tax counsel to First
Empire, dated as of the Effective Date, on the basis of facts, representations
and assumptions set forth or referred to in such opinion, to the effect that the
Merger will be treated for U.S. federal income tax purposes as a reorganization
within the meaning of
52
Section 368(a) of the Code. Subject to and on the basis of such facts,
representations and assumptions, the opinion will also confirm certain of the
U.S. federal income tax consequences of the Merger to a Holder that are
discussed below. Although the condition that such opinion be delivered can be
waived, the parties do not intend to waive this condition. If, however, this
condition is waived, First Empire and ONBANCorp will resolicit their respective
stockholders with respect to the Merger. The facts, representations and
assumptions on which Arnold & Porter will rely in rendering its opinion will be
provided by First Empire, ONBANCorp and any other persons or entities, as
necessary, and will be consistent with the state of facts existing at the
Effective Date. The opinion will not be binding on the Service and would not
prevent the Service from challenging the U.S. federal income tax treatment of
the Merger. See "--Representations and Warranties; Conditions to the Merger;
Waiver."
CONSEQUENCES TO HOLDERS. The federal income tax consequences of the Merger
to a Holder will depend primarily on whether the Holder exchanges its ONBANCorp
Common Stock for solely First Empire Common Stock (except for cash received in
lieu of a fractional share of First Empire Common Stock), solely cash or a
combination thereof.
EXCHANGE SOLELY FOR FIRST EMPIRE COMMON STOCK. If, pursuant to the Merger,
all of the shares of ONBANCorp Common Stock actually owned by a Holder are
exchanged solely for shares of First Empire Common Stock, such Holder will not
recognize any gain or loss except in respect of cash received in lieu of a
fractional share of First Empire Common Stock (as discussed below). The
aggregate adjusted tax basis of the shares of First Empire Common Stock received
in the exchange will be the same as the aggregate adjusted tax basis of the
shares of ONBANCorp Common Stock surrendered in exchange therefor (adjusted with
respect to fractional shares), and the holding period of such First Empire
Common Stock will include the period during which such shares of ONBANCorp
Common Stock were held.
EXCHANGE SOLELY FOR CASH. In general, if, pursuant to the Merger (or as the
result of the exercise of dissenters' rights), all of the shares of ONBANCorp
Common Stock actually owned by a Holder are exchanged solely for cash, such
Holder generally will recognize capital gain or loss equal to the difference
between the amount of cash received and the Holder's adjusted tax basis in the
shares of ONBANCorp Common Stock surrendered, which gain or loss will be
long-term capital gain or loss if the Holder's holding period with respect to
the shares of ONBANCorp Common Stock surrendered is more than one year. See
"--Treatment of Long-Term Capital Gain," below. If, however, any such Holder
constructively owns shares of ONBANCorp Common Stock that are exchanged for
shares of First Empire Common Stock in the Merger or owns shares of First Empire
Common Stock actually or constructively after the Merger, part or all of the
cash received may be treated as ordinary income to the extent of the Holder's
ratable share of ONBANCorp's accumulated earnings and profits if the receipt of
the cash has the effect of a distribution of a dividend with respect to a
holder. The application of the law to a Holder described in the previous
sentence is particularly complex; accordingly, any such Holder should consult
its tax advisor.
EXCHANGE FOR FIRST EMPIRE COMMON STOCK AND CASH. If, pursuant to the
Merger, all of the shares of ONBANCorp Common Stock actually owned by a Holder
are exchanged for a combination of First Empire Common Stock and cash, the
Holder will generally recognize gain, but not loss, with respect to the
ONBANCorp Common Stock surrendered in an amount equal to the lesser of (i) the
amount of gain realized (i.e., the excess of the sum of the amount of cash and
the fair market value of First Empire Common Stock received over the adjusted
tax basis) and (ii) the amount of cash received (excluding, for this purpose,
cash received in lieu of a fractional share of First Empire Common Stock, the
treatment of which is discussed below). For this purpose, gain or loss must be
calculated separately for each identifiable block of shares surrendered in the
exchange, and a loss realized on one block of shares may not be used to offset a
gain realized on another block of shares. It appears that a Holder receiving a
combination of First Empire Common Stock and cash must allocate each form of
consideration received pro rata among all shares of ONBANCorp Common Stock
surrendered in the Merger, rather than, for example, allocating solely cash to
some shares of surrendered ONBANCorp Common Stock and solely First Empire Common
53
Stock to other shares of surrendered ONBANCorp Common Stock. Any recognized gain
will generally be long-term capital gain if the Holder's holding period with
respect to the stock is more than one year. See "--Treatment of Long-Term
Capital Gain," below. If, however, the cash received has the effect of the
distribution of a dividend, the gain would be treated as a dividend to the
extent of the Holder's ratable share of ONBANCorp's accumulated earnings and
profits.
The aggregate tax basis of First Empire Common Stock received by a Holder
that exchanges its shares of ONBANCorp Common Stock for a combination of First
Empire Common Stock and cash pursuant to the Merger will be the same as the
aggregate adjusted tax basis of the shares of ONBANCorp Common Stock surrendered
therefor, decreased by the total amount of cash received and increased by any
recognized gain (whether capital gain or ordinary income). The holding period of
such First Empire Common Stock will include the holding period of the shares of
ONBANCorp Common Stock surrendered therefor.
In general, in the case of a Holder that exchanges its shares of ONBANCorp
Common Stock for a combination of First Empire Common Stock and cash pursuant to
the Merger, the determination of whether any gain recognized in the exchange
will be treated as capital gain or has the effect of a distribution of a
dividend depends upon whether, and to what extent, the exchange reduces the
Holder's deemed percentage stock ownership of First Empire. For purposes of this
determination, the Holder is treated as if it first exchanged all of its shares
of ONBANCorp Common Stock solely for First Empire Common Stock and then First
Empire immediately redeemed (in a "deemed redemption") a portion of such First
Empire Common Stock in exchange for the cash the Holder actually received. The
gain recognized in the exchange followed by a deemed redemption will be treated
as capital gain if the deemed redemption (i) is "substantially disproportionate"
with respect to the Holder or (ii) is not essentially equivalent to a dividend.
The deemed redemption will generally be "substantially disproportionate"
with respect to a Holder if the percentage described in (ii) below is less than
80% of the percentage described in (i) below. Whether the deemed redemption is
"not essentially equivalent to a dividend" with respect to a Holder will depend
upon the Holder's particular circumstances. At a minimum, however, in order for
the deemed redemption to be "not essentially equivalent to a dividend," the
deemed redemption must result in a "meaningful reduction" in the Holder's deemed
actual and constructive percentage stock ownership of First Empire. In general,
that determination requires a comparison of (i) the percentage of the
outstanding stock of First Empire the Holder is deemed actually and
constructively to own immediately before the deemed redemption and (ii) the
percentage of the outstanding stock of First Empire the Holder actually and
constructively owns immediately after the deemed redemption. In calculating
these percentages, a Holder is deemed to own stock owned and, in some cases,
constructively owned by certain family members, by certain estates and trusts of
which the Holder is a beneficiary, and by certain affiliated entities, as well
as stock subject to an option actually or constructively owned by the
stockholder or such other persons. As these rules are complex, each Holder that
may be subject to these rules should consult its tax advisor. The Service has
ruled that a relatively minor reduction in the percentage stock ownership of a
minority stockholder in a publicly held corporation whose relative stock
interest is minimal and who exercises no control with respect to corporate
affairs is a "meaningful reduction."
CASH RECEIVED IN LIEU OF A FRACTIONAL SHARE. Cash received by an ONBANCorp
Stockholder in lieu of a fractional share of First Empire Common Stock will be
treated as received in exchange for such fractional share, and gain or loss will
be recognized, measured by the difference between the amount of cash received
and the portion of the basis of the shares of ONBANCorp Common Stock allocable
to such fractional interest. Such gain or loss generally should be long-term
capital gain or loss if the holding period for such shares of ONBANCorp Common
Stock was more than one year. See "--Treatment of Long-Term Capital Gain,"
below. If, however, the cash received has the effect of the distribution of a
dividend with respect to a Holder, part or all of the cash received may be
treated as a dividend.
54
TREATMENT OF LONG-TERM CAPITAL GAIN. Federal income tax rates on long-term
capital gain received by an individual vary based on the individual's income and
the holding period for the asset. In particular, different maximum federal
income tax rates will apply to gains recognized by an individual from the sale
or exchange of ONBANCorp Common Stock (i) held for more than one year but not
more than 18 months (presently 28 percent) and (ii) held for more than 18 months
(presently 20 percent).
BACKUP WITHHOLDING. Unless an exemption applies under the applicable law
and regulations, the Exchange Agent will be required to withhold 31% of any cash
payments to which an ONBANCorp stockholder or other payee is entitled pursuant
to the Merger unless the stockholder or other payee provides its taxpayer
identification number (social security number or employer identification number)
and certifies that such number is correct. Each stockholder and, if applicable,
each other payee should complete and sign the substitute Form W-9 included as
part of the transmittal letter that accompanies the Election Form, so as to
provide the information and certification necessary to avoid backup withholding,
unless an applicable exemption exists and is established in a manner
satisfactory to the Exchange Agent.
RESALE OF FIRST EMPIRE COMMON STOCK
All shares of First Empire Common Stock issuable in the Merger will be
registered under the Securities Act and will be freely transferable, except that
any such shares received by "Persons" who are deemed to be "Affiliates" (as such
terms are defined under the Securities Act) of ONBANCorp at the Effective Time
may be resold by them only in transactions registered under the Securities Act
or otherwise exempt from such registration. Affiliates of ONBANCorp generally
include those individuals or entities that directly, or indirectly, through one
or more intermediaries, control, are controlled by or are under common control
with ONBANCorp and includes certain executive officers and directors of
ONBANCorp. The restrictions on resales by an Affiliate extend also to certain
related parties of the Affiliate, including spouse, relatives and spouse's
relatives who in each case have the same home as the Affiliate.
The Reorganization Agreement requires ONBANCorp to use its best efforts to
cause each of its Affiliates to deliver to First Empire a written agreement to
the effect that such Person will not sell or otherwise dispose of any shares of
First Empire Common Stock issued to that Person in the Merger except in
compliance with applicable securities laws. This Joint Proxy Statement does not
cover any resales of First Empire Common Stock by Persons who are deemed to be
Affiliates of ONBANCorp.
ACCOUNTING TREATMENT
Upon consummation of the Merger, the transaction will be accounted for as a
purchase, and all of the assets and liabilities of ONBANCorp will be recorded in
First Empire's consolidated financial statements at estimated fair value at the
Effective Date. The amount by which the purchase price paid by First Empire
exceeds the fair value of the net tangible and identifiable intangible assets
acquired by First Empire through the Merger will be recorded as goodwill. First
Empire currently expects that, based on preliminary accounting estimates, the
Merger would result in the recording of identifiable intangible assets and
goodwill of approximately $579 million. See "PRO FORMA CONDENSED FINANCIAL
INFORMATION (Unaudited)."
STOCK OPTION AGREEMENT
THE SUMMARY INFORMATION BELOW CONCERNING THE MATERIAL TERMS OF THE STOCK
OPTION AGREEMENT IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT OF
SUCH AGREEMENT, WHICH IS ATTACHED HERETO AS APPENDIX B.
First Empire and ONBANCorp have entered into a Stock Option Agreement as a
condition to First Empire's entering into the Merger Agreements and to
facilitate the consummation of the Merger, the Bank Merger and the other
transactions contemplated by the Merger Agreements (collectively, the
55
"Transactions"). Under the Stock Option Agreement, and subject to adjustment in
certain circumstances and termination within certain periods, ONBANCorp granted
to First Empire an unconditional, irrevocable option (the "Option") to purchase
up to 2,529,000 shares of ONBANCorp Common Stock, representing approximately
16.6% of the 15,241,981 shares of ONBANCorp Common Stock (based on the number of
such shares issued and outstanding as of September 30, 1997) that would be
issued and outstanding upon the exercise of the Option in full (including the
shares issued upon exercise of the Option), at a purchase price of $60.00 per
share. The Option is exercisable only upon the occurrence of certain events none
of which has occurred as of the date hereof to the knowledge of First Empire and
ONBANCorp. First Empire may not acquire 5% or more of the outstanding shares of
ONBANCorp Common Stock, pursuant to the exercise of the Option or otherwise,
without prior approval of the Federal Reserve. First Empire has applied to the
Federal Reserve for prior approval to exercise the Option in the event the
Option becomes exercisable as discussed below. Unless and until the Option is
exercised, First Empire disclaims beneficial ownership of the ONBANCorp Common
Stock subject to the Option.
Provided First Empire is not in willful breach of any of its covenants or
agreements contained in the Merger Agreements under circumstances that would
entitle ONBANCorp to terminate the Merger Agreements, First Empire may exercise
the Option, in whole or in part, at any time and from time to time, if but only
if, both an Initial Triggering Event (as defined in the Stock Option Agreement)
and a Subsequent Triggering Event (as defined in the Stock Option Agreement)
occur after the execution of the Stock Option Agreement and prior to the
occurrence of an Exercise Termination Event (as defined in the Stock Option
Agreement). In the event that ONBANCorp terminates the Merger Agreements under
the provision of the Reorganization Agreement permitting termination upon the
execution by ONBANCorp of a definitive agreement relating to a takeover proposal
(as defined in the Reorganization Agreement), then immediately upon First
Empire's receipt of the wire transfer contemplated by such provision, the Stock
Option Agreement will terminate and will become void and have no further force
or effect and First Empire will surrender the Stock Option Agreement to
ONBANCorp. See "--Effective Date of the Merger; Termination." The definitions
referred to in this paragraph are incorporated herein by reference to the copies
of the Reorganization Agreement and the Stock Option Agreement included as
Appendices A and B to this Joint Proxy Statement, respectively.
The Stock Option Agreement provides that, subject to limitations set forth
therein, First Empire (whether on its own behalf or on the behalf of any
subsequent holder of the Option) may demand that ONBANCorp promptly prepare,
file and keep current a registration statement under the Securities Act covering
the Option Shares and use its reasonable best efforts to cause such registration
statement to become effective and remain current in order to permit the
disposition of the Option Shares by First Empire (or by any subsequent holder of
the Option).
The Stock Option Agreement provides that in no event shall First Empire's
Total Profit (as defined in the Stock Option Agreement, which definition is
incorporated herein by reference) exceed $43.6 million and, if it otherwise
would exceed such amount, First Empire, at its sole election, shall either (i)
reduce the number of shares of ONBANCorp Common Stock subject to the Option,
(ii) deliver to ONBANCorp for cancellation Option Shares previously purchased by
First Empire, (iii) pay cash to ONBANCorp or (iv) any combination thereof, so
that First Empire's actually realized Total Profit will not exceed $43.6 million
after taking into account the foregoing actions. The Stock Option Agreement also
provides that the Option may not be exercised for a number of shares as would,
as of the date of the exercise, result in a Notional Total Profit (as defined in
the Stock Option Agreement, which definition is incorporated herein by
reference) of more than $43.6 million, provided that this provision shall not
restrict any exercise of the Option permitted on any subsequent date.
56
The Stock Option Agreement is intended to increase the likelihood that the
Merger will be consummated in accordance with the terms of the Merger
Agreements. Consequently, certain aspects of the Stock Option Agreement may have
the effect of discouraging persons who might now or prior to the Effective Date
be interested in acquiring all or a significant interest in ONBANCorp from
considering or proposing such an acquisition, even if such persons were prepared
to pay a higher price per share for ONBANCorp Common Stock than the price per
share implicit in the Merger Consideration. Moreover, following consultation
with ONBANCorp's independent accountants, the management of ONBANCorp believes
that the exercise of the Option likely would prohibit any acquirer of ONBANCorp
from accounting for any acquisition of ONBANCorp using the pooling of interests
accounting method for a period of two years. Accordingly, the existence of the
Stock Option Agreement may deter significantly, or completely preclude, an
acquisition of ONBANCorp by certain other banking organizations. The ONBANCorp
Board took this factor into account before approving the Stock Option Agreement.
See "--Background of and Reasons for the Merger; Recommendations of the Board of
Directors."
A copy of the Stock Option Agreement is included as Appendix B to this Joint
Proxy Statement and reference is made thereto for the complete terms thereof.
DISSENTERS' RIGHTS
Pursuant to Section 262 of the DGCL, any holder of ONBANCorp Common Stock
who does not wish to accept the Merger Consideration may dissent from the Merger
and elect to have the fair value of his or her shares of ONBANCorp Common Stock
(exclusive of any element of value arising from the accomplishment or
expectation of the Merger) judicially determined and paid in cash, provided that
such stockholder complies with the procedural requirements of Section 262.
The following is a brief summary of the statutory procedures to be followed
by a holder of ONBANCorp 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 E TO THIS JOINT PROXY STATEMENT. It is a
condition to First Empire's obligation to consummate the Merger that holders of
no more than 10% of the shares of ONBANCorp Common Stock outstanding as of the
Closing Date will have exercised dissenters' rights. See "--Representations and
Warranties; Conditions to the Merger; Waiver."
Any holder of ONBANCorp Common Stock seeking to exercise his or her right to
dissent from the Merger and demand appraisal of his or her shares of ONBANCorp
Common Stock must comply with the procedural requirements of Section 262,
including the satisfaction of each of the following conditions:
(i) such stockholder must deliver a written demand for appraisal of his
or her shares to ONBANCorp before the taking of the vote with respect to the
Merger Agreements at the ONBANCorp Special Meeting (this written demand for
appraisal must be in addition to and separate from any proxy or vote against
the Merger Agreements; neither voting against, nor abstaining from voting
nor failing to vote on the Merger Agreements will constitute a demand for
appraisal within the meaning of Section 262);
(ii) such stockholder must not vote in favor of the Merger Agreements (a
failure to vote will satisfy this requirement, but a vote in favor of the
Merger Agreements, by proxy or in person, or the return of a signed proxy
which does not specify either a vote against approval and adoption of the
Merger Agreements 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
(iii) such stockholder must continuously hold such shares from the date
of the making of the demand through the Effective Time.
57
If any holder of ONBANCorp Common Stock fails to comply with any of these
conditions and the Merger becomes effective, such stockholder will be entitled
to receive the consideration as provided in the Merger Agreements, and will have
no appraisal rights with respect to his or her shares of ONBANCorp Common Stock.
If any such holder of Dissenting Shares shall have failed to perfect or
effectively withdrawn or lost such holder's right to receive payment for such
holder's shares pursuant to Section 262 of the DGCL prior to the Election
Deadline, each of such shares of ONBANCorp Common Stock will thereupon be deemed
to be Non-Election Shares. If any such holder of Dissenting Shares shall have so
failed to perfect or effectively withdrawn or lost such holder's right to
receive payment for such holder's shares pursuant to Section 262 of the DGCL
after the Election Deadline, each of such holder's shares of ONBANCorp Common
Stock shall be deemed to have been converted into and to have become, as of the
Effective Time, the right to receive the Stock Consideration or the Cash
Consideration or a combination thereof as determined by First Empire in its sole
discretion.
All written demands for appraisal should be addressed to: ONBANCorp, Inc.,
101 South Salina Street, Syracuse, New York 13202, Attention: David M.
Dembowski, Secretary, before the taking of the vote concerning the Merger
Agreements at the ONBANCorp Special Meeting, and should be executed by, or on
behalf of, the holder of record. Such demand must reasonably inform ONBANCorp of
the identity of the stockholder and that such stockholder is thereby demanding
appraisal of his or her shares.
TO BE EFFECTIVE, A DEMAND FOR APPRAISAL MUST BE EXECUTED BY OR FOR THE
STOCKHOLDER OF RECORD WHO HELD SUCH SHARES OF ONBANCORP COMMON STOCK ON THE DATE
OF MAKING SUCH DEMAND, AND WHO CONTINUOUSLY HOLDS SUCH SHARES THROUGH THE
EFFECTIVE TIME, FULLY AND CORRECTLY, AS SUCH STOCKHOLDER'S NAME APPEARS ON HIS
OR HER STOCK CERTIFICATE(S) AND CANNOT BE MADE BY THE BENEFICIAL OWNER IF HE OR
SHE DOES NOT ALSO HOLD THE SHARES OF RECORD. THE BENEFICIAL OWNER MUST, IN SUCH
CASE, HAVE THE REGISTERED HOLDER SUBMIT THE REQUIRED DEMAND IN RESPECT OF SUCH
SHARES.
If ONBANCorp 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 made in such capacity. If ONBANCorp Common Stock is owned of record by
more than one person, as in a joint tenancy or 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 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 or she
is acting as agent for the record owner. A record owner, such as a broker, who
holds ONBANCorp Common Stock as a nominee for others may exercise his or her
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 ONBANCorp Common Stock in the
name of such record owner.
Within ten days after the Effective Time, First Empire (as the Surviving
Corporation in the Merger) must give written notice that the Merger has become
effective to each stockholder who has so filed a written demand for appraisal
and who did not vote in favor of approval and adoption of the Merger Agreements.
Any stockholder entitled to appraisal rights may, within 20 days after the date
of mailing of the notice, demand in writing from the Surviving Corporation the
appraisal of such stockholder's shares of ONBANCorp Common Stock. Within 120
days after the Effective Time, but not thereafter, either First Empire, or any
holder of shares of ONBANCorp Common Stock who has complied with the
requirements of Section 262, may file a petition in the Delaware Court of
Chancery (the "Court of Chancery") demanding a determination of the value of the
shares of ONBANCorp Common Stock held by all stockholders entitled to appraisal.
First Empire has no obligation, and does not presently intend, to file such a
petition. Accordingly, the failure of a stockholder to file such a petition
within the time period specified could nullify such stockholder's previous
written demand for appraisal and result in such stockholder losing his or her
dissenters' rights under Section 262. In any event, at any time within 60 days
after the Effective Time (or at any time thereafter with the written consent of
First Empire), any
58
stockholder who has demanded appraisal has the right to withdraw the demand and
to accept payment of the Merger Consideration as provided in the Merger
Agreements.
Within 120 days after the Effective Date, any stockholder who has complied
with the provisions of Section 262 to that point in time will be entitled to
receive from First Empire, upon written request, a statement setting forth the
aggregate number of shares of ONBANCorp Common Stock not voted in favor of the
Merger Agreements and with respect to which demands for appraisal have been
received and the aggregate number of holders of such shares. First Empire must
mail such statement to the stockholder within 10 days of receipt of such
request.
If a petition for appraisal is duly filed by a stockholder and a copy
thereof is delivered to First Empire, First Empire 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 the petition to determine those stockholders who have
complied with Section 262 and who have become entitled to appraisal rights
thereunder. 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 stockholders entitled to an appraisal, the Court
of Chancery will appraise the shares of ONBANCorp Common Stock, determining
their fair value exclusive of any element of value arising from the
accomplishment or expectation of the Merger. When the value is so determined,
the Court of Chancery will direct the payment by First Empire of such value,
with interest thereon, simple or compound, if the Court of Chancery so
determines, to the stockholders entitled to receive the same upon surrender to
First Empire by such stockholders of the certificates representing such shares
of ONBANCorp Common Stock.
In determining fair value, the Court of Chancery will take into account all
relevant factors, and may consider proof of value by any techniques or methods
which are generally considered acceptable in the financial community and
otherwise admissible in court. Under Delaware law, 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." The
Delaware Supreme Court has 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 who are considering seeking an
appraisal should bear in mind that the fair value of their shares of ONBANCorp
Common stock determined under Section 262 could be more than, the same as or
less than the consideration they might otherwise receive pursuant to the Merger
Agreements if they do not seek appraisal of their shares of ONBANCorp Common
Stock, and that the opinion of Sandler O'Neill set forth as Appendix D hereto is
not an opinion as to fair value under Section 262.
Costs of the appraisal proceeding may be assessed against the parties
thereto (i.e., First Empire and the stockholders participating in the appraisal
proceeding) by the Court of Chancery as the court deems equitable in the
circumstances. Upon the application of any stockholder, the Court of Chancery
may determine the amount of interest, if any, to be paid upon the value of the
stock of stockholders entitled thereto. Upon application of a stockholder, the
Court of Chancery 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
59
the value of all shares entitled to appraisal. Any stockholder who has demanded
appraisal rights will not, after the Effective Time, be entitled to vote the
stock subject to such demand for any purpose or to receive payment of dividends
or any other distribution with respect to such shares (other than dividends or
distributions, if any, payable to holders of record as of a record date prior to
the Effective Date) or to receive the payment of the consideration provided for
in the Merger Agreements. However, if no petition for an appraisal is filed
within 120 days after the Effective Time or if such stockholder delivers to
First Empire a written withdrawal of his or her demand for an appraisal and an
acceptance of the Merger, either within 60 days after the Effective Time or
thereafter with the written approval of First Empire, then the right of such
stockholder to an appraisal will terminate. 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 THE FOREGOING PROCEDURES WILL CAUSE AN
ONBANCORP STOCKHOLDER TO LOSE HIS OR HER APPRAISAL RIGHTS. CONSEQUENTLY, ANY
STOCKHOLDER WHO DESIRES TO EXERCISE HIS OR HER APPRAISAL RIGHTS IS URGED TO
CONSULT A LEGAL ADVISOR BEFORE ATTEMPTING TO EXERCISE SUCH RIGHTS.
COMPARISON OF CERTAIN RIGHTS OF HOLDERS OF
FIRST EMPIRE COMMON STOCK AND ONBANCORP COMMON STOCK
First Empire is a New York corporation subject to the provisions of the New
York Business Corporation Law (the "NYBCL"). ONBANCorp is a Delaware corporation
subject to the provisions of the DGCL. Upon consummation of the Merger,
stockholders of ONBANCorp who receive First Empire Common Stock in exchange for
some or all of their shares of ONBANCorp Common Stock in the Merger, and whose
rights as such currently are governed by ONBANCorp's Certificate of
Incorporation (the "ONBANCorp Certificate") and By-Laws and by the DGCL, will
become stockholders of First Empire, and their rights as such will be governed
by First Empire's Certificate of Incorporation (the "First Empire Certificate")
and By-Laws and by the NYBCL.
The following is a summary of the material differences between the rights of
stockholders of First Empire and ONBANCorp. This summary does not purport to be
a complete discussion of, and is qualified in its entirety by reference to, the
DGCL, the NYBCL and the certificate of incorporation and bylaws of each
corporation. This summary reflects certain amendments to the NYBCL that become
effective on February 22, 1998.
AMENDMENT OF CERTIFICATES
FIRST EMPIRE. Under the NYBCL, a corporation may amend its certificate of
incorporation in any respect provided the amendment contains only provisions
that would be lawfully contained in an original certificate filed at the time of
the amendment. To adopt an amendment under the NYBCL, a corporation's board of
directors must vote to authorize the amendment followed by the vote of a
majority of all outstanding shares entitled to vote thereon at a meeting of
stockholders. The board of directors acting alone can amend the certificate of
incorporation to change the corporation's address or registered agent for
service of process. When an amendment of the certificate would affect certain
substantial rights of the holders of a class of stock, Section 804(a) of the
NYBCL provides that the adoption of the amendment requires the approval of a
majority of the votes of all outstanding shares of such class of stock. If only
certain series within any class of shares are adversely affected by such a
proposed amendment, then in addition to the approval of the board of directors
and a majority of all outstanding shares entitled to vote thereon, the amendment
requires the approval only of a majority of the outstanding shares of such
affected series. The First Empire Certificate does not vary from the statutory
provisions.
ONBANCORP. Under the DGCL, an amendment of a corporation's certificate of
incorporation may be effected by a resolution adopted by the board of directors
setting forth the amendment proposed, followed by approval of the amendment by
an affirmative vote of a majority of the outstanding shares
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entitled to vote thereon, provided, however, that whenever the certificate of
incorporation requires action by the board of directors, by the holders of any
class or series of shares or by the holders of any other securities having
voting power, the vote of a greater number or proportion than is required under
the DGCL, the provision of the certificate of incorporation requiring such
greater vote shall not be altered, amended, or repealed except by such greater
vote. The ONBANCorp Certificate provides that certain provisions, including the
provisions concerning the number, classification, limitation of liability and
removal of directors, may not be altered, amended or rescinded or repealed in
any respect unless such action is approved by the affirmative vote of the
holders of not less than three-fourths of the issued and outstanding shares of
ONBANCorp Common Stock entitled to vote thereon at any annual or special meeting
called for that purpose.
AMENDMENT OF BY-LAWS
FIRST EMPIRE. First Empire's By-Laws provide that the bylaws may be
adopted, amended or repealed at any meeting of stockholders notice of which
shall have referred to the proposed action, by a majority of the votes cast by
the holders of First Empire Common Stock at the time entitled to vote in the
election of any director, or at any meeting of the First Empire Board notice of
which shall have referred to the proposed action, by the vote of a majority of
the entire First Empire Board. If any bylaws pertaining to the election of
directors or the procedures for calling and conducting a meeting of stockholders
are amended, such amendment shall not affect the election of directors at or the
procedures for calling and conducting any such meeting unless adequate notice of
such amendment is given to the stockholders in a manner reasonably calculated to
provide stockholders with sufficient time to respond to such amendment prior to
such meeting.
ONBANCORP. The ONBANCorp Certificate provides that ONBANCorp's By-Laws may
be amended at any special meeting of the ONBANCorp Board called for such purpose
or any regular meeting of the ONBANCorp Board by the vote of the majority of the
ONBANCorp Board; provided, however, that the ONBANCorp Board does not have the
authority to alter, amend, rescind, or repeal any bylaw which has been made by
the holders of ONBANCorp Common Stock entitled to vote thereon. In addition, any
provision of the bylaws which contains a supermajority voting requirement may
only be altered, amended, rescinded, or repealed by a vote of the ONBANCorp
Board or holders of ONBANCorp Common Stock entitled to vote thereon that is not
less than the supermajority specified in the provision.
SPECIAL STOCKHOLDERS' MEETINGS
FIRST EMPIRE. First Empire's By-Laws provide that a special meeting of
stockholders may be called by the First Empire Board or by the Chief Executive
Officer, and shall be called by the Secretary or an Assistant Secretary upon a
written request, stating the purpose or purposes for which the meeting is to be
called, of the holders of record of at least 25% of the outstanding shares of
the First Empire Common Stock entitled to vote.
ONBANCORP. Under the DGCL, special meetings of stockholders may be called
by the company's board of directors or by such person or persons authorized by
the company's certificate of incorporation or bylaws. ONBANCorp's By-Laws
provide that a special meeting of stockholders, for any purpose, may be called
at any time by the Chairman of the Board or by resolution of at least
three-fourths of the entire ONBANCorp Board, and shall be called by the Chairman
of the Board or the Secretary upon the written request of the holders of record
of three-fourths of all the outstanding capital stock of ONBANCorp entitled to
vote at such meeting.
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DIRECTOR NOMINATIONS AND PROPOSALS FOR BUSINESS
FIRST EMPIRE. Neither the NYBCL nor the First Empire Certificate or By-Laws
contain any provisions establishing procedures which must be followed in order
for a First Empire stockholder to nominate directors or propose items of
business.
ONBANCORP. ONBANCorp's By-Laws provide that nominations of individuals for
election to the Board at an annual meeting of stockholders may be made by any
stockholder of ONBANCorp entitled to vote for the election of directors at such
meeting who provides timely notice in writing to the Secretary of ONBANCorp as
set forth in the By-Laws.
Any new business to be taken up at the annual meeting at the request of the
Chairman of the Board shall be stated in writing and filed with the Secretary of
ONBANCorp at least fifteen days before the date of the annual meeting, and all
business so stated, proposed and filed shall be considered at the annual
meeting, but, except as provided in the By-Laws, no other proposal shall be
acted upon at the annual meeting. Any non-management proposal offered by any
stockholder may be made at the annual meeting and the same may be discussed and
considered, but unless properly brought before the meeting such proposal shall
not be acted upon at the meeting. For an item of business to be properly brought
before an annual meeting of ONBANCorp by a stockholder, the stockholder must
have given timely notice thereof in writing to the Secretary of ONBANCorp in
accordance with the By-Laws.
To be timely and proper in form, a stockholder's notice of a nominee or
proposed item of business must be received at the principal office of ONBANCorp
not less than 90 nor more than 120 calendar days prior to the anniversary date
of the release of ONBANCorp's proxy statement to its stockholders in connection
with the annual meeting of stockholders of the immediately preceding year, and
must contain certain required information as set forth in ONBANCorp's By-Laws.
SIZE AND CLASSIFICATION OF THE BOARD OF DIRECTORS
FIRST EMPIRE. First Empire's By-Laws require a minimum of three directors,
except if all the shares of First Empire are owned beneficially and of record by
less than three stockholders, the number of directors may be less than three,
but not less than the number of stockholders. First Empire's By-Laws also
provide that the exact number of directors will be fixed by action of the
stockholders of First Empire Common Stock or by the vote of a majority of the
entire board of directors. The First Empire Board is currently comprised of
seventeen directors. First Empire's By-Laws provide that each director shall be
elected at an annual meeting of stockholders or at any meeting of stockholders
held in lieu of such annual meeting, and each director shall hold office until
the next annual meeting of stockholders.
ONBANCORP. ONBANCorp's By-Laws require its board of directors to consist of
not less than seven nor more than thirty directors. The number of directors
shall be determined by resolution of the ONBANCorp Board adopted by a majority
vote of the entire ONBANCorp Board, and that until otherwise provided by the
ONBANCorp Board, the number of directors shall be fifteen. The ONBANCorp Board
is currently comprised of fifteen directors. The ONBANCorp Certificate also
provides that the ONBANCorp Board be divided into three classes of directors,
each class to contain one-third of the entire number of the ONBANCorp Board, and
each having staggered three-year terms.
REMOVAL OF DIRECTORS
FIRST EMPIRE. The NYBCL provides that any or all of the directors may be
removed for cause by a vote of the stockholders, and, if the certificate of
incorporation or the specific provisions of a bylaw adopted by the stockholders
provides, directors may be removed with cause by action of the Board of
Directors or without cause by vote of the stockholders. Pursuant to the First
Empire By-Laws, (a) any director may be removed for cause, at any meeting of
stockholders, notice of which shall have referred to the proposed
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action, by vote of the stockholders, (b) any director may be removed without
cause, at any meeting of stockholders, notice of which shall have referred to
the proposed action, by the vote of the holders of a majority of the shares of
First Empire Common Stock entitled to vote, and (c) any director may be removed
for cause, at any meeting of the directors, notice of which shall have referred
to the proposed action, by vote of three-fourths of the entire First Empire
Board.
ONBANCORP. Under the DGCL, unless otherwise provided in a corporation's
certificate or bylaws, any director or the entire board of directors of a
corporation having a classified board may be removed, but only for cause, by the
holders of a majority of the shares then entitled to vote at an election of
directors. The ONBANCorp Certificate provides that directors may be removed at
any time, but only for cause and only by the affirmative vote of the holders of
record of not less than three-fourths of the outstanding shares of ONBANCorp
Common Stock entitled to vote generally in the election of directors at a
meeting of the stockholders called for that purpose. Further, the Chairman of
the Board and the Chief Executive Officer of ONBANCorp may be removed at any
time with or without cause only by the vote of at least two-thirds of the entire
ONBANCorp Board (meaning the total number of directors which ONBANCorp would
have if there were no vacancies), provided that any such removal shall be
without prejudice to the contract rights, if any, of the person so removed. This
provision may not be altered, amended, rescinded or repealed in any respect
unless such action is approved by the affirmative vote of the holders of not
less than three-fourths of the issued and outstanding shares of the capital
stock of ONBANCorp entitled to vote thereon at any annual or special meeting
called for that purpose.
VACANCIES AND NEWLY CREATED DIRECTORSHIPS
FIRST EMPIRE. The NYBCL provides that newly created directorships resulting
from an increase in the number of directors and vacancies occurring on the board
for any reason, except the removal of directors without cause, may be filled by
the vote of the board, and if the number of directors remaining in office is
less than a quorum, by the vote of a majority of the directors then in office.
The certificate of incorporation or the bylaws may provide that such newly
created directorships or vacancies must be filled by the vote of stockholders
and the certificate of incorporation may impose greater requirements relating to
the quorum and vote of directors needed to fill such newly created directorships
or vacancies. Unless the certificate of incorporation or the specific provisions
of the bylaws adopted by the stockholders provide otherwise, vacancies occurring
on the board by reason of the removal of directors without cause may not be
filled by the Board and may only be filled by the stockholders. First Empire's
By-Laws provide that newly created directorships resulting from an increase in
the number of directors and vacancies occurring on the First Empire Board for
any reason except the removal of directors may be filled by vote of a majority
of the directors then in office, although less than a quorum exists. Any vacancy
occurring on the First Empire Board by reason of the removal of a director by
stockholders may be filled by vote of the stockholders at the meeting at which
such action is taken or at any meeting of stockholders notice of which shall
have referred to the proposed election.
ONBANCORP. The DGCL provides that, unless otherwise provided in a
corporation's certificate of incorporation or bylaws, vacancies and newly
created directorships resulting from an increase in the authorized number of
directors elected by all of the stockholders having the right to vote as a
single class may be filled by a majority of the directors then in office, even
if less than a quorum, or by a sole director. ONBANCorp's By-Laws provide that,
except in the case of persons to be initially elected in accordance with a plan
of merger or pre-merger agreement, all vacancies in the office of director,
including vacancies created by newly created directorships resulting from an
increase in the number of directors, may be filled only by a vote of at least
two-thirds of the directors then holding office at any regular or special
meeting of the ONBANCorp Board called for that purpose. In the case of persons
to be initially elected in accordance with a plan of merger or pre-merger
agreement, nominations must be made at least one regular meeting before the
election.
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LIMITATION OF LIABILITY OF DIRECTORS
FIRST EMPIRE. The NYBCL provides that a corporation, through a provision in
its certificate of incorporation, may limit or eliminate the personal liability
of its directors to the corporation or its stockholders for damages for breach
of duty. This limitation on liability is not available if a judgment or final
adjudication against a director establishes that his acts or omissions (i) were
in bad faith, (ii) involved intentional misconduct or a knowing violation of
law, (iii) involved financial profit or other advantage gained by the directors
to which the director was not legally entitled, or (iv) violated the laws
regarding the declaration of dividends or other distributions, the purchase or
redemption of shares, certain payments to stockholders after dissolution or
loans to directors. This limitation on liability is also not available for any
act or omission prior to the adoption of such a provision in the certificate of
incorporation. The First Empire Certificate eliminates directors' liability to
the fullest extent permitted by law.
ONBANCORP. The DGCL allows a corporation, through its certificate of
incorporation, to limit or eliminate the personal liability of directors to the
corporation and its stockholders for monetary damages for breach of fiduciary
duty. However, this provision excludes any limitation on liability (i) for any
breach of the director's duty of loyalty to the corporation or its stockholders,
(ii) for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law, (iii) for willful or negligent
violation of the laws governing the payment of dividends or the purchase or
redemption of stock or (iv) for any transaction from which the director derives
an improper benefit. The ONBANCorp Certificate eliminates directors' liability
for monetary damages for breach of fiduciary duty to the fullest extent
permitted by the DGCL. Any amendment by the stockholders limiting this provision
is effective only as to acts or omissions by a director occurring after the time
of such amendment.
INDEMNIFICATION
FIRST EMPIRE. Under the NYBCL, a corporation may indemnify any person made,
or threatened to be made, a party, to any action or proceeding except for
stockholder derivative suits, by reason of the fact that he or she was a
director or officer of the corporation, provided such director or officer acted
in good faith for a purpose which he or she reasonably believed to be in the
best interests of the corporation and, in criminal proceedings, in addition, had
no reasonable cause to believe his or her conduct was unlawful. In the case of
stockholder derivative suits, the corporation may indemnify any person who was a
director or officer of the corporation if he or she acted in good faith for a
purpose which he or she reasonably believed to be in the best interests of the
corporation, except that no indemnification may be made for (i) a threatened
action, or a pending action which is settled or otherwise disposed of, or (ii)
any claim, issue or matter as to which such person has been adjudged to be
liable to the corporation, unless and only to the extent that the court in which
the action was brought or, if no action was brought, any court of competent
jurisdiction, determines upon application that, in view of all circumstances the
person is fairly and reasonably entitled to an indemnity for such portion of the
settlement amount and expenses as the court deems proper.
Indemnification under the NYBCL is not exclusive of other indemnification
rights to which a director or officer may be entitled, whether contained in the
certificate of incorporation or bylaws, or, when authorized by such certificate
of incorporation or bylaws, (i) a resolution of stockholders or directors, or
(ii) an agreement providing for such indemnification, provided that no
indemnification may be made to or on behalf of any director or officer if a
judgment or other final adjudication adverse to the director or officer
establishes that his or her acts were committed in bad faith or were the result
of active and deliberate dishonesty and were material to the cause of action so
adjudicated, or that he or she personally gained a financial profit or other
advantage to which he or she was not legally entitled. The First Empire
Certificate provides that First Empire will indemnify to the maximum extent
permissible under New York law its officers and directors for liability arising
out of their actions in such capacity.
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Under the NYBCL, any person to whom such provisions in the NYBCL regarding
indemnification apply who has been successful on the merits or otherwise in the
defense of a civil or criminal action or proceeding is entitled to
indemnification. Except as provided in the preceding sentence, unless ordered by
a court pursuant to the NYBCL, indemnification under the NYBCL, the certificate
of incorporation, the bylaws, any resolution of stockholders or directors or any
agreement pursuant to the above paragraphs may be made only if authorized in the
specific case and after a finding that the director or officer met the requisite
standard of conduct (i) by the board acting by a quorum of disinterested
directors or (ii) if such quorum is not available, or even if available, if so
directed by a quorum of disinterested directors by either (A) the board upon the
written opinion of counsel or (B) by the stockholders.
ONBANCORP. The DGCL authorizes a Delaware corporation to indemnify any
person who was, is, or is threatened to be made a party in any civil, criminal,
administrative or investigative pending or completed action, suit or proceeding
(other than an action by or in the right of a corporation) by reason of the fact
that he or she is or was a director, officer, employee or agent of the
corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another entity, for expenses (including
attorneys' fees), judgments, fines and amounts paid in settlement actually and
reasonably incurred by such person in connection with any threatened, pending or
completed action, suit or proceeding. With respect to actions by or in the right
of a corporation, the DGCL authorizes indemnification of such person for
expenses (including attorneys' fees) actually and reasonably incurred by him or
her in connection with the defense or settlement of such action or suit. To be
entitled to indemnification, a person must have acted in good faith and in a
manner he or she reasonably believed to be in, or not opposed to, the best
interests of the corporation and with respect to any criminal action or
proceeding, had no reasonable cause to believe such conduct was unlawful. With
respect to actions by or in the right of the corporation, court approval is
required for indemnification relating to any claim as to which a person has been
adjudged liable to the corporation.
The DGCL requires indemnification for expenses actually and reasonably
incurred by any present or former director or officer in connection with a
proceeding against such person for actions in such capacity to the extent that
the person has been successful on the merits or otherwise. Advancement of
expenses (i.e., payment prior to a determination on the merits) is permitted,
but not required by the DGCL. A director or officer must undertake to repay such
expenses if it is ultimately determined that he or she is not entitled to
indemnification.
Where any indemnification is to be provided by a corporation to a current
director or officer, then such indemnification, unless ordered by a court, must
be determined to be proper by a vote of a majority of disinterested directors,
or, if no such directors exist, by independent legal counsel or by the
stockholders
The ONBANCorp By-Laws provide that ONBANCorp will indemnify to the fullest
extent permitted by Delaware law each director and officer made, or threatened
to be made, a party to or who is involved in any action (civil, criminal or
otherwise) by reason of the fact that he or she is or was a director or officer
of ONBANCorp or is or was serving, at the request of ONBANCorp, as a director,
officer, employee or agent of another entity.
STOCKHOLDER ACTION BY WRITTEN CONSENT
FIRST EMPIRE. Under the NYBCL, stockholder action may be taken without a
meeting by written consent, setting forth the action so taken, signed by the
holders of all outstanding shares entitled to vote thereon or, if the
certificate of incorporation so permits, signed by the holders of outstanding
shares having not less than the minimum number of votes that would be necessary
to authorize or take such action at a meeting at which all shares entitled to
vote thereon were present and voted. First Empire's Certificate does not provide
for stockholder action by written consent of less than all of the outstanding
First Empire Common Stock entitled to vote.
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ONBANCORP. As permitted by the DGCL, the ONBANCorp Certificate prohibits
stockholder action by written consent.
MERGERS AND BUSINESS COMBINATIONS; SALES OF ASSETS
FIRST EMPIRE. The NYBCL generally requires that approval of mergers,
consolidations and sales, leases, exchanges or other dispositions of all or
substantially all of the assets of a corporation be authorized by a vote of the
holders of 66 2/3% of the votes of all outstanding shares entitled to vote on
such transactions, unless the corporation's certificate of incorporation
expressly provides that only a majority vote of all outstanding shares entitled
to vote thereon is required. The NYBCL also generally grants holders of shares
of any class or series the right to vote and to vote as a separate class on
certain mergers and consolidations if (i) such shares will remain outstanding
after the merger or consolidation or will be converted into the right to receive
shares of stock of the surviving or consolidated corporation or another
corporation and (ii) the certificate or articles of incorporation of the
surviving or consolidated corporation or of such other corporation immediately
after the effectiveness of the merger or consolidation would contain any
provision which is not contained in the certificate of incorporation of the
merging or consolidating corporation and which would exclude or limit their
rights to vote, adversely affect certain of their rights or authorize shares
having a preference over their shares. In such case, in addition to the approval
by the holders of the requisite number of votes of all outstanding shares
entitled to vote thereon, the merger or consolidation must be approved by the
holders of a majority of the votes of all outstanding shares of each such class
or series.
ONBANCORP. Under the DGCL, mergers, consolidations and sales, leases or
exchanges of all or substantially all of the property or assets of a corporation
require the approval of a majority of the outstanding stock of the corporation
entitled to vote thereon; provided, that no vote of stockholders of a
corporation surviving a merger is necessary to authorize a merger if (i) the
agreement of merger does not amend the certificate of incorporation of such
corporation, (ii) each share of stock of such corporation outstanding
immediately prior to the merger is to be an identical outstanding or treasury
share of the surviving corporation after the merger, and (iii) either no shares
of common stock of the surviving corporation and no shares, securities or
obligations convertible into such stock are to be issued or delivered under the
plan of merger, or the authorized but unissued shares or the treasury shares of
common stock of the surviving corporation to be issued or delivered under the
plan of merger plus those initially issuable upon conversion of any other
shares, securities or obligations to be issued or delivered under such plan do
not exceed 20% of the shares of common stock of such corporation outstanding
immediately prior to the merger. The DGCL does not require the separate vote of
each class of stock for such transactions unless the certificate of
incorporation so provides. ONBANCorp's Certificate does not so provide.
DISSENTERS' RIGHTS
FIRST EMPIRE. Under the NYBCL, dissenting stockholders are entitled to
receive payment of the "fair value" of their shares in connection with certain
mergers, consolidations and sales, leases, exchanges or other dispositions of
all or substantially all the assets of a corporation, unless (i) in the case of
a merger or consolidation, the shares of any class or series of stock held by
such dissenting stockholder as of the record date for notice of the meeting of
stockholders to vote on the merger or consolidation are 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., (ii) in the case of a merger or consolidation, the corporation is the
surviving corporation in such merger or consolidation and certain specified
stockholder rights are not adversely affected or (iii) in the case of a sale,
lease, exchange or other disposition of all or substantially all the assets of a
corporation, the transaction is wholly for cash and stockholder approval of the
transaction is conditioned upon the dissolution of the corporation and the
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distribution of substantially all of its net assets to stockholders within one
year after the date of the transaction.
ONBANCORP. Pursuant to Section 262 of the DGCL, a holder of capital stock
of a Delaware corporation is generally entitled to receive payment of the
appraised value of his or her shares if such stockholder dissents from a merger
or consolidation and complies with the procedures set forth in Section 262 of
the DGCL for exercising such rights. However, appraisal rights are not available
in merger or consolidation transactions to holders of: (a) shares of stock that
are, as of the record date for determining stockholders entitled to vote on the
transaction, 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 persons, or (b) shares of the corporation surviving a merger, unless, in
either case, holders of such stock are required by the terms of the merger or
consolidation to accept anything other than: (i) shares of the surviving or
resulting corporation; (ii) shares of stock of another corporation so listed or
held of record by not fewer than 2,000 persons; and/or (iii) cash in lieu of
fractional shares of such corporations. Appraisal rights are not available for a
sale of assets or an amendment to the certificate. See "PROPOSED
MERGER--Dissenters' Rights" for a description of the rights of ONBANCorp
stockholders to dissent from the Merger.
INTERESTED STOCKHOLDER TRANSACTIONS
FIRST EMPIRE. Section 912 of the NYBCL contains an interested stockholder
transaction provision similar to the DGCL provision described below, except that
an interested stockholder is defined as a holder of 20% or more of the
outstanding shares of a corporation, and New York corporations are precluded
from entering into certain business combinations with such interested
stockholders for a period of five years. However, pursuant to the NYBCL, First
Empire has elected in the First Empire Certificate not to be governed by the
NYBCL interested stockholder statute.
ONBANCORP. Section 203 of the DGCL ("Section 203") restricts a
corporation's ability to engage in certain transactions involving the
corporation (or its majority-owned subsidiaries) and any person holding 15% or
more of such corporation's outstanding voting stock together with the affiliates
or associates of such person (an "Interested Stockholder"). Section 203
prohibits, for a period of three years following the date that a person became
an Interested Stockholder, the following types of transactions between the
corporation and the Interested Stockholder (unless certain conditions, described
below, are met): (i) mergers or consolidations; (ii) sales, leases, exchanges or
other transfers of 10% or more of the aggregate assets of the corporation; (iii)
issuances or transfers by the corporation of any stock of the corporation which
would have the effect of increasing the Interested Stockholder's proportionate
share of the stock of any class or series of the corporation; (iv) any other
transaction which has the effect of increasing the proportionate share of the
stock of any class or series of the corporation which is owned by the Interested
Stockholder; and (v) receipt by the Interested Stockholder of the benefit
(except proportionately as a stockholder) of loans, advances, guarantees,
pledges or other financial benefits provided by the corporation.
The three-year ban does not apply if either the proposed transaction or the
transaction by which the Interested Stockholder becomes an Interested
Stockholder is approved by the board of directors of the corporation prior to
the time such stockholder becomes an Interested Stockholder. In addition, an
Interested Stockholder may avoid the statutory restriction if, upon consummation
of the transaction whereby such stockholder becomes an Interested Stockholder,
the stockholder owns at least 85% of the outstanding voting stock of the
corporation without regard to those shares owned by the corporation's officers
and directors or certain employee stock plans. Business combinations are also
permitted within the three-year period if approved by the board of directors and
authorized at an annual or special meeting of stockholders by the holders of at
least 66 2/3% of the outstanding voting stock not owned by the Interested
Stockholder.
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Delaware corporations were given the option to exclude themselves from the
coverage of Section 203 by taking board action prior to May 2, 1988.
Additionally, a Delaware corporation may exclude itself by amending its
certificate of incorporation or bylaws at any time to exempt itself from
coverage of Section 203, provided that any certificate or bylaw amendment
adopted on or after May 2, 1988 may not become effective for 12 months after the
date such amendment is adopted. In addition, any transaction is exempt from the
statutory ban if it is proposed at a time when the corporation has proposed, and
a majority of certain continuing directors of the corporation has approved, a
transaction with a party who is not an Interested Stockholder of the corporation
(or who became such with board approval) if the proposed transaction involves
(i) certain mergers or consolidations involving the corporation; (ii) a sale or
other transfer of over 50% of the aggregate assets of the corporation or (iii) a
tender or exchange offer for 50% or more of the outstanding voting stock of the
corporation.
ONBANCorp has not excluded itself from the coverage of Section 203.
In addition, the ONBANCorp Certificate also contains a "supermajority
provision" which requires the affirmative vote of not less than 80% of the
outstanding shares of ONBANCorp Common Stock (including the affirmative vote of
at least 50% of the outstanding shares of ONBANCorp Common Stock held by
stockholders other than the Related Person (as defined below)), for the approval
or authorization of any "business combination" between ONBANCorp and a Related
Person, which includes a merger or consolidation of ONBANCorp, sale of
substantially all of its assets and certain other types of transactions. A
"Related Person" means any individual, corporation, partnership or other person
or entity which, together with their affiliates and associates (as defined in
the ONBANCorp Certificate), beneficially owns in the aggregate 10% or more of
the outstanding shares of ONBANCorp Common Stock. The supermajority provision is
not applicable if the business combination was approved by a majority of the
entire ONBANCorp Board prior to the acquisition by such Related Person of the
beneficial ownership of 10% or more of the outstanding shares of ONBANCorp
Common Stock, or after such acquisition, but only so long as such Related Person
has sought and obtained the unanimous approval by the ONBANCorp Board of such
acquisition of 10% or more of ONBANCorp Common Stock prior to such acquisition
being consummated.
The supermajority provision is also inapplicable if certain fair price and
procedural criteria are met. The fair price criteria are designed to ensure that
the consideration received by holders of ONBANCorp Common Stock in a business
combination will be not less than the fair value of the ONBANCorp Common Stock
or determined pursuant to a specified formula. The procedural criteria of the
fair price provision require the approval by a majority of the ONBANCorp Board
of the business combination, as well as the obtainment of full information by
the holders of ONBANCorp Common Stock in the form of a proxy or information
statement regarding the proposed transaction.
The First Empire Certificate contains no such supermajority provisions.
RIGHTS AGREEMENT
ONBANCORP. On September 25, 1989, ONBANCorp declared a distribution of one
Right for each outstanding share of ONBANCorp Common Stock to stockholders of
record at the close of business on October 6, 1989. Upon the occurrence of
certain events, none of which has occurred as of the date hereof, the Rights may
become exercisable for shares of ONBANCorp Common Stock at a substantial
discount. The description and terms of the Rights are set forth in the Rights
Agreement, a copy of which was filed as an exhibit to ONBANCorp's Current Report
on Form 8-K dated October 6, 1989, which is incorporated by reference herein.
See "AVAILABLE INFORMATION; DOCUMENTS INCORPORATED BY REFERENCE."
The Rights have certain anti-takeover effects. The Rights will cause
substantial dilution to a person or group that attempts to acquire ONBANCorp in
a manner which causes the Rights to become discount Rights unless the offer is
conditional on a substantial number of Rights being acquired. The Rights,
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however, should not affect any prospective offeror willing to make an offer at a
fair price and otherwise in the best interests of ONBANCorp and its stockholders
as determined by the ONBANCorp Board. The Rights should not interfere with any
merger or other business combination approved by the ONBANCorp Board since the
ONBANCorp Board may, at its option, redeem all but not less than all the then
outstanding Rights at the redemption price set forth in the Rights Agreement.
In connection with the Merger Agreements, ONBANCorp amended the Rights
Agreement, so that the entering into the Merger Agreements and the Stock Option
Agreement and the consummation of the transactions contemplated thereby do not,
and will not, result in the grant of any Rights to any person under the Rights
Agreement or enable or require the Rights to be exercised, distributed or
triggered.
FIRST EMPIRE. First Empire has not adopted a stockholder rights plan.
CONSIDERATION OF OTHER CONSTITUENCIES
ONBANCORP. The ONBANCorp Certificate provides that the ONBANCorp Board,
when evaluating any offer of another party to (a) purchase or exchange any
securities or property for any outstanding equity securities of ONBANCorp, (b)
merge or consolidate ONBANCorp with another corporation, or (c) purchase or
otherwise acquire all or substantially all of the properties and assets of
ONBANCorp, shall, in connection with the exercise of its judgement in
determining what is in the best interests of ONBANCorp and its stockholders,
give due consideration not only to the price or other consideration being
offered, but also to all other relevant factors including, without limitation,
the financial and managerial resources and future prospects of the other party,
the possible effects on the business of ONBANCorp and its subsidiaries and on
the depositors, employees, customers, suppliers and creditors of ONBANCorp and
its subsidiaries, and the effects on the communities in which ONBANCorp's
facilities are located.
FIRST EMPIRE. Neither the First Empire Certificate nor its By-Laws contain
similar provisions.
INSPECTION OF SHAREHOLDER LEDGER
FIRST EMPIRE. The NYBCL allows any stockholder to inspect the stockholder
list for any purpose reasonably related to such person's interest as a
stockholder, provided that such inspection is not desired for a purpose which is
in the interest of a business other than the business of the corporation and
that such stockholder has not within five years sold or offered for sale any
list of stockholders of any corporation.
ONBANCORP. The DGCL allows any stockholder to inspect the stockholder list
for a purpose reasonably related to such person's interest as a stockholder. The
stockholders' list also must be open to inspection by any stockholder for a
period of at least ten days prior to, and during the whole time of, any meeting
of stockholders, such inspection being for any purpose germane to the meeting.
RECENT DEVELOPMENTS
FIRST EMPIRE--1997 FOURTH QUARTER RESULTS
Net income in the fourth quarter of 1997 was $46.3 million, an increase of
15% from the final quarter of 1996 when net income was $40.4 million. Diluted
earnings per common share increased 17% to $6.66 from $5.70 earned in the
year-earlier quarter. Basic earnings per share increased 16% to $7.01 in 1997's
final quarter from $6.03 in the comparable period in 1996. Taxable-equivalent
net interest income increased to $143.9 million in the fourth quarter of 1997,
up $6.0 million or 4% from $137.9 million in the corresponding 1996 quarter.
Growth in average loans outstanding was the primary factor contributing to the
improvement in net interest income. Average loans for the fourth quarter of 1997
totaled $11.3 billion, an 8% increase from the $10.5 billion average during the
fourth quarter of 1996. In total, earning assets averaged $13.2 billion in the
final quarter of 1997, up 7% from $12.3 billion in the corresponding 1996
69
quarter. The yield on earning assets increased to 8.34% in the final 1997
quarter from 8.31% in the year-earlier period, while the rate paid on
interest-bearing liabilities increased to 4.70% from 4.54%. The higher rate paid
on interest-bearing liabilities was due to generally higher interest rates and
the effect of the issuances of $250 million of trust preferred securities in
1997. The resulting net interest spread was 3.64% in the fourth quarter of 1997,
compared with 3.77% in the fourth quarter of 1996. Similarly, net interest
margin decreased, to 4.33% in the fourth quarter of 1997 from 4.46% in the
year-earlier quarter.
The provision for possible credit losses was $12.0 million in the final 1997
quarter, compared with $11.5 million in the fourth quarter of 1996. Net
charge-offs totaled $9.7 million in 1997's fourth quarter, down from $11.5
million in the year-earlier quarter. Net charge-offs as an annualized percentage
of average loans and leases were .34% in the recent quarter, down from .43% in
the corresponding 1996 quarter. Excluding the effects of sales of bank
investment securities, other income rose 10% to $53.0 million in the fourth
quarter of 1997 from $48.1 million in the year-earlier quarter. A $3.0 million
increase in revenues from mortgage banking activities was the leading factor
contributing to the rise. Other expense was $110.7 million in the fourth quarter
of 1997, an increase of 3% from $107.1 million in the fourth quarter of 1996.
ONBANCORP -- 1997 FOURTH QUARTER RESULTS
ONBANCorp's 1997 fourth quarter net income of $14.1 million was $1.7 million
or 13% greater than the fourth quarter 1996 net income of $12.4 million. Diluted
earnings per common share increased to $1.10 for the 1997 fourth quarter or 25%
over the prior year period $.88. Basic earnings per share increased to $1.11 for
the 1997 fourth quarter or 18% over the prior year period $.94. Return on
average equity of 16.9% and return on average assets 1.01% for the 1997 fourth
quarter increased from 13.7% and .92%, respectively, for the prior year period.
The improved performance is primarily the result of the ongoing effort to
change the mix of business with the continuing emphasis on increasing commercial
banking activities. The net loan portfolio of $2.8 billion at December 31, 1997
increased $418 million or 17% over December 31, 1996 and within the portfolio
commercial loans increased $189 million or 28%, gross consumer loans and leases
increased $196 million or 27% and residential mortgage loans increased $50
million or 5%. Total securities decreased by $593 million or 23% which was
greater than the increase in loans, therefore, total assets decreased by $98
million or 2%. Within the securities portfolio, held to maturity securities
decreased $508 million or 30% as a result of scheduled amortization and
increased prepayment activity associated with mortgage-backed securities. A
decrease of $85 million occurred in the available for sale portfolio related to
scheduled amortization, accelerating prepayments and net sales of primarily
mortgage-backed securities. These sales
were completed primarily to reduce interest rate risk associated with increasing
prepayment risk during the year and especially in the fourth quarter of 1997.
Year-end 1997 deposits increased $201 million or 5% from 1996 year-end while
borrowings decreased $306 million or 27% for the respective year ends.
The net interest margin decreased to 3.00% in the fourth quarter of 1997
from 3.09% for the prior year period. Notwithstanding the decrease in net
interest margin and total assets, net interest income increased 1% to $39.4
million in the 1997 fourth quarter from $39.1 million in the prior year period.
The net interest income increase resulted primarily from the changing mix of
loans and deposits. The provision for loan losses decreased by $.2 million to
$1.8 million for the fourth quarter of 1997 from the prior year period. Fourth
quarter 1997 banking fee income increased $.4 million or 9%, mortgage banking
income decreased $.9 million to $.8 million for the 1997 fourth quarter
primarily related to gains on the sale of loans which occurred during the 1996
fourth quarter. Net gains on securities sales increased by $3.5 million in the
1997 fourth quarter relating to available for sale securities sales cited above
while trust fees and other income increased by $.2 million for the 1997 fourth
quarter over the prior year period. Excluding the $1.4 million of capital trust
securities expense, total fourth quarter 1997 operating expenses were $26.1
million which was $.5 million or 2% higher than the prior year period $25.6
million.
70
CERTAIN REGULATORY CONSIDERATIONS
GENERAL
As registered bank holding companies, First Empire and ONBANCorp are subject
to the supervision of, and to regular inspection by, the Federal Reserve. M&T
Bank (which will be the resulting bank in the Bank Merger) is subject to
supervision, regulation, and examination by the Banking Department and the
Federal Reserve. M&T Bank, N.A., a national bank, is subject to supervision,
regulation and examination by the Comptroller of the Currency (the
"Comptroller"). OnBank & Trust, a New York-chartered trust company, is subject
to supervision, regulation and examination by the New York Banking
Superintendent and the FDIC, and Franklin First, a Pennsylvania chartered
savings bank, is subject to supervision, regulation, and examination by the
Pennsylvania Department of Banking and the FDIC. In addition, the deposits of
each of these institutions are federally-insured by the FDIC, up to applicable
limits. The FDIC has broad enforcement authority over each institution,
including the power to terminate deposit insurance or to appoint a conservator
or receiver, in the most severe cases. The following description summarizes some
of the laws to which First Empire, ONBANCorp and their depository institution
subsidiaries are subject. To the extent statutory or regulatory provisions or
proposals are described, the description is qualified in its entirety by
reference to the particular statutory or regulatory provisions or proposals.
The activities of First Empire and ONBANCorp and their banking and
nonbanking subsidiaries are limited to banking, managing or controlling banks,
furnishing services to or performing services for their subsidiaries or any
other activity which the Federal Reserve determines to be so closely related to
banking or managing or controlling banks as to be proper incident thereto.
Generally, bank holding companies, such as First Empire and ONBANCorp, are
required to obtain prior approval of the Federal Reserve to engage in any new
activity or to directly or indirectly acquire the ownership or control of more
than 5% of any class of voting stock or substantially all of the assets of any
company, including a bank.
Pursuant to the Riegle-Neal Interstate Banking and Branching Efficiency Act
of 1994 (the "Interstate Banking and Branching Act"), bank holding companies
generally can acquire banks in states other than their home states without
regard to the permissibility of such acquisitions under state law. The
Interstate Banking and Branching Act also authorizes banks with different home
states to merge across state lines, unless the home state of a participating
institution has passed legislation prior to June 1, 1997 explicitly prohibiting
interstate branching within that state. Only Montana and Texas passed such
legislation.
Proposals to change the laws and regulations governing the banking industry
are frequently introduced in Congress, in the state legislatures and before the
various bank regulatory agencies. The likelihood and timing of any such
proposals or bills being enacted and the impact they might have on First Empire,
ONBANCorp and their subsidiaries cannot be determined at this time.
CAPITAL REQUIREMENTS
The Federal Reserve has issued risk-based and leverage capital guidelines
applicable to bank holding companies. The Federal Reserve risk-based guidelines
define a two-tier capital framework. Tier 1 capital generally consists of common
shareholders' equity (including retained earnings), qualifying perpetual
preferred stock, and minority interests in the equity accounts of consolidated
subsidiaries, less goodwill and disallowed intangibles. Tier 2 capital generally
consists of subordinated and other qualifying debt, other perpetual preferred
stock, hybrid capital instruments, and the allowance for credit losses up to
1.25% of risk-weighted assets. The sum of Tier 1 and Tier 2 capital, less
investments in unconsolidated subsidiaries and other adjustments, represents
qualifying total capital, at least 50% of which must consist of Tier 1 capital.
Risk-based capital ratios are calculated by dividing Tier 1 and total capital by
risk-weighted assets, which are the credit risk equivalents of balance sheet
assets and certain off-balance sheet items. (Assets and off-balance sheet
exposures are assigned to one of four categories of risk weights, based
primarily on relative credit risk.) The minimum risk-based Tier 1 capital ratio
is 4% and the minimum risk-based total capital ratio is 8%. First Empire's Tier
1 and total risk-based capital ratios under these
71
guidelines at December 31, 1997 were 10.69% and 13.32%, respectively, and
ONBANCorp's were 12.38% and 13.59%, respectively.
The leverage ratio is determined by dividing Tier 1 capital by adjusted
average total assets. Although the stated minimum ratio is 3%, most banking
organizations are required to maintain ratios of at least 100 to 200 basis
points above 3%. First Empire's and ONBANCorp's leverage ratios at December 31,
1997 were 9.09% and 7.23%, respectively.
Regulators also take into consideration other factors that can affect an
organization's financial condition, including concentrations of credit risk and
risks from non-traditional activities, as well as an organization's ability to
manage those risks, when determining the adequacy of an organization's capital.
That evaluation will be made as a part of the organization's regular safety and
soundness examination. Regulators also consider interest rate risk (when the
interest rate sensitivity of an organization's assets does not match the
sensitivity of its liabilities or its off-balance sheet position) in the
determination of capital adequacy. Banking organizations are generally expected
to operate with capital well above the minimum risk-based ratios. In addition,
regulatory agencies may from time to time require that a banking organization
maintain specific capital ratios above the minimum levels, because of its
financial condition and/or actual or anticipated growth.
The Federal Reserve has issued capital adequacy guidelines for state member
banks, such as M&T Bank, and the Comptroller and the FDIC have issued capital
adequacy guidelines for national banks and state nonmember banks, respectively,
that are substantially similar to the guidelines for bank holding companies
described above. As of December 31, 1997, each of M&T Bank, M&T Bank, N.A.,
OnBank & Trust and Franklin First exceeded the federal capital adequacy
guidelines to which it was subject.
In addition to the minimum capital requirements, the FDIA, among other
things, identifies five capital categories for insured depository institutions
(well capitalized, adequately capitalized, undercapitalized, significantly
undercapitalized and critically undercapitalized) and requires the respective
Federal regulatory agencies to implement "prompt corrective action" for insured
depository institutions in any of the three undercapitalized categories. The
banking agencies are permitted or, in certain cases, required to take certain
actions with respect to undercapitalized institutions. Depending on the level of
an institution's capital, the agency's corrective powers include, among other
things: prohibiting the payment of principal and interest on subordinated debt;
prohibiting the holding company from making distributions without prior
regulatory approval; placing limits on asset growth and restrictions on
activities; placing additional restrictions on transactions with affiliates;
restricting the interest rate the institution may pay on deposits; prohibiting
the institution from accepting deposits from correspondent banks; and in the
most severe cases, appointing a conservator or receiver for the institution. An
"undercapitalized" bank also must develop a capital restoration plan and the
plan will not be accepted unless its parent holding company guarantees the
bank's compliance with the plan. The liability of the parent holding company
under any such guarantee is limited to the lesser of 5% of the bank's assets at
the time it became "undercapitalized" or the amount needed to comply with the
plan. Furthermore, in the event of the bankruptcy of the parent holding company,
such guarantee would take priority over the parent's general unsecured
creditors.
Under federal banking regulations, a "well capitalized" institution must
have a Tier 1 capital ratio of at least 6%, a total capital ratio of at least
10% and a leverage ratio of at least 5% and not be subject to a capital
directive order. An "adequately capitalized" institution must have a Tier 1
capital ratio of at least 4%, a total capital ratio of at least 8%, and a
leverage ratio of at least 4%, or 3% in the case of the most highly-rated
institutions. Under these guidelines, each of the banking subsidiaries of First
Empire and ONBANCorp would be considered well capitalized, as of December 31,
1997.
RESTRICTIONS ON PAYMENT OF DIVIDENDS
First Empire is a legal entity separate and distinct from its subsidiaries.
Dividends from M&T Bank, together with dividends from M&T Bank, N.A., represent
First Empire's primary source of income. M&T
72
Bank and M&T Bank, N.A. are subject to legal restrictions on the amount and
frequency (no more often than quarterly) of dividend declarations. Under
applicable law, M&T Bank may not, without prior approval of the Federal Reserve
and the Banking Superintendent, and M&T Bank, N.A. may not, without the prior
approval of the Comptroller, pay a dividend if the total of all dividends
declared by the bank in any calendar year exceeds the total of its net profits
for that year combined with its retained net profits of the preceding two
calendar years, less any required transfers to surplus or to a fund for the
retirement of any preferred stock. In addition, depending upon the financial
condition of M&T Bank or M&T Bank, N.A., the payment of dividends could be
deemed to constitute an unsafe or unsound practice and could be prohibited on
that basis by the Federal Reserve, or the Comptroller, respectively. The ability
of the M&T Bank and M&T Bank, N.A. to pay dividends in the future is presently,
and could be further, influenced by bank regulatory policies or agreements and
by regulatory capital guidelines.
In addition, the Federal Reserve has stated that, as a matter of prudent
banking, a bank holding company generally should not maintain a rate of cash
dividends unless its net income available to common shareholders has been
sufficient to fund fully the dividends, and the prospective rate of earnings
retention appears to be consistent with such holding company's capital needs,
asset quality and overall financial condition.
ENFORCEMENT POWERS OF THE BANKING AGENCIES
The Federal and state banking agencies have broad enforcement powers over
bank holding companies and their subsidiaries, including, in the case of federal
agencies, the power to terminate deposit insurance, impose substantial fines and
other civil penalties and, in the most severe cases, to appoint a conservator or
receiver for a depository institution. Failure to maintain adequate capital or
to comply with applicable laws, regulations and supervisory agreements could
subject First Empire, ONBANCorp or their subsidiaries to such enforcement
provisions.
HOLDING COMPANY LIABILITY
Under Federal Reserve policy, a bank holding company is expected to act as a
source of financial strength to each of its banking subsidiaries and commit
resources to their support. Such support may be required at times when, absent
this Federal Reserve policy, a holding company may not be inclined to provide
it.
CONTROL ACQUISITIONS
The Change in Bank Control Act (the "CBCA") prohibits a person or group of
persons from acquiring "control" of a bank holding company unless the Federal
Reserve has been notified and has not objected to the transaction. Under a
rebuttable presumption established by the Federal Reserve, the acquisition of
10% or more of a class of voting stock of a bank holding company with a class of
securities registered under Section 12 of the Exchange Act, such as First
Empire, would, under the circumstances set forth in the presumption, constitute
acquisition of control of First Empire.
In addition, any company is required to obtain the approval of the Federal
Reserve under the BHCA before acquiring 25% (5% in the case of an acquiror that
is a bank holding company) or more of the outstanding Common Stock of First
Empire, or otherwise obtaining control or a "controlling influence" over First
Empire.
PRO FORMA
CONDENSED FINANCIAL INFORMATION
(UNAUDITED)
The following unaudited Pro Forma Condensed Financial Information and
explanatory notes are presented to show the pro forma impact of the Merger on
the historical financial position and results of
73
operations of First Empire. All earnings per share amounts reflect the
implementation of Statement of Financial Accounting Standards ("SFAS") No. 128,
"Earnings Per Share." SFAS No. 128 establishes new standards for computing and
presenting earnings per share and is effective for financial statements for both
interim and annual periods ending after December 15, 1997. SFAS No. 128 requires
that all prior period earnings per share data be restated to conform with the
provisions of the statement.
In accordance with the Merger Agreements, each share of ONBANCorp's Common
Stock will be converted in the Merger into the right to receive, at the election
of the holder thereof but subject to the election and allocation procedures set
forth in the Merger Agreements, either 0.161 of a share of First Empire Common
Stock or $69.50 in cash. The Merger Agreements provide that a minimum of 60% and
a maximum of 70% of the shares of ONBANCorp Common Stock outstanding at
consummation will be exchanged for First Empire Common Stock (subject to
adjustment under certain circumstances). The pro forma financial information is
based on the assumption that 65%, or 8,262,675 shares, of ONBANCorp Common Stock
outstanding as of September 30, 1997, are exchanged for 1,330,290 shares of
First Empire Common Stock. A 60% or 70% exchange structure would not cause
significantly different results. Shares issuable upon the exercise of
ONBANCorp's stock options are not included in the number of outstanding shares
of ONBANCorp Common Stock on the assumption that all options will be cashed out.
See "PROPOSED MERGER--Terms of the Merger." In addition, the number of shares of
ONBANCorp Common Stock used in calculating the total market value of First
Empire Common Stock to be issued in connection with the Merger reflects an
exchange of First Empire Common Stock for 65% of the outstanding shares of
ONBANCorp Common Stock, exclusive of ONBANCorp's common stock equivalents.
The unaudited Pro Forma Condensed Financial Information reflects the Merger
using the purchase method of accounting. The Cash Consideration of the purchase
price is expected to be funded by the liquidation of investment securities.
The unaudited Pro Forma Condensed Combined Balance Sheet assumes that the
Merger was consummated on September 30, 1997. Certain amounts in ONBANCorp's
historical balance sheet as shown have been reclassified to conform to First
Empire's presentation. The unaudited Pro Forma Condensed Combined Statements of
Income assume that the Merger was consummated on January 1, 1996 and reflect the
consolidation of the results of operations of First Empire and ONBANCorp for the
nine months ended September 30, 1997 and for the twelve months ended December
31, 1996.
The unaudited Pro Forma Condensed Financial Information reflects the Merger
based on preliminary purchase accounting adjustments. Estimates relating to the
fair value of certain assets, liabilities and other items have been made as more
fully described in the Notes to the unaudited Pro Forma Condensed Financial
Information. Actual adjustments, which may include adjustments to additional
assets, liabilities and other items, will be made on the basis of appraisals and
evaluations as of the Effective Date and, therefore, may differ from those
reflected in the unaudited Pro Forma Condensed Financial Information.
The combined company expects to achieve substantial merger benefits
primarily in the area of operating cost savings. The unaudited pro forma
earnings, which do not reflect any direct costs or potential savings which are
expected to result from the consolidation of operations of First Empire and
ONBANCorp, are not indicative of the results of future operations. No assurances
can be given with respect to the ultimate level of cost savings to be realized.
See "PROPOSED MERGER--Management and Operations After the Merger--Operations."
The following information should be read in conjunction with and is
qualified in its entirety by the consolidated financial statements and
accompanying notes of First Empire and ONBANCorp included in the documents
described under "AVAILABLE INFORMATION; DOCUMENTS INCORPORATED BY REFERENCE."
The unaudited Pro Forma Condensed Financial Information is intended for
information purposes and is not necessarily indicative of the future financial
position or future results of the combined company or of the financial position
or the results of operations of the combined company that would have actually
occurred had the Merger been in effect as of the date or for the period
presented.
74
FIRST EMPIRE STATE CORPORATION
PRO FORMA CONDENSED COMBINED BALANCE SHEET
(DOLLARS IN THOUSANDS)
(UNAUDITED)
SEPTEMBER 30, 1997
-------------------------------------------------------
FIRST PRO FORMA
EMPIRE ONBANCORP ADJUSTMENTS PRO FORMA
------------- ------------ ----------- -------------
ASSETS
Cash and due from banks........................ $ 349,571 146,427 $ 495,998
Money-market assets............................ 76,366 10,525 86,891
Investment securities.......................... 1,752,245 2,303,582 (288,666) (3) 3,767,161
Loans and leases............................... 11,570,275 2,941,529 23,020(4) 14,534,824
Unearned discount............................ (299,127) (12,445) (311,572)
Allowance for possible credit losses......... (272,308) (39,162) (311,470)
------------- ------------ ----------- -------------
Loans and leases, net........................ 10,998,840 2,889,922 23,020 13,911,782
------------- ------------ ----------- -------------
Premises and equipment......................... 121,497 63,259 (6,312)(5) 178,444
Goodwill and deposit premium................... 19,112 14,963 564,170 (13 598,245
Accrued interest and other assets.............. 357,502 103,352 (16,929) (7) 443,925
------------- ------------ ----------- -------------
Total assets................................. $ 13,675,133 5,532,030 275,283 $ 19,482,446
------------- ------------ ----------- -------------
------------- ------------ ----------- -------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Interest-bearing deposits...................... $ 9,846,612 3,655,680 4,815(8) $ 13,507,107
Short-term borrowings.......................... 808,445 696,944 248(9) 1,505,637
Long-term borrowings........................... 177,887 345,027 (162) 10) 522,752
Capital securities............................. 250,000 60,000 9,571 (11 319,571
------------- ------------ ----------- -------------
Interest-bearing liabilities................. 11,082,944 4,757,651 14,472 15,855,067
------------- ------------ ----------- -------------
Non-interest bearing deposits.................. 1,358,352 369,624 1,727,976
Other liabilities.............................. 252,279 79,513 39,221(7) 371,013
------------- ------------ ----------- -------------
Total liabilities............................ 12,693,575 5,206,788 53,693 17,954,056
------------- ------------ ----------- -------------
Common equity.................................. 981,558 325,242 221,590 (12 1,528,390
------------- ------------ ----------- -------------
Total stockholders' equity................... 981,558 325,242 221,590 1,528,390
------------- ------------ ----------- -------------
Total liabilities & stockholders' equity..... $ 13,675,133 5,532,030 275,283 $ 19,482,446
------------- ------------ ----------- -------------
------------- ------------ ----------- -------------
See accompanying Notes to Pro Forma Condensed Financial Information
75
FIRST EMPIRE STATE CORPORATION
PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
---------------------------------------------------
FIRST PRO FORMA
EMPIRE ONBANCORP ADJUSTMENTS PRO FORMA
---------- ------------ ----------- ------------
Interest income
Loans and leases, including fees.............................. $ 705,055 164,222 (1,762) 14) $ 867,515
Money-market assets........................................... 5,699 1,246 6,945
Investment securities
Fully taxable............................................... 74,697 119,835 (19,545) 16) 174,987
Exempt from federal taxes................................... 3,957 1,963 5,920
---------- ------------ ----------- ------------
Total interest income..................................... 789,408 287,266 (21,307) 1,055,367
---------- ------------ ----------- ------------
Interest expense
Deposits...................................................... 321,028 125,796 (1,195) 17) 445,629
Short-term borrowings......................................... 32,731 28,554 -- (18 61,285
Long-term borrowings.......................................... 21,064 19,852 (187) 19) 40,729
---------- ------------ ----------- ------------
Total interest expense.................................... 374,823 174,202 (1,382) 547,643
---------- ------------ ----------- ------------
Net interest income............................................. 414,585 113,064 (19,925) 507,724
Provision for possible credit losses............................ 34,000 5,386 39,386
---------- ------------ ----------- ------------
Net interest income after provision for possible credit
losses........................................................ 380,585 107,678 (19,925) 468,338
---------- ------------ ----------- ------------
Other income
Mortgage banking revenues..................................... 36,995 3,787 40,782
Service charges on deposit accounts........................... 31,976 8,434 40,410
Trust income.................................................. 21,779 2,700 24,479
Merchant discount and other credit card fees.................. 13,979 2,042 16,021
Gain (loss) on sales of bank investment securities............ (280) 6,607 6,327
Other revenues from operations................................ 35,639 6,655 42,294
---------- ------------ ------------
Total other income........................................ 140,088 30,225 170,313
Other expense
Salaries and employee benefits................................ 165,390 30,905 196,295
Equipment and net occupancy................................... 39,690 13,789 (316) 20) 53,163
Printing, postage and supplies................................ 10,157 3,316 13,473
Deposit insurance............................................. 1,440 782 2,222
Outside data processing....................................... 4,791 8,412 13,203
Amortization of goodwill and deposit premium.................. 5,467 3,222 26,546 (21 35,235
Other costs of operations..................................... 84,125 18,895 1,474 (22 104,494
---------- ------------ ----------- ------------
Total other expense....................................... 311,060 79,321 27,704 418,085
---------- ------------ ----------- ------------
Income before income taxes...................................... 209,613 58,582 (47,629) 220,566
Income taxes.................................................... 79,672 21,513 (10,817) 23) 90,368
---------- ------------ ----------- ------------
Net income...................................................... $ 129,941 37,069 (36,812) $ 130,198
---------- ------------ ----------- ------------
---------- ------------ ----------- ------------
Net income per common share(24).................................
Basic......................................................... $19,59 2.82 $16.35
Diluted....................................................... $18.60 2.79 $15.66
See accompanying Notes to Pro Forma Condensed Financial Information
76
FIRST EMPIRE STATE CORPORATION
PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1996
---------------------------------------------------
FIRST PRO FORMA
EMPIRE ONBANCORP ADJUSTMENTS PRO FORMA
---------- ------------ ----------- ------------
Interest income
Loans and leases, including fees.............................. $ 881,002 201,394 (2,349) 14) $ 1,080,047
Money-market assets........................................... 6,378 3,863 10,241
Investment securities
Fully taxable............................................... 107,415 166,892 (29,025) 16) 245,282
Exempt from federal taxes................................... 2,637 2,696 5,333
---------- ------------ ----------- ------------
Total interest income..................................... 997,432 374,845 (31,374) 1,340,903
---------- ------------ ----------- ------------
Interest expense
Deposits...................................................... 392,739 154,747 (3,620) 17) 543,866
Short-term borrowings......................................... 59,442 41,170 (248) 18) 100,364
Long-term borrowings.......................................... 14,227 26,181 (250) 19) 40,158
---------- ------------ ----------- ------------
Total interest expense.................................... 466,408 222,098 (4,118) 684,388
---------- ------------ ----------- ------------
Net interest income............................................. 531,024 152,747 (27,256) 656,515
Provision for possible credit losses............................ 43,325 7,813 51,138
---------- ------------ ----------- ------------
Net interest income after provision for possible credit
losses........................................................ 487,699 144,934 (27,256) 605,377
---------- ------------ ----------- ------------
Other income
Mortgage banking revenues..................................... 44,484 6,534 51,018
Service charges on deposit accounts........................... 40,659 11,122 51,781
Trust income.................................................. 27,672 3,162 30,834
Merchant discount and other credit card fees.................. 18,266 2,255 20,521
Gain (loss) on sales of bank investment securities............ (37) 6,018 5,981
Other revenues from operations................................ 39,204 9,418 48,622
---------- ------------ ------------
Total other income........................................ 170,248 38,509 208,757
Other expense
Salaries and employee benefits................................ 208,342 41,507 249,849
Equipment and net occupancy................................... 51,346 18,268 (421) 20) 69,193
Printing, postage and supplies................................ 15,167 4,713 19,880
Deposit insurance............................................. 9,337 9,343 18,680
Outside data processing....................................... 8,063 10,828 18,891
Amortization of goodwill and deposit premium.................. 6,292 4,361 36,544 (21 47,197
Other costs of operations..................................... 110,431 23,841 2,293 (22 136,565
---------- ------------ ----------- ------------
Total other expense....................................... 408,978 112,861 38,416 560,255
---------- ------------ ----------- ------------
Income before income taxes...................................... 248,969 70,582 (65,672) 253,879
Income taxes.................................................... 97,866 27,618 (15,234) 23) 110,250
---------- ------------ ----------- ------------
Net income...................................................... $ 151,103 42,964 (50,438) $ 143,629
---------- ------------ ----------- ------------
---------- ------------ ----------- ------------
Net income per common share(24).................................
Basic......................................................... $22.54 3.02 $17.85
Diluted....................................................... $21.08 2.88 $16.90
See accompanying Notes to Pro Forma Condensed Financial Information
77
NOTES TO THE PRO FORMA
CONDENSED FINANCIAL INFORMATION (UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
The unaudited Pro Forma Condensed Financial Information is based on the
following adjustments and related assumptions. The actual purchase accounting
adjustments will be made on the basis of appraisals and evaluations as of the
Effective Date of the Merger and, therefore, may differ from those reflected in
the unaudited Pro Forma Condensed Financial Information.
A summary of the purchase accounting adjustments to record the Merger used
in preparation of the unaudited Pro Forma Condensed Combined Balance Sheet is as
follows:
INCREASE (DECREASE)
ACCRUED
INTEREST
PREMISES GOODWILL AND INTEREST
NOTE INVESTMENT LOANS AND AND AND DEPOSIT OTHER BEARING SHORT-TERM LONG-TERM CAPITAL
REFERENCE SECURITIES LEASES EQUIPMENT PREMIUM ASSETS DEPOSITS BORROWINGS BORROWINGS SECURITIES
- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ------------- ------------- -----------
(1)(2) $ (309,215) 530,805
(3) 20,549 (20,549)
(4) 23,020 (23,020)
(5) (6,312) 6,312
(6) (9,173) 9,173
(7) 65,323 (26,102)
(8) 4,815 4,815
(9) 248 248
(10) (162) (162)
(11) 9,571 9,571
----------- ----------- ----------- ----------- ----------- ----- --- --- -----
$ (288,666) 23,020 (6,312) 564,170 (16,929) 4,815 248 (162) 9,571
NOTE OTHER STOCKHOLDERS'
REFERENCE LIABILITIES EQUITY
- ----------- ----------- ------------
(1)(2) $ 221,590
(3)
(4)
(5)
(6)
(7) 39,221
(8)
(9)
(10)
(11)
----------- ------------
39,221 $ 221,590
78
(1) The purchase accounting adjustments to record the merger used in the
preparation of the unaudited Pro Forma Condensed Combined Balance Sheet are:
SEPTEMBER 30, 1997
-----------------------
STOCK CASH
----------- ----------
ONBANCorp
Common stock issued................................... 14,319,916
Treasury stock to be cancelled........................ 1,608,108
------------
ONBANCorp common stock outstanding(a)..................... 12,711,808
Assumed allocation........................................ 65% 35%
ONBANCorp shares exchanged................................ 8,262,675 4,449,133
Exchange Ratio............................................ 0.161
Cash Consideration per share.............................. $ 69.50
First Empire common stock to be issued.................... 1,330,290
First Empire common stock price........................... $ 411.0625
----------- ----------
$ 546,832 $ 309,215
------------ ----------- ----------
Assumed total consideration............................... $ 856,047
Assumed historical net assets acquired
Total stockholders' equity............................ $ 325,242
Accrued payout of stock options....................... (17,776)
----------
Assumed historical net assets acquired(b)................. $ 307,466
Assumed premium to allocate............................... $ 548,581
Adjustments to fair value of net assets acquired:
Assets:
Investment securities............................... $ 20,549
Loans and leases.................................... 23,020
Premises and equipment.............................. (6,312)
Mortgage servicing rights........................... 9,173
Deferred income taxes............................... (26,102)
Core deposit premium................................ 63,234
Goodwill............................................ 500,936
Liabilities:
Interest-bearing deposits........................... 4,815
Short-term borrowings............................... 248
Long-term borrowings................................ (162)
Capital securities.................................. 9,571
Other liabilities................................... 21,445
-----------
Assumed adjustments to fair value of net assets
acquired................................................ $ 548,581
- ------------------------
(a) The number of shares of ONBANCorp Common Stock to be exchanged for Stock
Consideration will range between 60% and 70% of the shares outstanding
on the Effective Date. For pro forma purposes, 65% of the number of
ONBANCorp's shares outstanding as of September 30, 1997 has been used in
the calculations.
(b) The historical net assets acquired will be determined at the Effective
Date. The historical net assets, as adjusted, for ONBANCorp as of the
indicated date has been used in the pro forma calculations.
79
(2) The unaudited Pro Forma Condensed Financial Information assumes the funding
of the Cash Consideration is provided by liquidation of investment
securities.
(3) Reflects the preliminary estimate of the adjustment to mark investment
securities to market.
(4) Reflects the preliminary estimate of the adjustment to mark loans to market.
(5) Reflects the preliminary estimate of writedowns associated with duplicate
facilities, equipment and leasehold interests of ONBANCorp to be disposed
of.
(6) Reflects the preliminary estimate of the adjustment to mark mortgage
servicing rights to fair value.
(7) Reflects the preliminary estimates of legal, accounting and investment
bankers' fees associated with the Merger, severance benefits associated with
the elimination of duplicate employment positions at ONBANCorp, the accrued
payout for stock options and the estimated net tax liability associated with
adjustments to fair value of net assets acquired assuming an income tax rate
of 37.5%.
(8) Reflects the preliminary estimate of the adjustment to mark interest-bearing
deposits to market.
(9) Reflects the preliminary estimate of the adjustment to mark short-term
borrowings to market.
(10) Reflects the preliminary estimate of the adjustment to mark long-term
borrowings to market.
(11) Reflects the preliminary estimate of the adjustment to mark capital
securities to market.
(12) Reflects the issuance of First Empire common stock and the elimination of
ONBANCorp's September 30, 1997 equity.
(13) Represents preliminary estimates of core deposit premium and goodwill.
Since the final determination of adjustments to assets and liabilities will
be made based upon fair values as of the Effective Date and after appraisals
and evaluations are complete, the final amounts may differ from the
estimates provided herein.
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THE PURCHASE ACCOUNTING ADJUSTMENTS TO RECORD THE MERGER USED IN THE
PREPARATION OF THE UNAUDITED PRO FORMA CONDENSED STATEMENTS OF INCOME ARE
SUMMARIZED BELOW:
NINE MONTHS FULL YEAR
ENDED ENDED
SEPTEMBER 30, 1997 DECEMBER 31, 1996
------------------ -----------------
(14) Reflects the estimated amortization of the premium related to loans $ 1,762 $ 2,349
and leases on a straight-line basis using an estimated maturity of
9.8 years
(15) Reflects the estimated reduction in interest income from investment 15,097 20,130
securities liquidated to fund the cash component of the merger
consideration assuming an interest rate of 6.51%
(16) Reflects the estimated amortization of the premium related to 4,448 8,895
investment securities assumed to be retained on an accelerated basis
over the estimated maturities of the affected securities using an
estimated weighted average life of 3 years
(17) Reflects the estimated amortization of the related mark-to-market 1,195 3,620
adjustments to deposits on a straight-line basis using an estimated
maturity of 1.33 years
(18) Reflects the estimated amortization of the related mark-to-market -- 248
adjustments to short-term borrowings on a straight-line basis using
an estimated maturity of 0.67 years
(19) Reflects the estimated amortization of the related mark-to-market 187 250
adjustments to long-term borrowings on a straight-line basis using an
estimated maturity of 2.1 years and the estimated amortization of the
related mark-to-market adjustment to capital securities on a
straight-line basis using the remaining maturity of 29.3 years
(20) Reflects the amortization on a straight-line basis of the mark-to- 316 421
market adjustments on premises and equipment using an estimated life
of 15 years
(21) Reflects the amortization on an accelerated basis of the core deposit
premium and on a straight-line basis for goodwill:
ESTIMATED LIFE
-----------------
Core deposit premium 10 7,761 11,497
Goodwill 20 18,785 25,047
------- -------
Total amortization $ 26,546 $ 36,544
(22) Reflects the amortization on an accelerated basis of the 1,474 2,293
mark- to-market adjustment on mortgage servicing rights
using an estimated life of 7 years
(23) Income tax expense on pro forma adjustments is reflected using a 37.5% tax rate.
(24) The pro forma earnings per share include the effect of the adjustments described above and
the issuance of 1,330,290 shares of First Empire Common Stock, and have been restated to
conform with the provisions of SFAS No. 128. See "PRO FORMA CONDENSED FINANCIAL
INFORMATION."
81
EXPERTS
The consolidated financial statements of First Empire included in First
Empire's Annual Report on Form 10-K for the year ended December 31, 1996, have
been audited by Price Waterhouse LLP, independent accountants, as set forth in
their report thereon and incorporated herein by reference. Such consolidated
financial statements are incorporated herein by reference in reliance upon such
report given upon the authority of such firm as experts in accounting and
auditing.
The consolidated financial statements of ONBANCorp and subsidiaries included
in the Annual Report on Form 10-K of ONBANCorp for the year ended December 31,
1996 have been audited by KPMG Peat Marwick LLP, independent auditors, as set
forth in their report thereon incorporated by reference therein and incorporated
herein by reference. Such consolidated financial statements are incorporated
herein by reference in reliance upon such report given upon the authority of
such firm as experts in accounting and auditing.
Documents incorporated herein by reference in the future will include
financial statements, related schedules (if required) and auditors' reports,
which financial statements and schedules will have been audited to the extent
and for the periods set forth in such reports by the firm or firms rendering
such reports, and, to the extent so audited and consent to incorporation by
reference is given, will be incorporated herein by reference in reliance upon
such reports given upon the authority of such firms as experts in accounting and
auditing.
LEGAL OPINION
A legal opinion which states that the issuance of the shares of First Empire
Common Stock offered hereby, when issued in accordance with the terms of the
Merger Agreements, will be validly issued, fully paid and nonassessable, has
been rendered by Richard A. Lammert, Esq., Senior Vice President and General
Counsel of First Empire. As of February 3, 1998, Mr. Lammert was the beneficial
owner of 5,917 shares of First Empire Common Stock and held options granted
under the First Empire State Corporation 1983 Stock Option Plan covering 10,000
shares of First Empire Common Stock, 6,450 of which are currently exercisable.
SUBMISSION OF STOCK HOLDER PROPOSALS
In the case of both First Empire and ONBANCorp, the deadline set forth in
Rule 14a-8 under the Exchange Act for the submission of proposals by
stockholders for inclusion in the proxy statement and form of proxy to be used
by First Empire and ONBANCorp in connection with its annual meeting of
stockholders to be held in May 1998 has passed.
82
APPENDIX A
AGREEMENT AND PLAN OF REORGANIZATION
AGREEMENT AND PLAN OF REORGANIZATION ("Reorganization Agreement" or
"Agreement") dated as of October 28, 1997, by and among ONBANCORP, INC. ("OBC"),
a Delaware corporation having its principal executive office at 101 South Salina
Street, Syracuse, New York 13202, FIRST EMPIRE STATE CORPORATION ("FESC"), a New
York corporation having its principal executive office at One M&T Plaza,
Buffalo, New York 14240, and OLYMPIA FINANCIAL CORP. ("Merger Sub"), a newly
incorporated Delaware corporation having its registered office at 1209 Orange
Street, Wilmington, Delaware.
WITNESSETH
WHEREAS, the parties hereto desire that OBC shall be acquired by FESC
through the merger ("Merger") of OBC with and into Merger Sub, with Merger Sub
as the surviving corporation ("Surviving Corporation") pursuant to an Agreement
and Plan of Merger substantially in the form attached hereto as Annex A ("Plan
of Merger"), which Plan of Merger shall be entered into by the parties hereto as
promptly as practicable after the date hereof; and
WHEREAS, also following the consummation of the Merger, OnBank & Trust Co.
("OnBank"), a New York-chartered commercial bank subsidiary of OBC, Franklin
First Savings Bank ("Franklin First" and, together with OnBank, the "OBC
Banks"), a Pennsylvania-chartered savings bank subsidiary of OBC, and
Manufacturers and Traders Trust Company ("M&T Bank"), a New York-chartered
commercial bank subsidiary of FESC ("Bank Merger"), shall merge pursuant to an
Agreement and Plan of Merger ("Bank Merger Agreement") in a form to be specified
by FESC and reasonably acceptable to OBC; and
WHEREAS, the parties hereto intend that the Merger shall qualify as or be
part of a tax-free reorganization under Section 368(a) of the Code (as defined
hereinafter); and
WHEREAS, the parties hereto 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
representations, warranties and covenants herein contained and intending to be
legally bound hereby, the parties hereto do hereby agree as follows:
ARTICLE
DEFINITIONS
1.1 "Bank Holding Company Act" shall mean the Bank Holding Company Act of
1956, as amended.
1.2 "Banking Board" shall mean the New York State Banking Board.
1.3 "Closing Date" shall mean the date specified pursuant to Section 4.8
hereof as the date on which the parties hereto shall close the transactions
contemplated herein.
1.4 "Code" shall mean the Internal Revenue Code of 1986, as amended.
1.5 "Commission" or "SEC" shall mean the Securities and Exchange Commission.
1.6 "Department of Banking" shall mean the Pennsylvania Department of
Banking.
1.7 "Effective Date" shall mean the date and time specified pursuant to
Section 4.9 hereof as the effective date of the Merger.
1.8 "ERISA" shall mean the Employee Retirement Income Security Act of 1974,
as amended.
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1.9 "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
1.10 "FDIA" shall mean the Federal Deposit Insurance Act.
1.11 "FDIC" shall mean the Federal Deposit Insurance Corporation.
1.12 "Federal Reserve Board" shall mean the Board of Governors of the
Federal Reserve System.
1.13 "FESC Financial Statements" shall mean (i) the consolidated balance
sheets of FESC as of June 30, 1997 and as of December 31, 1996 and 1995 and the
related consolidated statements of income, cash flows and changes in
shareholders' equity (including related notes, if any) for the six months ended
June 30, 1997 and each of the years ended December 31, 1996, 1995 and 1994,
respectively, as filed by FESC in SEC Documents and (ii) the consolidated
balance sheets of FESC and related consolidated statements of income, cash flows
and changes in shareholders' equity (including related notes, if any) as filed
by FESC in SEC Documents as of dates or with respect to periods ended subsequent
to June 30, 1997.
1.14 "Intellectual Property" means domestic and foreign letters patent,
patents, patent applications, patent licenses, software licensed or owned,
know-how licenses, trade names, common law and other trademarks, service marks,
licenses of trademarks, trade names and/or service marks, trademark
registrations and applications, service mark registrations and applications and
copyright registrations and applications.
1.15 "Material Adverse Effect" shall mean, with respect to OBC or FESC, as
the case may be, a material adverse effect on the business, results of
operations or financial condition of such party and its Subsidiaries taken as a
whole or a material adverse effect on such party's ability to consummate the
transactions contemplated hereby; PROVIDED, HOWEVER, that in determining whether
a Material Adverse Effect has occurred there shall be excluded any effect on the
referenced party the cause of which is (i) any change in banking or similar
laws, rules or regulations of general applicability or interpretations thereof
by courts or governmental authorities, (ii) any change in generally accepted
accounting principles or regulatory accounting requirements applicable to banks,
thrifts or their holding companies generally and (iii) any action or omission of
OBC or FESC or any Subsidiary of either of them taken with the prior written
consent of FESC or OBC, as applicable, in contemplation of the Merger.
1.16 "OBC Financial Statements" shall mean (i) the consolidated balance
sheets of OBC as of June 30, 1997 and as of December 31, 1996 and 1995 and the
related consolidated statements of income, cash flows and changes in
shareholders' equity (including related notes, if any) for the six months ended
June 30, 1997 and each of the years ended December 31, 1996, 1995 and 1994,
respectively, as filed by OBC in SEC Documents and (ii) the consolidated balance
sheets of OBC and related consolidated statements of income, cash flows and
changes in shareholders' equity (including related notes, if any) as filed by
OBC in SEC Documents with respect to periods ended subsequent to June 30, 1997.
1.17 "Option Agreement" shall mean the Stock Option Agreement dated of even
date herewith between OBC and FESC pursuant to which OBC will grant FESC the
right to purchase certain shares of OBC Common Stock (as defined below).
1.18 "Pennsylvania Banking Code" shall mean the Pennsylvania Banking Code of
1965, as amended.
1.19 "Previously Disclosed" shall mean disclosed prior to the execution
hereof in (i) an SEC Document filed with the SEC subsequent to January 1, 1997
and prior to the date hereof or (ii) a letter dated of even date herewith from
the party making such disclosure and delivered to the other party prior to the
execution hereof. Any information disclosed by one party to the other for any
purpose hereunder shall be deemed to be disclosed for all purposes hereunder.
The inclusion of any matter in information Previously Disclosed shall not be
deemed an admission or otherwise to imply that any such matter is material for
purposes of this Agreement.
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1.20 "Proxy Statement" shall mean the joint proxy statement/prospectus (or
similar documents) together with any supplements thereto sent to the
shareholders of FESC and OBC to solicit their votes in connection with this
Agreement and the Plan of Merger.
1.21 "Registration Statement" shall mean the registration statement with
respect to the FESC Common Stock to be issued in connection with the Merger as
declared effective by the Commission under the Securities Act.
1.22 "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, and stock appreciation rights, performance
units and other similar stock-based rights whether they obligate the issuer
thereof to issue stock or other securities or to pay cash.
1.23 "SEC Documents" shall mean all reports and registration statements
filed, or required to be filed, by a party hereto pursuant to the Securities
Laws.
1.24 "Securities Act" shall mean the Securities Act of 1933, as amended.
1.25 "Securities Laws" shall mean the Securities Act; the Exchange Act; the
Investment Company Act; the Investment Advisers Act of 1940, as amended; the
Trust Indenture Act of 1939, as amended; and the rules and regulations of the
Commission promulgated thereunder.
1.26 "Subsidiary" shall mean, with respect to any party, any bank,
corporation, partnership or other organization, whether incorporated or
unincorporated, which is consolidated with such party for financial reporting
purposes.
1.27 "Tax" (and, with correlative meaning, "Taxes" and "Taxable") shall mean
any federal, state, local or foreign income, gross receipts, property, sales,
use, license, excise, franchise, employment, payroll, withholding, alternative
or add-on minimum, ad valorem, unemployment, social security, transfer or excise
tax, or any other tax, custom, duty, governmental fee or other like assessment
or charge of any kind whatsoever, together with any interest or penalty, imposed
by any governmental authority.
1.28 "Tax Return" shall mean any return, report, estimate, information
statement or similar statement required or permitted to be filed with respect to
any Tax (including any attached schedules), including, without limitation, any
information return, claim for refund, amended return or declaration of estimated
Tax.
Other terms used herein are defined in the preamble and the recitals to this
Reorganization Agreement and in Articles II, III and IV hereof.
ARTICLE 2
REPRESENTATIONS AND WARRANTIES OF OBC
OBC hereby represents and warrants to FESC as follows:
2.1 Capital Structure of OBC
The authorized capital stock of OBC consists of (i) 10,000,000 shares of
preferred stock, par value $1.00 per share ("OBC Preferred Stock"), none of
which is issued and outstanding, and (ii) 56,000,000 shares of common stock, par
value $1.00 per share ("OBC Common Stock"), of which, as of the date hereof,
12,712,981 shares are issued and outstanding and 1,606,935 shares are held in
treasury. As of the date hereof, no shares of OBC Preferred Stock or OBC Common
Stock are reserved for issuance, except that (i) 405,089 shares of OBC Common
Stock are reserved for issuance pursuant to OBC's employee stock purchase plan,
(ii) 455,504 shares of OBC Common Stock are reserved for issuance upon the
exercise of stock options heretofore granted pursuant to OBC's stock option
plans, (iii) 2,529,000 shares of OBC Common Stock are reserved for issuance
pursuant to the Option Agreement and (iv) 65,000 shares of OBC Series A Junior
Participating Preferred Stock, par value $1.00 per share (the "OBC Series A
A-3
Preferred Stock"), were reserved for issuance upon exercise of the rights (the
"OBC Rights") distributed to the holders of OBC Common Stock pursuant to the
Rights Agreement, dated as of September 25, 1989, between OBC and The Bank of
New York, as Rights Agent (the "OBC Rights Agreement"). All outstanding shares
of OBC Common Stock have been duly authorized and validly issued and are fully
paid and nonassessable. OBC does not have and is not bound by any Rights which
are authorized, issued or outstanding with respect to the capital stock of OBC
except (i) for the Option Agreement, (ii) as Previously Disclosed and (iii) as
set forth above. None of the shares of OBC's capital stock has been issued in
violation of the preemptive rights of any person.
2.2 Organization, Standing and Authority of OBC
OBC is a duly organized corporation, validly existing and in good standing
under the laws of Delaware with full corporate power and authority to carry on
its business as now conducted and is duly licensed or qualified to do business
in the states of the United States and foreign jurisdictions where its ownership
or leasing of property or the conduct of its business requires such
qualification, except where the failure to be so licensed or qualified would not
have a Material Adverse Effect on OBC. OBC is registered as a bank holding
company under the Bank Holding Company Act.
2.3 Ownership of OBC Subsidiaries; Capital Structure of OBC Subsidiaries
OBC has Previously Disclosed to FESC a list of all of OBC's Subsidiaries
(collectively, the "OBC Subsidiaries" and individually, an "OBC Subsidiary"). As
of the date hereof, OBC does not own, directly or indirectly, 5% or more of the
outstanding capital stock or other voting securities of any corporation, bank or
other organization except as Previously Disclosed and except for the OBC
Subsidiaries. Except as Previously Disclosed, the outstanding shares of capital
stock or other equity interests of each OBC Subsidiary have been duly authorized
and validly issued and are fully paid and (except as provided by applicable law)
nonassessable and all such shares or equity interests are directly or indirectly
owned by OBC free and clear of all liens, claims and encumbrances. No OBC
Subsidiary has or is bound by any Rights which are authorized, issued or
outstanding with respect to the capital stock or other equity interests of any
OBC Subsidiary subject to the liquidation accounts established and maintained by
the OBC Banks in connection with their conversion from mutual to stock form
("Liquidation Accounts"), and, except as Previously Disclosed, there are no
agreements, understandings or commitments relating to the right of OBC to vote
or to dispose of said shares. None of the shares of capital stock or other
equity interests of any OBC Subsidiary has been issued in violation of the
preemptive rights of any person. The OBC Banks have established and maintained
the Liquidation Accounts in all material respects in accordance with all
applicable laws and regulations, and the amount of the Liquidation Accounts as
of December 31, 1996 was $803,849.
2.4 Organization, Standing and Authority of OBC Subsidiaries
Each OBC Subsidiary is a duly organized corporation, banking association or
other organization, validly existing and in good standing under the laws of its
jurisdiction of organization. Each OBC Subsidiary (i) has full power and
authority to carry on its business as now conducted, and (ii) is duly licensed
or qualified to do business in the states of the United States and foreign
jurisdictions where its ownership or leasing of property or the conduct of its
business requires such licensing or qualification, except where failure to be so
licensed or qualified would not have a Material Adverse Effect on OBC. Each OBC
Subsidiary has all federal, state, local and foreign governmental authorizations
necessary for it to own or lease its properties and assets and to carry on its
business as it is now being conducted, except where the failure to be so
authorized would not have a Material Adverse Effect on OBC. OnBank is a member
in good standing of the Federal Home Loan Bank of New York and Franklin First is
a member in good standing of the Federal Home Loan Bank of Pittsburgh and each
of the OBC Banks owns the requisite amount of shares therein and is a qualified
seller and servicer for the Federal National Mortgage Association and the
Federal Home Loan Mortgage Corporation.
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2.5 Authorized and Effective Agreement
(a) OBC has all requisite corporate power and authority to enter into and
perform all of its obligations under this Reorganization Agreement, the Plan of
Merger and the Option Agreement. The execution and delivery of this
Reorganization Agreement, the Plan of Merger and the Option Agreement and the
consummation of the transactions contemplated hereby and thereby have been duly
and validly authorized by all necessary corporate action in respect thereof on
the part of OBC, except that (assuming that FESC's representation and warranty
in Section 3.21 hereof is true and correct) the affirmative vote of the holders
of a majority of the outstanding shares of OBC Common Stock entitled to vote
thereon is the only shareholder vote required to approve the Plan of Merger
pursuant to the Delaware Corporation Law and OBC's Restated Certificate of
Incorporation and Bylaws. The Board of Directors of OBC has directed that this
Agreement and the Plan of Merger be submitted to OBC's stockholders for approval
at a special meeting to be held as soon as practicable.
(b) Assuming the accuracy of the representation contained in Section 3.5(b)
hereof, this Reorganization Agreement and the Plan of Merger constitute legal,
valid and binding obligations of OBC, enforceable against it in accordance with
their respective 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.
(c) Except as Previously Disclosed, neither the execution and delivery of
this Reorganization Agreement, the Plan of Merger or the Option Agreement, nor
consummation of the transactions contemplated hereby or thereby, nor compliance
by OBC with any of the provisions hereof or thereof shall (i) conflict with or
result in a breach of any provision of the articles or certificate of
incorporation or association, charter or by-laws of OBC or any OBC Subsidiary,
(ii) assuming the consents and approvals contemplated by Section 4.3 hereof and
the consents and approvals which are Previously Disclosed are duly obtained,
constitute or result in a breach of any term, condition or provision of, or
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 OBC or any OBC
Subsidiary pursuant to, any note, bond, mortgage, indenture, license, agreement
or other instrument or obligation, or (iii) assuming the consents and approvals
contemplated by Section 4.3 hereof and the consents and approvals which are
Previously Disclosed are duly obtained, violate any order, writ, injunction,
decree, statute, rule or regulation applicable to OBC or any OBC Subsidiary,
except (in the case of clauses (ii) and (iii) above) for such violations,
rights, conflicts, breaches, creations or defaults which, either individually or
in the aggregate, would not have a Material Adverse Effect on OBC.
(d) Other than as contemplated by Section 4.3 hereof and except as
Previously Disclosed or expressly referred to in this Agreement, no consent,
approval or authorization of, or declaration, notice, filing or registration
with, any governmental or regulatory authority, or any other person, is required
to be made or obtained by OBC or any OBC Subsidiary on or prior to the Closing
Date in connection with the execution, delivery and performance of this
Agreement and the Plan of Merger or the consummation of the transactions
contemplated hereby or thereby. Neither OBC nor any of the OBC Subsidiaries is
aware of any reason why the condition set forth in Section 5.1(b) of this
Agreement will not be satisfied without undue delay.
2.6 SEC Documents; Regulatory Filings
OBC has filed all SEC Documents required to be so filed by the Securities
Laws and such SEC Documents complied, as of their respective dates, in all
material respects with the Securities Laws. OBC and each of the OBC Subsidiaries
has filed all reports required by statute or regulation to be filed with any
federal or state bank regulatory agency, except where the failure to so file
would not have a Material Adverse Effect on OBC, and such reports were prepared
in accordance with the applicable statutes, regulations and instructions in
existence as of the date of filing of such reports in all material respects.
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2.7 Financial Statements; Books and Records; Minute Books
The OBC Financial Statements filed by OBC in SEC Documents prior to the date
of this Agreement fairly present, and the OBC Financial Statements filed by OBC
in SEC Documents after the date of this Agreement will fairly present, the
consolidated financial position of OBC and its Subsidiaries as of the dates
indicated and the consolidated results of operations, changes in shareholders'
equity and cash flows of OBC and its Subsidiaries for the periods then ended and
each such financial statement has been or will be, as the case may be, prepared
in conformity with generally accepted accounting principles applied on a
consistent basis except as disclosed therein and except, in the case of
unaudited statements, as permitted by Form 10-Q. The books and records of OBC
and each OBC Subsidiary fairly reflect in all material respects the transactions
to which it is a party or by which its properties are subject or bound. Such
books and records have been properly kept and maintained in all material
respects and are in compliance in all material respects with all applicable
legal and accounting requirements. The minute books of OBC and the OBC
Subsidiaries contain records which are accurate in all material respects of all
corporate actions of its shareholders and Board of Directors (including
committees of its Board of Directors).
2.8 Material Adverse Change
Except as Previously Disclosed or as disclosed in any SEC Document filed by
OBC prior to the date of this Agreement, OBC has not, on a consolidated basis,
suffered any material adverse change in its financial condition, results of
operations or business since December 31, 1996.
2.9 Absence of Undisclosed Liabilities
Neither OBC nor any OBC Subsidiary has any liability (contingent or
otherwise), excluding contractually assumed contingencies, that has had a
Material Adverse Effect on OBC, or that, when combined with all similar
liabilities, would have a Material Adverse Effect on OBC, except as Previously
Disclosed, as disclosed in the OBC Financial Statements filed with the SEC prior
to the date hereof and except for liabilities incurred in the ordinary course of
business subsequent to June 30, 1997.
2.10 Properties
OBC or one of the OBC Subsidiaries has good and marketable title free and
clear of all liens, encumbrances, charges, defaults or equitable interests to
all of the properties and assets, real and personal, which, individually or in
the aggregate, are material to the business of OBC and its Subsidiaries taken as
a whole, and which are reflected on the OBC Financial Statements as of June 30,
1997 or acquired after such date, except (i) liens for Taxes not yet due and
payable, (ii) pledges to secure deposits and other liens incurred in the
ordinary course of business, (iii) such imperfections of title, easements and
encumbrances, if any, as are not material in character, amount or extent, (iv)
dispositions and encumbrances for adequate consideration in the ordinary course
of business and (v) to the extent such properties or assets are leased by OBC or
any OBC Subsidiary. All leases pursuant to which OBC or any OBC Subsidiary, as
lessee, leases real and personal property which, individually or in the
aggregate, are material to the business of OBC and its Subsidiaries taken as a
whole are valid and enforceable in accordance with their respective terms,
except where the failure of such lease or leases to be valid and enforceable
would not, individually or in the aggregate, have a Material Adverse Effect on
OBC.
2.11 Loans
Each loan reflected as an asset in the OBC Financial Statements (i) is
evidenced by notes, agreements or other evidences of indebtedness which are
true, genuine and what they purport to be, (ii) to the extent secured, has been
secured by valid liens and security interests which have been perfected, and
(iii) is the legal, valid and binding obligation of the obligor named therein,
enforceable in accordance with its terms, subject to bankruptcy, insolvency,
fraudulent conveyance and other laws of general applicability relating to or
affecting creditors' rights and to general equity principles, in each case other
than loans as to which the failure to satisfy the foregoing standards would not
have a Material Adverse Effect on OBC.
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2.12 Tax Matters
(a) All federal, state, local and foreign Tax Returns required to be filed
by or on behalf of OBC and each OBC Subsidiary have been timely filed or
requests for extension have been timely filed and any such extension has been
granted and has not expired, except where the failure to file timely such Tax
Returns would not, in the aggregate, have a Material Adverse Effect on OBC. All
Tax Returns filed by OBC and each OBC Subsidiary are complete and accurate in
all material respects. All Taxes due in respect of the periods covered by the
Tax Returns described in the first sentence of this Section 2.12(a) have been
paid or adequate reserves have been established for the payment of such Taxes,
except where any such failure to pay or establish adequate reserves would not,
in the aggregate, have a Material Adverse Effect on OBC and, as of the Closing
Date, all Taxes due in respect of any subsequent periods (or portions thereof)
ending on or prior to the Closing Date will have been paid or adequate reserves
will have been established for the payment thereof consistent with the past
practices of OBC, except where any such failure to pay or establish adequate
reserves would not, in the aggregate, have a Material Adverse Effect on OBC.
Except as Previously Disclosed, there is no outstanding or proposed material (i)
audit examination, (ii) deficiency, or (iii) refund litigation with respect to
Tax Returns filed or required to be filed by OBC or any OBC Subsidiary.
(b) Except as Previously Disclosed, neither OBC nor any OBC Subsidiary has
requested any extension of time within which to file any Tax Returns in respect
of any fiscal year or portion thereof which have not since been filed. Except as
Previously Disclosed, there are currently no material agreements in effect with
respect to OBC or any OBC Subsidiary to extend the period of limitations for the
assessment or collection of any Tax.
(c) Except as Previously Disclosed, neither the transactions contemplated
hereby nor the termination of the employment of any employees of OBC or any OBC
Subsidiary prior to or following consummation of the transactions contemplated
hereby could result in OBC or any OBC Subsidiary making or being required to
make any "excess parachute payment" as that term is defined in Section 280G of
the Code.
(d) Except as Previously Disclosed, neither OBC nor any OBC Subsidiary is a
party to any agreement providing for the allocation or sharing of, or
indemnification for, Taxes.
(e) Except as Previously Disclosed, neither OBC nor any OBC Subsidiary is
required to include in income any adjustment in any taxable period ending after
the date hereof pursuant to Section 481(a) of the Code.
(f) Except as Previously Disclosed, neither OBC nor any OBC Subsidiary has
entered into any material agreement with any taxing authority that will bind
FESC or an affiliate thereof after the Closing Date.
(g) For purposes of this Section 2.12 only, "OBC Subsidiary" shall mean any
corporation, joint venture or other entity in which OBC (a) owns, directly or
indirectly, 50% or more of the outstanding voting securities or equity interests
or (b) is a general partner.
2.13 Employee Benefit Plans
(a) Schedule 2.13(a) hereto sets forth a true and complete list of each
material OBC Plan. For purposes of this Section 2.13, the term "OBC Plan" means
each bonus, deferred compensation, incentive compensation, stock purchase, stock
option, severance pay, medical, life or other insurance, profit-sharing, or
pension plan, program, agreement or arrangement, and each other employee benefit
plan, program, agreement or arrangement, sponsored, maintained or contributed to
or required to be contributed to by OBC or by any trade or business, whether or
not incorporated, that together with OBC would be deemed a "single employer"
under Section 414 of the Code (an "ERISA Affiliate") for the benefit of any
employee or director or former employee or former director of OBC or any ERISA
Affiliate of OBC.
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(b) With respect to each of the material OBC Plans, OBC has made available
to FESC true and complete copies of each of the following documents: (a) the OBC
Plan and related documents (including all amendments thereto); (b) the most
recent annual reports, financial statements, and actuarial reports, if any; (c)
the most recent summary plan description, together with each summary of material
modifications, required under ERISA with respect to such OBC Plan; and (d) the
most recent determination letter received from the IRS with respect to each OBC
Plan that is intended to be qualified under the Code.
(c) No liability under Title IV of ERISA has been incurred by OBC or any
ERISA Affiliate of OBC since the effective date of ERISA that has not been
satisfied in full, and no condition exists that presents a material risk to OBC
or any ERISA Affiliate of OBC of incurring a liability under such Title, other
than liability for premium payments to the Pension Benefit Guaranty Corporation,
which premiums have been or will be paid when due.
(d) Neither OBC nor any ERISA Affiliate of OBC, nor any of the OBC Plans,
nor any trust created thereunder, nor any trustee or administrator thereof has
engaged in a prohibited transaction (within the meaning of Section 406 of ERISA
and Section 4975 of the Code) in connection with which OBC or any ERISA
Affiliate of OBC could, either directly or indirectly, incur a material
liability or cost.
(e) Full payment has been made, or will be made in accordance with Section
404(a)(6) of the Code, of all amounts that OBC or any ERISA Affiliate of OBC is
required to pay under Section 412 of the Code or under the terms of the OBC
Plans.
(f) As of the Closing Date, the then fair market value of the assets held
under each OBC Plan that is subject to Title IV of ERISA will be sufficient so
as to permit a "standard termination" of each such OBC Plan under Section
4042(b) of ERISA without the need to make any additional contributions to such
OBC Plans. No reportable event under Section 4043 of ERISA has occurred or will
occur with respect to any OBC Plan on or before the Closing Date other than any
reportable event occurring by reason of the transactions contemplated by this
Agreement or a reportable event for which the requirement of notice to the PBGC
has been waived.
(g) Except as Previously Disclosed, none of the OBC Plans is a
"multiemployer pension plan," as such term is defined in Section 3(37) of ERISA,
a "multiple employer welfare arrangement," as such term is defined in Section
3(40) of ERISA, or a single employer plan that has two or more contributing
sponsors, at least two of whom are not under common control, within the meaning
of Section 4063(a) of ERISA.
(h) A favorable determination letter has been issued by the Internal Revenue
Service with respect to the each of the OBC Plans that is intended to be
"qualified" within the meaning of Section 401(a) of the Code to the effect that
such plan is so qualified and each such OBC Plan satisfies the requirements of
Section 401(a) of the Code in all material respects. Each of the OBC Plans that
is intended to satisfy the requirements of Section 125 or 501(c)(9) of the Code
satisfies such requirements in all material respects. Each of the OBC Plans has
been operated and administered in all material respects in accordance with its
terms and applicable laws, including but not limited to ERISA and the Code.
(i) There are no actions, suits or claims pending, or, to the knowledge of
OBC, threatened or anticipated (other than routine claims for benefits) against
any OBC Plan, the assets of any OBC Plan or against OBC or any ERISA Affiliate
of OBC with respect to any OBC Plan. There is no judgment, decree, injunction,
rule or order of any court, governmental body, commission, agency or arbitrator
outstanding against or in favor of any OBC Plan or any fiduciary thereof (other
than rules of general applicability). There are no pending or threatened audits,
examinations or investigations by any governmental body, commission or agency
involving any OBC Plan.
(j) Except as Previously Disclosed, the consummation of the transactions
contemplated by this Agreement will not (i) entitle any current or former
employee or director of OBC or any ERISA Affiliate of OBC to severance pay,
unemployment compensation or any similar payment, or (ii) accelerate the time of
payment or vesting, or increase the amount, of any compensation due to any such
current or former employee or director, or (iii) renew or extend the term of any
agreement regarding compensation for any such current or former employee or
director.
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2.14 Certain Contracts
(a) Except as Previously Disclosed, neither OBC nor any OBC Subsidiary is a
party to, or is bound by, (i) any material contract as defined in Item
601(b)(10) of Regulation S-K of the SEC or any other material contract or
similar arrangement whether or not made in the ordinary course of business
(other than loans or loan commitments and funding transactions in the ordinary
course of business of the OBC Subsidiaries) or any agreement restricting the
nature or geographic scope of its business activities in any material respect,
(ii) any agreement, indenture or other instrument relating to the borrowing of
money by OBC or any OBC Subsidiary or the guarantee by OBC or any OBC Subsidiary
of any such obligation, other than instruments relating to transactions entered
into in the ordinary course and except as reflected in the OBC Financial
Statements filed with the SEC prior to the date of this Agreement, (iii) any
agreement, arrangement or commitment relating to the employment of a consultant
who was formerly a director or executive officer or the employment, election,
retention in office or severance of any present or former director or officer,
or (iv) any contract, agreement or understanding with a labor union, in each
case whether written or oral.
(b) Except as Previously Disclosed, neither OBC nor any OBC Subsidiary is in
default under any material agreement, commitment, arrangement, lease, insurance
policy or other instrument 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 giving of notice or both, would
constitute such a default, except for such defaults which would not,
individually or in the aggregate, have a Material Adverse Effect on OBC.
2.15 Legal Proceedings
Except as Previously Disclosed, there are no actions, suits or proceedings
instituted, pending or, to the knowledge of OBC, threatened (or to the knowledge
of OBC, unasserted but considered probable of assertion and which if asserted
would have at least a reasonable probability of an unfavorable outcome) against
OBC or any OBC Subsidiary or against any asset or property of OBC or any OBC
Subsidiary as to which there is a reasonable probability of an unfavorable
outcome and which, if such an unfavorable outcome was rendered, would,
individually or in the aggregate, have a Material Adverse Effect on OBC. To the
knowledge of OBC, there are no actual or threatened actions, suits or
proceedings which present a claim to restrain or prohibit the transactions
contemplated herein or to impose any material liability in connection therewith
as to which there is a reasonable probability of an unfavorable outcome and
which, if such an unfavorable outcome was rendered, would, individually or in
the aggregate, have a Material Adverse Effect on OBC. Except as Previously
Disclosed, there are no actions, suits or proceedings instituted, pending or, to
the knowledge of OBC, threatened (or to the knowledge of OBC, unasserted but
considered probable of assertion and which if asserted would be reasonably
expected to have an unfavorable outcome) against any present or former director
or officer of OBC in such capacity, that might give rise to a claim for
indemnification and that (i) has a reasonable probability of an unfavorable
outcome and (ii) in the event of an unfavorable outcome, would, individually or
in the aggregate, have a Material Adverse Effect on OBC.
2.16 Compliance with Laws
Except as Previously Disclosed, OBC and each OBC Subsidiary is in compliance
in all material respects with all statutes and regulations applicable to the
conduct of its business, and neither OBC nor any OBC Subsidiary has received
notification from any agency or department of federal, state or local government
(i) asserting a material violation of any such statute or regulation, (ii)
threatening to revoke any license, franchise, permit or government authorization
or (iii) restricting or in any way limiting its operations, except for such
noncompliance, violations, revocations and restrictions which would not,
individually or in the aggregate, have a Material Adverse Effect on OBC. Neither
OBC nor any OBC Subsidiary is subject to any regulatory or supervisory cease and
desist order, agreement, directive,
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memorandum of understanding or commitment which would have a Material Adverse
Effect on OBC, and none of them has received any communication requesting that
they enter into any of the foregoing.
2.17 Labor Matters
With respect to their employees, neither OBC nor any OBC Subsidiary is a
party to any labor agreement with any labor organization, group or association
and has not engaged in any unfair labor practice. Since January 1, 1997 and
prior to the date hereof, OBC and the OBC Subsidiaries have not experienced any
attempt by organized labor or its representatives to make OBC or any OBC
Subsidiary conform to demands of organized labor relating to their employees or
to enter into a binding agreement with organized labor that would cover the
employees of OBC or any OBC Subsidiary. To the knowledge of OBC, there is no
unfair labor practice charge or other complaint by any employee or former
employee of OBC or any OBC Subsidiary against any of them pending before any
governmental agency arising out of OBC's or such OBC Subsidiary's activities,
which charge or complaint (i) has a reasonable probability of an unfavorable
outcome and (ii) in the event of an unfavorable outcome would, individually or
in the aggregate, have a Material Adverse Effect on OBC; there is no labor
strike or labor disturbance pending or threatened against any of them; and
neither OBC nor any OBC Subsidiary has experienced a work stoppage or other
labor difficulty since January 1, 1997.
2.18 Brokers and Finders
Neither OBC nor any OBC Subsidiary, nor any of their respective officers,
directors or employees, has employed any broker, finder or financial advisor or
incurred any liability for any fees or commissions in connection with the
transactions contemplated herein or the Plan of Merger, except for OBC's
retention of Sandler O'Neill & Partners, L.P. to perform certain financial
advisory services as Previously Disclosed.
2.19 Insurance
OBC and the OBC Subsidiaries each currently maintains insurance in amounts
reasonably necessary for their operations. Neither OBC nor any OBC Subsidiary
has received any notice of a material premium increase or cancellation with
respect to any of its insurance policies or bonds, and within the last three
years, neither OBC nor any OBC Subsidiary has been refused any insurance
coverage sought or applied for, and OBC has no reason to believe that existing
insurance coverage cannot be renewed as and when the same shall expire, upon
terms and conditions substantially as presently in effect, other than possible
increases in premiums or unavailability in coverage that have not resulted from
any extraordinary loss experience of OBC or any OBC Subsidiary. The deposits of
the OBC Banks are insured by the FDIC in accordance with the FDIA, and the OBC
Banks have paid all assessments and filed all reports required by the FDIA.
2.20 Environmental Liability
Neither OBC nor any OBC Subsidiary has received any written notice of any
legal, administrative, arbitral or other proceeding, claim or action and, to the
knowledge of OBC and the OBC Subsidiaries, there is no governmental
investigation of any nature ongoing, in each case that could reasonably be
expected to result in the imposition, on OBC or any OBC Subsidiary of any
liability arising under any local, state or federal environmental statute,
regulation or ordinance including, without limitation, the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, as amended,
which liability would have a Material Adverse Effect on OBC; except as
Previously Disclosed, there are no facts or circumstances which could reasonably
be expected to form the basis for any such proceeding, claim, action or
governmental investigation that would impose any such liability; and neither OBC
nor any OBC Subsidiary is subject to any agreement, order, judgment, decree or
memorandum by or with any court, governmental authority, regulatory agency or
third party imposing any such liability.
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2.21 Administration of Trust Accounts
Each OBC Subsidiary has properly administered all common trust funds and
collective investment funds and all accounts for which it acts as a fiduciary or
agent, including but not limited to accounts for which it serves as a trustee,
agent, custodian, personal representative, guardian, conservator or investment
advisor, in accordance with the terms of the governing documents and applicable
state and federal law and regulation and common law, except where the failure to
do so would not, individually or in the aggregate, have a Material Adverse
Effect on OBC. Neither OBC, any OBC Subsidiary, nor any director, officer or
employee of OBC or any OBC Subsidiary acting on behalf of OBC or an OBC
Subsidiary, has committed any breach of trust with respect to any such common
trust fund or collective investment fund or fiduciary or agency account, and the
accountings for each such common trust fund or collective investment fund or
fiduciary or agency account are true and correct in all material respects and
accurately reflect the assets of such common trust fund or collective investment
fund or fiduciary or agency account, except for such breaches and failures to be
true, correct and accurate which would not, individually or in the aggregate,
have a Material Adverse Effect on OBC.
2.22 Intellectual Property
Except as Previously Disclosed, OBC or an OBC Subsidiary owns the entire
right, title and interest in and to, or has valid licenses with respect to, all
of the Intellectual Property necessary in all material respects to conduct the
business and operations of OBC and the OBC Subsidiaries as presently conducted,
except where the failure to do so would not, individually or in the aggregate,
have a Material Adverse Effect on OBC. None of such Intellectual Property is
subject to any outstanding order, decree, judgment, stipulation, settlement,
lien, charge, encumbrance or attachment, which order, decree, judgment,
stipulation, settlement, lien, charge, encumbrance or attachment would have a
Material Adverse Effect on OBC. Except as Previously Disclosed, upon
consummation of the transactions contemplated by this Agreement FESC and the
FESC Subsidiaries will be entitled to continue to use all such Intellectual
Property without the payment of any fees, licenses or other payments (other than
ongoing payments required under license agreements for software used by OBC or
the OBC Subsidiaries in Previously Disclosed amounts consistent with past
practice).
2.23 Risk Management Instruments
All interest rate swaps, caps, floors, option agreements, futures and
forward contracts and other similar risk management arrangements, whether
entered into for OBC's own account, or for the account of one or more of the OBC
Subsidiaries or their customers, were entered into (i) in accordance with
prudent business practices and all applicable laws, rules, regulations and
regulatory policies and (ii) with counterparties believed to be financially
responsible at the time; and each of them constitutes the valid and legally
binding obligation of OBC or one of the OBC Subsidiaries, enforceable in
accordance with its terms (except as enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium, fraudulent transfer and
similar laws of general equity principles), and neither OBC nor any OBC
Subsidiary nor to OBC's knowledge, any other party thereto, is in breach of any
of its obligations under any such agreement or arrangement. OBC has Previously
Disclosed all of such agreements and arrangements that are in effect as of the
date of this Agreement.
2.24 Repurchase Agreements
With respect to all agreements pursuant to which OBC or any OBC Subsidiary
has purchased securities subject to an agreement to resell, if any, OBC or such
OBC Subsidiary, as the case may be, has a valid, perfected first lien or
security interest in or evidence of ownership in book entry form of the
government securities or other collateral securing the repurchase agreements,
and the value of such collateral equals or exceeds the amount of the debt
secured thereby.
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2.25 Certain Information
The information relating to OBC and the OBC Subsidiaries to be provided by
OBC to be contained in the Proxy Statement and the Registration Statement will
not contain any untrue statement of a material fact or omit to state a material
fact necessary to make the statements therein not misleading. The Proxy
Statement (except for such portions thereof that relate only to FESC or any of
its Subsidiaries) will comply in all material respects with the provisions of
the Exchange Act and the rules and regulations thereunder.
2.26 Tax Treatment
As of the date of this Agreement, OBC knows of no reason relating to it or
any of the OBC Subsidiaries which would reasonably cause it to believe that the
Merger will not qualify as a tax-free reorganization under Section 368(a) of the
Code.
2.27 Rights Agreement
Subject to the execution of an amendment to the OBC Rights Agreement which
has been approved by OBC's Board of Directors and shall be executed promptly
after the date of this Agreement, OBC has taken or will take all action
(including, if required, redeeming all of the outstanding OBC Rights issued
pursuant to the OBC Rights Agreement or amending or terminating the OBC Rights
Agreement) so that the entering into of this Agreement, the Plan of Merger and
the Stock Option Agreement and the consummation of the transactions contemplated
hereby and thereby do not and will not result in the grant of any rights to any
person under the OBC Rights Agreement or enable or require the OBC Rights to be
exercised, distributed or triggered.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF FESC AND MERGER SUB
FESC and Merger Sub hereby jointly and severally represent and warrant to
OBC as follows:
3.1 Capital Structure of FESC
The authorized capital stock of FESC consists at September 30, 1997 of (i)
1,000,000 shares of preferred stock, par value $1.00 per share ("FESC Preferred
Stock"), none of which were issued and outstanding and (ii) 15,000,000 shares of
common stock, par value $5.00 per share ("FESC Common Stock"), of which, as of
the date hereof, 6,598,509 shares were issued and outstanding and 1,498,963
shares were held in treasury. As of the date hereof, no shares of FESC Common
Stock or FESC Preferred Stock are reserved for issuance, except that (i) 350,000
shares of FESC Common Stock are reserved for issuance under FESC's Retirement
Savings Plan and Trust Plan and (ii) 1,006,247 shares of FESC Common Stock are
reserved for issuance upon the exercise of stock options granted pursuant to the
1983 First Empire State Corporation Stock Option Plan. All outstanding shares of
FESC capital stock have been duly authorized and validly issued and are fully
paid and nonassessable. None of the shares of FESC's capital stock has been
issued in violation of the preemptive rights of any person. The shares of FESC
Common Stock to be issued in connection with the Merger have been duly
authorized and, when issued in accordance with the terms of this Reorganization
Agreement and the Plan of Merger, will be validly issued, fully paid and
nonassessable and free and clear of any preemptive rights with no personal
liability attaching to the ownership thereof, other than liability pursuant to
Section 630 of the New York Business Corporation Law or liability created by the
actions of the owner of such shares.
3.2 Organization, Standing and Authority of FESC
FESC is a duly organized corporation, validly existing and in good standing
under the laws of New York, with full corporate power and authority to carry on
its business as now conducted and is duly licensed or qualified to do business
in the states of the United States and foreign jurisdictions where its ownership
or leasing of property or the conduct of its business requires such
qualification, except where the failure to be so licensed or qualified would not
have a Material Adverse Effect on FESC. FESC is registered as a bank holding
company under the Bank Holding Company Act.
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3.3 Ownership of FESC Subsidiaries; Capital Structure of FESC Subsidiaries
FESC does not own, directly or indirectly, 25% or more of the outstanding
capital stock or other voting securities of any corporation, bank or other
organization except as Previously Disclosed (collectively the "FESC
Subsidiaries" and individually a "FESC Subsidiary"). Except as Previously
Disclosed, the outstanding shares of capital stock of the FESC Subsidiaries have
been duly authorized and validly issued and are fully paid and (except as
provided in 12 U.S.C. Section 55 or Section 114 of the New York Banking Law)
nonassessable and all such shares are directly or indirectly owned by FESC free
and clear of all liens, claims and encumbrances. No FESC Subsidiary has or is
bound by any Rights which are authorized, issued or outstanding with respect to
the capital stock of any FESC Subsidiary and, except as Previously Disclosed,
there are no agreements, understandings or commitments relating to the right of
FESC to vote or to dispose of said shares. None of the shares of capital stock
of any FESC Subsidiary has been issued in violation of the preemptive rights of
any person.
3.4 Organization, Standing and Authority of FESC Subsidiaries
Each FESC Subsidiary is a duly organized corporation or banking association,
validly existing and in good standing under the laws of its jurisdiction of
incorporation. Each FESC Subsidiary (i) has full power and authority to carry on
its business as now conducted, and (ii) is duly licensed or qualified to do
business in the states of the United States and foreign jurisdictions where its
ownership or leasing of property or the conduct of its business requires such
licensing or qualification and where failure to be licensed or qualified would
have a Material Adverse Effect on FESC. Each FESC Subsidiary has all federal,
state, local and foreign governmental authorizations necessary for it to own or
lease its properties and assets and to carry on its business as it is now being
conducted, except where the failure to be so authorized would not have a
Material Adverse Effect on FESC.
3.5 Authorized and Effective Agreement
(a) Each of FESC and Merger Sub has all requisite corporate power and
authority to enter into and perform all of its obligations under this
Reorganization Agreement and the Plan of Merger. The execution and delivery of
this Reorganization Agreement and the Plan of Merger and the consummation of the
transactions contemplated hereby and thereby have been duly and validly
authorized by all necessary corporate action in respect thereof on the part of
FESC and Merger Sub, except that the affirmative vote of the holders of a
majority of the votes cast by the holders of FESC capital stock eligible to vote
thereon is required to authorize the issuance of FESC Common Stock pursuant to
this Reorganization Agreement and the Plan of Merger in accordance with American
Stock Exchange ("AMEX") policy. The Board of Directors of FESC has directed that
the issuance of FESC Common Stock pursuant to this Agreement and the Plan of
Merger be submitted to FESC's stockholders for approval at a special meeting to
be held as soon as practicable.
(b) Assuming the accuracy of the representation contained in Section 2.5(b)
hereof, this Reorganization Agreement and the Plan of Merger constitute legal,
valid and binding obligations of each of FESC and Merger Sub, in each case
enforceable against it in accordance with their respective 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.
(c) Except as Previously Disclosed, neither the execution and delivery of
this Reorganization Agreement or the Plan of Merger, nor consummation of the
transactions contemplated hereby or thereby, nor compliance by FESC or Merger
Sub with any of the provisions hereof or thereof shall (i) conflict with or
result in a breach of any provision of the articles or certificate of
incorporation or association, charter or by-laws of FESC or any FESC Subsidiary,
(ii) assuming the consents and approvals contemplated by Section 4.3 hereof and
the consents and approvals which are Previously Disclosed are duly obtained,
constitute or result in a breach of any term, condition or provision of, or
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
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lien, charge or encumbrance upon any property or asset of FESC or any FESC
Subsidiary pursuant to, any note, bond, mortgage, indenture, license, agreement
or other instrument or obligation, or (iii) assuming the consents and approvals
contemplated by Section 4.3 hereof and the consents and approvals which are
Previously Disclosed are duly obtained, violate any order, writ, injunction,
decree, statute, rule or regulation applicable to FESC or any FESC Subsidiary,
except (in the case of clauses (ii) and (iii) above) for such violations,
rights, conflicts, breaches, creations or defaults which, either individually or
in the aggregate, would not have a Material Adverse Effect on FESC.
(d) Except for approvals specified in Section 4.3 hereof, except as
Previously Disclosed and except as expressly referred to in this Reorganization
Agreement, no consent, approval or authorization of, or declaration, notice,
filing or registration with, any governmental or regulatory authority, or any
other person, is required to be made or obtained by FESC or Merger Sub on or
prior to the Closing Date in connection with the execution, delivery and
performance of this Agreement and the Plan of Merger or the consummation of the
transactions contemplated hereby or thereby. Neither FESC nor any of the FESC
Subsidiaries is aware of any reason why the conditions set forth in Section
5.1(b) of this Agreement will not be satisfied without undue delay.
3.6 SEC Documents; Regulatory Filings
FESC has filed all SEC Documents required to be so filed by the Securities
Laws and such SEC Documents complied, as of their respective dates, in all
material respects with the Securities Laws. FESC and each of the FESC
Subsidiaries has filed all reports required by statute or regulation to be filed
with any federal or state bank regulatory agency, except where the failure to so
file would not have a Material Adverse Effect on FESC, and such reports were
prepared in accordance with the applicable statutes, regulations and
instructions in existence as of the date of filing of such reports in all
material respects.
3.7 Financial Statements; Books and Records; Minute Books
The FESC Financial Statements filed by FESC in SEC Documents prior to the
date of this Agreement fairly present, and the FESC Financial Statements filed
by FESC in SEC Documents after the date of this Agreement will fairly present
the consolidated financial position of FESC and its Subsidiaries as of the dates
indicated and the consolidated results of operations, changes in shareholders'
equity and cash flows of FESC and its Subsidiaries for the periods then ended
and each such financial statement has been or will be, as the case may be,
prepared in conformity with generally accepted accounting principles applied on
a consistent basis except as disclosed therein and except, in the case of
unaudited statements, as permitted by Form 10-Q. The books and records of FESC
and each FESC Subsidiary fairly reflect in all material respects the
transactions to which it is a party or by which its properties are subject or
bound. Such books and records have been properly kept and maintained and are in
compliance in all material respects with all applicable legal and accounting
requirements. The minute books of FESC and the FESC Subsidiaries contain records
which are accurate in all material respects of all corporate actions of its
shareholders and Board of Directors (including committees of its Board of
Directors).
3.8 Material Adverse Change
FESC has not, on a consolidated basis, suffered any material adverse change
in its financial condition, results of operations or business since December 31,
1996.
3.9 Absence of Undisclosed Liabilities
Neither FESC nor any FESC Subsidiary has any liability (contingent or
otherwise), excluding contractually assumed contingencies, that has had a
Material Adverse Effect on FESC or that, when combined with all similar
liabilities, would have a Material Adverse Effect on FESC, except as Previously
Disclosed, as disclosed in the FESC Financial Statements filed with the SEC
prior to the date hereof and except for liabilities incurred in the ordinary
course of business subsequent to June 30, 1997.
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3.10 Legal Proceedings
Except as Previously Disclosed, there are no actions, suits or proceedings
instituted, pending or, to the knowledge of FESC and Merger Sub, threatened (or
to the knowledge of FESC, unasserted but considered probable of assertion and
which if asserted would have at least a reasonable probability of an unfavorable
outcome) against FESC, Merger Sub or any FESC Subsidiary or against any asset or
property of FESC or any FESC Subsidiary as to which there is a reasonable
probability of an unfavorable outcome and which, if such an unfavorable outcome
was rendered, would, individually or in the aggregate, have a Material Adverse
Effect on FESC. To the knowledge of FESC and Merger Sub, there are no actual or
threatened actions, suits or proceedings which present a claim to restrain or
prohibit the transactions contemplated herein or to impose any material
liability in connection therewith as to which there is a reasonable probability
of an unfavorable outcome and which, if such an unfavorable outcome was
rendered, would, individually or in the aggregate, have a Material Adverse
Effect on FESC.
3.11 Compliance with Laws
Except as Previously Disclosed, each of FESC and the FESC Subsidiaries is in
compliance in all material respects with all statutes and regulations applicable
to the conduct of its business, and none of them has received notification from
any agency or department of federal, state or local government (i) asserting a
material violation of any such statute or regulation, (ii) threatening to revoke
any license, franchise, permit or government authorization or (iii) restricting
or in any way limiting its operations, except for such noncompliance,
violations, revocations and restrictions which would not, individually or in the
aggregate, have a Material Adverse Effect on FESC. None of FESC or any FESC
Subsidiary is subject to any regulatory or supervisory cease and desist order,
agreement, directive, memorandum of understanding or commitment which would have
a Material Adverse Effect on FESC, and none of them has received any
communication requesting that they enter into any of the foregoing.
3.12 Employee Benefit Plans.
(a) Schedule 3.12(a) hereto sets forth a true and complete list of each
material FESC Plan. For purposes of this Section 3.12 the term "FESC Plan" means
each bonus, deferred compensation, incentive compensation, stock purchase, stock
option, severance pay, medical, life or other insurance, profit-sharing, or
pension plan, program, agreement or arrangement, and each other employee benefit
plan, program, agreement or arrangement, sponsored, maintained or contributed to
or required to be contributed to by FESC or by any trade or business, whether or
not incorporated, that together with FESC would be deemed a "single employer"
under Section 414 of the Code (an "ERISA Affiliate") for the benefit of any
employee or director or former employee or former director of FESC or any ERISA
Affiliate of FESC.
(b) With respect to each of the material FESC Plans, FESC has made available
to OBC true and complete copies of each of the following documents: (a) the FESC
Plan and related documents (including all amendments thereto); (b) the most
recent annual reports, financial statements, and actuarial reports, if any; (c)
the most recent summary plan description, together with each summary of material
modifications, required under ERISA with respect to such FESC Plan; and (d) the
most recent determination letter received from the IRS with respect to each FESC
Plan that is intended to be qualified under the Code.
(c) No liability under Title IV of ERISA has been incurred by FESC or any
ERISA Affiliate of FESC since the effective date of ERISA that has not been
satisfied in full, and no condition exists that presents a material risk to FESC
or any ERISA Affiliate of FESC of incurring a liability under such Title, other
than liability for premium payments to the Pension Benefit Guaranty Corporation,
which premiums have been or will be paid when due.
(d) Neither FESC nor any ERISA Affiliate of FESC, nor any of the FESC Plans,
nor any trust created thereunder, nor any trustee or administrator thereof has
engaged in a prohibited transaction (within the meaning of Section 406 of ERISA
and Section 4975 of the Code) in connection with which FESC or any ERISA
Affiliate of FESC could, either directly or indirectly, incur a material
liability or cost.
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(e) Full payment has been made, or will be made in accordance with Section
404(a)(6) of the Code, of all amounts that FESC or any ERISA Affiliate of FESC
is required to pay under Section 412 of the Code or under the terms of the FESC
Plans.
(f) As of the Closing Date, the then fair market value of the assets held
under each FESC Plan that is subject to Title IV of ERISA will be sufficient so
as to permit a "standard termination" of each such FESC Plan under Section
4042(b) of ERISA without the need to make any additional contributions to such
FESC Plans. No reportable event under Section 4043 of ERISA has occurred or will
occur with respect to any FESC Plan on or before the Closing Date other than any
reportable event occurring by reason of the transactions contemplated by this
Agreement or a reportable event for which the requirement of notice to the PBGC
has been waived.
(g) Except as Previously Disclosed, none of the FESC Plans is a
"multiemployer pension plan," as such term is defined in Section 3(37) of ERISA,
a "multiple employer welfare arrangement," as such term is defined in Section
3(40) of ERISA, or a single employer plan that has two or more contributing
sponsors, at least two of whom are not under common control, within the meaning
of Section 4063(a) of ERISA.
(h) A favorable determination letter has been issued by the Internal Revenue
Service with respect to the each of the FESC Plans that is intended to be
"qualified" within the meaning of Section 401(a) of the Code to the effect that
such plan is so qualified and each such FESC Plan satisfies the requirements of
Section 401(a) of the Code in all material respects. Each of the FESC Plans that
is intended to satisfy the requirements of Section 125 or 501(c)(9) of the Code
satisfies such requirements in all material respects. Each of the FESC Plans has
been operated and administered in all material respects in accordance with its
terms and applicable laws, including but not limited to ERISA and the Code.
(i) There are no actions, suits or claims pending, or, to the knowledge of
FESC, threatened or anticipated (other than routine claims for benefits) against
any FESC Plan, the assets of any FESC Plan or against FESC or any ERISA
Affiliate of FESC with respect to any FESC Plan, except for actions, suits or
claims that, if decided adversely to FESC, would not, individually or in the
aggregate, have a Material Adverse Effect on FESC. There is no judgment, decree,
injunction, rule or order of any court, governmental body, commission, agency or
arbitrator outstanding against or in favor of any FESC Plan or any fiduciary
thereof (other than rules of general applicability). There are no pending or
threatened audits, examinations or investigations by any governmental body,
commission or agency involving any FESC Plan.
(j) Except as Previously Disclosed, the consummation of the transactions
contemplated by this Agreement will not (i) entitle any current or former
employee or director of FESC or any ERISA Affiliate of FESC to severance pay,
unemployment compensation or any similar payment, or (ii) accelerate the time of
payment or vesting, or increase the amount, of any compensation due to any such
current or former employee or director, or (iii) renew or extend the term of any
agreement regarding compensation for any such current or former employee or
director.
3.13 Properties
FESC or one of the FESC Subsidiaries has good and marketable title free and
clear of all liens, encumbrances, charges, defaults or equitable interests to
all of the properties and assets, real and personal, which, individually or in
the aggregate, are material to the business of FESC and its Subsidiaries taken
as a whole, and which are reflected on the FESC Financial Statements as of June
30, 1997 or acquired after such date, except (i) liens for Taxes not yet due and
payable, (ii) pledges to secure deposits and other liens incurred in the
ordinary course of business, (iii) such imperfections of title, easements and
encumbrances, if any, as are not material in character, amount or extent, (iv)
dispositions and encumbrances for adequate consideration in the ordinary course
of business and (v) to the extent such properties or assets are leased by FESC
or any FESC Subsidiary. All leases pursuant to which FESC or any FESC
Subsidiary, as lessee, leases real and personal property which, individually or
in the aggregate, are material to the business of
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FESC and its Subsidiaries taken as a whole are valid and enforceable in
accordance with their respective terms, except where the failure of such lease
or leases to be valid and enforceable would not, individually or in the
aggregate, have a Material Adverse Effect on FESC.
3.14 Loans
(a) Each loan reflected as an asset in the FESC Financial Statements (i) is
evidenced by notes, agreements or other evidences of indebtedness which are
true, genuine and what they purport to be, (ii) to the extent secured, has been
secured by valid liens and security interests which have been perfected, and
(iii) is the legal, valid and binding obligation of the obligor named therein,
enforceable in accordance with its terms, subject to bankruptcy, insolvency,
fraudulent conveyance and other laws of general applicability relating to or
affecting creditors' rights and to general equity principles, in each case other
than loans as to which the failure to satisfy the foregoing standards would not
have a Material Adverse Effect on FESC.
(b) The allowance for loan losses reflected on the FESC Financial
Statements, as of their respective dates, is in all material respects consistent
with the requirements of generally accepted accounting principles to provide for
reasonably anticipated losses with respect to FESC's loan portfolio based upon
information reasonably available at the time.
3.15 Tax Matters
(a) All federal, state, local and foreign Tax Returns required to be filed
by or on behalf of FESC and each FESC Subsidiary have been timely filed or
requests for extension have been timely filed and any such extension has been
granted and has not expired, except where the failure to file timely such Tax
Returns would not, in the aggregate, have a Material Adverse Effect on FESC. All
Tax Returns filed by FESC and each FESC Subsidiary are complete and accurate in
all material respects. All Taxes due in respect of the periods covered by the
Tax Returns described in the first sentence of this Section 3.15(a) have been
paid or adequate reserves have been established for the payment of such Taxes,
except where any such failure to pay or establish adequate reserves would not,
in the aggregate, have a Material Adverse Effect on FESC and, as of the Closing
Date, all Taxes due in respect of any subsequent periods (or portions thereof)
ending on or prior to the Closing Date will have been paid or adequate reserves
will have been established for the payment thereof consistent with the past
practices of FESC, except where any such failure to pay or establish adequate
reserves would not, in the aggregate, have a Material Adverse Effect on FESC.
Except as Previously Disclosed, there is no outstanding or proposed material (i)
audit examination, (ii) deficiency, or (iii) refund litigation with respect to
Tax Returns filed or required to be filed by FESC or any FESC Subsidiary.
(b) Except as Previously Disclosed, neither FESC nor any FESC Subsidiary has
requested any extension of time within which to file any Tax Returns in respect
of any fiscal year or portion thereof which have not since been filed. Except as
Previously Disclosed, there are currently no material agreements in effect with
respect to FESC or any FESC Subsidiary to extend the period of limitations for
the assessment or collection of any Tax.
(c) Except as Previously Disclosed, neither FESC nor any FESC Subsidiary is
a party to any agreement providing for the allocation or sharing of, or
indemnification for, Taxes.
(d) Except as Previously Disclosed, neither FESC nor any FESC Subsidiary is
required to include in income any adjustment in any taxable period ending after
the date hereof pursuant to Section 481(a) of the Code.
(e) Except as Previously Disclosed, neither FESC nor any FESC Subsidiary has
entered into any material agreement with any taxing authority that will bind
FESC or an affiliate thereof after the Closing Date.
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(f) For purposes of this Section 3.15 only, "FESC Subsidiary" shall mean any
corporation, joint venture or other entity in which FESC (a) owns, directly or
indirectly, 50% or more of the outstanding voting securities or equity interests
or (b) is a general partner.
3.16 Certain Contracts
(a) Except as Previously Disclosed, neither FESC nor any FESC Subsidiary is
a party to, or is bound by, (i) any material contract required to be filed by
FESC under Item 601(b)(10) of Regulation S-K of the SEC or any agreement
restricting in any material respect the nature of its current business
activities or the geographic scope of its business activities, (ii) any
agreement, indenture or other instrument relating to the borrowing of money by
FESC or any FESC Subsidiary of an amount exceeding $100 million or the guarantee
by FESC or any FESC Subsidiary of any such obligation, other than instruments
relating to transactions entered into in the ordinary course and except as
reflected in the FESC Financial Statements filed with the SEC prior to the date
of this Agreement, (iii) any agreement, arrangement or commitment relating to
the employment of a consultant who was formerly a director or executive officer
or the employment, election, retention in office or severance of any present or
former director or executive officer of FESC, or (iv) any contract, agreement or
understanding with a labor union, in each case whether written or oral.
(b) Neither FESC nor any FESC Subsidiary is in default under any material
agreement, commitment, arrangement, lease, insurance policy or other instrument
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 giving of notice or both, would constitute such a default, except for
such defaults which would not, individually or in the aggregate, have a Material
Adverse Effect on FESC.
3.17 Labor Matters
With respect to their employees, neither FESC nor any FESC Subsidiary is a
party to any labor agreement with any labor organization, group or association
and has not engaged in any unfair labor practice. Since January 1, 1997, and
prior to the date hereof, FESC and the FESC Subsidiaries have not experienced
any attempt by organized labor or its representatives to make FESC or any FESC
Subsidiary conform to demands of organized labor relating to their employees or
to enter into a binding agreement with organized labor that would cover the
employees of FESC or any FESC Subsidiary. To the knowledge of FESC, there is no
unfair labor practice charge or other complaint by any employee or former
employee of FESC or any FESC Subsidiary against any of them pending before any
governmental agency arising out of FESC's or such FESC Subsidiary's activities,
which charge or complaint (i) has a reasonable probability of an unfavorable
outcome and (ii) in the event of an unfavorable outcome, would, individually or
in the aggregate, have a Material Adverse Effect on FESC; there is no labor
strike or labor disturbance pending or threatened against any of them; and
neither FESC nor any FESC Subsidiary has experienced a work stoppage or other
labor difficulty since January 1, 1997.
3.18 Brokers and Finders
Neither FESC nor any FESC Subsidiary, nor any of their respective officers,
directors or employees, has employed any broker, finder or financial advisor or
incurred any liability for any fees or commissions in connection with the
transactions contemplated herein or the Plan of Merger, except for FESC's
retention of Keefe, Bruyette & Woods, Inc. to perform certain financial advisory
services.
3.19 Certain Information
The information relating to FESC and the FESC Subsidiaries to be provided by
FESC to be contained in the Proxy Statement and the Registration Statement will
not contain any untrue statement of a material fact or omit to state a material
fact necessary to make the statements therein not misleading. The Proxy
Statement (except for such portions thereof that relate only to OBC or any of
the OBC Subsidiaries) will comply in all material respects with the provisions
of the Exchange Act and the rules and regulations thereunder. The Registration
Statement will comply in all material respects with the provisions of the
Securities Act and the rules and regulations thereunder.
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3.20 Tax Treatment
As of the date of this Agreement, FESC knows of no reason relating to it or
any of the FESC Subsidiaries which would reasonably cause it to believe that the
Merger will not qualify as a tax-free reorganization under Section 368(a) of the
Code.
3.21 OBC Shares
As of the date hereof, neither FESC nor any of its affiliates owns
beneficially more than 9.9% of the outstanding shares of OBC Common Stock.
ARTICLE 4
COVENANTS
4.1 Shareholders' Meeting
FESC and OBC shall submit this Reorganization Agreement and the Plan of
Merger and, in the case of FESC, the issuance of FESC Common Stock thereunder,
to their respective shareholders for approval at special meetings to be held as
soon as practicable. Subject to the fiduciary duties of the respective boards of
directors of OBC and FESC as determined by each after consultation with such
board's counsel, the boards of directors of FESC and OBC shall recommend at the
respective shareholders' meetings that the shareholders vote in favor of such
approval.
4.2 Proxy Statement; Registration Statement
As promptly as practicable after the date hereof, FESC and OBC shall
cooperate in the preparation of the Proxy Statement to be mailed to the
shareholders of OBC and FESC in connection with the Merger and to be filed by
FESC as part of the Registration Statement. FESC will advise OBC, promptly after
it receives notice thereof, of the time when the Registration Statement or any
post-effective amendment thereto has become effective or any supplement or
amendment has been filed, of the issuance of any stop order, of the suspension
of qualification of the FESC Common Stock issuable in connection with the Merger
for offering or sale in any jurisdiction, or the initiation or threat of any
proceeding for any such purpose, or of any request by the SEC for the amendment
or supplement of the Registration Statement or for additional information. FESC
shall take all actions necessary to register or qualify the shares of FESC
Common Stock to be issued in the Merger pursuant to all applicable state "blue
sky" or securities laws and shall maintain such registrations or qualifications
in effect for all purposes hereof. FESC shall apply for approval to list the
shares of FESC Common Stock to be issued in the Merger on the AMEX, subject to
official notice of issuance, prior to the Effective Date.
4.3 Applications
As promptly as practicable after the date hereof, FESC shall submit any
requisite applications for prior approval of, and notices with respect to, the
transactions contemplated herein, in the Plan of Merger and in the Bank Merger
Agreement (i) to the Federal Reserve Board pursuant to Sections 3 and 4 of the
Bank Holding Company Act, Section 5(d)(3) of the Federal Deposit Insurance Act
and the Bank Merger Act, (ii) to the Department of Banking pursuant to Sections
115 and 1603 of the Pennsylvania Banking Code, and (iii) to the New York Banking
Board pursuant to Section 142 of the New York Banking Law, and the regulations
promulgated thereunder, and each of the parties hereto shall, and they shall
cause their respective subsidiaries to, submit any applications, notices or
other filings to any other state or federal government agency, department or
body the approval of which is required for consummation of the Merger and the
Bank Merger. OBC and FESC each represents and warrants to the other that all
information concerning it and its directors, officers, shareholders and
subsidiaries included (or submitted for inclusion) in any such application and
furnished by it shall be true, correct and complete in all material respects.
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4.4 Best Efforts
(a) Subject to the terms and conditions of this Agreement, FESC, Merger Sub,
and OBC shall each use its reasonable best efforts in good faith, and each of
them shall cause its Subsidiaries to use their reasonable best efforts in good
faith, to (i) furnish such information as may be required in connection with the
preparation of the documents referred to in Sections 4.2 and 4.3 above, and (ii)
take or cause to be taken all action necessary or desirable on its part so as to
permit consummation of the Merger at the earliest possible date, including,
without limitation, (1) obtaining the consent or approval of each individual,
partnership, corporation, association or other business or professional entity
whose consent or approval is required for consummation of the transactions
contemplated hereby, provided that neither OBC nor any OBC Subsidiary shall
agree to make any payments or modifications to agreements in connection
therewith without the prior written consent of FESC, which consent shall not be
unreasonably withheld and (2) requesting the delivery of appropriate opinions,
consents and letters from its counsel and independent auditors. Subject to the
terms and conditions of this Agreement, no party hereto shall take or fail to
take, or cause or permit its Subsidiaries to take or fail to take, or to the
best of its ability permit to be taken or omitted to be taken by any third
persons, any action that would substantially impair the prospects of completing
the Merger pursuant to this Reorganization Agreement and the Plan of Merger,
that would materially delay such completion, or that would adversely affect the
qualification of the Merger as a reorganization within the meaning of Section
368(a) of the Code; provided that nothing herein contained shall preclude FESC
from exercising its rights under the Option Agreement. In the event that either
party has taken any action, whether before, on or after the date hereof, that
would adversely affect such qualification, each party shall take such action as
the other party may reasonably request to cure such effect to the extent curable
without a Material Adverse Effect on either of the parties.
(b) OBC shall give prompt notice to FESC, and FESC shall give prompt notice
to OBC, of (i) the occurrence, or failure to occur, of any event which
occurrence or failure would be likely to cause any representation or warranty
contained in this Agreement to be untrue or inaccurate in any material respect
at any time from the date hereof to the Closing Date and (ii) any material
failure of OBC or FESC, as the case may be, to comply with or satisfy any
covenant, condition or agreement to be complied with or satisfied by it
hereunder, and each party shall use all reasonable efforts to remedy such
failure.
(c) Each party shall provide and shall request its auditors to provide the
other party with such historical financial information regarding it (and related
audit reports and consents) as the other party may reasonably request for
securities disclosure purposes.
4.5 Investigation and Confidentiality
OBC and FESC each will keep the other advised of all material developments
relevant to its business and to consummation of the transactions contemplated
herein and in the Plan of Merger. FESC and OBC each may make or cause to be made
such investigation of the financial and legal condition of the other as such
party reasonably deems necessary or advisable in connection with the
transactions contemplated herein and in the Plan of Merger, provided, however,
that such investigation shall be reasonably related to such transactions and
shall not interfere unnecessarily with normal operations. FESC and OBC agree to
furnish the other and the other's advisors with such financial data and other
information with respect to its business and properties as such other party
shall from time to time reasonably request. No investigation pursuant to this
Section 4.5 shall affect or be deemed to modify any representation or warranty
made by, or the conditions to the obligations to consummate the Merger of, any
party hereto. Each party hereto shall hold all information furnished by the
other party or any of such party's Subsidiaries or representatives pursuant to
this Section 4.5 in confidence to the extent required by, and in accordance
with, the provisions of the confidentiality agreement, dated October 1, 1997
between OBC and FESC (the "Confidentiality Agreement").
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4.6 Press Releases
OBC and FESC shall agree with each other as to the form and substance of any
press release related to this Reorganization Agreement and the Plan of Merger or
the transactions contemplated hereby or thereby, and shall consult each other as
to the form and substance of other public disclosures related thereto, provided,
however, that nothing contained herein shall prohibit any party, following
notification to the other parties, from making any disclosure which is required
by applicable law or AMEX or NASDAQ rules.
4.7 Actions Pending the Merger
(a) Prior to the Closing Date, and except as otherwise provided for by this
Reorganization Agreement, the Plan of Merger, the Option Agreement, or consented
to or approved by FESC, OBC shall, and shall cause each of the OBC subsidiaries
to, use its reasonable best efforts to preserve its properties, business and
relationships with customers, employees and other persons.
(b) OBC shall not, and shall not permit any of the OBC Subsidiaries to,
except with the prior written consent of FESC and except as Previously Disclosed
or expressly contemplated or permitted by this Agreement, the Plan of Merger, or
the Option Agreement:
(1) carry on its business other than in the usual, regular and ordinary
course in substantially the same manner as heretofore conducted;
(2) in the case of OBC only, declare, set aside, make or pay any
dividend or other distribution in respect of its capital stock other than
its regular quarterly cash dividends on OBC Common Stock in amounts not in
excess of $.34 per share;
(3) issue any shares of its capital stock or permit any treasury shares
to become outstanding other than pursuant to the Option Agreement or Rights
outstanding at the date hereof;
(4) incur any additional debt obligation or other obligation for
borrowed money other than in the ordinary course of business consistent with
past practice;
(5) issue, grant or authorize any Rights or effect any recapitalization,
reclassification, stock dividend, stock split or like change in
capitalization, or redeem, repurchase or otherwise acquire any shares of its
capital stock, except as contemplated by Section 2.27 hereof and except for
Trust Account Shares and DPC Shares (each as defined in the Plan of Merger);
(6) amend its articles or certificate of incorporation or association or
by-laws; impose, or suffer the imposition, on any share of stock of any OBC
Subsidiary held by OBC of any lien, charge or encumbrance, or permit any
such lien, charge or encumbrance to exist, except, in each case, for liens,
charges and encumbrances which have been Previously Disclosed;
(7) merge with any other corporation, savings association or bank or
permit any other corporation, savings association or bank to merge into it
or consolidate with any other corporation, savings association or bank;
other than through the acquisition of DPC Shares acquire control over any
other firm, bank, corporation, savings association or organization or create
any subsidiary;
(8) except in the ordinary course of business, waive or release any
material right or cancel or compromise any material debt or claim;
(9) liquidate or sell or dispose of any assets or acquire any assets, in
each case other than in the ordinary course of business; except as
Previously Disclosed, make any capital expenditure in excess of $250,000 in
any instance or $2,500,000 in the aggregate; or, except as Previously
Disclosed, establish new branches or other similar facilities or enter into
or modify any leases or other contracts relating thereto that involve annual
payments by such party or any Subsidiary of such party that exceed $100,000
in any instance or $1,000,000 in the aggregate, except with respect to
renewals of leases in the ordinary course of business;
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(10) increase the rate of compensation of, pay or agree to pay any bonus
to, or provide any other employee benefit or incentive to, any of its
directors, officers or employees except (i) in a manner consistent with past
practice and (ii) for bonuses in respect of 1997 pursuant to the OBC 1987
Annual Incentive Bonus Plan (including without limitation the provisions
thereof providing OBC with discretion in determining the amounts payable
thereunder), provided, however, that in no event shall the aggregate amount
paid pursuant to such plan in respect of 1997 exceed $1,500,000, consistent
with the terms of such plan; enter into or modify any employment or
severance contracts with any of its present or former directors, officers or
employees; or enter into or substantially modify (except as may be required
by applicable law) any pension, retirement, stock option, stock purchase,
stock appreciation right, savings, profit sharing, deferred compensation,
consulting, bonus, group insurance 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 other employees;
(11) change its lending, investment, asset/liability management or other
material banking policies in any material respect except as may be required
by changes in applicable law;
(12) change its methods of accounting in effect at December 31, 1996,
except as required by changes in generally accepted accounting principles
concurred in by its independent certified public accountants, 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
returns for the year ended December 31, 1996, except as required by law;
(13) authorize or permit any of its officers, directors, employees or
agents to directly or indirectly solicit, initiate or encourage any
inquiries relating to, or the making of any proposal which constitutes, a
"takeover proposal" (as defined below), or, except to the extent legally
required for the discharge of the fiduciary duties of its Board of
Directors, recommend or endorse any takeover proposal, or participate in any
discussions or negotiations, or provide third parties with any nonpublic
information, relating to any such inquiry or proposal or otherwise
facilitate any effort or attempt to make or implement a takeover proposal;
PROVIDED, HOWEVER, that OBC may communicate information about any such
takeover proposal to its stockholders if, in the judgment of OBC's Board of
Directors, based upon the advice of outside counsel, such communication is
required under applicable law. OBC will take all actions necessary or
advisable to inform the appropriate individuals or entities referred to in
the first sentence hereof of the obligations undertaken herein. OBC will
notify FESC immediately if any such inquiries or takeover proposals are
received by, any such information is requested from, or any such
negotiations or discussions are sought to be initiated or continued with,
OBC, and OBC will promptly inform FESC in writing of all of the relevant
details with respect to the foregoing. As used in this Agreement, "takeover
proposal" shall mean any tender or exchange offer, proposal for a merger,
consolidation or other business combination involving OBC or any OBC
Subsidiary or any proposal or offer to acquire in any manner a substantial
equity interest in, or a substantial portion of the assets of, OBC or any
OBC Subsidiary other than the transactions contemplated or permitted by this
Agreement, the Plan of Merger and the Option Agreement; or
(14) agree to do any of the foregoing.
4.8 Certain Policies
Prior to the Effective Date, OBC shall, consistent with generally accepted
accounting principles and on a basis mutually satisfactory to it and FESC,
modify and change its loan, litigation and real estate valuation policies and
practices (including loan classifications and levels of reserves) so as to be
applied on a basis that is consistent with that of FESC; PROVIDED, HOWEVER, that
OBC shall not be obligated to take any such action pursuant to this Section 4.8
unless and until (i) FESC irrevocably acknowledges to OBC in writing that all
conditions to its obligation to consummate the Merger have been satisfied and
(ii) FESC irrevocably waives in writing any and all rights that it may have to
terminate this Agreement and the Plan of Merger.
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4.9 Closing; Articles of Merger
The transactions contemplated by this Reorganization Agreement and the Plan
of Merger shall be consummated at a closing to be held at the offices of the law
firm of Arnold & Porter, 399 Park Avenue, New York, New York 10022, on the first
business day following satisfaction of the conditions to consummation of the
Merger set forth in Article 5 hereof (other than such conditions relating to the
actions to be taken at the Closing) or such later date during such month in
which such business day shall occur (or, if such business day shall occur within
five days prior to the end of such month, during the next following month)
thereafter as may be specified by FESC. In connection with such Closing, Merger
Sub and OBC shall execute a certificate of merger and shall cause such
certificate to be delivered to the Delaware Secretary of State in accordance
with Section 251(c) of the Delaware General Corporation Law. The Merger shall be
effective at the time and on the date specified in such certificate of merger.
4.10 Affiliates
OBC and FESC shall cooperate and use their best efforts to identify those
persons who may be deemed to be "affiliates" of OBC within the meaning of Rule
145 promulgated by the Commission under the Securities Act. OBC shall use its
best efforts to cause each person so identified to deliver to FESC, no later
than 30 days prior to the Effective Date, a written agreement (which agreement
shall be substantially in the form of Exhibit 4.10 hereof).
4.11 OBC Employees; Directors and Management; Indemnification
(a) On and after the Effective Date (or as soon thereafter as may be
practicable), all persons who are employed by OBC and/or any of the OBC
Subsidiaries on such date ("OBC Employees") shall be employed upon terms and
conditions (including benefits) which in the aggregate are no less favorable
with respect to their employment by FESC and its subsidiaries after the
Effective Date than those generally afforded to other employees of FESC
subsidiaries holding similar positions, subject to the terms and conditions
under which those employee benefits are made available to such employees and
provided that for purposes of determining eligibility for and vesting of such
employee benefits only (and not for pension benefit accrual purposes) and, if
applicable, for purposes of satisfying any waiting periods concerning
"preexisting conditions" and the satisfaction of any "copayment" or deductible
requirements, service with OBC or a OBC Subsidiary or any predecessor thereto
prior to the Effective Date shall be treated as service with an "employer" to
the same extent as if such persons had been employees of FESC, and provided
further that this Section 4.11(a) shall not be construed (i) to limit the
ability of FESC and its affiliates to terminate the employment of any employee
or to review employee benefits programs from time to time and to make such
changes as they deem appropriate or (ii) to require FESC or its affiliates to
provide employees or former employees of OBC or any of its Subsidiaries with
post-retirement medical benefits more favorable than those provided to new hires
at FESC. FESC agrees to honor, or to cause the appropriate FESC Subsidiary to
honor, in accordance with their terms all employment, severance and employee
benefit plans, contracts, agreements, arrangements, and understandings
Previously Disclosed, PROVIDED, HOWEVER, that the foregoing shall not prevent
FESC from amending or terminating any such plan, contract, agreement,
arrangement or understanding in accordance with its terms. The continued
coverage of the OBC Employees under the employee benefit plans maintained by OBC
and/or the OBC Subsidiaries immediately prior to the Effective Date (the "OBC
Plans") during a transition period shall be deemed to provide the OBC Employees
with benefits that are no less favorable than those offered to other employees
of FESC and its Subsidiaries, provided that after the Effective Date there is no
material reduction (determined on an overall basis) in the benefits provided
under the OBC Plans. No provision of this Section 4.11(a) shall create any third
party beneficiary rights in any employee or former employee of OBC (including
any beneficiary or dependent thereof) in respect of continued employment (or
resumed employment) or any other matter.
(b) To the extent that FESC has agreed to honor, or to cause the appropriate
FESC Subsidiary to honor, the employee benefit and compensation plans,
agreements and arrangements described in the
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preceding paragraph (a), FESC acknowledges that the Merger constitutes a "Change
in Control" for all purposes pursuant to any such plans, agreements and
arrangements. In addition, FESC acknowledges that, with respect to the
employment and severance agreements listed in Schedule 4.11(b) only (the "Listed
Agreements"), in light of FESC's plans relating to management assignments and
responsibilities with respect to the business of OBC from and after the
Effective Time, each employee who is a party to any such contract will, upon
consummation of the Merger, have "Good Reason" to terminate employment
thereunder. FESC also agrees to provide, or to cause the appropriate FESC
Subsidiary to provide, as mutually agreed to by FESC and OBC, severance benefits
and retention bonuses to OBC Employees other than OBC Employees who are parties
to the Listed Agreements.
(c) FESC's Board of Directors shall take all requisite action to elect as
directors of FESC as of the Effective Date Mr. Bennett and four other
individuals selected by the Board of Directors of OBC from among persons who are
members of the Board of Directors of OBC prior to the Effective Date, provided
that each of such four individuals shall be reasonably acceptable to FESC, and
to elect Mr. Bennett as Chairman of FESC's Board of Directors and a member of
the Executive Committee of FESC's Board of Directors as of the Effective Date
and FESC shall cause M&T Bank's Board of Directors to take all requisite action
to elect as directors of M&T Bank Mr. Bennett and four other individuals
selected by the Board of Directors of OBC from among persons who are members of
the Board of Directors of OBC prior to the Effective Date, provided that each of
such four individuals shall be reasonably acceptable to FESC and to elect Mr.
Bennett as Vice Chairman of M&T Bank as of the Effective Date.
(d) In the event of any threatened or actual claim, action, suit, proceeding
or investigation, whether civil, criminal or administrative, including, without
limitation, any such claim, action, suit, proceeding or investigation in which
any person who is now, or has been at any time prior to the date of this
Agreement, or who becomes prior to the Effective Date, a director or officer of
OBC (the "Indemnified Parties") is, or is threatened to be, made a party based
in whole or in part on, or arising in whole or in part out of, or pertaining to
(i) the fact that he is or was a director, officer or employee of OBC, any of
the OBC Subsidiaries or any of their respective predecessors or (ii) this
Agreement, the Plan of the Merger, the Option Agreement or any of the
transactions contemplated hereby or thereby, whether in any case asserted or
arising before or after the Effective Date, the parties hereto agree to
cooperate and use their best efforts to defend against and respond thereto. It
is understood and agreed that after the Effective Date, FESC shall indemnify and
hold harmless, as and to the fullest extent permitted by law, each such
Indemnified Party against any losses, claims, damages, liabilities, costs,
expenses (including reasonable attorney's fees and expenses in advance of the
final disposition of any claim, suit, proceeding or investigation to each
Indemnified Party to the fullest extent permitted by law upon receipt of any
undertaking required by applicable law), judgments, fines and amounts paid in
settlement in connection with any such threatened or actual claim, action, suit,
proceeding or investigation, and in the event of any such threatened or actual
claim, action, suit, proceeding or investigation (whether asserted or arising
before or after the Effective Date), the Indemnified Parties may retain counsel
reasonably satisfactory to them after consultation with FESC; PROVIDED, HOWEVER,
that (1) FESC shall have the right to assume the defense thereof and upon such
assumption FESC shall not be liable to any Indemnified Party for any legal
expenses of other counsel or any other expenses subsequently incurred by any
Indemnified Party in connection with the defense thereof, except that if FESC
elects not to assume such defense or counsel for the Indemnified Parties
reasonably advises the Indemnified Parties that there are issues which raise
conflicts of interest between FESC and the Indemnified Parties, the Indemnified
Parties may retain counsel reasonably satisfactory to them after consultation
with FESC, and FESC shall pay the reasonable fees and expenses of such counsel
for the Indemnified Parties, (2) FESC shall be obligated pursuant to this
paragraph to pay for only one firm of counsel for all Indemnified Parties, (3)
FESC shall not be liable for any settlement effected without its prior written
consent (which consent shall not be unreasonably withheld) and (4) FESC shall
have no obligation hereunder to any Indemnified Party when and if a court of
competent jurisdiction shall ultimately determine, and such determination shall
have become final and nonappealable, that indemnification of such Indemnified
Party in the manner contemplated hereby is
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prohibited by applicable law. Any Indemnified Party wishing to claim
Indemnification under this Section 4.11(d), upon learning of any such claim,
action, suit, proceeding or investigation, shall promptly notify FESC thereof,
provided that the failure of any Indemnified Party to so notify FESC shall not
relieve it of its obligations hereunder except (and only) to the extent that
such failure materially prejudices FESC. FESC's obligations under this Section
4.11(d) continue in full force and effect for a period of six (6) years from the
Effective Date; PROVIDED, HOWEVER, that all rights to indemnification in respect
of any claim (a "Claim") asserted or made within such period shall continue
until the final disposition of such Claim.
(e) FESC agrees that all rights to indemnification and all limitations on
liability existing in favor of the directors, officers and employees of OBC and
its Subsidiaries (the "Covered Parties") as provided in their respective
Certificates of Incorporation, By-Laws or similar governing documents as in
effect as of the date of this Agreement with respect to matters occurring prior
to the Effective Date shall survive the Merger and shall continue in full force
and effect, and shall be honored by such entities or their respective successors
as if they were the indemnifying party thereunder, without any amendment
thereto, for a period of six (6) years from the Effective Date; PROVIDED,
HOWEVER, that all rights to indemnification in respect of any Claim asserted or
made within such period shall continue until the final disposition of such
Claim; PROVIDED, FURTHER, HOWEVER, that nothing contained in this Section
4.11(e) shall be deemed to preclude the liquidation, consolidation or merger of
OBC or any OBC Subsidiary, in which case all of such rights to indemnification
and limitations on liability shall be deemed to so survive and continue
notwithstanding any such liquidation, consolidation or merger.
(f) FESC, from and after the Effective Date will use its best efforts
directly or indirectly to cause the persons who served as directors or officers
of OBC on or before the Effective Date to be covered by OBC's existing
directors' and officers' liability insurance policy (provided that FESC may
substitute therefor policies of at least the same coverage and amounts
containing terms and conditions which are not less advantageous than such
policy) but in no event shall any insured person be entitled under this Section
4.11(f) to insurance coverage more favorable than that provided to him or her in
such capacities at the date hereof with respect to acts or omissions resulting
from their service as such on or prior to the Effective Date. Such insurance
coverage, if reasonably available at a reasonable cost relative to the coverage
obtained, shall commence on the Effective Date and will be provided for a period
of no less than three (3) years after the Effective Date; PROVIDED, HOWEVER,
that in no event shall FESC be required to expend more than 150% of the current
amount expended by OBC (the "Insurance Amount") to maintain or procure insurance
coverage pursuant hereto and FURTHER PROVIDED that the Insurance Amount shall be
deemed a reasonable cost for purposes of this Section 4.11(f). OBC agrees to
renew any such existing insurance or to purchase any "discovery period"
insurance provided for thereunder at FESC's request.
(g) In the event FESC or any of its successors or assigns (i) consolidates
with or merges into any other person and shall not be the continuing or
surviving corporation or entity of such consolidation or merger, or (ii)
transfers or conveys all or substantially all of its properties and assets to
any person, then, and in each such case, to the extent necessary, proper
provision shall be made so that the successors and assigns of FESC assume the
obligations set forth in this section.
(h) The provisions of Section 4.11 (d), (e), (f) and (g) are intended to be
for the benefit of, and shall be enforceable by, each Indemnified Party and
their respective heirs and representatives. The provisions of Section 4.11(b)
referring to the Listed Agreements are intended to be for the benefit of, and
shall be enforceable by, those individuals who are parties thereto and their
respective heirs and representatives.
4.12 OBC Subsidiaries
OBC undertakes and agrees that, if so requested by FESC, it shall take all
necessary action to facilitate the merger of OBC Subsidiaries with subsidiaries
of FESC or the dissolution of such OBC Subsidiaries effective at or after the
Effective Date; PROVIDED, HOWEVER, that in no event shall the Closing be delayed
in order to facilitate any such merger or dissolution and PROVIDED FURTHER,
HOWEVER, that OBC shall not be required to take any action that could adversely
affect the qualification of the Merger as a
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reorganization within the meaning of Section 368(a) of the Code as determined in
good faith by counsel to OBC.
4.13 Dividends
After the date of this Agreement, each of FESC and OBC shall coordinate with
the other the declaration of any dividends in respect of FESC Common Stock and
OBC Common Stock and the record dates and payment dates relating thereto, it
being the intention of the parties hereto that holders of FESC Common Stock or
OBC Common Stock shall not receive two dividends, or fail to receive one
dividend, for any single calendar quarter with respect to their shares of FESC
Common Stock and/or OBC Common Stock and any shares of FESC Common Stock any
such holder receives in exchange therefor in the Merger.
4.14 Advisory Boards
(a) Unless prohibited by applicable law, promptly following the Effective
Date, FESC shall cause, for a period of not less than twenty-four months after
the Effective Date, those persons who are members of the Board of Directors of
OBC on the Effective Date (other than any such persons who shall be appointed to
the Board of Directors of FESC pursuant to Section 4.11(c) hereof) to be
appointed or elected as members of the newly-formed Syracuse Division of M&T
Bank's Advisory Board, which shall meet not less frequently than 10 times per
year and the function of which shall be to advise M&T Bank on deposit and
lending activities in OnBank's former market area. Each such advisory director
shall be paid the annual retainer and meeting attendance fees set forth in
Schedule 4.14(a) hereof; provided, however, that director shall be paid the
annual retainer and meeting attendance notwithstanding anything else in this
paragraph (a), no attendance fees shall be paid for meetings not actually
attended and M&T Bank shall have no obligation to continue the services of any
advisory director who acts in a manner detrimental to M&T Bank.
(b) Unless prohibited by applicable law, promptly following the Effective
Date, FESC shall cause, for a period of not less than twenty-four months after
the Effective Date, those persons who are members of the Board of Directors of
Franklin First on the Effective Date (other than any such persons who shall be
appointed to the Board of Directors of FESC pursuant to Section 4.11(c) hereof)
to be appointed or elected as members of the newly-formed Pennsylvania Division
of M&T Bank's Advisory Board, which shall meet not less frequently than 10 times
per year and the function of which shall be to advise M&T Bank on deposit and
lending activities in Franklin First's former market area. Each such advisory
director shall be paid the annual retainer and meeting attendance fees set forth
in Schedule 4.14(b) hereof; provided, however, that notwithstanding anything
else in this paragraph (b), no attendance fees shall be paid for meetings not
actually attended and M&T Bank shall have no obligation to continue the services
of any advisory director who acts in a manner detrimental to M&T Bank.
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ARTICLE 5
CONDITIONS PRECEDENT
5.1 Conditions Precedent--FESC, Merger Sub and OBC
The respective obligations of the parties to effect the Merger shall be
subject to satisfaction or waiver of the following conditions at or prior to the
Closing Date:
(a) All corporate action necessary to authorize the execution, delivery and
performance of this Reorganization Agreement and the Plan of Merger and
consummation of the transactions contemplated hereby and thereby shall have been
duly and validly taken;
(b) The parties hereto shall have received all regulatory approvals required
or mutually deemed necessary in connection with the transactions contemplated by
this Reorganization Agreement, the Plan of Merger and the Bank Merger Agreement,
all notice periods and waiting periods required after the granting of any such
approvals shall have passed and all conditions contained in any such approval
required to have been satisfied prior to consummation of such transactions shall
have been satisfied, provided, however, that no such approval shall have imposed
any condition or requirement which, in the reasonable opinion of the Board of
Directors of FESC or OBC so materially and adversely affects the anticipated
economic and business benefits to FESC or OBC, respectively, of the transactions
contemplated by this Agreement as to render consummation of such transactions
inadvisable;
(c) The Registration Statement (including any post-effective amendment
thereto) shall be effective under the Securities Act, and no proceeding shall be
pending or threatened by the Commission to suspend the effectiveness of such
Registration Statement, and FESC shall have received all state securities or
"Blue Sky" permits or other authorizations, or confirmations as to the
availability of an exemption from registration requirements as may be necessary;
(d) To the extent that any lease, license, loan, financing agreement or
other contract or agreement to which OBC or any OBC Subsidiary is a party
requires the consent of or waiver from the other party thereto as a result of
the transactions contemplated by this Agreement, such consent or waiver shall
have been obtained, unless the failure to obtain such consents or waivers,
individually or in the aggregate, would not have a Material Adverse Effect on
OBC;
(e) None of the parties hereto shall be subject to any order, decree or
injunction of a court or agency of competent jurisdiction which enjoins or
prohibits the consummation of the transactions contemplated by this
Reorganization Agreement and the Plan of Merger;
(f) The shares of FESC Common Stock which shall be issued in the Merger
shall have been approved for listing on the AMEX, subject to official notice of
issuance;
(g) FESC and OBC shall have received an opinion of Arnold & Porter, in form
and substance reasonably satisfactory to FESC and OBC, dated as of the Effective
Date, substantially to the effect that, on the basis of facts, representations
and assumptions set forth in such opinion which are consistent with the state of
facts existing on the Effective Date, the Merger will be treated for federal
income tax purposes as a reorganization or part of a reorganization within the
meaning of Section 368(a) of the Code, OBC and FESC will each be a party to such
reorganization within the meaning of Section 368(b) of the Code and that
accordingly:
(i) No gain or loss will be recognized by FESC, Merger Sub or OBC as a
result of the Merger;
(ii) No gain or loss will be recognized by OBC stockholders with respect
to shares of FESC Common Stock received in exchange for all of their shares
of OBC Common Stock;
(iii) The gain, if any, realized by OBC stockholders who receive FESC
Common Stock and cash (other than cash in lieu of a fractional share
interest of FESC Common Stock) in exchange for their shares of OBC Common
Stock, will be recognized by each such shareholder, but in an amount not in
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excess of the amount of cash received. If the exchange has the effect of the
distribution of a dividend, then the amount of the gain recognized shall be
treated as a dividend. No loss will be recognized by such an OBC stockholder
on the exchange;
(iv) Cash received by an OBC stockholder who receives solely cash in
exchange for his or her shares of OBC Common Stock will be treated as having
been received by such stockholder as a distribution in redemption of his or
her shares of OBC Common Stock;
(v) Each OBC stockholder's aggregate tax basis in any shares of FESC
Common Stock received in the transaction will be the same as the aggregate
tax basis of the shares of OBC Common Stock such shareholder surrendered in
exchange therefor, decreased by the amount of any cash received by the
stockholder and increased by the amount which was treated as a dividend and
any gain recognized (not including any portion which was treated as a
dividend) by the stockholder in the exchange; and
(vi) Each OBC stockholder's holding period in any shares of FESC Common
Stock received in the transaction will, in each instance, include the period
during which the shares of OBC Common Stock surrendered in exchange therefor
were held, provided that such shares of OBC Common Stock were held as
capital assets by the stockholder on the Effective Date.
In rendering the opinion described in this subsection (g), Arnold & Porter
will rely on representations and facts as provided by FESC and OBC, including
without limitation the standard representations set forth in Revenue Procedure
86-42, 1986-2 C.B. 722.
5.2 Conditions Precedent--OBC
The obligations of OBC to effect the Merger shall be subject to satisfaction
of the following additional conditions at or prior to the Closing Date unless
waived by OBC pursuant to Section 6.4 hereof:
(a) The representations and warranties of FESC and Merger Sub set forth in
Article 3 hereof shall be true and correct in all material respects as of the
date of this Reorganization 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 any
representation and warranty which specifically relates to an earlier date),
except as otherwise contemplated by this Reorganization Agreement or consented
to in writing by OBC; PROVIDED, HOWEVER, that (i) in determining whether or not
the condition contained in this paragraph (a) shall be satisfied, no effect
shall be given to any exceptions in such representations and warranties relating
to materiality or Material Adverse Effect and (ii) the condition contained in
this paragraph (a) shall be deemed to be satisfied unless the failure of such
representations and warranties to be so true and correct constitute,
individually or in the aggregate, a Material Adverse Effect on FESC;
(b) FESC and Merger Sub shall have in all material respects performed all
obligations and complied with all covenants required by this Reorganization
Agreement and the Plan of Merger to be performed or complied with at or prior to
the Closing Date;
(c) Each of FESC and Merger Sub shall have delivered to OBC a certificate,
dated the Closing Date and signed by its respective Chairman, President,
Executive Vice President or Senior Vice President to the effect that the
conditions set forth in paragraphs (a) and (b) of this section have been
satisfied;
(d) OBC shall have received from Price Waterhouse letters dated not more
than five days prior to (i) the effective date of the Registration Statement and
(ii) the Closing Date, with respect to certain financial information regarding
FESC, each in form and substance which is customary in transactions of the
nature contemplated by this Agreement; and
(e) OBC shall have received the opinions of the General Counsel of FESC or
Arnold & Porter dated the Closing Date, as to the matters specified in Exhibit
5.2(e) hereto.
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5.3 Conditions Precedent--FESC and Merger Sub
The respective obligations of FESC and Merger Sub to effect the Merger shall
be subject to satisfaction of the following additional conditions at or prior to
the Closing Date unless waived by FESC pursuant to Section 6.4 hereof:
(a) The representations and warranties of OBC set forth in Article 2 hereof
shall be true and correct in all material respects as of the date of this
Reorganization 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 any representation and
warranty which specifically relates to an earlier date), except as otherwise
contemplated by this Reorganization Agreement or consented to in writing by
FESC; PROVIDED, HOWEVER, that (i) in determining whether or not the condition
contained in this paragraph (a) shall be satisfied, no effect shall be given to
any exceptions in such representations and warranties relating to materiality or
Material Adverse Effect and (ii) the condition contained in this paragraph (a)
shall be deemed to be satisfied unless the failure of such representations and
warranties to be so true and correct constitute, individually or in the
aggregate, a Material Adverse Effect on OBC;
(b) OBC shall have in all material respects performed all obligations and
complied with all covenants required by this Reorganization Agreement and the
Plan of Merger to be performed or complied with at or prior to the Closing Date;
(c) OBC shall have delivered to FESC and Merger Sub a certificate, dated the
Closing Date and signed by its Chairman, President and Chief Executive Officer
or any Executive Vice President to the effect that the conditions set forth in
paragraphs (a) and (b) of this section have been satisfied;
(d) FESC shall have received from KPMG Peat Marwick letters dated not more
than five days prior to (i) the effective date of the Registration Statement and
(ii) the Closing Date, with respect to certain financial information regarding
OBC, each in form and substance which is customary in transactions of the nature
contemplated by this Agreement;
(e) FESC and Merger Sub shall have received opinions of Skadden, Arps,
Slate, Meagher & Flom, LLP, dated the Closing Date, as to the matters specified
in Exhibit 5.3(e) hereto; and
(f) Dissenters' rights shall not have been exercised with respect to more
than 10% of the outstanding shares of OBC Common Stock.
ARTICLE 6
TERMINATION, WAIVER AND AMENDMENT
6.1 Termination
This Reorganization Agreement and the Plan of Merger may be terminated,
either before or after approval by the shareholders of FESC and OBC:
(a) At any time on or prior to the Effective Date, by the mutual consent in
writing of the parties hereto;
(b) At any time on or prior to the Closing Date, by FESC in writing, if OBC
has, or by OBC in writing, if FESC or Merger Sub has, in any material respect,
breached (i) any covenant or agreement contained herein or in the Plan of Merger
or (ii) any representation or warranty contained herein, and in either case if
(x) 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 Closing Date and (y) such breach would entitle the non-breaching party
not to consummate the transactions contemplated hereby under Article V hereof;
(c) At any time, by any party hereto in writing, if the applications for
prior approval referred to in Section 4.3 hereof have been denied, and the time
period for appeals and requests for reconsideration has
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run, or if any governmental entity of competent jurisdiction shall have issued a
final nonappealable order enjoining or otherwise prohibiting the Merger;
(d) At any time, by any party hereto in writing, if the shareholders of FESC
or OBC do not approve the transactions contemplated herein at the special
meetings duly called for that purpose; or
(e) By any party hereto in writing, if the Closing Date has not occurred by
the close of business on September 30, 1998, unless the failure of the Closing
to occur by such date shall be due to the failure of the party seeking to
terminate this Agreement to perform or observe the covenants and agreements set
forth herein.
(f) By OBC, upon the execution by OBC of a definitive agreement relating to
a takeover proposal (as defined in Section 4.7(b)(13)), provided that (i) OBC
shall have complied with its obligations under Section 4.7(b)(13) hereof, (ii)
the Board of Directors of OBC shall have determined, after having received the
advice of outside legal counsel to OBC and the advice of OBC's financial
advisor, that such action is necessary for the Board of Directors to act in a
manner consistent with its fiduciary duties under applicable law and (iii)
concurrent with its notification of termination, OBC shall have made an
irrevocable and unconditional offer to FESC in writing to repurchase the Option
(as defined in the Option Agreement) from FESC at any time, within 30 days
following the date of such offer, at a price equal to the amount by which (A)
the Market/Offer Price (as defined below) exceeds (B) the Option Price (as
defined in the Option Agreement), multiplied by the number of shares for which
the Option may then be exercised (subject to the limitation set forth in Section
15 of the Option Agreement), with an undertaking to effect such repurchase by
wire transfer of immediately available funds to an account designated by FESC
within two business days following receipt of written notice from FESC pursuant
to this Section 6.1(f) of its election to tender the Option to OBC for
repurchase and the applicable repurchase price. The term "Market/Offer Price"
shall mean the highest of (i) the price per share of OBC Common Stock at which a
tender offer or exchange offer therefor has been made, (ii) the price per share
of OBC Common Stock to be paid by any third party pursuant to an agreement with
OBC, (iii) the highest closing price for shares of OBC Common Stock within the
six-month period immediately preceding the date FESC gives notice of the
required repurchase of the Option in accordance with this Section 6.1(f), or
(iv) in the event of a sale of all or a substantial portion of OBC's assets, the
sum of the price paid in such sale for such assets and the current market value
of the remaining assets of OBC as determined by a nationally recognized
investment banking firm selected by FESC, and reasonably acceptable to OBC,
divided by the number of shares of OBC Common Stock 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 FESC, and reasonably accepted to OBC.
6.2 Effect of Termination
In the event this Reorganization Agreement and the Plan of Merger is
terminated pursuant to Section 6.1 hereof, this Agreement and the Plan of Merger
shall become void and have no effect, except that (i) the provisions relating to
confidentiality and expenses set forth in Sections 4.5 and 7.1 hereof,
respectively, shall survive any such termination and (ii) a termination pursuant
to Section 6.1(b)(i) or (b)(ii) shall not relieve the breaching party from
liability for an uncured willful breach of such covenant or agreement or
representation or warranty giving rise to such termination.
6.3 Survival of Representations, Warranties and Covenants
All representations, warranties and covenants in this Reorganization
Agreement and the Plan of Merger or in any instrument delivered pursuant hereto
or thereto shall expire on, and be terminated and extinguished at, the Effective
Date other than covenants that by their terms are to survive or be performed
after the Effective Date, provided that no such representations, warranties or
covenants shall be deemed to be terminated or extinguished so as to deprive
FESC, Merger Sub or OBC (or any director, officer or controlling person thereof)
of any defense in law or equity which otherwise would be available against the
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claims of any person, including, without limitation, any shareholder or former
shareholder of either FESC or OBC, the aforesaid representations, warranties and
covenants being material inducements to the consummation by FESC, Merger Sub and
OBC of the transactions contemplated herein.
6.4 Waiver
Except with respect to any required shareholder or regulatory approval, FESC
and OBC, respectively, by written instrument signed by an executive officer of
such party, may at any time (whether before or after approval of this
Reorganization Agreement and the Plan of Merger by the shareholders of FESC and
OBC) extend the time for the performance of any of the obligations or other acts
of OBC, on the one hand, or FESC or Merger Sub, on the other hand, and may waive
(i) any inaccuracies of such parties in the representations or warranties
contained in this Agreement, the Plan of Merger or any document delivered
pursuant hereto or thereto, (ii) compliance with any of the covenants,
undertakings or agreements of such parties, or satisfaction of any of the
conditions precedent to its obligations, contained herein or in the Plan of
Merger or (iii) the performance by such parties of any of its obligations set
out herein or therein; provided, however, that no such waiver executed after
approval of this Reorganization Agreement and the Plan of Merger by the
shareholders of FESC or OBC shall change the number of shares of FESC Common
Stock into which each share of OBC Common Stock shall be converted pursuant to
the Merger.
6.5 Amendment or Supplement
This Reorganization Agreement and the Plan of Merger may be amended or
supplemented at any time only by mutual agreement of the parties hereto or
thereto. Any such amendment or supplement must be in writing and approved by
their respective boards of directors and/or officers authorized thereby and
shall be subject to the proviso in Section 6.4 hereof.
ARTICLE 7
MISCELLANEOUS
7.1 Expenses
Each party hereto shall bear and pay all costs and expenses incurred by it
in connection with the transactions contemplated in this Reorganization
Agreement, including fees and expenses of its own financial consultants,
accountants and counsel, except that FESC and OBC each shall bear and pay 50% of
all printing and mailing costs and filing fees associated with the Registration
Statement and the Proxy Statement.
7.2 Entire Agreement
This Reorganization Agreement, the Plan of Merger and the Option Agreement
contain the entire agreement between the parties with respect to the
transactions contemplated hereunder and thereunder and supersede all prior
arrangements or understandings with respect thereto, written or oral, other than
documents referred to herein or therein and the Confidentiality Agreement. The
terms and conditions of this Reorganization Agreement and the Plan of Merger
shall inure to the benefit of and be binding upon the parties hereto and thereto
and their respective successors. Except as specifically set forth herein, or in
the Plan of Merger, nothing in this Reorganization Agreement or the Plan of
Merger, expressed or implied, is intended to confer upon any party, other than
the parties hereto and thereto, and their respective successors, any rights,
remedies, obligations or liabilities. This Reorganization Agreement and the Plan
of Merger, taken together, shall constitute a plan of reorganization within the
meaning of Section 368 of the Code.
7.3 No Assignment
No party hereto may assign any of its rights or obligations under this
Reorganization Agreement to any other person.
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7.4 Notices
All notices or other communications which are required or permitted
hereunder shall be in writing and sufficient if delivered personally or sent by
facsimile transmission or overnight express or by registered or certified mail,
postage prepaid, addressed as follows:
If to OBC:
ONBANCorp, Inc.
101 South Salina Street
Syracuse, New York 13202
Attention: Robert J. Bennett
Chairman, President and
Chief Executive Officer
Facsimile No.: 315-424-4085
With a required copy to:
Skadden, Arps, Slate, Meagher & Flom LLP
919 Third Avenue
New York, New York 10022
Attention: William S. Rubenstein, Esquire
Facsimile No.: 212-735-2000
If to FESC or Merger Sub:
First Empire State Corporation
One M&T Plaza
Buffalo, New York 14240
Attention: Michael P. Pinto
Executive Vice President and
Chief Financial Officer
Facsimile No.: 716-842-5220
With a required copy to:
First Empire State Corporation
One M&T Plaza
Buffalo, New York 14240
Attention: Richard A. Lammert, Esquire
Senior Vice President and
General Counsel
Facsimile No.: 716-842-5376
and to:
Arnold & Porter
555 Twelfth Street, N.W.
Washington, D.C. 20004
Attention: Steven Kaplan, Esquire
Facsimile No.: 202-942-5999
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7.5 Interpretation
The captions contained in this Reorganization Agreement are for reference
purposes only and are not part of, and shall not affect in any way the meaning
or interpretation of, this Reorganization Agreement.
7.6 Counterparts
This Reorganization 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.
7.7 Governing Law
This Reorganization Agreement shall be governed by and construed in
accordance with the laws of the State of New York applicable to agreements made
and entirely to be performed within such jurisdiction, except to the extent
federal law may be applicable.
IN WITNESS WHEREOF, the parties hereto, intending to be legally bound
hereby, have caused this Reorganization 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.
FIRST EMPIRE STATE CORPORATION
By /s/ RICHARD A. LAMMERT
------------------------------------------
Richard A. Lammert
Senior Vice President
and General Counsel
OLYMPIA FINANCIAL CORP.
By /s/ RICHARD A. LAMMERT
------------------------------------------
Richard A. Lammert
Secretary
ONBANCORP, INC.
By /s/ ROBERT J. BENNETT
------------------------------------------
Robert J. Bennett
Chairman, President
and Chief Executive Officer
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ANNEX A
FORM OF
AGREEMENT AND PLAN OF MERGER OF
ONBANCORP, INC.
WITH AND INTO
OLYMPIA FINANCIAL CORP.
AGREEMENT AND PLAN OF MERGER ("Plan of Merger") dated as of October 28,
1997, by and between ONBANCORP, INC. ("OBC"), a Delaware corporation having its
principal executive office at 101 South Salina Street, Syracuse, New York 13202
and OLYMPIA FINANCIAL CORP. ("Merger Sub"), a Delaware corporation having its
principal executive office at One M&T Plaza, Buffalo, New York, 14240 and joined
in by FIRST EMPIRE STATE CORPORATION ("FESC"), a New York corporation having its
principal executive office at One M&T Plaza, Buffalo, New York 14240.
WITNESSETH
WHEREAS, the respective Boards of Directors of OBC, Merger Sub and FESC deem
the merger of OBC with and into Merger Sub, under and pursuant to the terms and
conditions herein set forth or referred to, desirable and in the best interests
of the respective corporations and their respective shareholders, and the
respective Boards of Directors of OBC, Merger Sub and FESC have adopted
resolutions approving this Plan of Merger and an Agreement and Plan of
Reorganization dated of even date herewith ("Reorganization Agreement"); and
WHEREAS, the parties hereto desire that OBC shall be acquired by FESC
through the merger of OBC with and into Merger Sub, with Merger Sub as the
surviving corporation, subject to the terms and conditions of this Plan of
Merger and the Reorganization Agreement; and
WHEREAS, the parties hereto intend that the Merger shall qualify as or be
part of a tax-free reorganization under Section 368(a) of the Internal Revenue
Code of 1986, as amended ("Code").
NOW, THEREFORE, in consideration of the premises and of the mutual
agreements herein contained, the parties hereto do hereby agree as follows:
ARTICLE I.
MERGER
Subject to the terms and conditions of this Plan of Merger, at the Effective
Time (as hereinafter defined), OBC shall be merged with and into Merger Sub,
pursuant to the provisions of, and with the effect provided in, 8 Del. Code Ch.
1, subchapter IX (said transaction being hereinafter referred to as the
"Merger"). At the Effective Time, the separate existence of OBC shall cease and
Merger Sub, as the surviving entity, shall continue unaffected and unimpaired by
the Merger. (Merger Sub as existing at and after the Effective Time being
hereinafter sometimes referred to as the "Surviving Corporation").
ARTICLE II.
CERTIFICATE OF INCORPORATION AND BY-LAWS
The Certificate of Incorporation and the By-Laws of Merger Sub in effect
immediately prior to the Effective Time shall be the Certificate of
Incorporation and the By-Laws of the Surviving Corporation, in each case until
amended in accordance with applicable law.
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ARTICLE III.
BOARD OF DIRECTORS
The directors and officers of Merger Sub immediately prior to the Effective
Time shall be the directors and officers of the Surviving Corporation, each to
hold office in accordance with the Certificate of Incorporation and By-Laws of
the Surviving Corporation.
ARTICLE IV.
CAPITAL
At the Effective Time, all of the shares of capital stock of Merger Sub
issued and outstanding immediately prior to the Effective Time shall remain
outstanding and unchanged by virtue of the Merger and shall constitute all of
the issued and outstanding shares of capital stock of the Surviving Corporation.
ARTICLE V.
CONVERSION AND EXCHANGE OF OBC
SHARES; FRACTIONAL SHARE INTERESTS
1. At the Effective Time, each share of the common stock of OBC, par value
$1.00 per share ("OBC Common Stock"), issued and outstanding immediately prior
to the Effective Time (except as provided in Section 2 of this Article V, and
subject to Sections 5 and 7 of this Article V), together with the rights
attached thereto issued pursuant to the Rights Agreement, dated as of September
25, 1989 between OBC and The Bank of New York, as rights agent, shall, by virtue
of the Merger, automatically and without any action on the part of the holder
thereof, become and be converted into, at the election of the holder as provided
in and subject to the limitations set forth in this Article V, either (i) the
right to receive $69.50 in cash without interest (the "Cash Consideration") or
(ii) 0.161 of a share (the "Exchange Ratio") of common stock, par value $5.00
per share, of FESC ("FESC Common Stock") (the "Stock Consideration"). The Cash
Consideration and the Stock Consideration are sometimes referred to herein
collectively as the "Merger Consideration."
2. (a) At the Effective Time, all shares of OBC Common Stock held in the
treasury of OBC or owned beneficially by any Subsidiary of OBC other than in a
fiduciary capacity ("Trust Account Shares") or in connection with a debt
previously contracted ("DPC Shares") and all shares of OBC Common Stock owned by
FESC or owned beneficially by any subsidiary of FESC other than Trust Account
Shares and DPC Shares shall be canceled and no cash, stock or other property
shall be delivered in exchange therefor.
(b) Notwithstanding any other provision contained in this Plan of Merger, no
shares of OBC Common Stock that are issued and outstanding as of the Effective
Time and that are held by a stockholder who has properly exercised his appraisal
rights (any such shares being referred to herein as "Dissenting Shares") under
applicable law shall be converted into the right to receive the Merger
Consideration as provided in Section 1 of this Article V unless and until the
holder shall have failed to perfect, or shall have effectively withdrawn or
lost, his right to dissent from the Merger under applicable law and to receive
such consideration as may be determined to be due with respect to such
Dissenting Shares pursuant to and subject to the requirements of applicable law.
If any such holder shall have so failed to perfect or effectively withdrawn or
lost such right prior to the Election Deadline (as defined herein), each of such
holder's shares of OBC Common Stock shall thereupon be deemed to be Non-Election
Shares (as defined herein) for all purposes under this Article V. If any holder
of Dissenting Shares shall have so failed to perfect or effectively withdrawn or
lost such holder's right to dissent from the Merger after the Election Deadline,
each of such holder's shares of OBC Common Stock shall thereupon be deemed to
have been converted into and to have become, as of the Effective Time, the right
to receive the Stock Consideration or the Cash Consideration or a combination
thereof as determined by FESC in its sole discretion.
3. (a) An election form (an "Election Form") and other appropriate and
customary transmittal materials, which shall specify that delivery shall be
effected, and risk of loss and title to the certificates
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theretofore representing OBC Common Stock ("Certificates") shall pass, only upon
proper delivery of such Certificates to a bank or trust company designated by
FESC and reasonably satisfactory to OBC (the "Exchange Agent") in such form as
OBC and FESC shall mutually agree shall be mailed on the Mailing Date (as
defined below) to each holder of record of shares of OBC Common Stock (other
than holders of Dissenting Shares or shares of OBC Common Stock to be cancelled
as provided in Section 2(a) of this Article V) as of a record date which is not
less than five nor more than ten business days prior to the Mailing Date. The
"Mailing Date" shall be a date specified by OBC which date shall be not earlier
than the earlier to occur and not later than the later to occur of the date of
the OBC stockholder meeting contemplated by Section 4.1 of the Reorganization
Agreement or the tenth business day following the date upon which the last of
the regulatory approvals contemplated by Section 5.1(b) of the Reorganization
Agreement shall have been received (without regard to any waiting periods in
respect thereof).
(b) Each Election Form shall entitle the holder of shares of OBC Common
Stock (or the beneficial owner through appropriate and customary documentation
and instructions) to (i) elect to receive the Cash Consideration for all of such
holder's shares (a "Cash Election"), (ii) elect to receive the Stock
Consideration for all of such holder's shares (a "Stock Election"), (iii) elect
to receive the Cash Consideration with respect to some of such holder's shares
and the Stock Consideration with respect to such holder's remaining shares (a
"Mixed Election"), or (iv) make no election or to indicate that such holder has
no preference as to the receipt of the Cash Consideration or the Stock
Consideration (a "Non-Election"), PROVIDED, HOWEVER, that a holder may make a
Mixed Election only if such election would result in a Cash Election with
respect to at least 100 shares of OBC Common Stock and a Stock Election with
respect to at least 100 shares of OBC Common Stock. Holders of record of shares
of OBC Common Stock who hold such shares as nominees, trustees or in other
representative capacities (a "Representative") may submit multiple Election
Forms, provided that such Representative certifies that each such Election Form
covers all the shares of OBC Common Stock held by that Representative for a
particular beneficial owner. Shares of OBC Common Stock as to which a Cash
Election has been made (including pursuant to a Mixed Election) are referred to
herein as "Cash Election Shares." Shares of OBC Common Stock as to which a Stock
Election has been made (including pursuant to a Mixed Election) are referred to
herein as "Stock Election Shares." Shares of OBC Common Stock as to which no
election has been made are referred to as "Non-Election Shares." The aggregate
number of shares of OBC Common Stock with respect to which a Stock Election has
been made is referred to herein as the "Stock Election Number."
(c) To be effective, a properly completed Election Form shall be submitted
to the Exchange Agent on or before 5:00 p.m. New York City time on the 20th
calendar day following the Mailing Date (or such other time and date as OBC and
FESC may mutually agree) (the "Election Deadline"). An election shall have been
properly made only if the Exchange Agent shall have actually received a properly
completed Election Form by the Election Deadline. An Election Form shall be
deemed properly completed only if accompanied by one or more Certificates (or
customary affidavits and, if required by FESC pursuant to Section 9 of this
Article V, indemnification regarding the loss or destruction of such
Certificates or the guaranteed delivery of such Certificates) representing all
shares of OBC Common Stock covered by such Election Form, together with duly
executed transmittal materials included with the Election Form. Any OBC
stockholder may at any time prior to the Election Deadline change his or her
election by written notice received by the Exchange Agent prior to the Election
Deadline accompanied by a properly completed and signed revised Election Form.
Any OBC stockholder may, at any time prior to the Election Deadline, revoke his
or her election by written notice received by the Exchange Agent prior to the
Election Deadline or by withdrawal prior to the Election Deadline of his or her
Certificates, or of the guarantee of delivery of such Certificates, previously
deposited with the Exchange Agent. All elections shall be revoked automatically
if the Exchange Agent is notified in writing by FESC and OBC that this Plan of
Merger has been terminated. If a stockholder either (i) does not submit a
properly completed Election Form by the Election Deadline, or (ii) revokes its
Election Form prior to the Election Deadline, the shares of OBC Common Stock
held by such stockholder shall be designated "Non-Election Shares." FESC shall
cause the Certificates representing OBC Common Stock described in (ii) to be
promptly returned without charge to
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the person submitting the Election Form upon written request to that effect from
the person who submitted the Election Form. Subject to the terms of this Plan of
Merger and of the Election Form, the Exchange Agent shall have reasonable
discretion to determine whether any election, revocation or change has been
properly or timely made and to disregard immaterial defects in any Election
Form, and any good faith decisions of the Exchange Agent regarding such matters
shall be binding and conclusive.
(d) Notwithstanding any other provision contained in this Plan of Merger,
the number of shares of OBC Common Stock to be converted into the Stock
Consideration in the Merger shall not be less than 60% of the total number of
shares of OBC Common Stock issued and outstanding immediately prior to the
Effective Time, or more than 70% of the total number of shares of OBC Common
Stock issued and outstanding immediately prior to the Effective Time (in each
case, excluding (x) shares of OBC Common Stock to be cancelled as provided in
Section 2(a) of this Article V and (y) Dissenting Shares (the shares remaining
outstanding after such exclusion constituting, for purposes of this Agreement,
the "Outstanding OBC Shares")); PROVIDED, HOWEVER, that notwithstanding anything
to the contrary contained herein, in order that the Merger will not fail to
satisfy continuity of interest requirements under applicable federal income tax
principles relating to reorganizations under Section 368(a) of the Code and that
the tax opinion referred to in Section 5.1(g) of the Reorganization Agreement
can be rendered (each as reasonably determined by Arnold & Porter, special tax
counsel to FESC), FESC shall reduce the number of Outstanding OBC Shares that
will be converted into the right to receive the Cash Consideration in accordance
with a written agreement which shall be entered into between FESC and OBC on or
prior to the Closing Date.
(e) Within five business days after the later to occur of the Election
Deadline or the Effective Time, FESC shall cause the Exchange Agent to effect
the allocation among holders of OBC Common Stock of rights to receive the Cash
Consideration and the Stock Consideration as follows:
(i) If the Stock Election Number exceeds 70% of the total number of
Outstanding OBC Shares, then all Cash Election Shares and all Non-Election
Shares shall be converted into the right to receive the Cash Consideration,
and, subject to Section 7 of this Article V, each holder of Stock Election
Shares will be entitled to receive the Stock Consideration in respect of
that number of Stock Election Shares equal to the product obtained by
multiplying (x) the number of Stock Election Shares held by such holder by
(y) a fraction, the numerator of which is 70% of the total number of
Outstanding OBC Shares and the denominator of which is the Stock Election
Number, with the remaining number of such holder's Stock Election Shares
being converted into the right to receive the Cash Consideration;
(ii) If the Stock Election Number is less than 60% of the total number
of Outstanding OBC Shares (the amount by which 60% of the total number of
Outstanding OBC Shares exceeds the Stock Election Number being referred to
herein as the "Shortfall Number"), then all Stock Election Shares shall be
converted into the right to receive the Stock Consideration and the
Non-Election Shares and Cash Election Shares shall be treated in the
following manner:
(A) if the Shortfall Number is less than or equal to the number of
Non-Election Shares, then, subject to Section 7 of Article V, each holder
of Non-Election Shares shall receive the Stock Consideration in respect
of that number of Non-Election Shares equal to the product obtained by
multiplying (x) the number of Non-Election Shares held by such holder by
(y) a fraction, the numerator of which is the Shortfall Number and the
denominator of which is the total number of Non-Election Shares, with the
remaining number of such holder's Non-Election Shares being converted
into the right to receive the Cash Consideration; or
(B) if the Shortfall Number exceeds the number of Non-Election
Shares, then all Non-Election Shares shall be converted into the right to
receive the Stock Consideration, and, subject to Section 7 of this
Article V, each holder of Cash Election Shares shall receive the Stock
Consideration in respect of that number of Cash Election Shares equal to
the product obtained by multiplying (x) the number of Cash Election
Shares held by such holder by (y) a fraction, the
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numerator of which is the amount by which (1) the Shortfall Number
exceeds (2) the total number of Non-Election Shares and the denominator
of which is the total number of Cash Election Shares, with the remaining
number of such holder's Cash Election Shares being converted into the
right to receive the Cash Consideration; and
(iii) In the event that the Stock Election Number equals or exceeds 60%
of the total number of Outstanding OBC Shares but is less than or equal to
70% of the total number of Outstanding OBC Shares, then all Cash Election
Shares and Non-Election Shares shall be converted into the right to receive
the Cash Consideration and all Stock Election Shares shall be converted into
the right to receive the Stock Consideration.
For purposes of this Section 3(e), if FESC is obligated to increase the
number of Outstanding OBC Shares to be converted into shares of FESC Common
Stock as a result of the application of the last clause of Section 3(d) above,
then the higher number shall be substituted for 60% of the total number of
Outstanding OBC Shares in the calculations set forth in this Section 3(e).
(f) All of the shares of OBC Common Stock converted into and exchangeable
for the Merger Consideration pursuant to this Article V shall no longer be
outstanding and shall automatically be cancelled and cease to exist as of the
Effective Time. Each Certificate previously representing any such shares of OBC
Common Stock shall thereafter represent the right to receive the Merger
Consideration pursuant to this Article V, as allocated among the holders of OBC
Common Stock in accordance with this Section 3.
(g) On the Effective Date, FESC shall deposit, or shall cause to be
deposited, with the Exchange Agent, for exchange in accordance with this Section
3, certificates representing the aggregate number of shares of FESC Common Stock
into which the outstanding shares of OBC Common Stock shall be converted
pursuant to this Article V, and cash in the amount of the aggregate Cash
Consideration and the aggregate amount of cash to be paid in lieu of fractional
shares (such cash and certificates are hereinafter referred to as the "Exchange
Fund"). After the Effective Date, FESC shall, on the applicable payment or
distribution date, tender to the Exchange Agent as an addition to the Exchange
Fund all dividends and other distributions applicable to shares of FESC Common
Stock held in the Exchange Fund. As soon as practicable after the Effective
Date, the Exchange Agent shall distribute to holders of shares of OBC Common
Stock, upon surrender to the Exchange Agent (to the extent not previously
surrendered with an Election Form) of one or more Certificates for cancellation,
(i) a certificate representing that number of whole shares of FESC Common Stock,
if any, that such holder has the right to receive pursuant to this Plan of
Merger, and (ii) a check for an amount equal to the cash, if any, which such
holder has the right to receive pursuant to this Plan of Merger (including any
cash in lieu of any fractional shares of FESC Common Stock to which such holder
is entitled pursuant to Section 7 hereof and any dividends or other
distributions to which such holder is entitled pursuant to the provisions set
forth below). In no event shall the holder of any such surrendered Certificates
be entitled to receive interest on any of the Cash Consideration or cash in lieu
of fractional share interests to be received in the Merger. If a check is to be
issued in the name of a person other than the person in whose name the
Certificates surrendered for exchange therefor are registered, it shall be a
condition of the exchange that the person requesting such exchange shall pay to
the Exchange Agent any transfer taxes required by reason of issuance of such
check to a person other than the registered holder of the Certificates
surrendered, or shall establish to the reasonable satisfaction of the Exchange
Agent that such tax has been paid or is not applicable. No dividends or other
distributions declared after the Effective Time with respect to FESC Common
Stock shall be paid to the holder of any unsurrendered Certificate until the
holder thereof shall surrender such Certificate in accordance with this Article
V. After the surrender of a Certificate in accordance with this Article V, the
record holder thereof shall be entitled to receive any such dividends or other
distributions, without any interest thereon, which theretofore had become
payable with respect to shares of FESC Common Stock, if any, represented by such
Certificate. Certificates surrendered for exchange by any person who is an
"affiliate" of OBC for purposes of Rule 145(c) under the Securities Act of 1933,
as
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amended, shall not be exchanged for certificates representing shares of FESC
Common Stock until FESC has received the written agreement of such person
contemplated by Section 4.10 of the Reorganization Agreement. If any certificate
for shares of FESC Common Stock is to be issued in a name other than that in
which a Certificate surrendered for exchange is issued, the Certificate so
surrendered shall be properly endorsed and otherwise in proper form for transfer
and the person requesting such exchange shall affix any requisite stock transfer
tax stamps to the Certificate surrendered or provide funds for their purchase or
establish to the reasonable satisfaction of FESC or its agent that such taxes
have been paid or are not payable.
(h) Any portion of the Exchange Fund consisting of cash deposited by FESC
into the Exchange Fund, of shares of FESC Common Stock or the cash dividends
paid on FESC Common Stock deposited by FESC into the Exchange Fund pursuant to
Section 3(g) (including the proceeds of any investments thereof) that remains
unclaimed by the holders of OBC Common Stock for one year after the Effective
Date shall be returned to FESC. Any holders of OBC Common Stock who have not
theretofore complied with the provisions of this Article V with respect to
exchange of their Certificates shall thereafter look only to FESC for delivery
of the shares of FESC Common Stock, the cash in lieu of fractional shares of
FESC Common Stock, any unpaid dividends and distributions on the FESC Common
Stock and the cash portion of the Merger Consideration deliverable in respect of
each share of OBC Common Stock that such holder holds, as determined pursuant to
this Plan of Merger, in each case without any interest thereon.
4. Upon the Effective Date, the stock transfer books of OBC shall be closed
and no transfer of OBC Common Stock shall thereafter be made or recognized. If,
after the Effective Time, Certificates representing such shares are presented
for transfer to the Exchange Agent, they shall be cancelled and exchanged for
the Merger Consideration as provided in this Article V. Any other provision of
this Plan of Merger notwithstanding, neither FESC or its agent nor any party to
the Merger shall be liable to a holder of OBC Common Stock for any amount paid
or properly delivered in good faith to a public official pursuant to any
applicable abandoned property, escheat or similar law.
5. In the event that prior to the Effective Date the outstanding shares of
FESC Common Stock shall have been increased, decreased or changed into or
exchanged for a different number or kind of shares or securities by
reorganization, recapitalization, reclassification, stock dividend, stock split
or other like changes in FESC's capitalization, then an appropriate and
proportionate adjustment shall be made to the Stock Consideration (including the
Exchange Ratio) and the formulas contained in Section 6 of this Article V.
6. (a) At the Effective Time, each option to acquire OBC Common Stock (each
an "OBC Option") granted under the 1992 OBC Directors' Stock Option Plan, the
OBC 1987 Stock Option and Appreciation Rights Plan or the Franklin First Savings
Bank Incentive Plan (collectively, the "OBC Stock Option Plans") which is
outstanding immediately prior to the Effective Time, whether vested or unvested,
will be assumed by FESC. Each OBC Option so assumed by FESC shall continue to
have, and be subject to, the same terms and conditions set forth in the OBC
Stock Option Plan (and any agreement) under which it was granted and as in
existence immediately prior to the Effective Time, except that (i) such OBC
Option shall be exercisable (when vested) for that number of whole shares of
FESC Common Stock equal to the product of the number of shares of OBC Common
Stock covered by the OBC Option multiplied by the Exchange Ratio, provided that
any fractional shares of FESC Common Stock resulting from such multiplication
shall be rounded down to the nearest share; and (ii) the exercise price per
share of FESC Common Stock shall be equal to the exercise price per share of OBC
Common Stock of such OBC Option divided by the Exchange Ratio, provided that
such exercise price shall be rounded up to the nearest cent. The adjustment
provided herein with respect to any OBC Options which are "incentive stock
options" (as defined in Section 422 of the Code) shall be and is intended to be
effected in a manner which is consistent with Section 424(a) of the Code.
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(b) Each holder of an OBC Option which will be fully vested immediately
prior to the Effective Time may elect to receive, in cancellation of such OBC
Option on the Effective Date, and without payment of any consideration by such
holder, an amount of cash computed by (i) multiplying the average closing price
of FESC Common Stock on the American Stock Exchange (as reported in THE WALL
STREET JOURNAL or, if not reported therein, another comparable authoritative
source) for the ten trading days immediately preceding the Effective Date by
0.105; (ii) adding $24.33 to the product obtained in the preceding clause (i);
(iii) subtracting from the sum obtained in the preceding clause (ii) the per
share exercise price of such OBC Option; and (iv) multiplying the difference
obtained in the preceding clause (iii) by the number of shares of OBC Common
Stock covered by the OBC Option being cancelled. Any such election shall be made
by the holder of an OBC Option not later than the close of business on the
Effective Date.
7. Notwithstanding any other provision hereof, each holder of shares of OBC
Common Stock who would otherwise have been entitled to receive pursuant to this
Article V a fraction of a share of FESC Common Stock (after taking into account
all Certificates delivered by such holder) shall receive, in lieu thereof, cash
in an amount equal to such fraction of a share of FESC Common Stock multiplied
by the market value (as defined below) of FESC Common Stock. The "market value"
of FESC Common Stock shall be the average of the closing prices of the FESC
Common Stock on the American Stock Exchange-- Composite Transactions List (as
reported by THE WALL STREET JOURNAL or, if not reported therein, another
comparable authoritative source) for the ten trading days preceding the date on
which the Effective Time occurs. No such holder shall be entitled to dividends,
voting rights or any other shareholder right in respect of such fractional
share.
8. The provisions pertaining to OBC Options contained in Paragraphs 5 and 6
of this Article V are intended to be for the benefit of, and shall be
enforceable by, the respective holders of OBC Options and his or her heirs and
representatives.
9. In the event any Certificate shall have been lost, stolen or destroyed,
upon the making of an affidavit of that fact by the person claiming such
Certificate to be lost, stolen or destroyed and, if required by FESC, the
posting by such person of a bond in such amount as FESC may reasonably direct as
indemnity against any claim that may be made against it with respect to such
Certificate, the Exchange Agent will issue in exchange for such lost, stolen or
destroyed Certificate the shares of FESC Common Stock constituting the Stock
Consideration and cash in lieu of fractional shares and/or the cash constituting
the Cash Consideration deliverable in respect thereof pursuant to this Plan of
Merger.
ARTICLE VI.
EFFECTIVE DATE OF THE MERGER
A certificate of merger evidencing the transactions contemplated herein
shall be delivered to the Delaware Secretary of State for filing as provided in
the Reorganization Agreement. The Merger shall be effective at the time and on
the date specified in such certificate of merger (such date and time being
herein referred to as the "Effective Time").
ARTICLE VII.
CONDITIONS PRECEDENT
The obligations of FESC, Merger Sub and OBC to effect the Merger as herein
provided shall be subject to satisfaction, unless duly waived, of the conditions
set forth in Article 5 of the Reorganization Agreement.
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ARTICLE VIII.
TERMINATION
Anything contained in the Plan of Merger to the contrary notwithstanding,
and notwithstanding adoption hereof by the shareholders of OBC, this Plan of
Merger may be terminated and the Merger abandoned as provided in the
Reorganization Agreement.
ARTICLE IX.
MISCELLANEOUS
1. This Plan of Merger may be amended or supplemented at any time prior to
the Effective Time by mutual agreement of Merger Sub, FESC and OBC. Any such
amendment or supplement must be in writing and approved by their respective
Boards of Directors and/or by officers authorized thereby and shall be subject
to the proviso in Section 6.4 of the Reorganization Agreement.
2. Any notice or other communication required or permitted under this Plan
of Merger shall be given, and shall be effective, in accordance with the
provisions of the Reorganization Agreement.
3. The headings of the several Articles herein are inserted for convenience
of reference only and are not intended to be a part of or to affect the meaning
or interpretation of this Plan of Merger.
4. This Plan of Merger shall be governed by and construed in accordance with
the laws of Delaware applicable to the internal affairs of OBC and Merger Sub.
5. This Plan of Merger, taken together with the Reorganization Agreement,
shall constitute a plan of reorganization within the meaning of Section 368 of
the Code.
IN WITNESS WHEREOF, the parties hereto, intending to be legally bound
hereby, have caused this Plan of Merger to be executed in counterparts by their
duly authorized officers and attested by their officers thereunto duly
authorized, all as of the day and year first above written.
Attest FIRST EMPIRE STATE CORPORATION
/s/ MARIE KING By: /s/ RICHARD A. LAMMERT
- ------------------------------------------ -----------------------------------
Marie King Richard A. Lammert
Secretary Senior Vice President and
General Counsel
Attest OLYMPIA FINANCIAL CORP.
/s/ GARY S. PAUL By: /s/ RICHARD A. LAMMERT
- ------------------------------------------ -----------------------------------
Gary S. Paul Richard A. Lammert
Secretary
Attest ONBANCORP, INC.
/s/ DAVID M. DEMBOWSKI By: /s/ ROBERT J. BENNETT
- ------------------------------------------ -----------------------------------
David M. Dembowski Robert J. Bennett
Secretary Chairman, President and
Chief Executive Officer
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APPENDIX B
STOCK OPTION AGREEMENT
THE TRANSFER OF THIS AGREEMENT IS SUBJECT TO
CERTAIN PROVISIONS CONTAINED HEREIN AND TO
RESALE RESTRICTIONS UNDER THE
SECURITIES ACT OF 1933, AS AMENDED
STOCK OPTION AGREEMENT, dated October 28, 1997, between ONBANCorp, Inc., a
Delaware corporation ("Issuer"), and First Empire State Corporation, a New York
corporation ("Grantee").
WITNESSETH:
WHEREAS, Grantee, Issuer and Olympia Financial Corp., a Delaware corporation
and a wholly owned subsidiary of Grantee ("Merger Sub") have entered into an
Agreement and Plan of Reorganization of even date herewith (the "Reorganization
Agreement"), which agreement has been executed by the parties hereto immediately
prior to this Stock Option Agreement (the "Agreement"), and will enter into an
Agreement and Plan of Merger to be dated as of the date of this Agreement (the
"Plan of Merger," and, together with the Reorganization Agreement, the "Merger
Agreements"); and
WHEREAS, as a condition to Grantee's entering into the Merger Agreements and
in consideration therefor, Issuer has agreed to grant Grantee the Option (as
hereinafter defined);
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants
and agreements set forth herein and in the Merger Agreements, 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 2,529,000 fully
paid and nonassessable shares of Issuer's Common Stock, par value $1.00 per
share ("Common Stock"), at a price of $60.00 per share (the "Option Price");
PROVIDED, HOWEVER, that in no event shall the number of shares of Common Stock
for which this Option is exercisable exceed 19.9% of the Issuer's 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 either (i)
issued or otherwise become outstanding after the date of this Agreement (other
than pursuant to this Agreement or as permitted under the terms of the Merger
Agreements) or (ii) redeemed, repurchased, retired or otherwise cease to be
outstanding after the date of the Agreement, the number of shares of Common
Stock subject to the Option shall be increased or decreased, as appropriate, so
that, after such issuance, such number 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 1(b)
or elsewhere in this Agreement shall be deemed to authorize Issuer or Grantee to
breach any provision of the Merger Agreements.
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, HOWEVER, 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 such Subsequent Triggering Event,
PROVIDED FURTHER, HOWEVER, that if the Option cannot be exercised on any day
because of any injunction, order or similar restraint issued by a court of
competent jurisdiction, the period during which the Option may be exercised
shall be extended so that the Option shall expire no earlier than on the 10th
business day after such injunction, order or restraint shall have been dissolved
or when such
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injunction, order or restraint shall have become permanent and no longer subject
to appeal, as the case may be. Each of the following shall be an "Exercise
Termination Event": (i) the Effective Time (as defined in the Plan of Merger) of
the Merger; (ii) termination of the Merger Agreements 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
6.1(b)(i) of the Reorganization Agreement (unless the breach by Issuer giving
rise to such right of termination is non-volitional); or (iii) the passage of 12
months after termination of the Merger Agreements if such termination follows
the occurrence of an Initial Triggering Event or is a termination by Grantee
pursuant to Section 6.1(b)(i) of the Reorganization Agreement (unless the breach
by Issuer giving rise to such right of termination is non-volitional). 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 (nor
may Grantee's rights under Section 13 hereof be exercised) at any time when
Grantee shall be in willful breach of any of its covenants or agreements
contained in the Merger Agreements under circumstances that would entitle Issuer
to terminate the Merger Agreements (without regard to any grace period provided
for in Section 6.1(b)(x) of the Reorganization Agreement). In the event that
Issuer terminates the Merger Agreements under circumstances where the proviso to
Section 6.1(f) of the reorganization Agreement is applicable, then immediately
upon Grantee's receipt of the wire transfer contemplated by such proviso to
Section 6.1(f), this Agreement shall terminate and shall become void and have no
further force or effect and Grantee shall surrender this Agreement to Issuer.
(b) The term "Initial Triggering Event" shall mean any of the following
events or transactions occurring after the date hereof:
(i) Issuer or any of its Subsidiaries (each 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 "1934 Act"), and the rules
and regulations thereunder) other than Grantee or any of its Subsidiaries
(each a "Grantee Subsidiary") or Issuer or any of its Subsidiaries, without
having received Grantee's prior written consent, shall have authorized,
recommended, proposed, or publicly announced its intention to authorize,
recommend or propose to engage in an Acquisition Transaction with any person
other than Grantee or a Subsidiary of Grantee. For purposes of this
Agreement, "Acquisition Transaction" shall mean (w) a merger or
consolidation, or any similar transaction, involving Issuer or any
Significant Subsidiary (as defined in Rule 1-02 of Regulation S-X
promulgated by the Securities and Exchange Commission (the "SEC")) of
Issuer, (x) a purchase, lease or other acquisition or assumption of all or a
substantial portion of the assets or deposits of Issuer or any Significant
Subsidiary of Issuer, (y) 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 Issuer, or (z) any
substantially similar transaction; PROVIDED, HOWEVER, that in no event shall
any merger, consolidation, purchase or similar transaction involving only
the Issuer and one or more of its Subsidiaries or involving only two or more
of such Subsidiaries, be deemed to be an Acquisition Transaction, provided
that any such transaction is not entered into in violation of the terms of
the Merger Agreements;
(ii) Any person (other than Grantee or any Subsidiary of Grantee) 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 1934 Act, and the rules and
regulations thereunder) or any person other than Grantee or any Subsidiary
of Grantee shall have commenced (as such term is defined under the rules and
regulations of the SEC), or shall have filed or publicly disseminated a
registration statement or similar disclosure statement with respect to, a
tender offer or exchange offer to purchase any shares of Issuer Common Stock
such that, upon consummation of such offer, such
B-2
person would own or control 10% or more of the then outstanding shares of
Issuer Common Stock (such an offer being referred to herein as a "Tender
Offer" or an "Exchange Offer," respectively);
(iii) (A) the holders of Issuer Common Stock shall not have approved the
Merger Agreements and the transactions contemplated thereby, at the meeting
of such stockholders held for the purpose of voting on such agreement, (B)
such meeting shall not have been held or shall have been cancelled prior to
termination of the Merger Agreements, or (C) the Board of Directors of
Issuer shall have publicly withdrawn or modified, or publicly announced its
intent to withdraw or modify, in any manner adverse to Grantee, its
recommendation that the stockholders of Issuer approve the transactions
contemplated by the Merger Agreements, in each case after it shall have been
publicly announced that any person other than Grantee or any Subsidiary of
Grantee shall have (x) made, or disclosed an intention to make, a proposal
to engage in an Acquisition Transaction, (u) commenced a Tender Offer, or
filed or publicly disseminated a registration statement or similar
disclosure statement with respect to an Exchange Offer, or (z) filed an
application (or given a notice), whether in draft or final form, under any
federal or state banking laws seeking regulatory approval to engage in an
Acquisition Transaction; or
(iv) After an overture is made by a third party to Issuer or its
stockholders to engage in an Acquisition Transaction, Issuer shall have
breached any covenant or obligation contained in the Reorganization
Agreement and such breach (x) would entitle Grantee to terminate the Merger
Agreements and (y) shall not have been cured prior to the Notice Date (as
defined below).
(c) The term "Subsequent Triggering Event" shall mean either of the
following events or transactions occurring after the date hereof:
(i) The acquisition by any person of beneficial ownership of 25% or more
of the then outstanding shares of Common Stock; or
(ii) The occurrence of the Initial Triggering Event described in
paragraph (i) of subsection (b) of this Section 2, except that the
percentage referred to in clause (y) shall be 25%.
(d) Issuer shall notify Grantee promptly in writing of the occurrence of any
Initial Triggering Event or Subsequent Triggering Event of which it has notice
(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, 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 Federal Reserve Board or any other regulatory
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 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, PROVIDED that
failure or refusal of Issuer to designate such a bank account shall not preclude
the Holder from exercising the Option.
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(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.
(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 "1933 Act"), in the above legend
shall be removed by delivery of substitute certificate(s) without such reference
if the Holder shall have delivered to Issuer a copy of a letter from the staff
of the SEC, or an opinion of counsel, in form and substance reasonably
satisfactory to Issuer, to the effect that such legend is not required for
purposes of the 1933 Act; (ii) the reference to the provisions to this Agreement
in the above legend shall be removed by delivery of substitute certificate(s)
without such reference if the shares have been sold or transferred in compliance
with the provisions of this Agreement and under circumstances that do not
require the retention of such reference; and (iii) the legend shall be removed
in its entirety if the conditions in the preceding clauses (i) and (ii) are both
satisfied. In addition, such certificates shall bear any other legend as may be
required by law.
(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 and
the tender of the applicable purchase price in immediately available funds, the
Holder shall be deemed to be the holder of record of the shares of Common Stock
issuable upon such exercise, notwithstanding that the stock transfer books of
Issuer shall then be closed or that certificates representing such shares of
Common Stock shall not then be actually delivered to the Holder. Issuer shall
pay all expenses, and any and all United States federal, state and local taxes
and other charges that may be payable in connection with the 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 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 federal or state banking law,
prior approval of or notice to the Federal Reserve Board or any other federal or
state 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 Federal Reserve Board or such other federal or
state 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.
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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 Stock Option
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. In the event of any change in, or distributions
in respect of, the Common Stock by reason of stock dividends, split-ups,
mergers, recapitalizations, combinations, subdivisions, conversions, exchanges
of shares, distributions on or in respect of the Common Stock that would be
prohibited under the terms of the Merger Agreement, or the like, the type and
number of shares of Common Stock purchasable upon exercise hereof and the Option
Price shall be appropriately adjusted in such manner as shall fully preserve the
economic benefits provided hereunder and proper provision shall be made in any
agreement governing any such transaction to provide for such proper adjustment
and the full satisfaction of the Issuer's obligations hereunder.
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 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 registration statement under the 1933 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 first to become effective and then to remain effective
for such period not in excess of 180 days from the day such registration
statement first becomes effective or such shorter time as may be reasonably
necessary to effect such sales or other dispositions. Grantee shall have the
right to demand two such registrations. 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 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 inclusion of the Holder's
Option or 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;
and PROVIDED, HOWEVER, that after any such required reduction the number of
Option Shares to be included in such offering for the account of the Holder
shall constitute at least 25% of the total number of shares to be sold by the
Holder and Issuer in the aggregate; and PROVIDED FURTHER, however, that if such
reduction occurs, then the Issuer shall file a registration statement for the
balance as promptly as practicable and no reduction shall thereafter occur. 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
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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 secondary offering underwriting agreements for the Issuer. Upon
receiving any request under this Section 6 from any Holder, Issuer agrees to
send a copy thereof to any other person known to Issuer to be entitled to
registration rights under this Section 6, in each case by promptly mailing the
same, postage prepaid, to the address of record of the persons entitled to
receive such copies. Notwithstanding anything to the contrary contained herein,
in no event shall Issuer be obligated to effect more than two registrations
pursuant to this Section 6 by reason of the fact that there shall be more than
one Grantee as a result of any assignment or division of this Agreement.
7. [reserved]
8. [reserved]
9. [reserved]
10. The six-month period for exercise of certain rights under Sections 2, 6
and 13 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 1934 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
Board of Directors of Issuer 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
hereto, 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 within six months
following such Subsequent Triggering Event (or such later period as provided in
Section 10); PROVIDED, HOWEVER, that until the date 15 days following the date
on
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which the Federal Reserve Board approves an application by Grantee to acquire
the shares of Common Stock subject to the Option, Grantee may not assign its
rights under the Option except in (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 purpose of conducting a
widely dispersed public distribution on Grantee's behalf, or (iv) any other
manner approved by the Federal Reserve Board.
14. Each of Grantee and Issuer will use its best efforts to make all filings
with, and to obtain consents of, all third parties and governmental authorities
necessary to the consummation of the transactions contemplated by this
Agreement, including without limitation making application to list the shares of
Common Stock issuable hereunder on the Nasdaq National Market upon official
notice of issuance and applying to the Federal Reserve Board and the OTS, as
applicable, for approval to acquire the shares issuable hereunder, but Grantee
shall not be obligated to apply to state banking authorities for approval to
acquire the shares of Common Stock issuable hereunder until such time, if ever,
as it deems appropriate to do so.
15. (a) Notwithstanding any other provision of this Agreement, in no event
shall the Grantee's Total Profit (as hereinafter defined) exceed $43.6 million
and, if it otherwise would exceed such amount, the Grantee, at its sole
election, shall either (i) reduce the number of shares of Common Stock subject
to this Option, (ii) deliver to the Issuer for cancellation Option Shares
previously purchased by Grantee, (iii) pay cash to the Issuer, or (iv) any
combination thereof, so that Grantee's actually realized Total Profit shall not
exceed $43.6 million after taking into account the foregoing actions.
(b) Notwithstanding any other provision of this Agreement, this Option may
not be exercised for a number of shares as would, as of the date of exercise,
result in a Notional Total Profit (as defined below) of more than $43.6 million;
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 (i)(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, plus (ii) any amounts received by Grantee
on the transfer of the Option (or any portion thereof) to any unaffiliated
party.
(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. 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.
17. If any term, provision, covenant or restriction contained in this
Agreement is held by a court or a federal or state regulatory agency of
competent jurisdiction to be invalid, void or unenforceable, the remainder of
the terms, provisions and covenants and restrictions contained in this Agreement
shall remain in full force and effect, and shall in no way be affected, impaired
or invalidated. If for any reason such court or regulatory agency determines
that the Holder is not permitted to acquire the full number of shares of Common
Stock provided in Section 1(a) hereof (as adjusted pursuant to Section 1(b) or 5
hereof), it is the express intention of Issuer to allow the Holder to acquire
such lesser number of shares as may be permissible, without any amendment or
modification hereof.
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18. All notices, requests, claims, demands and other communications
hereunder shall be deemed to have been duly given when delivered in person, by
cable, telegram, telecopy or telex, or by registered or certified mail (postage
prepaid, return receipt requested) at the respective addresses of the parties
set forth in the Reorganization Agreement.
19. This Agreement shall be governed by and construed in accordance with the
laws of the State of Delaware, regardless of the laws that might otherwise
govern under applicable principles of conflicts of laws thereof.
20. 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.
21. 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.
22. Except as otherwise expressly provided herein or in the Merger
Agreements, 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 assigns.
Nothing in this Agreement, expressed or implied, is intended to confer upon any
party, other than the parties hereto, and their respective successors and
permitted assigns, any rights, remedies, obligations or liabilities under or by
reason of this Agreement, except as expressly provided herein.
23. Capitalized terms used in this Agreement and not defined herein shall
have the meanings assigned thereto in the Merger Agreement.
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.
ONBANCORP, INC.
By: /s/ ROBERT J. BENNETT
Name: Robert J. Bennett
Title: Chairman and Chief
Executive Officer
FIRST EMPIRE STATE CORPORATION
By: /s/ RICHARD A. LAMMERT
Name: Richard A. Lammert
Title: Senior Vice President
and General Counsel
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APPENDIX C
February 9, 1998
The Board of Directors
First Empire State Corporation
One M&T Plaza
Buffalo, NY 14240
ATTN: Gary S. Paul
Senior Vice President
Members of the Board:
You have requested our opinion as to the fairness, from a financial point of
view, to First Empire State Corporation ("FES") and its stockholders of the
consideration to be paid ("Merger Consideration") in the proposed merger (the
"Merger") of a subsidiary of FES and ONBANCorp, Inc. ("ONBK") pursuant to the
Agreement and Plan of Reorganization (the "Merger Agreement") dated October 28,
1997 by and among FES, Olympia Financial Corp. and ONBK. It is our understanding
that the Merger will be structured as a purchase accounting transaction under
generally accepted accounting principles.
As is more specifically set forth in the Merger Agreement, upon consummation
of the Merger, each outstanding share of the common stock of ONBK, par value
$1.00 per share ("ONBK Common Stock"), except for any dissenting shares, will be
exchanged for 0.161 of a share of FES common stock, $5.00 par value per share,
or $69.50 in cash.
Keefe, Bruyette & Woods, Inc. ("KBW"), as part of its investment banking
business, is continually engaged in the valuation of bank holding companies and
banks, thrift holding companies and thrifts and their securities in connection
with mergers and acquisitions, underwriting, private placements, competitive
bidding processes, market making as a NASD market maker, and valuations for
various other purposes. As specialists in the securities of banking companies we
have experience in, and knowledge of, the valuation of banking enterprises. In
the ordinary course of our business as a broker-dealer, we may, from time to
time, trade the securities of ONBK or FES, for our own account, and for the
accounts of our customers and, accordingly, may at any time hold a long or short
position in such securities. To the extent we have any such positions as of the
date of this opinion it has been disclosed to FES. KBW has served as financial
advisor to FES in the negotiation of the Merger Agreement and in rendering this
fairness opinion and will receive a fee from FES for those services.
In arriving at our opinion, we have reviewed, analyzed and relied upon
material bearing upon the financial and operating condition of ONBK and FES and
the Merger, including among other things, the following:
i. Reviewed the Merger Agreement;
ii. Reviewed certain historical financial and other information concerning
FES for the five years ending December 31, 1996 and the quarter ending September
30, 1997, including FES' Annual Report to Stockholders and Annual Reports on
Forms 10-K, and interim quarterly reports on Form 10-Q;
iii. Reviewed certain historical financial and other information concerning
ONBK for the five years ending December 31, 1996 and the quarter ending
September 30, 1997, including ONBK's Annual Report to Stockholders and Annual
Reports on Forms 10-K, and interim quarterly reports on Form 10-Q;
iv. Reviewed and studied the historical stock prices and trading volumes of
the common stock of both FES and ONBK;
v. Held discussions with senior management of FES and ONBK with respect to
their past and current financial performance, financial condition and future
prospects;
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vi. Reviewed certain internal financial data, projections and other
information of FES and ONBK, including financial projections prepared by
management;
vii. Analyzed certain publicly available information of other financial
institutions that we deemed comparable or otherwise relevant to our inquiry, and
compared FES and ONBK from a financial point of view with certain of these
institutions;
viii. Reviewed the financial terms of certain recent business combinations
in the banking industry that we deemed comparable or otherwise relevant to our
inquiry; and
ix. Conducted such other financial studies, analyses and investigations and
reviewed such other information as we deemed appropriate to enable us to render
our opinion.
In conducting our review and arriving at our opinion, we have relied upon
the accuracy and completeness of all of the financial and other information
provided to us or publicly available and we have not assumed any responsibility
for independently verifying the accuracy or completeness of any such
information. We have relied upon the management of FES and ONBK as to the
reasonableness and achievability of the financial and operating forecasts and
projections (and the assumptions and bases therefor) provided to us, and we have
assumed that such forecasts and projections reflect the best currently available
estimates and judgments of such managements and that such forecasts and
projections will be realized in the amounts and in the time periods currently
estimated by such managements. We are not experts in the independent
verification of the adequacy of allowances for loan and lease losses and we have
assumed that the current and projected aggregate reserves for loan and lease
losses for FES and ONBK are adequate to cover such losses. We did not make or
obtain any independent evaluations or appraisals of any assets or liabilities of
FES, ONBK, or any of their respective subsidiaries nor did we verify any of FES'
or ONBK's books or records or review any individual loan or credit files.
We have considered such financial and other factors as we have deemed
appropriate under the circumstances, including, among others, the following: (i)
the historical and financial position and results of operations of FES and ONBK;
(ii) the assets and liabilities of FES and ONBK; and (iii) the nature and terms
of certain other merger transactions involving banks and bank holding companies.
We have also taken into account our assessment of general economic, market and
financial conditions and our experience in other transactions, as well as our
experience in securities valuation and knowledge of the banking industry
generally. Our opinion is necessarily based upon conditions as they exist and
can be evaluated on the date hereof and the information made available to us
through the date hereof.
Based upon and subject to the foregoing, it is our opinion that, as of the
date hereof, the Merger Consideration is fair, from a financial point of view,
to FES and its stockholders.
Very truly yours,
KEEFE, BRUYETTE & WOODS, INC.
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APPENDIX D
February 9, 1998
Board of Directors
ONBANCorp, Inc.
101 South Salina Street
Syracuse, New York 13202
Ladies and Gentlemen:
ONBANCorp, Inc. ("ONBANCorp"), First Empire State Corporation ("First
Empire") and Olympia Financial Corp., a wholly-owned subsidiary of First Empire
("Olympia"), have entered into an Agreement and Plan of Reorganization, dated as
of October 28, 1997 (the "Agreement"), pursuant to which ONBANCorp will be
merged with and into Olympia (the "Merger"). Upon consummation of the Merger,
each share of ONBANCorp common stock, par value $1.00 per share, issued and
outstanding immediately prior to the effective time of the Merger (together with
the rights associated therewith issued pursuant to the Rights Agreement dated as
of September 25, 1989 between ONBANCorp and The Bank of New York, as rights
agent, the "ONBANCorp Shares"), other than certain shares specified in the
Agreement, will be converted into the right to receive, at the election of the
holder thereof, either (i) 0.161 of a share of First Empire common stock, par
value $5.00 per share, or (ii) $69.50 in cash, subject to the election and
proration procedures set forth in the Agreement which provide, among other
things, that the total number of ONBANCorp Shares which may be converted into
First Empire common stock may not be less than 60% or more than 70% of the total
number of shares of ONBANCorp Common Stock issued and outstanding immediately
prior to the effective time of the Merger. The terms and conditions of the
Merger are more fully set forth in the Agreement. You have requested our opinion
as to the fairness, from a financial point of view, of the consideration to be
received in the Merger by the holders of the ONBANCorp Shares.
Sandler O'Neill & Partners, L.P., as part of its investment banking
business, is regularly engaged in the valuation of financial institutions and
their securities in connection with mergers and acquisitions and other corporate
transactions. In connection with this opinion, we have reviewed, among other
things: (i) the Agreement and exhibits thereto; (ii) the Stock Option Agreement,
dated as of October 28, 1997, between ONBANCorp and First Empire; (iii)
ONBANCorp's audited consolidated financial statements and management's
discussion and analysis of financial condition and results of operations as
contained in its Annual Report on Form 10-K for the year ended December 31,
1996; (iv) First Empire's audited consolidated financial statements and
management's discussion and analysis of financial condition and results of
operations as contained in its Annual Report on Form 10-K for the year ended
December 31, 1996; (v) ONBANCorp's unaudited consolidated financial statements
and management's discussion and analysis of financial condition and results of
operations contained in its Quarterly Report on Form 10-Q for the quarters ended
March 31, June 30, and September 30, 1997, respectively; (vi) First Empire's
unaudited consolidated financial statements and management's discussion and
analysis of financial condition and results of operations contained in its
Quarterly Report on Form 10-Q for the quarters ended March 31, June 30, and
September 30, 1997, respectively; (vii) summary financial information contained
in ONBANCorp's press release dated January 26, 1998 concerning ONBANCorp's
financial condition and results of operations for the three months and year
ended December 31, 1997; (viii) summary financial information contained in First
Empire's press release dated January 9, 1998 concerning First Empire's financial
condition and results of operations for the three months and year ended
December31, 1997; (ix) certain financial analyses and forecasts of ONBANCorp
prepared by and reviewed with management of ONBANCorp and the views of senior
management of ONBANCorp regarding ONBANCorp's past and current business
operations, results thereof, financial condition and future prospects; (x)
certain financial analyses and forecasts of First Empire prepared by and
reviewed with management of First Empire and the views of senior management of
First Empire regarding First Empire's past and current business operations,
results thereof, financial condition and future prospects; (xi) the pro forma
impact of the Merger; (xii) the publicly reported historical price and trading
activity for ONBANCorp's and First Empire's common stock, including a comparison
of certain financial and stock market information for ONBANCorp and First Empire
with similar publicly available information for certain other companies the
securities of which are publicly traded; (xiii) the financial terms of recent
business combinations in the banking industry, to the extent publicly available;
(xiv) the current market environment generally and the banking environment in
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particular; and (xv) such other information, financial studies, analyses and
investigations and financial, economic and market criteria as we considered
relevant. In connection with rendering this opinion, we were not asked to, and
did not, solicit indications of interest in a potential transaction from other
third parties.
In performing our review, we have assumed and relied upon, without
independent verification, the accuracy and completeness of all the financial
information, analyses and other information that was publicly available or
otherwise furnished to, reviewed by or discussed with us, and we do not assume
any responsibility or liability for the accuracy or completeness thereof. We did
not make an independent evaluation or appraisal of the specific assets, the
collateral securing assets or the liabilities (contingent or otherwise) of
ONBANCorp or First Empire or any of their subsidiaries, or the collectibility of
any such assets, nor have we been furnished with any such evaluations or
appraisals (relying, where relevant, on the analyses and estimates of ONBANCorp
and First Empire). With respect to the financial projections reviewed with
management, we have assumed that they have been reasonably prepared on bases
reflecting the best currently available estimates and judgments of the
respective managements of the respective future financial performances of
ONBANCorp and First Empire and that such performances will be achieved. We have
also assumed that there has been no material change in ONBANCorp's or First
Empire's assets, financial condition, results of operations, business or
prospects since September 30, 1997, the date of the last financial statements
noted above. We have assumed that ONBANCorp and First Empire will remain as
going concerns for all periods relevant to our analyses, that all of the
representations and warranties contained in the Agreement and all related
agreements are true and correct, that each party to such agreements will perform
all of the covenants required to be performed by such party under such
agreements and that the conditions precedent in the Agreement are not waived.
Our opinion is necessarily based on financial, economic, market and other
conditions as in effect on, and the information made available to us as of, the
date hereof. Events occurring after the date hereof could materially affect this
opinion. We have not undertaken to update, revise or reaffirm this opinion or
otherwise comment upon events occurring after the date hereof. We are expressing
no opinion herein as to what the value of First Empire common stock will be when
issued to ONBANCorp's shareholders pursuant to the Agreement or the prices at
which ONBANCorp's or First Empire's common stock will trade at any time.
We have acted as ONBANCorp's financial advisor in connection with the Merger
and will receive a fee for our services, a significant portion of which is
contingent upon consummation of the Merger. We have also received a fee for
rendering this opinion. In the past we have also provided, and may continue to
provide, certain other investment banking services for ONBANCorp and have
received, and will receive, compensation for such services.
In the ordinary course of our business, we may actively trade the debt and
equity securities of ONBANCorp and First Empire for our own account and for the
accounts of our customers and, accordingly, may at any time hold a long or short
position in such securities.
Our opinion is directed to the Board of Directors of ONBANCorp in connection
with its consideration of the Merger and does not constitute a recommendation to
any stockholder of ONBANCorp as to how such stockholder should vote at any
meeting of stockholders called to consider and vote upon the Merger. Our opinion
is not to be quoted or referred to, in whole or in part, in a registration
statement, prospectus, proxy statement or in any other document, nor shall this
opinion be used for any other purposes, without Sandler O'Neill's prior written
consent; provided, however, that we hereby consent to the inclusion of this
opinion as an exhibit to ONBANCorp's and First Empire's Joint Proxy Statement/
Prospectus dated the date hereof.
Based upon and subject to the foregoing, it is our opinion, as of the date
hereof, that the consideration to be received in the Merger by the holders of
ONBANCorp Shares is fair, from a financial point of view, to the holders of such
shares.
Very truly yours,
SANDLER O'NEILL & PARTNERS, L.P.
D-2
APPENDIX E
SECTION 262 OF THE DELAWARE
GENERAL CORPORATION LAW
Section 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 complied 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 Section 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 Sections 251 (other than a merger effected pursuant to
Section 251(g) of this title), 252, 254, 257, 258, 263 or 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 Section 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
SectionSection 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 (or depository receipts in respect thereof), which
shares of stock 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;
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.
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(3) In the event all of the stock of a subsidiary Delaware corporation
party to a merger effected under Section 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 subsection (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 his shares shall deliver to the corporation, before
the taking of the vote on the merger or consolidation, a written demand for
appraisal of his 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 his 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 Section 228
or Section 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 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
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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 his 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 his 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 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,
E-3
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 his certificates of stock to the Register in Chancery, if such is
required, may participate fully in all proceedings until it is finally
determined that he 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 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 his 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 in subsection (e) of this Section, or if such stockholder shall deliver
to the surviving or resulting corporation a written withdrawal of his 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.
E-4
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 721 and 722 of the New York Business Corporation Law ("NYBCL")
provide for indemnification of directors and officers. Section 721 of the NYBCL
provides that the statutory provisions under New York law are not exclusive of
any other rights to which a director or officer seeking indemnification would be
entitled.
Section 722 of the NYBCL provides that a corporation may indemnify a
director or officer of the corporation who is made a party, or threatened to be
made a party, in a civil or criminal proceeding arising out of activities
undertaken at the request of the corporation (including action on behalf of
another corporation, partnership, joint venture, trust, employee benefit plan or
other business enterprise) against judgments, fines, amounts paid in settlement
and reasonable expenses, if the director or officer acted in good faith for a
purpose which he reasonably believed to be in, or, in the case of service for
any other corporation, partnership, joint venture, trust, employee benefit plan
or other business enterprise, not opposed to, the best interests of the
corporation. To be indemnified with respect to criminal proceedings, the
director or officer must also have had no reasonable cause to believe that his
or her conduct was unlawful. In the case of a claim by or in the right of the
corporation (including stockholder derivative suits), there is no
indemnification under New York law for threatened actions or a pending action
otherwise settled or disposed of, and no indemnification of expenses is
permitted, if the director or officer is adjudged liable to the corporation
unless and only to the extent a court determines that, despite such adjudication
but in view of all the circumstances, such indemnification is nonetheless
proper.
The Certificate of Incorporation of the Registrant provides that the
Registrant will indemnify to the maximum extent permissible under New York law
its officers and directors for liability arising out of their actions in such
capacity.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
An index of exhibits appears at page II-6, which is incorporated herein by
reference.
ITEM 22. UNDERTAKINGS
(a) The undersigned Registrant hereby undertakes:
1. To file, during any period in which offers or sales are being made, a
post-effective amendment to the Registration Statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth in
the Registration Statement. Notwithstanding the foregoing, any increase
or decrease in the volume of securities offered (if the total dollar
value of securities offered would not exceed that which was registered)
and any deviation from the low or high end of the estimated maximum
offering range may be reflected in the form of prospectus filed with the
Commission pursuant to Rule 424(b) if, in the aggregate, the changes in
volume and price represent no more than a 20 percent change in the
maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement; and
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the Registration Statement or
any material change to such information in the Registration Statement;
II-1
2. That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to be a
new registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
3. To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the
Registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Exchange Act that is incorporated by reference in this Registration Statement
shall be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
The undersigned Registrant hereby undertakes as follows: that prior to any
public reoffering of the securities registered hereunder through use of a
prospectus which is a part of this Registration Statement, by any person or
party who is deemed to be an underwriter within the meaning of Rule 145(c), the
issuer undertakes that such reoffering prospectus will contain the information
called for by the applicable registration form with respect to reofferings by
persons who may be deemed underwriters, in addition to the information called
for by the other Items of the applicable form.
The Registrant undertakes that every prospectus (i) that is filed pursuant
to the paragraph immediately preceding, or (ii) that purports to meet the
requirements of section 10(a)(3) of the Act and is used in connection with an
offering of securities subject to Rule 415, will be filed as a part of an
amendment to the Registration Statement and will not be used until such
amendment is effective, and that, for purposes of determining any liability
under the Securities Act, each such post-effective amendment shall be deemed to
be a new registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been informed that in the opinion of the Commission such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred or
paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
The undersigned Registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the Prospectus pursuant to
Items 4, 10(b), 11, or 13 of this Form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the Registration Statement through the
date of responding to the request.
The undersigned Registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the Registration Statement when it became effective.
II-2
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Buffalo, State of New
York, on February 9, 1998
FIRST EMPIRE STATE CORPORATION
By /s/ MICHAEL P. PINTO
-----------------------------------------
Michael P. Pinto
EXECUTIVE VICE PRESIDENT AND
CHIEF FINANCIAL OFFICER
Pursuant to the requirements of the Securities Act , this Registration
Statement has been signed by the following persons in the capacities indicated
on February 9, 1998.
SIGNATURE TITLE
- -------------------------------------------------------- --------------------------------------------------------
*
------------------------------------------ Director, Chairman of the Board President and Chief
Robert G. Wilmers Executive Officer (Principal Executive Officer)
*
------------------------------------------ Executive Vice President and Chief Financial Officer
Michael P. Pinto (Principal Financial Officer)
*
------------------------------------------ Administrative Vice President Controller and Assistant
Michael R. Spychala Secretary (Principal Accounting Officer)
*
------------------------------------------ Director
Brent D. Baird
*
------------------------------------------ Director
John H. Benisch
*
------------------------------------------ Director
C. Angela Bontempo
*
------------------------------------------ Director
Robert T. Brady
*
------------------------------------------ Director
Patrick J. Callan
II-3
SIGNATURE TITLE
- -------------------------------------------------------- --------------------------------------------------------
*
------------------------------------------ Director
Richard E. Garman
*
------------------------------------------ Director
James V. Glynn
*
------------------------------------------ Director
Roy M. Goodman
*
------------------------------------------ Director
Patrick W. E. Hodgson
*
------------------------------------------ Director
Samuel T. Hubbard, Jr.
*
------------------------------------------ Director
Lambros J. Lambros
*
------------------------------------------ Director
Wilfred J. Larson
*
------------------------------------------ Director
Jorge G. Pereira
*
------------------------------------------ Director
Raymond D. Stevens, Jr.
*
------------------------------------------ Director
Herbert L. Washington
*
------------------------------------------ Director
John L. Wehle, Jr.
/s/ RICHARD A. LAMMERT
By: ---------------------------------------
(ATTORNEY-IN-FACT)
II-4
INDEX OF EXHIBITS
Exhibit 2 Agreement and Plan of Reorganization (including Agreement and Plan of Merger
as Annex A), included as Appendix A to the Proxy Statement and incorporated
herein by reference.
Exhibit 5 Opinion of Richard A. Lammert, Esq. regarding the validity of First Empire
Common Stock being registered, filed herewith.
Exhibit 8 Tax opinion of Arnold & Porter, filed herewith.
Exhibit 23.1 Consent of Price Waterhouse LLP, independent auditors for First Empire State
Corporation, filed herewith.
Exhibit 23.2 Consent of KPMG Peat Marwick LLP, independent auditors for ONBANCorp, Inc.,
filed herewith.
Exhibit 23.3 Consent of Arnold & Porter, included in the opinion filed as Exhibit 8 hereto.
Exhibit 23.4 Consent of Keefe Bruyette & Woods, Inc., filed herewith.
Exhibit 23.5 Consent of Sandler O'Neill & Partners, L.P., filed herewith.
Exhibit 23.6 Consent of William F. Allyn, as required by Rule 438 under the Securities Act
of 1933, filed herewith.
Exhibit 23.7 Consent of Robert J. Bennett, as required by Rule 438 under the Securities Act
of 1933, filed herewith.
Exhibit 23.8 Consent of Russell A. King, as required by Rule 438 under the Securities Act
of 1933, filed herewith.
Exhibit 23.9 Consent of Peter J. O'Donnell, as required by Rule 438 under the Securities
Act of 1933, filed herewith.
Exhibit
23.10 Consent of John L. Vensel, as required by Rule 438 under the Securities Act of
1933, filed herewith.
Exhibit 24 Powers of Attorney of certain directors and officers of First Empire, filed
herewith.
Exhibit 99.1 Form of Proxy relating to First Empire, filed herewith.
Exhibit 99.2 Form of Proxy relating to ONBANCorp, filed herewith.
Exhibit 99.3 Stock Option Agreement, included as Appendix B to the Proxy Statement and
incorporated herein by reference.
EXHIBIT 5
February 9, 1998
Board of Directors
First Empire State Corporation
One M&T Plaza
Buffalo, NY 14240
Ladies and Gentlemen:
This opinion is rendered in connection with the Registration Statement on
Form S-4 (the "Registration Statement") of First Empire State Corporation, a New
York corporation ("FESC"), to be filed with the Securities and Exchange
Commission under the Securities Act of 1933, as amended (the "Securities Act"),
relating to the registration of 1,510,000 shares of FESC's common stock, par
value $5.00 ("FESC Common Stock"), in connection with that certain Agreement and
Plan of Reorganization dated as of October 28, 1997 (the "Reorganization
Agreement"), by and among FESC, ONBANCorp, Inc. ("OBC"), a Delaware corporation,
and Olympia Financial Corp. ("Olympia"), a Delaware corporation and wholly owned
subsidiary of FESC, and that certain related Agreement and Plan of Merger dated
as of October 28, 1997 (the "Merger Agreement" and together with the
Reorganization Agreement, the "Agreements"), by and among FESC, OBC and Olympia.
Subject to certain conditions, the Agreements provide for the merger (the
"Merger") of OBC with and into Olympia.
As Senior Vice President and General Counsel of FESC, I have participated in
the preparation of the Registration Statement, including the prospectus included
therein. I have acted as counsel to FESC with respect to the authorization and
issuance of the FESC Common Stock covered by the Registration Statement. I have
reviewed FESC's Certificate of Incorporation and By-laws, each as amended to
date, the Registration Statement, the Agreements and the proceedings taken by
FESC relating to the Agreements and the Registration Statement, including the
resolutions adopted by FESC's Board of Directors with respect thereto. I also
have examined such corporate records, certificates and other documents that I
have considered necessary or appropriate for the purposes of this opinion.
In making such examination and rendering the opinions set forth below, I
have assumed: (i) the genuineness and authenticity of all signatures (other than
my own) on original documents; (ii) the authenticity of all documents submitted
to me as originals; and (iii) the conformity of originals of all documents
submitted to me as certified, telecopied, photostatic or reproduced copies and
the authenticity of all originals of such documents.
In addition, I have assumed: (a) the due authorization and issuance of the
outstanding shares of common stock of OBC, and (b) that the Option Plans (as
defined below) and any stock options issued thereunder have been duly authorized
on OBC's part in accordance with applicable law. I am admitted to practice law
in the State of New York and do not purport to be an expert on or to express any
opinion on any laws other than the laws of the State of New York and the federal
laws of the United States of America. This opinion speaks as of today's date and
is limited to present statutes, regulations and judicial interpretations. In
rendering this opinion, I assume no obligation to revise or supplement this
opinion should the present laws be changed by legislative or regulatory action,
judicial decision or otherwise.
Board of Directors
First Empire State Corporation
February 9, 1998
Page 2
Based upon the foregoing, I am of the opinion that:
(1) The shares of FESC Common Stock have been duly authorized and, when
issued to the stockholders of OBC pursuant to, and in accordance with, the
terms of the Agreements, will be validly issued, fully paid and
nonassessable.
(2) Upon the effectiveness of the Merger, the shares of FESC Common
Stock included in the Registration Statement that may be issued to holders
of stock options granted by OBC under the 1992 OBC Directors' Stock Option
Plan, the OBC 1987 Stock Option and Appreciation Rights Plan or the Franklin
First Savings Bank Incentive Plan (collectively, the "Option Plans") and to
be assumed by FESC pursuant to Paragraph 6 of Article V of the Merger
Agreement, upon issuance in accordance with the terms of the Option Plans
for lawful consideration, will be validly issued, fully paid and
nonassessable.
This letter does not address any matters other than those expressly
addressed herein.
I hereby consent in the filing of this opinion as an exhibit to the
Registration Statement and to the reference to me under the caption "Legal
Opinion" in the prospectus, which is part of the Registration Statement. In
giving such consent, I do not thereby admit that I am in the category of persons
whose consent is required under Section 7 of the Securities Act.
Very truly yours,
/s/ RICHARD A. LAMMERT
---------------------------------------------
Richard A. Lammert
SENIOR VICE PRESIDENT AND
GENERAL COUNSEL
EXHIBIT 8
February 9, 1998
First Empire State Corporation
One M&T Plaza
Buffalo, New York 14240
ONBANCorp, Inc.
101 South Salina Street
P.O. Box 4983
Syracuse, New York 13221-4983
Ladies and Gentlemen:
Reference is made to the information set forth under the heading "PROPOSED
MERGER--Certain Federal Income Tax Consequences" contained in the Joint Proxy
Statement-Prospectus, which is included in the Registration Statement on Form
S-4 (the "Registration Statement"), filed by First Empire State Corporation
("First Empire") with the Securities and Exchange Commission (the "SEC") in
connection with the solicitation of proxies by the Boards of Directors of First
Empire and ONBANCorp, Inc. ("ONBANCorp") for their use at their respective
special meetings of stockholders, at which stockholders of First Empire and
ONBANCorp will be asked to approve and adopt an Agreement and Plan of
Reorganization and related Agreement and Plan of Merger, each dated as of
October 28, 1997. Subject to the representations, assumptions and other
conditions described or referenced in this letter and under that heading, it is
our opinion that the discussion of anticipated material federal income tax
consequences contained under that heading is accurate in all material respects.
Our opinion is based on the case law, Internal Revenue Code, Treasury
Regulations and Internal Revenue Service rulings as they exist at the date
hereof. These authorities are all subject to change, and any such change may be
made with retroactive effect. We can give no assurance that, after such change,
our opinion would not be different. We undertake no responsibility to update or
supplement our opinion following the effective date of the Registration
Statement.
We hereby consent to the filing with the SEC of this opinion as an exhibit
to the Registration Statement and to the reference to our firm under the heading
"PROPOSED MERGER--Certain Federal Income Tax Consequences" contained therein. In
giving such consent, we do not thereby admit that we are in the category of
persons whose consent is required under Section 7 of the Securities Act of 1933.
Very truly yours,
/s/ Arnold & Porter
---------------------------------------------------------------
ARNOLD & PORTER
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Joint Proxy
Statement/Prospectus constituting part of this Registration Statement on Form
S-4 of First Empire State Corporation of our report dated January 9, 1997
appearing on page 54 of First Empire State Corporation's Annual Report on Form
10-K for the year ended December 31, 1996. We also consent to the reference to
us under the heading "Experts" in such Joint Proxy Statement/Prospectus.
/s/ Price Waterhouse LLP
- ---------------------
Price Waterhouse LLP
Buffalo, New York
February 9, 1998
EXHIBIT 23.2
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors
ONBANCorp, Inc.:
We consent to the use of our report dated January 22, 1997, relating to the
consolidated balance sheets of ONBANCorp, Inc. and subsidiaries as of December
31, 1996 and 1995, and the related consolidated statements of income, changes in
shareholders' equity, and cash flows for each of the years in the three-year
period December 31, 1996, which report has been incorporated herein by reference
in the December 31, 1996 annual report on Form 10-K of ONBANCorp, Inc.
We also consent to the reference to our firm under the heading "Experts" in
the prospectus.
/s/ KPMG Peat Marwick LLP
- ---------------------
KPMG Peat Marwick LLP
Syracuse, New York
February 9, 1998
EXHIBIT 23.4
CONSENT OF FINANCIAL ADVISOR
February 9, 1998
We hereby consent to the use in this Registration Statement on Form S-4 of
our letter to the Board of Directors of First Empire State Corporation included
as Appendix C to the Prospectus/Joint Proxy Statement forming a part of this
Registration Statement on Form S-4 and to all references to our firm in such
Prospectus/Joint Proxy Statement. In giving such consent, we do not hereby admit
that we come within the category of persons whose consent is required under
Section 7 of the Securities Act of 1933 or the rules and regulations of the
Securities and Exchange Commission thereunder.
KEEFE, BRUYETTE & WOODS, INC.
EXHIBIT 23.5
CONSENT OF FINANCIAL ADVISOR
We hereby consent to the inclusion of our opinion letter to the Board of
Directors of ONBANCorp, Inc. (the "Company") as Appendix D in the Joint Proxy
Statement/Prospectus relating to the proposed merger of the Company with and
into First Empire State Corporation's subsidiary Olympia Financial Corp.
contained in the Registration Statement on Form S-4, and to the references to
our firm and such opinion in such Joint Proxy Statement/Prospectus. In giving
such consent, we do not admit that we come within the category of persons whose
consent is required under Section 7 of the Securities Act of 1933, as amended
(the "Act"), or the rules and regulations of the Securities and Exchange
Commission thereunder (the "Regulations"), nor do we admit that we are experts
with respect to any part of such Registration Statement within the meaning of
the term "experts" as used in the Act or the Regulations.
SANDLER O'NEILL & PARTNERS, L.P.
February 9, 1998
EXHIBIT 23.6
CONSENT
I hereby consent to being named as a person chosen to become a director of
First Empire State Corporation in the Registration Statement on Form S-4 filed
with the Securities and Exchange Commission on February 9, 1998.
/s/ WILLIAM F. ALLYN
-----------------------------------------
William F. Allyn
EXHIBIT 23.7
CONSENT
I hereby consent to being named as a person chosen to become a director of
First Empire State Corporation in the Registration Statement on Form S-4 filed
with the Securities and Exchange Commission on February 9, 1998.
/s/ ROBERT J. BENNETT
-----------------------------------------
Robert J. Bennett
EXHIBIT 23.8
CONSENT
I hereby consent to being named as a person chosen to become a director of
First Empire State Corporation in the Registration Statement on Form S-4 filed
with the Securities and Exchange Commission on February 9, 1998.
/s/ RUSSELL A. KING
-----------------------------------------
Russell A. King
EXHIBIT 23.9
CONSENT
I hereby consent to being named as a person chosen to become a director of
First Empire State Corporation in the Registration Statement on Form S-4 filed
with the Securities and Exchange Commission on February 9, 1998.
/s/ PETER J. O'DONNELL
-----------------------------------------
Peter J. O'Donnell
EXHIBIT 23.10
CONSENT
I hereby consent to being named as a person chosen to become a director of
First Empire State Corporation in the Registration Statement on Form S-4 filed
with the Securities and Exchange Commission on February 9, 1998.
/s/ JOHN L. VENSEL
-----------------------------------------
John L. Vensel
EXHIBIT 24
POWERS OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned director and/or officer
of First Empire State Corporation, a corporation organized under the laws of the
State of New York (the "Corporation"), hereby constitutes and appoints Richard
A. Lammert, Gary S. Paul, Steven L. Kaplan and Howard L. Hyde, and each of them
(with full power to each of them to act alone), his or her true and lawful
attorneys-in-fact and agents with full power of substitution and resubstitution,
for him or her and on his or her behalf and in his or her name, place and stead,
in any and all capacities, to sign, execute and to affix his or her seal to and
file with the Securities and Exchange Commission (or any other governmental or
regulatory authority) a Registration Statement on Form S-4 (or any other
appropriate form), and any and all amendments (including post-effective
amendments) thereto, with all exhibits and any and all documents required to be
filed with respect thereto, relating to the registration under the Securities
Act of 1933, as amended, of shares of the Corporation's common stock, par value
$5.00 per share, granting unto said attorneys, and each of them, full power and
authority to do and to perform each and every act and thing requisite and
necessary to be done in order to effectuate the same as fully to all intents and
purposes as he himself or she herself might or could do if personally present,
hereby ratifying and confirming all that said attorneys-in-fact and agents, or
any of them, may lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned director and/or officer has hereunto set
his or her hand as of the date specified.
Dated: January 20, 1998
/s/ ROBERT G. WILMERS
-----------------------------------------
Robert G. Wilmers
EXHIBIT 24
POWERS OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned director and/or officer
of First Empire State Corporation, a corporation organized under the laws of the
State of New York (the "Corporation"), hereby constitutes and appoints Richard
A. Lammert, Gary S. Paul, Steven L. Kaplan and Howard L. Hyde, and each of them
(with full power to each of them to act alone), his or her true and lawful
attorneys-in-fact and agents with full power of substitution and resubstitution,
for him or her and on his or her behalf and in his or her name, place and stead,
in any and all capacities, to sign, execute and to affix his or her seal to and
file with the Securities and Exchange Commission (or any other governmental or
regulatory authority) a Registration Statement on Form S-4 (or any other
appropriate form), and any and all amendments (including post-effective
amendments) thereto, with all exhibits and any and all documents required to be
filed with respect thereto, relating to the registration under the Securities
Act of 1933, as amended, of shares of the Corporation's common stock, par value
$5.00 per share, granting unto said attorneys, and each of them, full power and
authority to do and to perform each and every act and thing requisite and
necessary to be done in order to effectuate the same as fully to all intents and
purposes as he himself or she herself might or could do if personally present,
hereby ratifying and confirming all that said attorneys-in-fact and agents, or
any of them, may lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned director and/or officer has hereunto set
his or her hand as of the date specified.
Dated: January 20, 1998
/s/ MICHAEL P. PINTO
-----------------------------------------
Michael P. Pinto
EXHIBIT 24
POWERS OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned director and/or officer
of First Empire State Corporation, a corporation organized under the laws of the
State of New York (the "Corporation"), hereby constitutes and appoints Richard
A. Lammert, Gary S. Paul, Steven L. Kaplan and Howard L. Hyde, and each of them
(with full power to each of them to act alone), his or her true and lawful
attorneys-in-fact and agents with full power of substitution and resubstitution,
for him or her and on his or her behalf and in his or her name, place and stead,
in any and all capacities, to sign, execute and to affix his or her seal to and
file with the Securities and Exchange Commission (or any other governmental or
regulatory authority) a Registration Statement on Form S-4 (or any other
appropriate form), and any and all amendments (including post-effective
amendments) thereto, with all exhibits and any and all documents required to be
filed with respect thereto, relating to the registration under the Securities
Act of 1933, as amended, of shares of the Corporation's common stock, par value
$5.00 per share, granting unto said attorneys, and each of them, full power and
authority to do and to perform each and every act and thing requisite and
necessary to be done in order to effectuate the same as fully to all intents and
purposes as he himself or she herself might or could do if personally present,
hereby ratifying and confirming all that said attorneys-in-fact and agents, or
any of them, may lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned director and/or officer has hereunto set
his or her hand as of the date specified.
Dated: January 20, 1998
/s/ MICHAEL R. SPYCHALA
-----------------------------------------
Michael R. Spychala
EXHIBIT 24
POWERS OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned director and/or officer
of First Empire State Corporation, a corporation organized under the laws of the
State of New York (the "Corporation"), hereby constitutes and appoints Richard
A. Lammert, Gary S. Paul, Steven L. Kaplan and Howard L. Hyde, and each of them
(with full power to each of them to act alone), his or her true and lawful
attorneys-in-fact and agents with full power of substitution and resubstitution,
for him or her and on his or her behalf and in his or her name, place and stead,
in any and all capacities, to sign, execute and to affix his or her seal to and
file with the Securities and Exchange Commission (or any other governmental or
regulatory authority) a Registration Statement on Form S-4 (or any other
appropriate form), and any and all amendments (including post-effective
amendments) thereto, with all exhibits and any and all documents required to be
filed with respect thereto, relating to the registration under the Securities
Act of 1933, as amended, of shares of the Corporation's common stock, par value
$5.00 per share, granting unto said attorneys, and each of them, full power and
authority to do and to perform each and every act and thing requisite and
necessary to be done in order to effectuate the same as fully to all intents and
purposes as he himself or she herself might or could do if personally present,
hereby ratifying and confirming all that said attorneys-in-fact and agents, or
any of them, may lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned director and/or officer has hereunto set
his or her hand as of the date specified.
Dated: January 20, 1998
/s/ BRENT D. BAIRD
-----------------------------------------
Brent D. Baird
EXHIBIT 24
POWERS OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned director and/or officer
of First Empire State Corporation, a corporation organized under the laws of the
State of New York (the "Corporation"), hereby constitutes and appoints Richard
A. Lammert, Gary S. Paul, Steven L. Kaplan and Howard L. Hyde, and each of them
(with full power to each of them to act alone), his or her true and lawful
attorneys-in-fact and agents with full power of substitution and resubstitution,
for him or her and on his or her behalf and in his or her name, place and stead,
in any and all capacities, to sign, execute and to affix his or her seal to and
file with the Securities and Exchange Commission (or any other governmental or
regulatory authority) a Registration Statement on Form S-4 (or any other
appropriate form), and any and all amendments (including post-effective
amendments) thereto, with all exhibits and any and all documents required to be
filed with respect thereto, relating to the registration under the Securities
Act of 1933, as amended, of shares of the Corporation's common stock, par value
$5.00 per share, granting unto said attorneys, and each of them, full power and
authority to do and to perform each and every act and thing requisite and
necessary to be done in order to effectuate the same as fully to all intents and
purposes as he himself or she herself might or could do if personally present,
hereby ratifying and confirming all that said attorneys-in-fact and agents, or
any of them, may lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned director and/or officer has hereunto set
his or her hand as of the date specified.
Dated: January 20, 1998
/s/ JOHN H. BENISCH
-----------------------------------------
John H. Benisch
EXHIBIT 24
POWERS OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned director and/or officer
of First Empire State Corporation, a corporation organized under the laws of the
State of New York (the "Corporation"), hereby constitutes and appoints Richard
A. Lammert, Gary S. Paul, Steven L. Kaplan and Howard L. Hyde, and each of them
(with full power to each of them to act alone), his or her true and lawful
attorneys-in-fact and agents with full power of substitution and resubstitution,
for him or her and on his or her behalf and in his or her name, place and stead,
in any and all capacities, to sign, execute and to affix his or her seal to and
file with the Securities and Exchange Commission (or any other governmental or
regulatory authority) a Registration Statement on Form S-4 (or any other
appropriate form), and any and all amendments (including post-effective
amendments) thereto, with all exhibits and any and all documents required to be
filed with respect thereto, relating to the registration under the Securities
Act of 1933, as amended, of shares of the Corporation's common stock, par value
$5.00 per share, granting unto said attorneys, and each of them, full power and
authority to do and to perform each and every act and thing requisite and
necessary to be done in order to effectuate the same as fully to all intents and
purposes as he himself or she herself might or could do if personally present,
hereby ratifying and confirming all that said attorneys-in-fact and agents, or
any of them, may lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned director and/or officer has hereunto set
his or her hand as of the date specified.
Dated: January 20, 1998
/s/ ANGELA BONTEMPO
-----------------------------------------
Angela Bontempo
EXHIBIT 24
POWERS OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned director and/or officer
of First Empire State Corporation, a corporation organized under the laws of the
State of New York (the "Corporation"), hereby constitutes and appoints Richard
A. Lammert, Gary S. Paul, Steven L. Kaplan and Howard L. Hyde, and each of them
(with full power to each of them to act alone), his or her true and lawful
attorneys-in-fact and agents with full power of substitution and resubstitution,
for him or her and on his or her behalf and in his or her name, place and stead,
in any and all capacities, to sign, execute and to affix his or her seal to and
file with the Securities and Exchange Commission (or any other governmental or
regulatory authority) a Registration Statement on Form S-4 (or any other
appropriate form), and any and all amendments (including post-effective
amendments) thereto, with all exhibits and any and all documents required to be
filed with respect thereto, relating to the registration under the Securities
Act of 1933, as amended, of shares of the Corporation's common stock, par value
$5.00 per share, granting unto said attorneys, and each of them, full power and
authority to do and to perform each and every act and thing requisite and
necessary to be done in order to effectuate the same as fully to all intents and
purposes as he himself or she herself might or could do if personally present,
hereby ratifying and confirming all that said attorneys-in-fact and agents, or
any of them, may lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned director and/or officer has hereunto set
his or her hand as of the date specified.
Dated: January 20, 1998
/s/ ROBERT T. BRADY
-----------------------------------------
Robert T. Brady
EXHIBIT 24
POWERS OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned director and/or officer
of First Empire State Corporation, a corporation organized under the laws of the
State of New York (the "Corporation"), hereby constitutes and appoints Richard
A. Lammert, Gary S. Paul, Steven L. Kaplan and Howard L. Hyde, and each of them
(with full power to each of them to act alone), his or her true and lawful
attorneys-in-fact and agents with full power of substitution and resubstitution,
for him or her and on his or her behalf and in his or her name, place and stead,
in any and all capacities, to sign, execute and to affix his or her seal to and
file with the Securities and Exchange Commission (or any other governmental or
regulatory authority) a Registration Statement on Form S-4 (or any other
appropriate form), and any and all amendments (including post-effective
amendments) thereto, with all exhibits and any and all documents required to be
filed with respect thereto, relating to the registration under the Securities
Act of 1933, as amended, of shares of the Corporation's common stock, par value
$5.00 per share, granting unto said attorneys, and each of them, full power and
authority to do and to perform each and every act and thing requisite and
necessary to be done in order to effectuate the same as fully to all intents and
purposes as he himself or she herself might or could do if personally present,
hereby ratifying and confirming all that said attorneys-in-fact and agents, or
any of them, may lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned director and/or officer has hereunto set
his or her hand as of the date specified.
Dated: January 20, 1998
/s/ PATRICK J. CALLAN
-----------------------------------------
Patrick J. Callan
EXHIBIT 24
POWERS OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned director and/or officer
of First Empire State Corporation, a corporation organized under the laws of the
State of New York (the "Corporation"), hereby constitutes and appoints Richard
A. Lammert, Gary S. Paul, Steven L. Kaplan and Howard L. Hyde, and each of them
(with full power to each of them to act alone), his or her true and lawful
attorneys-in-fact and agents with full power of substitution and resubstitution,
for him or her and on his or her behalf and in his or her name, place and stead,
in any and all capacities, to sign, execute and to affix his or her seal to and
file with the Securities and Exchange Commission (or any other governmental or
regulatory authority) a Registration Statement on Form S-4 (or any other
appropriate form), and any and all amendments (including post-effective
amendments) thereto, with all exhibits and any and all documents required to be
filed with respect thereto, relating to the registration under the Securities
Act of 1933, as amended, of shares of the Corporation's common stock, par value
$5.00 per share, granting unto said attorneys, and each of them, full power and
authority to do and to perform each and every act and thing requisite and
necessary to be done in order to effectuate the same as fully to all intents and
purposes as he himself or she herself might or could do if personally present,
hereby ratifying and confirming all that said attorneys-in-fact and agents, or
any of them, may lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned director and/or officer has hereunto set
his or her hand as of the date specified.
Dated: January 20, 1998
/s/ RICHARD E. GARMAN
-----------------------------------------
Richard E. Garman
EXHIBIT 24
POWERS OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned director and/or officer
of First Empire State Corporation, a corporation organized under the laws of the
State of New York (the "Corporation"), hereby constitutes and appoints Richard
A. Lammert, Gary S. Paul, Steven L. Kaplan and Howard L. Hyde, and each of them
(with full power to each of them to act alone), his or her true and lawful
attorneys-in-fact and agents with full power of substitution and resubstitution,
for him or her and on his or her behalf and in his or her name, place and stead,
in any and all capacities, to sign, execute and to affix his or her seal to and
file with the Securities and Exchange Commission (or any other governmental or
regulatory authority) a Registration Statement on Form S-4 (or any other
appropriate form), and any and all amendments (including post-effective
amendments) thereto, with all exhibits and any and all documents required to be
filed with respect thereto, relating to the registration under the Securities
Act of 1933, as amended, of shares of the Corporation's common stock, par value
$5.00 per share, granting unto said attorneys, and each of them, full power and
authority to do and to perform each and every act and thing requisite and
necessary to be done in order to effectuate the same as fully to all intents and
purposes as he himself or she herself might or could do if personally present,
hereby ratifying and confirming all that said attorneys-in-fact and agents, or
any of them, may lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned director and/or officer has hereunto set
his or her hand as of the date specified.
Dated: January 20, 1998
/s/ JAMES V. GLYNN
-----------------------------------------
James V. Glynn
EXHIBIT 24
POWERS OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned director and/or officer
of First Empire State Corporation, a corporation organized under the laws of the
State of New York (the "Corporation"), hereby constitutes and appoints Richard
A. Lammert, Gary S. Paul, Steven L. Kaplan and Howard L. Hyde, and each of them
(with full power to each of them to act alone), his or her true and lawful
attorneys-in-fact and agents with full power of substitution and resubstitution,
for him or her and on his or her behalf and in his or her name, place and stead,
in any and all capacities, to sign, execute and to affix his or her seal to and
file with the Securities and Exchange Commission (or any other governmental or
regulatory authority) a Registration Statement on Form S-4 (or any other
appropriate form), and any and all amendments (including post-effective
amendments) thereto, with all exhibits and any and all documents required to be
filed with respect thereto, relating to the registration under the Securities
Act of 1933, as amended, of shares of the Corporation's common stock, par value
$5.00 per share, granting unto said attorneys, and each of them, full power and
authority to do and to perform each and every act and thing requisite and
necessary to be done in order to effectuate the same as fully to all intents and
purposes as he himself or she herself might or could do if personally present,
hereby ratifying and confirming all that said attorneys-in-fact and agents, or
any of them, may lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned director and/or officer has hereunto set
his or her hand as of the date specified.
Dated: January 20, 1998
/s/ ROY M. GOODMAN
-----------------------------------------
Roy M. Goodman
EXHIBIT 24
POWERS OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned director and/or officer
of First Empire State Corporation, a corporation organized under the laws of the
State of New York (the "Corporation"), hereby constitutes and appoints Richard
A. Lammert, Gary S. Paul, Steven L. Kaplan and Howard L. Hyde, and each of them
(with full power to each of them to act alone), his or her true and lawful
attorneys-in-fact and agents with full power of substitution and resubstitution,
for him or her and on his or her behalf and in his or her name, place and stead,
in any and all capacities, to sign, execute and to affix his or her seal to and
file with the Securities and Exchange Commission (or any other governmental or
regulatory authority) a Registration Statement on Form S-4 (or any other
appropriate form), and any and all amendments (including post-effective
amendments) thereto, with all exhibits and any and all documents required to be
filed with respect thereto, relating to the registration under the Securities
Act of 1933, as amended, of shares of the Corporation's common stock, par value
$5.00 per share, granting unto said attorneys, and each of them, full power and
authority to do and to perform each and every act and thing requisite and
necessary to be done in order to effectuate the same as fully to all intents and
purposes as he himself or she herself might or could do if personally present,
hereby ratifying and confirming all that said attorneys-in-fact and agents, or
any of them, may lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned director and/or officer has hereunto set
his or her hand as of the date specified.
Dated: January 20, 1998
/s/ PATRICK W.E. HODGSON
-----------------------------------------
Patrick W.E. Hodgson
EXHIBIT 24
POWERS OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned director and/or officer
of First Empire State Corporation, a corporation organized under the laws of the
State of New York (the "Corporation"), hereby constitutes and appoints Richard
A. Lammert, Gary S. Paul, Steven L. Kaplan and Howard L. Hyde, and each of them
(with full power to each of them to act alone), his or her true and lawful
attorneys-in-fact and agents with full power of substitution and resubstitution,
for him or her and on his or her behalf and in his or her name, place and stead,
in any and all capacities, to sign, execute and to affix his or her seal to and
file with the Securities and Exchange Commission (or any other governmental or
regulatory authority) a Registration Statement on Form S-4 (or any other
appropriate form), and any and all amendments (including post-effective
amendments) thereto, with all exhibits and any and all documents required to be
filed with respect thereto, relating to the registration under the Securities
Act of 1933, as amended, of shares of the Corporation's common stock, par value
$5.00 per share, granting unto said attorneys, and each of them, full power and
authority to do and to perform each and every act and thing requisite and
necessary to be done in order to effectuate the same as fully to all intents and
purposes as he himself or she herself might or could do if personally present,
hereby ratifying and confirming all that said attorneys-in-fact and agents, or
any of them, may lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned director and/or officer has hereunto set
his or her hand as of the date specified.
Dated: January 20, 1998
/s/ SAMUEL T. HUBBARD, JR.
-----------------------------------------
Samuel T. Hubbard, Jr.
EXHIBIT 24
POWERS OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned director and/or officer
of First Empire State Corporation, a corporation organized under the laws of the
State of New York (the "Corporation"), hereby constitutes and appoints Richard
A. Lammert, Gary S. Paul, Steven L. Kaplan and Howard L. Hyde, and each of them
(with full power to each of them to act alone), his or her true and lawful
attorneys-in-fact and agents with full power of substitution and resubstitution,
for him or her and on his or her behalf and in his or her name, place and stead,
in any and all capacities, to sign, execute and to affix his or her seal to and
file with the Securities and Exchange Commission (or any other governmental or
regulatory authority) a Registration Statement on Form S-4 (or any other
appropriate form), and any and all amendments (including post-effective
amendments) thereto, with all exhibits and any and all documents required to be
filed with respect thereto, relating to the registration under the Securities
Act of 1933, as amended, of shares of the Corporation's common stock, par value
$5.00 per share, granting unto said attorneys, and each of them, full power and
authority to do and to perform each and every act and thing requisite and
necessary to be done in order to effectuate the same as fully to all intents and
purposes as he himself or she herself might or could do if personally present,
hereby ratifying and confirming all that said attorneys-in-fact and agents, or
any of them, may lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned director and/or officer has hereunto set
his or her hand as of the date specified.
Dated: January 20, 1998
/s/ LAMBROS J. LAMBROS
-----------------------------------------
Lambros J. Lambros
EXHIBIT 24
POWERS OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned director and/or officer
of First Empire State Corporation, a corporation organized under the laws of the
State of New York (the "Corporation"), hereby constitutes and appoints Richard
A. Lammert, Gary S. Paul, Steven L. Kaplan and Howard L. Hyde, and each of them
(with full power to each of them to act alone), his or her true and lawful
attorneys-in-fact and agents with full power of substitution and resubstitution,
for him or her and on his or her behalf and in his or her name, place and stead,
in any and all capacities, to sign, execute and to affix his or her seal to and
file with the Securities and Exchange Commission (or any other governmental or
regulatory authority) a Registration Statement on Form S-4 (or any other
appropriate form), and any and all amendments (including post-effective
amendments) thereto, with all exhibits and any and all documents required to be
filed with respect thereto, relating to the registration under the Securities
Act of 1933, as amended, of shares of the Corporation's common stock, par value
$5.00 per share, granting unto said attorneys, and each of them, full power and
authority to do and to perform each and every act and thing requisite and
necessary to be done in order to effectuate the same as fully to all intents and
purposes as he himself or she herself might or could do if personally present,
hereby ratifying and confirming all that said attorneys-in-fact and agents, or
any of them, may lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned director and/or officer has hereunto set
his or her hand as of the date specified.
Dated: January 20, 1998
/s/ WILFRED J. LARSON
-----------------------------------------
Wilfred J. Larson
EXHIBIT 24
POWERS OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned director and/or officer
of First Empire State Corporation, a corporation organized under the laws of the
State of New York (the "Corporation"), hereby constitutes and appoints Richard
A. Lammert, Gary S. Paul, Steven L. Kaplan and Howard L. Hyde, and each of them
(with full power to each of them to act alone), his or her true and lawful
attorneys-in-fact and agents with full power of substitution and resubstitution,
for him or her and on his or her behalf and in his or her name, place and stead,
in any and all capacities, to sign, execute and to affix his or her seal to and
file with the Securities and Exchange Commission (or any other governmental or
regulatory authority) a Registration Statement on Form S-4 (or any other
appropriate form), and any and all amendments (including post-effective
amendments) thereto, with all exhibits and any and all documents required to be
filed with respect thereto, relating to the registration under the Securities
Act of 1933, as amended, of shares of the Corporation's common stock, par value
$5.00 per share, granting unto said attorneys, and each of them, full power and
authority to do and to perform each and every act and thing requisite and
necessary to be done in order to effectuate the same as fully to all intents and
purposes as he himself or she herself might or could do if personally present,
hereby ratifying and confirming all that said attorneys-in-fact and agents, or
any of them, may lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned director and/or officer has hereunto set
his or her hand as of the date specified.
Dated: January 20, 1998
/s/ JORGE G. PEREIRA
-----------------------------------------
Jorge G. Pereira
EXHIBIT 24
POWERS OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned director and/or officer
of First Empire State Corporation, a corporation organized under the laws of the
State of New York (the "Corporation"), hereby constitutes and appoints Richard
A. Lammert, Gary S. Paul, Steven L. Kaplan and Howard L. Hyde, and each of them
(with full power to each of them to act alone), his or her true and lawful
attorneys-in-fact and agents with full power of substitution and resubstitution,
for him or her and on his or her behalf and in his or her name, place and stead,
in any and all capacities, to sign, execute and to affix his or her seal to and
file with the Securities and Exchange Commission (or any other governmental or
regulatory authority) a Registration Statement on Form S-4 (or any other
appropriate form), and any and all amendments (including post-effective
amendments) thereto, with all exhibits and any and all documents required to be
filed with respect thereto, relating to the registration under the Securities
Act of 1933, as amended, of shares of the Corporation's common stock, par value
$5.00 per share, granting unto said attorneys, and each of them, full power and
authority to do and to perform each and every act and thing requisite and
necessary to be done in order to effectuate the same as fully to all intents and
purposes as he himself or she herself might or could do if personally present,
hereby ratifying and confirming all that said attorneys-in-fact and agents, or
any of them, may lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned director and/or officer has hereunto set
his or her hand as of the date specified.
Dated: January 20, 1998
/s/ RAYMOND D. STEVENS, JR.
-----------------------------------------
Raymond D. Stevens, Jr.
EXHIBIT 24
POWERS OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned director and/or officer
of First Empire State Corporation, a corporation organized under the laws of the
State of New York (the "Corporation"), hereby constitutes and appoints Richard
A. Lammert, Gary S. Paul, Steven L. Kaplan and Howard L. Hyde, and each of them
(with full power to each of them to act alone), his or her true and lawful
attorneys-in-fact and agents with full power of substitution and resubstitution,
for him or her and on his or her behalf and in his or her name, place and stead,
in any and all capacities, to sign, execute and to affix his or her seal to and
file with the Securities and Exchange Commission (or any other governmental or
regulatory authority) a Registration Statement on Form S-4 (or any other
appropriate form), and any and all amendments (including post-effective
amendments) thereto, with all exhibits and any and all documents required to be
filed with respect thereto, relating to the registration under the Securities
Act of 1933, as amended, of shares of the Corporation's common stock, par value
$5.00 per share, granting unto said attorneys, and each of them, full power and
authority to do and to perform each and every act and thing requisite and
necessary to be done in order to effectuate the same as fully to all intents and
purposes as he himself or she herself might or could do if personally present,
hereby ratifying and confirming all that said attorneys-in-fact and agents, or
any of them, may lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned director and/or officer has hereunto set
his or her hand as of the date specified.
Dated: January 20, 1998
/s/ HERBERT L. WASHINGTON
-----------------------------------------
Herbert L. Washington
EXHIBIT 24
POWERS OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned director and/or officer
of First Empire State Corporation, a corporation organized under the laws of the
State of New York (the "Corporation"), hereby constitutes and appoints Richard
A. Lammert, Gary S. Paul, Steven L. Kaplan and Howard L. Hyde, and each of them
(with full power to each of them to act alone), his or her true and lawful
attorneys-in-fact and agents with full power of substitution and resubstitution,
for him or her and on his or her behalf and in his or her name, place and stead,
in any and all capacities, to sign, execute and to affix his or her seal to and
file with the Securities and Exchange Commission (or any other governmental or
regulatory authority) a Registration Statement on Form S-4 (or any other
appropriate form), and any and all amendments (including post-effective
amendments) thereto, with all exhibits and any and all documents required to be
filed with respect thereto, relating to the registration under the Securities
Act of 1933, as amended, of shares of the Corporation's common stock, par value
$5.00 per share, granting unto said attorneys, and each of them, full power and
authority to do and to perform each and every act and thing requisite and
necessary to be done in order to effectuate the same as fully to all intents and
purposes as he himself or she herself might or could do if personally present,
hereby ratifying and confirming all that said attorneys-in-fact and agents, or
any of them, may lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned director and/or officer has hereunto set
his or her hand as of the date specified.
Dated: January 20, 1998
/s/ JOHN L. WEHLE, JR.
-----------------------------------------
John L. Wehle, Jr.
EXHIBIT 99.1
FIRST EMPIRE STATE CORPORATION -- PROXY SOLICITED BY BOARD OF DIRECTORS
Richard A. Lammert and Timothy C. McEvoy, and each of them, with full power to
act alone and with full power of substitution, are hereby authorized to
represent the stockholder named on the reverse side hereof ("stockholder") at
the Special Meeting of Stockholders of First Empire State Corporation ("First
Empire") to be held on March 17, 1998, at 11:00 a.m., local time, at M&T Center,
One Fountain Plaza, Buffalo, New York, or any adjournments or postponements
thereof, and to vote, as indicated on the reverse side hereof, the number of
shares of Common Stock which the stockholder would be entitled to vote if
personally present at said meeting. The above named individuals, and each of
them with full power to act alone, are further authorized to vote such stock
upon any other business as may properly come before the meeting, or any
adjournments or postponements thereof, in accordance with their best judgment.
THIS PROXY MAY BE REVOKED BY GIVING THE SECRETARY OF THE MEETING WRITTEN NOTICE
OF REVOCATION OR A SUBSEQUENTLY DATED PROXY AT ANY TIME BEFORE THE VOTING OF THE
SHARES REPRESENTED BY THIS PROXY, OR BY CASTING A BALLOT AT THE MEETING.
THIS PROXY IS CONTINUED ON THE REVERSE SIDE.
PLEASE SIGN AND DATE ON REVERSE SIDE AND RETURN PROMPTLY USING THE ENCLOSED
ENVELOPE.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED HEREIN BY
THE STOCKHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED "FOR" THE
FIRST EMPIRE PROPOSAL. THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE "FOR" THE
FIRST EMPIRE PROPOSAL.
THE FIRST EMPIRE PROPOSAL: PROPOSAL TO APPROVE AN AGREEMENT AND PLAN OF
REORGANIZATION AND RELATED AGREEMENT AND PLAN OF MERGER, BOTH DATED AS OF
OCTOBER 28, 1997, PROVIDING, AMONG OTHER THINGS, FOR THE MERGER OF ONBANCORP,
INC. WITH AND INTO OLYMPIA FINANCIAL CORP., A WHOLLY OWNED SUBSIDIARY OF FIRST
EMPIRE AND THE ISSUANCE OF UP TO 1,510,000 SHARES OF COMMON STOCK IN CONNECTION
THEREWITH, AS DESCRIBED IN THE ACCOMPANYING JOINT PROXY STATEMENT/ PROSPECTUS.
FOR / / AGAINST / / ABSTAIN / /
SIGNATURE(S) ________________________________________ DATE: ____________________
Please sign as name appears hereon. Joint owners should each sign. When signing
on behalf of a corporation or partnership or as attorney, executor,
administrator, trustee or guardian, please give full title of each.
EXHIBIT 99.2
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
This Proxy will be voted as directed, but if no direction is indicated, it
will be voted FOR the Merger Proposal and in the discretion of the proxies on
such other matters as may properly come before the Special Meeting or any
adjournments or postponements thereof.
Receipt of the Notice of Special Meeting and the attached Proxy
Statement/Prospectus is hereby acknowledged.
Please sign exactly as your name appears on the proxy. Joint owners should
each sign personally. If signing as attorney, executor, administrator, trustee
or guardian, please include your full name. Corporate proxies should be signed
by an authorized officer.
Dated: , 1998
(Signature of Stockholder)
PLEASE SIGN, DATE AND RETURN THIS CARD PROMPTLY USING THE ENCLOSED ENVELOPE.
PROXY
ONBANCORP, INC.
SPECIAL MEETING OF STOCKHOLDERS
The undersigned hereby appoints David C. Ingles and William M. LeBeau and
each of them, the proxy or proxies of the undersigned, with full power of
substitution, to vote all shares of Common Stock of ONBANCorp, Inc.
("ONBANCorp") which the undersigned is entitled to vote at the Special Meeting
of Stockholders of ONBANCorp to be held on Tuesday, March 17, 1998, at the
Marriott Hotel, 6302 Carrier Parkway, East Syracuse, New York, and at any
adjournments or postponements thereof, with all power which the undersigned
would possess if personally present (i) as designated with respect to the
proposal set forth below and described in the accompanying Joint Proxy
Statement/Prospectus, and (ii) in their discretion with respect to such other
matters as may properly come before the Special Meeting or any adjournments or
postponements thereof.
THE BOARD OF DIRECTORS OF ONBANCORP RECOMMENDS A VOTE FOR THE MERGER PROPOSAL.
PROPOSAL (the "Merger Proposal") to approve the Agreement and Plan of
Reorganization and the related Agreement and Plan of Merger, each dated as of
October 28, 1997, by and among First Empire State Corporation, ONBANCorp and
Olympia Financial Corp.
/ / FOR / / AGAINST / / ABSTAIN
