UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant | [X] |
Filed by a Party other than the Registrant | [ ] |
Check the appropriate box:
[X] | Preliminary Proxy Statement |
[ ] | Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) |
[ ] | Definitive Proxy Statement |
[ ] | Definitive Additional Materials |
[ ] | Soliciting Material Pursuant to ss.240.14a-12 |
INTERCHANGE FINANCIAL SERVICES CORPORATION
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[ ] | No fee required. |
[X] | Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11. |
(1) | Title of each class of securities to which transaction applies: |
Common stock, no par value per share |
(2) | Aggregate number of securities to which transaction applies: |
20,412,499 shares of common stock, no par value per share (does not include shares of common stock issuable upon exercise of options that are being retired in connection with the proposed transaction). |
(3) | Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined): |
The transaction value was based upon the sum of (a) the product of 20,412,499 shares of common stock and the total cash merger consideration of $23.00 per share; and (b) the difference between (i) the product of $23.00 and the 1,205,759 shares of common stock subject to outstanding options; and (ii) the product of the weighted average exercise price per share of such stock options and the number of such options. In accordance with Section 14(g) of the Securities Exchange Act of 1934, as amended, the amount of the filing fee was calculated by multiplying $0.000107 by the amount calculated pursuant to the preceding sentence. |
(4) | Proposed maximum aggregate value of transaction: |
$481,627,794 |
(5) | Total fee paid: |
$51,534.17 |
[X] | Fee paid previously with preliminary materials. |
[ ] | Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing. |
(1) | Amount Previously Paid: |
(2) | Form, Schedule or Registration Statement No.: |
(3) | Filing Party: |
(4) | Date Filed: |
Notice of 2006 Annual Meeting of Shareholders
and Proxy Statement
September [__], 2006
Dear Fellow Shareholder:
You are cordially invited to attend the annual meeting of shareholders of Interchange Financial Services Corporation, the holding company for Interchange Bank, to be held at the Marriot Hotel, Garden State Parkway at Route 80, Saddle Brook, New Jersey, on [day], [month], 2006, beginning at [time] [a.m.] [p.m.], local time.
The accompanying proxy materials provide important information concerning the proposed acquisition of Interchange pursuant to an Agreement and Plan of Merger by and between Interchange and TD Banknorth Inc.
Please review these materials carefully, including the enclosed copy of the merger agreement.
Approval of the merger agreement requires the affirmative vote of a majority of the votes cast by the holders of outstanding Interchange common stock at the annual meeting.
The merger cannot be completed unless the shareholders of Interchange approve the merger agreement and the parties receive all required regulatory approvals.
THE BOARD OF DIRECTORS OF INTERCHANGE UNANIMOUSLY RECOMMENDS THAT YOU VOTE “FOR” APPROVAL OF THE MERGER AGREEMENT AND THE TRANSACTIONS CONTEMPLATED BY THE MERGER AGREEMENT. YOU ARE URGED TO SIGN AND RETURN THE ENCLOSED PROXY CARD PROMPTLY IN THE POSTAGE-PAID ENVELOPE PROVIDED FOR YOUR CONVENIENCE.
Sincerely, Anthony S. Abbate President and Chief Executive Officer |
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
Date: | [day], [date], 2006 |
Time: | [time] [a.m.] [p.m.], local time |
Place: | The Marriot Hotel Garden State Parkway at Route 80 Saddle Brook, New Jersey 07663 |
At the annual meeting, Interchange will ask you to:
1. | Consider and vote upon a proposal to approve the Agreement and Plan of Merger dated as of April 13, 2006 between Interchange Financial Services Corporation (“Interchange”) and TD Banknorth Inc. (“TD Banknorth”), which provides for, among other things, (a) the merger of Interchange with a newly-formed acquisition subsidiary of TD Banknorth, with Interchange as the surviving corporation; and (b) the conversion of each share of Interchange common stock outstanding immediately prior to the merger (other than certain shares held by Interchange and TD Banknorth) into the right to receive $23.00 in cash, without interest; and; |
2. | Elect five directors: Donald L. Correll, James E. Healey, Jeremiah F. O’Connor, Robert P. Rittereiser and John A. Schepisi for a term of three years; and |
3. | Transact such other business as may properly be brought before the annual meeting, or any adjournments or postponements of the annual meeting. |
Any action may be taken on the foregoing proposals at the annual meeting on the date specified above, or on any date or dates to which the annual meeting may be adjourned or postponed.
The board of directors has fixed the close of business on [record date], 2006 as the record date for determining the shareholders entitled to receive notice of and to vote at the annual meeting and any adjournments or postponements of the annual meeting. Only holders of shares of Interchange common stock at the close of business on the record date will be entitled to receive notice of and to vote at the annual meeting and any adjournments or postponements of the annual meeting.
A majority in interest of the outstanding shares of Interchange common stock must be represented at the annual meeting, in person or by proxy, to constitute a quorum for the transaction of business. The affirmative vote of the holders of a majority of the shares of our common stock present and voting at the annual meeting is required to approve the merger agreement. Directors will be elected by a plurality of the votes cast at the annual meeting.
By Order Of The Board Of Directors, Nicholas R. Marcalus Secretary |
Saddle Brook, New Jersey
September [__], 2006
YOUR VOTE IS IMPORTANT. EVEN THOUGH YOU MAY PLAN TO ATTEND THE ANNUAL MEETING IN PERSON, PLEASE COMPLETE, SIGN AND DATE THE ENCLOSED PROXY CARD AND RETURN IT PROMPTLY IN THE ENCLOSED ENVELOPE, WHICH REQUIRES NO POSTAGE IF MAILED IN THE UNITED STATES. IF YOU ATTEND THE ANNUAL MEETING AND DESIRE TO REVOKE YOUR PROXY AND VOTE IN PERSON, YOU MAY DO SO. |
TABLE OF CONTENTS
Page | |||
SUMMARY TERM SHEET | 1 | ||
FORWARD-LOOKING STATEMENTS—CAUTIONARY STATEMENTS | 8 | ||
INTRODUCTION | 9 | ||
THE ANNUAL MEETING | 10 | ||
DATE, PLACE AND TIME | 10 | ||
RECORD DATE | 10 | ||
QUORUM | 10 | ||
VOTING RIGHTS | 10 | ||
VOTE REQUIRED | 10 | ||
VOTING AND REVOCATION OF PROXIES | 11 | ||
SOLICITATION OF PROXIES | 12 | ||
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT | 13 | ||
PROPOSAL 1 – THE MERGER | 14 | ||
THE PARTIES | 14 | ||
BACKGROUND OF THE MERGER | 15 | ||
INTERCHANGE’S REASONS FOR THE MERGER; RECOMMENDATION OF THE BOARD OF DIRECTORS | 19 | ||
NONPUBLIC FINANCIAL PROJECTIONS SHARED WITH TD BANKNORTH | 21 | ||
OPINION OF INTERCHANGE’S FINANCIAL ADVISOR | 22 | ||
BANK MERGER | 29 | ||
MERGER CONSIDERATION | 29 | ||
TREATMENT OF EQUITY-BASED AWARDS | 29 | ||
FINANCING THE TRANSACTION | 29 | ||
NO SOLICITATION | 30 | ||
RECOMMENDATION OF INTERCHANGE BOARD OF DIRECTORS | 31 | ||
SURRENDER OF STOCK CERTIFICATES; PAYMENT FOR SHARES | 31 | ||
CONDITIONS TO THE MERGER | 32 | ||
REPRESENTATIONS AND WARRANTIES OF INTERCHANGE AND TD BANKNORTH | 33 | ||
CONDUCT PENDING THE MERGER | 34 | ||
EXTENSION, WAIVER AND AMENDMENT OF THE MERGER AGREEMENT | 40 | ||
EXPENSES | 40 | ||
TERMINATION OF MERGER AGREEMENT | 40 | ||
TERMINATION FEE | 41 | ||
INTERESTS OF CERTAIN PERSONS IN THE TRANSACTION | 43 | ||
EMPLOYEE BENEFITS MATTERS | 45 | ||
CERTAIN FEDERAL INCOME TAX CONSEQUENCES | 46 | ||
ACCOUNTING TREATMENT | 47 | ||
REGULATORY APPROVALS | 48 | ||
PROPOSAL 2 – ELECTION OF DIRECTORS | 50 | ||
GENERAL | 50 | ||
RECOMMENDATION OF INTERCHANGE’S BOARD OF DIRECTORS | 50 | ||
BOARD OF DIRECTORS | 50 | ||
EXECUTIVE OFFICERS | 54 | ||
COMPLIANCE WITH SECTION 16(A) | 55 | ||
CODE OF ETHICS | 55 | ||
DIRECTOR NOMINATIONS BY SHAREHOLDERS | 55 | ||
EXECUTIVE COMPENSATION | 56 |
TABLE OF CONTENTS
Page | |||
DIRECTOR COMPENSATION | 61 | ||
AUDIT COMMITTEE REPORT | 62 | ||
PERFORMANCE GRAPH | 64 | ||
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS | 65 | ||
PRINCIPAL ACCOUNTANTS FEES AND SERVICES | 66 | ||
ADDITIONAL INFORMATION | 67 | ||
WHERE YOU CAN FIND MORE INFORMATION | 68 | ||
APPENDICES | |||
A Agreement and Plan of Merger between Interchange Financial Services | |||
Corporation and TD Banknorth Inc. dated as of April 13, 2006 | A- | 1 | |
B Opinion of Goldman Sachs & Co. | B- | 1 |
INTERCHANGE FINANCIAL SERVICES CORPORATION
PROXY STATEMENT
ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON [__], 2006
This proxy statement is first being mailed to shareholders of Interchange Financial Services Corporation on or about September [__], 2006.
SUMMARY TERM SHEET
This summary term sheet highlights selected information from this proxy statement and may not contain all of the information that is important to you. To understand the merger fully and for a more complete description of the legal terms of the merger, you should read carefully this entire document, including the merger agreement, a copy of which is included asAPPENDIX A to this proxy statement, and the other documents to which we have referred you. You may obtain copies of our publicly filed reports and other information from the sources listed under the section “Where You Can Find More Information” on page [__]. Page references are included in this summary term sheet to direct you to a more complete description of the topics.
Throughout this proxy statement, “Interchange,” “we” and “our” refer to Interchange Financial Services Corporation, “Interchange Bank” refers to Interchange’s wholly-owned banking subsidiary, Interchange Bank, “TD Banknorth” refers to TD Banknorth Inc. and “TD Banknorth, NA” refers to TD Banknorth, National Association, a wholly-owned banking subsidiary of TD Banknorth. Also, the merger between a newly-formed subsidiary of TD Banknorth and Interchange is referred to as the “merger,” the merger between Interchange Bank and TD Banknorth, NA is referred to as the “bank merger,” the agreement and plan of merger, dated as of April 13, 2006, between Interchange and TD Banknorth is referred to as the “merger agreement,” and the agreement and plan of merger between Interchange Bank and TD Banknorth, NA is referred to as the “bank merger agreement.”
THE PARTIES (PAGE [__])
• | INTERCHANGEis a New Jersey corporation that was organized in 1984 under the Bank Holding Company Act of 1956. Interchange acquired all of the outstanding common stock of Interchange Bank, its principal operating subsidiary, in 1986. Interchange Bank is a full-service New Jersey-chartered commercial bank and wholly-owned subsidiary of Interchange and is headquartered in Saddle Brook, New Jersey. Interchange Bank offers banking services for individuals and businesses through thirty banking offices and one supermarket mini-branch in Bergen and Essex Counties, New Jersey. Interchange Bank maintains thirty-four automated teller machines, which are located at thirty of the banking offices, a supermarket, and Interchange Bank’s operations center. At June 30, 2006, Interchange had consolidated assets of $1.66 billion and consolidated shareholders’ equity of $184.0 million. |
Interchange’s principal executive offices are located at Park 80 West/Plaza II, Saddle Brook, New Jersey 07663, and its telephone number is (201) 703-2265. |
• | TD BANKNORTH INC.is a Delaware corporation and a majority-owned subsidiary of The Toronto-Dominion Bank, a Canadian-chartered bank. TD Banknorth is a registered bank/financial holding company under the Bank Holding Company Act of 1956, as amended. TD Banknorth’s principal asset is all of the capital stock of TD Banknorth, NA, a national bank which was initially formed as a Maine-chartered savings bank in the |
mid-19th century. TD Banknorth, NA operates banking divisions in Maine, New Hampshire, Massachusetts, Connecticut, Vermont, Pennsylvania, New York and New Jersey and had 587 banking offices located in these states at June 30, 2006. Through TD Banknorth, NA and its subsidiaries, TD Banknorth offers a full range of banking services and products to individuals, businesses and governments throughout its market areas, including commercial, consumer, trust, investment advisory and insurance agency services. At June 30, 2006, TD Banknorth had consolidated assets of $40.3 billion and consolidated shareholders’equity of $8.2 billion. Based on total assets at that date, TD Banknorth is one of the 26 largest commercial banking organizations in the United States. |
TD Banknorth’s executive offices are located at Two Portland Square, Portland, Maine 04101, and its telephone number is (207) 761-8500. |
INTERCHANGE SHAREHOLDERS WILL RECEIVE $23.00 IN CASH FOR EACH SHARE OF INTERCHANGE COMMON STOCK (PAGE [__])
TD Banknorth and Interchange propose a transaction in which Interchange will be acquired by TD Banknorth. If the acquisition of Interchange by TD Banknorth is completed, you will have the right to receive $23.00 in cash, without interest, for each share of Interchange common stock that you own as of the effective time of the merger. Immediately after the merger, Interchange Bank will be merged into TD Banknorth, NA. You will need to surrender your Interchange stock certificates to receive the cash merger consideration, but you should not send us any certificates now. After the merger is completed, an exchange agent appointed by TD Banknorth will send you detailed instructions on how to exchange your shares.
THE MERGER WILL BE TAXABLE FOR INTERCHANGE SHAREHOLDERS (PAGE [__])
For U.S. federal income tax purposes, the merger will be treated as a sale to TD Banknorth of all of the shares of Interchange common stock. Each shareholder will recognize a gain or loss equal to the difference between the cash received and his or her adjusted tax basis in the shares exchanged. The gain or loss will be a capital gain or loss and will be long-term if the shares have been held for more than one year or short-term if the shares have been held for one year or less.
Tax matters are complicated, and the tax consequences of the merger may vary among shareholders. In addition, you may be subject to state, local or foreign tax laws that are not discussed in this proxy statement. You should therefore consult your own tax advisor for a full understanding of the state and federal tax consequences to you of the merger.
TREATMENT OF EQUITY-BASED AWARDS (PAGE [__])
Immediately prior to the merger, each unexercised stock option to buy Interchange common stock will be cancelled and each holder of an unexercised stock option will be entitled to receive from Interchange a cash payment in an amount equal to the number of shares subject to the stock option multiplied by the difference between $23.00 and the exercise price of the stock option, less any required withholding taxes. Immediately prior to the merger, all stock options granted under Interchange’s plans will be fully vested. All shares of restricted stock then outstanding will immediately vest and be converted to a right to receive $23.00 per share, less any required withholding taxes, from Interchange.
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INTERCHANGE HAS RECEIVED AN OPINION FROM ITS FINANCIAL ADVISOR THAT THE CASH MERGER CONSIDERATION IS FAIR TO ITS SHAREHOLDERS FROM A FINANCIAL POINT OF VIEW (PAGE [__])
Interchange has received the written opinion of its financial advisor, Goldman, Sachs & Co. (“Goldman Sachs”), that, as of April 13, 2006 (the date on which Interchange executed the merger agreement), the $23.00 cash merger consideration is fair to the holders of Interchange common stock from a financial point of view. The opinion is included asAPPENDIX B to this proxy statement. You should read this opinion completely to understand the assumptions made, matters considered and limitations of the review undertaken by Goldman Sachs in providing its opinion. Goldman Sachs’ opinion does not constitute a recommendation to any shareholder as to how such shareholder should vote at the annual meeting with respect to the merger or any other matter.
THE ANNUAL MEETING (PAGE [__])
The annual meeting will be held at [time] [a.m.] [p.m.], local time, on [day], [month], 2006, at the Marriot Hotel, Garden State Parkway at Route 80, Saddle Brook, New Jersey, 07663. At the annual meeting, you will be asked to approve the merger agreement, elect five directors for three year terms and to act on any other matters that may properly come before the annual meeting.
RECORD DATE; VOTE REQUIRED (PAGE [__])
You can vote at the annual meeting if you owned shares of Interchange common stock as of the close of business on [_____], 2006. On that date, there were [_____] shares of Interchange common stock outstanding. You will have one vote at the annual meeting for each share of Interchange common stock that you owned on that date. If you own Interchange shares as a participant in the Interchange Bank Capital Investment Plan or hold unvested restricted Interchange common stock under the Interchange 2005 Omnibus Stock and Incentive Plan or the 1997 Stock Option and Incentive Plan, you will have the right to vote those shares.
The affirmative vote of the holders of a majority of the shares of Interchange common stock present and voting at the meeting is required to approve the merger agreement. Each of the directors of Interchange has agreed with TD Banknorth to vote his or her shares of Interchange common stock in favor of the merger agreement and the transactions contemplated thereby, including the merger. These individuals own in the aggregate approximately 10.2% of the outstanding shares of Interchange common stock.
Directors will be elected by a plurality of the votes cast at the annual meeting.
INTERCHANGE’S BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS APPROVAL OF THE MERGER AGREEMENT (PAGE [__])
Based on the reasons described elsewhere in this proxy statement, Interchange’s board of directors believes that the merger is fair to you and in your best interests and unanimously recommends that you voteFOR the approval of the merger agreement.
CONDITIONS TO COMPLETING THE MERGER (PAGE [__])
The obligations of TD Banknorth and Interchange to complete the merger are subject to the satisfaction of a number of conditions, including the following:
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• | shareholders of Interchange must approve the merger agreement; |
• | TD Banknorth and Interchange must have received all regulatory approvals required to consummate the merger and the bank merger, and such regulatory approvals must remain in full force and effect and all statutory waiting periods in respect thereof must have expired or been terminated; and |
• | there must be no injunction, order, decree or law prohibiting, materially restricting or making illegal the completion of the transactions contemplated by the merger agreement. |
In addition, the obligation of Interchange to complete the merger is conditioned on the satisfaction or waiver of the following conditions:
• | the representations and warranties of TD Banknorth in the merger agreement must be true and correct as of the date of the merger agreement and the closing date of the merger, other than, in most cases, those failures to be true or correct that would not result or reasonably be expected to result in a material adverse effect on TD Banknorth; and |
• | TD Banknorth must have performed in all material respects all of its obligations required under the merger agreement. |
In addition, the obligation of TD Banknorth to complete the merger is conditioned on the satisfaction or waiver of the following conditions:
• | the representations and warranties of Interchange in the merger agreement must be true and correct as of the date of the merger agreement and the closing date of the merger, other than, in most cases, those failures to be true or correct that would not result or reasonably be expected to result in a material adverse effect on Interchange; |
• | Interchange must have performed in all material respects all of its obligations required under the merger agreement; |
• | there must not be any action taken, or any statute, rule, regulation or order enacted, entered, enforced or deemed applicable to the transactions contemplated by the merger agreement by any governmental entity, in connection with the grant of regulatory approval or otherwise, which imposes any restriction, requirement or condition which would have or would be reasonably likely to have a material adverse effect on TD Banknorth; and |
• | at or prior to the effective time of the merger, Interchange and certain of its executive officers shall have performed in all material respects all obligations required to be performed by them under certain consulting and release agreements they entered into with TD Banknorth in connection with the execution of the merger agreement. |
Unless prohibited by law, either TD Banknorth or Interchange could elect to waive any of the conditions for its benefit that have not been satisfied and complete the merger anyway. The parties cannot be certain whether or when any of the conditions to the merger will be satisfied, or waived where permissible, or that the merger will be completed.
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TERMINATION OF THE MERGER AGREEMENT (PAGE [__])
The merger agreement may be terminated at any time (even after approval of the merger by the Interchange shareholders) as follows:
• | by mutual written consent of the parties; |
• | by TD Banknorth or Interchange if any required regulatory approval is not obtained, or if any governmental authority has issued a final order prohibiting the transactions contemplated by the merger agreement; |
• | by TD Banknorth or Interchange if the merger is not completed by March 31, 2007; |
• | by TD Banknorth or Interchange if the other party breaches and does not cure any of its representations, warranties, covenants or agreements under the merger agreement which would entitle the non-breaching party to not complete the merger; |
• | by TD Banknorth or Interchange if the shareholders of Interchange do not approve the merger agreement at the annual meeting or any adjournment thereof; |
• | by TD Banknorth, if Interchange’s board of directors does not publicly recommend to its shareholders that they vote in favor of the merger agreement, or withdraws, modifies or amends its recommendation in a manner materially adverse to TD Banknorth or takes any other action or makes any other public statement in connection with the annual meeting inconsistent with such recommendation; |
• | by TD Banknorth if Interchange fails to call, give notice of, convene and hold a meeting of shareholders to approve the merger agreement; |
• | by TD Banknorth if an unrelated person or entity commences a tender offer or exchange offer for 25% or more of the outstanding shares of Interchange common stock and Interchange’s board of directors recommends that shareholders tender their shares or does not recommend that shareholders reject the tender offer or exchange offer. |
TERMINATION FEE (PAGE [__])
As a material inducement to TD Banknorth to enter into the merger agreement, Interchange agreed to pay TD Banknorth a termination fee of up to $20 million. Interchange will pay the full $20 million fee to TD Banknorth if:
• | TD Banknorth terminates the merger agreement because the board of directors of Interchange does not publicly recommend to its shareholders that they vote in favor of the merger agreement or withdraws, modifies or amends its recommendation in a manner materially adverse to TD Banknorth or takes any other action or makes any other public statement in connection with the meeting of shareholders inconsistent with such recommendation; |
• | TD Banknorth terminates the merger agreement because Interchange fails to call, give notice of, convene and hold a meeting of shareholders to approve the merger agreement; or |
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• | TD Banknorth terminates the merger agreement because an unrelated person or entity commences a tender offer or exchange offer for 25% or more of the outstanding shares of Interchange common stock and Interchange’s board of directors recommends that shareholders tender their shares or does not to recommend that shareholders reject the tender offer or exchange offer. |
Interchange will pay a fee of $5 million to TD Banknorth if an acquisition proposal (or intent to make one) of Interchange is publicly announced or otherwise communicated or made known to the board of directors or senior management of Interchange and:
• | TD Banknorth terminates the merger agreement because of Interchange’s willful breach of any representation, warranty, covenant or agreement under the merger agreement; |
• | TD Banknorth or Interchange terminates the merger agreement because the shareholders of Interchange do not approve the merger agreement at the annual meeting of shareholders or any adjournment thereof; or |
• | TD Banknorth or Interchange terminate the merger agreement because the merger is not completed by March 31, 2007 without a vote of Interchange shareholders having occurred. |
Interchange will pay TD Banknorth the remaining $15 million if, within 18 months after termination of the agreement, Interchange or any of its subsidiaries enters into a definitive agreement with respect to, or consummates, an acquisition proposal.
INTERESTS OF CERTAIN PERSONS IN THE MERGER (PAGE [__])
Some of the directors and executive officers of Interchange have agreements, stock options, restricted stock awards and other benefit plans or arrangements that provide them with interests in the merger that are different from, or in addition to, your interests. These interests arise from the merger agreement and because of rights under benefits and compensation plans or arrangements maintained by Interchange or Interchange Bank and, in the case of several officers, under change of control agreements, and include the following:
• | the payment of cash amounts to five officers of Interchange which total approximately $2.2 million for Anthony S. Abbate, Interchange’s President and Chief Executive Officer, $686,000 for Anthony J. Labozzetta, Interchange’s Executive Vice President and Chief Operating Officer, $549,000 for Patricia D. Arnold, Interchange’s Senior Vice President, $541,000 for Charles T. Field, Interchange’s Senior Vice President and Chief Financial Officer, and $473,000 for Frank R. Giancola, Interchange’s Senior Vice President and Compliance Officer, in connection with the settlement of their multi-year change of control agreements by Interchange upon consummation of the merger; |
• | the potential for cash payments to 13 additional officers of Interchange or Interchange Bank (including Charles P. Frost, Interchange’s Senior Vice President and Chief Credit Officer) under their one-year change of control agreements upon certain terminations of their employment following the consummation of the merger which could total approximately $2.3 million in the aggregate (of which approximately $250,000 could be payable to Mr. Frost); |
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• | the continuation of certain health insurance coverage for those executive officers receiving cash severance under change of control agreements for periods varying from one to three years; |
• | the cancellation of all vested stock options in exchange for the payment by Interchange of the difference between $23.00 and the exercise price of such option and vesting of all unvested shares of restricted stock (whether or not purchased at a discount) granted under Interchange’s equity compensation plans prior to the consummation of the merger as contemplated by the merger agreement, valued in the aggregate at approximately $3.6 million for Mr. Abbate, $1.5 million for Mr. Labozzetta, $1.5 million for Ms. Arnold, $315,000 for Mr. Field, $88,000 for Mr. Frost, $6.4 million for all other officers as a group and $922,000 for all non-employee directors as a group (13 persons); |
• | TD Banknorth’s agreement to provide indemnification arrangements for, among others, directors and officers of Interchange (including its subsidiaries) and to maintain directors’ and officers’ indemnification insurance for such persons for a period of six years following the merger; and |
• | TD Banknorth’s entry into a consulting and noncompetition agreement with Mr. Abbate for a one-year period during which time Mr. Abbate will receive a consulting fee of $8,333 per month, use of a company-provided automobile and payment of country club expenses. |
The board of directors of Interchange was aware of these factors and considered them in approving the merger and the merger agreement.
REGULATORY APPROVALS (PAGE [__])
The merger and the bank merger are subject to the approval of, or notice to, certain regulatory authorities, including the Board of Governors of the Federal Reserve System (“Federal Reserve”), the Office of the Comptroller of the Currency (“OCC”) and the New Jersey Department of Banking and Insurance. The U.S. Department of Justice also may review the merger and the bank merger under the applicable antitrust laws. To date, TD Banknorth and Interchange have filed all necessary applications and notices with applicable regulatory agencies, and have received the approvals of the Federal Reserve for the merger and of the OCC for the bank merger. Written notice of the merger will be provided to the New Jersey Commissioner of Banking and Insurance at least 15 days before the effective date of the merger.
QUESTIONS
You may contact Interchange at (201) 703-2265 with any questions about the merger and related matters.
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FORWARD-LOOKING STATEMENTS — CAUTIONARY STATEMENTS
This proxy statement and the documents incorporated by reference into this proxy statement contain forward-looking statements and information with respect to the financial condition, results of operations, plans, objectives, future performance, business and other matters relating to Interchange or the merger that are based on the beliefs of, as well as assumptions made by and information currently available to, Interchange’s management. When used in this proxy statement, the words “anticipate,” “believe,” “estimate,” “expect” and “intend” and words or phrases of similar import are intended to identify forward-looking statements. These statements reflect the current view of Interchange with respect to future events and are subject to risks, uncertainties and assumptions that include, without limitation, the risk factors set forth in Interchange’s 2005 Annual Report on Form 10-K/A and other filings with the Securities and Exchange Commission, the risk that the merger will not be completed and risks associated with competitive factors, general economic conditions, geographic credit concentration, customer relations, interest rate volatility, governmental regulation and supervision, defaults in the repayment of loans, changes in volume of loan originations, and changes in industry practices. Should any one or more of these risks or uncertainties materialize, or should any underlying assumptions prove incorrect, actual results may vary materially from those described in this proxy statement as anticipated, believed, estimated, expected or intended.
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INTRODUCTION
This proxy statement is furnished to the shareholders of Interchange in connection with the solicitation of proxies by Interchange’s board of directors for use at the annual meeting of shareholders of Interchange to be held at the Marriot Hotel, Garden State Parkway at Route 80, Saddle Brook, New Jersey, on [day], [month], 2006, beginning at [time] [a.m.] [p.m.], local time, and any adjournment or postponement thereof.
At the annual meeting, shareholders of Interchange will be asked to consider and approve the merger agreement, elect five directors for three-year terms and to transact such other business as may properly come before the annual meeting or any adjournment or postponement of the annual meeting. A copy of the merger agreement is attached to this proxy statement asAPPENDIX A.
At the effective time of the merger, each share of Interchange common stock issued and outstanding immediately prior to the effective time will be canceled and converted automatically into the right to receive from TD Banknorth an amount equal to $23.00 in cash, without interest.
The merger will become effective when a certificate of merger, executed in accordance with the relevant provisions of the New Jersey Business Corporation Act, is filed with the Department of Treasury, Division of Commercial Recording of the State of New Jersey (or such later time as may set forth in the certificate of merger by the parties), which will not be done unless and until all conditions to the obligations of the parties to consummate the merger are satisfied or waived where permissible. See “—Conditions to the Merger,” beginning on page [__]. Although no assurance can be given in this regard, it is anticipated that the merger will become effective in the first quarter of 2007.
After the completion of the merger, holders of certificates that prior to the merger represented issued and outstanding shares of Interchange common stock will have no rights with respect to those shares except for the right to surrender the certificates for the merger consideration. After the completion of the merger, holders of shares of Interchange common stock will have no continuing equity interest in Interchange or TD Banknorth and, therefore, will not share in the future earnings, dividends or growth of Interchange or TD Banknorth.
Immediately after the merger, the bank merger is expected to be completed, thereby terminating the separate legal existence of Interchange Bank. In addition, Interchange will thereafter be liquidated with and into TD Banknorth.
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THE ANNUAL MEETING
DATE, PLACE AND TIME
The annual meeting of shareholders of Interchange will be held at the Marriot Hotel, Garden State Parkway at Route 80, Saddle Brook, New Jersey, on [day], [month], 2006, beginning at [time] [a.m.] [p.m.], local time.
RECORD DATE
The close of business on [record date], 2006 has been fixed as the record date for determining the shareholders of Interchange entitled to receive notice of and to vote at the annual meeting and any adjournment or postponement of the annual meeting. There were [______] shares of common stock outstanding as of the record date.
QUORUM
A quorum of shareholders is necessary to hold a valid meeting. If the holders of at least a majority of the total number of the outstanding shares of common stock entitled to vote are represented in person or by proxy at the annual meeting, a quorum will exist. Interchange will include proxies marked as abstentions and broker non-votes to determine the number of shares present at the annual meeting and any adjournment or postponement of the annual meeting but will not count them in the voting on the proposals.
VOTING RIGHTS
You are entitled to one vote for each share of Interchange common stock that you owned as of record at the close of business on [record date], 2006. The number of shares you own (and may vote) is listed at the top of the back of the proxy card.
You may vote your shares at the annual meeting in person or by proxy. To vote in person, you must attend the annual meeting and obtain and submit a ballot, which Interchange will provide to you at the annual meeting. To vote by proxy, you must complete, sign and return the enclosed proxy card. If you properly complete your proxy card and send it to us in time to vote, your “proxy” (one of the individuals named on your proxy card) will vote your shares as you have directed.If you sign the proxy card but do not make specific choices, your proxy will vote your sharesFOR the proposal to approve the merger agreement andFOR the election of the five nominees for director for three-year terms.
If any other matter is properly presented at the annual meeting, your proxy will vote the shares represented by all properly executed proxies on such matters as a majority of the board of directors determines. As of the date of this proxy statement, Interchange knows of no other matters that may be presented at the annual meeting, other than those listed in the notice of annual meeting.
VOTE REQUIRED
The affirmative vote of the holders of a majority of the shares of Interchange common stock present and voting at the meeting is required to approve the merger agreement. Each of the directors of Interchange has agreed with TD Banknorth to vote his or her shares of Interchange common stock in favor of the merger agreement. These individuals collectively own approximately 10.2 % of the outstanding shares of Interchange common stock.
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As of the close of business on the record date for the annual meeting, neither TD Banknorth nor, to the knowledge of TD Banknorth, any of its directors and executive officers, beneficially owned any shares of Interchange common stock.
Directors are elected by a plurality of votes cast, without regard to either broker non-votes or proxies as to which the authority to vote the nominees being proposed is withheld.
VOTING AND REVOCATION OF PROXIES
Common stock represented by properly executed proxies received by Interchange and not revoked will be voted at the annual meeting in accordance with the instructions contained in the proxies. If there are no instructions, properly executed proxies will be votedFOR the proposal to approve the merger agreement andFORthe election of the five nominees for director for three-year terms.
Interchange intends to count the shares of common stock present in person at the annual meeting but not voting, and shares of common stock for which it has received proxies, but the holders of these shares have abstained on any matter, as present at the annual meeting for purposes of determining the presence or absence of a quorum for the transaction of business at the annual meeting. However, these nonvoting shares and abstentions will not be counted as votes cast for purposes of determining the number of votes cast on the proposals.
In addition, brokers who hold shares in street name for customers who are the beneficial owners of these shares are prohibited from giving a proxy to vote shares in favor of the approval of the merger agreement without instructions from the customers who beneficially own the shares. Accordingly, the failure of these customers to provide voting instructions to their broker will result in those shares not being voted.
A shareholder of record may revoke a proxy by:
• | filing a written notice of revocation with Nicholas R. Marcalus, Secretary of Interchange, at Interchange Financial Services Corporation, Park 80 West/Plaza II, Saddle Brook, New Jersey 07663; |
• | filing a properly signed proxy bearing a later date; or |
• | appearing at the annual meeting in person, notifying the Secretary and voting by ballot at the annual meeting. The mere presence of a shareholder at the annual meeting (without notification of revocation to the Secretary) will not, by itself, automatically revoke a shareholder’s proxy. |
At this time, Interchange’s board of directors is not aware of any business that may properly be presented at the annual meeting other than the proposals to approve the merger agreement and elect directors. However, if further business is properly presented, the persons present will have discretionary authority to vote the shares they own or represent by proxy in accordance with their judgment. Unless otherwise provided by Interchange’s Certificate of Incorporation or bylaws or by law, other matters will be approved by a majority of the votes cast in favor of such matters.
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SOLICITATION OF PROXIES
This proxy statement is furnished in connection with the solicitation of proxies by Interchange’s board of directors for use at the annual meeting or any adjournment or postponement of the annual meeting. The cost of solicitation of proxies by the board of directors will be borne by Interchange. In addition to the solicitation of proxies by mail, the directors, officers and employees of Interchange and Interchange Bank may also solicit proxies personally or by telephone, telecopier, or similar means without compensation other than reimbursement by Interchange for their actual expenses. Interchange also will request persons, firms and corporations holding shares which are beneficially owned by others to send proxy materials to and obtain proxy instructions from those beneficial owners. Interchange will reimburse those holders for their reasonable out-of-pocket expenses.
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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth the beneficial ownership of Interchange’s common stock by (a) each beneficial owner of more than five percent of the common stock, (b) each director, (c) each named executive officer, and (d) all current directors and executive officers of Interchange as a group. Beneficially owned shares include shares over which the named person exercised either sole or shared voting power or sole or shared investment power. It also includes shares owned (i) by spouse, minor children or by relatives sharing the same home, or (ii) by entities owned or controlled by the named person. Unless otherwise noted, all shares are owned of record and beneficially by the named person, either directly or through the dividend reinvestment plan as of June 30, 2006.
Name and Address (1) | Beneficially Owned | Right to Acquire (2) | Deferral Plans (3) | Total | Percent of Class (4) | ||||||
---|---|---|---|---|---|---|---|---|---|---|---|
5% Shareholders: | |||||||||||
Lawrence B. Seidman | |||||||||||
100 Misty Lane | |||||||||||
Parsippany, NJ 07054 | 1,037,305 | (5) | — | — | 1,037,305 | 5.1 | |||||
Directors: | |||||||||||
Anthony S. Abbate | 535,454 | 307,500 | 39,250 | 882,205 | 4.3 | ||||||
Anthony D. Andora | 294,232 | 6,750 | — | 300,982 | 1.5 | ||||||
Gerald A. Calabrese, Jr. | 222,167 | 4,500 | — | 226,667 | 1.1 | ||||||
Donald L. Correll | 18,230 | 13,500 | — | 31,730 | * | ||||||
Anthony R. Coscia | 18,613 | 13,500 | — | 32,113 | * | ||||||
John J. Eccleston | 185,664 | — | — | 185,664 | * | ||||||
David R. Ficca | 129,986 | (6) | 13,500 | — | 143,486 | * | |||||
James E. Healey | 91,224 | 11,250 | — | 102,474 | * | ||||||
Nicholas R. Marcalus | 25,554 | 6,150 | — | 31,704 | * | ||||||
Eleanore S. Nissley | 116,234 | — | — | 116,234 | * | ||||||
Jeremiah F. O’Connor | 129,297 | — | — | 129,297 | * | ||||||
Robert P. Rittereiser | 62,125 | 13,500 | — | 75,625 | * | ||||||
John A. Schepisi | 247,211 | 4,500 | — | 251,711 | 1.2 | ||||||
William “Pat” Schuber | 1,106 | 6,750 | — | 7,856 | * | ||||||
Executive Officers who are not | |||||||||||
Directors: | |||||||||||
Patricia D. Arnold | 29,086 | 115,250 | 34,124 | 178,460 | * | ||||||
Charles T. Field | 89 | 22,500 | 11,059 | 33,648 | * | ||||||
Charles P. Frost | 450 | 7,500 | 2,207 | 10,157 | * | ||||||
Frank R. Giancola | 1,551 | 106,875 | 46,251 | 154,677 | * | ||||||
Anthony J. Labozzetta | 108,128 | 120,000 | 20,617 | 248,745 | 1.2 | ||||||
Directors and executive officers | |||||||||||
as a group (19 persons) | 2,216,401 | 773,525 | 153,509 | 3,143,434 | 15.5 |
* | Does not exceed one percent of class |
1. | The address for all directors and officers of Interchange is c/o Interchange Financial Services Corporation, Park 80 West/Plaza II, Saddle Brook, New Jersey 07663. |
2. | Includes stock acquirable by exercise of stock options. |
3. | Shares held in deferred compensation accounts to which individuals have sole power to vote but no investment power. |
4. | Except for the percentages of certain parties that are based on presently exercisable options which are indicated in the preceding footnotes to the table, the percentages indicated are based on 20,406,124 shares of common stock issued and outstanding on June 30, 2006. In the case of parties holding presently exercisable options described in footnote 2 above, the percentage ownership is calculated on the assumption that the shares presently held or purchasable within the next 60 days underlying such options are outstanding. |
5. | As reported on Schedule 13D/A filed April 12, 2006 with the Securities and Exchange Commission. |
6. | Includes 99,786 shares owned by Mr. Ficca’s wife and 3,799 shares owned by a foundation. Mr. Ficca disclaims beneficial ownership of the shares owned by his wife and of the shares owned by the foundation. |
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PROPOSAL 1 – THE MERGER
This section of the proxy statement describes the material aspects of the merger agreement. A copy of the merger agreement is attached to this proxy statement asAPPENDIX A. Shareholders are urged to read the merger agreement carefully and in its entirety.
THE PARTIES
Interchange Financial Services Corporation, or Interchange, is a New Jersey corporation that was organized in 1984 under the Bank Holding Company Act of 1956. Interchange acquired all of the outstanding common stock of Interchange Bank, its principal operating subsidiary, in 1986. Interchange Bank is a full-service New Jersey-chartered commercial bank and wholly-owned subsidiary of Interchange and is headquartered in Saddle Brook, New Jersey. Interchange Bank offers banking services for individuals and businesses through thirty banking offices and one supermarket mini-branch in Bergen and Essex Counties, New Jersey. Interchange Bank maintains thirty-four automated teller machines, which are located at thirty of the banking offices, a supermarket, and Interchange Bank’s operations center. At June 30, 2006, Interchange had consolidated assets of $1.66 billion and consolidated shareholders’ equity of $184.0 million.
Interchange’s principal executive offices are located at Park 80 West/Plaza II, Saddle Brook, New Jersey 07663, and its telephone number is (201) 703-2265.
TD Banknorth Inc., or TD Banknorth, is a Delaware corporation and a majority-owned subsidiary of The Toronto-Dominion Bank, a Canadian-chartered bank. TD Banknorth is a registered bank/financial holding company under the Bank Holding Company Act of 1956, as amended. TD Banknorth’s principal asset is all of the capital stock of TD Banknorth, NA, a national bank which was initially formed as a Maine-chartered savings bank in the mid-19th century. TD Banknorth, NA operates banking divisions in Maine, New Hampshire, Massachusetts, Connecticut, Vermont, Pennsylvania, New York and New Jersey and had 587 banking offices located in these states at June 30, 2006. Through TD Banknorth, NA and its subsidiaries, TD Banknorth offers a full range of banking services and products to individuals, businesses and governments throughout its market areas, including commercial, consumer, trust, investment advisory and insurance agency services. At June 30, 2006, TD Banknorth had consolidated assets of $40.3 billion and consolidated shareholders’ equity of $8.2 billion. Based on total assets at that date, TD Banknorth is one of the 26 largest commercial banking organizations in the United States.
TD Banknorth’s executive offices are located at Two Portland Square, Portland, Maine 04101, and its telephone number is (207) 761-8500.
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BACKGROUND OF THE MERGER
The Interchange board of directors and its senior management have regularly reviewed Interchange’s strategic alternatives and assessed various opportunities for increasing long-term shareholder value, including opportunities for enhancing earnings internally, opportunistic de novo branching, and acquiring and/or affiliating with other financial institutions. These reviews included a periodic assessment by Interchange’s outside financial advisors of Interchange’s financial performance and return to shareholders, stock trading patterns and trends in the financial marketplace, including merger and acquisition activity, both local and nationwide. These reviews often included a discussion of the Interchange board of directors’ fiduciary duties with Interchange’s legal counsel.
One of these reviews, including a periodic assessment of Interchange by a financial advisor, occurred on May 26, 2005, when a financial advisor made a presentation to the Interchange board of directors regarding Interchange’s market position and strategic alternatives.
On June 11-12, 2005, the Interchange board of directors conducted general strategic planning sessions with a financial advisor. The board of directors reviewed materials related to and discussed various strategic options for Interchange, including potential acquisition targets, potential merger of equals opportunities, the value of Interchange as a stand-alone entity and the value of Interchange were it to be acquired. The board of directors resolved to continue with Interchange’s strategic plan and to continue to conduct periodic reviews of Interchange’s strategic options.
On June 23, 2005, a financial advisor presented a strategic evaluation of Interchange to the board of directors. Following the meeting, Anthony D. Andora, the chairman of Interchange’s board of directors, met with Robert P. Rittereiser, the chairman of both the Corporate Planning Committee of the Interchange board of directors and its subcommittee, the Strategic Planning Committee. Mr. Andora asked that Mr. Rittereiser have the Strategic Planning Committee evaluate and explore various strategic options and report to the board of directors as appropriate.
During late June or early July 2005, a member of the Strategic Planning Committee was contacted by an associate of his at a financial advisory firm. That associate conveyed the desire of another financial institution (“Company A”) to meet with Interchange to discuss strategic opportunities. The Strategic Planning Committee, based on the status of its efforts to date, determined to defer a response to a later time.
On July 28, 2005, Anthony S. Abbate, the president and chief executive officer of Interchange, met with the Strategic Planning Committee to discuss Interchange’s strategic evaluations. Mr. Abbate was charged with the responsibility of seeking out indications of interest from financial institutions that may be interested in acquiring Interchange.
Subsequently, during August and September 2005, Mr. Abbate met with the members of the Strategic Planning Committee to discuss his progress in seeking out indications of interest.
During mid-October 2005, the financial advisor for Company A conveyed to the Strategic Planning Committee another indication from Company A that it may be interested in acquiring Interchange. The Strategic Planning Committee indicated its interest in meeting with the financial advisor for Company A.
On October 25, 2005, Mr. Abbate and Mr. Andora met with the Strategic Planning Committee to discuss Mr. Abbate’s progress on behalf of the committee.
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During mid-November 2005, the Strategic Planning Committee met with Goldman Sachs & Co. (“Goldman Sachs”) regarding the possibility of Goldman Sachs serving as financial advisor to Interchange.
On November 23, 2005, a financial advisor informally represented to Mr. Abbate and Anthony J. Labozzetta, Interchange’s executive vice president and chief operating officer, the possible interest of a second financial institution (“Company B”) in acquiring Interchange.
Also on November 23, 2005, the Strategic Planning Committee met with the financial advisor for Company A regarding Company A’s interest in acquiring Interchange. The Strategic Planning Committee indicated a willingness to propose to the Interchange board of directors a process which would enable Company A to refine its view of the strategic value of Interchange.
During early December 2005, there were additional discussions between the Strategic Planning Committee and the financial advisor for Company A and the Strategic Planning Committee advised Mr. Abbate and Mr. Labozzetta of Company A’s interest.
On December 13, 2005, Mr. Abbate had a dinner meeting with a member of management of Company B. The two informally discussed the strategic options of Interchange and Company B.
During mid-December 2005, the Strategic Planning Committee briefed the Executive Committee of the Interchange board of directors regarding the progress of its initiative. The decision was made to brief the full board of directors. The Strategic Planning Committee also determined to recommend the retention of Goldman Sachs to the full board of directors.
On December 16, 2005, the Strategic Planning Committee held a meeting to discuss Company A’s possible interest in acquiring Interchange. Thacher Proffitt & Wood LLP (“Thacher Proffitt”), special legal counsel to Interchange, participated via teleconference. On December 20, 2005, Mr. Abbate and Mr. Andora met with the Strategic Planning Committee to review strategic matters and further discuss Company A’s possible interest in acquiring Interchange.
On December 22, 2005, the Interchange board of directors held a meeting to review strategic matters. Thacher Proffitt discussed with the board of directors its fiduciary duties and Goldman Sachs gave a presentation regarding the current bank merger environment and Interchange’s strategic alternatives. The Interchange board of directors discussed the prospects of Interchange and the potential value that shareholders could realize in a sale of Interchange.
On December 27, 2005, the Interchange board of directors held a meeting in which Interchange’s strategic alternatives were discussed.
On January 3, 2006, Mr. Abbate and Mr. Labozzetta met with two members of Company B’s management. They informally discussed the strategic options of Interchange and Company B.
On January 5, 2006, the Interchange board of directors held a meeting in which Interchange’s strategic alternatives were further discussed.
At a meeting on January 17, 2006, in response to the informal approaches by Company A and Company B, the Interchange board of directors determined to confirm the engagement of Goldman Sachs to serve as Interchange’s financial advisor to explore the level of interest in a potential acquisition of Interchange by Company A or Company B.
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On January 20, 2006, Mr. Abbate, the Strategic Planning Committee, Goldman Sachs and Thacher Proffitt held a teleconference to discuss the steps that needed to be taken in order to have Company A and Company B enter into confidentiality agreements.
On January 24, 2006, Goldman Sachs, Thacher Proffitt and members of Interchange management met to compile certain non-public information regarding Interchange to be provided to Company A and Company B.
During late January 2006, Goldman Sachs contacted Company A and Company B regarding the possibility of entering into confidentiality agreements in order to receive confidential material regarding Interchange.
Company A and Company B both entered into confidentiality agreements with Goldman Sachs, on behalf of Interchange, during the first week of February 2006 and were provided with preliminary information packages regarding Interchange and preliminary bid instructions.
On February 2, 2006, Mr. Abbate, Mr. Labozzetta, the Strategic Planning Committee and Goldman Sachs met with representatives of Company A and their financial advisors to further explore Company A’s possible interest in acquiring Interchange. On February 7, 2006, Mr. Abbate, Mr. Labozzetta and the Strategic Planning Committee conducted a meeting with representatives of Company B.
During the week of February 13, 2006, Goldman Sachs was verbally contacted by an investment bank representing another financial institution (“Company C”) regarding the possibility of Company C acquiring Interchange. Goldman Sachs conveyed this information to the Interchange board of directors. The board of directors determined not to further pursue a potential acquisition of Interchange by Company C at that time.
The Strategic Planning Committee was formally recognized as a committee of the board at a February 21, 2006 meeting of the Compensation/Stock Option Committee of the board and the recognition was subsequently ratified by the full Interchange board of directors.
On February 23, 2006, Mr. Labozzetta and Mr. Rittereiser had a breakfast meeting with members of Company A’s management to discuss business synergies related to a possible transaction.
On February 24, 2006, preliminary indications of interest were received from Company A and Company B. Both indications of interest included a proposal to acquire Interchange for a mixture of cash and stock.
Goldman Sachs reviewed the preliminary indications of interest with the Strategic Planning Committee on February 27, 2006 and with the full Interchange board of directors on February 28, 2006. The Interchange board of directors determined that the preliminary indications of interest did not meet the board of directors’ price expectations with respect to a potential sale of Interchange. Goldman Sachs communicated this information to Company A and Company B on February 28, 2006, and indicated that the parties would need to commit to a higher price in order to continue discussions and further due diligence.
On March 6, 2006, Mr. Abbate met with a financial analyst to discuss general industry topics, as they had been doing over lunch periodically. At this meeting, the financial analyst was accompanied by William J. Ryan, the President and Chief Executive Officer of TD Banknorth. Mr. Abbate, Mr. Ryan and
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the financial analyst discussed industry trends and the strategic challenges and opportunities facing the financial services industry and Interchange and TD Banknorth in Bergen County, New Jersey.
During the week of March 6, 2006, Company A increased its preliminary indication of interest to a level that was deemed suitable by the Interchange board of directors to allow Company A to proceed with detailed due diligence. Company A commenced detailed due diligence on March 11, 2006. Company B’s preliminary indication of interest was not increased to a level sufficient to meet the Interchange board’s requirements for conducting due diligence. When informed of this by Goldman Sachs, Company B elected not to proceed.
During the week of March 13, 2006, Interchange management and Goldman Sachs were verbally contacted by a financial advisor representing another financial institution (“Company D”) regarding the possibility of Company D acquiring Interchange. During the same week, Interchange management and Goldman Sachs were verbally contacted by Keefe, Bruyette & Woods, the financial advisor to TD Banknorth, regarding the possibility of TD Banknorth acquiring Interchange.
On March 23, 2006, at an Interchange board of directors meeting, Goldman Sachs reviewed with the board of directors the valuation of Interchange and discussed options with respect to the recent verbal inquiries received by TD Banknorth and Company D, as well as the inquiry received from Company C during the week of February 13, 2006. Thacher Proffitt discussed with the Interchange board of directors its fiduciary duties in evaluating the possible sale of Interchange. The board of directors determined to include TD Banknorth, Company C and Company D in the process.
On March 24, 2006, Goldman Sachs contacted TD Banknorth, Company C and Company D. Each executed a confidentiality agreement and was provided with a preliminary information package and preliminary bid instructions. Each was advised that preliminary bids would be due by March 31, 2006.
On March 31, 2006, Goldman Sachs received a preliminary indication of interest from TD Banknorth. TD Banknorth’s preliminary indication of interest included a proposal to pay $22.75 in cash per share of Interchange common stock. Goldman Sachs received telephone calls from Company C and Company D indicating that they would not be submitting preliminary indications of interest.
On April 3, 2006, the Strategic Planning Committee conducted a telephone conference with Goldman Sachs to discuss the preliminary indication of interest from TD Banknorth. The Strategic Planning Committee authorized Goldman Sachs to invite TD Banknorth to conduct detailed due diligence. Goldman Sachs informed TD Banknorth of the Interchange board of directors’ decision and instructed TD Banknorth to submit a final bid by April 7, 2006. TD Banknorth commenced detailed due diligence.
Also on April 3, 2006, Goldman Sachs received a final bid from Company A. The final bid included a proposal to purchase Interchange for a mixture of cash and Company A’s stock.
At a telephonic meeting of the Interchange board of directors on April 5, 2005, Goldman Sachs reviewed with the board of directors the preliminary indication of interest from TD Banknorth and the final bid from Company A. The board of directors noted that TD Banknorth’s final bid was due on April 7, 2006 and determined to further review each of the final bids at a board of directors meeting on April 10, 2006.
On April 7, 2006, TD Banknorth submitted its final bid to Goldman Sachs. TD Banknorth’s final bid included a proposal to pay $23.00 in cash per share of Interchange common stock. TD Banknorth also submitted an initial draft merger agreement.
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At a special meeting of the Interchange board of directors on April 10, 2006, Goldman Sachs reviewed the two final bid proposals with the board of directors. After fully considering both proposals, including the tax implications to Interchange’s shareholders of TD Banknorth’s all cash offer versus the mixture of cash and stock offered by Company A, the board of directors determined to proceed with TD Banknorth’s offer because it represented a higher value than the final bid submitted by Company A. The board of directors authorized Thacher Proffitt to begin negotiating a definitive agreement with TD Banknorth under the terms of its final bid.
Over the next few days, the parties and their advisors negotiated the terms of the merger agreement, subject to the resolution of several open items. TD Banknorth was asked whether it would consider purchasing Interchange for a mixture of cash and TD Banknorth common stock. TD Banknorth reiterated its desire to pay all cash, rather than a mixture of cash and stock. The final open items were resolved during the morning of April 13, 2006.
During the afternoon of April 13, 2006, a special meeting of the Interchange board of directors was held. At this meeting, Goldman Sachs and Thacher Proffitt updated the board of directors on the status of the negotiations. Thacher Proffitt reviewed for the board of directors the terms of the merger agreement, as well as the voting agreement to be entered into by each director of Interchange, the legal duties of the board of directors to Interchange’s shareholders and potential conflicts of interest issues. Goldman Sachs stated to the board of directors that it would render a written fairness opinion to the effect that, based upon and subject to the considerations described in its opinion, the per share merger consideration offered by TD Banknorth was “fair” from a financial point of view to Interchange’s shareholders. The board of directors then unanimously approved the merger agreement and the transactions contemplated thereby. Shortly thereafter, the parties executed the merger agreement and issued a joint press release publicly announcing the transaction late in the afternoon on April 13, 2006.
Between the date of the merger agreement and the date of this proxy statement, neither Interchange nor its representatives has been contacted by any party other than TD Banknorth with respect to a potential acquisition of Interchange.
INTERCHANGE’S REASONS FOR THE MERGER; RECOMMENDATION OF THE BOARD OF DIRECTORS
Interchange’s board of directors has unanimously approved the merger agreement and unanimously recommends that Interchange shareholders vote “FOR” approval of the merger agreement.
Interchange’s board of directors has determined that the merger is fair to, and in the best interests of, Interchange and its shareholders. In approving the merger agreement, the board of directors consulted with Goldman Sachs with respect to the fairness of the merger consideration to the holders of Interchange common stock from a financial point of view and Thacher Proffitt as to its legal duties and the terms of the merger agreement. In arriving at its determination, the board of directors also considered a number of factors, including the following:
• | the board’s familiarity with and review of information concerning the business, results of operations, financial condition, competitive position and future prospects of Interchange; |
• | the current and prospective environment in which Interchange operates, including national, regional and local economic conditions, the competitive environment for banks and other financial institutions generally and the increased regulatory burdens on financial institutions generally and the trend toward consolidation in the banking industry and in the financial services industry; |
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• | the financial presentation of Goldman Sachs and the opinion of Goldman Sachs that, as of the date of such opinion, the merger consideration of $23.00 in cash per share is fair, from a financial point of view, to the holders of Interchange common stock; |
• | results that could be expected to be obtained by Interchange if it continued to operate independently, and the likely benefits to shareholders of such course, as compared with the value of the merger consideration being offered by TD Banknorth; |
• | the ability of TD Banknorth to pay the aggregate merger consideration and to receive the requisite regulatory approvals in a timely manner; |
• | the fact that the consideration to be received in the merger is cash, thus eliminating any uncertainty in valuing the merger consideration to be received by Interchange shareholders, and that this consideration would result in a fully-taxable transaction to Interchange shareholders; |
• | its assessment, based in part on discussions with Goldman Sachs, that it currently was unlikely that another acquiror had both the willingness and the financial capability to offer to acquire Interchange at a price which was materially higher than that being offered by TD Banknorth; |
• | the terms and conditions of the merger agreement, including the parties’ respective representations, warranties, covenants and other agreements, the conditions to closing, the absence of a financing condition, a provision which permits Interchange’s board of directors, in the exercise of its fiduciary duties, under certain conditions, to furnish information to, or engage in negotiations with, a third party which has submitted a bona fide unsolicited written proposal to acquire Interchange and a provision providing for Interchange’s payment of a termination fee to TD Banknorth if the merger agreement is terminated under certain circumstances, and the effect such termination fee could have on a third party’s decision to propose a merger or similar transaction to Interchange at a higher price than that contemplated by the merger; |
• | the effects of the merger on Interchange’s depositors and customers and the communities served by Interchange, which was deemed to be favorable given that they would be served by a geographically diversified organization which had greater resources than Interchange; and |
• | the effects of the merger on Interchange’s employees, including the prospects for employment with a large, growing organization such as TD Banknorth and the severance and other benefits agreed to be provided by TD Banknorth to employees whose employment was terminated in connection with the merger. |
The discussion and factors considered by Interchange’s board of directors is not intended to be exhaustive, but includes all material factors considered. In approving the merger agreement, the board of directors did not assign any specific or relative weights to any of the foregoing factors and individual directors may have weighted factors differently.
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NONPUBLIC FINANCIAL PROJECTIONS SHARED WITH TD BANKNORTH
As noted under “— Background of the Merger” above, in connection with their consideration of the merger, TD Banknorth conducted a due diligence review of Interchange. The information that was provided to TD Banknorth included Interchange’s internal budget for the 2006 fiscal year, which was prepared by Interchange management during October and November of 2005. The budget was prepared by Interchange management for internal use and for assistance in planning, capital allocation and other management decisions and contained certain financial projections for the 2006 fiscal year, which are summarized below.
The budget information provided below was not prepared with a view to public disclosure or compliance with GAAP, the published guidelines of the Securities and Exchange Commission or the guidelines established by the American Institute of Certified Public Accountants regarding forecasts and projections. In addition, the budget was based on numerous assumptions, and those Interchange believes to be material are summarized below. The financial projections may not be realized and are subject to contingencies and uncertainties, many of which are beyond the control of Interchange. For example, Interchange’s business, and the basis for the preparation of its budget, depends on conditions in the financial markets, including the level of interest rates and the performance of the equity and debt markets. Accordingly, the inclusion herein of the summary of the financial projections from the budget should not be interpreted as an indication that Interchange considers this information a reliable prediction of future results, and this information should not be relied upon for this purpose. Actual results may differ materially from those set forth below, and for a discussion of some of the factors that could cause actual results to differ see “Forward-Looking Statements—Cautionary Statements” on page [__]. Interchange does not intend to make publicly available any update or other revision to these projections. Interchange generally includes various forward-looking information in its periodic reports filed with the Securities and Exchange Commission.
In light of the foregoing, and considering that the Interchange annual meeting will be held eleven months after the date the financial projections included below were prepared, as well as the uncertainties inherent in any budgeted or forecasted information, shareholders are cautioned not to place undue reliance on these projections. At this time, Interchange does not believe it will achieve the projections as summarized below based on its recently filed financial results for the three and six months ended June 30, 2006 contained in its Form 10-Q for the second quarter of 2006. Interchange’s results were adversely affected for the periods by additional merger-related and other expenses, rising short-term interest rates and a flattening of the yield curve along with less than expected growth in loans and deposits. All of these factors contributed to a decline in Interchange’s reported net income as compared to the 2006 budget. The largest variance is projected to occur in net interest income, driven by lower loan and deposit growth and a compression in the net interest margin when compared to budget.
2006 Interchange Budget Projections | For the year ended December 31, 2006 | ||
(In thousands, except per share data) | |||
Revenues | $ 110,157 | ||
Net Income | 21,997 | ||
Earnings Per Share (diluted) | 1.09 |
The information shown above was prepared using assumptions considered to be representative of market conditions over the period presented. Some of the more significant assumptions included the net interest margin, loan and deposit growth, prepayment speeds in the loan portfolios, growth in non-interest income and expense, the level of provisions for loan loss, the estimated tax rate and capital management through a previously announced share repurchase program. Interest rates and yields on the interest earning assets and interest bearing liabilities were assigned based upon the then-current pricing patterns and specific yields were assigned where known. Asset and deposit growth were based upon each department’s business plan and compared to recent historical achievements. National prepayment speeds were used to calculate the expected prepayments in the loan portfolio. The provision for loan losses was based upon the then-current loan review analysis and projected loan growth. Estimated taxes were based upon the then-current tax rate adjusted for any then-known or anticipated tax law changes. Certain assumptions were utilized in estimating the number of diluted shares outstanding used in the earnings per share computation including the anticipated stock price and share repurchases to be made in the open market as a result of the previously announced share repurchase plan.
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OPINION OF INTERCHANGE’S FINANCIAL ADVISOR
Goldman Sachs rendered its opinion to Interchange’s board of directors that, as of April 13, 2006 and based upon and subject to the factors and assumptions set forth therein, the merger consideration of $23.00 in cash per share to be received by holders of outstanding shares of common stock of Interchange pursuant to the merger agreement was fair from a financial point of view to such holders.
The full text of the written opinion of Goldman Sachs, dated April 13, 2006, which sets forth assumptions made, procedures followed, matters considered and limitations on the review undertaken in connection with the opinion, is attached as APPENDIX B to this proxy statement. Interchange’s shareholders should read the opinion in its entirety. Goldman Sachs provided its opinion for the information and assistance of Interchange’s board of directors in connection with its consideration of the transaction. The Goldman Sachs opinion is not a recommendation as to how any holder of Interchange’s common stock should vote or make any election with respect to the transaction.
In connection with rendering the opinion described above and performing its related financial analyses, Goldman Sachs reviewed, among other things:
• | the merger agreement; |
• | annual reports to stockholders and annual reports on Form 10-K of Interchange and TD Banknorth for the five fiscal years ended December 31, 2005; |
• | certain interim reports to shareholders and quarterly reports on Form 10-Q of Interchange and TD Banknorth; |
• | certain other communications from Interchange and TD Banknorth to their respective stockholders; and |
• | certain internal financial analyses and forecasts for Interchange prepared by its management. |
Goldman Sachs also held discussions with members of the senior management of Interchange regarding their assessment of the past and current business operations, financial condition, and future prospects of Interchange. In addition, Goldman Sachs reviewed the reported price and trading activity for Interchange’s common stock, compared certain financial and stock market information for Interchange with similar financial and stock market information for certain other companies the securities of which are publicly traded, reviewed the financial terms of certain recent business combinations in the banking industry specifically and other industries generally and performed such other studies and analyses and considered such other factors, as it considered appropriate.
Goldman Sachs relied upon the accuracy and completeness of all of the financial, accounting, tax and other information discussed with or reviewed by it and assumed such accuracy and completeness for purposes of rendering the opinion described above. In addition, Goldman Sachs did not make an independent evaluation or appraisal of the assets and liabilities (including any derivative or off-balance-sheet assets and liabilities) of Interchange or any of its respective subsidiaries. No evaluation or appraisal of the assets or liabilities of Interchange or any of its respective subsidiaries was furnished to Goldman Sachs.
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The following is a summary of the material financial analyses used by Goldman Sachs in connection with rendering the opinion described above. The following summary, however, does not purport to be a complete description of the financial analyses performed by Goldman Sachs. The order of analyses described does not represent relative importance or weight given to those analyses by Goldman Sachs. Some of the summaries of the financial analyses include information presented in tabular format. The tables must be read together with the full text of each summary and on their own do not represent a complete description of Goldman Sachs’ financial analyses. Except as otherwise noted, the following quantitative information, to the extent that it is based on market data, is based on market data as it existed on or before April 7, 2006 and is not necessarily indicative of current market conditions.
Transaction Overview and Transaction Multiples Analysis. Goldman Sachs reviewed with Interchange’s board of directors the basic terms of the merger.
Goldman Sachs calculated for Interchange’s board of directors various multiples and premiums resulting from the transaction. These calculations were based on historical information, estimates from Institutional Brokerage Estimate Systems, or IBES (a data service that compiles estimates issued by securities analysts), and certain financial analysis and forecasts for Interchange prepared by its management.
Goldman Sachs calculated that the consideration of $23.00 per share of Interchange’s common stock represented a 23.5% premium to the closing price per share of Interchange common stock on April 7, 2006. Using the consideration, Goldman Sachs also calculated the following multiples and premiums:
• | the consideration per share of $23.00 as a multiple of Interchange’s 2005 earnings per share, or EPS, 2006 IBES median estimated EPS and estimated EPS based on the budget of Interchange’s management as of September 2005; |
• | the aggregate consideration (based on the consideration per share of $23.00) as a multiple of Interchange’s stated book value and tangible book value as of December 31, 2005; and |
• | the premiums to Interchange’s stated deposits and to Interchange’s core deposits, each as of December 31, 2005. These premiums were calculated as the excess of the implied aggregate transaction value over Interchange’s tangible book value as of December 31, 2005, divided by Interchange’s stated deposits and core deposits, respectively, as of December 31, 2005. |
TD Banknorth’s Proposal | |||
---|---|---|---|
Consideration per share as a multiple of: | |||
Actual 2005 EPS | 23.2 | x | |
Median IBES Estimated 2006 EPS | 22.1 | x | |
Budget Estimated 2006 EPS | 21.1 | x | |
Aggregate consideration as a multiple of: | |||
Stated book value | 2.7 | x | |
Tangible book value | 4.6 | x | |
Premium to: | |||
Stated deposits | 29.8 | % | |
Core deposits | 31.0 | % |
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Selected Companies Analysis.Goldman Sachs reviewed and compared certain financial information for Interchange to corresponding financial information, ratios and public market multiples for the following publicly traded corporations in the banking industry:
Interchange’s Regional Bank Peers | Interchange’s Large/Mid-Cap Regional Bank Peers |
---|---|
U.S.B. Holdings | PNC Financial Services Group1 |
Yardville National Bancorp | M&T Bank Corporation |
Sterling Bancorp | TD Banknorth |
Sun Bancorp | Commerce Bancorp |
Suffolk Bancorp | Mercantile Bankshares Corporation2 |
Lakeland Bancorp | Valley National Bancorp |
Royal Bancshares of Pennsylvania | |
Peapack-Gladstone Financial Corporation | |
State Bancorp |
Although none of the selected companies is directly comparable to Interchange, the companies included were chosen because they are publicly traded companies with operations that for purposes of analysis may be considered similar to certain operations of Interchange.
The multiples and ratios of Interchange were calculated using market data for Interchange common stock on April 7, 2006, publicly available financial data as of December 31, 2005 and IBES estimates.
The multiples and ratios of each of Interchange, TD Banknorth and the selected companies were based on publicly available financial data as of December 31, 2005, market data as of April 7, 2006 and IBES estimates. With respect to the selected companies, Goldman Sachs calculated:
• | the closing share price as a percentage of the 52-week high share price; |
• | the closing share price as a multiple of IBES EPS estimate for 2006; |
• | the closing share price as a multiple of IBES EPS estimate for 2007 (referred to as the “forward P/E multiple”); |
• | the median IBES long-term earnings growth rate estimate; |
• | the ratio of the forward P/E multiple to the median IBES long-term earnings growth rate estimate; |
• | the ratio of the total market capitalization to the tangible book value; |
• | the core deposit premium; and |
• | the three-year EPS compounded annual growth rate. |
1 | PNC is pro forma for the pending BlackRock, Inc./Merrill Lynch Investment Management merger. |
2 | Mercantile is pro forma for the pending acquisition of James Monroe Bancorp. |
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Interchange | TD Banknorth | Interchange’s Regional Bank Peers | Interchange’s Large/Mid-Cap Regional Bank Peers | ||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
April 7, 2006 | April 7, 2006 | Range | Median | Range | Median | ||||||||
Closing share price as a | |||||||||||||
percentage of the 52-week | |||||||||||||
high share price | 95% | 91% | 70%-98% | 89% | 91%-100% | 96% | |||||||
Closing share price as a multiple of: | |||||||||||||
IBES estimated 2006 EPS | 17.9x | 12.1x | 14.2x-19.6x | 14.6x | 12.1x-21.3x | 15.7x | |||||||
IBES estimated 2007 EPS | 16.3x | 10.8x | 12.7x-17.8x | 14.2x | 10.8x-17.0x | 14.4x | |||||||
IBES long-term growth rate | |||||||||||||
estimate | 8.0% | 9.6% | 9.0%-15.0% | 9.0% | 8.0%-16.0% | 9.4% | |||||||
Ratio of the forward P/E | |||||||||||||
multiple to IBES long-term | |||||||||||||
earnings growth rate | |||||||||||||
estimate | 2.2x | 1.3x | 1.3x-1.8x | 1.6x | 1.3x-2.1x | 1.5x | |||||||
Ratio of market capitalization | |||||||||||||
to tangible book value | 3.7x | 3.4x | 2.0x-3.4x | 2.5x | 3.2x-4.6x | 3.4x | |||||||
Core deposit premium | 23.2% | 19.6% | 9.5%-30.8% | 13.2% | 15.7%-36.6% | 27% | |||||||
Three-year EPS compounded | |||||||||||||
annual growth rate | 5.3% | N.A. | 1.6%-17.6% | 8.5% | 2.6%-18.9% | 9.3% |
Goldman Sachs compared the historical public market valuation, calculated as the ratio of the share trading price to the next 12 months EPS estimate for certain periods ended April 7, 2006 for Interchange, to the historical public market valuation for the selected Interchange regional bank peers and for the S&P bank index. The following table represents the price to next 12 months EPS estimates as of April 7, 2006.
Interchange | Interchange’s Regional Bank Peers | S&P Bank Index | |
---|---|---|---|
April 7, 2006 price to next 12 months EPS | 17.7x | 15.3x | 12.4x |
Goldman Sachs compared the historical stock price return, calculated as the change in stock price, for certain periods ended April 7, 2006 for Interchange, to the average historical stock price return for the selected Interchange regional bank peers and for the S&P bank index. The following table represents the results of this analysis:
Interchange | Interchange’s | S&P Bank Index | |
---|---|---|---|
5-year stock price return | 177% | 105% | 31% |
3-year stock price return | 59% | 26% | 36% |
1-year stock price return | 5% | (7)% | 4% |
Selected Transactions Analysis.Goldman Sachs analyzed certain publicly available financial information relating to selected comparable transactions in the banking industry, which are divided into the following two groups: (1) a group of Northeastern bank and thrift transactions since January 1, 2003 with targets in New Jersey, New York, Connecticut or Pennsylvania and values between $250 million and $800 million; and (2) a group of all transactions since January 1, 2004 with values between $250 million and $800 million. Goldman Sachs took into consideration the information obtained from its selected transaction analysis in its evaluation of the fairness of the consideration to be received by the holders of Interchange common stock.
For each of the selected transactions and groups of transactions, Goldman Sachs calculated and compared:
FIRST: the implied premium represented by the price paid for the target in the transaction to:
• | the closing price per share of common stock of the target six days prior to the announcement of the transaction; and |
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• | the target’s core deposits (calculated as the price paid less the tangible book value of the target divided by the latest publicly available core deposits of the target prior to the announcement of the transaction); and |
SECOND: the implied ratio of the price paid for the target in the transaction to:
• | earnings of the target for the fiscal year in which the transaction was announced (“FY1”); |
• | earnings of the target for the last twelve months; |
• | stated book value of the target, based on the last publicly available financial statements of the target available as of the announcement of the transaction; and |
• | tangible book value of the target, based on the last publicly available financial statements of the target available as of the announcement of the transaction. |
The following table presents the results of this analysis by the groups stated above for the selected transactions:
TD Banknorth’s Proposal | Selected Transactions Since January 1, 2003 | Selected Transactions Since January 1, 2004 | |||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
High | Median | Low | High | Median | Low | ||||||||||
Premium/Market | 23.5 | % | 48.6 | % | 15.5 | % | 0.6 | % | 48.6 | % | 22.0 | % | (1.6 | )% | |
Premium/Core Deposits | 31.0 | % | 33.5 | % | 23.6 | % | 11.0 | % | 33.5 | % | 24.3 | % | 10.0 | % | |
Price/FY1 Earnings | 22.1 | x | 49.4 | x | 20.9 | x | 16.3 | x | 49.4 | x | 17.0 | x | 12.9 | x | |
Price/LTM Earnings | 23.2 | x | 50.6 | x | 22.7 | x | 10.6 | x | 50.6 | x | 19.1 | x | 10.6 | x | |
Price/Stated Book Value | 2.7 | x | 3.37 | x | 2.28 | x | 1.48 | x | 4.05 | x | 2.30 | x | 1.46 | x | |
Price/Tangible Book Value | 4.6 | x | 3.74 | x | 2.62 | x | 1.80 | x | 4.11 | x | 2.98 | x | 1.75 | x |
Note: | Financial information used in calculating the figures in this table were taken from publicly available filings and SNL Financial. In transactions where no EPS estimates existed, the calculations assumed a 10% annual growth rate from historical figures. |
Discounted Cash Flow Analysis. Goldman Sachs performed a discounted cash flow analysis on Interchange to determine the implied present value per share of Interchange’s common stock assuming Interchange continues to operate on a stand-alone basis. A discounted cash flow analysis is a traditional method of evaluating an asset by estimating the future cash flows of the asset and taking into consideration the time value of money with respect to those future cash flows by calculating the “present value” of the estimated future cash flows of the asset. “Present value” refers to the current value of one or more future cash payments (“cash flows”) from the asset and is obtained by discounting those future cash flows or amounts by a discount rate that takes into account macro-economic assumptions and estimates of risk, the opportunity cost of capital, expected returns and other appropriate factors. “Terminal value” refers to the value of all future cash flows from an asset at a particular point in time.
Goldman Sachs performed a particular discounted cash flow analysis known as a dividend discount analysis, which is more appropriate for leveraged institutions with strict capital requirements. This analysis was used to generate reference ranges for the implied present value per share of Interchange’s common stock assuming Interchange continued to operate as a stand-alone company. The following modeling assumptions were used regarding Interchange and its future prospects:
• | 5-year discounted dividend model targeting Interchange’s tangible common equity to tangible assets ratio of 6.72% as of December 31, 2005; |
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• | core dividends maintained at 40.4% payout ratio; |
• | 8.0% annual growth in total assets; |
• | terminal value of Interchange’s common stock at the end of 2010 based on an earnings multiple of 15.0x the estimated earnings in 2011; and |
• | a discount rate of 10%. |
Goldman Sachs analyzed two different forecasts for the future earnings of Interchange. The first was based on the median IBES estimates for EPS and future EPS growth (IBES case) and the second was based on the management forecast (Management case); the assumptions for both cases are detailed below:
For the IBES case, the following assumptions were used:
• | IBES median EPS estimates for fiscal years 2006 and 2007; and |
• | a range of annual EPS growth rates for the years 2008-2011 of between 4.0% and 9.0%. |
For the Management case, the following assumptions were used:
• | Management’s earnings forecast for fiscal years 2006 through 2010; and |
• | a range of annual EPS growth rates for fiscal year 2011 of between 4.0% and 14.0%. |
This analysis resulted in a reference range for the implied present value per share of Interchange common stock, on a standalone basis, of $15.14 to $17.96 for the IBES case and $19.43 to $21.06 for the Management case.
The preparation of a fairness opinion is a complex process involving various determinations as to the most appropriate and relevant methods of financial analysis and the application of those methods to the particular circumstances and, therefore, a fairness opinion is not readily susceptible to partial analysis or summary description. In arriving at its opinion, Goldman Sachs considered the results of all of the analyses and factors and did not isolate specific analyses or factors and reach separate conclusions as to whether or not any particular analysis or factor supported its opinion; rather, Goldman Sachs made its determination as to fairness on the basis of its experience and professional judgment after considering the results of all the underlying analyses and factors. Accordingly, Goldman Sachs believes that its analyses must be considered as a whole and that selecting portions of its analyses or certain factors, without considering all analyses and factors as a whole, could create a misleading or incomplete view of the processes underlying its opinion.
In its analyses, Goldman Sachs made numerous assumptions with respect to industry performance, general business, economic, market and financial conditions and various other matters, many of which are beyond the control of the parties and their advisors. Furthermore, no company or transaction used in Goldman Sachs’ analysis is identical to Interchange, TD Banknorth or the proposed merger. Rather, the analyses of comparable companies and transactions involve complex considerations and judgments concerning differences in financial and operating characteristics of the companies and other factors that could affect the acquisition, public trading or other values of the companies or transactions being compared.
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Goldman Sachs prepared its analyses for purposes of providing its opinion to Interchange’s board of directors as to the fairness from a financial point of view to holders of shares of Interchange common stock of the exchange ratio and to assist Interchange’s board of directors in analyzing the proposed merger. The analyses do not purport to be appraisals or necessarily reflect the prices at which businesses or securities actually may be sold. Analyses based upon forecasts of future results are not necessarily indicative of actual future results, which may be significantly more or less favorable than those suggested by these analyses. Because these analyses are inherently subject to uncertainty, being based upon numerous factors or events beyond the control of the parties and their respective advisors, none of Interchange, TD Banknorth, Goldman Sachs or any other person assumes responsibility if future results are materially different from those forecasted.
Goldman Sachs’ opinion was one of many factors considered by the Interchange board of directors in its evaluation of the merger and should not be viewed as determinative of the views of the board of directors of Interchange or management with respect to the merger or the exchange ratio.
Goldman Sachs and its affiliates, as part of their investment banking business, are continually engaged in performing financial analyses with respect to businesses and their securities in connection with mergers and acquisitions, negotiated underwritings, competitive biddings, secondary distributions of listed and unlisted securities, private placements and other transactions as well as for estate, corporate and other purposes. Goldman Sachs acted as financial advisor to Interchange in connection with, and participated in certain of the negotiations leading to, the merger. In addition, Goldman Sachs has provided certain investment banking services to The Toronto-Dominion Bank, the majority shareholder of TD Banknorth, from time to time, including having acted as:
• | its financial advisor in connection with its disposition of TD Waterhouse Group, Inc. announced in June 2005; |
• | its financial advisor in connection with TD Banknorth’s acquisition of Hudson United Bancorp announced in July 2005; |
• | its financial advisor in connection with its acquisition of 51% of Banknorth Group announced in August 2004; |
• | manager of its Medium Term Note Program from 2001 through 2005. |
Goldman Sachs has also provided certain investment banking services to TD Banknorth, from time to time, including having acted as a participant in its $200 million issuance of 8% Trust Preferred Securities in February 2002.
Goldman Sachs may also provide investment banking services to TD Banknorth or Interchange and their respective affiliates in the future. In connection with the above-described investment banking services, Goldman Sachs has received, and may receive, compensation.
Goldman Sachs is a full service securities firm engaged, either directly or through its affiliates, in securities trading, investment management, financial planning and benefits counseling, risk management, hedging, financing and brokerage activities for both companies and individuals. In the ordinary course of these activities, Goldman Sachs and its affiliates may provide such services to Interchange, TD Banknorth and their respective affiliates, may actively trade the debt and equity securities (or related derivative securities) of Interchange, TD Banknorth and their respective affiliates for their own account and for the accounts of their customers and may at any time hold long and short positions of such securities.
Interchange selected Goldman Sachs as its financial advisor because it is an internationally recognized investment banking firm that has substantial experience in transactions similar to the merger. Pursuant to a letter agreement dated December 22, 2005, Interchange engaged Goldman Sachs as financial
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advisor in connection with the contemplated transaction. Pursuant to the terms of the engagement letter, Interchange has agreed to pay Goldman Sachs a transaction fee equal to 1.00% of the total merger consideration of $480.6 million, or approximately $4.81 million, which is payable upon completion of the merger. Interchange has also agreed to reimburse Goldman Sachs for all reasonable out-of-pocket expenses, including fees of counsel, and to indemnify Goldman Sachs and certain related persons against specified liabilities, including liabilities under the federal securities laws, relating to or arising out of its engagement.
BANK MERGER
The merger agreement provides for the merger of Interchange Bank into TD Banknorth, NA immediately following the completion of the merger.Following the bank merger, Interchange will be liquidated with and into TD Banknorth.
MERGER CONSIDERATION
At the effective time of the merger, each share of Interchange common stock issued and outstanding immediately prior to the effective time (other than shares held by Interchange or TD Banknorth) will be cancelled and converted automatically into the right to receive from TD Banknorth an amount equal to $23.00 in cash, without interest.
After the completion of the merger, holders of certificates that prior to the merger represented issued and outstanding shares of Interchange common stock will have no rights with respect to those shares except for the right to surrender the certificates for the merger consideration. After the completion of the merger, holders of shares of Interchange common stock will have no continuing equity interest in Interchange or TD Banknorth and, therefore, will not share in future earnings, dividends or growth of Interchange or TD Banknorth.
TREATMENT OF EQUITY-BASED AWARDS
Immediately prior to the merger, any unexercised option to buy Interchange common stock which is outstanding will be terminated and each holder will be entitled to receive from Interchange in consideration therefore a cash payment at the closing in an amount equal to the difference between $23.00 and the exercise price of such stock option, multiplied by the number of shares subject to the stock option held, less any required tax withholdings. In addition, immediately prior to the merger, all unvested shares of restricted stock then outstanding will immediately vest and be converted to a right to receive $23.00 per share, less any required tax withholdings, from Interchange. See “—Interests of Certain Persons in the Transaction-Equity-Based Awards.”
FINANCING THE TRANSACTION
Based on the fully diluted number of shares of Interchange outstanding, the aggregate amount of consideration to be paid to Interchange’s shareholders and option holders will be approximately $[480.6] million. TD Banknorth represented and warranted in the merger agreement that it will have capital and financing sufficient to pay the merger consideration to the shareholders of Interchange following completion of the merger. Concurrently with the execution of the merger agreement, TD Banknorth and its majority stockholder, The Toronto-Dominion Bank, entered into a letter agreement which provides for the sale of 13.0 million shares of TD Banknorth common stock to The Toronto-Dominion Bank at a price of $31.17 per share on the closing date of the merger. The proceeds from this transaction will be used by TD Banknorth to fund a substantial portion of the merger consideration.
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NO SOLICITATION
The merger agreement provides that Interchange and its subsidiaries and its and their directors, officers, employees, agents or representatives may not directly or indirectly solicit, initiate, knowingly encourage or take any action to facilitate, or furnish or disclose nonpublic information in furtherance of, any inquiries or the making of any offer or proposal regarding an acquisition proposal. The term “acquisition proposal” is generally defined in the merger agreement as any offer or proposal for, or any indication of interest in, any of the following:
• | a merger, tender offer, recapitalization, consolidation or similar transaction involving Interchange or any of its subsidiaries; |
• | any purchase, lease or other acquisition or assumption of all or a substantial portion of the assets or deposits of Interchange or any of its subsidiaries; or |
• | a purchase or other acquisition of beneficial ownership of securities representing 10% or more of the voting power of Interchange or any of its subsidiaries. |
The merger agreement also provides that Interchange and its subsidiaries and its and their directors, officers, employees, agents or representatives shall not participate in any discussions or negotiations with, or provide any information to, any person (other than TD Banknorth or its affiliates or representatives) concerning an acquisition proposal, or enter into any definitive agreement or understanding for any acquisition proposal or requiring Interchange to abandon, terminate or fail to complete the transactions contemplated by the merger agreement, except as authorized in the manner described in the following paragraph.
The merger agreement allows Interchange to furnish information to, and negotiate and engage in discussions with, any person that delivers an unsolicited, bona fide written proposal for an acquisition proposal if:
• | the board of directors of Interchange determines in good faith (1) by a majority vote, after consultation with its outside legal counsel, that failing to take such action would be inconsistent with its fiduciary duties under applicable laws; and (2) that the proposal, after taking into account the advice of its financial advisor and all of the terms and conditions of the acquisition proposal, is or would be reasonably likely to result in a proposal that is in the aggregate more favorable and provides greater value to all of Interchange’s shareholders than the merger consideration, merger agreement and the merger with TD Banknorth taken as a whole (a “superior proposal”); and |
• | prior to furnishing any information to that person, Interchange has entered into a confidentiality agreement with that person that is no less restrictive, in any material respect, than the confidentiality agreement between TD Banknorth and Interchange, and Interchange enforces and does not waive any of the provisions of the confidentiality agreement with that person. |
The merger agreement also allows Interchange to take and disclose to its shareholders any position contemplated by the federal securities laws so long as Interchange has complied with the requirements described above.
Interchange is required to notify TD Banknorth if Interchange receives any inquiries, proposals or offers or requests for discussions or negotiations relating to an acquisition proposal.
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RECOMMENDATION OF INTERCHANGE BOARD OF DIRECTORS
The merger agreement requires Interchange’s board of directors to recommend and to continue to recommend the approval of the merger agreement and the merger by Interchange’s shareholders. Interchange’s board of directors is permitted to withdraw, modify or change in a manner adverse to TD Banknorth its recommendation to shareholders with respect to the merger agreement and the merger only if:
• | after consultation with its outside legal counsel, the board of directors determines in good faith that failing to take such action, in response to an unsolicited bona fide written acquisition proposal that is a superior proposal, would be inconsistent with its fiduciary duties under applicable law; |
• | Interchange has given TD Banknorth five business days’ prior written notice of its intention to do so and Interchange’s board of directors has considered any changes to the merger consideration and the merger agreement, if any, proposed by TD Banknorth and has determined in good faith, after consultation with its outside legal counsel and after consultation with its financial advisor, that the unsolicited proposal remains a superior proposal; and |
• | Interchange has complied in all material respects with the requirements described under “—No Solicitation” above. |
SURRENDER OF STOCK CERTIFICATES; PAYMENT FOR SHARES
Prior to the completion of the merger, TD Banknorth will appoint an exchange agent for the benefit of the holders of shares of Interchange common stock in connection with the merger. At or prior to the effective time of the merger, TD Banknorth will deliver to the exchange agent an amount of cash equal to the aggregate merger consideration.
No later than five business days following the completion of the merger, the exchange agent will mail to each holder of record of shares of Interchange common stock a form letter of transmittal and related documents disclosing the effectiveness of the merger and the procedure for exchanging certificates representing shares of Interchange common stock for the merger consideration. After the effective time, each holder of a certificate representing shares of issued and outstanding Interchange common stock (except for shares held by Interchange or TD Banknorth) will, upon surrender to the exchange agent of a certificate for exchange together with a properly completed letter of transmittal and related documents, be entitled to receive $23.00 in cash, without interest, multiplied by the number of shares of Interchange common stock represented by the certificate. No interest will be paid or accrued on the merger consideration upon the surrender of any certificate for the benefit of the holder of the certificate.
Any portion of the cash delivered to the exchange agent by TD Banknorth (together with any interest or other income earned thereon) that remains unclaimed by the former shareholders of Interchange for six months after the effective time will be delivered to TD Banknorth or TD Banknorth, NA. Any shareholders of Interchange who have not exchanged their certificates as of that date may look only to TD Banknorth for payment of the merger consideration. However, none of the exchange agent, TD Banknorth or Interchange shall be liable to any holder of shares of Interchange common stock for any shares or any dividends or distributions with respect to or any merger consideration paid to a public official in accordance with applicable abandoned property, escheat or similar laws.
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CONDITIONS TO THE MERGER
Completion of the merger is subject to the satisfaction of conditions set forth in the merger agreement, or, to the extent permitted by law, the waiver of those conditions by the party entitled to do so, at or before the effective time of the merger. Each of the parties’ obligation to complete the merger is subject to the following conditions:
• | a majority of the shares of Interchange common stock present and voting at the annual meeting must vote to approve the merger agreement; |
• | all regulatory approvals required to complete the transactions contemplated by the merger agreement shall have been obtained and shall remain in full force and effect and all statutory waiting periods shall have expired; and |
• | no statute, rule, regulation, judgment, decree, injunction or other order may prohibit, materially restrict or make illegal the completion of the transactions contemplated by the merger agreement. |
The obligation of TD Banknorth to complete the merger is also conditioned upon the satisfaction or waiver of each of the following conditions:
• | there must not be any action taken, or any statute, rule, regulation or order enacted, entered, enforced or deemed applicable to the transactions contemplated by the merger agreement by any governmental entity which imposes any restriction, requirement or condition which would have or would be reasonably likely to have a material adverse effect on TD Banknorth; and |
• | the representations and warranties of Interchange in the merger agreement are true and correct as of the date of the merger agreement and as of the closing date for the merger (except that certain representations and warranties will be read without materiality or material adverse effect qualifications), other than, in most cases, those failures to be true and correct that would not result or reasonably be expected to result, individually or in the aggregate, in a material adverse effect on Interchange. TD Banknorth shall have received a certificate from specified officers of Interchange with respect to compliance with this condition; |
• | Interchange shall have performed in all material respects all obligations required to be performed by it at or prior to the completion of the merger; TD Banknorth shall have received a certificate from specified officers of Interchange with respect to compliance with this condition; and |
• | at or prior to the effective time of the merger, Interchange and certain of its executive officers shall have performed in all material respects all obligations required to be performed by them under (1) the termination and release agreements by and among TD Banknorth, Interchange and such executive officers; and (2) the noncompetition and consulting agreement between TD Banknorth and Anthony S. Abbate. |
The obligation of Interchange to complete the merger is also conditioned upon the satisfaction or waiver of each of the following conditions:
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• | the representations and warranties of TD Banknorth in the merger agreement are true and correct as of the date of the merger agreement and as of the closing date for the merger (except that certain representations and warranties will be read without materiality or material adverse effect qualifications), other than, in most cases, those failures to be true and correct that would not result or reasonably be expected to result, individually or in the aggregate, in a material adverse effect on TD Banknorth. Interchange shall have received a certificate from specified officers of TD Banknorth with respect to compliance with this condition; and |
• | TD Banknorth shall have performed in all material respects all obligations required to be performed by it at or prior to completion of the merger; Interchange shall have received a certificate from specified officers of TD Banknorth with respect to compliance with this condition. |
REPRESENTATIONS AND WARRANTIES OF INTERCHANGE AND TD BANKNORTH
Interchange and TD Banknorth each has made representations and warranties to the other with respect to, among other things:
• | corporate organization and existence; |
• | authority and power to execute the merger agreement to complete the transactions contemplated by the merger agreement; |
• | required consents, approvals, notices and filings; |
• | the accuracy of Securities and Exchange Commission filings; |
• | broker’s fees; |
• | its compliance with applicable laws; |
• | pending or threatened legal proceedings; |
• | agreements with regulatory authorities; and |
• | the truth and accuracy of certain information included in this proxy statement. |
TD Banknorth has also made an additional representation and warranty to Interchange with respect to having available to it sufficient cash to pay the aggregate merger consideration.
Interchange has also made additional representations and warranties to TD Banknorth with respect to, among other things:
• | its and Interchange Bank’s stock capitalization; |
• | the absence of certain changes and events; |
• | its and its subsidiaries’ reports and filings with regulatory authorities; |
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• | the absence of undisclosed liabilities; |
• | the filing of tax returns and the payment of taxes; |
• | labor matters; |
• | employee-benefit plans and the administration of these plans; |
• | board approval; |
• | material agreements; |
• | title to properties and leases; |
• | its loan portfolio; |
• | derivative transactions; |
• | adequacy of insurance; |
• | environmental matters; |
• | compliance with the Investment Advisors Act of 1940 and the Investment Company Act of 1940; |
• | the inapplicability of state anti-takeover laws; |
• | the completeness of corporate books and records; |
• | intellectual property; and |
• | the truth and accuracy of the representations and warranties made in the merger agreement. |
CONDUCT PENDING THE MERGER
The merger agreement contains covenants of Interchange and TD Banknorth pending the completion of the merger, including covenants regarding the conduct of Interchange’s business. These covenants are briefly described below.
Interchange has agreed that it will conduct, and will cause each of its subsidiaries to conduct, its business in the usual, regular and ordinary course consistent with past practice and use reasonable best efforts to preserve its business organization, employees and advantageous business relationships and to retain the services of its officers and key employees. Interchange has also agreed not to take any action that would adversely affect or materially delay their ability to obtain any regulatory approvals necessary to complete the merger or its performance of its covenants under the merger agreement.
Interchange has further agreed that, except as expressly contemplated or permitted by the merger agreement, it will not, nor will it permit any of its subsidiaries to, do any of the following without the prior written consent of TD Banknorth:
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• | adjust, split, combine or reclassify any capital stock; |
• | set any record or payment dates for the payment of any dividends or distributions on its capital stock or make, declare or pay any dividend or make any other distribution on, or directly or indirectly redeem, purchase or otherwise acquire, any shares of its capital stock or any securities or obligations convertible into or exchangeable for any shares of its capital stock or stock appreciation rights, other than (1) regular quarterly cash dividends equal to the rate paid during the fiscal quarter immediately preceding the date of the merger agreement, any such quarterly dividend to have the same record and payment dates as the quarterly dividend for the comparable period in the prior year; (2) dividends paid by any of the subsidiaries of Interchange so long as such dividends are only paid to Interchange or any of its other wholly-owned subsidiaries, provided that no such dividend shall cause Interchange Bank to cease to qualify as a “well capitalized”institution under the prompt corrective action provisions of the Federal Deposit Insurance Corporation Improvement Act of 1991 and the applicable regulations thereunder; and (3) dividends paid to the holders of trust preferred securities issued by affiliated trusts, in each case in accordance with the terms of such securities; |
• | issue or commit to issue any voting debt or any additional shares of capital stock, or any rights with respect to shares of its capital stock, except that (1) shares of common stock may be issued pursuant to the exercise of stock options outstanding as of the date of the merger agreement; and (2) 72,421 shares of common stock may be issued from treasury in satisfaction of awards of unvested restricted stock that, as of the date of the merger agreement, had been earned by and granted to, but not yet issued to, their respective recipients; |
• | enter into any new line of business or change its lending, investment, risk and asset-liability management and other material banking or operating policies in any material respect, except as required by law or by policies imposed by a governmental entity; |
• | sell, license, lease, encumber, mortgage, transfer, assign or otherwise dispose of, or abandon or fail to maintain, any of its material assets, properties or other rights or agreements other than in the ordinary course of business, provided that in no event shall Interchange or any of its subsidiaries sell, license, lease, encumber, mortgage, transfer, assign or otherwise dispose of any subsidiary, business division, branch or other operating business without, in any such case, receiving the prior written consent of TD Banknorth; |
• | acquire or invest in any other person, by purchase or other acquisition of stock or other equity interests (other than in a fiduciary capacity in the ordinary course of business), by merger, consolidation, asset purchase or other business combination, or by formation of any joint venture or other business organization or by contributions to capital; or acquire any debt securities, property or assets (including any investments or commitments to invest in real estate or any real estate development project) in or from any other individual, corporation, joint venture or other entity other than a wholly-owned subsidiary of Interchange, except for (1) foreclosures, settlements in lieu of foreclosures, troubled debt or loan restructurings and other similar acquisitions in connection with securing or collecting debts previously contracted in the ordinary course of business; (2) purchases of investment securities in the ordinary course of business consistent with past |
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practice; and (3) loans originated or acquired pursuant to the terms of the merger agreement; |
• | incur any indebtedness for borrowed money or issue any debt securities or assume, guarantee or endorse or otherwise become responsible for the obligations of any person, except in the ordinary course of business consistent with past practice; |
• | create, renew, amend or terminate, fail to perform any obligations under, waive or release any rights under or give notice of a proposed renewal, amendment, waiver, release or termination of, any material contract, agreement or lease to which Interchange or any of its subsidiaries is a party or by which Interchange or any of its subsidiaries or their respective properties is bound, other than any of the foregoing arising in the ordinary course of business consistent with past practice; |
• | foreclose on or take a deed or title to any multi-family residential or commercial real estate without first conducting a Phase I environmental assessment of the property, or foreclose on or take a deed or title to any multi-family residential or commercial real estate if such environmental assessment indicates the presence of a hazardous substance; |
• | increase the compensation or fringe benefits of or pay any incentive or bonus payments to any present or former director, officer or employee of Interchange or any of its subsidiaries other than in the ordinary course of business consistent with past practice, provided that, notwithstanding the foregoing, (1) such increases shall not exceed 4.0% in the aggregate, (2) the compensation of an executive officer who is party to a change of control agreement may not be increased without the prior written consent of TD Banknorth and (3) Interchange may pay bonuses under its Executive Incentive Plan and Management Incentive Plan; |
• | grant any severance or termination pay to any present or former director, officer or employee of Interchange or any of its subsidiaries; |
• | establish, adopt or enter into any new benefit plan, agreement, program, policy, trust, fund or other arrangement; |
• | amend or terminate any benefit plan, except as provided for in the merger agreement; |
• | increase the funding obligation or contribution rate of any benefit plan subject to Title IV of ERISA; |
• | hire any new employee at an annual rate of salary in excess of $75,000, provided, however, that Interchange may hire at-will employees at an annual rate of compensation not to exceed $75,000 to fill vacancies that may from time to time arise in the ordinary course of business; |
• | increase the size of the Interchange board of directors; |
• | make any capital expenditures in excess of $250,000 in the aggregate, other than expenditures budgeted in the capital expenditure budget delivered to TD Banknorth prior to the date of the merger agreement; |
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• | apply for the opening, relocation or closing of any, or open, relocate or close any, branch office or loan production or servicing facility; |
• | except for loans or commitments for loans approved by Interchange prior to the date of the merger agreement, (1) make or acquire any loan or issue a commitment for any loan other than in the ordinary course of business consistent with past practice; and (2) make or acquire any loan or issue a commitment for any loan with a principal amount in excess of $5.0 million or with a principal amount which would result in a loan to any one borrower in excess of $5.0 million; |
• | engage or participate in any material transaction or incur or sustain any material obligation, other than in the ordinary course of business consistent with past practice; |
• | pay, loan or advance any amount to, or sell, transfer or lease any properties or assets (real, personal or mixed, tangible or intangible) to, or enter into any agreement or arrangement with, any of its officers or directors or any of their immediate family members or any affiliates or associates any of its officers or directors other than in the ordinary course of business consistent with past practice and consistent with loans made in the ordinary course of the business of Interchange and its subsidiaries; |
• | pay, discharge, settle, compromise or satisfy any claims, liabilities or obligations, including taking any action to settle or compromise any litigation, in each case (1) relating to the merger agreement or the transactions contemplated thereby; or (2) that requires the payment by Interchange of an amount, individually or in the aggregate, in excess of $150,000; |
• | amend its certificate of incorporation or bylaws or enter into a plan of consolidation, merger, share exchange, reorganization or complete or partial liquidation with any person (other than consolidations, mergers or reorganizations solely among wholly-owned subsidiaries of Interchange), or a letter of intent or agreement in principle with respect thereto; |
• | materially change its investment securities portfolio policy or the manner in which the portfolio is classified or reported; or invest in any “high-risk” mortgage-backed or mortgage related securities; |
• | make any material change in its policies and practices with respect to loans, including without limitation policies relating to underwriting, pricing, originating, acquiring, selling, servicing, or buying or selling rights to service, loans; |
• | take any action that is intended or would reasonably be expected to result in (i) any of the conditions to closing the merger not being satisfied or a required regulatory approval not being obtained without the imposition of a condition that is reasonably expected to have a material adverse effect on TD Banknorth after the merger or (ii) a material violation of any provision of the merger agreement; |
• | make any changes in its accounting methods or methods of tax accounting, practices or policies, except as may be required under law, rule, regulation or U.S. GAAP, in each case as concurred in by Interchange’s independent public accountants; |
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• | enter into any securitizations of any loans or create any special purpose funding or variable interest entity; |
• | make or change any material tax election (unless required by applicable law), file any material amended tax Returns, settle or compromise any material tax liability or surrender any right to claim a material tax refund, in each case other than in the ordinary course of business consistent with past practice (for this purpose, material means $250,000 or more of taxes); or |
• | agree to, or make any commitments to, take any of the foregoing actions. |
TD Banknorth has agreed that prior to the effective time of the merger that it will not, nor will it permit any of its subsidiaries to, do any of the following without the prior written consent of Interchange, except as expressly contemplated or permitted by the merger agreement:
• | take any action that is intended or would reasonably be expected to result in (i) any of the conditions to closing the merger not being satisfied or a required regulatory approval not being obtained without the imposition of a condition that is reasonably expected to have a material adverse effect on TD Banknorth after the merger or (ii) a material violation of any provision of the merger agreement; or |
• | agree to or make any commitment to do any of the foregoing. |
The merger agreement also contains covenants relating to, among other things:
• | the preparation for the post-merger integration of Interchange’s business and operating systems with those used by TD Banknorth and its subsidiaries; |
• | the preparation and distribution of this proxy statement and all requisite regulatory filings; |
• | the notification of all parties of any material communication from, or reasonable opportunity for advance review of any communication intended to be given to, any governmental entity regarding the transactions contemplated under the merger agreement; |
• | access to information concerning the other parties and the confidentiality of that information; |
• | compliance with all legal requirements imposed on each party with respect to the merger and consummation of all transactions contemplated by the merger agreement; |
• | the provision to employees of Interchange and its subsidiaries who remain employed after the merger with at least the types and levels of employee benefits maintained by TD Banknorth for similarly situated employees of TD Banknorth; the continuation of any employee benefit plans of Interchange until Interchange’s employees are permitted to participate in TD Banknorth’s employee benefit plans; severance pay for any employee of Interchange and its subsidiaries who is not otherwise covered by a specific termination or change of control agreement and who is terminated by TD Banknorth other than for |
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cause in the one year period following the merger; TD Banknorth will honor the terms of all written compensation agreements to which Interchange is a party; |
• | the indemnification of any director, officer or employee of Interchange in any suit or other proceeding that pertains to either the fact that such person was a director, officer or employee of Interchange or the merger agreement; and the maintenance of directors’ and officers’ liability insurance by TD Banknorth covering persons who are currently covered by Interchange’s directors’ and officers’ insurance, for six years after the merger; |
• | the completion of all actions necessary to carry out the purpose of the merger agreement; |
• | the notification of all parties of any event having a material adverse effect on any party or which would be reasonably likely to constitute a material breach of the merger agreement; |
• | the amendment of all disclosures made by Interchange pursuant to the merger agreement up until the effective time of the merger; |
• | the provision to TD Banknorth of copies of all financial statements and reports filed by Interchange or any of its subsidiaries with any regulatory authority or its shareholders, all internal control reports submitted to Interchange or its subsidiaries by its independent auditors and additional information as TD Banknorth may request, and will notify TD Banknorth of any material changes in the ordinary course of business or operation of properties, any governmental complaints or investigations and the institution or threat of material litigation involving Interchange or any of its subsidiaries; |
• | the merger of Interchange Bank with and into TD Banknorth, NA, with TD Banknorth, NA as the surviving entity; |
• | the consultation between all parties regarding the issuance of press releases and public statements related to the merger agreement; |
• | the creation of the merger subsidiary by TD Banknorth as its wholly owned subsidiary which will take all necessary action to complete the transactions contemplated by the merger agreement; |
• | the liquidation and dissolution of Clover Leaf Mortgage Company by Interchange and any other inactive Interchange subsidiary as may be requested by TD Banknorth not less that 30 days prior to the anticipated closing date; and |
• | the approval by the sole shareholder of each of TD Banknorth, NA and Interchange Bank of the bank merger agreement prior to the merger. |
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EXTENSION, WAIVER AND AMENDMENT OF THE MERGER AGREEMENT
At any time prior to the effective time of the merger (and whether before or after approval of the merger by Interchange’s shareholders), TD Banknorth and Interchange may, to the extent permitted by law:
• | extend the time for performance of any of the obligations of the other party under the merger agreement; |
• | waive any inaccuracies in the representations and warranties contained in the merger agreement or any document delivered pursuant thereto; |
• | waive compliance with any agreements or conditions contained in the merger agreement; or |
• | amend any provision of the merger agreement. |
However, after the approval of the merger by the shareholders of Interchange, TD Banknorth and Interchange may not, without further approval of the Interchange shareholders, extend, waive or amend any provision of the merger agreement which by law requires further approval by Interchange’s shareholders without obtaining such approval.
EXPENSES
The merger agreement provides that, as a general matter, each party shall bear its own costs and expenses incurred in connection with the merger agreement and the transactions contemplated by the merger agreement. In some circumstances, however, Interchange may be required to pay a termination fee to TD Banknorth. See “—Termination Fee” below.
TERMINATION OF MERGER AGREEMENT
The merger agreement may be terminated at any time (even after approval of the merger by the Interchange shareholders) as follows:
• | by mutual written consent of the parties; |
• | by TD Banknorth or Interchange if any required regulatory approval for the completion of the transactions contemplated by the merger agreement is not obtained, or if any governmental authority has issued a final order prohibiting the transactions; |
• | by TD Banknorth or Interchange if the merger is not completed by March 31, 2007, unless the failure to complete the merger is due to the failure by the party seeking to terminate the merger agreement to perform its obligations under the merger agreement; |
• | by TD Banknorth or Interchange if the other party breaches any of its representations, warranties, covenants or agreements under the merger agreement and the breach has not been cured within 30 days of written notice of the breach or by its nature could not be cured prior to closing of the merger, provided that the terminating party is not then in material breach of the merger agreement; |
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• | by TD Banknorth or Interchange if the shareholders of Interchange do not approve the merger agreement at the meeting of shareholders called to approve the merger agreement or any adjournment thereof; |
• | by TD Banknorth, if Interchange’s board of directors does not publicly recommend to its shareholders that they vote in favor of the merger agreement, or withdraws, modifies or amends its recommendation in a manner materially adverse to TD Banknorth or takes any other action or makes any other public statement in connection with the meeting of shareholders called to approve the merger agreement inconsistent with such recommendation; |
• | by TD Banknorth if Interchange fails to call, give notice of, convene and hold a meeting of shareholders to approve the merger agreement; or |
• | by TD Banknorth if a tender offer or exchange offer for 25% or more of the outstanding shares of Interchange common stock commences (other than by TD Banknorth or a subsidiary) and Interchange’s board of directors recommends that shareholders tender their shares or otherwise fails to recommend that shareholders reject the tender offer or exchange offer. |
TERMINATION FEE
As a material inducement to TD Banknorth to enter into the merger agreement, Interchange agreed to pay TD Banknorth a termination fee of up to $20 million. Interchange will pay the full $20 million to TD Banknorth if:
• | TD Banknorth terminates the merger agreement because the board of directors of Interchange does not publicly recommend to its shareholders that they vote in favor of the merger agreement or withdraws, modifies or amends its recommendation in a manner materially adverse to TD Banknorth or takes any other action or makes any other public statement in connection with the meeting of Interchange shareholders inconsistent with such recommendation; |
• | TD Banknorth terminates the merger agreement because Interchange fails to call, give notice of, convene and hold a meeting of shareholders to approve the merger agreement; or |
• | TD Banknorth terminates the merger agreement because a tender offer or exchange offer for 25% or more of the outstanding shares of Interchange common stock commences (other than by TD Banknorth or a subsidiary) and Interchange’s board of directors recommends that shareholders tender their shares or otherwise fails to recommend that shareholders reject the tender offer or exchange offer. |
Interchange will pay a fee of $5 million if an acquisition proposal with respect to Interchange is publicly announced or otherwise communicated or made known to the board of directors or senior management of Interchange (or any person has publicly announced, communicated or made known an intention to make an acquisition proposal with respect to Interchange) and:
• | TD Banknorth terminates the merger agreement because of Interchange’s willful breach of any representation, warranty, covenant or agreement under the merger agreement; |
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• | TD Banknorth or Interchange terminates the merger agreement because the shareholders of Interchange do not approve the merger agreement at the meeting of shareholders called to approve the merger agreement or any adjournment thereof (and the acquisition proposal was communicated before the date of the shareholders meeting); or |
• | TD Banknorth or Interchange terminate the merger agreement because the merger is not completed by March 31, 2007 without a vote of Interchange shareholders having occurred. |
Interchange will pay TD Banknorth the remaining $15 million if, within 18 months after termination of the merger agreement in the circumstances set forth in the immediately preceding paragraph, Interchange or any of its subsidiaries enters into a definitive agreement with respect to, or consummates, an acquisition proposal.
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INTERESTS OF CERTAIN PERSONS IN THE TRANSACTION
Some of the members of Interchange management and board of directors may be deemed to have interests in the merger that are in addition to their interests as shareholders of Interchange generally. The board of directors was aware of these interests and considered them in approving the merger agreement and the transactions contemplated by the merger agreement.
Equity-Based Awards. Immediately prior to the effective time of the merger, any unexercised option will be terminated and each holder will receive in consideration for the cancellation of such option a cash payment from Interchange in an amount equal to the difference between $23.00 and the exercise price of such stock option, multiplied by the number of shares of common stock subject to such option, less any required tax withholdings. In addition, immediately prior to the merger, all unvested shares of restricted stock then outstanding will become fully vested at the time of the merger and will be converted to a right to receive $23.00 per share, less any required tax withholdings, from Interchange upon the closing of the merger.
The following table sets forth the number of unexercised options and unvested shares of restricted stock which were held by the named executive officers, all other officers as a group and all non-employee directors as a group as of the date of this document. Certain of the unvested awards shown below may vest in accordance with their terms prior to the consummation of the merger.
Name | Number of Unexercised Options | Payment at Completion of Merger in Cancellation of Unexercised Options (Before Deduction of Withholding Taxes) | Number of Unvested Shares of Restricted Stock | Payment at Completion of Merger in Cancellation of Unvested Shares of Restricted Stock (Before Deduction of Withholding Taxes) | |||||
---|---|---|---|---|---|---|---|---|---|
Anthony S. Abbate | 307,500 | $ 2,763,713 | 34,518 | $ 793,914 | |||||
Anthony J. Labozzetta | 120,000 | 1,163,426 | 11,652 | 267,996 | |||||
Patricia D. Arnold | 115,250 | 1,260,205 | 9,079 | 208,817 | |||||
Charles T. Field | 22,500 | 135,900 | 5,794 | 133,262 | |||||
Charles P. Frost | 7,500 | 47,325 | 1,526 | 35,098 | |||||
All other officers as a | |||||||||
group | 545,484 | 5,926,150 | 20,885 | 480,355 | |||||
All non-employee directors | |||||||||
as a group (13 persons) | 93,900 | 922,074 | — | — | |||||
Total | 1,212,134 | $12,218,793 | 83,454 | $1,919,442 | |||||
In addition, shares of purchased restricted stock (i.e., shares purchased at a discount to market price by the executive which are subject to a vesting schedule) held by certain executives will vest immediately prior to the effective time of the merger. The value attributable to the vesting of purchased restricted stock is as follows: Labozzetta - $66,638; Arnold - $23,500; Field - $45,375; Frost - $5,232; and Giancola - - $8,720.
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Change of Control Agreements.Under the merger agreement, TD Banknorth has agreed to honor various change of control agreements which have been entered into by Interchange and some of its executive officers. Interchange has one-year change of control agreements with 13 officers, including Charles P. Frost, two-year change of control agreements with four officers, including Patricia D. Arnold, Charles T. Field and Anthony J. Labozzetta, and a three-year change of control agreement with Anthony S. Abbate.
The one-year agreements provide, among other things, that if the officer is terminated during the two years following a “change of control,” or if they voluntarily terminate during one year following a “change of control,” unless such termination is (1) because of the officer’s death or retirement; (2) by Interchange for cause or disability; or (3) by the officer for other than good reason, the officer shall receive an amount equal to the officer’s highest annualized base salary.
The two-year agreements provide, among other things, that if the officer is terminated during the two years following a “change of control,” or if they voluntarily terminate during the two years following a “change of control,” unless such termination is (1) because of the officer’s death or retirement; (2) by Interchange for cause or disability; or (3) by the officer for other than good reason, the officer shall receive an amount equal to two times the officer’s highest annualized base salary plus an amount equal to the sum of the bonuses paid for the previous two years.
Mr. Abbate’s agreement provides, among other things, that if he is terminated during the three years following a “change of control,” or he voluntarily terminates during the three years following a “change of control,” unless such termination is (1) because of his death or retirement; (2) by Interchange for cause or disability; or (3) by him for other than good reason, Mr. Abbate shall receive (a) a lump sum amount equal to three times his annual base salary at the highest rate in effect during the twelve months immediately preceding his date of termination; plus (b) a lump sum amount equal to the greater of: (x) $300,000; or (y) the sum of all bonuses earned by him (without regard to the date of payment) during the three calendar years preceding the calendar year in which occurs his date of termination.
In addition, each change of control agreement provides that the officers will receive their unpaid base salary up to termination, accrued vacation pay, a portion of the bonus in the year of termination which has not yet been awarded or paid under Interchange management incentive plan, benefits and continuation of health and welfare benefits, “grossed up” to cover any excise tax imposed by Section 4999 of the Internal Revenue Code (except for the one-year change of control agreements, which do not contain a “gross-up” provision).
In settlement of the change of control agreements, the following cash severance will be paid as of the effective time of the merger: Abbate - $2,194,187; Labozzetta - $686,194; Arnold - $549,167; Field - $540,732; and Giancola - $472,726. In addition it is estimated that the aggregate potential payments to individuals with one-year agreements would be approximately $2,070,743 of which $250,350 would be payable to Mr. Frost if such one-year agreements are triggered by a termination of employment under the terms of such agreements.
Indemnification and Insurance. The merger agreement provides that from and after the effective time of the merger, TD Banknorth shall indemnify and hold harmless each present and former director, officer and employee of Interchange or Interchange subsidiary determined as of the effective time of the merger against any costs or expenses (including reasonable attorneys’ fees), judgments, fines, losses, claims, damages or liabilities (including any amounts paid in a settlement effected with the prior written consent of TD Banknorth) incurred in connection with any claim, action, suit, proceeding or investigation, whether civil, criminal, administrative or investigative, arising out of matters existing or occurring at or prior to the effective time of the merger, whether asserted or claimed prior to, at or after
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the effective time of the merger, arising in whole or in part out of or pertaining to the fact that he or she is or was a director, officer or employee of Interchange or Interchange subsidiary or, while a director, officer or employee, is or was serving at the request of Interchange as a director, officer, employee or agent of another corporation, association, partnership, joint venture, trust or other enterprise, including without limitation matters related to the negotiation, execution and performance of the merger agreement or any of the transactions contemplated thereby, to the fullest extent which such persons would be entitled under the certificate of incorporation of Interchange as of the date of the merger agreement.
In addition, the merger agreement provides that TD Banknorth shall use its reasonable best efforts to cause the persons serving as directors and officers of Interchange immediately prior to the effective time of the merger to be covered by the directors’ and officers’ liability insurance policy maintained by Interchange (provided that TD Banknorth may substitute therefore policies of at least the same coverage and amounts containing comparable terms and conditions as such policy or single premium tail coverage with policy limits equal to Interchange’s existing coverage limits and which is not less advantageous to such directors and officers) for a six-year period following the effective time of the merger with respect to acts or omissions occurring prior to the effective time of the merger which were committed by such directors and officers in their capacities as such.
Consulting and Noncompetition Agreement with Anthony S. Abbate. In connection with the execution of the merger agreement, TD Banknorth entered into a consulting and noncompetition agreement with Anthony S. Abbate. Pursuant to the terms of the agreement, Mr. Abbate will provide advice and counsel to TD Banknorth and its affiliates in connection with TD Banknorth’s operations and customer relationships in New Jersey for one year following the completion of the merger. The agreement also provides that Mr. Abbate may not compete, directly or indirectly, with TD Banknorth or its affiliates during the one year following the completion of the merger. In consideration of the foregoing, Mr. Abbate will receive a consulting fee of $8,333 per month, use of a company-provided automobile and payment of country club expenses during the consulting period.
Other than as set forth above, no director or executive officer of Interchange has any substantial interest, direct or indirect, in the proposed merger, except insofar as ownership of Interchange’s common stock might be deemed such an interest. See “Security Ownership of Certain Beneficial Owners and Management.”
EMPLOYEE BENEFITS MATTERS
The merger agreement contains agreements of the parties with respect to various employee matters, which are briefly described below.
As soon as administratively practicable after the effective time of the merger, TD Banknorth will provide the employees of Interchange and its subsidiaries who remain employed after the merger with at least the types and levels of employee benefits maintain by TD Banknorth for similarly situated employees.
TD Banknorth will cause its benefit plans:
• | not to treat any employee of Interchange or its subsidiaries as a “new” employee for purposes of exclusions from any benefit plan for a pre-existing medical condition covered under the TD Banknorth benefits plans; |
• | waive any waiting period limitations and evidence of insurability requirements for employees of Interchange or its subsidiaries which would otherwise apply under the TD |
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Banknorth benefits plans, unless such employees have not yet satisfied any similar limitation or requirement under an analogous plan maintained by Interchange or its subsidiaries; |
• | to provide full credit under such plans for any deductibles, co-payments or out-of-pocket expenses incurred by any employees prior to such participation; and |
• | to treat service rendered to Interchange or any of its subsidiaries as service rendered to TD Banknorth for purposes of eligibility to participate, vesting, benefit accruals (other than for benefit accruals under TD Banknorth’s defined benefit pension plan, supplemental retirement plan and supplemental retirement agreements) and for other appropriate benefits attributable to any period before the merger. |
In addition, TD Banknorth will honor in accordance with their terms all written employment, termination, severance, change of control and other compensation agreements disclosed to TD Banknorth by Interchange, and TD Banknorth will not, and will not cause any of its subsidiaries to, challenge the validity of any obligation of any such agreement.
TD Banknorth will have no obligation to continue the employment of any employee of Interchange or a Interchange subsidiary and nothing contained in the merger agreement will be deemed to give any employee of Interchange or any Interchange subsidiary a right to continuing employment with TD Banknorth after the effective time of the merger. An employee of Interchange or a Interchange subsidiary (other than an employee who is party to a change of control agreement) who is involuntarily terminated within one year following the effective time of the merger will be entitled to receive severance payments and continued insurance benefits in accordance with, and to the extent provided in, the severance plan adopted by TD Banknorth for purposes of this merger (which generally provides for a specified number of weeks of base pay as cash severance and health insurance continuation based upon years of service and position with Interchange and any Interchange subsidiary, with benefits capped at one year base pay and insurance continuation). TD Banknorth will also provide outplacement services to any employee entitled to severance benefits under the terms of the severance plan adopted by TD Banknorth for purposes of the merger.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
This summary sets forth the material U.S. federal income tax consequences to shareholders of their exchange of their shares of Interchange common stock for cash pursuant to the merger. This summary is based on the provisions of the Internal Revenue Code of 1986, as amended, or the Code, the Treasury Regulations promulgated thereunder, and administrative and judicial interpretations thereof, all as in effect as of the date hereof. Such laws or interpretations may be amended at any time, possibly with retroactive effect. The summary does not address any state, local or foreign tax consequences and does not address estate or gift tax consequences. The consummation of the merger is not conditioned upon the receipt of any ruling from the Internal Revenue Service or any opinion of counsel as to tax matters.
This summary is for general information only. The tax treatment of each shareholder will depend in part upon his or her particular situation. Special tax consequences not described below may be applicable to particular classes of taxpayers, including financial institutions, pension funds, mutual funds, broker-dealers, persons who are not citizens or residents of the United States or persons who are foreign corporations, foreign partnerships or foreign estates or trusts.
EACH SHAREHOLDER IS URGED TO CONSULT WITH HIS OR HER TAX ADVISOR WITH RESPECT TO THE TAX CONSEQUENCES TO SUCH SHAREHOLDER OF THE
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MERGER, INCLUDING THE APPLICABILITY AND EFFECT OF ANY STATE, LOCAL OR FOREIGN TAX LAWS.
Treatment of Merger.The receipt of cash for shares of Interchange common stock pursuant to the merger will be a taxable transaction for U.S. federal income tax purposes.
Capital Gain or Loss.In general, except as discussed under “Stock Options and Incentive Stock Option Shares” below, each shareholder will recognize gain or loss equal to the difference between the amount of cash received and such shareholder’s adjusted tax basis for the shares exchanged in the merger. Such gain or loss will be capital gain or loss (assuming that the shares of Interchange common stock are held as a capital asset) and any such capital gain or loss will be long term if, as of the date of the merger, the shares were held for more than one year or will be short term if the shares were held for one year or less.
Withholding and Information Reporting.Unless a shareholder complies with certain reporting and/or certification procedures or is an exempt recipient under applicable provisions of the Code and the Treasury Regulations, such shareholder may be subject to withholding tax (currently 28%) with respect to any cash payments received pursuant to the merger. Shareholders should consult their brokers to ensure compliance with such procedures.
Stock Options and Incentive Stock Option Shares. If you acquired shares of Interchange common stock as a result of the exercise of an incentive stock option that was granted within two years of the effective time of the merger or exercised within one year of the effective time of the merger, you will recognize a portion of your gain in the merger as ordinary income. Specifically, the excess of the price at which you exercised your options over the lesser of (1) the fair market value of the shares on the date of exercise; or (2) the fair market value of the shares at the effective time, will be treated as ordinary income rather than capital gain.
If you hold incentive or nonqualified stock options and do not exercise your options prior to the completion of the merger, you will receive the merger consideration (minus the exercise price and any applicable withholding taxes) in exchange for your options pursuant to the merger agreement. This will result in ordinary income equal to the difference between the fair market value of the shares deemed received (which should be the same as the merger consideration) and the exercise price of the options.
ACCOUNTING TREATMENT
The merger will be accounted for under the purchase method of accounting under accounting principles generally accepted in the United States of America. Under this method, Interchange’s assets and liabilities as of the date of the merger will be recorded at their respective fair values and added to those of TD Banknorth. Any difference between the purchase price for Interchange and the fair value of the identifiable net assets acquired (including core deposit intangibles) will be recorded as goodwill. In accordance with Financial Accounting Standards Board Statement No. 142, “Goodwill and Other Intangible Assets,” issued in July 2001, the goodwill resulting from the merger will not be amortized to expense, but will be subject to at least an annual assessment of impairment by applying a fair value test. In addition, any core deposit intangibles recorded by TD Banknorth in connection with the merger will be amortized to expense in accordance with these rules. The financial statements of TD Banknorth issued after the merger will reflect the results attributable to the acquired operations of Interchange beginning on the date of completion of the merger.
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REGULATORY APPROVALS
Regulatory Approvals that Must be Obtained for the Merger to Occur.
Federal Reserve. The merger is subject to the prior approval of the Federal Reserve under Section 3 of the Bank Holding Company Act of 1956, as amended, and the Federal Reserve’s implementing regulation, Regulation Y (12 C.F.R. Part 225, Subpart B). Pursuant to the Bank Holding Company Act, the Federal Reserve may not approve the merger if:
• | it would result in a monopoly or would be in furtherance of any combination or conspiracy to monopolize or to attempt to monopolize the business of banking in any part of the United States; or |
• | the effect of the merger may be substantially to lessen competition in any section of the country, tend to create a monopoly, or in any other manner be in restraint of trade, unless the Federal Reserve finds that the anti-competitive effects of the merger are clearly outweighed in the public interest by the probable effect of the merger in meeting the convenience and needs of the communities to be served. |
In considering the approval of the merger, the Bank Holding Company Act also requires the Federal Reserve to review the financial and managerial resources and future prospects of The Toronto-Dominion Bank, TD Banknorth and Interchange and their respective subsidiary banks, and the convenience and needs of the communities to be served. The Federal Reserve also must take into account (1) the effectiveness of The Toronto-Dominion Bank, TD Banknorth and Interchange in combating money laundering activities, and (2) the record of performance of the subsidiary banks of The Toronto-Dominion Bank, TD Banknorth and Interchange in meeting the credit needs of the banks’ entire community, including low- and moderate-income neighborhoods, under the Community Reinvestment Act of 1977, as amended.
Where a transaction, such as the merger, is the acquisition of a bank holding company of a bank located in a state other than the home state of the bank holding company, the Act authorizes the Federal Reserve to approve the transaction without regard to whether such transaction is prohibited under state law, as long as the bank holding company is adequately capitalized and adequately managed and certain other limitations are met. Each of The Toronto-Dominion Bank and TD Banknorth is considered well-capitalized and well-managed under the Federal Reserve’s Regulation Y, and the transaction meets the other limitations.
State Approvals and Notices. Pursuant to Section 17:9A-411 of the New Jersey Banking Act of 1948, TD Banknorth and Interchange must give written notice of the merger to the New Jersey Commissioner of Banking and Insurance at least 15 days before the effective date of the merger.
Regulatory Approvals that Must be Obtained for the Bank Merger to Occur.
OCC. It is anticipated that immediately after the effective time of the merger, the bank merger will be completed. The bank merger is subject to the prior approval of the OCC under the Bank Merger Act. The OCC will review the bank merger under statutory criteria which are substantially the same as those required to be considered by the Federal Reserve in evaluating transactions for approval under Section 3 of the Bank Holding Company Act of 1956, as discussed above.
The bank merger may not be completed until 30 days after the date of the OCC’s approval, during which time the U.S. Department of Justice may challenge the merger on antitrust grounds and seek the
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divestiture of certain assets and liabilities. If the OCC has not received any adverse comment from the U.S. Attorney General relating to the competitive factors, the OCC, with the concurrence of the Attorney General, may reduce the waiting period to no less than 15 days after the date of its approval.
State Approvals and Notices. Pursuant to Section 17:9A-148B of the New Jersey Banking Act, Interchange Bank provided the New Jersey Commissioner of Banking and Insurance with notice that Interchange has approved the bank merger agreement in its capacity as the sole shareholder of Interchange Bank.
Status of Applications and Notices.To date, The Toronto-Dominion Bank, TD Banknorth, Interchange and their subsidiary banks have filed all required applications, notices and requests for consent with applicable federal and state regulatory authorities in connection with the merger and the bank merger. The Federal Reserve Bank of New York approved the merger pursuant to delegated authority on August 2, 2006. The OCC approved the bank merger on July 27, 2006. Written notice of the merger will be timely provided to the New Jersey Commissioner of Banking and Insurance at least 15 days before the effective date of the merger.
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PROPOSAL 2 – ELECTION OF DIRECTORS
GENERAL
The second item to be acted upon at the annual meeting is the election of five directors to serve until the 2009 annual meeting of shareholders. Interchange’s board of directors currently consists of thirteen members. In accordance with Interchange’s restated certificate of incorporation and bylaws, the board is divided into three classes, each of which contains approximately one-third of the board. Approximately one-third of the directors are elected annually. Directors of Interchange are generally elected to serve for three-year terms or until their respective successors are elected and qualified.
Each nominee who is currently a director of Interchange was elected by the shareholders at a previous annual meeting. Each nominee for director and each continuing director also serves as director of Interchange Bank. If a nominee should become unavailable to serve as a director for any reason, which management does not anticipate, the proxy will be voted for a substitute nominee selected by the board of directors or, if no substitute is selected, the number of directors may be reduced. There are no arrangements or understandings between any director or nominee and any other person pursuant to which such director or nominee was selected. Jeremiah F. O’Connor, Interchange’s Vice Chairman of the Board, is the father of Jeremiah F. O’Connor, Jr., a director of Interchange Bank.
RECOMMENDATION OF INTERCHANGE’S BOARD OF DIRECTORS
Interchange’s board of directors recommends that you voteFORelection of the five nominees listed below. Unless contrary instruction is given, it is intended that the named proxies will vote in favor of each of the five nominees listed below.
The name, age, principal occupation and business experience of each member of Interchange’s board of directors are set forth below. Unless otherwise indicated, each has held his or her current position for the last five years.
BOARD OF DIRECTORS
Nominees to be Elected for Three Year Terms Expiring in 2009.
Donald L. Correll,age 55, has been President and CEO of American Water Company, a subsidiary of RWE AG, since April 17, 2006. Mr. Correll held the position of President and CEO of Pennichuck Corporation (PNNW: NASDAQ), a holding company whose subsidiaries are active in public water supply, water related services and real estate from August 2003 through April 2006. Mr. Correll retired as Chairman and CEO of United Water Resources, Inc. in 2001. In July 2005, Mr. Correll was appointed to the board of directors of Health South Corporation. Mr. Correll has been a director of Interchange and Interchange Bank since 1994 and serves on the Audit Committee and Compensation/Stock Option Committee and is an alternate member of the Executive Committee.
James E. Healey, age 64, is a practicing Certified Public Accountant in Ramsey, New Jersey and is also a Director of Sappi Ltd., a NYSE listed South African vertically integrated international pulp and paper producer and a Director of Marcal Paper Mills, Inc., a manufacturer and marketer of consumer tissue paper products. In addition, he is a Trustee of Pace University in New York City, a Trustee of St. Joseph’s Health Care System in Paterson, New Jersey, and Chairman of the Board of Trustees of the United Way of Bergen County, in Oradell, New Jersey. In December 2000, Mr. Healey retired as Executive Vice President and Chief Financial Officer of Nabisco Holdings Corp., a position he held since June 1997, and retired as Senior Vice President and Chief Financial Officer of Nabisco Group Holdings, Inc., a position he held since June 1999. Mr. Healey has been a director of Interchange and Interchange Bank since 1993. He is Chairman of
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the Compensation/Stock Option Committee and serves on the Audit Committee, Corporate Planning/Finance Committee and the Executive Committee.
Jeremiah F. O’Connor, age 73, is currently a principal of NW Financial Group (since 1996), a financial advisory firm. Mr. O’Connor was formerly a Managing Director of NatWest Financial Markets Group (since 1994). Mr. O’Connor has been a director of Interchange since 1984 and Interchange Bank since 1969. He is Vice Chairman of the Board and serves on the Executive Committee.
Robert P. Rittereiser,age 68, a private investor, joined Centurion Holdings LLC, a privately held Management Advisory Concern, in November 2005 as Advisor. Centurion provides services to corporations and government entities. He was formerly the Chairman and Chief Executive Officer of Gfinancial, L.L.C., formerly known as Gruntal Financial, L.L.C., and GCO Services, L.L.C., formerly known as Gruntal & Co., L.L.C., which are related investment services firms based in New York City. On October 29, 2002, each of Gfinancial, L.L.C., and GCO Services, L.L.C, filed a voluntary petition for reorganization under Chapter 11 of the U.S. Bankruptcy Code for the Southern District of New York. The Plans were confirmed on March 25, 2004 and his association ended at that time. He serves as a Director of Viecore, Inc., a privately held corporation in Upper Saddle River, New Jersey. Viecore, Inc. is a systems integration firm specializing in Voice Recognition Technology. He served as a Trustee of the DBL Liquidating Trust from April 1992 until April 1996. He has been a Director of Interchange and Interchange Bank since July 1989. He is Chairman of the Corporate Planning/Finance Committee and a member of the Compensation/Stock Option Committee, the Executive Committee, and the Investment Committee.
John A. Schepisi, age 61, is Senior Partner of Schepisi & McLaughlin, Attorneys at Law. Mr. Schepisi has been a director of Interchange and Interchange Bank since 2003. He serves as a member of the Corporate Planning/Finance Committee and is an alternate member of the Executive Committee.
Directors to Continue in Office with Terms Expiring in 2008.
Anthony S. Abbate,age 66, has been President and Chief Executive Officer of Interchange since its formation in 1984 and President and Chief Executive Officer of Interchange Bank since 1981. He is Chairman of the Executive Committee and a member of the Corporate Planning and Finance Committee and serves in an ex-officio capacity on all committees. Mr. Abbate also serves (since February 2004) as an independent director of the board of K-Sea General Partner GP LLC, (NYSE:KSP) and member of K-Sea’s Audit Committee.
Anthony R. Coscia,age 46, is a partner and executive committee member of the law firm of Windels Marx Lane & Mittendorf, LLP in New York and New Brunswick, New Jersey. He currently serves as the Chairman of the Board of Commissioners of Port Authority of New York and New Jersey. Mr. Coscia has been a director of Interchange and Interchange Bank since 1997. He serves on the Audit Committee, Nominating/Governance Committee and is an alternate member of the Executive Committee.
John J. Eccleston, age 80, retired principal of R.D. Hunter & Company, L.L.C., Certified Public Accountants. Prior to January 1995, he was Senior Partner of John J. Eccleston & Company, Certified Public Accountants and Registered Municipal Accountants. Mr. Eccleston has been a director of Interchange since 1984 and Interchange Bank since 1969. He is Chairman of the Audit Committee and a member of the Executive Committee, Nominating/Governance Committee and Corporate Planning/Finance Committee.
Eleanore S. Nissley, age 73, is a commercial real estate investor, President of The SIBS Company, LLC, a New Jersey real estate company, and owner of Anclote and Gulf Atlantic Asset
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Management, Inc., two Florida real estate companies. She currently serves as Vice Chairperson of Hackensack Meadowlands Development Commission. Mrs. Nissley has been a director of Interchange and Interchange Bank since 1992. She is Chairman of the Nominating/Governance Committee and is a member of the Audit Committee and is an alternate member of the Executive Committee.
William “Pat” Schuber, age 59, is a member of the firm of DeCotiis, Fitzpatrick, Cole & Wisler, LLP a leading New Jersey law firm and is a member of the New Jersey Bar. He is senior lecturer at Fairleigh Dickinson University, the School of Administrative Science. Mr. Schuber was Bergen County Executive from 1991 to 2002 and former New Jersey Assemblyman from 1982 to 1990. He has been a member of Interchange Bank’s board since 2003. He is member of the Nominating/Governance Committee and the Investment Committee and is an alternate member of the Executive Committee.
Directors to Continue in Office with Terms Expiring in 2007.
Anthony D. Andora, age 75, is a member of Andora & Romano, LLC, a law firm in Paramus, New Jersey. Mr. Andora has been a director of Interchange since 1984 and Interchange Bank since 1969. He is Chairman of the Board and is a member of the Executive Committee, theCorporate Planning and Finance Committee and serves in an ex-officio capacity on all committees.
Gerald A. Calabrese, Jr., age 56, is President of Century 21, Calabrese Realty and Chairman and Chief Executive Officer of Metropolitan Mortgage Company. Mr. Calabrese has been a director of Interchange and Interchange Bank since 2003. He serves as an alternate member of the Executive Committee.
David R. Ficca, age 75, is retired Vice Chairman and Senior Legal Officer of Kidde, Inc, a multi-market manufacturing and service organization. He has been a director of Interchange since 1984 and Interchange Bank since 1983. He is a member of the Executive Committee, the Nominating/Governance Committee, the Corporate Planning/Finance Committee and the Compensation/Stock Option Committee.
Nicholas R. Marcalus, age 62, is Chairman, Chief Executive Officer of Marcal Paper Mills, Inc., a manufacturer and marketer of consumer tissue paper products, in Elmwood Park, New Jersey, and serves on the board of directors of that organization. Mr. Marcalus has been a director of Interchange and Interchange Bank since 1997. He serves as the Secretary and on the Investment Committee and is an alternate member of the Executive Committee.
Committees and Meetings of the Board of Directors.During 2005, the board of directors of Interchange held 6 meetings and the board of Directors of Interchange Bank held 12 meetings. All directors attended at least 75% of the aggregate meetings of each board and the committees of each board on which they served that were held during fiscal year 2005.
Interchange’s board of directors has determined that Mr. Eccleston, Chairman, and Messrs. Correll and Healey, members of the Audit Committee, each of whom is independent as defined in the listing standards of the NASDAQ Stock Market, are “audit committee financial experts” within the meaning of Securities and Exchange Commission regulations.
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The following committees serve both Interchange and Interchange Bank:
Name of Committee and Members | Functions of the Committee | Number of Meetings in 2005 | ||
Audit John J. Eccleston, Chairman Donald L. Correll Anthony R. Coscia James E. Healey Eleanore S. Nissley | Reviews significant audit, accounting and other principles, policies and practices, the activities of independent auditors and of Interchange’s internal auditors, and the conclusion and recommendations of auditors and the reports of regulatory examiners upon completion of their respective audits and examinations. Each member is independent as defined in the NASDAQ Stock Market Marketplace rules. | 10 | ||
Compensation/Stock Option James E. Healey, Chairman Donald L. Correll David R. Ficca Robert P. Rittereiser | Administers management incentive compensation plans, including Interchange’s stock option and incentive plan. The committee makes recommendations to the board of directors with respect to compensation of directors and executive officers. Each member is independent as defined in the NASDAQ Stock Market Marketplace rules. | 8 | ||
Corporate Planning and Finance Robert P. Rittereiser, Chairman Anthony S. Abbate Anthony D. Andora John J. Eccleston David R. Ficca James E. Healey John A. Schepisi | Responsible for the review of the annual budget, capital expenditures and other financial transactions. | 2 | ||
Executive Anthony S. Abbate, Chairman Anthony D. Andora John J. Eccleston David R. Ficca James E. Healey Jeremiah F. O’Connor Robert P. Rittereiser | Has authority to exercise all of the powers of the board of directors with respect to the affairs of Interchange, except that the Executive Committee may not: (1) exercise such powers while a quorum of the board of directors is actively convened for the conduct of business; (2) declare a dividend or approve any other distribution to shareholders; (3) elect or appoint any officer or director; and (4) make, alter or repeal Interchange’s bylaws. | 13 | ||
Nominating/Governance Eleanore S. Nissley, Chairperson David R. Ficca Anthony R. Coscia John J. Eccleston William P. Schuber | Nominating: Advises and makes recommendations to the board of directors concerning the selection of candidates as nominees for election as directors. The committee will consider nominations recommended by shareholders. Governance: Develops and recommends to the board of directors a Code of Business Conduct and Ethics and considers any waivers from Interchange’s Code of Business Conduct and Ethics. The committee will arbitrate | 3 |
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any issues involving conflicts of interest which are not in conformance with the Corporate Governance Guidelines of Interchange and its subsidiaries. Each member is independent as defined in the NASDAQ Stock Market Marketplace rules. |
EXECUTIVE OFFICERS
The following table sets forth the name, age, business experience and present position of Interchange’s and Interchange Bank’s principal executive officers:
Name | Age | Positions |
---|---|---|
Anthony S. Abbate | 66 | President & Chief Executive Officer |
Anthony J. Labozzetta | 43 | Executive Vice President & Chief Operating Officer |
Patricia D. Arnold | 47 | Senior Vice President & Chief Lending Officer |
Charles T. Field | 41 | Senior Vice President & Chief Financial Officer |
Charles P. Frost | 55 | Senior Vice President & Chief Credit Officer |
Frank R. Giancola | 52 | Senior Vice President & Compliance Officer |
Business Experience.
Anthony S. Abbate, President and Chief Executive Officer of Interchange since 1984 and of Interchange Bank since 1981; Senior Vice President and Controller from October 1980 to 1981. Engaged in the banking industry since 1959.
Anthony J. Labozzetta, Executive Vice President and Chief Operating Officer since February 2003; Executive Vice President and Chief Financial Officer from September 1997 to February 2003; Senior Vice President and Treasurer from 1995 to 1997. Engaged in the banking industry since 1989. Formerly a senior manager with an international accounting firm, specializing in the financial services industry.
Patricia D. Arnold, Senior Vice President and Chief Lending Officer since August 1997; First Vice President from 1995 to 1997; Department Head Vice President from 1986 to 1995; Assistant Vice President from 1985 to 1986; Commercial Loan Officer-Assistant Treasurer from 1983 to 1985. Engaged in the banking industry since 1981.
Charles T. Field, Senior Vice President and Chief Financial Officer since February 2003. Formerly Vice President Finance and Treasurer of Viatel, Inc. from 1999 to 2002 and Treasurer from 1998 to 1999, Corporate Controller of Horsehead Industries, Inc. from 1995 to 1998 and a manager specializing in financial institutions at an international accounting firm from 1987 to 1995.
Charles P. Frost, Senior Vice President and Chief Credit Officer since July 2004 and Director of Interchange Capital Company since January 2005. He served in a similar capacity for 9 years at Trustcompany Bank in Jersey City. His background includes 28 years in commercial lending/credit with various New Jersey banks. He is an active member of the RMA (Risk Management Association), having served on the Board of Governors for 8 years and as President of the Northern New Jersey Chapter from 2000-2001.
Frank R. Giancola, Senior Vice President and Compliance Officer since September 1997; Senior Vice President-Retail Banking from 1993 to 1997; Senior Vice President-Operations of Interchange Bank
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from 1984 to 1993; Senior Operations Officer from 1982 to 1984; Vice President/Branch Administrator from 1981 to 1982. Engaged in the banking industry since 1971.
Officers are elected annually by the board of directors and serve at the discretion of the board of directors. Management is not aware of any family relationship between any director or executive officer. No executive officer was selected to his or her position pursuant to any arrangement or understanding with any other person.
COMPLIANCE WITH SECTION 16(A)
Section 16(a) of the Securities Exchange Act of 1934 requires Interchange’s executive officers and directors, and persons who beneficially own more than ten percent of Interchange’s equity securities, to file reports of security ownership and changes in such ownership with the Securities and Exchange Commission. These persons are also required by Securities and Exchange Commission regulations to furnish Interchange with copies of all Section 16(a) forms they file. Based solely on its review of the copies of such forms received by it, or written representations from certain reporting persons that no other reports were required during the fiscal year ended December 31, 2005, Interchange believes that, during the 2005 fiscal year, all of our executive officers and directors complied with all Section 16(a) filing requirements applicable to them, with the exception of the following: Form 4 filings for Directors William Schuber, John Schepisi, Robert Rittereiser, Jeremiah F. O’Connor, Eleanor S. Nissley, Nicholas R. Marcalus, James E. Healey, David R. Ficca, John J. Eccleston, Anthony R. Coscia, Donald R. Correll, Gerald A. Calabrese, and Anthony D. Andora, reflecting options to acquire common stock granted on April 22, 2004, were filed late on March 23, 2005.
CODE OF ETHICS
We have adopted Codes of Ethics that applies to our board of directors and employees, including our principal executive officer, principal financial officer and principal accounting officer. The Code of Ethics is available free of charge by contacting Interchange at Park 80 West, Plaza II, Saddle Brook, NJ 07663.
DIRECTOR NOMINATIONS BY SHAREHOLDERS
Nominations may be made by any shareholder of Interchange, who is entitled to vote at a meeting in which directors are to be elected and who provides timely notice to Interchange’s Secretary, as set forth in Interchange’s bylaws. To be considered timely, nominations must be delivered to or received by Interchange’s Secretary not later than 60 days in advance of the date on which the proxy statement relating to the previous year’s annual meeting was released to shareholders. The shareholder’s notice to the Secretary must set forth certain information regarding the proposed nominee and the shareholder making such nomination or recommendation. If a nomination is not properly brought before the meeting in accordance with the Interchange’s bylaws, the board of directors or the Nominating/Governance Committee may determine that the nomination was not properly brought before the meeting and shall not be considered. For additional information about Interchange’s director nomination requirements, please see Interchange’s bylaws.
Candidates must possess the ability to apply good business judgment and must be in a position to properly exercise his or her duties of loyalty and care. It is the policy of the Nominating/Governance Committee to select individuals as director nominees candidates who exhibit proven leadership capabilities, high integrity and experience with a high level of responsibilities within their chosen fields. Shareholder nominees are analyzed by the Nominating/Governance Committee in the same manner as nominees that are identified by the Nominating/Governance Committee. Additionally, pursuant to
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Interchange’s bylaws, a person is not qualified to serve as a director if he or she (a) is under indictment for, or has ever been convicted of, a criminal offense involving dishonesty or breach of trust and the penalty for such offense could be imprisonment for more than one year; (b) is a person against whom a federal or state bank regulatory agency has issued a cease and desist order for conduct involving dishonesty or breach of trust and that order is final and not subject to appeal; (c) has been found either by any federal or state regulatory agency whose decision is final and not subject to appeal or by a court to have (i) breached a fiduciary duty involving personal profit or (ii) committed a willful violation of any law, rule or regulation governing banking, securities, commodities or insurance, or any final cease and desist order issued by a banking, securities, commodities or insurance regulatory agency; (d) has been nominated by a person who would be disqualified from serving as a director of Interchange, as above; or (e) is a party (either directly or through an affiliate) to litigation or an administrative proceeding adverse to Interchange or Interchange Bank, except (i) derivative litigation brought in the name of Interchange or Interchange Bank by the director in his or her capacity as a shareholder of Interchange; or (ii) litigation arising out of a proxy fight concerning the election of directors of Interchange or Interchange Bank or otherwise involving control of Interchange or Interchange Bank.
EXECUTIVE COMPENSATION
Summary Compensation Table.The following table sets forth compensation paid by Interchange and its subsidiaries during the years ended December 31, 2005, 2004 and 2003, for services in all capacities, to Mr. Abbate, Interchange’s chief executive officer, and the next four highest paid executive officers of Interchange whose total salary and bonus exceeded $100,000 during 2005.
Year | Annual Compensation | Long-term Compensation | All Other Compensation ($) (2) | ||||||||||||
Name and Principal Position | Salary ($) | Bonus ($) | Other Annual Compensation | Restricted Stock Awards ($)(1) | Options (No. of Shares) | ||||||||||
Anthony S. Abbate | 2005 | $420,000 | $140,952 | $13,612 | $120,961 | — | $ 99,970 | ||||||||
President and CEO | 2004 | 400,000 | 137,600 | 4,671 | 118,000 | 82,500 | 72,903 | ||||||||
2003 | 390,000 | 60,450 | — | 53,625 | 78,750 | 111,515 | |||||||||
Anthony J. Labozzetta | 2005 | 215,000 | 51,536 | 26,194 | 32,082 | — | 9,178 | ||||||||
Executive Vice President and | 2004 | 200,000 | 49,200 | 18,496 | 28,000 | 30,000 | 7,835 | ||||||||
Chief Operating Officer | 2003 | 190,000 | 22,800 | 5,066 | 33,250 | 28,125 | 8,124 | ||||||||
Patricia D. Arnold | 2005 | 180,250 | 43,206 | 19,124 | 8,149 | — | 5,535 | ||||||||
Senior Vice President and | 2004 | 175,000 | 43,050 | 5,419 | 30,275 | 21,000 | 7,198 | ||||||||
Chief Lending Officer | 2003 | 170,000 | 20,400 | 1,859 | 25,500 | 21,000 | 7,466 | ||||||||
Charles T. Field | 2005 | 179,000 | 42,906 | 14,299 | 27,513 | — | 7,465 | ||||||||
Senior Vice President and | 2004 | 169,000 | 41,574 | 8,940 | 12,506 | 15,000 | 5,730 | ||||||||
Chief Financial Officer | 2003 | 146,961 | 19,800 | — | 28,875 | 7,500 | 4,253 | ||||||||
Charles P. Frost | 2005 | 165,000 | 38,352 | 2,856 | 19,535 | — | 6,157 | ||||||||
Senior Vice President and | 2004 | 80,000 | 18,040 | — | — | 7,500 | 1,953 | ||||||||
Chief Credit Officer | 2003 | — | — | — | — | — | — |
(1) | The unvested performance-based restricted stock awards granted, to date, totaled 16,018, 12,428, 8,798, 1,626 and 6,229 for Messrs. Abbate, Labozzetta, Field, Frost, and Mrs. Arnold, respectively. The value of such awards at December 31, 2005, were $276,310, $214,383, $151,765, $28,048 and $107,450 respectively. The value of these shares at the date of grant is reflected in the table above. The awards for Messrs. Abbate, Labozzetta, Field, Frost, and Mrs. Arnold vest in three years following the date of grant provided they do not terminate their employment during that period. Dividends, if and when declared by the board of directors, will be paid on all restricted stock awards. All per share data has been restated to reflect a 3-for-2 stock split declared on January 18, 2005 and paid on February 18, 2005. The performance-based restricted stock values are for awards earned in that year but granted in the following year. |
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(2) | Represents payments as shown below: |
Year | Abbate | Labozzetta | Arnold | Field | Frost | ||||||||
Amounts contributed to 401(k) plan | 2005 | $10,431 | $8,378 | $4,635 | $6,865 | $4,791 | |||||||
Value of life insurance premium | |||||||||||||
paid in respect to coverage in | |||||||||||||
excess of $50,000 | 2005 | 4,953 | 600 | 900 | 600 | 1366 | |||||||
Premium on disability policy | 2005 | 7,860 | — | — | — | — | |||||||
Contribution to Supplemental | |||||||||||||
Executives’ Retirement Plan | 2005 | 76,726 | 200 | — | — | — |
Stock Option Grants in Last Fiscal Year. The following table sets forth certain information concerning grants of stock options awarded to the named executive officers during the year ended December 31, 2005. All options granted during the year were incentive stock options:
Name | Number of Securities Underlying Options Granted | % of Total Options Granted to Employees in Fiscal Year | Exercise or Base Price ($/Sh) (1) | Expiration Date (2) | Potential Realized Value at Assumed Annual Rates of Stock Price Appreciation For Option Term (3) | ||||||||
5% | 10% | ||||||||||||
Anthony S. Abbate | 82,500 | 31.2 | % | $16.69 | 1/18/15 | $866,525 | $2,194,775 | ||||||
Anthony J. Labozzetta | 30,000 | 11.3 | 16.69 | 1/18/15 | 315,100 | 798,100 | |||||||
Patricia D. Arnold | 21,000 | 7.9 | 16.69 | 1/18/15 | 220,570 | 558,670 | |||||||
Charles T. Field | 15,000 | 5.7 | 16.69 | 1/18/15 | 157,550 | 399,050 | |||||||
Charles P. Frost | 7,500 | 2.8 | 16.69 | 1/18/15 | 78,775 | 199,525 |
(1) | The exercise price was based on the closing price of a share of Interchange’s stock on the date of grant as reported on the NASDAQ National Market. |
(2) | Options are fully exercisable as of December 31, 2005. Options expire if not exercised within 10 years of grant date. |
(3) | Pre-tax gain. The dollar amounts under these columns are the result of calculations at the 5% and 10% rates set by the Securities and Exchange Commission Regulation S-K and, therefore, are not intended to forecast possible future appreciation, if any, of Interchange’s stock price. Interchange’s per share stock price would be $27.19 and $43.29 if the increase was 5% and 10%, respectively, compounded annually over the option term. |
Aggregated Option Exercises in Last Fiscal Year and Year End Option Values.
Number of Securities Underlying Unexercised Options at Year-end | Value of Unexercised In-the-Money Options at Year-end (1) | ||||||||||||
Name | No. Shares Acquired on Exercise | Realized Value | Shares Exercisable | Shares Unexercisable | Exercisable | Unexercisable | |||||||
Anthony S. Abbate | — | — | 307,500 | — | $1,015,275 | — | |||||||
Anthony J. Labozzetta | — | — | 120,000 | — | 480,458 | — | |||||||
Patricia D. Arnold | 2,125 | $36,648 | 115,250 | — | 602,768 | — | |||||||
Charles T. Field | — | — | 22,500 | — | 8,400 | — | |||||||
Charles P. Frost | — | — | 7,500 | — | 4,200 | — |
(1) | Pre-tax gain. Value of unexercised in-the-money options based on the December 30, 2005 closing price of $17.25 as reported on the NASDAQ National Market. |
Stock Option and Incentive Plans.Interchange maintains two stock option and incentive plans: the Stock Option and Incentive Plan of 1997, as amended, and the 2005 Omnibus Stock and Incentive Plan, which were designed to align shareholders’ and executive officers’ interests. The Compensation/Stock Option Committee administers the plans, reviews the awards and submits recommendations to the full board of directors for action. Stock options are granted on a discretionary basis with an exercise price equal to the price of a share of stock at the close of business on the date of the grant as reported by the Nasdaq National Market. Stock options may be exercisable between one and ten years from the date granted. Such stock options provide a retention and motivational program for executives and an incentive for the creation of shareholder value over the long-term since their full benefit cannot be realized unless an appreciation in the price of the common stock occurs over a specified number of years.
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The Stock Option and Incentive Plans also provide for the issuance of incentive stock awards as determined by the board of directors of Interchange. Certain key executives may be awarded incentive compensation in the form of three-year restricted stock, which is forfeitable upon termination of employment during that time period. Key employees may also use their cash bonus to purchase two-year restricted stock at a twenty-five percent discount. All amounts in excess of the purchase price of this stock are forfeitable should they terminate their employment during that time period. Incentive stock awards are an important factor in attracting and motivating key executives who will dedicate their maximum efforts toward the advancement of Interchange. During 2005 the board of directors accelerated the vesting of all options under the Stock Option and Incentive Plans and froze future option grants.
Pension Plan and Supplemental Executives’ Retirement Plan. At December 31, 2005 Interchange, through Interchange Bank, froze all future benefit accruals to its non-contributory defined benefit pension plan covering all eligible employees including Mrs. Arnold, Messrs. Abbate, Field, Frost and Labozzetta. Retirement income is based on years of service under the plan and, subject to certain limits, on final average compensation.
In 2005, Interchange froze all future service benefit accruals as of December 31, 2004 under its old Supplemental Executives’ Retirement Plan, a non-qualified plan intended to provide retirement income that would have been paid but for limitations imposed by the Internal Revenue Code under the qualified plan. In 1998, Interchange previously amended the Supplemental Executives’ Retirement Plan to include the director related retirement benefits relating to Mr. Abbate’s membership on the board of directors. Benefits under the Supplemental Executives’ Retirement Plan are paid from the general assets of Interchange.
The board of directors approved a new executive Deferred Compensation Plan (“DCP”) which is structured similarly to the “old” SERP except it allows executive officers of Interchange to defer a portion of their salary or bonus into future periods and after December 31, 2005 there are no future accruals for Interchange’s non-contributory defined benefit plan. The deferred portion of any salary or bonus will be credited with interest at the ten year treasury rate. Benefits under the new executive DCP will be paid out of the general assets of Interchange.
The following table shows the annual benefits payable based on a range of average compensation (comprised solely of base salary) and years of future service at normal retirement date.
Years of Service at Normal Retirement Date | |||||||||||
5-Year Average Compensation | 5 | 10 | 20 | 30 | 35 | ||||||
$100,000 | $ 5,544 | $11,089 | $ 22,177 | $ 33,266 | $ 38,810 | ||||||
150,000 | 9,294 | 18,589 | 37,177 | 55,766 | 65,060 | ||||||
200,000 | 13,044 | 26,089 | 52,177 | 78,266 | 91,310 | ||||||
250,000 | 16,794 | 33,589 | 67,177 | 100,766 | 117,560 | ||||||
300,000 | 20,544 | 41,089 | 82,177 | 123,266 | 143,810 | ||||||
400,000 | 28,044 | 56,089 | 112,177 | 168,266 | 196,310 | ||||||
450,000 | 31,794 | 63,589 | 127,177 | 190,766 | 222,560 | ||||||
500,000 | 35,544 | 71,089 | 142,177 | 213,266 | 248,810 |
(1) | This plan was effective January 1, 1993. |
(2) | Benefits calculated are based on base salary and total credited service at normal retirement date from the later of (a) January 1, 1993 or (b) date of hire. The benefits above are inclusive of both benefits from the qualified defined benefit plan and from the defined benefit portion of the supplemental plan. Currently, the supplemental plan covers Mr. Abbate and Mr. Labozzetta. |
(3) | Average compensation is the average of base salary over the five (5) consecutive calendar years producing the highest average. |
(4) | The chart reflects a Social Security integration level based on the average age of the executive officer group, which was 50 years as of December 31, 2005. |
(5) | The annual benefit shown in the table above is payable as a life annuity which is the normal form of retirement benefit for non-married participants. For married participants, the normal form of benefit is an actuarial equivalent joint and 50% survivor annuity. |
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(6) | At December 31, 2005, the estimated credited years of service for purposes of computing the retirement benefits under the Pension Plan and the SERP for the named executive officers are as follows: Mr. Abbate – 13 years; Mr. Labozzetta – 10 years; Mrs. Arnold – 13 years; Mr. Field – 2 years; and Mr. Frost – 1 year. The estimated covered compensation under the Interchange Pension Plan is as follows: Mr. Abbate – $46,344; Mr. Labozzetta – $86,436; Mrs. Arnold – $81,816; Mr. Field – $87,216; and Mr. Frost – $71,052 |
Change of Control Arrangements. Interchange has a Change of Control Agreement with each of Mrs. Arnold and Messrs. Abbate, Field, Frost and Labozzetta. The agreements provide, among other things, that if the executive is terminated during the two years (three years in the case of Mr. Abbate and one year in the case of Mr. Frost) after a “change of control”, or if they voluntarily terminate during the two years (three years in the case of Mr. Abbate and one year in the case of Mr. Frost) following a “change of control”, unless such termination is (1) because of the executive’s death or retirement; (2) by Interchange for cause or disability; or (3) by the executive for other than good reason, they shall receive an amount equal to two times their highest annualized base salary plus an amount equal to the sum of the bonuses paid for the previous two years, except for (a) Mr. Abbate who shall receive (i) a lump sum amount equal to three times his annual base salary at the highest rate in effect during the twelve months immediately preceding his date of termination; plus (ii) a lump sum amount equal to the greater of: (x) $300,000; or (y) the sum of all bonuses earned by him (without regard to the date of payment) during the three calendar years preceding the calendar year in which occurs his date of termination; and (b) Mr. Frost who will receive one times his highest annualized base salary. In addition, the executives will receive their unpaid base salary up to termination, accrued vacation pay, a portion of the bonus in the year of termination which has not yet been awarded or paid under the management incentive plan, benefits and continuation of health and welfare benefits, “grossed up” to cover any excise tax imposed by Section 4999 of the Internal Revenue Code (except for Mr. Frost whose agreement does not contain a “gross-up” provision).
Compensation/Stock Option Committee Interlocks and Insider Participation.No member of the Compensation/Stock Option Committee was, during 2005, or formerly, an employee of Interchange. During 2005, no executive officer of Interchange (1) served as a member of the compensation committee of another entity, one of whose executive officers served on the Compensation/Stock Option Committee of Interchange, (2) served as a director of another entity, one of whose executive officers served on the Compensation/Stock Option Committee of Interchange, or (3) was a member of the compensation committee of another entity, one of whose executive officers served as a Director of Interchange.
Compensation/Stock Option Committee Report on Executive Compensation.
General.The Compensation/Stock Option Committee is responsible for reviewing and recommending executive compensation to the full board of directors for action and administering Interchange’s executive compensation programs and plans. The Committee reports regularly to the board of directors. During 2005, the Committee consisted of five directors who were not employees of Interchange and, therefore, not eligible to participate in such programs and plans.
Compensation Strategy.The objectives of this Committee are to attract and retain top quality executives and provide compensation programs designed to motivate and reward executives to achieve business goals that foster both the enhancement of long-term shareholder value through stock appreciation and dividend yield, and the long-term best interests of the organization. Compensation programs for executives are designed to link compensation to the various performance measures of Interchange discussed in this report and generally provide competitive compensation for executives at the seventy-fifth percentile of peer group banks (as determined by the Committee with the assistance of an independent consultant) and other organizations of similar size, performance and geographic location. The committee utilizes professional surveys prepared by outside consultants focusing on compensation levels of this peer group in order to assure competitiveness in its compensation programs. The compensation mix reflects a balance of cash awards, including incentive awards, and equity-based incentives. Annual cash compensation (base salary and annual bonus) is established based on the achievement of corporate financial targets and
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individual performance. The Stock Option and Incentive Plan of 1997 and the 2005 Omnibus Stock Option and Incentive Plan, both approved by Shareholders, are intended to function as the basis for fostering alignment of executive compensation with the interests of shareholders.
The policies with respect to each of these compensation elements as well as the basis for determining the compensation level of executive officers, including the President and Chief Executive Officer, Mr. Abbate, are described below.
Base Salary.Base salaries for executive officers are based on the salary ranges that are established by the Committee annually for each position. The salary ranges for each position are determined by evaluating the responsibilities and accountabilities of the position and comparing it with other executive officer positions in the market place on an annual basis. The base salary of each executive officer, including President and Chief Executive Officer, is reviewed annually and adjusted within the position range based upon a performance evaluation. Evaluations of other executive officers are submitted to the Committee by the President and Chief Executive Officer. These evaluations, and an evaluation of the President and Chief Executive Officer by the Committee, are reviewed and submitted together with the Committee’s recommendations to the full board of directors for action. Salary increases are generally based upon the extent to which the executive is considered to have contributed to a furtherance of Interchange’s goals and/or met objectives specifically assigned to that individual.
Annual Bonus.The Management Incentive Plan is an incentive plan designed to reward key management employees for achievement of specific financial, individual and business results for the year. The specific financial targets, which are weighted equally, are primarily based upon (i) the year-to-year increase in Interchange’s net after-tax earnings and (ii) achievement of a targeted return on equity. The targeted goal is established annually through the budgeting process, which is reviewed and approved by the board of directors, using input relating to performance opportunities for the year and the historical performance results of Interchange. Individual and business results are pre-established targets for specific objectives relating to the executives’ area of responsibility. An objective of the Management Incentive Plan is to relate a portion of the executives’ compensation to the overall financial results of Interchange for the year. The bonus for 2005 (paid in 2006) reflects the attainment of 95.9 percent of the financial targets set in 2005. The board of directors reserves the right to award discretionary bonus awards in the event the financial target is either not met or is exceeded. In so doing, the Committee, among other matters, will take into account whether Interchange, while not reaching its threshold target, has performed better on a comparable basis than its peers. In addition to the attainment of the earnings target, the level of the President and Chief Executive Officer’s annual bonus award is also based upon performance-related factors including various predetermined strategic objectives.
A portion of the incentive compensation awarded to executive management is in the form of restricted stock. The restriction is for three years and the restricted stock is forfeitable upon termination of employment during that time period. In addition, executive officers were given the option to utilize their cash bonus to purchase two-year restricted, forfeitable stock at a twenty-five percent discount. The excess of market value over the purchase price is included in the Summary Compensation Table as Other Annual Compensation.
A total of 2,076,470 shares of common stock were made available for option and incentive awards under the Stock Option and Incentive Plan of 1997. Options to purchase 1,768,704 shares (net of forfeitures) and 264,586 shares of restricted stock have been granted to date. A total of 1,500,000 shares of common stock were made available for option and incentive awards under the 2005 Omnibus Stock and Incentive Plan; 29,307 shares of restricted stock have been granted to date. Awards granted to the executives in 2005 and those granted in 2006 as a result of 2005‘s performance are included in the Summary Compensation Table.
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Chief Executive Officer Compensation.The compensation of Interchange’s President and Chief Executive Officer, Mr. Abbate, is reviewed by the Compensation/Stock Option Committee, which presents its recommendations to the board for action. Mr. Abbate participates in the same plans as the other executive officers, including the base salary program, the Management Incentive Plan, the Stock Option and Incentive Plans, and the staff benefit programs as outlined elsewhere in this proxy statement. Mr. Abbate also participates in the Supplemental Executives’ Retirement Plan. Mr. Abbate receives no compensation for his duties as a director. The committee bases Mr. Abbate’s compensation on the same criteria used for all executive officers with particular emphasis on the factors which will promote Interchange’s long-term growth, organization stability, and financial strength. Mr. Abbate’s salary was in the top quartile of the 2005 salary range for his position and his annual cash bonus for 2005 performance was based upon achieving 95.9 percent of targeted financial goals for that year. The committee believes that Mr. Abbate continues to provide Interchange and Interchange Bank with exemplary leadership, vision and commitment, and strives to meet Interchange’s long-term strategic goals.
Submitted by the Compensation/Stock Option Committee: James E. Healey, Chairman Donald L. Correll David R. Ficca Robert P. Rittereiser |
DIRECTOR COMPENSATION
General. In 2005, each director of Interchange not employed by Interchange was paid a retainer of $1,000. Interchange’s Chairman of the Board, Vice-Chairman of the Board and Secretary of the board received additional retainers of $1,500, $500 and $250, respectively. In addition, each director of Interchange Bank not employed by Interchange Bank was paid a retainer at an annual rate of $10,000, a fee of $500 for each board meeting attended, a fee of $400 for each executive committee meeting attended and a fee of $300 for attendance at other committee meetings. Interchange Bank’s Chairman of the Board, the Vice-Chairman of the Board and Secretary of Interchange and Interchange Bank received additional retainers of $16,500, $13,500 and $4,000, respectively. Directors who are chairmen of the audit and compensation committees receive an additional retainer of $4,000 annually; while the chairman of the corporate planning and finance committee receives an additional retainer of $2,000 annually. A director who is an employee of Interchange or any subsidiary receives no retainer or fees.
At December 31, 2005 Interchange Bank maintained a retirement plan for eligible Directors. This plan has been frozen and no future service benefits will accrue to Directors subsequent to December 31, 2005. Eligible directors, excluding directors who are employed by Interchange or Interchange Bank and participate in a separate plan, are entitled to receive upon retirement an amount equal to the annual retainer paid a director for that year (exclusive of additional amounts paid to the Chairman of the Board, the Vice Chairman of the Board, the Secretary of Interchange and Interchange Bank and to committee chairmen) multiplied by his or her years of service on the board, multiplied by his or her vested percentage. Notwithstanding the foregoing, the benefits payable to a participant who was a participant on January 1, 2002, shall not be less than the greater of: (i) the benefits such participant had accrued as of such date under the terms and provision of the plan in effect prior to its restatement on January 2, 2002, or (ii) the cash value of any life insurance policy that was purchased and owned by Interchange or Interchange Bank for that participant under the terms and provisions of the plan in effect prior to its restatement. The benefit may be paid in a lump sum or paid out in five annual installment payments at the election of the participant.
The Outside Director Incentive Compensation Plan. The Outside Director Incentive Compensation Plan is designed to attract qualified personnel to accept positions of responsibility as
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outside directors with Interchange and to provide incentives for persons to remain on the board, as outside directors. The Compensation/Stock Option Committee administers the Outside Director Incentive Compensation Plan, reviews the awards and submits recommendations to the full board of directors for action. Options to acquire 2,250 shares of Interchange’s common stock are granted to each outside director of Interchange each year on the anniversary date of the initial grant. Each option represents the right to purchase, upon exercise, one share of Interchange’s common stock at an exercise price equal to the price of a share of stock at the close of business on the date of the grant as reported by the Nasdaq National Market. Stock options may be exercisable between one and ten years from the date granted. All options granted under the Outside Director Incentive Compensation Plan shall be non-qualified stock options and are not entitled to special tax treatment under the Internal Revenue Code of 1986, as amended. During 2005 the board of directors accelerated the vesting of all options under the Outside Director Incentive Compensation Plan and froze future grants.
A total of 225,000 shares of common stock were made available for option awards under the Outside Director Incentive Compensation Plan, of which options to purchase 157,500 shares (net of forfeitures) have been granted to date. In 2005, options to acquire 29,250 shares, net of forfeitures, were granted to the outside directors.
Stock Option and Incentive Plan.Interchange maintains two stock option and incentive plans: the Stock Option and Incentive Plan of 1997, as amended, and the 2005 Omnibus Stock and Incentive Plan (collectively the “Plans”), which were designed to align shareholders’ and executive officers’ interests. The Compensation/Stock Option Committee administers the plan, reviews the awards and submits recommendations to the full board of directors for action. Stock options are granted on a discretionary basis with an exercise price equal to the price of a share of stock at the close of business on the date of the grant as reported by the NASDAQ National Market. Stock options may be exercisable between one and ten years from the date granted. Such stock options provide a retention and motivational program for executives and an incentive for the creation of shareholder value over the long-term since their full benefit cannot be realized unless an appreciation in the price of the common stock occurs over a specified number of years.
The Plans also provide for the issuance of incentive stock awards as determined by the board of directors of Interchange. Certain key executives may be awarded incentive compensation in the form of 3-year restricted stock, which is forfeitable upon termination of employment during that time period. Key employees may also use their cash bonus to purchase two-year restricted stock at a twenty-five percent discount. All amounts in excess of the discounted purchase price of this stock are forfeitable should the employee’s employment terminate during that time period. Incentive stock awards are an important factor in attracting and motivating key executives who will dedicate their maximum efforts toward the advancement of Interchange. During 2005 the board of directors accelerated the vesting of all options under the Plans and froze future option grants.
AUDIT COMMITTEE REPORT
The Audit Committee consists of five directors, each of whom is independent as defined in the listing standards of the Nasdaq Stock Market. A brief description of the responsibilities of the Audit Committee is set forth above under the caption “Proposal No. 2 – Election of Directors – Committees and Meetings of the Board of Directors”.
In accordance with its written charter adopted by the board of directors, the Audit Committee assists the board in fulfilling its responsibility for oversight of the quality and integrity of the accounting, auditing and financial reporting practices of Interchange. The Committee met ten times during 2005. The Committee discussed the interim financial information contained in each quarterly earnings
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announcement with the Chief Financial Officer and the independent registered public accounting firm prior to the public release of this information. The Chairman also discussed matters described in Statement on Auditing Standards No. 61, as amended “Communication with Audit Committees”(“SAS 61”) with the independent registered public accounting firm prior to the filing of each of Interchange’s quarterly reports, on Form 10-Q.
In discharging its oversight responsibility as to the audit process, the Audit Committee obtained from the independent registered public accounting firm a formal written statement describing all relationships between the auditors and Interchange that might bear on the auditors’ independence consistent with the Independence Standards Board No. 1, “Independence Discussions with Audit Committees”, discussed with auditors any relationships that may impact their objectivity and independence and satisfied itself as to the auditors’ independence. The Committee also discussed with management, the internal auditors and the independent registered public accounting firm the quality and adequacy of Interchange’s internal controls and the internal audit function’s organization, responsibilities, budget and staffing and concurred in the appointment of internal audit staff. The Committee reviewed with the independent and the internal auditors their audit plans, audit scope and identification of audit risks.
The Committee discussed and reviewed with the independent registered public accounting firm all communications required by generally accepted auditing standards, including those described in SAS 61 and, with and without management present, discussed and reviewed the results of the independent registered public accounting firm’ audit of the financial statements. The Committee also discussed the results of the internal audit examinations.
The Committee reviewed the audited financial statements of Interchange as of, and for, the fiscal year ended December 31, 2005 with management and the independent registered public accounting firm. Management has the responsibility for the preparation of Interchange’s financial statements and the independent registered public accounting firm’s have the responsibility for the audit of those statements.
Based on the review and discussions with management and the independent registered public accounting firm, the Committee recommended to the board that Interchange’s audited financial statements be included in its annual report on Form 10-K for the fiscal year ended December 31, 2005 and for filing with the Securities and Exchange Commission. The Committee also recommended the reappointment of the independent registered public accounting firm, and the board concurred in such recommendation.
Submitted by the Audit Committee: John J. Eccleston, Chairman Donald L. Correll Anthony R. Coscia James E. Healey Eleanore S. Nissley |
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PERFORMANCE GRAPH
The following graph compares the performance of Interchange for the periods indicated with the performance of the NASDAQ Stock Market and the performance of a group of banks in the NASDAQ Bank Index assuming the reinvestment of dividends.
COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*
AMONG INTERCHANGE FINANCIAL SERVICES CORP.,
THE NASDAQ STOCK MARKET (U.S.) INDEX
AND THE NASDAQ BANK INDEX
Cumulative Total Return | |||||||||||||
12/00 | 12/01 | 12/02 | 12/03 | 12/04 | 12/05 | ||||||||
INTERCHANGE FINANCIAL SERVICES CORP. | 100.00 | 142.51 | 184.87 | 297.03 | 311.58 | 316.47 | |||||||
NASDAQ STOCK MARKET (U.S.) | 100.00 | 79.08 | 55.95 | 83.35 | 90.64 | 92.73 | |||||||
NASDAQ BANK | 100.00 | 106.35 | 107.47 | 137.00 | 154.24 | 149.95 |
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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Officers and directors of Interchange and their affiliated companies are customers of and are engaged in transactions with Interchange and its subsidiaries in the ordinary course of business on substantially the same terms (including interest rates on loans, collateral and collectibility considerations) as those prevailing at the time for comparable transactions with other unaffiliated borrowers and suppliers. None of such loans gave been disclosed by Interchange as non-accrual, past due, restructured or potential problems.
Mr. Andora, a director of Interchange and Interchange Bank, is a member of Andora & Romano, LLC, a firm that renders various legal services to Interchange and its subsidiaries. During 2005, Andora & Romano received fees for legal services of $423,474, including $95,000 paid pursuant to retainer contracts and $328,474 primarily representing fees for loan related matters, the bulk of which was reimbursed to Interchange Bank by its customers. Interchange expects to transact business with this firm in the future.
Mr. Calabrese, Jr., a director of Interchange and Interchange Bank, is a member of Gerald A. Calabrese, Jr. & Company, a firm that renders real estate appraisal services to Interchange and its subsidiaries. During 2005, Gerald A. Calabrese, Jr. & Company received $9,850 for real estate appraisals. Interchange expects to transact business with this firm in the future.
Mr. William “Pat” Schuber, a director of Interchange and Interchange Bank, is a member of DeCotiis, Fitzpatrick, Cole & Wisler, LLP a firm that renders various legal services to Interchange and its subsidiaries. During 2005, DeCotiis, Fitzpatrick, Cole & Wisler, LLP received fees for legal services of $14,574, primarily representing fees for loan related matters, the bulk of which was reimbursed to Interchange Bank by its customers. Interchange expects to transact business with this firm in the future.
Mr. Marcalus, a director of Interchange and Interchange Bank, is a member of Marcal Paper Mills, Inc. During 2005, Marcal Paper Mills, Inc. received $84,000 for subletting space to Interchange Bank. Interchange expects to transact business with this firm in the future.
Mr. Schepisi, a director of Interchange and Interchange Bank, is a member of Schepisi & McLaughlin, a firm that renders various legal services to Interchange and its subsidiaries. During 2005, Schepisi & McLaughlin received fees for legal services of $49,616, primarily representing fees for loan related matters, the bulk of which was reimbursed to Interchange Bank by its customers. Interchange expects to transact business with this firm in the future.
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PRINCIPAL ACCOUNTANTS FEES AND SERVICES
The following table summarizes the aggregate fees billed to Interchange by Deloitte & Touche LLP, its independent registered public accounting firm for the periods indicated:
2005 | 2004 | ||||
Audit Fees (a) | $315,000 | $315,500 | |||
Audit-Related Fees (b) | 34,000 | 47,500 | |||
Tax Fees (c) | — | — | |||
All Other Fees | — | — | |||
Total | $349,000 | $363,000 | |||
(a) | Fees for audit services billed in 2005 and 2004 consisted of: (1) audit of Interchange’s annual consolidated financial statements; (2) reviews of Interchange’s quarterly condensed consolidated financial statements; (3) attestation of management’s assessment of internal control, as required by section 112 of the Federal Deposit Insurance Corporation Improvement Act of 1991; (4) New Jersey State Bank Directors Examination; and (5) Sarbanes-Oxley 404 attestation work. |
(b) | Fees for audit-related services billed in 2005 and 2004 consisted of: (1) employee benefit plan audits; (2) examination of management’s assertion regarding Interchange’s compliance with its minimum servicing standards under the Uniform Single Attestation Program for Mortgage Bankers; and (3) due diligence associated with mergers/acquisitions (2005 only). |
(c) | There were no fees paid for tax services billed in 2005 or 2004. Fees for tax services consist of tax compliance. Tax compliance services are services rendered based upon facts already in existence or transactions that have already occurred to document, compute, and obtain government approval for amounts to be included in tax filings and consisted of: (1) federal, state and local income tax return assistance; and (2) sales and use, property and other tax return assistance |
In considering the nature of the services provided by the independent auditor, the Audit Committee determined that such services are compatible with the provision of independent audit services. The Audit Committee discussed these services with the independent auditor and Interchange management to determine that they are permitted under the rules and regulations concerning auditor independence promulgated by the U.S. Securities and Exchange Commission to implement the Sarbanes-Oxley Act of 2002, as well as the American Institute of Certified Public Accountants.
Pre-Approval Policy.All services performed by the independent auditor in 2005 were pre-approved in accordance with the pre-approval policy and procedures adopted by the Audit Committee at its January 20, 2004 meeting. This policy describes the permitted audit, audit-related, tax, and other services (collectively, the “Disclosure Categories”) that the independent auditor may perform.
Any requests for audit, audit-related, tax, and other services not contemplated must be submitted to the Audit Committee for specific pre-approval and cannot commence until such approval has been granted.
The policy contains a de minimis provision that operates to provide retroactive approval for permissible non-audit services under certain circumstances. During 2005 no such fees were incurred.
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ADDITIONAL INFORMATION
Interchange will hold a 2007 annual meeting only if the merger with TD Banknorth is not consummated before the time of the meeting. If such a meeting is to be held, a shareholder proposal must be received by the Secretary of Interchange by no later than November 30, 2006 to be included in the proxy statement and form of proxy for the meeting. Any such proposal will be subject to Rule 14a-8 of the rules and regulations of the Securities and Exchange Commission. Nothing in this paragraph shall be deemed to require Interchange to include in its proxy statement and proxy card relating to any annual meeting any shareholder proposal or nomination which does not meet all of the requirements for inclusion established by the Securities and Exchange Commission and Interchange’s bylaws in effect at the time such proposal is received.
To be considered for presentation at the next annual meeting of shareholders (if one is held), although not included in the proxy materials, any shareholder proposal must be delivered to the Secretary at least 60 days in advance of the anniversary of this year’s annual meeting if the next annual meeting is to be held within 30 days prior to, on the anniversary date of, or after the anniversary of this year’s annual meeting. However, if the next annual meeting is not held within this time period, the shareholder proposal must be delivered to the Secretary by the close of business on the 10th day following the date on which notice of the date of the meeting is first made publicly available to shareholders. A shareholder’s notice shall set forth such information as required by the bylaws of Interchange.
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WHERE YOU CAN FIND MORE INFORMATION
Interchange is subject to the informational requirements of the Securities Exchange Act of 1934, as amended, and files annual, quarterly and special reports, proxy statements and other information with the Securities and Exchange Commission. You may read and copy any reports, statements or other information filed by Interchange with the Securities and Exchange Commission at its public reference room at 100 F Street, N.E., Washington, D.C., 20549. Please call the Securities and Exchange Commission at 1-800-SEC-0330 for further information on the public reference rooms. Interchange’s filings are also available to the public from commercial document retrieval services and at the web site maintained by the Securities and Exchange Commission at http://www.sec.gov.
Interchange common stock is quoted on the Nasdaq National Market and such reports, statements or other information concerning Interchange are available for inspection and copying at the offices of the National Association of Securities Dealers, Inc., Reports Section, 1735 K Street, N.W., Washington, D.C. 20006. In addition, Interchange maintains a website at www.interchangebank.com, where you can request Interchange’s annual report to shareholders and Interchange’s quarterly reports for recent quarters. Copies of any of these documents are also available upon request by contacting Interchange Financial Services Corporation, Park 80 West/ Plaza II, Saddle Brook, New Jersey 07663, Attention: Ms. Georgianna Hutter, or by telephone at (201) 703-2265.
A copy of Interchange’s Annual Report on Form 10-K/A for the fiscal year ended December 31, 2005 is being mailed to Interchange shareholders with this proxy statement. If you would like an additional copy of our Annual Report on Form 10-K/A, including audited financial statements for the fiscal year ended December 31, 2005, we will send you one (without exhibits) free of charge. Please write to Interchange Financial Services Corporation, Park 80 West/ Plaza II, Saddle Brook, New Jersey 07663, Attention: Ms. Georgianna Hutter.
By Order of the Board of Directors, Nicholas R. Marcalus Secretary |
Saddle Brook, New Jersey
September [__], 2006
To assure that your shares are represented at the annual meeting, please complete, sign, date and promptly return the accompanying proxy card in the postage-paid envelope provided. |
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ARTICLE I CERTAIN DEFINITIONS | A-1 | ||||
Section 1.1. | Certain Definitions | A-1 | |||
ARTICLE II THE MERGER | A-9 | ||||
Section 2.1. | The Merger | A-9 | |||
Section 2.2. | Effective Date and Effective Time; Closing | A-9 | |||
ARTICLE III CONSIDERATION AND EXCHANGE PROCEDURES | A-10 | ||||
Section 3.1. | Effect on Capital Stock | A-10 | |||
Section 3.2. | Exchange Procedures | A-10 | |||
Section 3.3. | Interchange Stock Options and Other Equity Awards | A-12 | |||
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF INTERCHANGE | A-12 | ||||
Section 4.1. | Corporate Organization | A-13 | |||
Section 4.2. | Capitalization | A-13 | |||
Section 4.3. | Authority; No Violation | A-14 | |||
Section 4.4. | Consents and Approvals | A-15 | |||
Section 4.5. | SEC Documents; Other Reports; Internal and Disclosure Controls | A-16 | |||
Section 4.6. | Financial Statements; Undisclosed Liabilities | A-17 | |||
Section 4.7. | Broker’s Fees | A-18 | |||
Section 4.8. | Absence of Certain Changes or Events | A-18 | |||
Section 4.9. | Legal Proceedings | A-19 | |||
Section 4.10. | Taxes | A-19 | |||
Section 4.11. | Employees; Employee Benefit Plans | A-20 | |||
Section 4.12. | Board Approval | A-22 | |||
Section 4.13. | Compliance With Applicable Law | A-22 | |||
Section 4.14. | Certain Contracts | A-23 | |||
Section 4.15. | Agreements With Regulatory Agencies | A-24 | |||
Section 4.16. | Proxy Statement | A-24 | |||
Section 4.17. | Title to Property | A-25 | |||
Section 4.18. | Insurance | A-25 | |||
Section 4.19. | Environmental Liability | A-26 | |||
Section 4.20. | Opinion of Financial Advisor | A-26 | |||
Section 4.21. | Patents, Trademarks, Etc | A-26 | |||
Section 4.22. | Labor Matters | A-27 | |||
Section 4.23. | Derivative Instruments and Transactions | A-27 | |||
Section 4.24. | Investment Companies and Investment Advisers | A-27 | |||
Section 4.25. | Loan Matters | A-28 | |||
Section 4.26. | Antitakeover Provisions | A-29 | |||
Section 4.27. | Books and Records | A-29 | |||
Section 4.28. | Disclosure | A-29 |
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ARTICLE V REPRESENTATIONS AND WARRANTIES OF TD BANKNORTH | A-29 | |||||
Section 5.1. | Corporate Organization | A-29 | ||||
Section 5.2. | Authority; No Violation | A-30 | ||||
Section 5.3. | Consents and Approvals | A-31 | ||||
Section 5.4. | Parent Stockholder Consent | A-32 | ||||
Section 5.5. | SEC Documents | A-32 | ||||
Section 5.6. | Broker’s Fees | A-32 | ||||
Section 5.7. | Legal Proceedings | A-32 | ||||
Section 5.8. | Compliance With Applicable Law | A-32 | ||||
Section 5.9. | Agreements with Regulatory Agencies | A-33 | ||||
Section 5.10. | TD Banknorth Information | A-33 | ||||
Section 5.11. | Operations of Merger Sub | A-33 | ||||
Section 5.12. | Financing | A-33 | ||||
Section 5.13. | Disclosure | A-33 | ||||
ARTICLE VI COVENANTS RELATING TO CONDUCT OF BUSINESS | A-34 | |||||
Section 6.1. | Conduct of Business of Interchange Prior to the Effective Time | A-34 | ||||
Section 6.2. | Interchange Forbearances | A-34 | ||||
Section 6.3. | TD Banknorth Forbearances | A-38 | ||||
ARTICLE VII ADDITIONAL AGREEMENTS | A-38 | |||||
Section 7.1. | Proxy Statement; Regulatory Filings | A-38 | ||||
Section 7.2. | Access to Information | A-39 | ||||
Section 7.3. | Shareholder Approval | A-40 | ||||
Section 7.4. | Acquisition Proposals | A-41 | ||||
Section 7.5. | Legal Conditions to the Merger | A-42 | ||||
Section 7.6. | Indemnification; Directors’ and Officers’ Insurance | A-43 | ||||
Section 7.7. | Advice of Changes | A-44 | ||||
Section 7.8. | Financial Statements and Other Current Information | A-45 | ||||
Section 7.9. | Transition Matters | A-45 | ||||
Section 7.10. | Employee Benefit Plans | A-46 | ||||
Section 7.11. | The Bank Merger | A-48 | ||||
Section 7.12. | Publicity | A-48 | ||||
Section 7.13. | Merger Sub | A-48 | ||||
ARTICLE VIII CONDITIONS PRECEDENT | A-49 | |||||
Section 8.1. | Conditions to Each Party’s Obligation to Effect the Merger | A-49 | ||||
Section 8.2. | Conditions to Obligations of TD Banknorth and Merger Sub | A-49 | ||||
Section 8.3. | Conditions to Obligations of Interchange | A-50 | ||||
ARTICLE IX TERMINATION AND AMENDMENT | A-51 | |||||
Section 9.1. | Termination | A-51 | ||||
Section 9.2. | Effect of Termination | A-52 | ||||
Section 9.3. | Amendment | A-53 | ||||
Section 9.4. | Extension; Waiver | A-53 |
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ARTICLE X GENERAL PROVISIONS | A-53 | |||||
Section 10.1. | Nonsurvival of Representations, Warranties and Agreements | A-53 | ||||
Section 10.2. | Expenses | A-54 | ||||
Section 10.3. | Notices | A-54 | ||||
Section 10.4. | Interpretation | A-55 | ||||
Section 10.5. | Counterparts | A-55 | ||||
Section 10.6. | Entire Agreement | A-55 | ||||
Section 10.7. | Governing Law; Jurisdiction; Waiver of Jury Trial | A-55 | ||||
Section 10.8. | Severability | A-56 | ||||
Section 10.9. | Assignment; Third Party Beneficiaries | A-56 | ||||
Section 10.10. | Alternative Structure | A-57 | ||||
Exhibit A Form of Shareholder Agreement |
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(i) | each share of Merger Sub common stock which is issued and outstanding immediately prior to the Effective Time shall be converted into and become one share of Interchange Common Stock; | ||
(ii) | each share of Interchange Common Stock held as Treasury Stock immediately prior to the Effective Time shall be cancelled and retired at the Effective Time and no consideration shall be issued in exchange therefore; and | ||
(iii) | with the exception of Treasury Stock and the shares of restricted Interchange Common Stock cancelled and paid for pursuant to Section 3.3, each outstanding share of Interchange Common Stock which is issued and outstanding prior to the Effective Time shall become and be converted into the right to receive $23.00 in cash, without interest (the “Merger Consideration”). |
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(i) | Interchange has complied in all material respects with its obligations under Section 7.4, | ||
(ii) | the Interchange Board, after consultation with its outside counsel, determines in good faith that failure to take such action would result in a violation of its fiduciary duties under applicable law, and | ||
(iii) | Interchange or the Interchange Board (A) has received an unsolicitedbona fidewritten Acquisition Proposal from a third party which the Interchange Board concludes in good faith constitutes a Superior Proposal after giving effect to all of the adjustments which may be offered by TD Banknorth pursuant to clause (C) below, (B) has notified TD Banknorth, at least five Business Days in advance, of its intention to effect a Change in Interchange Recommendation, specifying the material terms and conditions of any such Superior Proposal and furnishing to TD Banknorth a copy of the relevant proposed transaction agreements, if such exist, with the Person making such Superior Proposal and (C) during the period of not less than five Business Days following Interchange’s delivery of the notice referred to in clause (B) above and prior to effecting such a Change in Interchange Recommendation, has negotiated, and has used reasonable best efforts to cause its financial and legal advisors to negotiate, with TD Banknorth in good faith (to the extent that TD Banknorth desires to negotiate) to make such adjustments in the terms and conditions of |
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this Agreement so that such Acquisition Proposal ceases to constitute a Superior Proposal. |
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(i) | if this Agreement is terminated by TD Banknorth pursuant to Section 9.1(f) or (g), then Interchange shall pay the entire Termination Fee on the second Business Day following such termination; and | ||
(ii) | if this Agreement is terminated by (A) TD Banknorth pursuant to Section 9.1(d) because of Interchange’s willful breach of any representation, warranty, covenant or agreement under this Agreement, (B) TD Banknorth or Interchange pursuant to Section 9.1(e), or (C) TD Banknorth or Interchange pursuant to Section 9.1(c) without a vote of the shareholders of Interchange contemplated by this Agreement at the Interchange Shareholders Meeting having occurred, and in any such case an Acquisition Proposal with respect to Interchange shall have been publicly announced or otherwise communicated or made known to the senior management or the Interchange Board (or any Person shall have publicly announced, communicated or made known an intention, whether or not conditional, to make an Acquisition Proposal) at any time after the date of this Agreement and on or prior to the date of the Interchange Shareholders Meeting, in the case of clause (B), or the date of termination, in the case of clauses (A) or (C), then Interchange shall pay (x) the sum of $5.0 million to TD Banknorth on the second Business Day following such termination, and (y) if within 18 months after such termination Interchange or any of its Subsidiaries enters into a definitive agreement with respect to, or consummates, an Acquisition Proposal, then Interchange shall pay the remainder of the Termination Fee payable to TD Banknorth on the date of such execution or consummation. |
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(a) | if to Interchange, to: | |||
Interchange Financial Services Corporation | ||||
Park 80 West/Plaza Two | ||||
Saddle Brook, New Jersey 07663 | ||||
Attn: Anthony S. Abbate | ||||
President and Chief Executive Officer | ||||
Fax: (201) 843-3945 | ||||
with a copy (which shall not constitute notice) to: | ||||
Thacher Proffitt & Wood LLP | ||||
1700 Pennsylvania Avenue, NW | ||||
Suite 800 | ||||
Washington, DC 20006 | ||||
Attn: Richard A. Schaberg, Esq. | ||||
Fax: (202) 626-1930 | ||||
(b) | if to TD Banknorth, to: | |||
TD Banknorth Inc. | ||||
P.O. Box 9540 | ||||
Two Portland Square | ||||
Portland, Maine 04112-9540 | ||||
Attn: William J. Ryan | ||||
Chairman, President and Chief Executive Officer | ||||
Fax: (207) 761-8587 |
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with a copy (which shall not constitute notice) to: | ||||
Elias, Matz, Tiernan & Herrick L.L.P. | ||||
734 15th Street, N.W. | ||||
Washington, D.C. 20005 | ||||
Attn: Gerard L. Hawkins | ||||
Fax: (202) 347-2172 |
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INTERCHANGE FINANCIAL SERVICES CORPORATION | ||||||
By: | /s/ Anthony S. Abbate | |||||
Name: Anthony S. Abbate | ||||||
Title: President and Chief | ||||||
Executive Officer | ||||||
TD BANKNORTH INC. | ||||||
By: | /s/ Peter J. Verrill | |||||
Name: Peter J. Verrill | ||||||
Title: Vice Chairman and Chief | ||||||
Operating Officer |
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TD BANKNORTH INC. | ||||||
By: | ||||||
Name: Peter J. Verrill | ||||||
Title: Vice Chairman and Chief | ||||||
Operating Officer | ||||||
SHAREHOLDER: | ||||||
(Signature) |
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SHAREHOLDER AGREEMENT
Shares of Interchange | ||||||
Common Stock | ||||||
Beneficially Owned | ||||||
Name and Address of | (exclusive of unexercised | Options on Interchange | ||||
Shareholder | stock options) | Common Stock |
Appendix B
OPINION OF GOLDMAN SACHS & CO.
PERSONAL AND CONFIDENTIAL
April 13, 2006
Board of Directors
Interchange Financial Services Corp.
Park 80 West Plaza Two
Saddle Brook, NJ 07663
Ladies and Gentlemen:
You have requested our opinion as to the fairness from a financial point of view to the holders of the outstanding shares of common stock, no par value (the “Shares”), of Interchange Financial Services Corp. (the “Company”) of the $23.00 per Share in cash to be received by such holders pursuant to the Agreement and Plan of Merger, dated as of April 13, 2006 (the “Agreement”), between TD Banknorth Inc. (“TD Banknorth”) and the Company.
Goldman, Sachs & Co. and its affiliates, as part of their investment banking business, are continually engaged in performing financial analyses with respect to businesses and their securities in connection with mergers and acquisitions, negotiated underwritings, competitive biddings, secondary distributions of listed and unlisted securities, private placements and other transactions as well as for estate, corporate and other purposes. We have acted as financial advisor to the Company in connection with, and have participated in certain of the negotiations leading to, the transaction contemplated by the Agreement (the “Transaction”). We expect to receive fees for our services in connection with the Transaction, all of which are contingent upon consummation of the Transaction, and the Company has agreed to reimburse our expenses and indemnify us against certain liabilities arising out of our engagement. We have provided certain investment banking services to The Toronto-Dominion Bank (“Toronto-Dominion”), the majority shareholder of TD Banknorth, from time to time, including having acted as financial advisor in connection with its acquisition of 51% of the common stock of Banknorth Delaware, Inc. announced in August 2004, its disposition of TD Waterhouse Group, Inc. announced in June 2005, its acquisition of Hudson United Bancorp announced in July 2005, and having acted as manager of Toronto-Dominion’s Medium Term Note Program in 2001, 2002, 2003, 2004 and 2005. We have also provided certain investment banking services to TD Banknorth from time to time, including having acted as a participant in its $200 million issuance of 8% Trust Preferred Securities in February 2002. We also may provide investment banking services to the Company, Toronto-Dominion and TD Banknorth in the future. In connection with the above-described investment banking services we have received, and may receive, compensation.
Goldman, Sachs & Co. is a full service securities firm engaged, either directly or through its affiliates, in securities trading, investment management, financial planning and benefits counseling, risk management, hedging, financing and brokerage activities for both companies and individuals.
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Board of Directors
Interchange Financial Services Corp.
April 13, 2006
Page Two
In the ordinary course of these activities, Goldman, Sachs & Co. and its affiliates may provide such services to the Company, TD Banknorth and their respective affiliates, may actively trade the debt and equity securities (or related derivative securities) of the Company and TD Banknorth for their own account and for the accounts of their customers and may at any time hold long and short positions of such securities.
In connection with this opinion, we have reviewed, among other things, the Agreement; annual reports to stockholders and Annual Reports on Form 10-K of the Company and TD Banknorth for the five fiscal years ended December 31, 2005; certain interim reports to stockholders and Quarterly Reports on Form 10-Q of the Company and TD Banknorth; certain other communications from the Company and TD Banknorth to their respective stockholders; and certain internal financial analyses and forecasts for the Company prepared by its management. We also have held discussions with members of the senior management of the Company regarding their assessment of the past and current business operations, financial condition and future prospects of the Company. In addition, we have reviewed the reported price and trading activity for the Shares, compared certain financial and stock market information for the Company with similar information for certain other companies the securities of which are publicly traded, reviewed the financial terms of certain recent business combinations in the banking industry specifically and in other industries generally and performed such other studies and analyses, and considered such other factors, as we considered appropriate.
We have relied upon the accuracy and completeness of all of the financial, accounting, legal, tax and other information discussed with or reviewed by us and have assumed such accuracy and completeness for purposes of rendering this opinion. We are not experts in the evaluation of loan and lease portfolios for purposes of assessing the adequacy of the allowances for losses with respect thereto and, accordingly, we have assumed that such allowances for losses are in the aggregate adequate to cover such losses. In addition, we have not reviewed individual credit files nor have we made an independent evaluation or appraisal of the assets and liabilities (including any contingent, derivative or off-balance-sheet assets and liabilities) of the Company or any of its subsidiaries and we have not been furnished with any such evaluation or appraisal.
Our opinion does not address the underlying business decision of the Company to engage in the Transaction. Our opinion is necessarily based on economic, monetary, market and other conditions as in effect on, and the information made available to us as of, the date hereof. Our advisory services and the opinion expressed herein are provided for the information and assistance of the Board of Directors of the Company in connection with its consideration of the Transaction and such opinion does not constitute a recommendation as to how any holder of Shares should vote with respect to such transaction.
Based upon and subject to the foregoing, it is our opinion that, as of the date hereof, the $23.00 per Share in cash to be received by the holders of Shares pursuant to the Agreement is fair from a financial point of view to such holders.
Very truly yours,
/s/ Goldman, Sachs & Co.
(GOLDMAN, SACHS & CO.)
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(Front)
REVOCABLE PROXY | INTERCHANGE FINANCIAL SERVICES CORPORATION Park 80 West/Plaza Two, Saddle Brook, New Jersey 07663 |
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
�� The undersigned hereby appoints Anthony R. Cosica, John J. Eccleston and Nicholas R. Marcalus as proxies, each with the power to appoint his substitute, and hereby authorizes them to represent and to vote, as designated below, all the shares of common stock of Interchange Financial Services Corporation held of record by the undersigned on [______], 2006, at the annual meeting of shareholders to be held on [_____], 2006, or any adjournment thereof.
1. | APPROVAL OF THE AGREEMENT AND PLAN OF MERGER DATED AS OF APRIL 13, 2006 BETWEEN INTERCHANGE FINANCIAL SERVICES CORPORATION AND TD BANKNORTH INC. |
|_| FOR | |_| AGAINST | |_| ABSTAIN |
2. | ELECTION OF DIRECTORS |
FOR all nominees listed below |_| (except as marked to the contrary below) | WITHHOLD AUTHORITY |_| to vote for all nominees listed below |
For terms of three years: Donald L. Correll, James E. Healey, Jeremiah F. O’Connor, Robert P. Rittereiser and John A. Schepisi.
(INSTRUCTION: To withhold authority to vote for an individual nominee write that nominee’s name in the space provided below.)
In their discretion, the proxies are authorized to vote upon such other business as may properly come before the meeting.
Our board of directors unanimously recommends that you vote “FOR” approval of the merger agreement and “FOR” each of the nominees for director.
This proxy when properly executed will be voted in the manner directed herein by the undersigned shareholder. If no direction is made, this proxy will be voted “FOR” Proposals 1 and 2.
Please sign exactly as name appears below. When shares are held by joint tenants, both should sign. When signing as an attorney, as executor, administrator, trustee or guardian, please give full title as such. If a corporation, please sign in full corporate name by president or other authorized officer. If a partnership, please sign in partnership name by authorized person. | |
DATED: __________________________________________, 2006 | |
Signature _____________________________________________ | |
Signature if held jointly ___________________________________ |
PLEASE MARK, SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY USING THE ENCLOSED ENVELOPE.