Filed pursuant to Rule 424(b)(3)
Registration Statement No. 333-103256
[LOGO] Interchange
Financial Services [LOGO] BRIDGE VIEW
Corporation BANCORP /SM/
Joint Proxy Statement-Prospectus
Merger Proposed--Your Vote is Very Important
Fellow Interchange Financial Services Corporation Shareholders:
On behalf of the board of directors, I am pleased to invite you to attend
the annual meeting of the shareholders of Interchange Financial Services
Corporation to be held at the Saddle Brook Marriott Hotel located at Garden
State Parkway and I-80 in Saddle Brook, New Jersey at 3:00 p.m., on April 24,
2003. At the meeting, you will vote upon the matters described in the Notice of
Annual Meeting accompanying this joint proxy statement-prospectus, including:
. the issuance of shares of Interchange common stock in connection with
Interchange's acquisition of Bridge View Bancorp;
. the election of four (4) directors: Donald L. Correll, James E. Healey,
Jeremiah F. O'Connor and Robert P. Rittereiser, each to serve a term of
three years and until their successors are elected and qualified;
. the ratification of the board's appointment of Deloitte & Touche LLP as
independent public auditors for Interchange for the fiscal year ending on
December 31, 2003; and
. such other business as may properly come before the annual meeting or any
postponement or adjournment of the annual meeting.
We are enthusiastic about the merger with Bridge View Bancorp and the
strength and capabilities that we expect from the combined company. In the
merger, Interchange will issue 2,949,719 shares of Interchange common stock and
pay $33,528,472 in exchange for all of the outstanding common stock and
unexercised stock options of Bridge View. Upon completion of the merger,
current Bridge View shareholders will own approximately 23% of the then
outstanding shares of Interchange common stock.
You should read this document and all attachments carefully. Before you make
a decision on how to vote, you should consider the "Risk Factors" beginning on
page 21 of this document.
Our board of directors recommends that you vote in favor of each of the
matters presented at the annual meeting.
/s/ Anthony S. Abbate
Anthony S. Abbate
President and Chief
Executive Officer
Interchange Financial
Services Corporation
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or passed upon the
adequacy or accuracy of this document. Any representation to the contrary is a
criminal offense.
The securities offered through this document are not savings accounts,
deposits or other obligations of a bank or savings association and are not
insured by the Federal Deposit Insurance Corporation or any other government
agency.
The date of this joint proxy statement-prospectus is March 25, 2003, and it
is first being mailed to Interchange and Bridge View shareholders on or about
March 25, 2003.
[LOGO] BRIDGE VIEW [LOGO] Interchange
BANCORP /SM/ Financial Services
Corporation
Joint Proxy Statement-Prospectus
Merger Proposed--Your Vote is Very Important
Fellow Bridge View Bancorp Shareholders:
On behalf of the board of directors, I am pleased to invite you to attend
the special meeting of the shareholders of Bridge View Bancorp to be held at
the Radisson Hotel located at 401 South Van Brunt Street, Englewood, New Jersey
at 3:00 p.m. on April 24, 2003. At the meeting you will be asked to approve an
Agreement and Plan of Merger providing for the merger of Bridge View with
Interchange Financial Services Corporation. This document gives you detailed
information about the merger, the merger agreement, Interchange and Bridge View.
If we complete the merger, you may choose the type of consideration that you
wish to receive in exchange for your shares of Bridge View common stock. You
may elect from the following three forms of consideration, subject to
adjustment under certain circumstances:
. approximately $21.97 in cash per share of Bridge View common stock; or
. approximately 1.29 shares of Interchange common stock per share of Bridge
View common stock; or
. a combination of cash and shares of Interchange common stock.
The actual amount of cash and number of shares of Interchange common stock
that will be exchanged for your shares of Bridge View common stock will not be
known until the effective time of the merger and will be calculated based on a
number of variables as described in this joint proxy statement-prospectus.
Accordingly, the final exchange ratio and the per share value of a share of
Bridge View common stock may be more or less than the amounts used in this
joint proxy statement-prospectus for purposes of illustration.
In the merger, Interchange will issue 2,949,719 shares of Interchange common
stock and pay $33,528,472 in exchange for all of the outstanding common stock
and unexercised stock options of Bridge View. Upon completion of the merger,
current Bridge View shareholders will own approximately 23% of the then
outstanding shares of Interchange common stock. Interchange common stock is
listed for quotation on the Nasdaq National Market under the symbol "IFCJ." On
March 21, 2003, Interchange common stock closed at $17.39 per share.
You should read this document and all attachments carefully. Before you make
a decision on how to vote, you should consider the "Risk Factors" beginning on
page 21 of this document.
We are enthusiastic about the merger and the strength and capabilities we
expect from the combined company. Our board of directors recommends that you
vote in favor of the merger agreement.
/s/ Albert Buzzetti
Albert F. Buzzetti
President and Chief Executive Officer
Bridge View Bancorp
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or passed upon the
adequacy or accuracy of this document. Any representation to the contrary is a
criminal offense.
The securities offered through this document are not savings accounts,
deposits or other obligations of a bank or savings association and are not
insured by the Federal Deposit Insurance Corporation or any other government
agency.
The date of this joint proxy statement-prospectus is March 25, 2003, and it
is first being mailed to Interchange and Bridge View shareholders on or about
March 25, 2003.
INTERCHANGE FINANCIAL SERVICES CORPORATION
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
To Be Held on April 24, 2003 at 3:00 p.m.
At the Saddle Brook Marriott Hotel
Located at Garden State Parkway at I-80
Saddle Brook, New Jersey 07663
To the Shareholders of Interchange Financial Services Corporation:
NOTICE IS HEREBY GIVEN that the 2003 annual meeting of shareholders of
Interchange Financial Services Corporation, a New Jersey corporation, will be
held at 3:00 p.m., local time, on April 24, 2003 at the Saddle Brook Marriott
Hotel, located at the Garden State Parkway and I-80, Saddle Brook, New Jersey
for the following purposes:
. to consider and vote upon the issuance of shares of Interchange common
stock in connection with the merger of Bridge View with and into
Interchange;
. to consider and vote upon the election of four (4) directors: Donald L.
Correll, James E. Healey, Jeremiah F. O'Connor and Robert P. Rittereiser,
each to serve a term of three years and until their successors are
elected and qualified;
. to ratify the board's appointment of Deloitte & Touche LLP as independent
public auditors for Interchange for the fiscal year ending on December
31, 2003; and
. to transact such other business as may properly come before the annual
meeting or any postponement or adjournment of the annual meeting.
Interchange management is not aware of any such other business.
As more fully explained in the joint proxy statement-prospectus that
accompanies this notice, only Interchange shareholders of record as of the
close of business on March 21, 2003, are entitled to notice of and to vote at
the Interchange annual meeting or any adjournment or postponement of the annual
meeting.
You are cordially invited to attend the 2003 annual meeting of shareholders.
Whether or not you plan to attend the Interchange annual meeting in person, we
urge you to date, sign and return promptly the enclosed proxy in the
accompanying reply envelope. You may revoke your proxy prior to its exercise in
the manner provided in the accompanying joint proxy statement-prospectus. If
your shares are held in "street name" by your broker or other nominee, only
that holder can vote your shares. You should follow the directions provided by
your broker or nominee regarding how to instruct them to vote your shares.
By Order of the Board of Directors
/s/ Benjamin Rosenzweig
Benjamin Rosenzweig
Corporate Secretary
Saddle Brook, New Jersey
March 25, 2003
BRIDGE VIEW BANCORP
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
To Be Held on April 24, 2003 at 3:00 p.m.
At the Radisson Hotel
Located at 401 South Van Brunt Street
Englewood, New Jersey 07631
To the Shareholders of Bridge View Bancorp:
NOTICE IS HEREBY GIVEN that a special meeting of shareholders of Bridge View
Bancorp will be held at 3:00 p.m. on April 24, 2003 at the Radisson Hotel
located at 401 South Van Brunt Street, Englewood, New Jersey for the following
purposes:
. to consider and vote upon the approval and adoption of the Agreement and
Plan of Merger, dated November 18, 2002, between Bridge View and
Interchange, pursuant to which Bridge View will merge with and into
Interchange, as more fully described in the attached joint proxy
statement-prospectus; and
. to transact such other business as may properly come before the special
meeting or any postponement or adjournment of the annual meeting. Bridge
View management is not aware of any such other business.
As more fully explained in the joint proxy statement-prospectus that
accompanies this notice, only holders of record of Bridge View common stock as
of the close of business on March 24, 2003 are entitled to notice of and to
vote at the Bridge View special meeting or any adjournment or postponements
thereof.
You are cordially invited to attend the special meeting of shareholders.
Whether or not you plan to attend the Bridge View special meeting in person, we
urge you to date, sign and return promptly the enclosed proxy in the
accompanying reply envelope. You may revoke your proxy prior to its exercise in
the manner provided in the accompanying joint proxy statement-prospectus. If
your shares are held in "street name" by your broker or other nominee, only
that holder can vote your shares. You should follow the directions provided by
your broker or nominee regarding how to instruct them to vote your shares.
By Order of the Board of Directors
/s/ Michele Albino
Michele Albino
Corporate Secretary
Englewood Cliffs, New Jersey
March 25, 2003
ADDITIONAL INFORMATION
This joint proxy statement-prospectus incorporates important business and
financial information about Interchange and Bridge View that is not included in
or delivered with this document. See "Where You Can Find More Information"
beginning on page 108 of this document for a list of the documents that are
incorporated into this document. The documents are available to you without
charge upon written or oral request made as follows:
Interchange Documents:
Ms. Georgianna Hutter
Interchange Financial Services Corporation
Park 80 West/Plaza II
Saddle Brook, New Jersey 07663
Telephone: (201) 703-2265
Bridge View Documents:
Ms. Michele Albino
Bridge View Bancorp
457 Sylvan Avenue
Englewood Cliffs, New Jersey 07632
Telephone: (201) 871-7800
To obtain documents in time for your shareholders' meeting, your request
should be received by April 17, 2003.
Bridge View's Annual Report on Form 10-K/A for the year ended December 31,
2002 is included with this joint proxy statement-prospectus as Annex E.
TABLE OF CONTENTS
Page
----
QUESTIONS AND ANSWERS ABOUT THE MERGER............................................... 1
WHO CAN HELP ANSWER YOUR QUESTIONS................................................... 4
SUMMARY.............................................................................. 5
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA...................................... 14
SUMMARY SELECTED UNAUDITED PRO FORMA COMBINED DATA................................... 17
SELECTED UNAUDITED COMPARATIVE PER SHARE DATA........................................ 18
MARKET PRICE AND DIVIDEND INFORMATION................................................ 19
Market Price Information.......................................................... 19
Dividend Information.............................................................. 19
RISK FACTORS......................................................................... 21
A WARNING ABOUT FORWARD-LOOKING INFORMATION.......................................... 22
THE BRIDGE VIEW SPECIAL MEETING...................................................... 24
General........................................................................... 24
Date, Time and Place.............................................................. 24
Purpose of the Bridge View Special Meeting........................................ 24
Record Date; Voting Rights; Quorum; Required Vote................................. 24
Share Ownership................................................................... 24
Recommendations of the Bridge View Board of Directors............................. 24
Voting and Revocation of Proxies; Shares Held in Street Name...................... 25
Solicitation of Proxies and Expenses.............................................. 25
THE INTERCHANGE ANNUAL MEETING....................................................... 26
General........................................................................... 26
Date, Time and Place.............................................................. 26
Purpose of the Interchange Annual Meeting......................................... 26
Record Date; Voting Rights; Quorum; Required Vote................................. 26
Share Ownership................................................................... 26
Recommendations of the Interchange Board of Directors............................. 27
Voting and Revocation of Proxies; Shares Held in Street Name...................... 27
Solicitation of Proxies and Expenses.............................................. 28
PROPOSAL NO. 1--THE MERGER........................................................... 28
Background of the Merger.......................................................... 28
Reasons for the Merger............................................................ 30
Effects of the Merger............................................................. 32
Opinion of Interchange's Independent Financial Advisor............................ 33
Opinion of Bridge View's Independent Financial Advisor............................ 40
Interests of Certain Directors, Executive Officers and Shareholders in the Merger. 45
Agreements with the Directors of Bridge View...................................... 47
Management After the Merger....................................................... 47
Nasdaq National Market Listing.................................................... 48
Material Federal Income Tax Consequences.......................................... 48
Accounting Treatment of the Merger................................................ 52
Requirement for Shareholder Approval.............................................. 52
Recommendations of the Boards of Directors........................................ 53
Appraisal Rights.................................................................. 53
THE MERGER AGREEMENT................................................................. 53
General........................................................................... 53
The Merger........................................................................ 53
Effective Time.................................................................... 53
Merger Consideration.............................................................. 54
i
Conversion of Bridge View Stock................................................... 55
Election and Proration Procedures................................................. 59
Representations and Warranties.................................................... 62
Covenants; Conduct of Business Prior to Completion of the Merger.................. 62
Nonsolicitation................................................................... 64
Conditions to the Merger.......................................................... 64
Resales of Interchange Common Stock by Bridge View Shareholders................... 65
Regulatory Approval for the Merger................................................ 66
Termination....................................................................... 67
Termination Fees.................................................................. 68
Expenses.......................................................................... 69
Amendment and Waiver of the Merger Agreement...................................... 69
INFORMATION ABOUT INTERCHANGE........................................................ 69
General........................................................................... 69
Products and Services............................................................. 70
Market Areas...................................................................... 71
Competition....................................................................... 71
Personnel......................................................................... 71
Properties........................................................................ 71
Legal Proceedings................................................................. 71
Regulation and Supervision........................................................ 72
Management and Additional Information............................................. 74
Information on Interchange's Web Site............................................. 75
INFORMATION ABOUT BRIDGE VIEW........................................................ 76
General........................................................................... 76
Bridge View Bank Activities....................................................... 76
Market Areas...................................................................... 77
Competition....................................................................... 77
Personnel......................................................................... 77
Legal Proceedings................................................................. 77
Ownership of Bridge View Common Stock by Management and Certain Beneficial Owners. 78
Certain Additional Information Incorporated by Reference and Delivered Herewith... 79
PRO FORMA FINANCIAL INFORMATION OF THE COMBINED COMPANY.............................. 80
Unaudited Pro Forma Condensed Consolidated Balance Sheet.......................... 81
Unaudited Pro Forma Condensed Consolidated Income Statement....................... 82
Notes to Pro Forma Financial Information of the Combined Company.................. 83
DESCRIPTION OF INTERCHANGE COMMON STOCK.............................................. 86
General........................................................................... 86
Dividend Rights................................................................... 86
Voting Rights..................................................................... 86
Liquidation Rights................................................................ 86
Preemptive Rights................................................................. 86
Issuance of Stock................................................................. 86
Transfer Agent.................................................................... 86
Preferred Stock................................................................... 86
MATERIAL DIFFERENCES BETWEEN HOLDERS OF INTERCHANGE COMMON STOCK AND
BRIDGE VIEW COMMON STOCK........................................................... 87
General........................................................................... 87
Authorized Capital Stock.......................................................... 87
Issuance of Capital Stock......................................................... 87
Dividends......................................................................... 88
Voting Rights..................................................................... 88
Cumulative Voting................................................................. 88
ii
Classified Board of Directors.............................................. 89
Number of Directors........................................................ 89
Removal of Directors....................................................... 89
Filling Vacancies on the Boards of Directors............................... 89
Special Meeting of the Shareholders........................................ 90
Amendment of Bylaws........................................................ 90
Shareholder Nominations and Proposals at Shareholder Meetings.............. 90
Anti-Takeover Provisions................................................... 90
Preemptive Rights.......................................................... 91
Limitation on Director Liability........................................... 91
INTERCHANGE PROPOSAL NO. 2--ELECTION OF DIRECTORS............................. 92
General.................................................................... 92
Recommendation of the Interchange Board of Directors....................... 92
Nominees and Directors..................................................... 92
Committees and Meetings of the Board of Directors.......................... 94
Compensation/Stock Option Committee Interlocks and Insider Participation... 96
Director Compensation...................................................... 96
INTERCHANGE PROPOSAL NO. 3--RATIFICATION OF APPOINTMENT OF INDEPENDENT
PUBLIC AUDITORS............................................................. 97
General.................................................................... 97
Recommendation of the Interchange Board of Directors....................... 97
INTERCHANGE EXECUTIVE OFFICERS, EXECUTIVE COMPENSATION AND OTHER
INTERCHANGE INFORMATION..................................................... 97
Executive Officers......................................................... 97
Executive Compensation..................................................... 99
Stock Option Grants in Last Fiscal Year.................................... 100
Aggregated Option Exercises in Last Fiscal Year and Year End Option Values. 100
Pension Plan and Supplemental Executives' Retirement Plan.................. 100
Capital Investment Plan and Supplemental Executive Retirement Plan......... 101
Change-in-Control Arrangements............................................. 101
Compensation/Stock Option Committee Report on Executive Compensation....... 102
Audit Committee Report..................................................... 104
Fees Paid to Our Independent Auditors...................................... 105
INTERCHANGE STOCK PRICE PERFORMANCE........................................... 106
PRINCIPAL SHAREHOLDERS AND HOLDINGS OF MANAGEMENT OF INTERCHANGE.............. 107
Section 16(a) Beneficial Ownership Reporting Compliance.................... 107
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS OF INTERCHANGE........... 108
EXPERTS....................................................................... 108
LEGAL MATTERS................................................................. 108
SUBMISSION OF SHAREHOLDER PROPOSALS........................................... 108
WHERE YOU CAN FIND MORE INFORMATION........................................... 108
Interchange and Bridge View SEC Filings.................................... 108
Registration Statement..................................................... 109
Documents Incorporated by Reference........................................ 109
Documents Available Without Charge......................................... 110
ANNEXES
ANNEX A Agreement and Plan of Merger
ANNEX B Fairness Opinion of McConnell, Budd & Romano, Inc.
ANNEX C Fairness Opinion of Keefe, Bruyette & Woods, Inc.
ANNEX D Amended and Restated Audit Committee Charter of Interchange Financial Services Corporation
ANNEX E Bridge View Bancorp Annual Report on Form 10-K/A for the Year Ended December 31, 2002
iii
QUESTIONS AND ANSWERS ABOUT THE MERGER
Q: What will I receive in the merger?
A: If you are a Bridge View shareholder, then you will have the right to elect
to receive:
. shares of Interchange common stock in exchange for your shares of Bridge
View common stock;
. cash in exchange for your shares of Bridge View common stock; or
. a combination of Interchange common stock and cash in exchange for your
shares of Bridge View common stock.
The total amount of consideration that Bridge View shareholders will
receive is fixed at 2,949,719 shares of Interchange common stock and
$33,528,472 in cash. If Bridge View shareholders, in the aggregate,
initially elect to receive more or less than 2,949,719 shares of
Interchange common stock or more or less than $33,528,472 in cash, then
their election will be subject to the proration procedures described on
pages 59 through 61 of this document. If proration becomes necessary,
Bridge View shareholders may not receive the exact form of merger
consideration that they elect.
Interchange will not issue fractional shares in the merger. Instead, Bridge
View shareholders who would otherwise be entitled to a fractional share
interest, after taking into account all shares of Bridge View stock held by
such shareholder, will receive an amount in cash, without interest, equal
to the fractional interest multiplied by the average of the closing bid and
asked price of a share of Interchange common stock as reported on the
Nasdaq National Market on the business day immediately preceding the
effective date of the merger.
If you are an Interchange shareholder, for each outstanding share of
Interchange common stock that you own before the merger, you will continue
to own one share of Interchange common stock following the merger.
After the merger, Bridge View's former shareholders will own approximately
23% of Interchange's outstanding shares of common stock and current
Interchange shareholders will retain ownership of approximately 77% of
Interchange's outstanding shares of common stock.
Q: What risks should I consider before I vote on the merger agreement?
A: You should review "Risk Factors" on pages 21 and 22 of this document.
Q: I am a Bridge View shareholder. How do I elect the form of payment I prefer?
A: At least thirty days prior to closing the merger, Interchange's exchange
agent, Continental Stock Transfer & Trust Company, will mail election forms
to Bridge View shareholders. If you are a Bridge View shareholder and you
wish to make an election, you should complete the appropriate form and send
it in the envelope provided with the election form to Interchange's
exchange agent. For you to make an effective election, your properly
executed election form must be received by Interchange's exchange agent
before the time set forth in the election form. If you are a Bridge View
shareholder, you must include your Bridge View stock certificates or an
appropriate guarantee of delivery of such certificates with your election
form. Do not forward your Bridge View stock certificates with the proxy
card included with this joint proxy statement-prospectus.
For information on how to make a valid election and how to complete the
election form, please read the instructions that accompany the election
form that you will receive from Interchange's exchange agent. These
instructions also will explain what to do if your Bridge View stock
certificates have been lost, stolen or destroyed.
1
Q: Can I change my election?
A: Yes, you may change your election by submitting to Interchange's exchange
agent a properly completed and signed revised election form and all
required additional documentation. To be effective, however, Interchange's
exchange agent must receive the revised election form and all of the
necessary documents prior to the election deadline.
Q: What will I receive if I elect to receive a combination of Interchange
common stock and cash?
A: If you elect to receive a combination of Interchange common stock and cash
for your shares of Bridge View common stock, Interchange will exchange
shares of Interchange common stock and cash for your shares of Bridge View
common stock. The amount of Interchange common stock that you receive will
be approximately 60% of the aggregate consideration to be paid to you and
the amount of cash that you receive will be approximately 40% of the
aggregate consideration to be paid to you, subject to proration described
in this document. See "The Merger Agreement--Conversion of Bridge View
Stock" and "--Election and Proration Procedures" on pages 55 through 61.
Q: What happens if I don't make an election for cash, shares or a combination
of both?
A: If you fail to make a proper election prior to the election deadline,
Interchange will deem you to have made no election and you will receive the
undersubscribed form of consideration as determined by Interchange's
exchange agent. See "The Merger Agreement--Election and Proration
Procedures" on pages 59 through 61. If you do not submit an election form,
you will receive instructions from the exchange agent after the merger is
completed on where to surrender your Bridge View stock certificates.
Q: When is the merger expected to be completed?
A: We are working to complete the merger during the second quarter of 2003. We
must first obtain the necessary regulatory approvals and the approvals of
our respective shareholders at our shareholders' meetings. We cannot assure
you when or if all the conditions to the merger will be met, and it is
possible that we may not complete the merger.
Q: What are the material tax consequences of the merger?
A: If you are a Bridge View shareholder, the tax consequences of the merger to
you will depend upon the form of consideration you receive in the merger.
If you receive solely shares of Interchange common stock and cash in lieu
of a fractional share in exchange for your Bridge View common stock, then
you generally will not recognize any gain or loss, except with respect to
the fractional share.
If you receive solely cash, then you generally will recognize gain and
likely will be permitted to recognize loss equal to the difference between
the amount of cash you receive and your cost basis in your Bridge View
common stock. The tax treatment of any gain will depend upon your
individual circumstances. Bridge View shareholders should consult their tax
advisors regarding the tax consequences of the merger on them personally.
If you receive a combination of Interchange common stock and cash, other
than cash in lieu of a fractional share, in exchange for your Bridge View
common stock, then you generally will recognize gain in an amount equal to
the lesser of the total amount of cash received or the amount of gain
realized on the exchange, but you are not permitted to recognize a loss.
Any gain recognized may be treated as a dividend or capital gain, depending
on your particular circumstances.
If you are an Interchange shareholder, there will be no tax consequences to
you.
2
Q: Do I have appraisal rights?
A: No. Neither Interchange's nor Bridge View's shareholders have any appraisal
rights in connection with the transactions described in this joint proxy
statement-prospectus.
Q: What should I do now?
A: If you are an Interchange shareholder or a Bridge View shareholder, just
indicate on your proxy card how you want to vote, and sign and mail your
proxy card in the enclosed envelope as soon as possible so that your shares
will be represented at your meeting. If your shares are held in street
name, your brokerage firm may either vote your shares on "routine matters"
(such as the election of director) or leave your shares unvoted. Your
brokerage firm may not vote on "non-routine matters" such as the merger
proposal or the issuance of additional shares. Please follow the directions
provided by your brokerage firm regarding how to instruct them to vote your
shares. This ensures that your shares will be voted at your meeting.
If you are a record shareholder of Interchange and you sign and send in
your proxy card, but do not indicate how you want to vote, your proxy will
be voted "FOR" approval of the proposal to issue shares of Interchange
common stock in connection with the merger as well as in favor of the other
matters scheduled to be considered at the annual meeting. If you do not
sign or send in your proxy, or you abstain from voting, your abstention
will be counted for the purpose of determining both (1) the presence or
absence of a quorum and (2) the total number of votes cast with respect to
a proposal. Abstentions thus have the same effect as a vote "Against." The
annual meeting for Interchange shareholders will take place at 3:00 p.m. on
April 24, 2003.
If you are a Bridge View shareholder and you sign and send in your proxy,
but do not indicate how you want to vote, your proxy will be voted "FOR"
the proposal to approve and adopt the merger agreement. Do not forward your
Bridge View stock certificates with your proxy card. If you do not sign and
send in your proxy, or you abstain from voting, it will have the effect of
a vote against the merger agreement.
The special meeting for Bridge View shareholders will take place at 3:00
p.m. on April 24, 2003.
You may attend your shareholders' meeting and vote your shares in person,
rather than voting by proxy. In addition, you may withdraw your proxy up to
and including the day of the meeting and either change your vote or attend
the meeting and vote in person by following the directions beginning on
page 27 if you are an Interchange shareholder or on page 25 if you are a
Bridge View shareholder.
Q: If my shares are held in "street name" by my broker, will my broker vote my
shares for me?
A: No. Your broker will vote your shares only if you provide instructions on
how to vote. You should instruct your broker on how to vote your shares,
following the directions your broker provides. If you do not provide
instructions to your broker, your broker will not be able to vote your
shares.
3
WHO CAN HELP ANSWER YOUR QUESTIONS
If you want additional copies of this document, or if you want to ask any
questions about the merger, you should contact:
For Bridge View shareholders:
Ms. Michele Albino
Bridge View Bancorp
457 Sylvan Avenue
Englewood Cliffs, New Jersey 07632
Telephone: (201) 871-7800
For Interchange shareholders:
Ms. Georgianna Hutter
Interchange Financial Services Corporation
Park 80 West/Plaza II
Saddle Brook, New Jersey 07663
Telephone: (201) 703-2265
Please also see "Where You Can Find More Information" beginning on page 108
to find out where you can find additional important information about
Interchange and Bridge View.
4
SUMMARY
This summary highlights selected information included or incorporated by
reference in this joint proxy statement-prospectus and may not contain all of
the information that is important to you. Various items in this summary include
a page reference to a more complete description of that item. For a more
complete understanding of the merger and for a more complete description of the
legal terms of the merger, you should read this entire joint proxy
statement-prospectus carefully, as well as the additional documents we refer
you to, including the merger agreement, which we have attached as Annex A. See
"Where You Can Find More Information" beginning on page 108 .
General
This joint proxy statement-prospectus relates to the proposed acquisition of
Bridge View by Interchange through the merger of Bridge View with and into
Interchange. Following Bridge View's merger with Interchange, Bridge View Bank
will merge with and into Interchange Bank. We expect to complete the mergers
during the second quarter of 2003.
The Companies (pages 69 through 75 and 76 through 79 )
Interchange Financial Services Corporation
Park 80 West/Plaza II
Saddle Brook, New Jersey 07663
Telephone: (201) 703-2265
Interchange Financial Services Corporation is a New Jersey business
corporation and registered bank holding company under the Bank Holding Company
Act of 1956. Interchange operates Interchange Bank, a New Jersey state
chartered bank and member of the Federal Reserve System. Interchange Bank is
Interchange's principal operating subsidiary. Interchange's principal executive
office is located at Park 80 West/Plaza II, Saddle Brook, New Jersey 07663, and
the telephone number is (201) 703-2265. At December 31, 2002, Interchange had,
on a consolidated basis, approximately $936.3 million in total assets, $815.7
million in total deposits, $608.4 million in net loans receivable and
shareholders' equity of $80.7 million.
Through Interchange Bank, Interchange serves clients predominantly in Bergen
County, New Jersey. Interchange provides a full array of deposit products and
real estate, commercial and personal loans.
Bridge View Bancorp
457 Sylvan Avenue
Englewood Cliffs, New Jersey 07632
Telephone: (201) 871-7800
Bridge View Bancorp is a New Jersey corporation and registered bank holding
company under the Bank Holding Company Act of 1956. Bridge View operates Bridge
View Bank, a New Jersey state chartered bank. At December 31, 2002, Bridge View
had, on a consolidated basis, approximately $281.6 million in total assets,
$251.1 million in total deposits, $188.8 million in net loans receivable and
shareholders' equity of $29.0 million.
Through Bridge View Bank, Bridge View serves clients primarily in Bergen
County, New Jersey. Bridge View provides a full array of real estate,
commercial and personal loans and deposit products.
5
The Meetings (pages 24 and 26)
Interchange
Interchange will hold its annual meeting of shareholders at the Marriott
Hotel, Garden State Parkway at Route 80 in Saddle Brook, New Jersey, at 3:00
p.m. on April 24, 2003. At the annual meeting, Interchange shareholders will
vote upon the following proposals:
. to approve the issuance of shares of Interchange common stock in
connection with the merger;
. to elect four (4) directors to serve until the annual meeting in 2006 and
until their successors are elected and qualified; and
. to ratify the board's appointment of Deloitte & Touche LLP as
Interchange's independent auditors for 2003.
Bridge View
Bridge View will hold its special meeting of shareholders at the Radisson
Hotel, 401 South Van Brunt Street, Englewood, New Jersey 07631, at 3:00 p.m. on
April 24, 2003. At the special meeting, holders of Bridge View common stock
will vote upon a proposal to approve and adopt the merger agreement.
Record Dates; Voting Power (pages 24 and 26)
Interchange
You are entitled to notice of and to vote at the Interchange annual meeting
if you were the record owner of shares of Interchange common stock on March 21,
2003, the Interchange record date. As of that date, there were 9,839,831 shares
of Interchange common stock issued and outstanding held by approximately 1,200
holders of record. Each holder of Interchange common stock is entitled to one
vote per share on any matter that may properly come before the annual meeting.
Bridge View
You are entitled to notice of and to vote at the Bridge View special meeting
if you were the record owner of shares of Bridge View common stock on March 24,
2003, the Bridge View record date. As of the Bridge View record date, there
were 3,747,318 shares of Bridge View common stock issued and outstanding held
by approximately 1,235 holders of record. Each holder of Bridge View common
stock is entitled to one vote per share on any matter that may properly come
before the special meeting.
Votes Required (pages 24 and 26)
Interchange
. The proposal to approve the issuance of shares of Interchange common
stock in connection with the merger requires the affirmative vote of a
majority of the votes cast at the Interchange annual meeting. See
"Proposal No. 1--The Merger--Requirement for Interchange Shareholder
Approval--Interchange" on page 53 .
. The four nominees receiving the highest number of votes "FOR" their
election to serve as director will be elected as directors. This number
is called a plurality.
. Ratification of Deloitte & Touche LLP as Interchange's independent
auditors requires the affirmative vote of a majority of the shares
present at the meeting in person or by proxy.
Bridge View
. Approval by the Bridge View shareholders of the proposal to approve and
adopt the merger agreement requires the affirmative vote of a majority of
the outstanding shares of Bridge View common stock.
6
Share Ownership by Directors (pages 24 and 26)
Interchange
On the Interchange record date, the directors of Interchange beneficially
owned an aggregate of 1,314,809 shares of Interchange common stock, or
approximately 13.4% of the shares of the Interchange common stock then
outstanding. We expect that the Interchange directors will vote all of such
shares of Interchange common stock beneficially owned by them "FOR" the
proposal to approve the issuance of shares of Interchange common stock in
connection with the merger, "FOR" the election of the four nominees for
director and "FOR" ratification of Deloitte & Touche LLP as Interchange's
independent auditors.
In addition, three directors of Bridge View own, in the aggregate, 97,628
shares of Interchange common stock. Management of Interchange is not aware of
how these Bridge View directors intend to vote their shares of Interchange
common stock.
Bridge View
On the Bridge View record date, the directors of Bridge View beneficially
owned an aggregate of 1,311,625 shares of Bridge View common stock, or
approximately 36.7% of the shares of the Bridge View common stock then
outstanding. Each director of Bridge View who beneficially owns shares of
Bridge View common stock executed a voting agreement with Interchange that
commits each such director to vote the shares of Bridge View common stock over
which he has voting control in favor of the proposal to approve and adopt the
merger agreement.
In addition, two directors of Interchange own, in the aggregate, 1,931
shares of Bridge View common stock. Management of Bridge View is not aware of
how these Interchange directors intend to vote their shares of Bridge View
common stock.
Recommendations of the Boards of Directors (pages 24 and 27)
To Interchange Shareholders:
The Interchange board of directors has approved and adopted the merger
agreement, and recommends a vote "FOR" approval of the issuance of shares of
Interchange common stock in connection with the merger. The Interchange board
of directors also recommends a vote "FOR" the election of the four nominees for
director and "FOR" the ratification of Deloitte & Touche LLP as our independent
auditors. You should refer to the reasons that the Interchange board of
directors considered in determining whether to approve and adopt the merger
agreement and authorize the issuance of Interchange common stock in connection
with the merger, which are discussed on pages 30 and 31.
To Bridge View Shareholders:
The Bridge View board of directors has approved and adopted the merger
agreement, and recommends a vote "FOR" approval and adoption of the merger
agreement. You should refer to the reasons that the Bridge View board of
directors considered in determining whether to approve and adopt the merger
agreement, which are discussed on pages 31 and 32.
Opinion of McConnell, Budd & Romano, Inc., Financial Advisor to Interchange
(pages 33 through 40)
McConnell, Budd & Romano, Inc., independent financial advisor to
Interchange, rendered a written fairness opinion to the Interchange board of
directors, dated as of March 24, 2003, stating that as of such date, the
proposed merger consideration to be paid to the shareholders of Bridge View is
fair to the shareholders of Interchange from a financial point of view. A copy
of the fairness opinion, setting forth the information reviewed, assumptions
made and matters considered by McConnell, Budd & Romano is attached to this
document as Annex B. Interchange shareholders are encouraged to read the
fairness opinion in its entirety.
7
Opinion of Keefe, Bruyette & Woods, Inc., Financial Advisor to Bridge View
(pages 40 through 45)
Keefe, Bruyette & Woods, Inc., independent financial advisor to Bridge View,
rendered a written fairness opinion to the Bridge View board of directors,
dated as of March 24, 2003, stating that as of such date the merger
consideration to be paid was fair to the Bridge View shareholders from a
financial point of view. A copy of the fairness opinion, setting forth the
information reviewed, assumptions made and matters considered by Keefe,
Bruyette & Woods is attached to this document as Annex C. Bridge View
shareholders are encouraged to read the fairness opinion in its entirety.
Terms of the Merger Agreement (pages 53 through 69)
The merger agreement is attached to this joint proxy statement-prospectus as
Annex A. We encourage you to read the merger agreement in its entirety. It is
the legal document that governs the merger. We also encourage you to read the
information under the caption "Risk Factors" beginning on page 21.
Merger Consideration and Conversion of Bridge View Stock (pages 54 through 59)
Bridge View shareholders will have the right to elect to receive:
. approximately $21.97 in cash for each share of Bridge View common stock
owned at the completion of the merger; or
. approximately 1.29 shares of Interchange common stock for each share of
Bridge View common stock owned at the completion of the merger; or
. a combination of shares of Interchange common stock and cash in exchange
for your shares of Bridge View common stock, rounded to the nearest whole
share. The relative value that a Bridge View shareholder will receive
upon electing to receive a combination of Interchange common stock and
cash will be approximately 60% Interchange common stock and approximately
40% cash.
For purposes of illustration in this joint proxy statement-prospectus, we
have calculated an implied per share value of $21.97 and an implied exchange
ratio of 1.29 that are based, in part, on an implied value of Interchange
common stock of $17.00 per share.
The final exchange ratio will be calculated by taking the average closing
bid and asked price for a share of Interchange common stock as reported by the
Nasdaq National Market for the valuation period of 20 consecutive trading days
ending on the date the election forms are due divided by the per share value of
a share of Bridge View common stock as calculated in accordance with the merger
agreement. The per share value of a share of Bridge View common stock will be
determined by calculating the aggregate value of the merger consideration to be
received by Bridge View shareholders and dividing that number by the number of
shares of Bridge View common stock outstanding as of the effective date of the
merger. The final exchange ratio and the per share value of a share of Bridge
View common stock will not be known until the effective time of the merger and
may be more than or less than the amounts used in this document for purposes of
illustration.
In addition, the exchange ratio is subject to possible adjustment if the
average price of a share of Interchange common stock falls below $13.64 during
the valuation period and such decline is greater by a factor of 20% than any
decline in the weighted average stock price of the 20 financial institutions
identified as the "index group" in the merger agreement. Also, if the average
price of Interchange common stock falls to below $11.94 during the valuation
period, then the exchange ratio is subject to additional adjustments.
If the election forms completed by the Bridge View shareholders, in the
aggregate, result in Interchange being required to issue more or less than
2,949,719 shares of Interchange common stock or more or less than $33,528,472
in cash, net of any cash payments to Bridge View option holders, then the
consideration elections by the Bridge View shareholders will be subject to the
allocation and proration procedures described on pages 60 and 61 of this
document. If proration becomes necessary, Bridge View shareholders may not
receive the exact form of merger consideration that they elect.
8
Interchange will not issue fractional shares in the merger. Instead, Bridge
View shareholders who would otherwise be entitled to a fractional share
interest (after taking into account all shares of Bridge View stock held by
such shareholder) will receive an amount in cash (without interest) equal to
the fractional interest multiplied by the average of the closing bid and asked
price of a share of Interchange common stock as reported on the Nasdaq National
Market on the business day immediately preceding the effective date of the
merger.
Election Procedure; Exchange of Certificates (pages 59 through 61)
Interchange's exchange agent will mail election forms to Bridge View
shareholders at least 30 days prior to the anticipated effective date of the
merger. Except as described below, the elections forms will permit Bridge View
shareholders to elect the type of consideration that they want to receive
(i.e., all cash, all Interchange common stock or a combination of cash and
Interchange common stock) by delivering a properly completed election form to
Interchange's exchange agent. For an election by a Bridge View shareholder to
be effective, the shareholder must properly complete and return an election
form to Interchange's exchange agent, in the envelope provided by the exchange
agent, prior to 5:00 p.m. on the 25/th /day following the mailing date of the
election forms to Bridge View shareholders accompanied by the Bridge View stock
certificates as to which the election is being made or an appropriate guarantee
of delivery of such certificates. The election form will set forth the deadline
by which it must be returned.
Bridge View shareholders will be deemed to have made no election if they:
. do not submit an election form to Interchange's exchange agent prior to
the election deadline;
. submit and then revoke their election form and do not re-submit an
election form and other required documents to Interchange's exchange
agent prior to the election deadline; or
. fail to submit their Bridge View common stock certificates (or guarantee
of delivery) together with an election form.
If a Bridge View shareholder is deemed to have made no election with respect
to his or her ownership of Bridge View common stock, then he or she may receive
cash and/or shares of Interchange common stock, depending on the elections
received by other Bridge View shareholders. Elections by Bridge View
shareholders will be subject to allocation and proration as described on pages
60 and 61. As a result of the allocation, Bridge View shareholders may not
receive the exact form of merger consideration that they elect.
If you do not submit an election form, you will receive instructions on
where to surrender your Bridge View stock certificates from the exchange agent
after the merger is completed. Do not forward your Bridge View stock
certificates with your proxy card.
Completion of the Merger (page 53)
The merger will become effective when we file a certificate of merger with
the New Jersey Secretary of State. The bank merger will become effective at the
time and date specified in the certificate of merger issued by the New Jersey
Department of Banking and Insurance.
Conditions to the Merger (pages 64 and 65)
Before we can complete the merger, each of the following conditions, among
others, must either be met or, unless prohibited by law, waived by the party
who was not obligated to meet such condition:
. Bridge View shareholders must approve and adopt the merger agreement;
. Interchange shareholders must approve the issuance of shares of
Interchange common stock in connection with the merger;
. all representations and warranties made by both Interchange and Bridge
View in the merger agreement must remain true and correct, unless any
deviation would not have, or would not reasonably be expected to have, a
material adverse effect;
9
. Interchange and Bridge View must have performed their respective
obligations under the merger agreement in all material respects;
. there must not be any outstanding or threatened judgments, decrees,
injunctions, orders or other proceedings by a governmental authority that
would prohibit the merger;
. Interchange and Bridge View must have received all necessary
authorizations, orders and consents of governmental authorities for the
merger, without the imposition of any condition that Interchange
reasonably believes would have an adverse effect on it and any required
waiting periods must have expired;
. there will not have occurred, between September 30, 2002 and the
completion of the merger, any material adverse change, on a consolidated
basis, in the business, financial condition, results of operations or
prospects of Interchange or of Bridge View; and
. all accounting and tax treatment entries and adjustments shall be
reasonably satisfactory to Interchange and Interchange shall not have
received any notice from any proper regulatory authority that any of
Interchange's accounting or tax treatments or entries and adjustments are
improper.
Termination (pages 67 and 68)
Either Bridge View or Interchange may call off the merger under certain
circumstances, including if:
. they both consent in writing;
. a party cannot obtain the requisite shareholder approval, unless the
failure to obtain such approval results from the terminating party's
action or failure to act;
. either of them materially breaches, and does not cure within 30 days, any
covenant or agreement made by it under the merger agreement;
. any governmental authority or court issues a final, non-appealable order
enjoining the merger, unless the order was issued because the party
seeking to terminate the merger failed to make a necessary application or
filing; or
. the merger is not completed by June 30, 2003, unless the merger was not
completed because the party seeking to terminate the merger breached a
covenant or obligation contained the merger agreement.
Bridge View, additionally, may call off the merger if:
. the average closing price of a share of Interchange common stock as
reported on the Nasdaq National Market during the valuation period is
below $13.64; the decline in the average closing price is greater by a
factor of 20% than any decline in the weighted average stock price of the
index group of 20 financial institutions identified in the merger
agreement; and Interchange does not elect to increase the aggregate
merger consideration in the manner provided in the merger agreement;
. the average closing price of a share of Interchange common stock as
reported on the Nasdaq National Market during the valuation period is
below $11.94 and Interchange does not elect to increase the aggregate
merger consideration in the manner provided in the merger agreement; or
. Bridge View receives a proposal for a merger, consolidation,
reorganization, tender offer or similar transaction with a third party,
and termination of the acquisition is required in order for the board of
directors of Bridge View to comply with its fiduciary duties.
Interchange, additionally, may call off the merger if Interchange is not
able to obtain required governmental approvals.
Termination Fees (pages 68 and 69)
The merger agreement requires Bridge View to pay Interchange a $2.7 million
termination fee if the merger agreement is terminated by Interchange because
the Bridge View shareholders failed to approve and adopt the merger agreement
and either the board of directors of Bridge View failed to use its best efforts
to obtain shareholder approval or Bridge View shall have entered into an merger
or similar agreement with a third party by November 18, 2003. In addition, the
merger agreement requires Bridge View to pay Interchange a $2.7 million
10
termination fee if the merger agreement is terminated by Bridge View because
Bridge View shall have entered into a merger or similar agreement with a third
party.
The merger agreement requires Interchange to pay Bridge View a $1.0 million
termination fee if the merger agreement is terminated by Bridge View because
the Interchange shareholders failed to approve the issuance of shares of
Interchange common stock required by the merger agreement and either the board
of directors of Interchange failed to use its best efforts to obtain
shareholder approval or Interchange shall have entered into a merger or similar
agreement with a third party by November 18, 2003.
Payment of Expenses (page 69)
Interchange and Bridge View will pay their own fees, costs and expenses
incurred in connection with the merger. In addition, Bridge View and
Interchange have agreed that if the merger agreement is terminated under
certain circumstances, then, depending upon the reason for termination, either
Bridge View or Interchange, as applicable, will reimburse all out-of-pocket
expenses and fees of the other party relating to the transactions contemplated
by the merger agreement. Reimbursement under these circumstances, however, will
be limited to $250,000.
Amendment (page 69)
Interchange and Bridge View may jointly amend the terms of the merger
agreement, and each may waive its right to require the other party to adhere to
those terms, to the extent legally permissible. Except as otherwise required by
law, the parties may amend the merger agreement or waive any of its terms
without the approval of their respective shareholders. However, an amendment to
the merger agreement that reduces the merger consideration payable to Bridge
View shareholders and certain other types of amendments cannot be made
following the approval and adoption of the merger agreement by the Bridge View
shareholders without their approval.
Directors and Officers of Interchange and Interchange Bank Following the Merger
(pages 47 and 48)
The directors and officers of Interchange serving in those capacities
immediately prior to the merger will remain directors and officers of
Interchange upon completion of the merger. Upon completion of the bank merger,
the current directors and officers of Interchange Bank will remain directors
and officers of Interchange Bank. In addition, it is anticipated that certain
officers of Bridge View and Bridge View Bank will continue to serve as officers
of Interchange or one of its subsidiaries after completion of the merger. The
parties have agreed that at the first meeting of Interchange's board of
directors following the completion of the merger, Gerald A. Calabrese, Jr.,
Joseph C. Parisi and John A. Schepisi, each of whom is a current member of the
board of directors of Bridge View, will be appointed to the board of directors
of Interchange. In addition, at the first meeting of the Interchange Bank board
of directors following the completion of the bank merger, Gerald A. Calabrese,
Jr., Glenn L. Creamer, Mark Metzger, Jeremiah F. O'Connor, Jr., Joseph C.
Parisi and John A. Schepisi, each of whom is a current member of the board of
directors of Bridge View Bank, will be appointed to the board of directors of
Interchange Bank.
Material Federal Income Tax Consequences (pages 48 through 52)
If you are a Bridge View shareholder, the tax consequences of the merger to
you will depend upon the form of consideration you receive in the merger.
If you receive solely shares of Interchange common stock and cash in lieu of
a fractional share in exchange for your Bridge View common stock, then you
generally will not recognize any gain or loss, except with respect
11
to the fractional share. If you receive solely cash, then you generally will
recognize gain and likely will be permitted to recognize loss equal to the
difference between the amount of cash you receive and your cost basis in your
Bridge View common stock. The tax treatment of any gain will depend upon your
individual circumstances. You should consult with your tax advisor regarding
the income tax consequences of the merger to you.
If you receive a combination of Interchange common stock and cash other than
cash in lieu of a fractional share in exchange for your Bridge View common
stock, then you will generally recognize gain in an amount equal to the lesser
of the total amount of cash received or the amount of gain realized on the
exchange, but you are not permitted to recognize a loss. Any gain recognized
may be treated as a dividend or capital gain, depending on your particular
circumstances.
The merger will not be taxable at the corporate level and there will be no
tax consequences to Interchange shareholders.
Market Price Information (page 19)
Interchange common stock is listed for quotation on the Nasdaq National
Market under the symbol "IFCJ." The closing price for Interchange's common
stock on November 18, 2002, the last trading day before public announcement of
the merger, was $18.00 per share. The closing price for Interchange's common
stock on March 21, 2003, the last practicable trading date before the date of
this document, was $17.39 per share.
Bridge View common stock trades on the American Stock Exchange under the
symbol "BVB." The closing price for Bridge View's common stock on November 18,
2002, the last day before public announcement of the merger on which shares of
BVB common stock traded, was $19.99 per share. The closing price for Bridge
View's common stock on March 21, 2003, the last practicable trading date before
the date of this document, was $22.01 per share.
Accounting Treatment (page 52)
The merger will be accounted for under the purchase method of accounting.
Resales of Interchange Common Stock (pages 65 and 66)
Shares of Interchange common stock that Bridge View shareholders receive in
the merger will be freely transferable by the holders except for certain
persons or entities who may be deemed to be "affiliates" of Bridge View or
Interchange under federal securities laws. Bridge View has agreed to deliver to
Interchange a written agreement from each person that Bridge View identifies as
an "affiliate" that such person will not dispose of any shares of Interchange
common stock that they receive in the merger, except in compliance with
applicable federal securities laws.
Regulatory Approvals (pages 66 and 67)
Interchange and Interchange Bank have filed regulatory applications and
notices to obtain approvals from the Federal Reserve Bank of New York and the
New Jersey Department of Banking and Insurance in connection with the
transactions contemplated by the merger agreement. On March 19, 2003, the
Federal Reserve Bank of New York approved Interchange's application to merge
with Bridge View subject to the conditions that the merger may not be completed
prior to April 3, 2003 and, at the effective time of the merger, the combined
company will be "well-capitalized" in accordance with regulatory guidelines
applicable to bank holding companies.
Appraisal Rights (page 53)
Neither the shareholders of Interchange nor the shareholders of Bridge View
have appraisal rights under New Jersey law in connection with the merger.
12
Differences in the Rights of Shareholders (pages 87 through 92)
There will be few significant differences in the rights of shareholders of
Bridge View once they become Interchange shareholders. Both Interchange and
Bridge View are New Jersey corporations. Bridge View shareholders who receive
Interchange common stock in the merger will become Interchange shareholders,
and their rights will continue to be governed by New Jersey law, as well as
Interchange's restated certificate of incorporation and bylaws.
13
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
Selected historical consolidated financial information for Interchange and
Bridge View is set forth below. We are providing this information to aid you in
your analysis of the financial aspects of the merger.
This information is only a summary, and you should read it in conjunction
with Interchange's and Bridge View's respective consolidated financial
statements and notes thereto contained in Interchange's Annual Report on Form
10-K and Bridge View's Annual Report on Form 10-K/A for the year ended December
31, 2002, which has been incorporated by reference into this document for
Interchange and a copy of which is included with this document for Bridge View.
The information for the years ended, and as of December 31, 1998 through
December 31, 2002, was derived from Interchange's and Bridge View's respective
historical audited financial statements for these fiscal years that has been
included in its prior filings with the Securities and Exchange Commission.
Management is not aware of any factors that materially affect the comparability
of the following financial data among the periods shown. Amounts are in U.S.
dollars.
Interchange Financial Services Corporation
Selected Consolidated Financial Information
(in thousands, except per share data)
For the year ended December 31,
--------------------------------------------
2002 2001 2000 1999 1998
-------- -------- -------- -------- --------
Income Statement Data:
Interest income............................................ $ 56,500 $ 57,402 $ 55,621 $ 49,054 $ 48,766
Interest expense........................................... 17,478 23,444 24,227 18,783 19,864
-------- -------- -------- -------- --------
Net interest income..................................... 39,022 33,958 31,394 30,271 28,902
Provision for loan losses.................................. 1,500 1,075 750 1,200 951
-------- -------- -------- -------- --------
Net interest income after provision for loan losses..... 37,522 32,883 30,644 29,071 27,951
Non-interest income........................................ 6,514 5,578 4,381 5,586 4,982
Non-interest expense....................................... 25,063 22,873 21,177 20,063 19,416
-------- -------- -------- -------- --------
Income before income taxes.............................. 18,973 15,588 13,848 14,594 13,517
Income tax expense......................................... 6,096 5,048 4,592 4,959 4,908
-------- -------- -------- -------- --------
Net income................................................. $ 12,877 $ 10,540 $ 9,256 $ 9,635 $ 8,609
======== ======== ======== ======== ========
Per Share Data:
Basic earnings per common share............................ $ 1.31 $ 1.08 $ 0.94 $ 0.91 $ 0.80
Diluted earnings per common share.......................... 1.30 1.07 0.94 0.91 0.79
Cash dividends declared.................................... 0.40 0.36 0.33 0.32 0.27
Special cash dividend...................................... 0.04 -- -- -- --
Book value per share....................................... 8.22 7.04 6.33 5.77 5.77
Tangible book value........................................ 8.05 7.04 6.32 5.73 5.71
Weighted average shares outstanding
Basic................................................... 9,809 9,779 9,810 10,547 10,784
Diluted................................................. 9,933 9,822 9,838 10,593 10,856
Balance Sheet Data:
Total assets............................................... $936,332 $830,949 $770,244 $706,125 $685,364
Securities Held-to-Maturity and Available-for-Sale......... 252,512 193,902 161,354 161,889 149,930
Loans and leases........................................... 615,641 581,323 560,879 511,976 478,717
Allowance for loan and lease losses........................ 7,207 6,569 6,154 5,476 5,645
Total deposits............................................. 815,672 726,483 668,860 598,992 598,732
Securities sold under agreements to repurchase............. 17,390 6,700 18,500 16,431 8,780
Short-term borrowings...................................... -- 18,100 13,000 13,975 9,768
Long-term borrowings....................................... 10,000 -- -- 13,000 --
Total shareholders' equity................................. 80,680 68,233 61,984 58,276 62,372
14
For the year ended December 31,
--------------------------------------
2002 2001 2000 1999 1998
------ ------ ------ ------ ------
Selected Performance Ratios:
Return on average total assets...................................... 1.43% 1.31% 1.24% 1.39% 1.31%
Return on average total shareholders' equity........................ 17.35% 16.06% 16.18% 15.52% 14.53%
Dividend payout..................................................... 33.56% 33.37% 35.24% 35.04% 32.81%
Average total shareholders' equity to average total assets.......... 8.27% 8.13% 7.64% 8.99% 9.00%
Net yield on interest earning assets (taxable equivalent)........... 4.68% 4.49% 4.41% 4.61% 4.61%
Efficiency ratio.................................................... 55.06% 57.46% 58.52% 56.81% 53.59%
Non-interest income to average total assets......................... 0.73% 0.69% 0.59% 0.81% 0.76%
Non-interest expense to average total assets........................ 2.79% 2.83% 2.83% 2.90% 2.95%
Asset Quality Data:
Nonaccrual loans and leases to total loans and leases............... 0.97% 0.37% 0.25% 0.22% 0.25%
Nonperforming assets to total assets................................ 0.66% 0.34% 0.21% 0.22% 0.26%
Allowance for loan and lease losses to nonaccrual loans and leases.. 120.86% 304.12% 441.15% 491.12% 471.20%
Allowance for loan and lease losses to total loans and leases....... 1.17% 1.13% 1.10% 1.07% 1.18%
Net charge-offs to average loans and leases......................... 0.14% 0.11% 0.01% 0.28% 0.12%
Liquidity and Capital Ratios:
Average loans and leases to average deposits........................ 78.21% 81.77% 82.81% 81.79% 81.06%
Total shareholders' equity to total assets.......................... 8.62% 8.21% 8.05% 8.25% 9.10%
Tier 1 capital to risk weighted assets.............................. 12.16% 11.74% 11.75% 12.72% 13.80%
Total capital to risk weighted assets............................... 13.33% 12.89% 12.92% 13.91% 15.12%
Tier 1 capital to average assets.................................... 8.12% 8.09% 8.02% 8.32% 9.08%
Bridge View Bancorp
Selected Consolidated Financial Information
(in thousands, except per share data)
For the year ended December 31,
---------------------------------------
2002 2001 2000 1999 1998
------- ------- ------- ------- -------
Income Statement Data:
Interest income............................................ $13,989 $14,829 $15,232 $12,558 $10,883
Interest expense........................................... 1,691 3,191 4,290 3,182 3,006
------- ------- ------- ------- -------
Net interest income..................................... 12,298 11,638 10,942 9,376 7,877
Provision for loan losses.................................. 570 165 190 195 140
------- ------- ------- ------- -------
Net interest income after provision for loan losses..... 11,728 11,473 10,752 9,181 7,737
Non-interest income........................................ 2,522 1,907 1,501 1,409 1,301
Non-interest expenses...................................... 8,826 6,299 5,950 5,662 4,848
------- ------- ------- ------- -------
Income before income taxes.............................. 5,424 7,081 6,303 4,928 4,190
Income tax expense......................................... 2,066 2,512 2,201 1,792 1,587
------- ------- ------- ------- -------
Net income................................................. $ 3,358 $ 4,569 $ 4,102 $ 3,136 $ 2,603
======= ======= ======= ======= =======
Per Share Data:
Basic earnings per common share............................ $ 0.95 $ 1.29 $ 1.16 $ 0.89 $ 0.74
Diluted earnings per common share.......................... 0.91 1.25 1.13 0.86 0.72
Cash dividends declared.................................... 0.39 0.35 0.16 0.15 0.14
Book value per share....................................... 8.12 7.57 6.58 5.47 5.12
Tangible book value........................................ 8.12 7.57 6.58 5.47 5.12
Weighted average shares outstanding
Basic................................................... 3,552 3,549 3,534 3,534 3,532
Diluted................................................. 3,682 3,649 3,630 3,636 3,639
15
For the year ended December 31,
------------------------------------------------
2002 2001 2000 1999 1998
-------- -------- -------- -------- --------
Balance Sheet Data:
Total assets................................................. $281,566 $237,820 $234,927 $203,272 $170,768
Securities Held-to-Maturity and Available-for-Sale........... 40,635 51,973 55,669 69,053 35,453
Loans........................................................ 190,720 150,913 132,858 118,271 98,082
Allowance for loan losses.................................... 1,916 1,605 1,473 1,310 1,127
Total deposits............................................... 251,050 209,624 208,365 183,205 152,700
Securities sold under agreement to repurchase................ -- -- -- -- --
Short-term borrowings........................................ -- -- 2,000 -- --
Long-term borrowings......................................... -- -- -- -- --
Total shareholders' equity................................... 29,032 26,866 23,263 19,329 17,237
Selected Performance Ratios:
Return on average total assets............................... 1.30% 1.98% 1.92% 1.66% 1.67%
Return on average equity..................................... 11.93% 18.32% 19.47% 17.07% 16.05%
Dividend payout.............................................. 41.27% 27.60% 14.84% 17.53% 20.13%
Average shareholders' equity to average assets............... 10.89% 10.81% 9.44% 8.73% 9.93%
Net margin on interest earning assets (taxable equivalent)).. 5.31% 5.61% 5.68% 5.56% 5.61%
Efficiency ratio............................................. 59.52% 46.38% 47.11% 51.44% 52.02%
Non-interest income to average total assets.................. 0.98% 0.82% 0.67% 0.67% 0.80%
Non-interest expense to average total assets................. 3.41% 2.71% 2.64% 2.70% 2.97%
Asset Quality Data:
Nonaccrual loans to total loans.............................. -- -- 0.02% 0.02% --
Nonperforming assets to total assets......................... -- -- 0.01% 0.01% 0.10%
Allowance for loan losses to nonaccrual loans................ -- -- 5,892% 5,240% --
Allowance for loan losses to total loans..................... 1.00% 1.06% 1.11% 1.11% 1.15%
Net charge-offs to average loans............................. 0.15% 0.02% 0.02% 0.01% 0.03%
Liquidity and Capital Ratios:
Average loans to average deposits............................ 73.96% 67.60% 64.31% 64.54% 64.51%
Total shareholders' equity to total assets................... 10.31% 11.30% 9.90% 9.51% 10.09%
Tier 1 leverage capital ratio................................ 10.40% 11.40% 10.91% 10.22% 11.11%
Tier 1 risk-based capital ratio.............................. 14.46% 16.25% 16.28% 16.01% 15.68%
Total risk-based capital ratio............................... 15.42% 17.23% 17.31% 16.71% 16.71%
16
SUMMARY SELECTED UNAUDITED PRO FORMA COMBINED DATA
The following table shows selected financial information on an unaudited pro
forma combined basis giving effect to the merger as if the merger had become
effective as of December 31, 2002 in the case of balance sheet information, and
as of January 1, 2002 in the case of income statement information. The pro
forma information reflects the purchase method of accounting.
We anticipate that the merger will provide the combined company with
financial benefits that include reduced operating expenses and an opportunity
to earn more revenue. The pro forma information, while helpful in illustrating
the financial characteristics of the combined company under one set of
assumptions, does not reflect these benefits and, accordingly, does not attempt
to predict or suggest future results. It also does not necessarily reflect what
the historical results of the combined company would have been had our
companies been combined during these periods.
You should read this summary pro forma information in conjunction with the
information under "Pro Forma Financial Information of the Combined Company"
beginning on page 80 and with the historical information in this document on
which it is based.
Year Ended
December 31, 2002
----------------------
(in thousands,
except per share data)
Pro forma combined income statement data:
Interest income..................................... $ 69,601
Interest expense.................................... 19,169
Net interest income................................. 50,732
Provision for loan losses........................... 2,070
Net interest income after provision for loan losses. 48,662
Non-interest income................................. 9,036
Non-interest expense................................ 35,451
Net income.......................................... 14,838
Pro forma per share data:
Basic net income.................................... 1.16
Diluted net income.................................. 1.15
Pro forma combined balance sheet data:
Total assets........................................ 1,244,807
Loans receivable, net............................... 799,002
Deposits............................................ 1,066,722
Total shareholders' equity.......................... 133,775
17
SELECTED UNAUDITED COMPARATIVE PER SHARE DATA
The following table shows certain comparative per share data for Interchange
common stock on a historical and pro forma combined basis and for Bridge View
common stock on a historical and pro forma equivalent basis reflecting the
merger of Bridge View and Interchange. The information in the table assumes
that Interchange will exchange 1.29 shares of its common stock for each share
of Bridge View common stock. Refer to "The Merger Agreement--Conversion of
Bridge View Stock" for a more detailed description of how this implied exchange
ratio was calculated and the assumptions underlying the calculation. The actual
exchange ratio will not be known until the time of the merger. The pro forma
equivalent information for Bridge View is calculated by multiplying the data in
the pro forma combined column by the implied exchange ratio of 1.29. The pro
forma share data in the following table is presented for comparative purposes
only and is not necessarily indicative of the combined financial position or
results of operations in the future or what the combined financial position or
results of operations would have been had the merger been completed during the
period or as the date for which this pro forma data is presented.
You should read the comparative per share data with the historical financial
statements and related notes of Interchange and Bridge View. Interchange's and
Bridge View's historical financial statements and related notes are
incorporated by reference into this joint proxy statement-prospectus from
documents filed with the SEC. See "Where You Can Find More Information"
beginning on page 108.
Interchange(1) Bridge View(2)
-------------------- ---------------------
Pro Forma Pro Forma
Historical Combined Historical Equivalent
---------- --------- ---------- ----------
Earnings Per Share:
Basic
Year Ended December 31, 2002. $1.31 $ 1.16 $0.95 $ 1.50
Diluted
Year Ended December 31, 2002. $1.30 $ 1.15 $0.91 $ 1.49
Cash Dividends Per Share:
Year Ended December 31, 2002. $0.44 $ 0.44 $0.40 $ 0.57
Book Value Per Share:
December 31, 2002............ $8.22 $10.48 $8.12 $13.52
- --------
(1) Interchange per share data and average shares have been restated, as
applicable, to reflect a 3-for-2 stock split declared on May 23, 2002 and
paid on July 12, 2002.
(2) Bridge View per share data and average shares have been restated, as
applicable, to reflect a 10% stock dividend declared on March 5, 2002 and
paid on April 2, 2002.
18
MARKET PRICE AND DIVIDEND INFORMATION
Market Price Information
The following table presents, for the periods indicated, historical high and
low closing price information for Interchange common stock as reported on the
Nasdaq National Market and for Bridge View common stock as reported on the
American Stock Exchange. Interchange common stock is listed for quotation on
the Nasdaq National Market under the symbol "IFCJ," and Bridge View trades on
the American Stock Exchange under the symbol "BVB."
Interchange Bridge View
Common Stock(1) Common Stock(2)
--------------- ---------------
High Low High Low
------ ------ ------ ------
First Quarter 2001................... $12.59 $ 9.17 $13.97 $12.72
Second Quarter 2001.................. $12.23 $ 9.96 $15.00 $12.95
Third Quarter 2001................... $12.41 $11.57 $14.55 $12.91
Fourth Quarter 2001.................. $13.15 $11.70 $15.14 $12.00
First Quarter 2002................... $16.23 $12.47 $19.32 $14.75
Second Quarter 2002.................. $19.27 $16.23 $19.45 $18.00
Third Quarter 2002................... $18.67 $15.70 $18.90 $16.10
Fourth Quarter 2002.................. $19.10 $15.95 $21.20 $15.25
First Quarter 2003 (through March 21) $17.39 $16.16 $22.01 $20.80
- --------
(1) Interchange common stock prices have been restated, as applicable, to
reflect all stock splits and stock dividends during the periods presented.
(2) Bridge View common stock prices have been restated, as applicable, to
reflect all stock splits and stock dividends during the periods presented.
The following table sets forth the closing sale price for a share of
Interchange common stock and Bridge View common stock, and the equivalent per
share price of Bridge View common stock as of November 18, 2002, the last full
trading day before the public announcement of the merger. See the section "The
Merger Agreement--Conversion of Bridge View Stock" beginning on page 55.
Interchange Bridge View Equivalent Share
Common Stock Common Stock Price
------------ ------------ ----------------
November 18, 2002 $18.00 $19.99 $23.22
Shareholders are urged to obtain current market quotations for Interchange
common stock and Bridge View common stock.
Dividend Information
Interchange
The following table presents cash dividends declared and paid by Interchange
per share of common stock for the periods indicated. Dividend amounts have been
restated, as applicable, to reflect all stock splits and stock dividends during
the periods presented.
2003 2002 2001 2000
----- ----- ----- -------
First Quarter. $0.11(1) $0.10 $0.09 $0.0833
Second Quarter -- 0.10 0.09 0.0833
Third Quarter. -- 0.10 0.09 0.0833
Fourth Quarter -- 0.14 0.09 0.0833
- --------
(1) Interchange's dividend is payable on March 28, 2003 to shareholders of
record as of March 14, 2003.
19
Bridge View
The following table presents the cash dividends declared and paid by Bridge
View per share of common stock for the periods indicated. Dividend amounts have
been restated, as applicable, to reflect all stock splits and stock dividends
during the periods presented.
2003 2002 2001 2000
----- ----- ----- ------
First Quarter. $0.10 $0.09 $0.08 $0.033
Second Quarter -- 0.10 0.09 0.041
Third Quarter. -- 0.10 0.09 0.041
Fourth Quarter -- 0.10 0.09 0.041
20
RISK FACTORS
In addition to the other information included in or incorporated by
reference into this document, including the matters addressed in "A Warning
About Forward-Looking Information" beginning on page 22, you should carefully
consider the matters described below in determining how to vote on the merger.
If you are a Bridge View shareholder, you may not receive the form of merger
consideration that you initially elect.
Interchange will issue 2,949,719 shares of Interchange common stock and pay
$33,528,472 in cash to the Bridge View shareholders in the merger. Because
there are fixed pools of consideration, your election for cash, Interchange
common stock or a combination of both may be subject to proration. If, for
example, Bridge View shareholders make elections that would result in them
receiving more than 2,949,719 shares of Interchange common stock, then those
Bridge View shareholders electing to receive Interchange common stock may have
the number of shares they receive reduced by a pro rata amount so that the
total merger consideration paid to Bridge View shareholders remains 2,949,719
shares of Interchange common stock and $33,528,472 in cash. Any reduction in
the number of shares received will be offset by their receipt of a portion of
consideration in cash despite their election to receive shares of Interchange
common stock. The same is true if Bridge View shareholders elect to receive
more than $33,528,472, in cash. See "The Merger Agreement--Election and
Proration Procedures" beginning on page 59.
If you are a Bridge View shareholder and you do not receive the form of merger
consideration that you initially elect, you may have different tax consequences
than you anticipated.
If, as a result of proration, you receive a portion of your merger
consideration in a form different than the form you elected to receive, the tax
consequences of the merger to you may be different than you anticipated. The
differences may include, among other things, recognition of a taxable gain to
the extent you receive cash. See "Proposal No. 1--The Merger--Material Federal
Income Tax Consequences" beginning on page 48.
The value of the merger consideration to be received by Bridge View
shareholders will fluctuate until the effective time of the merger.
The merger agreement does not provide for any automatic adjustment to the
number of shares of Interchange common stock or the amount of cash to be paid
based on fluctuations in the value of a share of Bridge View common stock or
Interchange common stock during the pendency of the merger. In this regard, the
value of the merger consideration you will receive for your shares of Bridge
View common stock will fluctuate until the per share value is established at
the effective time of the merger. The per share value and the related exchange
ratio may be greater than or less than the examples used in this document. See
"The Merger Agreement--Conversion of Bridge View Stock" beginning on page 55.
We urge you to obtain current market quotations for Interchange common
stock. Interchange is quoted on the Nasdaq National Market under the symbol
"IFCJ."
There are uncertainties in integrating the business operations of Bridge View
with Interchange and in realizing enhanced earnings for the combined company.
The merger and the bank merger involve the integration of companies that
have previously operated independently. Successful integration of Bridge View's
consolidated operations will depend primarily on Interchange's ability to
consolidate operations, systems and procedures and to eliminate redundancies
and costs. No assurance can be given that Interchange and Bridge View will be
able to integrate their operations without encountering difficulties,
including, without limitation, the loss of key employees and customers, the
disruption of their respective ongoing businesses or possible inconsistencies
in standards, controls, procedures and policies.
21
If any of these or other risks were to occur, the business, operations
and/or earnings of the combined company could be negatively affected.
Upon completion of the merger, the current shareholders of Interchange will
have their ownership diluted.
The issuance of the shares of Interchange common stock in the merger will
dilute the ownership of Interchange by its current shareholders. In the merger,
Interchange proposes to issue 2,949,719 shares of Interchange common stock,
which after its issuance will represent approximately 23% of the issued and
outstanding shares of Interchange common stock.
From time to time, Interchange details other risks with respect to its
business and/or financial results in press releases and filings with the
Securities and Exchange Commission. We urge you to review the risks described
in such releases and filings before voting at your shareholders' meeting.
A WARNING ABOUT FORWARD-LOOKING INFORMATION
Interchange and Bridge View each have made forward-looking statements in
this document, and in certain documents that we refer to in this document, that
are subject to risks and uncertainties. These statements are based on the
beliefs and assumptions of each respective company's management, and on
information currently available to them. Forward-looking statements include the
information concerning possible or assumed future results of operations of
Interchange and/or Bridge View set forth under "Questions and Answers About the
Merger," "Summary," "Proposal No. 1--The Merger--Background of the Merger,"
"--Reasons for the Merger," "--Effects of the Merger," and "Pro Forma Financial
Information of the Combined Company," and statements preceded by, followed by
or that include the words "will," "believes," "expects," "anticipates,"
"intends," "plans," "estimates" or similar expressions.
In particular, Interchange and Bridge View each have made statements in this
document regarding statements of the benefit of the merger, including future
financial and operating results, cost savings, enhancements, revenues,
accretions and reported earnings that may be realized from the merger,
statements about Interchange's and Bridge View's plans, expectations, and
intentions and other statements that are not historical facts. With respect to
estimated cost savings, Interchange has made certain assumptions regarding,
among other things, the extent of operational overlap between Interchange and
Bridge View, the amount of general and administrative expense consolidation,
costs relating to converting Bridge View's bank operations and data processing
to Interchange's systems and the costs related to the merger. The realization
of cost savings are subject to the risk that the foregoing assumptions are not
accurate.
Moreover, any statements in this document regarding the anticipated effect
of the merger and anticipated performance in future periods are subject to
risks relating to, among other things, the following:
. the business of Interchange and Bridge View may not be combined
successfully, or the combination may take longer or be more difficult,
time consuming or costly to accomplish than expected;
. the expected growth opportunities and cost savings from the merger may
not be fully realized or may take longer to realize than expected;
. operating costs, customer losses and business disruption following the
merger, including adverse effects on relationships with employees, may be
greater than expected;
. the merger may not be consummated because of, among other things, the
failure to obtain required shareholder or governmental approvals, or the
imposition of adverse regulatory conditions in connection with
governmental approvals of the merger;
. adverse governmental or regulatory policies may be enacted;
22
. the interest rate environment may change, so as to further compress
margins and adversely affect net interest income;
. Interchange or Bridge View may experience adverse changes to credit
quality;
. Interchange or Bridge View may experience increased competition from
other financial services companies in their market; and
. the concentration of Interchange's and Bridge View's operations in Bergen
County, New Jersey may adversely affect results if the Bergen County, New
Jersey economy or real estate markets decline.
Management of Interchange and Bridge View believe these forward-looking
statements are reasonable; however, you should not place undue reliance on such
forward-looking statements, which are based on current expectations.
Forward-looking statements are not guarantees of performance. They involve
risks, uncertainties and assumptions. The future results and shareholder values
of Interchange following completion of the merger may differ materially from
those expressed in these forward-looking statements. Many of the factors that
will determine these results and values are beyond Interchange's and Bridge
View's ability to control or predict. For those statements, Interchange and
Bridge View claim the protection of the safe harbor for forward-looking
statements contained in the Private Securities Litigation Reform Act of 1995.
From time to time, Interchange and Bridge View detail other risks with
respect to its respective business and/or financial results in press releases
and filings with the Securities and Exchange Commission. We urge you to review
the risks described in such releases and filings before voting on the merger
agreement, if you are a Bridge View shareholder, or the issuance of additional
shares of Interchange common stock, if you are an Interchange shareholder.
23
THE BRIDGE VIEW SPECIAL MEETING
General
This joint proxy statement-prospectus is being furnished to Bridge View
shareholders in connection with the solicitation of proxies by the Bridge View
board of directors to approve and adopt the merger agreement and the merger.
Date, Time and Place
The Bridge View special meeting is scheduled to be held on Thursday, April
24, 2003 at 3:00 p.m. at the Radisson Hotel, 401 South Van Brunt Street,
Englewood, New Jersey 07631.
Purpose of the Bridge View Special Meeting
At the Bridge View special meeting, shareholders of Bridge View will be
asked to consider and vote on:
. the approval and adoption of the Agreement and Plan of Merger, dated as
of November 18, 2002, by and between Interchange and Bridge View,
pursuant to which Bridge View will be merged with and into Interchange;
and
. any other matters that may properly be brought before the meeting.
Record Date; Voting Rights; Quorum; Required Vote
Only holders of record of Bridge View common stock at the close of business
on March 24, 2003, the record date for the Bridge View special meeting, are
entitled to receive notice of and to vote at the special meeting or at any
adjournment or postponement of the special meeting. On the record date,
3,747,318 shares of Bridge View common stock were outstanding, excluding shares
held in treasury, and were held by approximately 1,235 holders of record.
Each share of Bridge View common stock is entitled to one vote per share on
any matter that properly comes before the special meeting. Holders of a
majority of the issued and outstanding shares of Bridge View common stock
entitled to vote must be present at the special meeting, in person or by proxy,
to constitute a quorum to transact business at the special meeting.
Approval and adoption of the merger agreement and the merger requires the
affirmative vote of a majority of the outstanding shares of Bridge View common
stock.
Share Ownership
On the Bridge View record date, the Bridge View directors beneficially owned
an aggregate of 1,311,625 shares of Bridge View common stock, or approximately
36.7% of the shares of such stock then outstanding. These directors have
entered into agreement with Interchange whereby they agreed to vote all of the
shares of Bridge View common stock beneficially owned by them in favor of the
approval and adoption of the merger agreement. See "Proposal No. 1--The
Merger--Agreements with Directors of Bridge View."
With the exception of two Interchange directors who beneficially own a
combined 1,931 shares of Bridge View common stock, on the Bridge View record
date, none of the directors of Interchange, or their affiliates, owned any
shares of Bridge View common stock.
Recommendations of the Bridge View Board of Directors
The Bridge View board of directors unanimously approved and adopted the
merger agreement.
24
The Bridge View board of directors believes that the merger agreement and
the merger is fair to and in the best interests of Bridge View and its
shareholders. Accordingly, the Bridge View board of directors unanimously
recommends that Bridge View shareholders vote "FOR" approval and adoption of
the merger agreement.
Voting and Revocation of Proxies; Shares Held in Street Name
Bridge View shareholders may vote their Bridge View shares by attending the
Bridge View special meeting and voting their shares in person, or by completing
the enclosed proxy card, signing and dating it and mailing it in the enclosed
postage-prepaid envelope to Bridge View in a timely manner. If you vote by
proxy, your proxy will be voted in accordance with the instructions you
indicate on the proxy card, unless you revoke your proxy prior to the vote. If
a written proxy card is signed by a Bridge View shareholder and returned
without instructions, the shares represented by the proxy will be voted "FOR"
the approval and adoption of the merger agreement.
Do not forward your Bridge View stock certificates with your proxy card.
Bridge View shareholders may revoke any proxy that they give at any time
before it is used to cast their vote. To revoke a proxy, a Bridge View
shareholder must either file a written notice of revocation with Bridge View or
deliver a properly executed proxy with a later date to the Bridge View
Corporate Secretary. Simply showing up at the Bridge View special meeting will
not automatically revoke your proxy. The Bridge View Corporate Secretary will
be in attendance at the Bridge View meeting and, prior thereto, can be reached
at the following address:
Bridge View Bancorp
457 Sylvan Avenue
Englewood Cliffs, New Jersey 07632
Attention: Ms. Michele Albino, Corporate Secretary
Phone No.: (201) 871-7800
Election inspectors appointed for the special meeting will tabulate the
votes cast by proxy or in person at the Bridge View meeting. The election
inspectors will determine whether a quorum is present. The election inspectors
will treat abstentions and "broker non-votes" as shares that are present and
entitled to vote for purposes of determining a quorum where (1) proxies are
marked as abstentions, (2) Bridge View shareholders appear in person but
abstain from voting, or (3) a broker indicates on proxy that it does not have
discretionary authority regarding certain shares.
Bridge View shareholders who hold their Bridge View shares in "street name,"
meaning in the name of a bank, broker or other record holder, must either
direct the record holder of their shares how to vote their shares or obtain a
proxy from the record holder to vote at the Bridge View special meeting. Under
applicable rule of the American Stock Exchange, brokers who hold shares in
street names for customers who are the beneficial owners of those shares are
prohibited from giving a proxy to vote those customers' shares with respect to
the matters to be voted on at the Bridge View special meeting in the absence of
specific instructions from the customer. Brokers are also required to request
these instructions from beneficial owners of Bridge View shares.
Bridge View is not aware of any matters that will come before the special
meeting other than the vote on the merger agreement. If any other matters
properly come before the Bridge View meeting, the person named on the enclosed
proxy card will have the discretion to vote on those matters using his best
judgment, unless you specifically withhold that authorization when you complete
your proxy card.
Solicitation of Proxies and Expenses
Bridge View may use its directors, officers and employees to solicit
proxies. These people will not receive any additional compensation for their
services, but will be reimbursed for their out-of-pocket expenses. Bridge View
will reimburse banks, brokers, nominees, custodians and fiduciaries for their
reasonable expenses in forwarding copies of the proxy soliciting material to
the beneficial owners of Bridge View common stock and in obtaining voting
instructions from those owners. Bridge View and Interchange will share equally
in the expenses of printing this joint proxy statement-prospectus, but Bridge
View will pay the expenses of mailing this joint proxy statement-prospectus to
Bridge View shareholders.
25
THE INTERCHANGE ANNUAL MEETING
General
This joint proxy statement-prospectus is being furnished to Interchange
shareholders in connection with the solicitation of proxies by the Interchange
board of directors to approve the issuance of shares of Interchange common
stock in the proposed merger and to vote on the other matters listed below.
Date, Time and Place
The Interchange annual meeting is scheduled to be held on Thursday, April
24, 2003 at 3:00 p.m. at the Saddle Brook Marriott Hotel, located at the Garden
State Parkway at I-80 in Saddle Brook, New Jersey.
Purpose of the Interchange Annual Meeting
At the Interchange annual meeting, Interchange shareholders will consider
and vote upon the following proposals:
. to approve the issuance of Interchange common stock pursuant to the terms
of the merger agreement;
. to elect four directors of Interchange to serve until the 2006 annual
meeting of shareholders;
. to ratify the appointment of Deloitte & Touche LLP as Interchange's
independent auditors for the fiscal year ending December 31, 2003; and
. such other business as may properly come before the annual meeting.
Record Date; Voting Rights; Quorum; Required Vote
Only holders of record of Interchange common stock at the close of business
on March 21, 2003, the record date for the Interchange annual meeting, are
entitled to receive notice of and to vote at the annual meeting or at any
adjournment or postponement of the annual meeting. On the record date,
9,839,831 shares of Interchange common stock were outstanding, excluding shares
held in treasury, and were held by approximately 1,200 holders of record.
Each share of Interchange common stock is entitled to one vote per share on
any matter that properly comes before the annual meeting. Holders of a majority
of the issued and outstanding shares of Interchange common stock entitled to
vote must be present at the annual meeting, in person or by proxy, to
constitute a quorum to transact business at the annual meeting.
Approval of the issuance of shares of Interchange common stock in the merger
requires the affirmative vote of a majority of the votes cast at the meeting.
The election of directors requires the affirmative vote of a plurality of the
votes cast at the annual meeting. Interchange common stock has no cumulative
voting rights. The ratification of Deloitte & Touche LLP as Interchange's
independent public auditors requires the affirmative vote of a majority of the
votes cast at the annual meeting.
Share Ownership
On the Interchange record date, the Interchange directors beneficially owned
an aggregate of 1,314,809 shares of Interchange common stock or approximately
13.4% of the shares of such stock then outstanding. We currently expect that
these directors will vote all of the shares of Interchange common stock
beneficially owned by them in favor of the proposal to approve the issuance of
shares of Interchange common stock in connection with the merger. We also
currently expect that the Interchange directors will vote all such shares in
favor of election of the four (4) nominees for director and the ratification of
Deloitte & Touche LLP as our independent auditors for 2003.
Certain directors of Bridge View, or their affiliates, owned 97,628 shares
of Interchange common stock in the aggregate on the Interchange record date.
26
Recommendations of the Interchange Board of Directors
All of the Interchange directors who voted on the merger agreement approved
and adopted the merger agreement. The Interchange board of directors believes
that the merger is fair to and in the best interests of Interchange and the
Interchange shareholders. Accordingly, the Interchange board of directors
unanimously recommends that Interchange shareholders vote "FOR" approval of the
proposal to issue shares of Interchange common stock in connection with the
merger.
In addition, the Interchange board of directors unanimously recommends a
vote "FOR" the election of the four (4) nominees for director.
Finally, the Interchange board of directors unanimously recommends a vote
"FOR" ratification of Deloitte & Touche LLP as Interchange's independent public
auditors for the year ending December 31, 2003.
Voting and Revocation of Proxies; Shares Held in Street Name
Interchange shareholders may vote their Interchange shares by attending the
Interchange annual meeting and voting their shares in person, or by completing
the enclosed proxy card, signing and dating it and mailing it in the enclosed
postage-prepaid envelope. All properly delivered proxies that are not revoked
will be voted at the annual meeting as instructed on those proxies. If a
written proxy card is signed by an Interchange shareholder and returned without
instructions, the shares represented by the proxy will be voted "FOR" the
proposals presented at the Interchange annual meeting.
A shareholder who delivers a proxy may revoke it at any time before it is
voted, by:
. delivering a proxy bearing a later date;
. giving written notice of revocation to any of the persons named as
proxies or to Interchange addressed to the Secretary; or
. attending the special meeting and voting in person.
Interchange shareholders that have questions or requests for assistance in
completing and submitting proxy cards should contact Interchange at the
following address and telephone number:
Interchange Financial Services Corporation
Park 80 West/Plaza II
Saddle Brook, New Jersey 07663
Attention: Georgianna Hutter
Phone No.: (201) 703-2265
Under the rules that govern brokers who have record ownership of shares that
are held in "street name" for their clients, who are the beneficial owners of
those shares, brokers have discretion to vote such shares on routine matters,
but not on non-routine matters. Thus if the proposals to be acted upon at the
meeting include both routine and non-routine matters, the broker may turn in a
proxy card for instructed shares that votes "FOR" the election of directors and
the ratification of auditors, but expressly states that the broker is NOT
voting on the proposal to issue additional shares of Interchange common stock.
The vote with respect to the proposal to issue additional shares of Interchange
common stock is referred to as a "broker non-vote."
Votes cast by proxy or in person at the Interchange annual meeting, will be
tabulated and will determine whether or not a quorum is present. Abstentions
are counted for the purposes of determining both (1) the presence or absence of
a quorum and (2) the total number of votes cast with respect to a proposal.
Abstentions thus have the same effect as a vote "Against." Broker non-votes
will be counted for purposes of determining the presence or absence of a
quorum, but will not be counted for determining the number of votes cast. A
broker non-vote will not affect the outcome of any proposal presented at the
annual meeting.
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The Interchange board of directors is unaware of any other matters that
properly may be presented for action at the Interchange annual meeting.
However, if other matters do come before the annual meeting or any adjournment
or postponement of the annual meeting, proxies will be voted on those matters
in accordance with the discretion of the proxies.
Solicitation of Proxies and Expenses
Interchange may use its directors, officers and employees to solicit
proxies. These people will not receive any additional compensation for their
services, but will be reimbursed for their out-of-pocket expenses. Interchange
will reimburse banks, brokers, nominees, custodians and fiduciaries for their
reasonable expenses in forwarding copies of the proxy soliciting material to
the beneficial owners of Interchange common stock and in obtaining voting
instructions from those owners. Interchange and Bridge View will share equally
in the expenses of printing this joint proxy statement-prospectus, but
Interchange will pay the expenses of mailing this joint proxy
statement-prospectus to Interchange shareholders.
PROPOSAL NO. 1--THE MERGER
The detailed terms of the merger are contained in the merger agreement
attached as Annex A to this joint proxy statement-prospectus. The following
discussion and the discussion under "The Merger Agreement" describe the more
important aspects of the merger and all of the material terms of the merger
agreement. These descriptions are qualified by reference to such merger
agreement. We encourage you to read the merger agreement carefully.
Background of the Merger
As part of its ongoing effort to improve Bridge View's community banking
franchise and enhance shareholder value, Bridge View's board of directors and
management have periodically reviewed various strategic options available to
Bridge View including, among other things, continued independence, the
acquisition of other institutions and a strategic merger with or acquisition by
another financial institution. In the course of these periodic reviews, the
board of directors and management have considered the pro forma effect of
various future strategies on earnings per share, book value per share, return
on equity and other pertinent financial ratios, compared quantitative measures
of Bridge View's performance with those of other financial institutions, and
monitored trends in the local, regional and national financial institutions
merger and acquisition environment. The board of directors periodically
received information about companies that were possible merger targets for
Bridge View and companies that were considered to be possible acquirers of
Bridge View.
During the spring of 2000, Albert F. Buzzetti, Chief Executive Officer of
Bridge View, met with representatives of Keefe, Bruyette & Woods, Inc., or KBW,
to discuss the possibility of contacting institutions that may have an interest
in acquiring Bridge View. Following that initial discussion, Bridge View
retained KBW to act as the company's financial advisor in connection with a
potential sale of the company. Following that engagement, representatives from
KBW gave a presentation to the board of directors of Bridge View on May 15,
2000. At that board meeting, KBW representatives discussed, among other things,
the potential value Bridge View might expect to receive in an acquisition
offer, which parties may be interested in acquiring Bridge View, what Bridge
View could be worth as a stand-alone institution, performance ratio comparisons
of Bridge View and a group of banking companies considered to be its peers,
trading multiples of Bridge View and companies considered to be its peers, as
well as premiums received by other similar institutions in comparable change of
control transactions.
Following that meeting, the Bridge View board instructed KBW to contact 12
specific institutions to ascertain their level of interest in acquiring Bridge
View.
KBW received preliminary indications of interest from six financial
institutions that KBW contacted. KBW reviewed the responses from these
financial institutions, calculated the acquirers' ability to pay based on both
earnings accretion and internal rate of return measurements, reviewed
comparable transactions and discounted cash
28
flow analysis. KBW also reviewed and compared stock price performance and
liquidity measures, analyst recommendations and the ownership profiles of these
potential acquirers. After its review and analysis of the responses, KBW
presented its findings and the preliminary non-binding proposals to the Bridge
View board at a meeting held on August 29, 2000. After KBW's presentation and
the board's discussion of the responses, the Bridge View board of directors
decided the preliminary offers were not acceptable and made the determination
to discontinue further discussions with the contacted parties.
Following the decision at the August 29, 2000 board meeting to discontinue
further discussion with the institutions contacted by KBW during that summer,
representatives from KBW had conversations with Bridge View management from
time to time to keep Bridge View updated with regard to developments in the
industry, trends in the merger and acquisition environment, as well as other
matters as requested by Bridge View. In addition, on occasion representatives
from KBW received inquiries from potential acquirers with regard to their
continued interest in acquiring Bridge View. Representatives from KBW also kept
senior management informed of these inquiries. From time to time, senior
management and certain members of the board of Bridge View also participated in
informal conversations with potential acquirers.
During December of 2001, one of the original potential acquirers from the
summer of 2000 contacted KBW with a strong desire to restart potential merger
discussions. During these preliminary talks, the potential acquirer stated that
it would now have the ability to pay more for Bridge View than it had indicated
in its bid during the summer of 2000. Based on these initial discussions,
Bridge View and this potential acquirer executed a confidentiality agreement
and shared with each other certain materials to be used in order to determine
if a business combination transaction would be possible at that time.
At the February 12, 2002 meeting of the board, KBW presented a revised
proposal from the potential acquirer to the Bridge View board. KBW reviewed the
performance of the potential acquirer and compared the potential acquirer's
performance to its peers both on a financial and market basis. KBW also
reviewed independent discounted cash flows analysis regarding Bridge View,
recent comparable merger transactions and recent comparable merger transactions
adjusted for the potential acquirer's stock price movements. After discussion,
the board of directors decided the merger consideration was not acceptable
given Bridge View's future prospects. As a result, further discussions
regarding a potential business combination were terminated.
In March 2002, representatives from Bridge View and Interchange met to
discuss the possibility of a business combination.
Subsequent to this initial meeting, representatives from Interchange met
with KBW regarding the possibility of acquiring Bridge View. On behalf of
Bridge View, KBW worked with Interchange in an effort to determine, on a
preliminary basis, what Interchange might be willing to offer to acquire Bridge
View and how, conceptually, the pro forma institution would be organized and
function.
In May 2002, representatives from Bridge View and Interchange again met to
discuss how, conceptually, a business combination might occur and how the pro
forma institution would be organized and function. A consensus was not reached
at this meeting and the parties agreed to discontinue the discussion.
During late September 2002, representatives from Interchange again contacted
KBW to restart discussions with regard to a potential acquisition of Bridge
View. Discussions resumed and continued through mid-October 2002.
At an October 24, 2002 meeting of the Bridge View board, KBW presented a
proposal made by Interchange. KBW reviewed, among other things, an overview of
the non-binding proposal, the performance of Interchange, pro forma impact
analysis, comparable transactions analysis, Bridge View's and Interchange's
discounted cash flow analyses and the other party's previous non-binding offer
submitted in February 2002. Based on KBW's presentation and the board's
discussions, the board of directors of Bridge View determined that it would be
in the best interests of Bridge View and its shareholders to pursue
negotiations with Interchange regarding a potential business combination.
Accordingly, the board authorized management to negotiate a definitive merger
agreement for presentation to, and consideration by, the board of directors of
Bridge View.
29
On October 28, 2002, representatives from KBW, Interchange's senior
management and Interchange's financial advisor, McConnell, Budd & Romano, or
MB&R, held additional discussions regarding the financial projections for
Bridge View, structure considerations, cost savings assumptions, and merger
impact analysis.
On November 6 and 7, 2002, representatives of Interchange and MB&R conducted
a due diligence examination of Bridge View at Bridge View's headquarters in
Englewood Cliffs, New Jersey. At that time, representatives of MB&R and
Interchange reviewed the due diligence materials provided by Bridge View and
had an opportunity to interview senior management of Bridge View.
On November 8, 2002, representatives of Bridge View and KBW conducted a due
diligence examination of Interchange at Interchange's headquarters in Saddle
Brook, New Jersey.
At a meeting of the executive committee of the board of directors of
Interchange on November 12, 2002, representatives of MB&R and members of
management reported the results of their due diligence investigation of Bridge
View.
At the November 15, 2002 meeting of the board of Bridge View,
representatives of KBW presented a list of comparable transactions that
reviewed transaction multiples, financial data and walk-away structures. KBW
also reviewed the effect of price movements of Interchange's stock on the
merger consideration, the proposed walk away-index list, and break-up fee
comparables.
At a special meeting of Bridge View's board of directors on November 18,
2002, KBW reviewed with the board the financial aspects of the proposed
transaction and delivered its oral opinion that the merger consideration to be
received from Interchange was fair to Bridge View's shareholders from a
financial point of view. The board of directors considered this opinion
carefully as well as KBW's experience, qualifications and interests in the
transaction. Bridge View's board of directors then unanimously approved the
transaction and instructed management to execute and deliver the merger
agreement.
Reasons for the Merger
Interchange
The Interchange board of directors believes that the merger agreement and
the merger are in the best interest of Interchange and the Interchange
shareholders. Accordingly, the disinterested members of the Interchange board
of directors unanimously approved and adopted the merger agreement and
recommends that the shareholders of Interchange approve the issuance of shares
of Interchange common stock in connection with the merger. In reaching its
decision, the board of directors consulted with Interchange's management, legal
counsel and financial advisor. The Interchange board of directors considered a
number of factors, to which relative weights were not assigned, including the
following:
. the opinion of McConnell, Budd & Romano that the merger consideration to
be paid to the Bridge View shareholders is fair, from a financial point
of view, to the holders of Interchange common stock;
. the best interests of Interchange, its subsidiaries, its shareholders and
its banking customers;
. the business, operations, financial condition and earnings of Interchange
on a historical and a prospective basis and of the combined company on a
pro forma basis;
. the financial condition and prospects of Interchange and Bridge View;
. the familiarity of the Interchange board with and review of Bridge View's
business, operations, financial condition and earnings on a historical
and a prospective basis;
. the Bergen County, New Jersey market, in which each of Interchange and
Bridge View primarily operate, and the ability of Interchange to gain
additional market share following the merger;
. the results of the due diligence investigations of Bridge View conducted
by Interchange and its financial and legal advisors;
30
. the then-current and prospective economic and regulatory environment,
burdens and constraints affecting banking organizations and commercial
banks such as Interchange and Bridge View and the changing competitive
environment for banking services;
. the consolidation and increasing competition in the banking and related
industries, and the expectation that the combined company will have over
$1.2 billion in assets, potentially giving it greater access to
financial, managerial and technological resources and making the combined
company a more effective competitor in the banking and related industries;
. the complementary nature of the businesses of Interchange and Bridge
View, which could enhance revenue opportunities for the combined entity,
based on such things as:
. the ability to expand Interchange's small and middle market business
operations;
. the ability to enhance Interchange's generation of low-cost core
deposits;
. an increased ability to cross-sell a wider variety of banking products
and services;
. the ability to generate increased loan and fee income from Bridge View
as a result of the higher lending limits available to the combined
entity;
. the potential to increase overall market share in Bergen County, New
Jersey; and
. the ability to achieve cost savings, operating efficiencies and other
opportunities for revenue enhancement;
. the nature of a common vision between Interchange and Bridge View about
the importance of delivering financial performance and enhancing
shareholder value;
. the likelihood that the merger will be approved by the appropriate
regulatory authorities;
. the probable impact of the merger on customers and employees and the
communities and businesses served by Interchange and Bridge View; and
. the effect of the proposed merger on each of the foregoing factors.
There are numerous factors other than the merger that could cause
Interchange's results of operations, including, among other things, earnings
per share, to increase or decrease after the merger. Therefore, we cannot
assure you that the anticipated benefits of the merger discussed in the
previous paragraphs will happen. You should read "Risk Factors" on pages 21 and
22 and "Warning About Forward-Looking Statements" on pages 22 and 23 for a
discussion of the factors that could affect Interchange's future operations and
financial condition.
The foregoing discussion of the information and factors considered by the
Interchange board of directors is not intended to be exhaustive but is believed
to include all material factors considered by the Interchange board of
directors.
Bridge View
The Bridge View board of directors believes that the terms of the merger
agreement are fair and in the best interests of Bridge View's shareholders. In
the course of reaching its determination, the Bridge View board consulted with
legal counsel with respect to its legal duties and the terms of the merger
agreement. The board also consulted with its financial advisors with respect to
the financial aspects of the transaction and fairness of the merger
consideration from a financial point of view, and with senior management
regarding, among other things, operational matters.
In reaching its decision to approve and adopt the merger agreement, the
board considered the following:
. Interchange serves the same market as Bridge View and the pro forma
company would be ranked 9th in deposit market share in Bergen County, New
Jersey;
. Interchange offers a broader range of products and services, and the
merger would provide Bridge View's customers with access to these
products and services without Bridge View having to undergo the expense
of introducing them on its own;
31
. the estimated value of the merger consideration to be received by the
holders of Bridge View common stock of approximately $87.3 million, based
on the last trade of Interchange common stock on November 15, 2002, the
last day prior to the date the Bridge View board approved and adopted the
merger agreement;
. the relative attractiveness of Interchange's historic trading multiples
which may offer price appreciation to Bridge View shareholders;
. Bridge View shareholders' significant ownership percentage in Interchange
after the completion of the merger would be approximately 23%;
. the oral opinion of Keefe, Bruyette & Woods, Inc. that, as of November
18, 2002, the merger consideration was fair to Bridge View shareholders
from a financial point of view;
. current operating environment, including the continued consolidation and
increasing competition in the banking and financial services industries
and the prospect for further changes in these industries;
. results of the due diligence investigations of Interchange, including
assessments of credit policies, asset quality, interest rate risk,
litigation and adequacy of loan loss reserves;
. other terms of the merger agreement and exhibits, including the
opportunity for Bridge View's shareholders to receive shares of
Interchange in a tax-free exchange;
. anticipated cost savings and efficiencies available to the combined
company as a result of the merger. These anticipated cost savings were
based on the assumption that employee related cost savings would be
achieved;
. the detailed financial analyses, pro forma and other information, with
respect to Bridge View and Interchange discussed by the financial
advisors, as well as the board's knowledge of Bridge View, Interchange
and their respective businesses; and
. the likelihood of the merger and related transactions being approved by
the appropriate regulatory authorities.
In making its determination, the Bridge View board of directors did not
ascribe any relative or specific weights to the factors that it considered. The
foregoing discussion of the factors considered by the Bridge View board of
directors is not intended to be exhaustive, but it does include the material
factors considered by the board.
Effects of the Merger
Among the reasons for the Interchange and Bridge View boards recommending
approval and adoption of the merger agreement and the merger is their belief
that, over the long-term, the merger will be beneficial to Interchange
shareholders, including Bridge View shareholders who may become Interchange
shareholders following completion of the merger. Interchange believes that one
of the potential benefits of the merger is that the cost savings that may be
realized by combining the two companies will enhance Interchange's earnings.
Interchange currently expects to reduce expenses by eliminating areas where
there are redundancies, such as insurance, data-processing systems, audits, and
by combining certain support and other functions after the merger. Interchange
believes that it will achieve cost savings based on the assumption that it will
be able to:
. reduce external data processing costs;
. reduce audit costs;
. achieve economies of scale in advertising and marketing budgets;
. achieve savings through reduction or elimination of items such as
insurance premiums, travel and automobile expenses, and investor
relations expenses; and
. reduce compensation and benefits costs due to the elimination of certain
duplicative employee functions.
These estimates are based on Interchange's present assessment of where
savings could be realized based upon the present independent operations of the
two companies. The actual savings in some or all of these areas could be higher
or lower than currently expected.
32
Interchange currently estimates that the potential annual cost savings might
be approximately $1.8 million, or about 20% of Bridge View's 2003 projected
non-interest expense. The actual amount of any cost savings Interchange may
realize in 2003 will depend upon the closing date of the merger and how quickly
and efficiently Interchange is able to implement the processes outlined above
during the remainder of the year.
Interchange also anticipates that the merger will present significant
revenue enhancement opportunities for the combined entity. These opportunities
result from, among other factors:
. an increased ability to offer a wider variety of banking products and
services;
. the ability to generate increased loan and fee income from Interchange
Bank and Bridge View Bank customers as a result of the higher lending
limits available to the combined entity; and
. the potential to increase overall market share in the communities
presently served by Interchange Bank and Bridge View Bank as a result of
the wider range of products and services to be offered through the
combined entity.
The companies have prepared financial statements that show the combined
operations and financial condition of the two companies as if the merger had
occurred on the date and at the beginning of the periods indicated. These are
known as "pro forma" financial statements. The full pro forma financial
statements are set forth beginning on page 80. The pro forma financial
statements do not reflect the following anticipated effects of the merger:
. Anticipated cost savings: Under Securities and Exchange Commission rules,
Interchange is not permitted to show the effect of any anticipated cost
savings because those potential savings are based on management's
estimates and we cannot assure you that we will achieve them.
. Anticipated integration costs: Under Securities and Exchange Commission
rules, Interchange is not permitted to show the effect of any anticipated
integration costs that will benefit continued activities because those
potential benefits are based on management's estimates and we cannot
assure you that we will achieve them.
Interchange has agreed to appoint three of the current Bridge View directors
to the Interchange board of directors. For more information about the
individuals to be appointed to the Interchange board of directors following the
completion of the merger, see "--Interests of Certain Directors, Executive
Officers and Shareholders in the Merger."
Opinion of Interchange's Independent Financial Advisor
On November 14, 2002, MB&R, Interchange's independent financial advisor,
delivered its oral opinion to the executive committee of the board of directors
of Interchange that, as of that date, the aggregate amount of consideration in
which shares of Interchange common stock and cash will be exchanged for shares
of Bridge View common stock was fair, from a financial point of view, to
Interchange shareholders. The oral opinion has been updated and reconfirmed as
of a date proximate to the mailing of this document and has been rendered in
written form as attached to this document as Annex B.
The aggregate consideration to be paid to Bridge View shareholders is
2,949,719 shares of Interchange common stock and $33,528,472 in cash. Bridge
View shareholders may elect to receive all stock, all cash or a combination of
stock and cash. The merger agreement sets forth an allocation and proration
procedure in the event that the holders of more or less than 60% of the Bridge
View common stock elect to receive solely stock or the holders of more or less
than 40% of the Bridge View common stock elect to receive solely cash. MB&R
evaluated the economic impact on Interchange with respect to the number of
shares of Interchange common stock that would be issued to Bridge View
shareholders in the aggregate and in combination with varying amounts of cash
that would be paid to Bridge View shareholders in the aggregate. MB&R assisted
Interchange in the negotiations leading to an agreement on the principal
structural terms of the merger and provided guidance as to the price and
related derived exchange ratio that, in conjunction with specific and
reasonable cost savings estimates, would result in zero earnings per share
dilution to Interchange shareholders. The final merger consideration, however,
was not determined by MB&R but was the result of negotiations between
Interchange and Bridge View.
33
According to the terms of the merger agreement, an exchange ratio will be
established at the effective time of the merger based on the value of the
merger consideration relative to each outstanding share of Bridge View common
stock and the average closing bid and asked price for a share of Interchange
common stock as reported by the Nasdaq National Market for the valuation period
of 20 consecutive trading days ending on the date the election forms are due.
Interchange shareholders are rendered indifferent in this process (see
"Accretion/Dilution Analysis" section for more detail). The exchange ratio is
subject to possible adjustment if the average price of a share of Interchange
common stock falls below $13.64 during the valuation period and such decline is
greater by a factor of 20% than any decline in the weighted average stock price
of a defined index group of 20 financial institutions. Also, if the average
price of Interchange common stock falls to below $11.94 during the valuation
period, then the exchange ratio is subject to additional adjustments.
The opinion of MB&R as to the fairness of the merger consideration was based
on consideration of numerous factors, including the following:
. an analysis of the historical and projected future contributions to
taxable recurring earnings by the parties;
. an analysis of the possible future earnings per share results for the
parties on both a combined and a stand-alone basis using the purchase
method of accounting;
. consideration of the anticipated dilutive or accretive effects of the
prospective transaction on future earnings per share equivalent of
Interchange;
. consideration of the prospects for the parties to achieve certain
operational cost savings as a result of the transaction;
. consideration of the total equity capitalization, the tangible equity
capitalization, the current risk based capital adequacy and the projected
adequacy thereof for each of the parties and the combined company;
. the composition of loan portfolios and the methodology of creating
reserves for loan and lease losses used by the parties;
. respective management opinions of the apparent adequacy of the reserves
for loan and lease losses, as of a point in time for each of the parties;
. the apparent relative asset quality of the respective loan portfolios as
disclosed by the parties;
. a review of the composition and maturity structure of the deposit bases
of each of the parties;
. consideration of the liquidity position and liquidity strategy being
pursued by each of the parties;
. consideration of the maturity structure of the securities portfolio of
Bridge View and the embedded interest rate risk therein;
. consideration of the market value and liquidity of the securities
portfolio of Bridge View;
. analysis of the historical trading range, trading patterns, institutional
ownership, and apparent relative liquidity of the common shares of each
of the parties;
. consideration of the pro forma market capitalization of the anticipated
combination; and
. contemplation of other factors, including certain intangible factors.
MB&R has acted as financial advisor to Interchange since 1996. MB&R assisted
Interchange with the sale of one of its branches in 1996 and acted as financial
advisor to Interchange in 1998 related to the acquisition of The Jersey Bank
for Savings. MB&R received fees for financial advisory services in both cases.
No formal selection process was used in making the determination to use MB&R as
financial advisor for this transaction. A description of MB&R's role in
connection with the merger is contained in the section of this document
entitled "--Background of the Merger."
MB&R was retained based on its qualifications and experience in the
financial analysis of financial services holding companies, banking and thrift
institutions generally, its knowledge of the New Jersey banking market in
particular and of the Eastern United States banking markets in general, as well
as its experience with merger and acquisition transactions involving financial
institutions. As a part of its investment banking business, MB&R is regularly
engaged in the valuation of financial institutions and their securities in
connection with mergers
34
and acquisitions and in connection with its equity brokerage business, which
specializes in the securities of financial institutions. MB&R publishes
proprietary earnings estimates and equity research reports on numerous
financial institutions. In the ordinary course of its business as a
broker-dealer, MB&R may, from time to time, purchase securities from and sell
securities to Interchange or Bridge View and as a market maker in securities,
MB&R and/or certain of its employees may, from time to time, have a long or
short position in, and buy or sell debt or equity securities of Interchange or
Bridge View for their own accounts or for the accounts of customers of MB&R.
The full text of MB&R's opinion, which sets forth assumptions made, matters
considered and limits on the review undertaken by MB&R is attached to this
document as Annex B. Interchange shareholders are urged to read both the
opinion in its entirety and this document in its entirety. The opinion of MB&R
is directed to the fixed aggregate number of shares of Interchange common stock
that will be exchanged for shares of Bridge View common stock and the fixed
aggregate amount of cash that will be exchanged for shares of Bridge View
common stock. The opinion of MB&R does not constitute a recommendation to any
holder of Interchange common stock as to how such holder should vote at the
Interchange annual meeting. The summary of the opinion and the matters
considered in MB&R's analysis set forth in this document are qualified in their
entirety by reference to the text of the opinion itself. The opinion is
necessarily based upon conditions as of the date of the opinion and upon
information made available to MB&R through the date of the opinion. In terms of
the analytical process followed, no limitations were imposed by the Interchange
board upon MB&R with respect to the investigations made, matters considered or
procedures followed in the course of rendering the opinion.
In arriving at its oral opinion and updating the opinion for inclusion in
written form in this document, MB&R considered the following:
. the merger agreement by and between Interchange and Bridge View, dated
November 18, 2002;
. this document in substantially the form to be sent to Interchange
shareholders;
. Bridge View's public earnings release for the quarter and year ended
December 31, 2002;
. Bridge View's annual reports to shareholders for 1999, 2000 and 2001;
. Bridge View's annual reports on Form 10-K for 1999, 2000, 2001 and 2002;
. Bridge View's quarterly reports on Form 10-Q for the first, second and
third calendar quarters of 2002;
. Interchange's public earnings release for the quarter and year ended
December 31, 2002;
. Interchange's annual reports to shareholders for 1999, 2000 and 2001;
. Interchange's annual reports on Form 10-K for 1999, 2000, 2001 and 2002;
. Interchange's quarterly reports on Form 10-Q for the first, second and
third calendar quarters of 2002;
. discussions relating to the business, earnings expectations, assets,
liabilities, reserves for loan and lease losses and general prospects of
the respective companies;
. the recent historical record of reported prices, trading volume and
trading patterns for both Interchange and Bridge View;
. the recent historical record of cash and stock dividend payments for both
Interchange and Bridge View;
. holding company board minutes for Bridge View for the years 2000, 2001
and year-to-date September 30, 2002;
. discussions with certain members of the senior management of Bridge View
concerning the past and current results of operations of Bridge View, its
current financial condition and management's opinion of its future
prospects;
. discussions with certain members of the senior management of Interchange
concerning the past and current results of operations of Interchange, its
current financial condition and management' opinion of its future
prospects;
. anecdotal information, supplemented by the analysis of certain available
demographic data, the current state of and future prospects for the
economy of New Jersey generally and the relevant market areas for
Interchange and Bridge View in particular;
35
. specific merger analysis models developed by MB&R to evaluate potential
business combinations of financial institutions using both historical
reported information and projected future results, including the
achievement of specific amounts of cost savings as a result of the
proposed transaction, and
. such other studies and analyses as MB&R considered appropriate under the
circumstances associated with this particular transaction.
MB&R's opinion takes into account its assessment of general economic, market
and financial conditions and its experience in other transactions, as well as
its experience in securities valuation and its knowledge of the financial
services industry generally. For purposes of rendering its opinion, MB&R has
assumed and relied upon the accuracy and completeness of the information
provided to it by Interchange and Bridge View and does not assume any
responsibility for the independent verification of such information. In the
course of rendering its opinion, MB&R has not completed any independent
valuation or appraisal of any of the assets or liabilities of either
Interchange or Bridge View and has not been provided with such valuations or
appraisals from any other source. With respect to any forecasts considered by
MB&R in the course of rendering its opinion, MB&R has assumed without
independent verification that such forecasts have been reasonably prepared to
reflect the best currently available estimates and judgment of the parties
making such forecasts.
The following is a summary of the material analyses employed by MB&R in
connection with rendering its opinion. Given that it is a summary, it is not a
complete and comprehensive description of all the analyses performed, or an
enumeration of all the matters considered by MB&R in arriving at its opinion.
The preparation of a fairness opinion is a complicated process, involving a
determination as to the most appropriate and relevant methods of financial
analysis and the application of those methods to the circumstances associated
with a specific transaction. Therefore, such an opinion is not readily
susceptible to a summary description. In arriving at its fairness opinion, MB&R
did not attribute any particular weight to any one specific analysis or factor
considered by it and made a number of qualitative as well as quantitative
judgments as to the significance of each analysis and factor. Therefore, MB&R
recommends that its analyses must be considered as a whole and feels that
attributing undue weight to any single analysis or factor considered could
create a misleading or incomplete view of the process leading to the formation
of its opinion. In its analyses, MB&R has made certain assumptions with respect
to banking industry performance, general business and economic conditions and
other factors, many of which are beyond the control of management of
Interchange, Bridge View and MB&R. Any estimates, which are referred to in
MB&R's analyses, are not necessarily indicative of actual values or predictive
of future results or values. Future results and values may vary significantly
from any estimates set forth in this document or utilized in the preparation of
the fairness opinion.
Accretion/Dilution Analysis
MB&R employed a proprietary analytical model to examine the combination of
Interchange and Bridge View. The model uses forecast earnings data, selected
period-end balance sheet and income statement data, current market and trading
information and a variety of assumptions as to interest rates for borrowed
funds, the opportunity cost of funds, effective tax rates and transaction
structures. The model evaluates the likely economic feasibility of a given
transaction at a given price level or a specified exchange ratio while
employing a specified transaction structure. The model also permits evaluation
of various levels of potential non-interest expense savings that might be
achieved along with various potential implementation time-tables for such
savings, as well as the possibility of revenue enhancement opportunities which
may arise in a given transaction.
Utilizing its model, MB&R prepared pro forma analyses of the financial
impact of the merger on Interchange shareholders utilizing a range of potential
transaction structures (i.e., 50% stock, 50% cash; 60% stock, 40% cash; and 70%
stock, 30% cash) and of possible derived exchange ratios based on a range of
purchase prices and Interchange's market price. Using internal earnings
estimates and other assumptions provided to MB&R by both Interchange and Bridge
View, MB&R compared the estimated earnings per share of Interchange on a
stand-alone basis for calendar year 2003 to the estimated earnings per share of
the common stock of the combined company on a pro forma basis for calendar year
2003 under the various scenarios. MB&R's earnings analysis factored in a 20%
annualized cost savings assumption from Bridge View's non-interest expense base,
36
which MB&R and Interchange believe to be an achievable level for this
transaction. Specific cost savings areas, such as duplicative operational
functions, were identified by both Interchange and Bridge View for purposes of
this analysis. Potential revenue enhancements as a result of the transaction
were not accounted for in its analysis. MB&R also evaluated the pro forma
capital position of the combined company for regulatory purposes.
The aggregate consideration to be paid to Bridge View shareholders is
2,949,719 shares of Interchange common stock and $33,528,472 in cash. An
exchange ratio will be established based upon, among other things, the
Interchange measurement price, which equals the average closing bid and asked
price for a share of Interchange common stock as reported by the Nasdaq
National Market for a 20 day valuation period ending on the date the election
forms are due and the per share value of a share of Bridge View common stock as
of the closing date of the Merger. The purpose of deriving this exchange ratio
is to equate the per share stock and cash merger consideration that is to be
allocated to Bridge View shareholders in preparation for closing. After the
establishment of the Interchange measurement price, but prior to the completion
of the merger, the price per share of Interchange stock may fluctuate and the
relative values between the stock consideration and cash consideration may no
longer be equal at the completion of the merger. Interchange shareholders are
rendered indifferent in this process because the number of shares that
Interchange will issue in the transaction and the amount of cash that
Interchange will pay to Bridge View shareholders in the transaction is fixed.
Bearing this in mind, MB&R concluded that the 60% stock, 40% cash structure was
the recommended structure for this transaction from an earnings and capital
standpoint, and that the effect of the merger would be basically earnings
neutral to estimated earnings per share for Interchange in 2003. Achievement of
the level of cost savings previously identified on an annual basis will be
essential in reaching accretive results in subsequent years. The non-dilutive
nature to earnings per share of the fixed total amount of Interchange shares
that may be issued, along with the fixed total amount of cash to be paid to
Bridge View shareholders, forms the basis for MB&R's opinion that the aggregate
consideration to be paid to Bridge View shareholders is fair to Interchange
shareholders from a financial point of view. The merger is expected to be
accretive to book value per share, but dilutive to tangible book value per
share. However, on a pro forma basis, Interchange will have a Tier 1 leverage
ratio that exceeds 5.00%. The pro forma company will meet all current
regulatory requirements for capital at the time the transaction is closed.
Contribution Analysis
Based on financial data for Interchange and Bridge View as of December 31,
2002, the estimated relative contributions of the parties to the pro forma
Interchange on a purchase basis would have been approximately as follows had
the proposed transaction been consummated as of that date:
Pro Forma Contribution Table
As of December 31, 2002
Item Interchange Bridge View
---- ----------- -----------
Assets................... 77% 23%
Intangible Assets (1).... 3% 97%
Gross Loans.............. 76% 24%
Deposits................. 76% 24%
Common Equity (2)........ 60% 40%
2003 Estimated Net Income 73% 27%
Ownership................ 77% 23%
- --------
(1) Bridge View's contribution percentage represents approximately $54 million
in goodwill and intangibles that will be created as a result of the merger
transaction.
(2) Bridge View's contribution percentage represents new equity booked as a
result of the merger transaction. Bridge View's reported equity of
approximately $29.0 million as of December 31, 2002 will be extinguished
according to the rules of purchase accounting at the time the transaction
closes.
Analysis of Comparable Transactions
MB&R is reluctant to place much emphasis on the analysis of comparable
transactions as a valuation methodology due to what it considers to be inherent
limitations of the application of the results to specific cases.
37
MB&R believes that this analysis frequently fails to adequately take into
consideration such factors as:
. differences in the underlying capitalization of the comparable
institutions which are being acquired;
. differences in the historic earnings (or loss) patterns recorded by the
compared institutions which can depict a very different trend than might
be implied by examining only recent financial results;
. failure to exclude non-recurring profit or loss items from the last
twelve months' earnings streams of target companies which can distort
apparent earnings multiples;
. differences in the form or forms of consideration used to complete the
transaction;
. such less accessible factors as the relative population, business and
economic demographics of the acquired entities' markets as compared or
contrasted to such factors for the markets in which comparable companies
are doing business.
With these reservations in mind, MB&R nonetheless examined statistics
associated with other merger and acquisition transactions. The following
criteria was utilized to create the sample:
. the acquired institutions were all commercial banks;
. transactions with announcement dates later than July 1, 2001, the
beginning of the time period of the elimination of pooling accounting and
the application of purchase accounting for all business combinations;
. total transaction values ranged from $50 million to $200 million in size;
and
. the geographic area represents the Mid-Atlantic and New England regions
of the United States.
The above criteria generated the following list of transactions:
Merger and Acquisition Transactions
Announced July 1, 2001 through November 18, 2002
Acquirer Acquired Entity Acquired Entity Region
- -------- --------------- ----------------------
National Penn Bancshares FirstService Bank Mid-Atlantic
Partners Trust Financial Group Herkimer Trust Corporation Mid-Atlantic
Sky Financial Group Three Rivers Bancorp Mid-Atlantic
Banknorth Group Bancorp Connecticut New England
S&T Bancorp Peoples Financial Corporation Mid-Atlantic
United National Bancorp Vista Bancorp Mid-Atlantic
Chittenden Corp. Ocean National Corporation New England
Sovereign Bancorp Main Street Bancorp Mid-Atlantic
Using the closing market price of $18.00 for Interchange common stock on
November 18, 2002, the most recent trading date prior to public announcement of
the transaction, the per share value of the total consideration to be paid to
Bridge View shareholders was approximately $22.73. The following table presents
a comparison of the average and median values for multiples of the acquired
entities' trailing 12 months earnings and most recently reported book value and
tangible book value at the time of announcement with the transaction multiples
for Bridge View:
Transaction Multiples at Time of Announcement
Announced July 1, 2001 through November 18, 2002
Price/
Trailing 12 Mos. Price/ Price/
Earnings Book Value Tang. Book Value
($22.73/$1.12) ($22.73/$8.09) ($22.73/$8.09)
---------------- -------------- ----------------
Interchange/Bridge View
(as of September 30, 2002) 20.29 x 2.81 x 2.81 x
Sample (8 Transactions)
Median................... 18.98 x 2.42 x 2.44 x
Average.................. 20.47 x 2.40 x 2.53 x
38
In terms of price to trailing 12 months earnings, the proposed merger
multiple falls between the average and median multiples for the sample. In
terms of price to book value and price to tangible book value, the proposed
merger multiple falls above the average and median multiples for the sample.
To gain some additional perspective, MB&R compared some of the financial
characteristics of the acquired banks in these transactions to Bridge View:
Selected Financial Data for Acquired Entities at Time of Announcement
Announced July 1, 2001 through November 18, 2002
Acquired Acquired
Acquired Entity Entity Acquired
Entity Return Return Entity
Aggregate Acquired Tang. on on Non-Performing
Deal Value at Entity Equity/ Avg. Avg. Assets/
Announcement Assets Assets Assets Equity Total Assets
Acquired Entity ($M) ($000) (%) (%) (%) (%)
--------------- ------------- --------- -------- -------- -------- --------------
FirstService Bank............ 94.5 399,605 6.12 0.92 12.26 0.02
Herkimer Trust Corporation... 64.0 325,126 8.40 0.94 10.74 0.64
Three Rivers Bancorp......... 154.7 1,010,450 7.04 0.93 10.73 0.32
Bancorp Connecticut.......... 158.5 662,804 8.49 1.47 16.08 0.13
Peoples Financial Corporation 87.4 321,699 12.51 1.69 13.24 0.02
Vista Bancorp................ 151.3 698,772 8.49 1.14 14.47 0.58
Ocean National Corporation... 53.3 238,525 8.65 1.15 13.19 0.29
Main Street Bancorp.......... 171.0 1,522,684 5.89 0.88 14.91 0.74
Median....................... 122.9 531,205 8.45 1.04 13.22 0.31
Average...................... 116.8 647,458 8.20 1.14 13.20 0.34
Bridge View (YTD 9/30/02).... 86.6 272,506 10.55 1.52 13.74 0.00
Bridge View's financial performance on both a return on average assets and
return on average equity basis compares favorably to the averages for the
acquired entities for these measures. Bridge View reported zero non-performing
assets as of September 30, 2002 along with a healthy tangible equity to assets
ratio of 10.55%, compared to the group median of 8.45% and group average of
8.20%. Culling the list further and focusing on the smaller acquired entities
closer in asset size to Bridge View (i.e., FirstService Bank, Herkimer Trust
Corporation, Peoples Financial Corporation and Ocean National Corporation),
Bridge View compares favorably on average in terms of financial performance to
this smaller group as well. The median and average price to trailing 12 months
earnings multiples for this smaller group are 19.26 and 22.02, respectively.
Bridge View's multiple on trailing 12 months earnings of 20.29 falls below the
midpoint of this range.
Conclusion
Based on the whole of MB&R's various analyses and taking into consideration
the various factors which MB&R believes are relevant to the circumstances
surrounding the proposed transaction and subject to the limitations and
qualifications enumerated above, MB&R delivered its written opinion to the
Board of Directors of Interchange that the consideration to be paid to Bridge
View shareholders is fair, from a financial point of view, to the shareholders
of Interchange as of the date of the opinion letter. MB&R's signed and dated
written opinion appears in Annex B.
Compensation of MB&R
Pursuant to a letter agreement with Interchange dated November 12, 2002,
MB&R will receive a cash fee contingent upon the following events: 1) $25,000
upon the execution and public announcement of the merger
39
agreement with respect to the transaction; 2) $50,000 upon mailing of this
document containing MB&R's written opinion; and 3) a final fee of $275,000 upon
the closing of the transaction.
The fee payable to MB&R represents compensation for services rendered in
connection with the analysis of the transaction, support of the negotiations,
and participation in the drafting of documentation, and for the rendering of
MB&R's opinion. Interchange has also agreed to reimburse MB&R for its
reasonable out-of-pocket expenses incurred in connection with the merger.
Interchange has also agreed to indemnify MB&R and its directors, officers and
employees against certain losses, claims, damages and liabilities relating to
or arising out of its engagement, including liabilities under the federal
securities laws.
MB&R has filed a written consent with the Securities and Exchange Commission
relating to the inclusion of its fairness opinion and the reference to such
opinion and to MB&R in the registration statement in which this document is
included. In giving such consent, MB&R did not admit that it comes within the
category of persons whose consent is required under Section 7 of the Securities
Act of 1933 or the rules and regulations of the Securities and Exchange
Commission thereunder, nor did MB&R thereby admit that it is an expert with
respect to any part of such registration statement within the meaning of the
term "expert" as used in the Securities Act of 1933, or the rules and
regulations of the Securities and Exchange Commission thereunder.
Opinion of Bridge View's Independent Financial Advisor
Bridge View engaged Keefe, Bruyette & Woods, Inc. to render financial
advisory and investment banking services to and at the request of Bridge View.
KBW agreed to assist Bridge View in analyzing, structuring, negotiating and
effecting a transaction. Bridge View selected KBW because KBW is a nationally
recognized investment-banking firm with substantial experience in transactions
similar to the merger and is familiar with Bridge View and its business. As
part of its investment banking business, KBW is continually engaged in the
valuation of financial businesses and their securities in connection with
mergers and acquisitions.
The full text of KBW's updated written opinion is attached as Annex C to
this document and is incorporated herein by reference. Bridge View's
shareholders are urged to read the opinion in its entirety for a description of
the procedures followed, assumptions made, matters considered, and
qualifications and limitations on the review undertaken by KBW.
KBW's opinion is directed to the Bridge View board and addresses only the
fairness, from a financial point of view, of the merger consideration to the
Bridge View shareholders. It does not address the underlying business decision
to proceed with the merger and does not constitute a recommendation to any
Bridge View shareholder as to how the shareholder should vote at the Bridge
View special meeting on the merger or any related matter.
In rendering its opinion, KBW:
. reviewed, among other things,
. Quarterly Reports on Form 10-Q of Bridge View,
. the merger agreement,
. Annual Reports to shareholders and Annual Reports on Form 10-K of
Interchange,
. Quarterly Reports on Form 10-Q of Interchange, and
. Annual Reports to shareholders and Annual Reports on Form 10-K of
Bridge View,
. held discussions with members of senior management of Bridge View and
Interchange regarding,
. future prospects of the respective companies,
. past and current business operations,
. regulatory relationships, and
. financial condition;
40
. reviewed the market prices, valuation multiples, publicly reported
financial conditions and results of operations for Bridge View and
Interchange and compared them with those of certain publicly traded
companies that KBW deemed to be relevant;
. compared the proposed financial terms of the merger with the financial
terms of certain other transactions that KBW deemed to be relevant; and
. performed other studies and analyses that it considered appropriate.
In conducting its review and arriving at its opinion, KBW relied upon and
assumed the accuracy and completeness of all of the financial and other
information provided to or otherwise made available to KBW or that was
discussed with, or reviewed by or for KBW, or that was publicly available. KBW
did not attempt or assume any reasonability to verify such information
independently. KBW relied upon the management of Bridge View as to the
reasonableness and achievability of the financial and operating forecasts and
projections (and assumptions and bases therefor) provided to KBW. KBW assumed,
without independent verification, that the aggregate allowances for loan and
lease losses for Interchange and Bridge View are adequate to cover those
losses. KBW did not make or obtain any evaluations or appraisals of any assets
or liabilities of Interchange or Bridge View.
The projections furnished to KBW and used by it in certain of its analyses
were prepared by Bridge View's and Interchange's senior management teams.
Bridge View and Interchange do not publicly disclose internal management
projections of the type provided to KBW in connection with its review of the
merger. As a result, such projections were not prepared with a view towards
public disclosure. The projections were based on numerous variables and
assumptions, which are inherently uncertain, including factors related to
general economic and competitive conditions. Accordingly, actual results could
vary significantly from those set forth in the projections.
For purposes of rendering its opinion, KBW assumed that, in all respects
material to its analyses:
. the merger will be completed substantially in accordance with the terms
set forth in the merger agreement;
. the representations and warranties of each party in the merger agreement
and in all related documents and instruments referred to in the merger
agreement are true and correct;
. each party to the merger agreement and all related documents will perform
all of the covenants and agreements required to be performed by such
party under such documents;
. all conditions to the completion of the merger will be satisfied without
any waivers; and
. in the course of obtaining the necessary regulatory, contractual, or
other consents or approvals for the merger, no restrictions, including
any divestiture requirements, termination or other payments or amendments
or modifications, will be imposed that will have a material adverse
effect on the future results of operations or financial condition of the
combined entity or the contemplated benefits of the merger, including the
cost savings, revenue enhancements and related expenses expected to
result from the merger.
KBW further assumed that the merger will be accounted for as a purchase
under generally accepted accounting principles, and that the conversion of
Bridge View's common stock into Interchange common stock will be tax-free for
Interchange and Bridge View. KBW's opinion is not an expression of an opinion
as to the prices at which shares of Bridge View common stock or shares of
Interchange common stock will trade following the announcement of the merger or
the actual value of the shares of common stock of the combined company when
issued pursuant to the merger, or the prices at which the shares of common
stock of the combined company will trade following the completion of the merger.
The KBW opinion was among several factors taken into consideration by the
Bridge View board in making its determination to approve and adopt the merger
agreement and the merger. Consequently, the analyses described below should not
be viewed as determinative of the decision of the Bridge View board or
management of Bridge View with respect to the fairness of the exchange ratio.
The following is a summary of the material analyses presented by KBW to the
Bridge View Board on October 24, 2002. The summary is not a complete
description of the analyses underlying the KBW opinion or the presentation made
by KBW to the Bridge View board, but summarizes the material analyses performed
and
41
presented in connection with such opinion. The preparation of a fairness
opinion is a complex analytic 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. Therefore, a
fairness opinion is not readily susceptible to partial analysis or summary
description. In arriving at its opinion, KBW did not attribute any particular
weight to any analysis or factor that it considered, but rather made
qualitative judgments as to the significance and relevance of each analysis and
factor. The financial analyses summarized below include information presented
in tabular format. Accordingly, KBW believes that its analyses and the summary
of its analyses must be considered as a whole and that selecting portions of
its analyses and factors or focusing on the information presented below in
tabular format, without considering all analyses and factors or the full
narrative description of the financial analyses, including the methodologies
and assumptions underlying the analyses, could create a misleading or
incomplete view of the process underlying its analyses and opinion. The tables
alone do not constitute a complete description of the financial analyses.
Financial Impact Analysis. KBW performed pro forma merger analysis that
combined projected income statement and balance sheet information of
Interchange and Bridge View. Assumptions regarding the accounting treatment,
acquisition adjustments and cost savings were used to calculate the financial
impact that the merger would have on certain projected financial results of
Interchange. This analysis indicated that the merger is expected to be
accretive to estimated earnings per share in 2003, and accretive to cash
earnings per share in 2003. The analysis also indicated that the merger is
expected to be dilutive to Interchange's tangible book value per share, but
that Interchange would maintain a healthy tier 1 capital ratio and thus had the
financial ability to execute the merger. This analysis was based on internal
projections provided by Bridge View and Interchange's senior management teams.
For all of the above analysis, the actual results achieved by Interchange
following the merger will vary from the projected results, and the variations
may be material.
Contribution Analysis. KBW analyzed the relative contribution of each of
Bridge View and Interchange to the pro forma balance sheet and income statement
items of the combined entity, including assets, common equity, tangible equity,
deposits, loans, market capitalization, estimated 2002 and 2003 net income. KBW
compared the relative contribution of balance sheet and income statement items.
The results of KBW's analysis are set forth in the following table.
Category Interchange Bridge View
-------- ----------- -----------
2001 Net Income.......... 70% 30%
2002 Estimated Net Income 77% 23%
2003 Estimated Net Income 74% 26%
Total Assets............. 77% 23%
Gross Loans.............. 78% 22%
Total Deposits........... 76% 24%
Common Equity............ 73% 27%
Tangible Common Equity... 73% 27%
Market Capitalization.... 74% 26%
Selected Transaction Analysis. KBW reviewed certain financial data related
to comparably sized acquisitions of mid-Atlantic bank holding companies
announced after January 1, 2000, with aggregate transaction values between $50
million and $250 million. The transactions included in the group were:
BB&T Corporation / FCNB Corp.
North Fork Bancorp, Inc. / Commercial Bank of New York
Sovereign Bancorp, Inc. / Main Street Bancorp, Inc.
Banknorth Group, Inc. / Bancorp Connecticut, Inc.
Sky Financial Group Inc. / Three Rivers Bancorp, Inc.
United National Bancorp / Vista Bancorp, Inc.
Fulton Financial Corporation / Drovers Bancshares Corporation
NBT Bancorp Inc. / CNB Financial Corp.
Sterling Financial Corporation / Hanover Bancorp, Inc.
42
National Penn Bancshares, Inc. / FirstService Bank
S&T Bancorp, Inc. / Peoples Financial Corporation, Inc.
Community Bank System, Inc. / First Liberty Bank Corp.
Niagara Bancorp Inc. (MHC) / Iroquois Bancorp, Inc.
United Parcel Service Incorporated / First International Bancorp, Inc.
United Bankshares, Inc. / Century Bancshares Incorporated
Mercantile Bankshares Corporation / Union National Bancorp, Inc.
Partners Trust Financial Group, Inc. (MHC) / Herkimer Trust Corporation, Inc.
Financial Institutions, Inc. / Bath National Corporation
Transaction multiples from the merger were derived from an implied $22.00
price per share of Bridge View common stock and financial data as of September
30, 2002, for Bridge View. KBW also relied upon 2002 Bridge View earnings per
share estimates provided by management. KBW compared these results with
announced multiples. The results of the analysis are set forth in the following
table.
Interchange / Announced Announced
Bridge View Comparable Comparable
Transaction Average Median
------------- ---------- ----------
Deal Price / Book Value........................... 272% 225% 228%
Deal Price / Tangible Book Value.................. 272% 245% 244%
Deal Price / Trailing 12 Months Earnings per Share 19.6x 19.6x 19.5x
Deal Price / Forward Earnings per Share........... 14.2x 15.9x 16.l x
Market Premium vs. 1 Day Prior to Announcement.... 31.7% 38.1% 31.9%
Market Premium vs. 1 Month Prior to Announcement.. 33.3% 65.5% 44.6%
Core Deposit Premium.............................. 24.7% 16.0% 16.7%
No company or transaction used as a comparison in the above analysis is
identical to Bridge View, Interchange or the merger. Accordingly, an analysis
of these results is not mathematical. Rather, it involves complex
considerations and judgments concerning differences in financial and operating
characteristics of the companies.
Discounted Cash Flow Analysis. KBW estimated the present value of Bridge
View's common stock based on a continued independence scenario by adding (i)
the present value of the estimated future dividend stream that Bridge View
could generate over the period beginning January 2003 and ending in December
2006, and (ii) the present value of the "terminal value" of the Bridge View
common stock. For purposes of this analysis, a discount rate was calculated
based on the Capital Asset Pricing Model. A sensitivity table was presented
with a range of earnings per share growth rates from 10.0% to 20.0% and a range
of terminal multiples from 11.0 to 16.0 times applied to the 2006 earnings per
share estimate. This resulted in a range of values from $16.13 to $24.80 per
share.
KBW stated that the discounted cash flow present value analysis is a widely
used valuation methodology but noted that it relies on numerous assumptions,
including asset and earnings growth rates, terminal values and discount rates.
The analysis did not purport to be indicative of the actual values or expected
values of Bridge View Common Stock.
43
Selected Peer Group Analysis. KBW compared the financial performance and
market performance of Interchange and Bridge View to those of a group of
comparable commercial banks over $2 billion in assets and those with assets
between $700 million and $2 billion. Companies included were:
Assets greater than $2 billion
Commerce Bancorp, Inc.
Valley National Bancorp
Hudson United Bancorp
Trust Company of New Jersey (The)*
United National Bancorp
Yardville National Bancorp
Sun Bancorp, Inc. (SNBC)*
Assets between $700 million and $2 billion
Community Banks, Inc.
Sterling Bancorp
Hudson Valley Holding Corp.*
Univest Corporation of Pennsylvania*
Lakeland Bancorp, Inc.
Omega Financial Corporation
Royal Bancshares of Pennsylvania, Inc.*
Patriot Bank Corp.
Sun Bancorp, Inc. (SUBI)
Citizens & Northern Corporation*
Peapack-Gladstone Financial Corp.*
Center Bancorp, Inc.*
Greater Community Bancorp
To perform this analysis, KBW used the financial information as of and for
the quarter ended September 30, 2002 unless marked with an "*", which implies
that the financial information was as of and for the quarter ended June 30,
2002. Market price information was as of October 22, 2002, and earnings
estimates were taken from a nationally recognized earnings estimate
consolidator for comparable companies. Core return on assets and core return on
equity excludes extraordinary items, non-recurring items and gains or losses on
the sale of securities.
KBW's analysis showed the following concerning Interchange's and Bridge
View's financial performance:
Over $2 Between $700
Billion Peer Million and $2
Bridge Group Billion Peer
Performance Measure: Interchange View Median Group Median
-------------------- ----------- ------ ------------ --------------
Core Return on Equity.......... 17.49% 11.06% 17.95% 14.33%
Core Return on Assets.......... 1.45% 1.19% 1.08% 1.42%
Net Interest Margin............ 4.71% 5.03% 3.97% 4.23%
Efficiency Ratio............... 54.0% 56.6% 57.2% 56.5%
Equity / Assets................ 8.58% 10.55% 5.87% 8.58%
Tangible Equity / Assets....... 8.43% 10.55% 5.65% 7.77%
Loan Loss Reserves / Loans..... 1.07% 0.95% 1.26% 1.41%
Net Charge Offs / Average Loans 0.08% 0.00% 0.10% 0.07%
Non Performing Assets / Assets. 0.44% 0.00% 0.44% 0.27%
Loans / Deposits............... 79.0% 72.8% 74.6% 80.1%
Securities / Tangible Assets... 25.0% 14.6% 33.5% 31.9%
44
KBW's analysis showed the following concerning Interchange's and Bridge
View's market performance:
Over $2 Billion Between $700 Million
Peer Group and $2 Billion Peer
Performance Measure: Interchange Bridge View Median Group Median
-------------------- ----------- ----------- --------------- --------------------
Price to Earnings Multiple, based on 2002 GAAP
estimated earnings.......................... 13.4x 16.2x 16.6x 13.5x
Price to Earnings Multiple, based on 2003 GAAP
estimated earnings.......................... 12.0x 10.8x 13.2x 12.lx
Price to Book Multiple Value per share........ 2.11x 2.06x 1.82x 1.91x
Price to Tangible Book Multiple Value per
Share....................................... 2.15x 2.06x 2.14x 2.12x
Dividend Yield................................ 2.4% 2.4% 2.5% 2.8%
Other Analyses. KBW reviewed the relative financial and market performance
of Bridge View and Interchange to a variety of relevant industry peer groups
and indices. KBW also reviewed earnings estimates, balance sheet composition,
historical stock performance and other financial data for Interchange.
In connection with its opinion dated as of the date of this document, KBW
performed procedures to update, as necessary, certain of the analyses described
above. KBW reviewed the assumptions on which the analyses described above were
based and the factors considered in connection therewith. KBW did not perform
any analyses in addition to those described above in updating its November 18,
2002 opinion.
The Bridge View board retained KBW as an independent contractor to act as
financial adviser to Bridge View regarding the merger. As part of its
investment banking business, KBW is continually engaged in the valuation of
banking businesses and their securities in connection with mergers and
acquisitions, negotiated underwritings, competitive biddings, secondary
distributions of listed and unlisted securities, private placements and
valuations for estate, corporate and other purposes. As specialists in the
securities of banking companies, KBW has experience in, and knowledge of, the
valuation of banking enterprises. In the ordinary course of its business as a
broker-dealer, KBW may, from time to time, purchase securities from, and sell
securities to, Bridge View and Interchange. As a market maker in securities KBW
may from time to time have a long or short position in, and buy or sell, debt
or equity securities of Bridge View and Interchange for KBW's own account and
for the accounts of its customers.
Bridge View and KBW have entered into an agreement relating to the services
to be provided by KBW in connection with the merger. Bridge View agreed to pay
KBW a cash fee of equal to $830,000 in connection with the merger. Payment of
the Contingent Fee would be distributed in three parts as follows: 1) $100,000
at the signing of a definitive merger or sale agreement, 2) $100,000 at the
mailing of a merger related proxy statement and, 3) the remaining balance at
closing. Pursuant to the KBW engagement agreement, Bridge View also agreed to
indemnify against certain liabilities, including liabilities under the federal
securities laws.
Interests of Certain Directors, Executive Officers and Shareholders in the
Merger
Interests of Certain Directors
Interchange. When considering the recommendation of the Interchange board
of directors, you should be aware that two directors of Interchange, Jeremiah
F. O'Connor and James E. Healey, owned a combined 1,931 shares of Bridge View
common stock. These directors participated in discussions about the merger but
abstained from voting to approve the merger agreement and the merger.
Management of Interchange is unaware of how they intend to vote their shares of
Bridge View common stock or, if the merger is completed, what type of
consideration they would elect to receive.
In addition, Jeremiah F. O'Connor, Interchange's Vice Chairman of the Board,
is the father of Jeremiah F. O'Connor, Jr., a Bridge View director. As
described below, following the completion of the merger, Interchange
anticipates that Jeremiah F. O'Connor, Jr. will join the board of directors of
Interchange Bank.
45
Bridge View. When considering the recommendations of the Bridge View board
of directors regarding the merger, you should be aware that some of the
employees of Bridge View and Bridge View Bank and members of the Bridge View
board of directors and management may have interests that differ from, and may
conflict with, your interests as a shareholder of Bridge View. The Bridge View
board of directors was aware of these interests when it approved adopted the
merger and the merger agreement and determined that these interests did not
affect the benefits of the merger to the Bridge View shareholders. Except as
described below, to the knowledge of Bridge View, the executive officers and
directors of Bridge View do not have any material interest in the merger apart
from their interests as shareholders.
The merger agreement provides that Interchange will appoint current Bridge
View directors Gerald A. Calabrese, Jr., Joseph C. Parisi and John A. Schepisi
to the Interchange board of directors at the first Interchange board meeting
following the completion of the merger. The merger agreement also provides that
Messrs. Calabrese, Parisi and Schepisi, along with current Bridge View
directors Glenn L. Creamer, Mark Metzger and Jeremiah F. O'Connor, Jr., will be
appointed to the board of directors of Interchange Bank at the first
Interchange Bank board meeting following completion of the merger.
In addition, three directors of Bridge View own a combined 97,628 shares of
Interchange common stock. These directors participated in discussions about the
merger and voted to approve and adopt the merger agreement. Management of
Bridge View is unaware of how they intend to vote their shares of Interchange
common stock at the Interchange annual meeting.
As described above, Jeremiah F. O'Connor, Jr., a Bridge View director, is
the son of Jeremiah F. O'Connor, Interchange's Vice Chairman of the Board.
Cash-Out of Unexercised Stock Options
Each outstanding Bridge View stock option, which has not become fully vested
and exercisable, shall become fully vested and exercisable immediately prior to
the completion of the merger. Each Bridge View stock option that remains
unexercised upon completion of the merger will be terminated at such time. Each
holder of Bridge View stock options that are terminated shall be entitled to
receive, in lieu of each share of Bridge View common stock that they would have
otherwise received if they had exercised such options, an amount in cash equal
to the excess, if any, between:
. the value of the consideration that a holder of such Bridge View stock
option would have received upon exercise of the Bridge View stock option
(as determined by Interchange in consultation with Bridge View, which
determination, absent manifest error, shall be binding); and
. the exercise price of such Bridge View stock option.
Such cash-out payments will be made only after the satisfaction or
fulfillment or waiver of each of the conditions to closing the merger and will
reduce the aggregate cash consideration to be received by Bridge View
shareholders in the merger.
As of March 21, 2003, there were unexercised options to acquire 398,790
shares of Bridge View common stock.
Non-Compete Agreements
Prior to the completion of the merger, Bridge View has agreed to use its
best efforts to cause certain directors of Bridge View, identified in the
merger agreement, to enter into an agreement not to compete with Interchange
upon the terms and conditions set forth in the Non-Compete Agreement, the form
of which is attached as Exhibit D to the merger agreement.
46
Severance and Employment Arrangements
Albert F. Buzzetti. Bridge View and Bridge View Bank entered into a Change
in Control Severance Agreement with Mr. Buzzetti, its President and Chief
Executive Officer, on March 18, 1999. The change in control agreement provides
for certain benefits if Mr. Buzzetti's employment is terminated within three
years after a "change in control" of Bridge View occurs. Completion of the
merger will constitute a "change in control" with respect to Bridge View under
the terms of Mr. Buzzetti's change in control agreement. Under the agreement, a
termination occurs if there is a material change in Mr. Buzzetti's function,
duties, title, responsibilities or scope or any reduction in his base salary to
which Mr. Buzzetti has not agreed to in writing. While it is anticipated that
Mr. Buzzetti will continue as an employee of Interchange Bank following the
merger, the function, duties, title, responsibility and scope of employment
will likely be materially different than his current role as President and
Chief Executive Officer of Bridge View and Bridge View Bank. Accordingly, the
parties have agreed that the merger coupled with the change in Mr. Buzzetti's
role with the resulting organization will entitle Mr. Buzzetti to certain
benefits set forth in his change in control agreement.
The agreement provides for a payment to Mr. Buzzetti in an amount equal to
2.9 times his average annual compensation includible in gross income for the
past five taxable years immediately prior to the change in control. This
payment, which is estimated to be approximately $663,873, will be made in a
lump sum, in three annual installments, or in 36 monthly installments at Mr.
Buzzetti's option. Mr. Buzzetti is also entitled, under the agreement, to
receive continued life, health and disability coverage for a period of 35
months from the date of the event giving rise to the change in control payment
or until his earlier employment with another employer offering similar
substitute benefits. Under the terms of the merger agreement, Bridge View has
agreed that it will amend any agreement or understanding providing for the
payment to an employee of Bridge View in connection with the merger, including
any payment under the terms of Mr. Buzzetti's change in control agreement, so
as not to exceed the limitations under Section 280G of the Internal Revenue
Code with respect to the tax deductibility of any such payments. See "The
Merger Agreement--Covenants; Conduct of Business Prior to Completion of the
Merger." It is not anticipated that any payment to be received by Mr. Buzzetti
in connection with the merger will exceed the limitations of Section 280G of
the Internal Revenue Code.
Employees. Interchange has agreed to provide employees of Bridge View and
Bridge View Bank who continue as employees of Interchange or Interchange Bank
after the merger with certain benefits, including participation, if eligible,
in various employee benefit plans maintained by Interchange. Participation in
these plans is subject to the terms of the plans as in effect from time to time
and is not intended to give any employee any rights or privileges superior to
those of other similarly situated employees of Interchange or Interchange Bank.
For purposes of vesting and any age or period of service requirements for
commencement of participation under any employee benefit plan (other than the
Interchange Bank non-contributory defined benefit pension plan), Interchange
has agreed to credit each continuing employee with his or her term of service
with Bridge View or Bridge View Bank.
Agreements with the Directors of Bridge View
Interchange has entered into a voting agreement and irrevocable proxy with
each Bridge View director who beneficially owns shares of Bridge View common
stock. These directors have agreed to vote all shares of Bridge View common
stock that they beneficially own in favor of approval and adoption of the
merger agreement, thereby increasing the likelihood that the Bridge View common
shareholders will approve and adopt the merger agreement. As of the Bridge View
record date, the Bridge View directors beneficially owned 1,311,625 shares of
Bridge View common stock, or approximately 36.7% of the outstanding Bridge View
common stock.
Management After the Merger
The directors and officers of Interchange immediately prior to the merger
will remain the directors and officers of Interchange after the merger until
they resign or until their respective successors are duly elected and
qualified, and the directors and officers of Interchange Bank immediately prior
to the merger will remain the directors and officers of Interchange Bank after
the merger until they resign or until their respective successors
47
are duly elected and qualified. The parties have agreed that at the first
meeting of Interchange's board of directors following the completion of the
merger Gerald A. Calabrese, Jr., Joseph C. Parisi and John A. Schepisi, each of
whom is a current member of the board of directors of Bridge View, will be
appointed to the board of directors of Interchange. In addition, at the first
meeting of the Interchange Bank board of directors following the completion of
the bank merger Gerald A. Calabrese, Jr., Glenn L. Creamer, Mark Metzger,
Jeremiah F. O'Connor, Jr., Joseph C. Parisi and John A. Schepisi, each of whom
is a current member of the board of directors of Bridge View Bank, will be
appointed to the board of directors of Interchange Bank.
Nasdaq National Market Listing
Interchange will apply to list the shares of Interchange common stock to be
issued in the merger on the Nasdaq National Market. The shares must be
authorized for listing on the Nasdaq National Market in order for the parties
to complete the merger.
Material Federal Income Tax Consequences
General
The following discussion describes the material U.S. federal income tax
considerations of the merger that are generally applicable to Interchange,
Bridge View and their respective shareholders. The following discussion is
based on the current provisions of the Internal Revenue Code, referred to as
the Code, existing, temporary, and proposed Treasury regulations thereunder,
and current administrative rulings and court decisions. Future legislative,
judicial or administrative actions or decisions, which may be retroactive in
effect, may affect the accuracy of any statements in this joint proxy
statement-prospectus with respect to the transactions entered into or
contemplated prior to the effective date of those changes. No attempt has been
made to comment on all U.S. federal income tax consequences of the merger that
may be relevant to U.S. shareholders of Bridge View. Shareholders of Bridge
View may be not all be affected in the same manner by the tax considerations
discussed below because of their different tax situations. Jenkens & Gilchrist,
a Professional Corporation, counsel for Interchange has reviewed the following
discussion and is of the opinion that the discussion fairly describes the U.S.
federal income tax consequences that are likely to be material to U.S.
shareholders of Bridge View. The tax opinion of Jenkens & Gilchrist discussed
in this paragraph has been filed as an exhibit to the registration statement of
which this joint proxy statement-prospectus forms a part. The tax opinion is
based on various assumptions, including assumptions regarding the accuracy of
factual representations made by Interchange and Bridge View and the parties to
the merger agreement taking actions contemplated by, and otherwise satisfying
their obligations under, the merger agreement, is subject to limitations and is
not binding on the Internal Revenue Service or any court. If any of the factual
assumptions or representations relied upon in the tax opinion is inaccurate,
the opinion may not accurately describe the tax treatment of the merger, and
this discussion may not accurately describe the tax consequences of the merger.
The Internal Revenue Service may challenge part or all of this tax opinion, and
such a challenge could be successful.
The following discussion does not apply to particular categories of Bridge
View shareholders subject to special treatment under the U.S. federal income
tax laws, such as insurance companies, broker-dealers, estates, trusts,
tax-exempt organizations, shareholders who are subject to alternative minimum
tax; shareholders who hold their shares as part of a hedge, straddle, or other
risk reduction transaction; foreign persons; shareholders who acquired their
Bridge View common stock through stock options or otherwise as compensation;
and other persons subject to special tax treatment under U.S. federal income
tax laws. In addition, the following discussion does not address the tax
consequences of the merger under foreign, state, or local tax laws or the tax
consequences of transactions completed before or after the merger, such as the
exercise of options or rights to purchase Bridge View common stock in
anticipation of the merger. The following discussion assumes that Bridge View
shareholders hold their shares of Bridge View common stock as capital assets
within the meaning of Section 1221 of the Code. Common stock is generally a
capital asset within the meaning of Section 1221 of the Code if the shareholder
holds the common stock for investment purposes.
48
You are urged to consult your own tax advisors regarding the tax
consequences to you of the merger based on your own circumstances, including
the applicable federal, state, local, and foreign tax consequences to you of
the merger and of potential changes in applicable tax laws.
Reorganization
The merger is intended to qualify as a reorganization under Section 368 of
the Code. The tax consequences summarized below are based on the assumption
that the merger will qualify as a reorganization. Neither Interchange nor
Bridge View has requested or will request a ruling from the Internal Revenue
Service with regard to any of the tax consequences of the merger. It is a
condition to Interchange's obligation to close the merger that Interchange
receive an opinion from Jenkens & Gilchrist that the merger will be treated for
U.S. federal income tax purposes as a reorganization within the meaning of
Section 368 of the Code. The foregoing tax opinion is based on various
assumptions, including assumptions regarding the accuracy of factual
representations made by Interchange and Bridge View, and the parties to the
merger agreement taking actions contemplated by, and otherwise satisfying their
obligations under, the merger agreement, is subject to limitations and is not
binding on the Internal Revenue Service or any court. If any of the factual
assumptions or representations relied upon in the tax opinion is inaccurate,
the opinion may not accurately describe the tax treatment of the merger, and
this discussion may not accurately describe the tax consequences of the merger.
The Internal Revenue Service may challenge part or all of this tax opinion, and
such a challenge could be successful.
If the merger qualifies as a "reorganization" for federal income tax
purposes, then the merger will have the following tax consequences:
Tax Consequences to Bridge View Shareholders
The tax consequences of the merger to Bridge View shareholders will depend
upon the form of consideration that they receive. Based on the assumption that
the merger will constitute a reorganization, and subject to the limitations and
qualifications referred to in this discussion, the following U.S. federal
income tax consequences will result from the merger:
. If you are a Bridge View shareholder and you exchange your shares of
Bridge View common stock solely for Interchange common stock (and cash in
lieu of a fractional share), you will not recognize any gain or loss,
except with respect to the fractional share.
. If you are a Bridge View shareholder and you exchange your shares of
Bridge View common stock solely for cash, you generally will recognize
gain (and, as is more fully described below, likely will be permitted to
recognize loss) equal to the difference between the amount of cash
received and your basis in your Bridge View common stock.
. If you are a Bridge View shareholder and you exchange your shares of
Bridge View common stock for Interchange common stock and cash (other
than cash received in lieu of a fractional share), you will generally
recognize gain in an amount equal to the lesser of:
. the cash consideration received in the exchange, excluding cash
received instead of a fractional share of Interchange common stock; or
. the sum of the cash consideration, excluding cash received instead of
a fractional share of Interchange common stock, plus the fair market
value of the Interchange common stock received in the merger less your
adjusted tax basis in your Bridge View common stock being exchanged.
If you are a Bridge View shareholder and you exchange your shares of Bridge
View common stock for a combination of Interchange common stock and cash, you
will not be permitted to recognize a loss in the exchange.
49
The aggregate tax basis of the Interchange common stock received by a Bridge
View shareholder in the merger, if any, including a fractional share of
Interchange common stock for which cash is received, will be the same as the
aggregate tax basis of the shareholder's Bridge View common stock exchanged
therefor, decreased by the amount of cash, other than cash received instead of
a fractional share of Interchange common stock, received in the merger, and
increased by the amount of gain recognized by the shareholder in the exchange,
other than gain recognized in connection with cash received for a fractional
share, but including the amount of gain that is treated as a dividend.
If you are a Bridge View shareholder and you receive cash in lieu of a
fractional share of Interchange common stock, you will generally recognize gain
or loss in an amount equal to the difference between (1) the amount of cash
received in lieu of a fractional share and (2) your basis allocated to the
fractional share.
The holding period of the Interchange common stock that Bridge View
shareholders receive in the merger, if any, will include the period for which
such individuals held their Bridge View common stock, provided that they held
their Bridge View common stock as a capital asset within the meaning of Section
1221 of the Code at the time of the merger.
Shareholder Receiving Interchange Common Stock and Cash--Character of Gain
The gain recognized by you if you receive a combination of Interchange
common stock and cash in the merger may be characterized as either capital gain
or ordinary income, depending upon your particular situation. In determining
the character of the gain recognized by you if you receive both Interchange
common stock and cash, the Internal Revenue Service will (1) treat you as
having exchanged your Bridge View common stock solely for Interchange common
stock and then (2) treat you as having sold back a portion of that stock to
Interchange in exchange for cash. The deemed exchange of stock for cash is
treated as a "hypothetical redemption" in determining the character of your
gain for U.S. federal income tax purposes. Under the redemption rules of
Section 302 of the Code, gain recognized by you in the hypothetical redemption
will be treated as a capital gain if, after giving effect to the constructive
ownership rules of the Internal Revenue Code, either:
. your receipt of cash is "substantially disproportionate" to your equity
interest; or
. the redemption is "not essentially equivalent to a dividend."
In addition, to receive capital gain treatment, you must have held your
Bridge View common stock as a capital asset immediately before the merger. This
capital gain would be treated as long-term capital gain if your holding period
for the Bridge View common stock was more than one year at the effective time
of the merger.
In applying the foregoing tests, a former Bridge View shareholder is treated
as owning, in addition to the Interchange common stock that he or she receives,
or is treated as having received, in the merger, those shares of Interchange
common stock that are owned, and in some cases constructively owned, by certain
related individuals or entities, including certain family members, certain
estates and trusts of which the holder is a beneficiary, certain affiliated
entities, and stock subject to an option actually or constructively owned by
the holder or such other persons.
A redemption will generally qualify as "substantially disproportionate" with
respect to a particular shareholder if, immediately after the redemption,
taking into account the constructive ownership rules described above, the
shareholder owns less than 80% of the percentage of common stock he or she
owned or was treated as owning before the redemption.
If a shareholder fails any part of this test, the redemption may still
qualify as "not essentially equivalent to a dividend" if it results in a
"meaningful reduction" of the shareholder's proportionate equity interest. This
is a highly subjective standard. Accordingly, neither Interchange nor Bridge
View can provide any substantial assurance that a particular redemption will
qualify as a meaningful reduction. However, based on a published ruling of the
Internal Revenue Service, a shareholder with a relatively minimal interest in a
publicly held corporation and no ability to exercise any substantial measure of
control over corporate affairs may be treated as
50
having experienced a meaningful reduction of his proportionate interest, if
such shareholder's proportionate interest is reduced to any extent.
If the deemed redemption of Interchange common stock in exchange for cash
fails to satisfy either the "substantially disproportionate" test or the "not
essentially equivalent to a dividend" test with respect to a particular Bridge
View shareholder, then the gain recognized by that shareholder will be
characterized as a distribution with respect to the stock. Such a distribution
will be treated as a dividend to the extent of the shareholder's allocable
share of current or accumulated earnings and profits. A dividend payment
received by a shareholder is generally treated as ordinary income for federal
income tax purposes. If the amount of the distribution exceeds the
shareholder's allocable share of current or accumulated earnings and profits,
then the excess will be treated first as a reduction in the adjusted basis of
stock to the extent thereof and thereafter as gain from the sale or exchange of
stock.
Shareholder Receiving Solely Cash--Character of Gain and Recognition of Loss
If you receive solely cash in exchange for your Bridge View common stock,
and that results in a "complete termination" of your interest in all
Interchange or Bridge View stock actually or constructively owned by you, then
any gain or loss recognized by you will be treated as a capital gain or loss.
In making this determination, the family member constructive ownership rules
referred to above will not apply if certain conditions are met.
If your receipt of solely cash does not result in a "complete termination"
of your interest, then the character of any income, gain or loss recognized by
you will be determined under the "substantially disproportionate" and "not
essentially equivalent to a dividend" tests described above, except that the
Internal Revenue Service may treat your common stock as having been redeemed by
Bridge View immediately before the merger, rather than as having been exchanged
for Interchange common stock and then redeemed by Interchange immediately after
the merger.
If the deemed redemption fails all three of the tests mentioned above (i.e.,
the complete termination test, the substantially disproportionate test and the
not essentially equivalent to a dividend test) with respect to you, then you
would not be permitted to recognize loss, and the full amount of cash received
by you could be characterized as a distribution with respect to stock, and thus
be treated as a dividend to the extent of your allocable share of current and
accumulated earnings and profits. Bridge View shareholders receiving solely
cash in the merger, but who own, or constructively own, Interchange stock, are
especially urged to consult their own tax advisors with regard to their
individual tax consequences.
Withholding with Respect to Payments to Bridge View Shareholders
Payments in respect of Bridge View common stock or a fractional share of
Interchange common stock may be subject to information reporting to the
Internal Revenue Service and to a backup withholding tax. Backup withholding
will not apply to a payment made to you if you:
. furnish a correct taxpayer identification number and certify that you are
not subject to backup withholding on Internal Revenue Service Form W-9 or
an appropriate substitute form that is included as part of the
transmittal letter;
. provide a certificate of foreign status on Internal Revenue Service Form
W-9 BEN or an appropriate substitute form; or
. are a corporation or are otherwise exempt from backup withholding and,
when required, demonstrate that fact to Interchange and its exchange
agent.
Reporting and Recordkeeping
If you exchange shares of Bridge View common stock in the merger for shares
of Interchange common stock, or for a combination of Interchange common stock
and cash, you are required to retain records of the
51
transaction, and to attach to your federal income tax return for the year of
the merger a statement setting forth all relevant facts with respect to the
nonrecognition of gain or loss upon the exchange. At a minimum, the statement
must include (1) your tax basis in the Bridge View common stock surrendered and
(2) the amount of cash (if any) and the fair market value, as of the effective
date of the merger, of the Interchange common stock received in exchange
therefor.
Tax Consequences to Bridge View
Assuming, consistent with the above described tax opinion, the merger
qualifies as a reorganization within the meaning of Section 368 of the Code,
Bridge View will not recognize gain or loss in connection with the merger.
Tax Consequences to Interchange and its Shareholders
Assuming, consistent with the above described tax opinion, the merger
qualifies as a reorganization within the meaning of Section 368 of the Code,
neither Interchange nor its shareholders will recognize gain or loss in
connection with the merger, although Interchange will succeed to any tax
liabilities of Bridge View.
The preceding discussion of material federal income tax consequences does
not purport to be a complete analysis of all potential tax consequences of the
merger that may be relevant to a particular Bridge View shareholder. Because
certain tax consequences of the merger may vary depending upon your particular
circumstances and other factors, you are urged to consult with your own tax
advisors regarding the specific tax consequences to you of the merger,
including the applicability and effect of foreign, state, local, and other tax
laws.
Accounting Treatment of the Merger
The merger will be accounted for under the purchase method of accounting for
reporting purposes under accounting principles generally accepted in the United
States of America. Under this method of accounting, the purchase price will be
allocated to assets acquired and liabilities assumed based upon their estimated
fair values as of the effective time of the merger. Deferred tax assets and
liabilities will be adjusted for the difference between the tax basis of the
assets and liabilities and their estimated values. The excess, if any, of the
total acquisition cost over the sum of the assigned fair values of the tangible
and identifiable intangible assets acquired less liabilities assumed will be
recorded as goodwill. In accordance with Statement of Financial Accounting
Standards No. 142, "Goodwill and Other Intangible Assets," issued in July 2001,
the goodwill resulting from the merger will not be amortized to expense;
however, core deposit and other intangibles with definite useful lives recorded
by Interchange in connection with the merger will be amortized to expense in
accordance with SFAS No. 142. In addition, goodwill will be reviewed for
impairment annually, and on an interim basis when conditions require. If
necessary, an impairment charge will be recognized in the period that goodwill
has been deemed impaired. The financial statements of Interchange issued after
the merger will reflect the results attributable to the acquired operations of
Bridge View beginning on the date of completion of the merger. The unaudited
pro forma financial information contained herein has been prepared using the
purchase method of accounting. See "Selected Unaudited Comparative Per Share
Data"and "Pro Forma Financial Information of the Combined Company" beginning on
pages 18 and 80, respectively.
In addition, it is anticipated that certain officers of Bridge View and/or
Bridge View Bank will continue to serve as officers of Interchange and/or
Interchange Bank after completion of the merger.
For additional information see "Proposal No. 1--The Merger-Interests of
Certain Directors, Executive Officers and Shareholders in the Merger" beginning
on page 45.
Requirement for Shareholder Approval
Bridge View
Under the New Jersey Business Corporation Act, the board of directors of
Bridge View must submit the merger agreement to a vote at a meeting of the
shareholders of Bridge View. As described above, the merger agreement will be
approved and adopted upon receiving the affirmative vote of a majority of the
outstanding shares of Bridge View common stock.
52
Interchange
The Interchange common stock is listed on the Nasdaq National Market and, as
a result, is subject to the rules established for the continued listing on the
Nasdaq National Market. Those rules require that Interchange obtain the
approval of its shareholders prior to the issuance of shares of Interchange
common stock if, among other things, the number of shares of Interchange common
stock to be issued equals or exceeds 20% of the shares outstanding before the
issuance of such securities.
As of March 21, 2003, Interchange had 9,839,831 shares of common stock
outstanding. Upon completion of the merger, Interchange will issue an
additional 2,949,719 shares of common stock to the Bridge View shareholders,
representing approximately 23% of the outstanding shares of Interchange common
stock as of such date. In addition, Interchange may issue additional shares of
Interchange common stock if the average price per share of Interchange common
stock declines below $13.64 per share or below $11.94 per share and Interchange
elects to increase the number of shares of Interchange common stock to be
issued to Bridge View shareholders in exchange their for shares of Bridge View
common stock. See "The Merger Agreement--Conversion of Bridge View Stock" and
"--Election and Proration Procedures."
As a result of the foregoing, Interchange is required to seek shareholder
approval for the issuance of all of the shares of Interchange common stock to
be issued in connection with the completion of the merger, which may exceed
2,949,719 shares of Interchange common stock as provided for in the merger
agreement.
Recommendations of the Boards of Directors
Each of the Interchange board of directors and the Bridge View board of
directors believes the merger is in the best interests of their respective
institutions, security holders and customers. Each board believes that the
merger will position Interchange, on a consolidated basis, to achieve its
strategic objective of becoming a preeminent independent financial services
provider in Bergen County, New Jersey and strengthen Interchange, on a
consolidated basis, in terms of management, growth opportunities and
profitability. Furthermore, each board of directors believes that Interchange,
as a larger independent financial institution, will be better able to compete
with major banks in the communities it serves.
The Bridge View board of directors recommends a vote "FOR" the approval and
adoption of the merger agreement, and the Interchange board of directors
recommends a vote "FOR" the issuance of shares of Interchange common stock in
connection with the merger.
Appraisal Rights
Neither the shareholders of Interchange nor the shareholders of Bridge View
have appraisal rights under New Jersey law in connection with the merger.
THE MERGER AGREEMENT
General
This section describes the material provisions of the merger agreement. The
full text of the merger agreement is attached to this joint proxy
statement-prospectus as Annex A and is incorporated by reference in this joint
proxy statement-prospectus. We encourage you to read the merger agreement in
its entirety. In addition, important information about the merger agreement and
the merger is provided in the previous section entitled "Proposal No. 1--The
Merger."
The Merger
The merger agreement provides for the merger of Bridge View with and into
Interchange in accordance with New Jersey law. As a result of the merger,
Interchange will survive the merger and the separate existence of Bridge View
will cease.
Effective Time
The merger will become effective when Bridge View and Interchange file a
certificate of merger with the New Jersey Secretary of State. Unless the merger
agreement is terminated, the certificate of merger will be filed as soon as
possible, after the satisfaction or waiver of the closing conditions contained
in the merger agreement. See "--Conditions to Completion of the Merger" and
"--Termination."
53
Merger Consideration
The aggregate merger consideration to be received by shareholders of Bridge
View in exchange for their shares of Bridge View common stock will consist of a
fixed amount of cash and a fixed number of shares of Interchange common stock.
The cash is fixed at $33,528,472, subject to adjustments if any options to
acquire shares of Bridge View common stock are cashed out, and the number of
shares of Interchange common stock is fixed at 2,949,719 shares, subject to
adjustments or if Interchange has a stock split, stock dividend or similar
capital event, or if the value of a share of Interchange common stock falls
below certain established thresholds. At the time the principal terms of the
merger agreement were negotiated, the relative value of the cash consideration
represented approximately 40% of the total value of the merger consideration,
and the relative value of the stock consideration represented approximately 60%
of the total value of the merger consideration.
The actual amount of cash and the actual number of Interchange shares to be
exchanged for one share of Bridge View common stock will be based upon a series
of formulas set forth in the merger agreement. These formulas will establish
the "Interchange Measurement Price," the "Per Share Value" and the "Exchange
Ratio." The relationship of these terms is described below.
Interchange Measurement Price. The Interchange Measurement Price is
calculated by taking the average of the closing bid and ask prices of
Interchange common stock for a 20-day valuation period ending on the day
election forms must be returned to Interchange's exchange agent.
Calculation of Interchange Measurement Price
Average of the closing bid and ask price for a share of Interchange = Interchange Measurement Price
common stock as reported by the Nasdaq National Market during the
period of 20 consecutive trading days ending on the date that election
forms are due.
We cannot fix the Interchange Measurement Price prior to the expiration of
this valuation period. We can only describe examples based upon implied prices
of Interchange common stock.
Per Share Value. The Per Share Value is calculated by taking the aggregate
value of the merger consideration divided by the number of shares of Bridge
View common stock outstanding as of the effective time of the merger. The
aggregate value of the merger consideration is derived by multiplying the
number of shares of Interchange common stock to be issued in the merger
(2,949,719) by the Interchange Measurement Price and adding the aggregate
amount of cash to be paid ($33,528,472 less the aggregate amount of cash paid
to the holders of unexercised options to acquire shares of Bridge View common
stock).
Calculation of Per Share Value
(2,949,719 x Interchange Measurement Price)
+
($33,528,472, less cash paid to holders of Bridge View stock options) = Per Share Value
- ----------------------------------------------------------------------
Number of Bridge View shares outstanding at effective time of merger
Because the Per Share Value is calculated based on the Interchange
Measurement Price and the number of shares of Bridge View stock outstanding as
of the effective time of the merger, we cannot calculate the Per Share Value
until the effective time of the merger.
54
Exchange Ratio. The Exchange Ratio, or the number of Interchange shares
that will be exchange for each share of Bridge View common stock, is calculated
by taking the Per Share Value divided by the Interchange Measurement Price.
Calculation of Exchange Ratio
Per Share Value = Number of shares of Interchange common stock to be issued
- ------------------------------ per share of Bridge View common stock
Interchange Measurement Price
In addition, the exchange ratio is subject to possible adjustment if the
average price of a share of Interchange common stock falls below $13.64 during
valuation period and such decline is greater by a factor of 20% than any
decline in the weighted average stock price of the "index group" of 20
financial institutions identified in the merger agreement. Also, if the average
price of Interchange common stock falls below $11.94 during the valuation
period, then the exchange ratio is subject to additional adjustments.
Conversion of Bridge View Stock
In the merger, Bridge View shareholders will have the ability to elect to
receive:
. all cash in exchange for shares of Bridge View common stock owned at the
completion of the merger; or
. all shares of Interchange common stock in exchange for shares of Bridge
View common stock owned at the completion of the merger; or
. a combination of Interchange common stock and cash in exchange for your
shares of Bridge View common stock, rounded to the nearest whole share.
The relative value of the consideration that a Bridge View shareholder
will receive upon electing to receive a combination of Interchange common
stock and cash will be approximately 60% Interchange common stock and
approximately 40% cash.
Regardless of whether a Bridge View shareholder elects to receive shares of
Interchange common stock, cash or a combination of Interchange common stock and
cash, the total value of the consideration per Bridge View common share will
equal the "Per Share Value." As described above, the Per Share Value of a share
of Bridge View common stock equals the (a) sum of (i) $33,528,472, less the
aggregate amount of cash paid to the holders of options to acquire shares of
Bridge View common stock, and (ii) the Interchange Measurement Price multiplied
by 2,949,719 shares of Interchange common stock, divided by (b) the number of
shares of outstanding Bridge View common stock at the effective time of the
merger. As described above, the "Interchange Measurement Price" means the
average closing bid and ask prices for a share of Interchange common stock as
reported by the Nasdaq National Market for the valuation period of 20
consecutive trading days ending on the date election forms are due.
Election of Cash. With respect to the conversion of Bridge View common
stock into cash, the amount of cash to be paid per share of Bridge View common
stock will equal the Per Share Value.
Election of Stock. With respect to the conversion of Bridge View common
stock into shares of Interchange common stock, the number of shares of
Interchange common stock to be issued in exchange for each share of Bridge View
common stock will equal the Exchange Ratio.
55
Example No. 1--Treasury Stock Method Analysis
The following examples show what the record holder of 100 shares of Bridge
View common stock would receive if the holder elected to receive:
. all Interchange common stock;
. all cash; and
. a combination of cash and Interchange common stock.
For purposes of this example, we will assume the following:
. the Interchange Measurement Price is $17.00;
. no options to acquire Bridge View common stock are cashed out in the
merger (i.e., all options are exercised);
. the total number of shares of Bridge View common stock outstanding as
of the effective time is 3,808,443 utilizing the treasury stock method
(assumes the proceeds from the exercise of outstanding options to
purchase 594,749 shares of Bridge View common stock with a weighted
average exercise price of $12.47 per share are used to purchase
337,115 shares of Bridge View common stock at an implied purchase
price of $22.00 per share). The number of outstanding shares
(3,808,443) is computed by subtracting the deemed repurchased shares
(337,115) from Bridge View's fully diluted shares (4,145,558);
. the election is not subject to proration; and
. for purposes of calculating the value of any fractional shares, the
average closing bid and asked price of a share of Interchange common
stock on the business day immediately preceding the effective date of
the merger is $17.00.
Step 1: Calculate Bridge View Per Share Value:
$33,528,472 + (2,949,719 x $17.00) = $21.97
-----------------------------------
3,808,443
Step 2: Calculate Exchange Ratio:
$21.97 = 1.292
-------
$17.00
Step 3: Calculate Consideration to be paid to the record holder of 100 shares
of Bridge View common stock if the holder elected to receive:
. all shares of Interchange common stock:
. 100 x 1.292 = 129 whole shares of Interchange common stock and $3.40
in cash in lieu of a fractional share of Interchange common stock (0.2
x $17.00 = $3.40); or
. all cash:
. 100 x $21.97 = $2,197 in cash; or
. a combination of cash and Interchange common stock:
. 100 x 1.292 x 60% = 77 shares of Interchange common stock and $8.84 in
cash in lieu of a fractional share of Interchange common stock (0.52 x
$17.00 = $8.84), and
. 100 x $21.97 x 40% = $878.80 in cash
We cannot predict the Interchange Measurement Price. Therefore, we cannot
give a Bridge View shareholder any assurance that such price will be $17.00.
The actual Interchange Measurement Price will, in all likelihood, be different
than the price used in this illustration. In addition, we cannot predict the
total number of shares of Bridge View common stock that will be outstanding as
of the effective time of the merger. Accordingly, the Per Share Value and the
Exchange Ratio will, in all likelihood, be different than those used in this
illustration.
56
Example No. 2--Fully Diluted Analysis
The following examples show what the record holder of 100 shares of Bridge
View common stock would receive if the holder elected to receive:
. all Interchange common stock;
. all cash; and
. a combination of cash and Interchange common stock.
For purposes of this example, we will assume the following:
. the Interchange Measurement Price is $17.00;
. no options to acquire Bridge View common stock are cashed out in the
merger (i.e., all options are exercised);
. the total number of shares of Bridge View common stock outstanding as
of the effective time is 4,145,558;
. the election is not subject to proration; and
. for purposes of calculating the value of any fractional shares, the
average closing bid and asked price of a share of Interchange common
stock on the business day immediately preceding the effective date of
the merger is $17.00.
Step 1: Calculate Bridge View Per Share Value:
$33,528,472 + (2,949,719 x $17.00) = $20.18
-----------------------------------
4,145,558
Step 2: Calculate Exchange Ratio:
$20.18 = 1.187
-------
$17.00
Step 3: Calculate Consideration to be paid to the record holder of 100 shares
of Bridge View common stock if the holder elected to receive:
. all shares of Interchange common stock:
. 100 x 1.187 = 118 whole shares of Interchange common stock and $11.90
in cash in lieu of a fractional share of Interchange common stock (0.7
x $17.00 = $11.90); or
. all cash:
. 100 x $20.18 = $2,018 in cash; or
. a combination of cash and Interchange common stock:
. 100 x 1.187 x 60% = 71 shares of Interchange common stock and $3.74 in
cash in lieu of a fractional share of Interchange common stock, and
. 100 x $20.18 x 40% = $807.20 in cash
We cannot predict the Interchange Measurement Price. Therefore, we cannot
give a Bridge View shareholder any assurance that such price will be $17.00.
The actual Interchange Measurement Price will, in all likelihood, be different
than the price used in this illustration. In addition, we cannot predict the
total number of shares of Bridge View common stock that will be outstanding as
of the effective time of the merger. Accordingly, the Per Share Value and the
Exchange Ratio will, in all likelihood, be different than those used in this
illustration.
57
Effects of Fluctuations in Interchange Common Stock Price. Examples of how
the Interchange Measurement Price can affect the Per Share Value and the
Exchange Ratio are illustrated below.
The following example is based upon a range of hypothetical average prices
for Interchange common stock during the valuation period using the treasury
stock method analysis from Example No. 1 on page 56, which assumes that
3,808,443 shares of Bridge View common stock are outstanding at the effective
time of the merger.
Interchange Value of
Measurement Percent Total Cash Total Stock Total Per Share
Price(1) Change(2) Consideration Consideration(3) Consideration Value(4) Exchange Ratio
- ----------- --------- ------------- ---------------- ------------- --------- --------------
$21.25 25% $33,528,472 $62,681,529 $96,210,001 $25.26 1.19
$20.40 20% $33,528,472 $60,174,268 $93,702,740 $24.60 1.21
$19.55 15% $33,528,472 $57,667,006 $91,195,478 $23.95 1.22
$18.70 10% $33,528,472 $55,159,745 $88,688,217 $23.29 1.25
$17.85 5% $33,528,472 $52,652,484 $86,180,956 $22.63 1.27
$17.00 0% $33,528,472 $50,145,223 $83,673,695 $21.97 1.29
$16.15 -5% $33,528,472 $47,637,962 $81,166,434 $21.31 1.32
$15.30 -10% $33,528,472 $45,130,701 $78,659,173 $20.65 1.35
$14.45 -15% $33,528,472 $42,623,440 $76,151,912 $20.00 1.38
$13.60(5) -20% $33,528,472 $40,116,178 $73,644,650 $19.34 1.42
$12.75(5) -25% $33,528,472 $37,608,917 $71,137,389 $18.68 1.47
- --------
(1) The Interchange Measurement Price means the average closing bid and ask
prices for a share of Interchange common stock as reported by the Nasdaq
National Market for the valuation period of 20 consecutive trading days
ending on the date election forms are due.
(2) Percentage difference between average Interchange common stock price during
the valuation period and $17.00, which is the implied Interchange
Measurement Price for the purposes of this joint proxy statement-prospectus.
(3) Aggregate stock consideration valued using the implied Interchange
Measurement Price during the valuation period (see column 1) and assuming
that 2,949,719 shares of Interchange common stock will be issued in the
transaction.
(4) Stock consideration for each Bridge View share and cash consideration for
each Bridge View share valued using the implied Interchange Measurement
Price during the valuation period (see column 1). The Per Share Value
assumes 3,808,443 shares of Bridge View common stock are outstanding at the
effective time of the merger.
(5) Assumes that the decline in the Interchange Measurement Price below $13.64
does not exceed by 20% or more any decline in the weighted average stock
price of the index group identified in the merger agreement.
The following example is based upon a range of hypothetical average prices
for Interchange common stock during the valuation period using the fully
diluted analysis from Example No. 2 on page 57, which assumes that 4,145,558
shares of Bridge View common stock are outstanding at the effective time of the
merger.
Interchange Value of
Measurement Percent Total Cash Total Stock Total Per Share
Price(1) Change(2) Consideration Consideration(3) Consideration Value(4) Exchange Ratio
- ----------- --------- ------------- ---------------- ------------- --------- --------------
$21.25 25% $33,528,472 $62,681,529 $96,210,001 $23.19 1.09
$20.40 20% $33,528,472 $60,174,268 $93,702,740 $22.58 1.11
$19.55 15% $33,528,472 $57,667,006 $91,195,478 $21.98 1.12
$18.70 10% $33,528,472 $55,159,745 $88,688,217 $21.37 1.14
$17.85 5% $33,528,472 $52,652,484 $86,180,956 $20.77 1.16
$17.00 0% $33,528,472 $50,145,223 $83,673,695 $20.17 1.19
$16.15 -5% $33,528,472 $47,637,962 $81,166,434 $19.56 1.21
$15.30 -10% $33,528,472 $45,130,701 $78,659,173 $18.96 1.24
$14.45 -15% $33,528,472 $42,623,440 $76,151,912 $18.35 1.27
$13.60(5) -20% $33,528,472 $40,116,178 $73,644,650 $17.75 1.31
$12.75(5) -25% $33,528,472 $37,608,917 $71,137,389 $17.14 1.34
- --------
(1) The Interchange Measurement Price means the average closing bid and ask
prices for a share of Interchange common stock as reported by the Nasdaq
National Market for the valuation period of 20 consecutive trading days
ending on the date election forms are due.
(2) Percentage difference between average Interchange common stock price during
the valuation period and $17.00, which is the implied Interchange
Measurement Price for the purposes of this joint proxy statement-prospectus.
(3) Aggregate stock consideration valued using the implied Interchange
Measurement Price during the valuation period (see column 1) and assuming
that 2,949,719 shares of Interchange common stock will be issued in the
transaction.
(4) Stock consideration for each Bridge View share and cash consideration for
each Bridge View share valued using the implied Interchange Measurement
Price during the valuation period (see column 1). The Per Share Value
assumes 4,145,558 shares of Bridge View common stock are outstanding at the
effective time of the merger.
(5) Assumes that the decline in the Interchange Measurement Price below $13.64
does not exceed by 20% or more any decline in the weighted average stock
price of the index group identified in the merger agreement.
58
Interchange will not issue fractional shares in the merger. Instead, Bridge
View shareholders who would otherwise be entitled to a fractional share
interest (after taking into account all shares of Bridge View stock held by
such shareholder) will receive an amount in cash (without interest) equal to
the fractional interest multiplied by the average of the closing bid and asked
price of a share of Interchange common stock as reported on the Nasdaq National
Market on the business day immediately preceding the effective date of the
merger.
Because the merger consideration must consist of $33,528,472 in cash and
2,949,719 shares of Interchange common stock, Bridge View and Interchange
agreed to pro rate the mixture of cash and Interchange common stock based upon
formulas in the merger agreement. If the elections forms received from the
Bridge View shareholders, in the aggregate, result in Interchange being
required to issue either more or less than 2,949,719 shares of Interchange
common stock or more or less than $33,528,472 in cash, then the consideration
elections by the Bridge View shareholders will be subject to the allocation and
proration procedures described on pages 60 and 61 of this document. The
outcomes of the cash and stock elections (each of which is discussed below)
will not change the fixed amount in cash to be paid and the fixed number of
shares of Interchange common stock to be issued. If proration becomes
necessary, Bridge View shareholders may not receive the exact form of merger
consideration that they elect.
Effect of Merger on Interchange Shares
Each share of Interchange common stock issued and outstanding at the time of
the merger will remain outstanding and those shares will be unaffected by the
merger.
Election and Proration Procedures
The merger agreement provides that Interchange will issue 2,949,719 shares
of Interchange common stock and pay $33,528,472 in cash to the shareholders of
Bridge View in exchange for their shares of Bridge View common stock. Bridge
View shareholders will be asked to make an election to receive either (i)
shares of Interchange common stock, (ii) cash, or (iii) a combination of stock
and cash with respect to their shares of Bridge View common stock. Because the
amount and type of consideration to be issued by Interchange is fixed, it is
possible, as described below, that Bridge View shareholders will not receive
the exact form of merger consideration that they elected to receive.
Making the Election
Interchange has selected Continental Stock Transfer & Trust Company to serve
as the exchange agent for purposes of effecting the election, allocation, and
proration procedures. Prior to the special meeting of Bridge View shareholders,
an election form will be sent by Interchange's exchange agent to all Bridge
View shareholders. All elections must be made on an election form.
In order for a Bridge View shareholder to make an effective election with
respect to outstanding shares of Bridge View common stock, the shareholder must
deliver the following items to Interchange's exchange agent prior to the
election deadline (as set forth in the election form):
. a properly completed letter of transmittal and election form;
. one of the following: (a) your certificates for shares of Bridge View
common stock, (b) an affidavit of loss and indemnity agreement
satisfactory to the exchange agent or (c) an appropriate guarantee of
delivery; and
. any other required documents described in the election form.
Do not return your certificates representing shares of Bridge View common
stock with the enclosed proxy. Bridge View stock certificates should only be
forwarded to Interchange's exchange agent with the letter of transmittal and
election form.
Shares of Bridge View common stock will be considered "undesignated shares"
for which no merger consideration preference is given if:
. you do not submit a properly completed election form or required
accompanying documents in a timely fashion; or
59
. you revoke your election form and fail to resubmit a properly completed
election form prior to the deadline for submitting the election form.
If you have a preference as to the form of consideration to be received for
your shares of Bridge View common stock, you should make an election. Shares as
to which a valid election is made will be given priority in allocating the
merger consideration over undesignated shares to which a valid election is not
received. In addition, shares as to which an election of a combination of cash
and Interchange common stock, a "combination election," will be given a
preference in the event of proration as described herein.
None of Interchange, the Interchange board of directors, Bridge View or the
Bridge View board of directors makes any recommendation as to whether Bridge
View shareholders should elect to receive shares of Interchange common stock,
cash, or a combination of stock and cash. Bridge View shareholders must make
their own election decisions.
Changing or Revoking the Election
Bridge View shareholders may change their election by submitting to
Interchange's exchange agent a properly completed and signed revised election
form and all required additional documents. To be effective, however,
Interchange's exchange agent must receive these revised documents prior to the
election deadline. If some but not all of the revised documents are received by
the election deadline, your shares of Bridge View common stock will be
considered undesignated shares.
Bridge View shareholders may revoke their prior valid election by written
notice received by Interchange's exchange agent prior to the election deadline.
Bridge View shareholders also may revoke a prior valid election by submitting a
written withdrawal of their share certificates or of the notice of guaranteed
delivery of their share certificates previously deposited with Interchange's
exchange agent. Again, Interchange's exchange agent must receive this written
withdrawal before the election deadline. If, following revocation, you do not
resubmit a properly completed election form prior to the election deadline,
your shares of Bridge View common stock will be considered undesignated shares.
Allocation and Proration Procedures
As described elsewhere herein, the amount and type of merger consideration
to be issued by Interchange is fixed. Accordingly, if one form of consideration
(e.g., shares of Interchange common stock or cash) is oversubscribed, the
exchange agent will be required to allocate the consideration among the
shareholders of Bridge View based on preferences expressed in the election
forms. These allocation and proration procedures are set forth in the merger
agreement and are summarized below.
If the number of shares of Interchange common stock to be issued pursuant to
the stock elections and combination elections received equals 2,949,719 shares
of Interchange common stock, then the merger consideration will be allocated by
the exchange agent as follows until the number of shares of Interchange common
stock that will be issued in the merger equals as closely as practicable to
2,949,719 shares:
. shares for which stock elections have been made will be converted into
shares of Interchange common stock based on the exchange ratio;
. shares for which combination elections have been made will be converted
into the proportionate amount of Interchange common stock based on the
exchange ratio and cash;
. shares for which cash elections have been made will be converted into the
right to receive cash; and
. undesignated shares will be converted into the right to receive cash.
If the number of shares of Interchange common stock to be issued pursuant to
the stock elections and combination elections received plus undesignated shares
equals 2,949,719 shares of Interchange common stock, then the merger
consideration will be allocated as follows:
. shares for which stock elections have been made will be converted into
Interchange common stock based on the exchange ratio;
60
. shares for which combination elections have been made will be converted
into the proportionate amount of Interchange common stock based on the
exchange ratio and cash;
. undesignated shares will be converted into the right to receive
Interchange common stock based on the exchange ratio; and
. shares for which cash elections have been made will be converted into the
right to receive cash.
If Bridge View shareholders elect to receive less than 2,949,719 shares of
Interchange common stock, then each holder of Bridge View common stock who made
an election solely for shares of Interchange stock or a combination election
will receive shares of Interchange common stock based upon the exchange ratio.
In addition, the exchange agent will then select among the following groups, in
order, until the number of shares of Interchange common stock that will be
issued in the merger equals as closely as practicable to 2,949,719 shares:
. shares for which a holder failed to make an election shall be converted
into shares of Interchange common stock based upon the exchange ratio;
. if necessary, each holder of Bridge View common stock who acquired his
shares of Bridge View common stock after the record date set for mailing
election forms to Bridge View shareholders, shall receive shares of
Interchange common stock based upon the exchange ratio; and
. if necessary, each holder of Bridge View common stock who made an
election for cash shall receive, on a pro rata basis, shares of
Interchange common stock based upon the exchange ratio.
Any share of Bridge View common stock not selected to receive Interchange
common stock, will be converted into cash in an amount equal to the per share
cash amount.
If Bridge View shareholders elect to receive more than 2,949,719 shares of
Interchange common stock, then the merger consideration will be allocated by
the exchange agent as follows until the number of shares of Interchange common
stock that will be issued in the merger equals as closely as practicable to
2,949,719 shares:
. shares for which cash elections have been made and any undesignated
shares will be converted into cash;
. each holder of Bridge View common stock who acquired his shares of Bridge
View common stock after the record date set for mailing election forms to
Bridge View shareholders, will receive cash such that the number of
shares of Interchange common stock that will be issued in the merger
equals as closely as practicable to 2,949,719 shares; and
. if necessary, each holder of Bridge View common stock who made an
election for stock shall receive, on a pro rata basis, cash in the per
share cash amount such that the number of shares of Interchange common
stock that will be issued in the merger equals as closely as practicable
to 2,949,719 shares.
Any shares of Bridge View common stock not selected to receive cash will be
converted into shares of Interchange common stock based upon the exchange ratio.
Delivery of Consideration
Following the completion of the merger and upon surrender of all of the
certificates representing shares of Bridge View common stock registered in your
name or a satisfactory affidavit and indemnity if any of such certificates are
lost, stolen or destroyed, together with a properly completed letter of
transmittal, Continental Stock Transfer & Trust Company, Interchange's exchange
agent, will mail to you the cash and/or Interchange common stock to which you
are entitled, less the amount of any required withholding taxes. You will not
receive interest on any cash.
Shares of Interchange common stock issued in the merger will receive any
dividends Interchange declares after the merger is completed. However, no
dividend or other distribution payable to the holders of record of Interchange
common stock at or as of any time after the completion of the merger will be
paid to holders of Bridge View common stock who receive Interchange common
stock in the merger until they physically surrender all certificates as
described above. After the completion of the merger, the Bridge View stock
transfer books will close and there will be no transfers on the Bridge View
transfer books.
61
Representations and Warranties
The merger agreement contains numerous representations and warranties made
by each of Interchange and Bridge View, including representations and
warranties with respect to their individual organizations, authorizations to
enter into the merger agreement, capitalization, financial statements and
pending and threatened litigation. These representations and warranties will
not survive the completion of the merger.
Any material changes to the representations and warranties during the
pendency of the merger may give the other party the right to terminate the
merger agreement. See "--Termination" and "--Termination Fees."
Covenants; Conduct of Business Prior to Completion of the Merger
Conduct of Bridge View. The merger agreement provides that, during the
period from November 18, 2002 to the completion of the merger, each of Bridge
View and Bridge View Bank will, among other things:
. conduct its business in the ordinary course and in substantially the
manner conducted previously and in accordance with sound banking
practices;
. extend credit only in accordance with existing lending policies;
. use all reasonable efforts to preserve its business organization intact;
. use all reasonable efforts to retain the services of its present
employees, officers, directors and agents; to retain its present
customers, depositors, suppliers and correspondent banks;
. use all reasonable efforts to preserve its goodwill and the goodwill of
its suppliers, customers and others having business relationships with it;
. use all reasonable efforts to obtain any approvals or consents required
to maintain all existing contracts, leases and documents relating to or
affecting its assets, properties and business;
. maintain and keep in full force and effect, in all material respects,
presently existing insurance coverage and give all notices and present
all claims under all insurance policies in due and timely fashion;
. permit Interchange and its representatives to examine its books, records
and properties and to interview officers, employees and agents at all
reasonable times when it is open for business;
. continue to follow and implement policies, procedures and practices
regarding the identification, monitoring, classification and treatment of
all assets in substantially the same manner as it has in the past;
. account for all transactions in accordance with generally accepted
accounting principles and maintain the allowance for loan losses account
for Bridge View in an adequate amount to provide for all losses, net of
recoveries relating to loans previously charged off, on all outstanding
loans of Bridge View, but in no event shall Bridge View's allowance for
loan losses account be less than 0.95% of its total loans outstanding;
. promptly charge-off all loans past due 90 days or more, and charge-off
all loans reasonably anticipated to be 90 days or more past due as of the
completion of the merger.
. pay (or establish adequate reserves for) all costs, expenses and other
charges to be incurred by Bridge View associated with the cancellation of
any contracts to be cancelled as a result of the merger (including
without limitation the cost of termination of its existing data
processing agreement); and
. pay (or establish adequate reserves for) all costs, expenses and other
charges to be incurred by Bridge View associated with the merger.
The merger agreement further provides that neither Bridge View nor Bridge
View Bank will, without the prior written consent of Interchange, take any of
the following actions:
. amend its certificate of incorporation, articles of association or bylaws;
. issue, sell or authorize the issue or sale of any securities, except
pursuant to the exercise of outstanding Bridge View stock options;
. mortgage, pledge or subject to lien any of its property, business or
assets, tangible or intangible;
. enter into any material agreement, contract or commitment in excess of
$25,000, except for banking transactions in the ordinary course of
business;
62
. other than actions required by the merger agreement, take any action that
could reasonably be anticipated to result in a material adverse change
with respect to Bridge View;
. take or fail to take any action that would cause or permit the
representations and warranties made in the merger agreement to be
inaccurate at the completion of the merger or preclude Bridge View from
making such representations and warranties at completion of the merger;
. incur any obligation or liability, whether absolute or contingent, except
in the ordinary course of business and consistent with normal banking
practices;
. discharge or satisfy any lien or pay any obligation or liability, whether
absolute or contingent, due or to become due, except in the ordinary
course of business consistent with normal banking practices;
. redeem, retire, purchase or otherwise acquire, directly or indirectly,
any of the capital stock of Bridge View, or obligate itself to purchase,
retire or redeem, any of its shares of its capital stock;
. except for the regular quarterly dividend paid by Bridge View on its
common stock, which will not exceed $0.10 per share, declare, make, set
aside or pay any dividend or other distribution with respect to its
capital stock;
. sell, transfer, lease to others or otherwise dispose of any of its assets
or properties or cancel or compromise any debt or claim, or waive or
release any right or claim;
. increase the compensation of any officers, directors, employees of Bridge
View or any of its subsidiaries, except increases pursuant to existing
compensation plans or regular reviews and which increases as are
consistent with past practices, provided that no such increase shall be
more than four percent (4%) with respect to any individual officer,
director or employee and provided further that any increases, either
singularly or in the aggregate, shall be consistent with Bridge View's
2003 budget;
. acquire any capital stock or other equity securities or acquire any
equity or ownership interest in any bank, corporation, partnership or
other entity, except (i) through settlement of indebtedness, foreclosure,
or the exercise of creditors' remedies or (ii) in a fiduciary capacity,
the ownership of which does not expose it to any liability from the
business, operations or liabilities of such person;
. terminate, cancel or surrender any contract, lease or other agreement
that, individually or in the aggregate, would constitute a material
adverse change with respect to Bridge View;
. make any capital expenditures, capital additions or betterments in excess
of an aggregate of $10,000;
. hire or employ any person with an annual salary equal to or greater than
$25,000;
. other than loans fully secured by certificates of deposit or liquid,
readily marketable collateral, make or alter any of the material terms of
any loan to any single borrower and his related interests in excess of
the principal amount of $250,000, or renew or extend the maturity of any
loan to any single borrower and his related interests in excess of the
principal amount of $250,000 or that would increase the aggregate credit
outstanding to any such borrower or his related interests by more than
$250,000; or
. make, or renew or extend the maturity of, or alter any of the material
terms of any classified loan.
Bridge View further agreed to:
. terminate its employee benefit plans and have the accrued benefits paid
in accordance with the provisions of such plans, to or, modify or merge
its employee benefit plans into similar employee benefit plans maintained
by Interchange, as defined by Interchange and subject to compliance with
applicable law;
. deliver, at least 20 days prior to the completion of the merger, a list
identifying all persons who are "affiliates" of Bridge View for purposes
of Rule 145 under the Securities Act and to obtain and deliver not less
than 10 days before the completion of the merger an agreement to
Interchange regarding compliance with Rule 145;
. make such accruals and reserves to the allowance for loan loss or other
financial adjustments made at the reasonable request of Interchange,
provided, however, that such accruals and reserves will be made only to
the extent that they are consistent with generally accepted accounting
principles;
. amend any agreement or understanding for payment or grant any right that
would cause the limitations of Section 280G of the Internal Revenue Code
with respect to tax deductibility to be exceeded.
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Conduct of Interchange. The merger agreement provides that, during the
period from November 18, 2002 to the completion of the merger, subject to
requirements of law and regulation generally applicable to their operations,
Interchange and Interchange Bank will not, without the prior written consent of
Bridge View:
. take any action which would reasonably be anticipated to result in a
material adverse change with respect to Interchange;
. take or fail to take any action that would cause or permit the
representations and warranties made in the merger agreement to be
inaccurate at the time of the closing of the merger or preclude
Interchange from making such representations and warranties at the
completion of the merger; or
. make any, or acquiesce with any, change in any accounting methods,
principles or material practices, except as required by changes in
generally accepted accounting principles as concurred in by Interchange's
independent auditors.
The merger agreement also provides that Interchange will:
. file all necessary regulatory applications to seek approval of the merger;
. file a registration statement with the Securities and Exchange Commission
of which this joint proxy statement-prospectus forms a part; and
. have the shares of Interchange common stock to be issued in the merger
approved for listing on the Nasdaq National Market.
Conduct of Both Parties. The merger agreement also provides that each party
will:
. duly call, give notice of, convene and hold a meeting of their
shareholders as soon as practicable for approval of any matters necessary
to complete the merger;
. use its best efforts to perform and fulfill the conditions and obligation
to consummate the transactions contemplated by the merger agreement as
promptly as practicable;
. keep each other advised of all material developments relating to their
respective business operations; and
. provide each other with access to their respective executive officers and
advisors.
Nonsolicitation
Under the terms of the merger agreement, Bridge View has agreed not to
encourage, solicit or initiate any merger, tender offer or other takeover
offer, sale of substantial assets, sale of shares of capital stock or similar
transaction involving Bridge View or any of its subsidiaries. In addition,
Bridge View has agreed, unless it determines, with advice of counsel, that its
fiduciary duty requires otherwise, not to participate in any negotiations or
discussions regarding, or furnish any information concerning or otherwise
cooperate in any way in connection with, any effort or attempts to effect any
competing transaction with or involving any entity other than Interchange. This
restriction does not apply, however, if Bridge View receives a bona fide offer
from a person other than Interchange and the Bridge View board of directors
responds in accordance with applicable fiduciary obligations. Bridge View has
agreed to promptly notify Interchange of the terms of any proposal which it may
receive in respect of any competing transaction.
Conditions to the Merger
The obligation of Interchange and Bridge View to consummate the merger is
subject to the satisfaction or waiver on or before the completion of the merger
of various conditions, including the following:
. Bridge View shareholders must approve and adopt the merger agreement;
. Interchange shareholders must approve the issuance of shares of
Interchange common stock in connection with the merger;
. all representations and warranties made by both Interchange and Bridge
View in the merger agreement must remain true and correct, unless any
deviation would not have, or would not reasonably be expected to have, a
material adverse effect;
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. Interchange and Bridge View must have performed their respective
obligations under the merger agreement in all material respects;
. there must not be any outstanding or threatened judgments, decrees,
injunctions, orders or other proceedings by a governmental authority that
would prohibit the merger;
. Interchange and Bridge View must have received all necessary
authorizations, orders and consents of governmental authorities for the
merger without the imposition of any condition that Interchange
reasonably believes would have a material adverse effect on it and any
required waiting periods must have expired;
. there will not have occurred, between September 30, 2002 and the
completion of the merger, any material adverse change, on a consolidated
basis, in the business, financial condition, results of operations or
prospects of Interchange or of Bridge View; and
. all accounting and tax treatment entries and adjustments shall be
reasonably satisfactory to Interchange and Interchange shall not have
received any notice from any proper regulatory authority that any of
Interchange's accounting or tax treatments or entries and adjustments are
improper.
Additionally, the completion of the merger is subject to the performance of
covenants and the delivery and receipt of various documents, including a tax
opinion, third-party consents, and officers' certificates.
Unless prohibited by law, either Interchange or Bridge View may elect to
waive a condition that has not been satisfied by the other party and complete
the merger anyway. If the foregoing and other conditions are not satisfied or
waived, Interchange or Bridge View may terminate the merger agreement. See
"--Termination."
Resales of Interchange Common Stock by Bridge View Shareholders
The Interchange common stock issued pursuant to the merger will be freely
transferable under the Securities Act of 1933, except for shares issued to any
Bridge View shareholder who may be deemed to be an affiliate of Interchange for
purposes of Rule 144 promulgated under the Securities Act of 1933 or an
affiliate of Bridge View for purposes of Rule 145 promulgated under the
Securities Act of 1933. Affiliates will include persons (generally executive
officers, directors and 10% shareholders) who control, are controlled by or are
under common control with:
. Interchange or Bridge View at the time of the Bridge View special
meeting; or
. Interchange at or after the effective time of the merger.
Rule 145 will restrict the sale of Interchange common stock received in the
merger by affiliates and certain of their family members and related interests.
Generally, during the year following the effective time of the merger, those
persons who are affiliates of Bridge View at the time of the special meeting,
provided they are not affiliates of Interchange at or following the effective
time of the merger, may publicly resell any Interchange common stock received
by them in the merger, subject to certain limitations as to, among other
things, the amount of Interchange common stock sold by them in any three-month
period and as to the manner of sale. After the one-year period, such affiliates
may resell their shares without such restrictions so long as there is adequate
current public information with respect to Interchange as required by Rule 144.
Persons who are affiliates of Interchange after the effective time of the
merger may publicly resell the Interchange common stock received by them in the
merger subject to similar limitations and subject to certain filing
requirements specified in Rule 144. At the present time, it is anticipated that
certain shareholders of Bridge View who own in excess of 10% of Bridge View at
the time of the Bridge View special meeting will become affiliates of
Interchange after the merger. In addition, three Bridge View directors will
become Interchange directors following the merger and six Bridge View Bank
directors will become Interchange Bank directors following the bank merger.
Accordingly, these shareholders and directors may be deemed to be affiliates of
both companies.
The ability of affiliates to resell shares of Interchange common stock
received in the merger under Rules 144 or 145 as summarized herein generally
will be subject to Interchange's having satisfied its reporting requirements
under the Securities Exchange Act of 1934 for specified periods prior to the
time of sale. Affiliates also would be permitted to resell Interchange common
stock received in the merger pursuant to an effective registration statement
under the Securities Act of 1933 or another available exemption from the
Securities Act of 1933 registration requirements. Neither the registration
statement of which this document is a part nor this
65
document cover any resales of Interchange common stock received by persons who
may be deemed to be affiliates of Interchange or Bridge View in the merger.
Under the merger agreement, Bridge View has agreed to deliver to Interchange
a list identifying each person who may be reasonably deemed to be an affiliate
of it for purposes of Rule 145. In addition Bridge View agreed to obtain and
deliver to Interchange an agreement signed by each affiliate of Bridge View and
of any person who may become an affiliate of Bridge View between November 18,
2002 and the completion of the merger. The agreement is intended to ensure
compliance with the Securities Act of 1933 in connection with the sale of any
shares of Interchange commons stock received in the merger. The form of
agreement is attached to the merger agreement as Exhibit B.
Regulatory Approval for the Merger
Under the merger agreement, Interchange, with the cooperation of Bridge
View, agreed to file promptly for all regulatory approvals required to be
obtained by Interchange under the merger agreement and in order to complete the
merger, including, without limitation, the approval of the Board of Governors
of the Federal Reserve System. Interchange agreed to use its best efforts to
obtain all such regulatory approvals and any other approvals from third parties
necessary at the earliest practicable time. Interchange will also seek approval
of the merger of Bridge View Bank with and into Interchange Bank. With respect
to the merger, an application was filed with Federal Reserve on January 31,
2003.
Immediately following the merger, it is anticipated that Bridge View Bank
will be merged with and into Interchange Bank. Prior approval of the bank
merger must be obtained from the Federal Reserve and the New Jersey Department
of Banking and Insurance. With respect to the bank merger, applications were
filed with the Federal Reserve and the New Jersey Department of Banking and
Insurance on January 31, 2003.
Federal Reserve Approval. Pursuant to Section 3 of the BHCA, and the
regulations promulgated pursuant thereto, the approval of the Federal Reserve
must be obtained prior to the merger. The Federal Reserve must withhold
approval of the merger if it finds that the transaction will result in a
monopoly or be in furtherance of any combination or conspiracy to monopolize or
attempt to monopolize the business of banking in any part of the United States.
In addition, the Federal Reserve may not approve the merger if it finds that
the effect thereof may be substantially to lessen competition in any section of
the country, or tend to create a monopoly, or would in any other manner be in
restraint of trade, unless it finds that the anti-competitive effects of the
merger are clearly outweighed by the probable effect of the merger in meeting
the convenience and needs of the communities to be served. The Federal Reserve
will also take into consideration the financial condition and managerial
resources of Interchange and Bridge View and their respective subsidiaries.
Finally, the Federal Reserve will consider the compliance records of
Interchange's and Bridge View's subsidiaries under the Community Reinvestment
Act.
The BHCA provides for the publication of notice and public comment on the
application and authorizes the Federal Reserve to permit interested parties to
intervene in the proceedings. An intervention by an interested party could
delay the regulatory approvals required for consummation of the merger. Section
11 of the BHCA imposes a waiting period which prohibits consummation of the
merger, in ordinary circumstances, for a period ranging from 15 to 30 days
following the Federal Reserve's approval of the merger. During this period, the
United States Department of Justice, should it object to the merger for
antitrust reasons, may challenge the consummation of the merger.
Pursuant to Section 18(c) of the Federal Deposit Insurance Act (the "Bank
Merger Act"), the Federal Reserve's prior approval of the bank merger must be
obtained. The Federal Reserve is prohibited from approving the bank 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. In addition, the Federal Reserve is prohibited
from approving the bank merger if its effect, in any section of the country,
would
66
be substantially to lessen competition, or to tend to create a monopoly, or
which in any other manner would be in restraint of trade, unless it finds that
the anti-competitive effects of the bank merger are clearly outweighed in the
public interest by the probable effect of the bank merger in meeting the
convenience and needs of the community to be served. The Federal Reserve is
required to take into consideration the financial and managerial resources and
future prospects of the existing and proposed institutions, and the convenience
and needs of the community to be served.
The Bank Merger Act imposes a waiting period which prohibits consummation of
the bank merger, in ordinary circumstances, for a period ranging from 15 to 30
days following the Federal Reserve's approval of the bank merger. During such
period, the United States Department of Justice, should it object to the bank
merger for antitrust reasons, may challenge the consummation of the bank merger.
New Jersey Department of Banking and Insurance Approval. The bank merger
agreement, as amended, must be approved by the New Jersey Department of Banking
and Insurance pursuant to applicable provisions of the New Jersey Banking Act.
The Commissioner will, within 60 days of the date of submission of the bank
merger agreement notify the parties of his approval or disapproval.
The merger agreement provides that the obligation of each of Interchange and
Bridge View to consummate the merger is conditioned upon the receipt of all
necessary regulatory approvals. Regulatory approval of the bank merger is not a
condition to completion of the merger.
On March 19, 2003, the Federal Reserve Bank of New York, acting under
delegated authority, approved Interchange's application to merge with Bridge
View and thereby acquire Bridge View Bank. The Federal Reserve's approval order
stated that the merger may not be completed prior to April 3, 2003. Completion
of the merger is also subject to the condition that, at the effective time of
the merger, Interchange, as the resulting corporation in the merger, will be
"well-capitalized" in accordance with regulatory guidelines applicable to bank
holding companies. On March 19, 2003, the Federal Reserve Bank of New York also
approved the application to merge Bridge View Bank with and into Interchange
Bank subject to the condition that, at the effective time of the bank merger,
Interchange Bank, as the surviving bank in the bank merger, will be
"well-capitalized" in accordance with regulatory guidelines applicable to banks.
In addition, Interchange still has its application and notice pending before
the New Jersey Department of Banking and Insurance. There can be no assurance
that the New Jersey Department of Banking and Insurance will approve
Interchange's application and notice and, if such approval is received, that
such approval will not be conditioned upon terms and conditions that would
cause Interchange to abandon the merger.
Approval of an application or notice received from a bank regulatory agency
reflects only its view that the merger and/or the bank merger, as applicable,
does not contravene applicable competitive standards imposed by law, and that
the merger or the bank merger is consistent with regulatory policies relating
to safety and soundness. The approval of a bank regulatory agency is not an
endorsement or recommendation of the merger or the merger agreement.
Interchange is not aware of any governmental approvals or actions that may
be required for consummation of the merger except for the prior approval of the
Federal Reserve described above. Should any such approval or action be
required, it is presently contemplated that such approval or action would be
sought.
Termination
Either Bridge View or Interchange may call off the merger under certain
circumstances, including if:
. they both consent in writing;
67
. the conditions precedent to such party's obligations to close as
specified in the merger agreement shall not have been satisfied on or
before June 30, 2003, provided the terminating party is not in breach of
any representation, warranty, covenant or other agreement contained in
the merger agreement;
. any of the transactions contemplated by the merger agreement or any other
agreement contemplated by the merger agreement are disapproved by any
regulatory authority whose approval is required to complete merger or a
court issues a final, non-appealable order enjoining the merger; or
. the merger agreement is not approved and adopted by the required vote of
the shareholders of Bridge View, or the issuance of the shares of
Interchange common stock is not approved by the required votes of the
Interchange shareholders.
Bridge View, additionally, may call off the merger if:
. Interchange materially breaches, and does not cure within 30 days, any
representation, warranty, covenant or agreement made by it under the
merger agreement;
. there has been a material adverse change with respect to Interchange;
. the average closing price of a share of Interchange common stock on the
Nasdaq National Market for the 20 consecutive trading days ending on day
on which the election forms are due is below $13.64 and the decline in
the average closing sales price is greater by a factor of 20% than any
decline in the weighted average stock price of the index group identified
in the merger agreement and Interchange does not elect to increase the
exchange ratio in the manner provided in the merger agreement;
. the average closing price of a share of Interchange common stock on the
Nasdaq National Market for the 20 consecutive trading days ending on day
on which the election forms are due is below $11.94 and Interchange does
not elect to increase the exchange ratio in the manner provided in the
merger agreement; or
. Bridge View receives a proposal for a merger, consolidation,
reorganization, tender offer or similar transaction with a third party,
and termination of the acquisition is required in order for the board of
directors of Bridge View to comply with its fiduciary duties.
Interchange, additionally, may call off the merger if:
. Bridge View materially breaches, and does not cure within 30 days, any
representation, warranty, covenant or agreement made by it under the
merger agreement;
. there has been a material adverse change with respect to Bridge View;
. any application for regulatory or governmental approval necessary to
complete the merger will have been denied or withdrawn at the request or
recommendation of the applicable regulatory agency or governmental
authority or if such application is approved with commitments, conditions
or understandings, which Interchange believes to materially impair the
value of Bridge View and its subsidiaries, taken as a whole, to
Interchange or which alter materially and adversely the economics of the
transactions contemplated by the merger agreement; or
. the results of environmental inspections, investigations or surveys
conducted by Interchange with respect to the properties of Bridge View
identify violations or potential violations of environmental laws, or if
Bridge View refuses to allow Interchange to conduct such inspections,
investigations or surveys.
Termination Fees
The merger agreement requires Bridge View to pay Interchange a $2.7 million
termination fee if the merger agreement is terminated by Interchange because:
. the Bridge View shareholders failed to approve and adopt the merger
agreement, and either:
. the board of directors of Bridge View failed to use its best efforts
to obtain shareholder approval; or
68
. Bridge View shall have entered into a merger or similar agreement with
a third party by November 18, 2003; or
. Bridge View shall have entered into a merger or similar agreement with
a third party.
The merger agreement requires Interchange to pay Bridge View a $1.0 million
termination fee if the merger agreement is terminated by Bridge View because:
. the Interchange shareholders failed to approve the issuance of shares of
Interchange stock required by the merger agreement, and either:
. the board of directors of Interchange failed to use its best efforts
to obtain shareholder approval, or
. Interchange shall have entered into a merger or similar agreement with
a third party by November 18, 2003.
Expenses
Interchange and Bridge View will pay their own fees, costs and expenses
incurred in connection with the merger. In addition, Bridge View and
Interchange have agreed that if the merger agreement is terminated under
certain circumstances, then, depending upon the reason for termination, Bridge
View will reimburse all out-of-pocket expenses and fees of Interchange relating
to the transactions contemplated by the merger agreement. Reimbursement under
these circumstances, however, will be limited to $250,000.
Amendment and Waiver of the Merger Agreement
Interchange and Bridge View may jointly amend the terms of the merger
agreement, and each of them may waive their right to require the other party to
adhere to those terms, to the extent legally permissible.
Except as otherwise required by law, the parties may amend the merger
agreement or waive any of its terms without the approval of their respective
shareholders. However, an amendment to the merger agreement that reduces the
merger consideration payable to Bridge View shareholders and certain other
types of amendments cannot be made following the approval and adoption of the
merger agreement by the Bridge View shareholders without their approval.
INFORMATION ABOUT INTERCHANGE
General
Interchange is a New Jersey business corporation and registered bank holding
company under the BHCA. It acquired all of the outstanding stock of Interchange
Bank, a New Jersey state chartered bank and member of the Federal Reserve
System, in 1986. Interchange Bank is Interchange's principal operating
subsidiary. Interchange's principal executive office is located at Park 80
West/Plaza II, Saddle Brook, New Jersey 07663, and the telephone number is
(201) 703-2265.
As a holding company, Interchange provides support services to its direct
and indirect subsidiaries. These include executive management, personnel and
benefits, risk management, data processing, strategic planning, legal, and
accounting and treasury.
Interchange Bank, established in 1969, is a full-service commercial bank
headquartered in Saddle Brook, New Jersey. It offers banking services for
individuals and businesses through its eighteen banking offices and one
supermarket mini-branch in Bergen County, New Jersey.
In addition to Interchange Bank, Interchange has another wholly-owned direct
subsidiary: Clover Leaf Mortgage Company, a New Jersey Corporation established
in 1988, which is not currently engaged in any
69
business activity. Subsidiaries of Interchange Bank include: Clover Leaf
Investment Corporation, established in 1988 to engage in the business of an
investment company pursuant to New Jersey law; Clover Leaf Insurance Agency,
Inc., established in 1990 to engage in sales of tax-deferred annuities; Clover
Leaf Management Realty Corporation, established in 1998 as a Real Estate
Investment Trust which manages certain real estate assets of Interchange; and
Interchange Capital Company, L.L.C., established in 1999 to engage in equipment
lease financing and the solicitation of end users in Interchange Bank's current
market. All of Interchange Bank's subsidiaries are New Jersey corporations or
limited liability companies and are 100% owned by Interchange Bank, except for
the Clover Leaf Management Realty Corporation which is 99% owned by Interchange
Bank.
Products and Services
Through Interchange Bank, Interchange offers a wide range of consumer
banking services, including: checking and savings accounts, money-market
accounts, certificates of deposit, individual retirement accounts, residential
mortgages, home equity lines of credit and other second mortgage loans, home
improvement loans, automobile loans, personal loans and overdraft protection.
Interchange Bank also offers credit card and several convenience products,
including the Interchange Check Card, which permits customers to access their
checking accounts by using the card when making purchases. The Interchange
Check Card can also be used as an ATM card to perform basic banking
transactions. Interchange Bank maintains twenty-two automated teller machines,
which are located at seventeen of the Interchange Banking offices, the
supermarket mini-branch, a local college and at Interchange Bank's operations
center.
Another service offered to customers is Interchange Bank-Line Telephone
Banking, which permits customers to perform basic banking transactions,
including, transfer money between accounts and make loan payments from any
phone, at any time of the day or night by calling a toll-free number.
Interchange Bank also offers the Interchange Bank-Line Center, which is an
inbound calling facility providing enhanced customer service via access to a
single source for account and product information, opening accounts or even
applying for a consumer loan. The Interchange Bank-Line Center also serves as
an outbound telemarketing resource, contacting prospective and current
customers for new accounts. Interchange Bank also offer online banking through
InterBank. InterBank, which is accessed through Interchange Bank's web site at
www.interchangebank.com, allows customers to access account information,
process transfers between accounts, generate an account statement, pay bills
electronically and much more. As described below, additional products and
services may be accessed through Interchange Bank's web site.
Interchange Bank also is engaged in the financing of local business and
industry, providing credit facilities and related services for smaller
businesses, typically those with $1 million to $5 million in annual sales.
Commercial loan customers of Interchange Bank are businesses ranging from light
manufacturing and local wholesale and distribution companies to medium-sized
service firms and local retail businesses. Most types of commercial loan
products are offered, including working capital lines of credit, small business
administration loans, term loans for fixed asset acquisitions, commercial
mortgages, equipment lease financing and other forms of asset-based financing.
In addition to its origination activities, Interchange Bank purchases
packages of loans. In 2002 and 2001, Interchange Bank purchased $14.9 million
and $18.8 million of loans, respectively. These loans were subjected to
Interchange Bank's independent credit analysis prior to purchase. Interchange
Bank has experienced opportunities to sell its other products and services to
the borrowers whose loans are purchased and believes that purchasing loans will
continue to be a desirable way to augment its portfolios as opportunities arise.
Interchange Bank also engages in mutual fund and annuities sales and
brokerage services. An Investment Services Program is offered through an
alliance between Interchange Bank and the ICBA Financial Services Corporation
("ICBA"), under which mutual funds and annuities offered by ICBA are made
available to Interchange Bank's customers. Interchange Bank has also expanded
its product offerings by entering into an agreement with a third party provider
to offer discount brokerage services to its customers. Interchange offers
securities trading through its web site, which is hyperlinked to FISERV
Securities, Inc., member NASD/SIFC,
70
so that customers can access their brokerage accounts via the Internet. There
is also a direct link from Interchange's web site to the Nasdaq National Market
to allow investors to keep informed of the daily quotes and market activity for
Interchange's common stock.
Additional information about Interchange Bank and Interchange may be found
on its web site at www.interchangebank.com.
Market Areas
Interchange's principal market for its deposit gathering and loan
origination activities covers major portions of Bergen County in the
northeastern corner of New Jersey adjacent to New York City. Bergen County has
a relatively large affluent base for Interchange's services. The principal
service areas of Interchange represent a diversified mix of stable residential
neighborhoods with a wide range of per household income levels; offices,
service industries and light industrial facilities; and large shopping malls
and small retail outlets.
Competition
Competition in banking and financial services industry within Interchange's
primary market area is strong. Interchange Bank competes actively with national
and state-chartered commercial banks, operating on a local and national scale,
and other financial institutions, including savings and loan associations,
mutual savings banks, and credit unions. In addition, Interchange Bank faces
competition from less heavily regulated entities such as brokerage
institutions, money management firms, consumer finance and credit card
companies and various other types of financial services companies. Many of
these institutions are larger than Interchange Bank, some are better
capitalized, and a number pursue community banking strategies similar to those
of Interchange Bank.
Interchange Bank believes that opportunities continue to exist to satisfy
the deposit and borrowing needs of small and middle market businesses. Larger
banks continued to show an appetite for only the largest loans, finding
themselves challenged to administer smaller loans profitably. Interchange has
the desire and the ability to give smaller and mid-sized businesses the service
they require. Many small businesses eventually become mid-sized businesses,
with a corresponding change in financial requirements. By designing programs to
accommodate the changing needs of growing businesses, Interchange is extending
the longevity of valuable customer relationships. For example, through its
subsidiary, Interchange Capital Company, L.L.C., Interchange Bank extends
cost-effective equipment leasing solutions for a variety of expansion and
upgrading projects. Interchange Bank believes that it is able to maintain its
relationship with these growing businesses because of its ability to be
responsive to both small and midsize business constituencies.
Personnel
Interchange had 226 full-time-equivalent employees at year-end 2002.
Interchange believes its relationship with employees to be good.
Properties
Interchange leases thirteen banking offices, one mini-branch within a
supermarket, one operations/support facility and one administrative/executive
facility. It also leases two locations for the sole purpose of operating
Automated Teller Machines. It owns four banking offices and leases land on
which it owns one bank building. All of the facilities are located in Bergen
County, New Jersey, which constitutes Interchange's primary market area. In the
opinion of management, the physical properties of Interchange and its
subsidiaries are suitable and adequate.
Legal Proceedings
In the ordinary course of business, Interchange and its subsidiaries are
involved in routine litigation involving various aspects of its business, none
of which, individually or in the aggregate, in the opinion of
71
management and its legal counsel, is expected to have a material adverse impact
on the consolidated financial condition, results of operations or liquidity of
Interchange.
Regulation and Supervision
Banking is a complex, highly regulated industry. The primary goals of bank
regulatory scheme are to maintain a safe and sound banking system and to
facilitate the conduct of sound monetary policy. In furtherance of those goals,
Congress has created several largely autonomous regulatory agencies and enacted
myriad legislation that governs banks, bank holding companies and Interchange
Banking industry. Descriptions and references to the statutes and regulations
below are brief summaries thereof and do not purport to be complete. The
descriptions are qualified in their entirety by reference to the specific
statutes and regulations discussed.
Interchange
Interchange is a registered bank holding company under the BHCA and, as
such, is subject to supervision and regulation by the Federal Reserve. As a
bank holding company, Interchange is required to file an annual report with the
Federal Reserve and such additional information as the Federal Reserve may
require pursuant to the BHCA and Federal Regulation Y. The Federal Reserve may
conduct examinations of Interchange or any of its subsidiaries.
Bank Holding Company Act. The BHCA requires every bank holding company to
obtain the prior approval of the Federal Reserve before it may acquire all or
substantially all of the assets of any bank (although the Federal Reserve may
not assert jurisdiction in certain bank mergers that are regulated under
Interchange Bank Merger Act), or ownership or control of any voting shares of
any bank if after such acquisition it would own or control directly or
indirectly more than 5% of the voting shares of such bank.
The BHCA also provides that, with certain limited exceptions, a bank holding
company may not (i) engage in any activities other than those of banking or
managing or controlling banks and other authorized subsidiaries or (ii) own or
control more than five percent (5%) of the voting shares of any company that is
not a bank, including any foreign company. A bank holding company is permitted,
however, to acquire shares of any company the activities of which the Federal
Reserve, after due notice and opportunity for hearing, has determined to be so
closely related to banking or managing or controlling banks as to be a proper
incident thereto. The Federal Reserve has issued regulations setting forth
specific activities that are permissible under the exception. A bank holding
company and its subsidiaries are also prohibited from engaging in certain
tie-in arrangements in connection with any extension of credit, lease or sale
of property or furnishing of services.
Under certain circumstances, prior approval of the Federal Reserve is
required under the BHCA before a bank holding company may purchase or redeem
any of its equity securities.
The Federal Reserve is vested with broad enforcement powers over bank
holding companies to forestall activities that represent unsafe or unsound
practices or constitute violations of law. These powers may be exercised
through the issuance of cease and desist orders or other actions. The Federal
Reserve is also empowered to assess civil money penalties against companies or
individuals that violate the BHCA, to order termination of non-banking
activities of non-banking subsidiaries of bank holding companies and to order
termination of ownership and control of non-banking subsidiaries by bank
holding companies. Neither Interchange nor any of its affiliates has ever been
the subject of any such actions by the Federal Reserve.
Financial Services Modernization Act. Traditionally, the activities of bank
holding companies have been limited to the business of banking and activities
closely related or incidental to banking. The Gramm-Leach-Bliley Financial
Services Modernization Act of 1999 (the "Modernization Act"), enacted on
November 11, 1999, with an effective date of March 11, 2000, expanded the types
of activities in which a bank holding company may engage. Subject to various
limitations, the Modernization Act generally permits a bank holding company to
elect
72
to become a "financial holding company." A financial holding company may
affiliate with securities firms and insurance companies and engage in other
activities that are "financial in nature." Among the activities that are deemed
"financial in nature" are, in addition to traditional lending activities,
securities underwriting, dealing in or making a market in securities,
sponsoring mutual funds and investment companies, insurance underwriting and
agency activities, certain merchant banking activities, and activities that the
Federal Reserve considers to be closely related to banking.
A bank holding company may become a financial holding company under the
Modernization Act if each of its subsidiary banks is "well capitalized" under
the Federal Reserve guidelines (See "Capital Adequacy Guidelines" below), is
well managed and has at least a satisfactory rating under the Community
Reinvestment Act. In addition, a bank holding company must file a declaration
with the Federal Reserve that the bank holding company wishes to become a
financial holding company. A bank holding company that falls out of compliance
with such requirements may be required to cease engaging in certain activities
permitted only for financial holding companies. Any bank holding company that
does not elect to become a financial holding company remains subject to the
current restrictions of the BHCA.
Under the Modernization Act, the Federal Reserve serves as the primary
"umbrella" regulator of financial holding companies, with supervisory authority
over each parent company and limited authority over its subsidiaries. Expanded
financial activities of financial holding companies will generally be regulated
according to the type of such financial activity: banking activities by banking
regulators, securities activities by securities regulators, and insurance
activities by insurance regulators. The Modernization Act also imposes
additional restrictions and heightened disclosure requirements regarding
private information collected by financial institutions.
Presently, Interchange has chosen not to become a financial holding company.
Capital Adequacy Guidelines. The Federal Reserve issued guidelines
establishing risk-based capital requirements for bank holding companies having
more than $150 million in assets and member banks of the Federal Reserve
System. The guidelines established a risk-based capital framework consisting of
(1) a definition of capital and (2) a system for assigning risk weights.
Capital consists of Tier 1 capital, which includes common shareholders' equity
less certain intangibles and a supplementary component called Tier 2, which
includes a portion of the allowance for loan losses. Effective October 1, 1998,
the Federal Reserve adopted an amendment to its risk-based capital guidelines
that permits insured depository institutions to include in their Tier 2 capital
up to 45% of the pre-tax net unrealized gains on certain available for sale
equity securities. All assets and off-balance-sheet items are assigned to one
of four weighted risk categories ranging from 0% to 100%. Higher levels of
capital are required for the categories perceived as representing the greater
risks. The Federal Reserve established a minimum risk-based capital ratio of 8%
(of which at least 4% must be Tier 1). An institution's risk-based capital
ratio is determined by dividing its qualifying capital by its risk-weighted
assets. The guidelines make regulatory capital requirements more sensitive to
differences in risk profiles among banking institutions, take off-balance sheet
items into account in assessing capital adequacy, and minimize disincentives to
holding liquid, low-risk assets. Banking organizations are generally expected
to operate with capital positions well above the minimum rates. Institutions
with higher levels of risk, or which experience or anticipate significant
growth, are also expected to operate well above minimum capital standards. In
addition to the risk-based guidelines discussed above, the Federal Reserve
requires that a bank holding company and bank which meet the regulator's
highest performance and operational standards and which are not contemplating
or experiencing significant growth maintain a minimum leverage ratio (Tier 1
capital as a percent of quarterly average adjusted assets) of 3%. For those
financial institutions with higher levels of risk or that are experiencing or
anticipating significant growth, the minimum leverage ratio will be increased.
At December 31, 2002 Interchange and Interchange Bank satisfied these ratios
and has been categorized as a well-capitalized institution, which in the
regulatory framework for prompt corrective action imposes the lowest level of
supervisory restraints.
Capital adequacy guidelines focus principally on broad categories of credit
risk although the framework for assigning assets and off-balance sheet items to
risk categories does incorporate elements of transfer risk. The
73
risk-based capital ratio does not, however, incorporate other factors that may
affect a company's financial condition, such as overall interest rate exposure,
liquidity, funding and market risks, the quality and level of earnings,
investment or loan concentrations, the quality of loans and investments, the
effectiveness of loan and investment policies and management's ability to
monitor and control financial and operating risks.
Interchange Bank
As a New Jersey state-chartered bank, Interchange Bank's operations are
subject to various requirements and restrictions of state law pertaining to,
among other things, lending limits, reserves, interest rates payable on
deposits, loans, investments, mergers and acquisitions, borrowings, dividends,
locations of branch offices and capital adequacy. Interchange Bank is subject
to primary supervision, periodic examination and regulation by the New Jersey
Department of Banking and Insurance. If, as a result of an examination of a
bank, the New Jersey Department of Banking and Insurance determines that the
financial condition, capital resources, asset quality, earnings prospects,
management, liquidity, or other aspects of Interchange Bank's operations are
unsatisfactory or that Interchange Bank or its management is violating or has
violated any law or regulation, various remedies are available to the New
Jersey Department of Banking and Insurance. Such remedies include the power to
enjoin "unsafe and unsound" practices, to require affirmative action to correct
any conditions resulting from any violation or practice, to issue an
administrative order that can be judicially enforced, to, among other things,
direct an increase in capital, to restrict the growth of Interchange Bank, to
assess civil penalties and to remove officers and directors. Interchange Bank
has never been the subject of any administrative orders, memoranda of
understanding or any other regulatory action by the New Jersey Department of
Banking and Insurance. Interchange Bank also is a member of the Federal Reserve
System and therefore subject to supervisory examination by and regulations of
the Federal Reserve Bank of New York.
Interchange Bank's deposits are insured by the Bank Insurance Fund
administered by the FDIC up to a maximum of $100,000 per depositor. For this
protection, Interchange Bank pays a quarterly statutory deposit insurance
assessment to, and is subject to the rules and regulations of, the FDIC.
Interchange Bank's ability to pay dividends is subject to certain statutory
and regulatory restrictions. The New Jersey Banking Act of 1948, as amended,
provides that no state-chartered bank may pay a dividend on its capital stock
unless, following the payment of each such dividend, the capital stock of
Interchange Bank will be unimpaired, and Interchange Bank will have a surplus
of not less than 50% of its capital, or, if not, the payment of such dividend
will not reduce the surplus of Interchange Bank. In addition, the payment of
dividends is limited by the requirement to meet the risk-based capital
guidelines issued by the Federal Reserve Board and other regulations.
To the extent that the foregoing information describes statutory and
regulatory provisions, it is qualified in its entirety by reference to the full
text of those provisions. Also, such statutes, regulations and policies are
continually under review by Congress and state legislatures and federal and
state regulatory agencies. A change in statutes, regulations or regulatory
policies applicable to Interchange and/or Interchange Bank could have a
material effect on the business of Interchange.
Management and Additional Information
Additional information concerning Interchange, including information related
to its business, properties, financial condition, results of operations and
market for common equity is included in its annual report on Form 10-K for the
year ended December 31, 2002, which is incorporated into this joint proxy
statement-prospectus by reference. See "Where You Can Find More Information"
beginning on page 108. Information concerning executive compensation, the
principals holders of voting securities, certain relationships and related
transactions, and other related matters concerning Interchange is included
elsewhere in this joint proxy statement-prospectus. See "Interchange Proposal
No. 2--Election of Directors", "Interchange Executive Compensation and Other
Interchange Information," "Interchange Stock Price and Performance," "Principal
Shareholders and Holdings of Management of Interchange," and "Certain
Relationships and Related Party Transactions of Interchange."
74
Information on Interchange's Web Site
Information on the Internet web site of Interchange or any of its
subsidiaries, including Interchange Bank, is not part of this joint proxy
statement-prospectus, and you should not rely on that information in deciding
on how to vote your shares at your meeting unless that information is also in
this document or in a document that is incorporated by reference into this
joint proxy statement-prospectus.
75
INFORMATION ABOUT BRIDGE VIEW
General
Bridge View is a one-bank holding company incorporated under the laws of the
State of New Jersey in May 1996 to serve as a holding company for Bridge View
Bank. Bridge View was organized at the direction of the board of directors of
Bridge View Bank for the purpose of acquiring all of the capital stock of
Bridge View Bank. Pursuant to the New Jersey Banking Act of 1948, as amended,
and pursuant to approval of the shareholders of Bridge View Bank, Bridge View
acquired Bridge View Bank and became its holding company on December 6, 1996.
As part of the acquisition, shareholders of Bridge View Bank received two
shares of common stock, no par value, of Bridge View for each outstanding share
of the common stock of Bridge View Bank, $5.00 per share par value.
The only significant activities of Bridge View are the ownership and
supervision of Bridge View Bank. Bridge View's main office is located at 457
Sylvan Avenue, Englewood Cliffs, Bergen County, New Jersey, 07632.
Bridge View Bank is a commercial bank formed under the laws of the State of
New Jersey on October 11, 1988. Bridge View Bank operates from its main office
at 457 Sylvan Avenue, Englewood Cliffs, New Jersey, 07632, and its 10 branch
offices:
. 1605 Lemoine Avenue, Fort Lee, New Jersey, 07024,
. 115 River Road, Edgewater, New Jersey, 07020,
. 899 Palisade Avenue, Fort Lee, New Jersey, 07024,
. 77 River Street, Hackensack, NJ, 07601,
. 20 West Railroad Avenue, Tenafly, NJ 07670,
. 4 Park Street, Harrington Park, NJ 07640
. 35 North Washington Avenue, Bergenfield, New Jersey,
. 819 Teaneck Road, Teaneck, New Jersey,
. 245 Main Street, Ridgefield Park, New Jersey, and
. 85 Jefferson Avenue, Westwood, New Jersey.
All branch locations are in Bergen County, New Jersey.
Bridge View Bank's deposits are insured by the Bank Insurance Fund of the
FDIC up to applicable limits. The operation of Bridge View and Bridge View Bank
are subject to the supervision and regulation of the Federal Reserve, the FDIC,
and the New Jersey Department of Banking and Insurance.
The principal executive offices of Bridge View Bank are located at 457
Sylvan Avenue, Englewood Cliffs, New Jersey, 07632, and the telephone number is
(201) 871-7800.
Bridge View Bank Activities
Bridge View's primary business is ownership and supervision of Bridge View
Bank. Bridge View, through Bridge View Bank, conducts a traditional commercial
banking business, accepting deposits from the general public, including
individuals, businesses, non-profit organizations, and governmental units.
Bridge View Bank makes commercial loans, consumer loans, and both residential
and commercial real estate loans. In addition, Bridge View Bank provides other
customer services and makes investments in securities, as permitted by law.
Bridge View Bank has sought to offer an alternative, community-oriented
style of banking in an area, which is presently dominated by larger, statewide
and national institutions. Bridge View Bank has sought to be a
76
positive force in the area by assisting in the development of the residential
sector, by serving the needs of small and medium-sized businesses and the local
professional community, and by meeting the requirements of individuals
residing, working, and shopping in Bridge View Bank's eastern Bergen County
market area by extending consumer, commercial, and real estate loans and by
offering depository services. Bridge View Bank believes that the following
attributes have attracted local business people and residents:
. competitively priced services;
. direct access to Bank management by members of the community, whether
during or after business hours;
. strategically located branch offices;
. full service business hours of 7:00 am to 7:00 p.m. weekdays and 9:00 am
to 1:00 p.m. Saturdays;
. local conditions and needs are taken into account when deciding loan
applications and making other business decisions affecting members of the
community;
. responsiveness to requests for information and services by depositors and
others; and
. positive involvement in the community affairs of eastern Bergen County.
Since opening in 1990, Bridge View Bank has increased its branch network to
eleven branches, including its main office.
Market Areas
Bridge View's market area primarily consists of Bergen County, New Jersey.
Bridge View operates its main office in Englewood Cliffs, New Jersey and 10
branch offices in Fort Lee(2), Edgewater, Hackensack, Tenafly, Harrington Park,
Bergenfield, Teaneck, Ridgefield Park, and Westwood, New Jersey
Competition
Bridge View operates in a highly competitive environment competing for
deposits and loans with commercial banks, thrifts, and other financial
institutions, many of which have greater financial resources than Bridge View.
Many large financial institutions in New York City and other parts of New
Jersey compete for the business of New Jersey residents located in Bridge
View's service area. In addition, since passage of the Gramm-Leach-Bliley
Financial Modernization Act of 1999 (the "Modernization Act"), securities firms
and insurance companies have been allowed to acquire or form financial
institutions, thereby further increasing competition in the financial services
market. Certain of these institutions have significantly higher lending limits
than Bridge View and provide services to their customers which Bridge View does
not offer. In addition, Bridge View's competitors generally have established
positions in the Service Area and have greater resources than Bridge View with
which to pay for advertising, physical facilities, personnel, and interest on
deposited funds. Management believes Bridge View is able to compete on a
substantially equal basis with its competitors because it provides responsive
personalized services through its knowledge and awareness of Bridge View's
service area, customers, and business.
Personnel
At December 31, 2002, Bridge View employed 98 full-time equivalent
employees. None of these employees is covered by a collective bargaining
agreement. Bridge View believes that its employee relations remain good.
Legal Proceedings
Bridge View and Bridge View Bank are periodically parties to or otherwise
involved in legal proceedings arising in the normal course of business, such as
claims to enforce liens, claims involving the making and servicing of real
property loans, and other issues incident to Bridge View Bank's business.
Management does not believe that there is any pending or threatened proceedings
against Bridge View or Bridge View Bank which, if determined adversely, would
have a material effect on the business, financial position or results of
operations of Bridge View or Bridge View Bank.
77
Ownership of Bridge View Common Stock by Management and Certain Beneficial
Owners
The following table sets forth information concerning the beneficial
ownership of the Common Stock, no par value, as of December 31, 2002, by (i)
each person who is know by Bridge View to own beneficially more than five
percent (5%) of the issued and outstanding Bridge View common stock, (ii) each
director and nominee for director of Bridge View, (iii) each executive officer
of Bridge View described in Bridge View's Form 10-K/A for the year ended
December 31, 2002 under the caption "Executive Compensation" and (iv) all
directors and executive officers of Bridge View as a group. Other than as set
forth in this table, Bridge View is not aware of any individual or group which
holds in excess of 5% of the outstanding Bridge View common stock.
Number of Shares
Name and Address of Beneficially Percent
Beneficial Owner(1) Owned(2) of Class
- ------------------- ---------------- --------
Albert F. Buzzetti..................................... 144,194(3) 4.06
Gerald A. Calabrese, Jr................................ 178,124(4) 5.01
Glenn L. Creamer....................................... 100,336(5) 2.82
Estate of Bernard Mann................................. 216,080(6) 6.08
Mark Metzger........................................... 220,559(7) 6.21
Jeremiah F. O'Connor................................... 178,555(8) 5.02
Joseph C. Parisi....................................... 192,337(9) 5.41
John A. Schepisi....................................... 291,768(10) 8.21
Directors and Executive Officers as a Group (8 persons) 1,311,625(11) 36.74
- --------
* Ownership of less than 1%
(1) The address for all persons listed is c/o Bridge View Bancorp, 457 Sylvan
Avenue, Englewood Cliffs, New Jersey 07632.
(2) 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 a spouse, minor children or by
relatives sharing the same home, (ii) by entities owned or controlled by
the named person, or (iii) by other persons if the named person has the
right to acquire such shares within 60 days by the exercise of any right or
option. Unless otherwise noted, all shares are owned of record and
beneficially by the named person, either directly or through the dividend
reinvestment plan.
(3) Includes 2,686 shares owned by Mr. Buzzetti's wife. Mr. Buzzetti disclaims
beneficial ownership of the shares owned by his wife and of shares owned by
other family members. Includes an aggregate of 80,522 shares purchasable
pursuant to options which are presently exercisable or exercisable within
sixty (60) days.
(4) Includes 5,197 shares owned by Mr. Calabrese's minor children. Mr.
Calabrese disclaims any beneficial ownership of shares owned by other
family members who are not dependents. Includes an aggregate of 68,694
shares purchasable pursuant to options which are presently exercisable or
exercisable within sixty (60) days.
(5) Mr. Creamer disclaims any beneficial ownership of shares owned by family
members who are not dependents. Includes an aggregate of 68,694 shares
purchasable pursuant to options which are presently exercisable or
exercisable within sixty (60) days.
(6) Mr. Mann, a director of Bridge View, died on October 31, 2002. Includes
49,983 shares owned by Mr. Mann's wife. Mr. Mann's estate disclaims any
beneficial ownership of shares owned by his wife as well as shares by other
family members. Includes an aggregate of 68,694 shares purchasable pursuant
to options which are presently exercisable or exercisable within sixty (60)
days.
(7) Includes 2,039 shares owned by Mr. Metzger's wife and 1,170 shares owned by
the Metzger Family Partnership of which he is trustee. Mr. Metzger
disclaims beneficial ownership of shares owned by his wife and of any other
shares held by emancipated members of his family. Includes an aggregate of
46,771 shares purchasable pursuant to options which are presently
exercisable or exercisable within sixty (60) days.
(8) Includes 8,069 shares owned by Mr. O'Connor's dependent children, and
19,284 shares held by the AtHome Medical Pension Plan. Mr. O'Connor
disclaims beneficial ownership of shares owned by emancipated family
members. Includes an aggregate of 68,694 shares purchasable pursuant to
options which are presently exercisable or exercisable within sixty (60)
days.
(9) Includes 88,988 shares owned jointly by Mr. Parisi and his wife. Mr. Parisi
disclaims beneficial ownership of any shares owned by emancipated family
members. Includes an aggregate of 68,694 shares purchasable pursuant to
options which are presently exercisable or exercisable within sixty (60)
days.
(10) Includes 7,652 shares owned by Mr. Schepisi's wife, and 20,145 shares
owned by Homaro Co., a partnership which Mr. Schepisi manages but with
regard to which he disclaims beneficial interest. Mr. Schepisi disclaims
beneficial ownership of any shares owned by his wife or by any emancipated
family members. Includes an aggregate of 68,694 shares purchasable
pursuant to options which are presently exercisable or exercisable within
sixty (60) days.
(11) Includes 470,763 shares purchasable pursuant to options which are
presently exercisable or exercisable within sixty (60) days.
78
Certain Additional Information Incorporated by Reference and Delivered Herewith
Additional information concerning Bridge View, including information related
to its business, properties, financial condition, results of operations, market
for common equity officers, directors, principal stockholders and related
stockholder matters is included in its annual report on Form 10-K/A for the
year ended December 31, 2002, which is included in this joint proxy
statement-prospectus as Annex E. See "Where You Can Find More Information"
beginning on page 108.
79
PRO FORMA FINANCIAL INFORMATION
OF THE COMBINED COMPANY
The following unaudited pro forma condensed combined consolidated balance
sheet as of December 31, 2002 and the unaudited pro forma condensed combined
consolidated statements of income for the year ended December 31, 2002 give
effect to the pending merger.
These statements were prepared giving effect to the purchase accounting
adjustments and other assumptions described in the accompanying notes. The
unaudited pro forma condensed combined consolidated balance sheet gives effect
to the merger as if the merger had been consummated as of December 31, 2002.
The unaudited pro forma condensed combined consolidated statements of income
give effect to the merger as if the merger had been consummated on January 1,
2002. The pro forma condensed combined financial statements contain adjustments
relating to estimated fair values of assets and liabilities acquired and
estimated fair values of assets and liabilities acquired and estimated
transaction and integration costs.
In connection with the merger, Interchange and Bridge View expect to incur
combined pre-tax merger related charges of approximately $2.8 million, which
includes costs for severance, professional fees, printing, investment banking
fees and other restructuring charges.
You should read the unaudited pro forma condensed combined consolidated
financial statements in conjunction with the consolidated historical financial
statements of Interchange and Bridge View, including the respective notes to
those statements. The pro forma information is not necessarily indicative of
the combined financial position or the results of operations in the future or
of the combined financial position or the results of operations which would
have been realized had the merger been consummated during the periods or as of
the dates for which the pro forma information is presented. The pro forma
information, while helpful in illustrating the financial characteristics of the
combined company under one set of assumptions, does not reflect these benefits
and costs and, accordingly, does not attempt to predict or suggest future
results.
Pro forma per share amounts for the combined company are based on an implied
exchange ratio of 1.29.
80
Unaudited Pro Forma Condensed Combined Consolidated Balance Sheet
As of December 31, 2002
Proforma
Bridge View Interchange Adjustments Combined
----------- ----------- ----------- ----------
(in thousands)
Cash and cash equivalents.......................... $ 39,173 $ 33,916 $(33,528)(I) $ 39,561
Securities......................................... 40,635 252,512 3 (J) 293,150
Loans and leases................................... 190,720 615,641 1,764 (H) 808,125
Allowance for loan and lease losses................ (1,916) (7,207) -- (9,123)
Foreclosed real estate and other repossessed assets -- 176 -- 176
Goodwill........................................... -- 1,447 52,179 (E) 53,626
Other intangible assets............................ -- 231 10,937 (H) 11,168
Other assets....................................... 12,954 39,616 (4,446)(F) 48,124
-------- -------- -------- ----------
Total assets.................................... $281,566 $936,332 $ 26,909 $1,244,807
======== ======== ======== ==========
Non-interest bearing deposits...................... $ 94,034 $118,578 $ -- $ 212,612
Interest bearing deposits.......................... 157,016 697,094 -- 854,110
-------- -------- -------- ----------
Total deposits.................................. 251,050 815,672 -- 1,066,722
Securities sold under repurchase agreements........ -- 17,390 -- 17,390
Short term borrowings.............................. -- -- -- --
Long term borrowings............................... -- 10,000 -- 10,000
Other liabilities.................................. 1,484 12,590 2,846 (C) 16,920
-------- -------- -------- ----------
Total liabilities............................... 252,534 855,652 2,846 1,111,032
-------- -------- -------- ----------
Common stock....................................... 27,196 5,397 (27,196) 5,397
Capital surplus.................................... -- 21,097 53,095 74,192
Retained earnings.................................. 1,618 63,314 (1,618) 63,314
Accumulated other comprehensive income............. 218 3,596 (218) 3,596
Less: treasury stock............................... -- (12,724) -- (12,724)
-------- -------- -------- ----------
Total shareholders' equity...................... 29,032 80,680 24,063 (G) 133,775
-------- -------- -------- ----------
Total liabilities and shareholders' equity......... $281,566 $936,332 $ 26,909 $1,244,807
======== ======== ======== ==========
See accompanying "Notes to Pro Forma Financial Statements of the Combined
Company."
81
Unaudited Pro Forma Condensed Combined Consolidated Statements of Income
For the Year Ended December 31, 2002
Proforma
Bridge View(1) Interchange(2) Adjustments Combined
-------------- -------------- ----------- --------
(in thousands, except per share data)
Interest income................................. $13,989 $56,500 $ (588)(H) $69,901
Interest expense................................ 1,691 17,478 -- 19,169
------- ------- ------- -------
Net interest income.......................... 12,298 39,022 (588) 50,732
------- ------- ------- -------
Provision for loan and lease losses............. 570 1,500 -- 2,070
------- ------- ------- -------
Net interest income after provision for loan and
lease losses.................................. 11,728 37,522 (588) 48,662
Non-interest income............................. 2,522 6,514 -- 9,036
Non-interest expense
Salaries and benefits........................ 4,402 13,673 -- 18,075
Occupancy and FF&E........................... 1,815 4,562 -- 6,377
Other expenses............................... 2,609 6,828 1,562(H) 10,999
------- ------- ------- -------
Total non-interest expense................... 8,826 25,063 1,562 35,451
Net income before taxes...................... 5,424 18,973 (2,150) 22,247
Taxes........................................... 2,066 6,096 (753)(H) 7,409
------- ------- ------- -------
Net income................................... $ 3,358 $12,877 $(1,397) $14,838
======= ======= ======= =======
Earnings per common share:
Basic........................................ 0.95 1.31 -- 1.16
Diluted...................................... 0.91 1.30 -- 1.15
Average shares:
Basic........................................ 3,552 9,809 (602) 12,759
Diluted...................................... 3682 9,933 (732) 12,883
- --------
(1) Interchange per share data and average shares have been restated, as
applicable, to reflect a 3-for-2 stock split declared on May 23, 2002 and
paid on July 12, 2002.
(2) Bridge View per share data and average shares have been restated, as
applicable, to reflect a 10% stock dividend declared on March 5, 2002 and
paid on April 2, 2002.
See accompanying "Notes to Pro Forma Financial Statements of the Combined
Company."
82
NOTES TO PRO FORMA
FINANCIAL STATEMENTS OF THE COMBINED COMPANY
NOTE A. BASIS OF PRESENTATION
The pro forma combined condensed consolidated balance sheet as of December
31, 2002, and the pro forma combined condensed consolidated statements of
income for the year ended December 31, 2002 combine the historical financial
statements of Interchange with Bridge View after giving effect to the merger
using the purchase method of accounting. Pro forma adjustments to the balance
sheet are computed as if the transaction occurred at December 31, 2002, while
the pro forma adjustments to the statements of income are computed as if the
transaction occurred on January 1, 2002, the earliest period presented.
The merger is accounted for as a purchase. Under this method of accounting,
assets and liabilities of Bridge View are adjusted to their estimated fair
value and combined with the recorded book values of the assets and liabilities
of Interchange. Applicable income tax effects of such adjustments are included
as a component of Interchange's net deferred tax asset with a corresponding
offset to goodwill.
For purposes of the pro forma condensed combined consolidated financial
statements, estimates of the fair value of Bridge View's assets and liabilities
as of December 31, 2002 have been combined with the recorded values of the
assets and liabilities of Interchange. Fair value adjustments are subject to
update as Interchange is currently in the process of obtaining appraisals and
fair value evaluations, including a deposit evaluation, for Bridge View's
assets and liabilities.
NOTE B. PURCHASE PRICE
The aggregate purchase price is based upon holders of Bridge View common
stock receiving 2,949,719 shares of Interchange common stock plus $33,528,472
in cash, less any amounts paid for unexercised stock options.
The total consideration to Bridge View shareholders in connection with the
merger is calculated as follows (in thousands, except share data):
Interchange Common Stock to be issued............................... 2,949,719
Market price per share of Interchange common stock (closing price on
November 18, 2002)................................................ $ 18.00
----------
Total market value of Interchange common stock to be issued...... 53,095
Total cash to be distributed to Bridge View shareholders......... 33,528
----------
Total Purchase Price of Bridge View................................. $ 86,623
==========
NOTE C. TRANSACTION COSTS AND INTEGRATION EXPENSES
Interchange's management anticipates, based upon preliminary plans and
estimates, that approximately $2.8 million of costs related to severance,
professional fees, printing, investment banking fees and other restructuring
charges will be incurred in connection with the merger and will be included as
part of the allocation of the purchase price of Bridge View.
The estimated transaction costs expected to be incurred are as follows (in
thousands):
Directors Expenses $ 221
Consulting Fees... 1,200
Professional Fees. 225
Severance......... 700
Printing Fees..... 100
Other............. 400
------
$2,846
======
83
NOTES TO PRO FORMA
FINANCIAL STATEMENTS OF THE COMBINED COMPANY--(Continued)
NOTE D. ALLOCATION OF PURCHASE PRICE
The purchase price of Bridge View has been allocated as described in the
table below (in thousands):
Net assets applicable to Bridge View's common stock.................. $29,032
Total transaction costs incurred in connection with the merger....... (2,846)
Increases to Bridge View's net asset value to record:
Core deposit intangible, net of taxes of $3,828................... 7,109
Loan premium, net of taxes of $617................................ 1,147
Fair market value adjustment for securities Held-to-Maturity, net
of taxes of $1.................................................. 2
-------
Total preliminary allocation of purchase...................... 34,444
-------
Goodwill due to the merger........................................... 52,179
-------
Total purchase price.......................................... $86,623
=======
NOTE E. TOTAL GOODWILL DUE TO MERGER
Total purchase price............................ $ 86,623
Total estimated transaction costs to be incurred 2,846
Total common stockholders' equity of Bridge View (29,032)
Core deposit intangible, net of taxes of $3,828. (7,109)
Loan premium, net of taxes of $617.............. (1,147)
Securities Held-to-Maturity, net of taxes of $1. (2)
--------
Total goodwill due to merger............. $ 52,179
========
- --------
The loan premium and securities Held-to-Maturity adjustment will be
amortized over the average lives of the corresponding assets as a yield
adjustment. The core deposit intangible of $7.1 million (net of applicable
income tax effects) will be amortized over the estimated period of benefit on a
straight-line basis.
NOTE F. OTHER ASSETS
Adjustments to other assets are as follows (in thousands):
Deferred Tax Asset
Deferred tax liability from core deposit intangible..... $(3,828)
Deferred tax liability from loan premium................ (617)
-------
Deferred tax liability from securities Held-to-Maturity. (1)
-------
Total reduction in net deferred tax asset............... (4,446)
=======
NOTE G. SHAREHOLDERS' EQUITY
The purchase price of approximately $86.6 million is reduced by Bridge
View's total shareholders' equity of approximately $29.0 million. The price of
Interchange's common stock on November 18, 2002 was $18.00, and the total value
of the newly based shares of Interchange common stock will be approximately
$53.1 million and represents additional paid-in capital.
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NOTES TO PRO FORMA
FINANCIAL STATEMENTS OF THE COMBINED COMPANY--(Continued)
NOTE H. PURCHASE ACCOUNTING ADJUSTMENTS
Adjustments are made to reflect the recording of intangibles, as well as to
eliminate any intangible balances previously recorded by Bridge View in
accordance with the purchase method of accounting. Purchase accounting
adjustments will be recorded on a gross basis with related adjustments to
Interchange's net deferred tax asset as follows (in thousands):
Net of
Income (Income)
Tax Expense
Gross Effect Effect
------- ------ --------
Interest Income
Estimated fair value adjustment to investments Available-for-Sale* $ 502 $ 331 $ 335
Estimated fair value adjustment to securities Held-to-Maturity*... 3 2 1
Loan premium...................................................... 1,764 1,147 252
------- ------ ------
2,269 1,480 588
------- ------ ------
Non-Interest Expense
Core deposit intangible due to the merger**....................... 10,937 7,109 1,562
------- ------ ------
10,937 7,109 1,562
------- ------ ------
Tax-effect........................................................ (4,446) -- (753)
------- ------ ------
Totals......................................................... $ 8,760 $8,589 $1,397
======= ====== ======
- --------
* Net unrealized pretax gains of $502 thousand and $3 thousand on Bridge
View's securities Available-for-Sale and Held-to-Maturity, respectively, are
amortized over the estimated remaining life of the securities.
** The core deposit intangible due to the merger is amortized over the
estimated period of benefit on a straight line basis.
The incremental effect on net income of the purchase accounting adjustments
is estimated to be a net after-tax expense of approximately $1.4 million for
the first 12-month period subsequent to the merger.
NOTE I. CASH PAYMENT
It is anticipated that the cash payment of $33,528,472 to Bridge View
stockholders will be funded by Interchange from either cash on hand or sale of
certain securities.
NOTE J. SECURITIES
The estimated fair value adjustment for securities Held-to-Maturity amounted
to $3 thousand as of December 31, 2002 and will be amortized over the remaining
life of the securities as a yield adjustment.
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DESCRIPTION OF INTERCHANGE COMMON STOCK
Set forth below is a summary of the material features of the Interchange
common stock. This summary is not a complete discussion of the charter
documents and other instruments of Interchange that create the rights of the
security holders. Additional information regarding the rights associated with
owning shares of Interchange common stock may be found under the heading
"Material Differences Between Holders of Interchange Common Stock and Bridge
View Common Stock," below.
General
Interchange has authority to issue 22,500,000 shares of Interchange common
stock, no par value per share, and 1,000,000 shares of preferred stock, no par
value per share. On the Interchange record date, there were 9,839,831 shares of
Interchange common stock outstanding, plus unexercised options to purchase an
aggregate of 660,525 shares of common stock pursuant to Interchange's stock
option plan. There currently are no shares of preferred stock outstanding.
Dividend Rights
Shareholders are entitled to dividends when and if declared by the
Interchange board of directors, after satisfaction of the prior rights of
holders of outstanding preferred stock, if any, out of funds legally available
therefor.
Voting Rights
On any matter submitted to a vote of the shareholders, holders of
Interchange common stock are entitled to one vote, in person or by proxy, for
each share of Interchange common stock held of record in the shareholder's name
on the Interchange books as of the record date.
Liquidation Rights
Each share of Interchange common stock has the same rights, privileges and
preferences as every other share and will share equally in Interchange's net
assets upon liquidation or dissolution.
Preemptive Rights
Interchange common stock has no preemptive, conversion or redemption rights,
or sinking fund provisions.
Issuance of Stock.
Interchange's board of directors may issue additional authorized shares of
Interchange common stock without the approval of the shareholders of
Interchange. However, Interchange's common stock is listed for quotation on the
Nasdaq National Market, which requires shareholder approval of the issuance of
additional shares of Interchange common stock under certain circumstances. See
"Proposal No. 1--The Merger--Requirement for Shareholder Approval--Interchange."
Transfer Agent
The transfer agent and registrar for the Interchange common stock is
Continental Stock Transfer & Trust Company.
Preferred Stock
The Interchange board of directors, without shareholder approval, may
authorize one or more classes of serial preferred stock with preferences or
voting rights that may adversely affect the rights of holders of
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Interchange common stock. Although it is not possible to state the actual
effect any issuance of preferred stock might have upon the rights of holders of
the Interchange common stock, the issuance of preferred stock might:
. restrict dividends on Interchange common stock if preferred stock
dividends have not been paid;
. dilute the voting power and equity interest of holders of Interchange
common stock to the extent that any preferred stock series has voting
rights or is convertible into Interchange common stock; or
. prevent current holders of Interchange common stock from participating in
Interchange's assets upon liquidation until any liquidation preferences
granted to the holders of the preferred stock are satisfied.
In addition, Interchange's issuance of preferred stock may, under certain
circumstances, have the effect of discouraging an attempt to change control of
Interchange.
MATERIAL DIFFERENCES BETWEEN HOLDERS OF
INTERCHANGE COMMON STOCK AND BRIDGE VIEW COMMON STOCK
General
In the merger, Bridge View shareholders may elect to exchange their shares
of Bridge View common stock for shares of Interchange common stock. On
consummation of the merger, certain Bridge View shareholders who elect to do so
(or who receive shares of Interchange common stock as a result of the proration
provisions of the merger agreement) will become Interchange shareholders. The
restated certificate of incorporation and bylaws of Interchange, in addition to
the New Jersey Business Corporation Act, will govern their rights as
Interchange shareholders.
Both Interchange and Bridge View are New Jersey corporations subject to the
provisions of the New Jersey Business Corporation Act. The following is a
summary of the material differences between the provisions of the certificate
of incorporation and bylaws of each of Interchange and Bridge View. This
summary is not intended to be a complete discussion of the respective
certificates of incorporation and bylaws of Interchange and Bridge View and it
is qualified in its entirety by reference to the applicable provisions of the
New Jersey Business Corporation Act as well as by reference to the respective
certificates of incorporation and bylaws of Interchange and Bridge View.
You should carefully read this entire document and the other documents we
refer to in this document for a more complete understanding of the differences
between being a shareholder of Interchange and being a shareholder of Bridge
View.
Authorized Capital Stock
Interchange. Interchange's certificate of incorporation authorizes the
issuance of up to 22,500,000 shares of Interchange common stock, no par value
per share, and 1,000,000 shares of preferred stock, no par value per share. On
the Interchange record date, there were 9,839,831 shares of Interchange common
stock outstanding, plus issued but unexercised options to purchase an aggregate
of 660,525 shares of common stock pursuant to Interchange's stock option plan.
There currently are no shares of Interchange preferred stock outstanding.
Bridge View. Bridge View's certificate of incorporation, as amended,
authorizes the issuance of up to 10,000,000 shares of common stock, no par
value per share. On the Bridge View record date, there were 3,747,318 shares of
Bridge View common stock outstanding, plus issued but unexercised options to
purchase an aggregate of 398,790 shares of common stock pursuant to Bridge
View's stock option plan.
Issuance of Capital Stock
Under New Jersey law, a New Jersey corporation generally may issue shares of
capital stock and rights or options for the purchase of shares of its capital
stock on such terms and for such consideration as may be determined by the
corporation's board of directors.
87
Interchange. The restated certificate of incorporation and bylaws of
Interchange do not limit the ability of the board of directors of Interchange
to authorize the issuance of Interchange capital stock. However, Interchange is
subject to the requirements of the National Association of Securities Dealers,
Inc., which generally require corporations, such as Interchange, with
securities that are listed for quotation on the Nasdaq National Market to
obtain shareholder approval of certain issuances of common stock and most stock
compensation plans for directors, officers and key employees. Interchange also
may elect to seek shareholder approval of stock-related compensation plans in
certain instances in order to qualify such plans for favorable federal income
tax and securities law treatment under current laws and regulations. Holders of
Interchange capital stock do not have preemptive rights with respect to any
shares of Interchange capital stock which may be issued.
Bridge View. The certificate of incorporation, as amended, and bylaws of
Bridge View do not limit the ability of the board of directors of Bridge View
to authorize the issuance of Bridge View capital stock. However, Bridge View is
subject to the requirements of the American Stock Exchange, which generally
require corporations, such as Bridge View, with securities that are listed for
trading on the American Stock Exchange to obtain shareholder approval of
certain issuances of common stock and most stock compensation plans for
directors, officers and key employees. Bridge View also may elect to seek
shareholder approval of stock-related compensation plans in certain instances
in order to qualify such plans for favorable federal income tax and securities
law treatment under current laws and regulations. Holders of Bridge View
capital stock do not have preemptive rights with respect to any shares of
Bridge View capital stock which may be issued.
Dividends
Unless there are other restrictions contained in its certificate of
incorporation, New Jersey law generally provides that a New Jersey corporation
may declare and pay dividends on its outstanding common stock so long as the
corporation is not insolvent and would not become insolvent as a consequence of
the dividend payment.
Interchange. The Interchange bylaws provide that the Interchange board of
directors may declare dividends at any regular or special meeting, in
accordance with applicable law.
Bridge View. Bridge View's bylaws provide that the Bridge View board of
directors may declare dividends at any regular or special meeting, in
accordance with applicable law.
Voting Rights
Interchange. Each share of Interchange common stock is entitled to one vote
per share on all matters properly presented at meetings of shareholders of
Interchange.
Bridge View. Each share of Bridge View common stock is entitled to one vote
per share on all matters properly presented at meetings of shareholders of
Bridge View.
Cumulative Voting
Under New Jersey corporate law, shareholders of a New Jersey corporation do
not have cumulative voting rights in the election of directors unless the
certificate of incorporation so provides.
Interchange. Interchange's restated certificate of incorporation does not
presently provide Interchange shareholders with cumulative voting.
Bridge View. Bridge View's certificate of incorporation, as amended, does
not presently provide Bridge View shareholders with cumulative voting.
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Classified Board of Directors
Under New Jersey law, a corporation is permitted to provide in its
certificate of incorporation or bylaws for classification of the board of
directors into up to three classes.
Interchange. Interchange currently has a classified board comprised of
three classes. Interchange directors are elected for three-year terms and until
their successors have been duly elected and qualified.
Bridge View. Bridge View currently has a classified board comprised of
three classes. Bridge View directors are elected for three-year terms and until
their successors have been duly elected and qualified.
Number of Directors
Interchange. Interchange's restated certificate of incorporation and bylaws
all provide that the number of directors will not be less than 5 nor more than
15 with the exact number determined from time to time by a resolution adopted
by the board. In addition, Interchange's restated certificate of incorporation
provides that the affirmation vote of at least 80% of the outstanding shares of
Interchange common stock is required in order to amend or repeal the article of
the restated certificate of incorporation regarding the Interchange board of
directors. The Interchange board of directors currently has 13 members, one of
whom was appointed to serve for a term expiring on the date of the Interchange
annual meeting.
Bridge View. Bridge View's certificate of incorporation, as amended, and
bylaws authorize a minimum of one and a maximum of 25 directors, but leaves the
exact number to be fixed by resolution of the board of directors. The Bridge
View board has fixed the number of directors at eight.
Removal of Directors
Under New Jersey law, directors may be removed for cause by the affirmative
vote of the majority of the votes cast by the holders of shares entitled to
vote for election of directors. Any director elected by a class vote may be
removed only by a class vote of the holders of shares entitled to vote for his
election.
Interchange. Interchange's restated certificate of incorporation and bylaws
specify that any director may be removed, with or without cause, but only by
the affirmative vote of at least 80% of the shares of Interchange stock
entitled to vote for the election of directors generally. The restated
certificate of incorporation and bylaws also provide that the board of
directors may remove any director for cause or suspend any director from acting
as director pending a final determination that cause exists for removal, but in
either case by a majority vote of the entire board.
Bridge View. Bridge View's bylaws specify that any director may be removed,
with or without cause, by the vote of the holders of a majority of the shares
issued and outstanding and entitled to vote in the election of directors.
Filling Vacancies on the Boards of Directors
Under New Jersey law (unless otherwise provided in the certificate of
incorporation or bylaws), vacancies and newly-created directorships resulting
from any increase in the authorized number of directors may be filled by a
majority of the directors in office.
Interchange. Interchange's restated certificate of incorporation and bylaws
provides that a vacancy caused by any increase in the number of directors may
be filled by the board. Vacancies that are not the result of an increase in the
number of directors, including those resulting from the removal of a director:
. may be filled by a majority of the directors then in office, even though
that number may be less than a quorum.
. by the board;
. by a sole remaining director.
89
Bridge View. Vacancies on Bridge View's board of directors may be filled by
a majority of the directors in office.
Special Meeting of the Shareholders
Under New Jersey law, a special meeting of the shareholders may be called by
the president, the board of directors or such other persons as may be provided
in the bylaws.
Interchange. Interchange's bylaws provide that special meetings of the
Interchange board of directors, for any purpose(s), may be called by the
chairman of the board of directors, the president, or a majority of the board
of directors.
Bridge View. Bridge View's bylaws provide that special meetings of Bridge
View shareholders, for any purpose, may be called at any time by the chairman
of the board, the president or the board of directors, the secretary, or in the
case of the failure of the secretary to act by an assistant secretary or some
other officer.
Amendment of Bylaws
Under New Jersey law, the board of directors of a New Jersey corporation has
the power to adopt, amend or repeal bylaws, unless the powers are reserved in
the certificate of incorporation to the shareholders.
Interchange. Interchange's restated certificate of incorporation provides
that the Interchange bylaws may be made, amended, altered, changed, added to or
repealed by the Interchange board of directors without any action on the part
of the Interchange shareholders. In addition, the bylaws of Interchange provide
that the bylaws may be altered, amended or repealed by the Interchange
shareholders, but only by the affirmative vote of 80% or more of the then
outstanding shares of Interchange common stock or by a majority of the board of
directors. Any bylaw adopted or repealed by the shareholders may be amended or
repealed by the board of directors, unless the resolution of the shareholders
adopting such bylaw expressly reserves to the shareholders the right to amend
or repeal it.
Bridge View. Bridge View's bylaws provide that those bylaws may be adopted,
amended or repealed by a vote of a majority of the directors then in office or
by vote of a majority of the stock outstanding and entitled to vote. Any bylaw,
whether adopted, amended or repealed by the shareholders or directors, may be
amended or reinstated by the shareholders or the directors.
Shareholder Nominations and Proposals at Shareholder Meetings
Interchange. The restated certificate of incorporation and bylaws of
Interchange do not set forth procedures for the nomination of directors or for
the submission of proposals at shareholder meetings.
Bridge View. Bridge View's certificate of incorporation, as amended, and
bylaws do not set forth procedures for the nomination of directors or the
submission of proposals at shareholder meetings.
Anti-Takeover Provisions
The New Jersey Shareholders Protection Act (the "NJSPA") prohibits certain
transactions involving an "interested shareholder" and a "resident domestic
corporation." An "interested shareholder" is one that is directly or indirectly
a beneficial owner of 10% or more of the voting power of the outstanding voting
stock of a resident domestic corporation. The NJSPA prohibits certain business
combinations between an interested shareholder and a resident domestic
corporation for a period of five years after the date the interested
shareholder acquired its stock, unless the business combination was approved by
the resident domestic corporation's board of directors prior to the stock
acquisition date. After the five-year period expires, the prohibition on
certain business
90
combinations continues unless the combination is approved by the affirmative
vote of two-thirds of the voting stock not beneficially owned by the interested
shareholder, the combination is approved by the board prior to the interested
shareholder's stock acquisition date or certain fair price provisions are
satisfied.
Interchange. Interchange's restated certificate of incorporation provides
that approval of the holders of at least eighty percent of the outstanding
shares of Interchange common stock entitled to vote in the election of
directors is required for Interchange to enter into:
. any merger or consolidation of Interchange with any interested
shareholder, as defined in the certificate of incorporation, or
affiliate, as defined in the certificate of incorporation, of an
interested shareholder; or
. any plan of exchange for all of the outstanding shares of Interchange for
any class of shares of an interested shareholder or an affiliate of an
interested shareholder; or
. any sale or other disposition to any interested shareholder or an
affiliate of an interested shareholder of any assets of Interchange
having an aggregate fair market value of $2.0 million or more; or
. the issuance or transfer by Interchange of any of its securities with an
interested shareholder or an affiliate of an interested shareholder
having an aggregate fair market value of $2.0 million or more; or
. the adoption of any plan or proposal for the liquidation of dissolution
of Interchange proposed by an interested shareholder or affiliate of an
interested shareholder; or
. any reclassification of securities which has the effect of increasing the
ownership of any interested shareholder of an affiliate of an interested
shareholder.
Bridge View. Bridge View's certificate of incorporation, as amended, and
bylaws contain no similar provisions.
Preemptive Rights
Under New Jersey law, shareholders of a New Jersey corporation have only
such preemptive rights as may be provided in the certificate of incorporation.
Interchange. Interchange's restated certificate of incorporation does not
provide shareholders with preemptive rights.
Bridge View. Bridge View's certificate of incorporation, as amended, does
not provide shareholders with preemptive rights.
Limitation on Director Liability
Under New Jersey law, a director of a New Jersey corporation cannot be held
personally liable for damages for breach of any duty owed to the corporation or
its shareholders, except where the director breaches his duty of loyalty to the
corporation, or acts not in good faith or in knowing violation of the law, or
receives an improper personal benefit.
Interchange. Interchange's restated certificate of incorporation provides
that, except to the extent prohibited by law, a director or officer of
Interchange shall not be personally liable to Interchange or its shareholders
for damages for breach of any duty owed to Interchange or its shareholders;
provided that no director or officer will be relieved from liability for any
breach of duty based upon an act or omission:
. in breach of a director's duty of loyalty to the corporation or its
shareholders;
. not in good faith or in knowing violation of the law; or
. resulting in a director's receipt of an improper personal benefit.
Bridge View. Bridge View's certificate of incorporation, as amended,
provides that, except to the extent prohibited by law, a director or officer of
Bridge View shall not be personally liable to Bridge View or its
91
shareholders for damages for breach of any duty, except that no director or
officer will be relieved from liability for any breach of duty based upon:
. a breach of his duty of loyalty to the corporation and its shareholders;
. an action not in good faith;
. a knowing violation of law;
. the receipt of an improper personal benefit; or
. an action which was otherwise of such a character that New Jersey law
would require that such amounts be repaid.
INTERCHANGE PROPOSAL NO. 2--ELECTION OF DIRECTORS
General
The second item to be acted upon at the Interchange annual meeting is the
election of four directors to serve until the 2006 annual meeting of
shareholders. Interchange's board of directors currently consists of thirteen
members. One current director of Interchange, who was appointed by the board of
directors earlier this year, will continue to serve only until the Interchange
annual meeting. Accordingly, the board of directors of Interchange will be
reduced to twelve members immediately following the Interchange annual meeting.
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 is currently a director of Interchange and 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, and no director, nominee or
executive officer is related to any other director, nominee or executive
officer by blood, marriage or adoption.
Recommendation of the Interchange Board of Directors
The Interchange board of directors recommends that you vote "FOR" election
of the four nominees listed below. Unless contrary instruction is given, it is
intended that the named proxies will vote in favor of each of the four nominees
listed below.
Nominees and Directors
Nominees to be elected Directors for terms of three years expiring in 2006
Donald L. Correll, age 52, is a retired Chairman of United Water Resources,
Inc., a holding company whose subsidiaries are active in public water supply,
water-related services and real estate. Mr. Correll has been a director of
Interchange and of Interchange Bank since 1995. He is a member of the Audit
Committee, the Corporate Planning and Finance Committee, the Compensation/Stock
Option Committee and is an alternate member of the Executive Committee.
James E. Healey, age 61, is a practicing Certified Public Accountant in Park
Ridge, New Jersey. He is also a Director of Marcal Paper Mills, Inc. In
addition, he is a Trustee of Pace University in New York City, a Trustee
92
of St. Joseph's Regional Hospital and Medical Center 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 was formerly Vice President and Treasurer (1995--1997) of BestFoods
(formerly CPC International, Inc.) and Comptroller (1987--1995). Mr. Healey has
been a director of Interchange and of Interchange Bank since 1993. He is a
member of the Compensation/Stock Option Committee, the Audit Committee, the
Corporate Planning and Finance Committee and the Executive Committee.
Jeremiah F. O'Connor, age 69, 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 of Interchange Bank since 1969. He is
Vice Chairman of the Board and is a member of the Executive Committee, the
Nominating Committee and the Compensation/Stock Option Committee.
Robert P. Rittereiser, age 64, is 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, LLC, filed a voluntary petition for
reorganization under Chapter 11 of the U.S. Bankruptcy Code for the Southern
District of New York. Both bankruptcy proceedings are presently in progress.
Mr. Rittereiser also serves as Chairman of Yorkville Associates Corp., a
private investment and financial advisory concern formed in April 1989. He
served as a Trustee of the DBL Liquidating Trust from April 1992 until April
1996. He has been a director of Interchange and of Interchange Bank since July
1989. He is a member of the Corporate Planning and Finance Committee, the
Compensation/Stock Option Committee and the Executive Committee.
Directors to continue in office for terms expiring in 2005
Anthony S. Abbate, age 63, is President and Chief Executive Officer of the
Company. Mr. Abbate has been a director of Interchange since 1984 and of
Interchange Bank since 1981. He is a member of the Executive Committee, the
Corporate Planning and Finance Committee and serves in an ex-officio capacity
on all committees.
Anthony R. Coscia, age 43, 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 is currently serving his fifth term as Chairman of
the New Jersey Economic Development Authority. Mr. Coscia has been a director
of Interchange and of Interchange Bank since 1997. He is a member of the Audit
Committee, the Nominating Committee and is an alternate member of the Executive
Committee.
John J. Eccleston, age 77, is a retired principal in the firm of R. D.
Hunter & Company, Certified Public Accountants. Prior to January 1995, he was
Senior Partner of John J. Eccleston & Company, Certified Public Accountants,
LLP. Mr. Eccleston has been a director of Interchange since 1984 and of
Interchange Bank since 1969. He is a member of the Audit Committee, the
Executive Committee and the Corporate Planning and Finance Committee.
Eleanore S. Nissley, age 71, is a commercial real estate investor, and she
serves as Vice Chairperson of Hackensack Meadowlands Development Commission.
Mrs. Nissley has been a director of Interchange and of Interchange Bank since
1992. She is a member of the Audit Committee, the Nominating Committee and is
an alternate member of the Executive Committee.
Directors to continue in office for terms expiring in 2004
Anthony D. Andora, age 72, 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 of Interchange Bank since 1969. He is Chairman of the Board, and is a
member of the Executive Committee, the Compensation/Stock Option Committee, the
Nominating Committee, the Corporate Planning and Finance Committee and serves
in an ex-officio capacity on all committees.
93
David R. Ficca, age 71, is a retired director of Richton International
Corporation and the retired Vice Chairman of Kidde, Inc, a multi-market
manufacturing and service organization. He has been a director of the
Interchange since 1984 and of Interchange Bank since 1983. He is a member of
the Executive Committee, the Corporate Planning and Finance Committee and the
Compensation/Stock Option Committee.
Nicholas R. Marcalus, age 59, is President and Chief Executive Officer of
Marcal Paper Mills, Inc., a manufacturer of 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 of Interchange Bank since 1997.
He is a member of the Nominating Committee and is an alternate member of the
Executive Committee.
Benjamin Rosenzweig, age 77, is Vice President of Azco Steel Company, a
division of Bushwick Steel Corp. He has been a director of Interchange since
1984 and of Interchange Bank since 1976 and is Secretary of Interchange and of
Interchange Bank. He serves as a member of the Executive Committee and the
Nominating Committee.
Committees and Meetings of the Board of Directors
During 2002, the board of directors of Interchange held 12 meetings and the
board of directors of Interchange Bank held 12 meetings. All incumbent
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
2002.
94
The following committees serve both Interchange and Interchange Bank.
Meetings
Name of Committee and Members Functions of the Committee in 2002
- ----------------------------- -------------------------------------------------------------- --------
Audit
John J. Eccleston, Chairman Reviews significant audit, accounting and other principles, 6
James E. Healey policies and practices, the activities of independent auditors
Donald L. Correll and of internal auditors, and the conclusion and
Anthony R. Coscia recommendations of auditors and the reports of regulatory
Eleanor S. Nissley examiners upon completion of their respective audits and
examinations.
Compensation/Stock Option
James E. Healey, Chairman 3
Anthony P. Andora Administers management incentive compensation plans,
Jeremiah F. O'Connor including Interchange's stock option and incentive plan. The
Donald L. Correll Compensation/Stock Option Committee makes
David R. Ficca recommendations to the board of directors with respect to
Robert R. Rittereiser compensation of directors and executive officers.
Corporate Planning and Finance
Robert P. Rittereiser, Chairman Responsible for the review of the annual budget, capital 14
Donald L. Correll expenditures and other financial transactions.
Anthony S. Abbate
Anthony D. Andora
John J. Eccleston
David R. Ficca
James E. Healey
Executive
Anthony S. Abbate, Chairman Has authority to exercise all of the powers of the board of 9
Anthony D. Andora directors with respect to the affairs of Interchange or
John J. Eccleston Interchange Bank, as applicable, except that the Executive
David R. Ficca Committee may not: (1) exercise such powers while a
James. E. Healey quorum of the board of directors is actively convened for the
Jeremiah F. O'Connor conduct of business; (2) declare a dividend or approve any
Robert P. Rittereiser other distribution to shareholders; (3) elect or appoint any
Benjamin Rosenzweig officer or director; and (4) make, alter or repeal bylaws.
Nominating
Anthony D. Andora, Chairman Advises and makes recommendations to the board of 1
Jeremiah F. O'Connor directors concerning the selection of candidates as nominees
Anthony R. Coscia for election as directors. The Nominating Committee will
Nicholas R. Marcalus consider nominations recommended by shareholders. In
Eleanor S. Nissley accordance with Interchange's bylaws, such nominations,
Benjamin Rosenzweig together with accompanying biographical material, must be
in writing and should be addressed to the Secretary of
Interchange and must be received not later than January 2 of
the year of the annual meeting of shareholders.
95
Compensation/Stock Option Committee Interlocks and Insider Participation
No member of the Compensation/Stock Option Committee was, during 2002, an
employee of Interchange. During 2002, no executive officer of Interchange (i)
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, (ii) served as a director of another entity, one of whose
executive officers served on the Compensation/Stock Option Committee of
Interchange, or (iii) was a member of the compensation committee of another
entity, one of whose executive officers served as a director of Interchange.
Director Compensation
In 2002, 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 $500, $250
and $100, 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 $400 for each board meeting attended, a fee of $300 for each executive
committee meeting attended and a fee of $250 for attendance at other committee
meetings. Interchange Bank's Chairman of the Board, Vice-Chairman of the Board
and Secretary received additional retainers of $16,500, $13,500 and $2,000,
respectively. Directors who chair committees, which act in a dual capacity for
Interchange and Interchange Bank, receive an additional retainer of $2,000
annually. A director who is an employee of Interchange or any subsidiary
receives no retainer or fees.
Directors, excluding directors who are employed by Interchange or
Interchange Bank and participate in a separate plan, participate in a
retirement benefit plan which entitles the director to receive upon retirement
an amount equal to the annual retainer being paid directors (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) or (ii) below: (i) the benefits such participant
had accrued as of such date under the terms and provision of the plan in effect
prior to this restatement, 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 this
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 is designed to attract
qualified personnel to accept positions of responsibility as 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
1,000 shares of Interchange 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 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 are non-qualified stock options and are not
entitled to special tax treatment under the Internal Revenue Code of 1986, as
amended.
A total of 150,000 shares of common stock were made available for option
awards under the Outside Director Incentive Compensation Plan, of which options
to purchase 49,500 shares have been granted to date. In 2002, 16,500 options
were granted to the outside directors.
96
INTERCHANGE PROPOSAL NO. 3--RATIFICATION OF
APPOINTMENT OF INDEPENDENT PUBLIC AUDITORS
General
The Interchange board of directors has selected Deloitte & Touche LLP,
independent public auditors, to audit Interchange's consolidated financial
statements for the current fiscal year ending December 31, 2003. Interchange
expects that a representative of Deloitte & Touche LLP will be present at the
Interchange annual meeting, will have the opportunity to make a statement if he
or she desires to do so and will be available to answer any appropriate
questions.
Shareholder ratification of the selection of Deloitte & Touche LLP as
Interchange's independent public auditors is not required by Interchange's
bylaws or other applicable law. However, the Interchange board of directors is
submitting the appointment of Deloitte & Touche LLP to the shareholders for
ratification as a matter of good corporate practice. If the shareholders fail
to ratify the appointment, the Audit Committee and the board of directors in
their discretion will reconsider whether or not to retain Deloitte & Touche
LLP. Even if the appointment is ratified, the board of directors, in its
discretion, may nevertheless appoint a different independent public accounting
firm at any time during the year if it determines that such a change would be
in Interchange's best interests and in the best interests of its shareholders.
Recommendation of the Interchange Board of Directors
The board of directors has unanimously approved the appointment of Deloitte
& Touche LLP as independent public auditors and unanimously recommends that
shareholders vote "FOR" the ratification of the appointment of Deloitte &
Touche LLP as Interchange's independent public auditors for the fiscal year
ending December 31, 2003. Unless contrary instruction is given, it is intended
that the named proxies will vote in favor of this proposal.
INTERCHANGE EXECUTIVE OFFICERS, EXECUTIVE COMPENSATION
AND OTHER INTERCHANGE INFORMATION
Executive Officers
The following table sets forth the names, ages, and present positions of
Interchange's principal executive officers:
Name Age Positions Held with Interchange
---- --- -------------------------------
Anthony S. Abbate.... 63 President and Chief Executive Officer
Anthony J. Labozzetta 39 Executive Vice President and Chief Operating Officer
Patricia D. Arnold... 44 Senior Vice President--Chief Credit Officer
Charles T. Field..... 38 Senior Vice President--Chief Financial Officer
Frank R. Giancola.... 49 Senior Vice President--Operations
Business Experience
Anthony S. Abbate, President and Chief Executive Officer of Interchange
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 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.
97
Patricia D. Arnold, Senior Vice President - Commercial Lending 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.
Frank R. Giancola, Senior Vice President - Operations since September 1997;
Senior Vice President-Retail Banking from 1993 to 1997; Senior Vice
President-Operations of the Bank 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 Interchange board of directors and
serve at the discretion of the Interchange 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.
98
Executive Compensation
The following table sets forth compensation paid by Interchange and its
subsidiaries during the years ended December 31, 2002, 2001 and 2000, for
services in all capacities, to Mr. Abbate, Interchange's chief executive
officer, and all other executive offers of Interchange whose total salary and
bonus exceeded $100,000 during 2002. These persons are sometimes referred to in
this document as the "named executive officers."
Annual Compensation Long-Term Compensation
--------------------------------- ---------------------------------------
Other All
Annual Restricted Other
Name and Principal Compen- Stock(3) Options Compen-
Position(1) Year Salary($) Bonus($) sation($) Awards($) (No. of Shares) sation($)(2)
------------------ ---- --------- -------- --------- ---------- --------------- ------------
Anthony S. Abbate 2002 $375,000 $187,500 $ -- 168,750 52,500 $68,418
President and CEO 2001 360,000 166,680 -- 148,680 30,000 46,118
2000 347,500 121,625 -- 104,250 15,000 65,160
Anthony S. Labozzetta 2002 175,000 61,250 20,417 37,625 18,750 7,474
Executive Vice President 2001 162,000 52,650 17,552 34,425 7,000 6,539
and Chief Financial Officer 2000 152,000 38,000 12,667 31,160 4,000 4,655
Frank R. Giancola 2002 144,000 50,400 -- 15,000 15,000 6,443
Senior Vice President 2001 139,500 45,338 -- 22,320 7,000 6,115
2000 135,500 32,500 -- 29,810 4,000 6,069
Patricia D. Arnold 2002 160,000 56,000 5,100 31,600 15,000 4,928
Senior Vice President 2001 140,000 46,150 2,756 23,075 7,000 4,627
2000 130,000 33,870 1,214 20,150 4,000 4,629
- --------
(1) Includes the President and CEO and all other executive officers whose total
annual salary and bonus exceeded $100,000 in 2002.
(2) Represents payments as shown below:
Year Abbate Labozzetta Giancola Arnold
---- ------- ---------- -------- ------
Amounts contributed to 401(k) plan 2002 $ 7,799 $6,988 $5,756 $4,412
2001 6,533 6,070 5,473 4,183
2000 6,295 4,217 5,417 4,221
Value of life insurance premium 2002 3,564 486 688 516
paid in respect to coverage 2001 3,564 470 643 444
in excess of $50,000 2000 3,564 438 643 408
Premium on disability policy 2002 7,860 -- -- --
2001 7,860 -- -- --
2000 7,860 -- -- --
Contribution to Supplemental 2002 49,195 -- -- --
Executive Retirement Plan (4) 2001 28,162 -- -- --
2000 47,442 -- -- --
- --------
(3) The unvested restricted stock awards granted, to date, totaled 29,700,
7,441, 5,161 and 5,293 for Messrs. Abbate, Labozzetta and Giancola and Mrs.
Arnold, respectively. The value of such awards at December 31, 2002, were $
478,170, $119,800, $83,092 and $85,217, respectively. The value of these
shares at the date of grant is reflected in the table above. The awards for
Messrs. Abbate, Labozzetta, and Giancola and Mrs. Arnold vest in three
years following the date of grant provided they do not terminate their
employment during that period. Dividends will be paid on all restricted
stock awards.
(4) In 1998, the Board of Directors amended the Supplemental Executive
Retirement Plan to provide Mr. Abbate with the retirement benefits he is
entitled to as a member of the Board of Directors.
99
Stock Option Grants in Last Fiscal Year
The following table sets forth certain information concerning grants of
stock options awarded to the named executive officers during the year ended
December 31, 2002. All options granted during the year were non-qualified stock
options:
Potential Realized Value
Number of % of Total At Assumed Annual Rates
Securities Options Of Stock Price Appreciation
Underlying Granted to Exercise or For Option Term(3)
Options Employees in Base Price Expiration ---------------------------
Name Granted Fiscal Year ($/sh)(1) Date(2) 5% 10%
---- ---------- ------------ ----------- ---------- --------- ---------
Anthony S. Abbate. 52,500 30.63 17.00 1/28/03 1,453,788 2,314,915
Anthony Labozzetta 18,750 10.94 17.00 1/28/03 519,210 826,755
Frank R. Giancola. 15,000 8.75 17.00 1/28/03 415,368 661,404
Patricia Arnold... 15,000 8.75 17.00 1/28/03 415,368 661,404
- --------
* The grant of stock options presented in this table was made in early 2003
based upon 2002 performance criteria.
(1) The exercise price was based on the closing price of a share of
Interchange's common stock on the date of grant as reported on the Nasdaq
National Market.
(2) Options are exercisable starting one year from the date of grant and become
vested 1/3 each year from the grant date. Options expire if not exercised
within 10 years of grant date.
(3) Pre-tax gain. The dollar amount under these columns are the result of
calculations at the 5% end 10% rates set by the Securities and Exchange
Commission in the proxy disclosure rules 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 $27.69 and $44.09 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 Value of Unexercised
Underlying Unexercised In-the-Money Options
Options at Year End at Year-End(2)
No. Shares ------------------------- -------------------------
Acquired on Value Shares Shares
Name Exercise Realized(1) Exercisable Unexercisable Exercisable Unexercisable
---- ----------- ----------- ----------- ------------- ----------- -------------
Anthony S. Abbate(3) 9,000 $144,895 59,241 66,250 $302,647 $174,500
Anthony Labozzetta.. 0 0 22,125 16,500 104,864 46,133
Frank R. Giancola... 0 0 34,342 16,500 262,717 46,133
Patricia Arnold..... 1,950 31,389 18,750 16,500 86,527 46,133
- --------
(1) Pre-tax gain. Amounts shown represent the difference between the stock
option grant price and the market value of the stock on the date of
exercise.
(2) Pre-tax gain. Value of unexercised in-the-money options based on the
December 31, 2002 closing price of $16.10 as reported on the Nasdaq
National Market.
(3) Mr. Abbate's exercise of options was previously disclosed in Interchange's
proxy statement for its 2002 annual meeting of shareholders.
Pension Plan and Supplemental Executives' Retirement Plan
Interchange, through Interchange Bank, maintains a non-contributory defined
benefit pension plan covering all eligible employees including Mrs. Arnold,
Messrs. Abbate, Giancola and Labozzetta. Retirement income is based on years of
service under the Plan and, subject to certain limits, on final average
compensation.
Interchange maintains a 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 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.
100
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.
5-Year Years of Service at Normal Retirement Date
Average ------------------------------------------
Compensation 5 10 20 30 35
------------ ------- ------- -------- -------- --------
$100,000.. $ 5,647 $11,293 $ 22,586 $ 33,880 $ 39,526
150,000.. 9,397 18,793 37,586 56,380 65,776
200,000.. 13,147 26,293 52,586 78,880 92,026
250,000.. 16,897 33,793 67,586 101,380 118,276
300,000.. 20,647 41,293 82,586 123,880 144,526
400,000.. 28,147 56,293 112,586 168,880 197,026
- --------
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 only covers Mr. Abbate.
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 49 years as of December 31,
2002.
5. 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.
6. At December 31, 2002, 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--10 years; Mr.
Labozzetta--7 years, Mr. Giancola--10 years; and Mrs. Arnold--10 years.
Capital Investment Plan and Supplemental Executive Retirement Plan
Interchange also maintains a Capital Investment Plan covering all eligible
employees, including the named executive officers. Retirement income is based
on the value of each participant's account balance and is paid upon retirement,
termination of employment, disability or death. The Supplemental Executive
Retirement Plan also supplements the retirement benefits payable to certain
participants under the Capital Investment Plan. Only Mr. Abbate participates in
the Supplement Executives' Retirement Plan. These benefits are intended to
provide participants with an amount (plus earnings) that Interchange would have
contributed under the Capital Investment Plan as matching employer
contributions and for fixed employer contributions (in excess of the amounts
Interchange actually contributed) if it were not for certain limitations
imposed by the Internal Revenue Code under the Capital Investment Plan. The
benefits under the Supplement Executives' Retirement Plan with respect to the
Capital Investment Plan are to be paid in lump sum in cash at the same time as
the distribution of a participant's account balance is made under the Capital
Investment Plan.
Change-in-Control Arrangements
Interchange has a Change-in-Control Agreement with each of Mrs. Arnold and
Messrs. Abbate, Giancola and Labozzetta. The agreements provide, among other
things, that if the executive is terminated during the two years after a
"change in control," or if they voluntarily terminate during the two years
following a "change in control," unless such termination is (i) because of the
executive's death or retirement, (ii) by Interchange for cause or disability or
(iii) by the executive for other than for 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 Mr.
Abbate who shall receive three times his highest annualized base salary plus an
amount equal to the greater of (i) the sum of the bonuses paid for the previous
three years, or (ii) $300,000, for the prior twelve months immediately
proceeding the date of termination. 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.
101
Compensation/Stock Option Committee Report on Executive Compensation
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 2002, the
Committee consisted of six directors who were not employees of Interchange and,
therefore, not eligible to participate in such programs and plans.
Compensation Strategy
The objectives of the 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 individual performance. The Stock Option and Incentive Plan, approved by
shareholders in 1997, is 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 the 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 executive's compensation to the overall financial
102
results of Interchange for the year. The bonus for 2002 (paid in 2003) reflects
the attainment of 120 percent of the financial targets set in 2002. 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.
Stock Option and Incentive Plan
The Stock Option and Incentive Plan of 1997, as amended, is 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 Stock Option and Incentive Plan also provides 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 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.
A total of 1,384,313 shares of common stock were made available for option
and incentive awards under the Stock Option and Incentive Plan. Options to
purchase 842,200 shares (net of forfeitures) and 162,603 shares of restricted
stock have been granted to date. Options granted to the executives in 2002 and
those granted in 2003 as a result of 2002's performance are included in the
Summary Compensation Table.
103
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 Plan, and the
staff benefit programs as outlined elsewhere in this joint proxy
statement-prospectus. Mr. Abbate also participates in the Supplement
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 that will promote Interchange's long-term growth, organization
stability, and financial strength. Mr. Abbate's salary was at the seventy-fifth
percentile of Interchange's 2002 salary range for his position and his annual
cash bonus for 2002 performance was based upon achieving 120 percent of
targeted financial goals for that year. 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
Anthony D. Andora
Donald L. Correll
David R. Ficca
Jeremiah F. O'Connor
Robert P. Rittereiser
Audit Committee Report
The Audit Committee consists of five directors, each of whom is independent
as defined in the listing standards of the National Association of Securities
Dealers. A brief description of the responsibilities of the Audit Committee is
set forth above under the caption "Interchange Proposal No. 2--Election of
Directors--Committees and Meetings of the Board of Directors", and a copy of
the amended and restated Audit Committee Charter as adopted by the board of
directors is attached hereto as Annex D.
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 six times
during 2002. The Committee discussed the interim financial information
contained in each quarterly earnings announcement with the Chief Financial
Officer and the independent auditors 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 auditors prior to the filing of Interchange's
quarterly report on Form 10-Q.
In discharging its oversight responsibility as to the audit process, the
Audit Committee obtained, from the independent auditors, 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 Discussion 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 auditors 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 auditors all
communications required by generally accepted auditing standards, including
those described in SAS 61 and, with and without management
104
present, discussed and reviewed the results of the independent auditors'
examination 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, 2002 with management and the
independent auditors. Management has the responsibility for the preparation of
Interchange's financial statements and the independent auditors have the
responsibility for the examination of those statements.
Based on the review and discussions with management and the independent
auditors, 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, 2002 and for filing with the Securities and
Exchange Commission. The Committee also recommended the reappointment, subject
to shareholder ratification, of the independent auditors, and the board
concurred in such recommendation.
The Audit Committee:
John J. Eccleston, Chairman
James E. Healey
Donald L. Correll
Anthony R. Coscia
Eleanore S. Nissley
Fees Paid to Our Independent Auditors
Audit Fees: The aggregate fees billed for professional services rendered by
Deloitte & Touche LLP, our independent auditors, in connection with the audit
and review of our 2002 financial statements was $220,000.
Financial Information Systems Design and Implementation Fees: There were no
fees billed for professional services rendered in connection with financial
information system design and implementation by Deloitte & Touche LLP.
All Other Fees: The aggregate of all other fees billed for professional
services, including fees for audits of employee benefit plans, tax preparation
and other audit and tax related matters rendered during 2002 by Deloitte &
Touche LLP was $81,525.
105
INTERCHANGE STOCK PRICE PERFORMANCE
The following graph compares the performance of Interchange's common stock
with a Peer Group /(1)/, and the Nasdaq Stock Market Index. The graph assumes
that $100 was invested on January 1, 1997 and that any dividends were
reinvested.
FIVE-YEAR PERFORMANCE COMPARISON
The graph below provides an indicator of cumulative total stockholder returns
for the Company as compared with a Peer Group /(1)/ and the Nasdaq Stock Market
(U.S.) Index.
[CHART]
12/97 12/98 12/99 12/00 12/01 12/02
Interchange Financial Corp. 100.00 84.53 87.57 76.26 108.68 141.83
Peer Group 100.00 111.17 98.64 101.67 121.74 165.15
Nasdaq Stock
Market (U.S.) 100.00 140.99 261.48 157.42 124.89 86.33
Assumes $100 invested on December 31, 1997 in Interchange common stock, the
Nasdaq Stock Market (U.S.) Index and Peer Group Common Stock. Total
shareholder returns assume reinvestment of dividends.
(1) The Peer Group is comprised of 17 banking institutions in Connecticut, New
Jersey and New York with asset size of at least $250 million, but less than
$1 billion, as of June 30, 2002, the most recently available information as
reported in the SNL Quarterly Bank Digest of December 2002. The banking
institutions included are: First Litchfield Financial (CT); Bridge View
Bancorp, Center Bancorp, Inc., Community Bancorp of New Jersey, Greater
Community Bancorp, Stewardship Financial Corp., SVB Financial Services Inc.
and Unity Bancorp Inc. (NJ); Alliance Financial Corp., Berkshire Bancorp,
Inc., Bridge Bancorp, Inc., CNB Bancorp, Inc., Evans Bancorp, Inc., First
of Long Island Corporation, Intervest Bancshares Corp., Jeffersonville
Bancorp, Long Island Financial Corp., and Smithtown Bancorp, Inc. (NY).
Cumulative Total Return
-----------------------------------------
12/97 12/98 12/99 12/00 12/01 12/02
Interchange Financial Corp. 100.00 84.53 87.57 76.26 108.68 141.83
Peer Group................. 100.00 111.17 98.64 101.67 121.74 165.18
Nasdaq Stock Market (U.S.). 100.00 140.99 261.48 157.42 124.89 86.33
106
PRINCIPAL SHAREHOLDERS AND HOLDINGS OF MANAGEMENT OF INTERCHANGE
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. Unless
otherwise indicated, all shares are owned directly and the indicated owner has
sole voting and investment power with respect to such shares, and ownership is
as of February 28, 2003.
Beneficially Right to Deferral Percent
Name Owned Acquire(1) Plans(2) Total Of Class
---- ------------ ---------- -------- --------- --------
(a)
Banc Funds Company, LLC
208 South LaSalle Street,
Suite 1680
Chicago, IL 60604............... 703,106(3) -- -- 703,106 7.2
(b)
Anthony S. Abbate............... 263,013 84,000 29,701 376,714
Anthony D. Andora............... 217,270 1,500 -- 218,770 2.2
Donald L. Correll............... 12,155 1,500 -- 13,655 *
Anthony R. Coscia............... 10,575 1,500 -- 12,075 *
John J. Eccleston............... 124,276 -- -- 124,276 1.3
David R. Ficca.................. 126,086(4) 1,500 -- 127,586 1.3
James E. Healy.................. 51,637 1,500 -- 53,137 *
Nicholas R. Marcalus............ 10,733 500 -- 11,233 *
Eleanore S. Nissley............. 68,990 1,000 -- 69,990 *
Jeremiah F. O'Connor............ 88,217 -- -- 88,217 *
Robert P. Rittereiser........... 40,752 1,500 -- 42,252 *
Benjamin Rosenzweig............. 175,376 1,500 -- 176,876 1.8
William Schuber................. 28(5) -- -- -- *
(c)
Patricia D. Arnold.............. 11,702 26,250 21,888 59,840 *
Frank R. Giancola............... 16,182 41,842 32,126 90,150 *
Anthony Labozzetta.............. 32,707 29,625 17,848 80,180 *
Charles T. Field................ -- -- -- -- *
(d)
Directors and executive officers
as a group (17 persons)....... 1,249,699 193,717 101,563 1,544,979 15.7
- --------
* Does not exceed one percent of class.
(1) Includes stock acquirable by exercise of stock options exercisable within
60 days of the date of this document.
(2) Shares held in deferred compensation accounts to which individuals have
sole power to vote but no investment power.
(3) As reported on Form 13F for the period ended December 31, 2002.
(4) Includes beneficial ownership of 2,533 shares held by a foundation to which
Mr. Ficca has sole voting power and shared investment power.
(5) As reported on Mr. Schuber's Form 3 as of January 2, 2003.
(6) Mr. Field joined Interchange in February 2003 as Senior Vice President and
Chief Financial Officer.
Section 16(a) Beneficial Ownership Reporting Compliance
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 also are required by SEC regulations to furnish
Interchange with copies of all Section 16(a) forms they file. Interchange
believes that all Section 16(a) forms were filed on a timely basis during and
for 2002.
107
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS OF INTERCHANGE
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.
Mr. Andora, the Chairman of the Board of Interchange, is a member of Andora
& Romano, LLC, a firm that renders various legal services to Interchange and
its subsidiaries. During 2002, Andora & Romano received fees for legal services
of $295,827, including $95,000 paid pursuant to retainer contracts and $150,400
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.
EXPERTS
The consolidated financial statements incorporated in this joint proxy
statement-prospectus by reference from Interchange Financial Services
Corporation's Annual Report on Form 10-K for the year ended December 31, 2002
have been audited by Deloitte & Touche LLP, independent auditors, as stated in
their report, which is incorporated herein by reference, and have been so
incorporated in reliance upon the report of such firm given upon their
authority as experts in accounting and auditing.
The consolidated financial statements of Bridge View Bancorp as of December
31, 2002 and 2001, and for each of the years in the three-year period ended
December 31, 2002, have been incorporated by reference herein in reliance upon
a report of KPMG LLP, independent accountants, incorporated by reference herein
and upon authority of said firm as experts in accounting and auditing.
LEGAL MATTERS
The validity of the shares of Interchange common stock to be issued pursuant
to the terms of the merger agreement will be passed upon for Interchange by
Jenkens & Gilchrist, a Professional Corporation, Dallas, Texas, counsel to
Interchange. In addition, the material federal income tax consequences of the
merger will be passed upon for Interchange and Bridge View by Jenkens &
Gilchrist.
SUBMISSION OF SHAREHOLDER PROPOSALS
Shareholder proposals that are intended to be presented at the 2004 annual
meeting of Interchange shareholders should be sent to Interchange at Park 80
West/ Plaza II, Saddle Brook, New Jersey 07663 and must be received on or prior
to December 20, 2003 to be eligible for inclusion in Interchange's proxy
statement and form of proxy to be used in connection with the 2004 annual
meeting. Such proposals must also meet the requirements set forth in the rules
and regulations of the SEC in order to be eligible for inclusion in
Interchange's proxy statement for its 2004 annual meeting of shareholders.
WHERE YOU CAN FIND MORE INFORMATION
Interchange and Bridge View SEC Filings
Interchange and Bridge View file annual, quarterly and current special
reports, proxy statements and other information with the SEC under the
Securities Exchange Act of 1934, as amended. Interchange's and Bridge View's
SEC filings are available to the public on the SEC's website at
http://www.sec.gov. These filings are also available to the public from
commercial document retrieval services.
108
You can also read and copy reports, statements or other information filed by
Interchange and Bridge View with the SEC at the SEC's Public Reference Room,
450 Fifth Street, N.W., Washington, D.C., 20549, at prescribed rates. Please
call the SEC at 1-800-SEC-0330 for further information on the operation of the
Public Reference Room.
Registration Statement
Interchange has filed a registration statement on Form S-4 to register with
the SEC the shares of Interchange common stock to be issued to Bridge View
shareholders in connection with the merger. This joint proxy
statement-prospectus is a part of that registration statement and constitutes a
prospectus of Interchange, in addition to being a proxy statement of
Interchange and Bridge View for the annual meeting of Interchange shareholders
and the special meeting of Bridge View shareholders. The registration
statement, including the exhibits to the registration statement, contains
additional relevant information about Interchange and Bridge View common stock.
As allowed by SEC rules, this joint proxy statement-prospectus does not contain
all the information you can find in the registration statement including
exhibits. You may obtain copies of the registration statement on Form S-4 (and
any amendments to that document) in the manner described above.
Documents Incorporated by Reference
The SEC allows Interchange and Bridge View to "incorporate by reference"
into this joint proxy statement-prospectus information they file with the SEC,
which means that Interchange and Bridge View can disclose important information
to you by referring you to those documents. Information incorporated by
reference is an important part of this prospectus, and information subsequently
filed by Interchange and Bridge View with the SEC automatically updates this
information as well as the information included in this prospectus. If there
are any differences between information in this prospectus and information in a
document that is incorporated by reference, rely on the information in the
later filed document.
Interchange Documents. This joint proxy statement-prospectus incorporates
by reference the Interchange documents set forth below. All of the documents
were filed with the SEC under File No. 001-10518.
. Annual Report on Form 10-K for the year ended December 31, 2002;
. Current Report on Form 8-K filed January 24, 2003; and
. The description of Interchange's common stock set forth under the caption
"Description of Capital Stock" in the final prospectus included in
Interchange's registration statement on Form S-2 filed with the SEC on
October 9, 1992 (Registration No. 33-49840).
All documents filed by Interchange with the SEC pursuant to Sections 13(a),
13(c), 14, or 15(d) of the Securities Exchange Act of 1934 after the date of
this joint proxy statement-prospectus and prior to the filing of a
post-effective amendment that indicates all securities offered have been sold
or that deregisters all securities then remaining unsold are incorporated by
reference into this joint proxy statement-prospectus and are part of this joint
proxy statement-prospectus from the date of filing.
Bridge View Documents. This joint proxy statement-prospectus incorporates
by reference the Bridge View documents set forth below. All of the documents
were filed with the SEC under File No. 001-12165.
. Annual Report on Form 10-K/A for the year ended December 31, 2002;
All documents filed by Bridge View with the SEC pursuant to Sections 13(a),
13(c), 14, or 15(d) of the Securities Exchange Act of 1934 after the date of
this joint proxy statement-prospectus and prior to the filing of a
post-effective amendment that indicates all securities offered have been sold
or that deregisters all securities then remaining unsold are incorporated by
reference into this joint proxy statement-prospectus and are part of this joint
proxy statement-prospectus from the date of filing.
109
Any statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes hereof to the extent that a statement contained herein or in any
other subsequently filed document that also is, or is deemed to be,
incorporated by reference herein modifies or supersedes such statement. Any
such statement so modified or superseded shall not be deemed, except as so
modified or superseded, to constitute a part hereof.
Documents Available Without Charge
Interchange and Bridge View will provide, without charge, copies of any
report incorporated by reference into this document, excluding exhibits other
than those that are specifically incorporated by reference in this document.
You may obtain a copy of any document incorporated by reference by writing or
calling Interchange or Bridge View as follows:
Interchange Documents: Bridge View Documents:
Ms. Georgianna Hutter Ms. Michele Albino
Interchange Financial
Services Corporation Corporate Secretary
Park 80 West/Plaza II Bridge View Bancorp
Saddle Brook, New Jersey
07663 457 Sylvan Avenue
(201) 703-2265 Englewood Cliffs, New
Jersey 07632
(201) 871-7800
If you would like to request documents from Interchange or Bridge View,
please do so at least five business days before the date of your shareholders'
meeting in order to receive timely delivery of such documents prior to your
shareholders' meeting.
You should rely only on the information contained or incorporated by
reference in this document. Neither Interchange nor Bridge View has authorized
any person to provide you with information that is different from what is
contained in this document. This joint proxy statement-prospectus is dated
March 25, 2003. You should not assume that the information contained in this
document is accurate as of any date other than that date, and neither the
mailing of this document to Interchange or Bridge View shareholders nor the
issuance of Interchange common stock in the merger creates any implication to
the contrary.
110
ANNEX A
-------
AGREEMENT AND PLAN OF MERGER
================================================================================
ANNEX A
AGREEMENT AND PLAN OF MERGER
BY AND BETWEEN
INTERCHANGE FINANCIAL SERVICES CORPORATION
SADDLE BROOK, NEW JERSEY
AND
BRIDGE VIEW BANCORP
ENGLEWOOD CLIFFS, NEW JERSEY
DATED AS OF NOVEMBER 18, 2002
================================================================================
TABLE OF CONTENTS
ARTICLE I ACQUISITION OF BVB BY INTERCHANGE.......................................................... 2
Section 1.01 Merger of BVB with and into Interchange............................................... 2
Section 1.02 Effective Date and Effective Time..................................................... 2
Section 1.03 Effects of the Merger................................................................. 2
Section 1.04 Certificate of Incorporation and Bylaws............................................... 2
Section 1.05 Directors and Officers................................................................ 3
Section 1.06 Conversion of Securities.............................................................. 3
Section 1.07 Election Procedures................................................................... 5
Section 1.08 Exchange Procedures; Surrender of Certificates........................................ 8
Section 1.09 Treatment of BVB Stock Options........................................................10
Section 1.10 Tax Consequences......................................................................10
Section 1.11 Voting Agreement and Irrevocable Proxy................................................10
ARTICLE II THE CLOSING AND THE CLOSING DATE...........................................................11
Section 2.01 Time and Place of the Closing and Closing Date........................................11
Section 2.02 Actions to be Taken at the Closing by BVB.............................................11
Section 2.03 Actions to be Taken at the Closing by Interchange.....................................13
Section 2.04 Further Assurances....................................................................14
ARTICLE III REPRESENTATIONS AND WARRANTIES OF BVB......................................................14
Section 3.01 Organization and Authority............................................................14
Section 3.02 Subsidiaries..........................................................................15
Section 3.03 Capitalization of BVB.................................................................15
Section 3.04 Execution and Delivery; No Violation..................................................16
Section 3.05 Consents and Approvals................................................................17
Section 3.06 Financial Statements..................................................................17
Section 3.07 No Adverse Change.....................................................................18
Section 3.08 Absence of Certain Changes or Events..................................................18
Section 3.09 Litigation............................................................................20
Section 3.10 Taxes and Tax Returns.................................................................20
Section 3.11 Undisclosed Liabilities...............................................................22
Section 3.12 Title to Assets.......................................................................22
Section 3.13 Condition of Assets...................................................................22
Section 3.14 Contracts.............................................................................23
Section 3.15 Investments...........................................................................23
Section 3.16 Interest Rate Risk Management Instruments.............................................24
Section 3.17 Loans.................................................................................24
Section 3.18 Evidences of Indebtedness.............................................................24
Section 3.19 Proprietary Rights....................................................................25
Section 3.20 Deposit Summary.......................................................................25
Section 3.21 Transactions with Certain Persons and Entities........................................25
Section 3.22 Guaranties............................................................................25
Section 3.23 Insurance.............................................................................26
Section 3.24 Compliance with Laws, Permits and Instruments.........................................26
i
Section 3.25 Absence of Certain Business Practices.................................................26
Section 3.26 Environmental Compliance..............................................................27
Section 3.27 Regulatory Compliance.................................................................27
Section 3.28 Community Reinvestment Act............................................................28
Section 3.29 Fair Housing Act, Home Mortgage Disclosure Act and Equal Credit Opportunity Act.......28
Section 3.30 Usury Laws and Other Consumer Compliance Laws.........................................28
Section 3.31 Bank Secrecy Act, Foreign Corrupt Practices Act and U.S.A. Patriot Act................28
Section 3.32 Fiduciary Responsibilities............................................................29
Section 3.33 Registration Statement; Joint Proxy Statement/Prospectus..............................29
Section 3.34 BVB Statements and Reports............................................................29
Section 3.35 Books and Records.....................................................................29
Section 3.36 Employee Relationships................................................................30
Section 3.37 Employee Benefit Plans................................................................30
Section 3.38 Completion of Transaction.............................................................32
Section 3.39 Representations Not Misleading........................................................32
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF INTERCHANGE..............................................32
Section 4.01 Organization and Authority............................................................32
Section 4.02 Capitalization of Interchange.........................................................33
Section 4.03 Execution and Delivery; No Violation..................................................33
Section 4.04 Financial Statements..................................................................34
Section 4.05 No Adverse Change.....................................................................34
Section 4.06 Absence of Certain Changes or Events..................................................35
Section 4.07 Litigation............................................................................36
Section 4.08 Taxes.................................................................................36
Section 4.09 Undisclosed Liabilities...............................................................37
Section 4.10 Insurance.............................................................................37
Section 4.11 Compliance with Laws, Permits and Instruments.........................................38
Section 4.12 Absence of Certain Business Practices.................................................38
Section 4.13 Consents and Approvals................................................................38
Section 4.14 Environmental Compliance..............................................................38
Section 4.15 Regulatory Compliance.................................................................39
Section 4.16 Community Reinvestment Act............................................................39
Section 4.17 Fair Housing Act, Home Mortgage Disclosure Act and Equal Credit Opportunity Act.......40
Section 4.18 Usury Laws and Other Consumer Compliance Laws.........................................40
Section 4.19 Bank Secrecy Act, Foreign Corrupt Practices Act and U.S.A. Patriot Act................40
Section 4.20 Registration Statement; Joint Proxy Statement/Prospectus..............................40
Section 4.21 Interchange Statements and Reports....................................................41
Section 4.22 Books and Records.....................................................................41
Section 4.23 Employee Benefit Plans................................................................41
Section 4.24 Completion of Transaction.............................................................43
Section 4.25 Representations Not Misleading........................................................43
ii
ARTICLE V COVENANTS OF BVB...........................................................................43
Section 5.01 Best Efforts..........................................................................43
Section 5.02 BVB Shareholders' Meeting.............................................................43
Section 5.03 Information Furnished by BVB..........................................................44
Section 5.04 Affirmative Covenants.................................................................44
Section 5.05 Negative Covenants....................................................................46
Section 5.06 Access; Pre-Closing Investigation.....................................................48
Section 5.07 Invitations to and Attendance at Directors' and Committee Meetings....................48
Section 5.08 Additional Financial Statements.......................................................49
Section 5.09 Untrue Representations................................................................49
Section 5.10 Litigation and Claims.................................................................49
Section 5.11 Notice of Material Adverse Changes....................................................49
Section 5.12 No Negotiation with Others............................................................49
Section 5.13 Consents and Approvals................................................................50
Section 5.14 Environmental Investigation; Right to Terminate Agreement.............................50
Section 5.15 Restrictions on Resales...............................................................51
Section 5.16 Shareholder Lists.....................................................................51
Section 5.17 Employee Plans........................................................................51
Section 5.18 Employee Health and Welfare Plans.....................................................52
Section 5.19 BVB Stock Option Plans and BVB Stock Options..........................................52
Section 5.20 Voting Agreement......................................................................52
Section 5.21 Non-Compete Agreements................................................................52
Section 5.22 Accruals and Reserves.................................................................52
Section 5.23 280G Payments.........................................................................52
Section 5.24 Dividends.............................................................................53
Section 5.25 Disclosure Schedules..................................................................53
ARTICLE VI COVENANTS OF INTERCHANGE...................................................................53
Section 6.01 Best Efforts..........................................................................53
Section 6.02 Interchange Shareholders' Meeting.....................................................53
Section 6.03 Regulatory Approvals and Registration Statement.......................................54
Section 6.04 Information for Applications and Statements...........................................55
Section 6.05 Prohibited Acts of Interchange........................................................55
Section 6.06 Access; Pre-Closing Investigation.....................................................55
Section 6.07 Untrue Representations................................................................56
Section 6.08 Litigation and Claims.................................................................56
Section 6.09 Notice of Material Adverse Changes....................................................56
Section 6.10 Consents and Approvals................................................................56
Section 6.11 Employee Matters......................................................................56
Section 6.12 Conduct of Business in the Ordinary Course............................................57
Section 6.13 Disclosure Schedules..................................................................57
ARTICLE VII CONDITIONS PRECEDENT TO THE OBLIGATIONS OF BVB.............................................57
Section 7.01 Representations and Warranties........................................................57
Section 7.02 Performance of Interchange Obligations................................................57
Section 7.03 Shareholder Approvals.................................................................57
Section 7.04 Government and Other Approvals........................................................58
iii
Section 7.05 No Litigation.........................................................................58
Section 7.06 Delivery of Closing Documents.........................................................58
Section 7.07 Registration Statement................................................................58
Section 7.08 Nasdaq Listing........................................................................59
Section 7.09 Federal Tax Opinion...................................................................59
Section 7.10 No Material Adverse Change............................................................59
ARTICLE VIII CONDITIONS PRECEDENT TO THE OBLIGATIONS OF INTERCHANGE.....................................59
Section 8.01 Representations and Warranties........................................................59
Section 8.02 Performance of BVB Obligations........................................................59
Section 8.03 Shareholder Approvals.................................................................59
Section 8.04 Government and Other Approvals........................................................59
Section 8.05 No Litigation.........................................................................60
Section 8.06 Delivery of Closing Documents.........................................................60
Section 8.07 Receipt of Shareholder Letters........................................................60
Section 8.08 Registration Statement................................................................60
Section 8.09 Nasdaq Listing........................................................................60
Section 8.10 Federal Tax Opinion...................................................................60
Section 8.11 Accounting Treatment..................................................................62
Section 8.12 No Material Adverse Change............................................................62
Section 8.13 Termination and/or Integration of Employee Plans......................................62
ARTICLE IX TERMINATION AND ABANDONMENT................................................................62
Section 9.01 Expenses..............................................................................62
Section 9.02 Right of Termination..................................................................63
Section 9.03 Notice of Termination.................................................................66
Section 9.04 Effect of Termination.................................................................66
ARTICLE X CONFIDENTIAL INFORMATION...................................................................66
Section 10.01 Definition of "Recipient," "Disclosing Party" and "Representative"....................66
Section 10.02 Definition of "Subject Information"...................................................67
Section 10.03 Confidentiality.......................................................................67
Section 10.04 Securities Law Concerns...............................................................67
Section 10.05 Return of Subject Information.........................................................68
Section 10.06 Specific Performance/Injunctive Relief................................................68
ARTICLE XI SURVIVAL OF REPRESENTATIONS AND WARRANTIES; ADDITIONAL REMEDIES............................68
Section 11.01 Survival of Representations and Warranties............................................68
Section 11.02 Additional Remedies...................................................................68
ARTICLE XII MISCELLANEOUS..............................................................................69
Section 12.01 Brokerage Fees and Commissions........................................................69
Section 12.02 Expenses..............................................................................69
Section 12.03 Entire Agreement......................................................................69
Section 12.04 Further Cooperation...................................................................69
iv
Section 12.05 Severability..........................................................................70
Section 12.06 Notices...............................................................................70
Section 12.07 Governing Law.........................................................................71
Section 12.08 Multiple Counterparts.................................................................71
Section 12.09 Certain Definitions...................................................................72
Section 12.10 Specific Performance..................................................................73
Section 12.11 Attorneys' Fees and Costs.............................................................73
Section 12.12 Interpretation........................................................................73
Section 12.13 No Third Party Beneficiaries..........................................................74
Section 12.14 Assignment............................................................................74
Section 12.15 Public Disclosure.....................................................................74
Section 12.16 Extension; Waiver.....................................................................74
Section 12.17 Amendments............................................................................75
EXHIBITS
Exhibit A - Form of Voting Agreement and Irrevocable Proxy
Exhibit B - Form of Shareholder Letter
Exhibit C - Persons to Deliver Non-Compete Agreements
Exhibit D - Form of Non-Compete Agreement
Exhibit E - Index Group
v
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (this "Agreement") is made and entered
into as of the 18th day of November, 2002, by and between INTERCHANGE FINANCIAL
SERVICES CORPORATION, a New Jersey corporation and registered bank holding
company under the Bank Holding Company Act of 1956, as amended (the "BHCA"),
with its principal offices in Saddle Brook, New Jersey ("Interchange"), and
BRIDGE VIEW BANCORP, a New Jersey corporation and registered bank holding
company under the BHCA with its principal offices in Englewood Cliffs, New
Jersey ("BVB").
WITNESSETH:
WHEREAS, Interchange is a corporation duly organized and existing under
the laws of the State of New Jersey; and
WHEREAS, BVB is a corporation duly organized and existing under the laws
of the State of New Jersey; and
WHEREAS, this Agreement provides for the merger of BVB with and into
Interchange (the "Merger"); and
WHEREAS, as a result of the Merger, (i) all of the issued and
outstanding shares of voting common stock, no par value per share, of BVB (the
"BVB Stock") (other than fractional share interests which will be cashed out and
as otherwise set forth herein) shall be converted into and exchanged for cash
and/or shares of voting common stock, no par value per share, of Interchange
(the "Interchange Stock") in the manner provided for in this Agreement, and (ii)
all of the issued and outstanding shares of Interchange Stock shall continue to
be issued and outstanding shares of capital stock of Interchange as the
surviving corporation in the Merger; and
WHEREAS, the board of directors of Interchange (the "Interchange Board")
and the board of directors of BVB (the "BVB Board") have each approved this
Agreement and the proposed transactions substantially on the terms and
conditions set forth in this Agreement and the schedules and exhibits hereto and
have authorized the execution hereof; and
WHEREAS, Interchange and BVB believe that the Merger, as provided for
and subject to the terms and conditions set forth in this Agreement and all
exhibits, schedules and supplements hereto, is in the best interests of
Interchange, BVB and their respective shareholders; and
WHEREAS, the Merger is intended to qualify as a tax-free reorganization
within the meaning of the provisions of Section 368 of the Internal Revenue Code
of 1986, as amended (the "Code"); and
WHEREAS, Interchange and BVB desire to set forth certain
representations, warranties and covenants made by each to the other as an
inducement to the execution and delivery of this Agreement and certain
additional agreements related to the transactions contemplated thereby.
1
NOW, THEREFORE, for and in consideration of the foregoing and of the
mutual representations, warranties, covenants and agreements contained in this
Agreement, and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, and subject to the conditions set
forth herein, the parties hereto, intending to be bound hereby, undertake,
promise, covenant and agree with each other as follows:
ARTICLE I
ACQUISITION OF BVB BY INTERCHANGE
Section 1.01 Merger of BVB with and into Interchange. Subject to the
terms and conditions of this Agreement, BVB shall be merged with and into
Interchange on the Effective Date (as defined in Section 1.02) in accordance
with the provisions of Section 14A:10-1 of the New Jersey Business Corporation
Act (the "NJBCA") and the separate corporate existence of BVB shall cease.
Interchange shall be the surviving corporation in the Merger (sometimes referred
to herein as the "Surviving Corporation") and shall continue its corporate
existence under the laws of the State of New Jersey.
Section 1.02 Effective Date and Effective Time. Subject to the terms
and conditions of this Agreement, upon the filing with the Secretary of State of
the State of New Jersey (the "NJSOS") of a duly executed Certificate of Merger,
the Merger shall become effective. The Certificate of Merger shall include this
Agreement. The date on which the Merger is effective shall be referred to herein
as the "Effective Date", which the parties shall use their best efforts to cause
to occur on the Closing Date (as defined in Section 2.01), and the effective
time of the Merger shall be referred to herein as the "Effective Time".
Section 1.03 Effects of the Merger. The Merger shall have the effects
provided by this Agreement and as set forth in Section 14A:10-6 of the NJBCA.
The Surviving Corporation shall (i) be deemed to be a continuation in entity and
identity of each of BVB and Interchange, (ii) possess all the rights,
privileges, powers, immunities, purposes and franchises, both public and
private, of each of BVB and Interchange, (iii) be subject to all the
liabilities, obligations, duties and relations of each merging party, and (iv)
without the necessity of any conveyance, assignment or transfer, become the
owner of all of the assets of every kind and character formerly belonging to BVB
and Interchange. At the Effective Time, all rights, title and interests to all
real property and personal property, tangible and intangible, of every kind and
description belonging to each of Interchange and BVB shall be vested in the
Surviving Corporation without further act or deed, and the title to any real
estate, or any interest therein, vested in either Interchange or BVB shall not
revert or be in any way impaired by reason of such Merger. The Surviving
Corporation shall be liable for all the obligations and liabilities of
Interchange and BVB, and any claim existing or action or proceeding pending by
or against either Interchange or BVB may be enforced as if such Merger had not
taken place. Neither the rights of creditors nor any liens upon, or security
interests in, the property of either Interchange or BVB shall be impaired by
such Merger.
Section 1.04 Certificate of Incorporation and Bylaws. The Certificate
of Incorporation and Bylaws, respectively, of Interchange in effect immediately
prior to the Effective Time shall
2
be the Certificate of Incorporation and Bylaws of the Surviving Corporation
following the Merger until otherwise amended or repealed in accordance with
applicable law.
Section 1.05 Directors and Officers. At the Effective Time, the
directors and officers of Interchange immediately prior to the Effective Time
shall be the directors and officers, respectively, of the Surviving Corporation
following the Merger; provided, however, that the following three (3)
representatives of the BVB Board shall be appointed to the board of directors of
the Surviving Corporation at a meeting of such board next following the
Effective Date: Gerald A. Calabrese, Jr., Joseph C. Parisi and John A. Schepisi.
In addition, the following six (6) representatives of BVB shall be appointed to
the board of directors of Interchange Bank at a meeting of such board next
following the Effective Date: Gerald A. Calabrese, Jr., Glenn L. Creamer, Mark
Metzger, Jeremiah F. O'Connor, Joseph C. Parisi and John A. Schepisi. Subject to
the foregoing, such directors and officers shall hold office in accordance with
the respective Bylaws of the Surviving Corporation and Interchange Bank and
applicable law.
Section 1.06 Conversion of Securities. At the Effective Time by
virtue of the Merger and without any further action on the part of Interchange,
BVB or any holder of the following securities:
A. Each share of Interchange Stock that is issued and
outstanding immediately prior to the Effective Time shall remain an issued and
outstanding share of common stock of the Surviving Corporation as of the
Effective Time and shall not be affected by the Merger. References to
Interchange Stock in this Agreement as of and after the Effective Time shall be
deemed to mean the common stock of the Surviving Corporation.
B. Subject to the other provisions of this Article II, each
share of BVB Stock that is issued and outstanding immediately prior to the
Effective Time, shall cease to be outstanding and shall be converted into and
become the right to receive, at the election of the holder thereof as provided
in Section 1.07 hereof, either:
(i) a number of shares of Interchange Stock equal to the
Exchange Ratio (the "Per Share Stock Amount");
(ii) cash in the amount of the Per Share Cash Amount; or
(iii) a combination of Interchange Stock and cash in the
amounts as determined in accordance with Section 1.07.
provided, however that (a) the aggregate amount of cash exchangeable for shares
of BVB Stock in the Merger shall not exceed the Total Cash Amount, and (b) the
aggregate number of shares of Interchange Stock that shall be issued in the
Merger shall not exceed the Total Stock Amount.
C. For purposes of this Agreement the following definitions
shall apply:
(i) "Total Cash Amount" means $33,528,472 less the aggregate
dollar amount of cash paid to the holders of BVB Stock Options
(as defined in Section 3.03.B) pursuant to Section 1.09.
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(ii) "Total Stock Amount" means 2,949,719 shares of
Interchange Stock.
(iii) "Merger Consideration" means the sum of the Total Cash
Amount and the Total Stock Amount.
(iv) "Exchange Ratio" means the number determined by dividing
(a) the Per Share Value by (b) the Interchange Measurement
Price.
(v) "Aggregate Merger Consideration Value" means the sum of
(a) the Total Cash Amount, and (b) the Interchange Measurement
Price multiplied by the Total Stock Amount.
(vi) "Per Share Value" means the value of a share of BVB
Stock determined by dividing (a) the Aggregate Merger
Consideration Value by (b) the aggregate number of shares of BVB
Stock outstanding as of the Effective Time.
(vii) "Per Share Cash Amount" means the amount of cash equal
to the Per Share Value.
(viii) "Interchange Measurement Price" means the average of the
closing bid and ask price for a share of Interchange Stock as
reported by the Nasdaq National Market ("Nasdaq") during the
Valuation Period.
(ix) "Valuation Period" means the period of twenty (20)
consecutive trading days ending on the Election Deadline (as
defined in Section 1.07)
D. Notwithstanding any other provision of this Agreement,
no fractional shares of Interchange Stock shall be issued in the Merger and, in
lieu thereof, holders of shares of BVB Stock who would otherwise be entitled to
a fractional share interest (after taking into account all shares of BVB Stock
held by such holder) shall be paid an amount in cash (without interest) equal to
the product of such fractional share interest and the average of the closing bid
and asked price of a share of Interchange Stock as reported by Nasdaq on the
business day immediately preceding the Effective Date. No such holder shall be
entitled to dividends, voting rights or any other rights in respect of any
fractional share.
E. If, between the date hereof and the Effective Date, the
outstanding shares of shares of BVB Stock or Interchange Stock shall have been
increased, decreased, changed into or exchanged for a different number or kind
of shares or securities as a result of a reorganization, recapitalization,
reclassification, stock dividend, stock split, reverse stock split, or other
similar change in capitalization (a "Share Adjustment"), then the Per Share
Value, the Exchange Ratio, the Per Share Cash Amount, the Per Share Stock Amount
and Total Stock Amount shall be appropriately and proportionately adjusted so
that the shareholders of BVB shall be entitled to receive the Merger
Consideration in such proportion as they would have received pursuant to such
Share Adjustment had the record date therefor been immediately following the
Effective Date.
F. As of the Effective Time, all shares of BVB Stock
converted into the Merger Consideration pursuant to this Section 1.06 shall no
longer be outstanding and shall
4
automatically be cancelled and retired, and all rights with respect thereto
shall cease to exist, and each holder of BVB Stock shall cease to have any
rights thereto, except the right to receive, upon surrender of the
certificate(s) representing any such shares of BVB Stock in accordance with
Section 1.08 hereof, his or her pro rata share of the Merger Consideration
pursuant to this Section 1.06.
G. At the Effective Time, the stock transfer books of BVB
shall be closed, and no transfer of BVB Stock theretofore outstanding shall
thereafter be made.
H. Any shares of BVB Stock that are owned by BVB (including
treasury shares) or Interchange (other than shares held in a fiduciary capacity
or shares held in satisfaction of a debt previously contracted) shall
automatically be canceled and retired and all rights with respect thereto shall
cease to exist, and no consideration shall be delivered in exchange therefor.
Section 1.07 Election Procedures.
A. Election forms and other appropriate and customary
transmittal materials (which shall specify that delivery shall be effected, and
risk of loss and title to the certificates theretofore representing shares of
BVB Stock ("Certificates") shall pass, only upon proper delivery of such
Certificates to an exchange agent designated by Interchange (the "Exchange
Agent")) in such form as Interchange and BVB shall mutually agree ("Election
Forms") shall be mailed 30 days prior to the anticipated Effective Date or on
such other earlier date as BVB and Interchange shall mutually agree ("Mailing
Date") to each holder of record of BVB Stock as of five business days prior to
the Mailing Date ("Election Form Record Date").
B. Each Election Form shall permit the holder (or the
beneficial owner through appropriate and customary documentation and
instructions), subject to the allocation procedures of this Section 1.07, either
(i) to elect to receive only Interchange Stock with respect to such holder's BVB
Stock ("Stock Election Shares"); (ii) to elect to receive only cash with respect
to such holder's BVB Stock ("Cash Election Shares"); (iii) to elect to receive a
combination of Interchange Stock and cash with respect to such holder's BVB
Stock rounded, in each case, to the nearest whole share ("Mixed Election
Shares"); or (iv) to indicate that such holder makes no election ("No Election
Shares"). Subject to the allocation procedures of this Section 1.07, the Mixed
Election Shares shall be divided by the Exchange Agent into such portion (to be
as closely as possible to 60% in the aggregate) with respect to which the holder
will receive Interchange Stock (the "Mixed Stock Shares") and such portion (to
be approximately 40% in the aggregate) with respect to which the holder will
receive cash (the "Mixed Cash Shares") for the purposes of allocating the total
consideration as specified below, it being the intention that, to the fullest
extent possible, subject to all applicable constraints, all Mixed Election
Shares shall receive the consideration with respect to which a Mixed election
has been made without regard to the pro rata selection process set forth below.
Any BVB Stock with respect to which the holder (or the beneficial owner, as the
case may be) shall not have submitted to the Exchange Agent an effective,
properly completed Election Form on or before 5:00 p.m., Eastern time, on the
25th day following the Mailing Date (or such other time and date as Interchange
and BVB may mutually agree) (the "Election Deadline") shall also be deemed to be
"No Election Shares."
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C. Interchange shall make available up to two separate
Election Forms, or such additional Election Forms as Interchange in its sole
discretion may permit, to all persons who become holders (or beneficial owners)
of BVB Stock between the Election Form Record Date and close of business on the
business day prior to the Election Deadline, and BVB shall provide to the
Exchange Agent all information reasonably necessary for it to perform as
specified herein. BVB acknowledges that no deadlines for mailing Election Forms
contained elsewhere in this Agreement shall be applicable to such shareholders
and that the election requests of such shareholders need not be honored.
D. Any such election shall have been properly made only if
the Exchange Agent shall have actually received a properly completed Election
Form by the Election Deadline. An Election Form shall be deemed properly
completed only if accompanied by one or more Certificates (or customary
affidavits and indemnification regarding the loss or destruction of such
Certificates or the guaranteed delivery of such Certificates) representing all
shares of BVB Stock covered by such Election Form, together with duly executed
transmittal materials included in the Election Form. Any Election Form may be
revoked or changed by the person submitting such Election Form at or prior to
the Election Deadline. Following the Election Deadline, an Election Form may not
be revoked or changed by the person submitting such Election Form. In the event
an Election Form is revoked prior to the Election Deadline, the shares of BVB
Stock represented by such Election Form shall become No Election Shares and
Interchange shall cause the Certificates to be promptly returned without charge
to the person submitting the Election Form upon written request to that effect
from the person who submitted the Election Form. Subject to the terms of this
Agreement and of the Election Form, the Exchange Agent shall have the sole
discretion to determine whether any election, revocation or change has been
properly or timely made and to disregard immaterial defects in the Election
Forms, and any decisions of the Exchange Agent regarding such matters shall be
binding and conclusive. Neither Interchange nor the Exchange Agent shall be
under any obligation to notify any person of any defect in an Election Form.
E. Within five business days after the Election Deadline,
unless the Effective Time has not yet occurred, in which case as soon thereafter
as practicable, Interchange shall cause the Exchange Agent to effect the
allocation among the holders of BVB Stock of rights to receive Interchange Stock
or cash in the Merger in accordance with the Election Forms as follows:
(i) Stock Elections Plus the Mixed Stock Shares Less Than
The Total Stock Amount. If the number of shares of Interchange
Stock that would be issued upon conversion into Interchange
Stock of the Stock Election Shares and Mixed Stock Shares is
less than the Total Stock Amount, then:
a. all Mixed Stock Shares and Stock Election Shares
shall be converted into the right to receive the Per
Share Stock Amount,
b. the Exchange Agent shall then select first from
among the No Election Shares, then (if necessary) shares
held by the shareholders subject to 1.07.C, and then (if
necessary) from among the Cash Election Shares, by a pro
rata selection process (as described below), a
sufficient number of
6
shares ("Stock Designated Shares") such that the number
of shares of Interchange Stock that will be issued in
the Merger equals as closely as practicable the Total
Stock Amount, and all Stock Designated Shares shall be
converted into the right to receive the Per Share Stock
Amount, and
c. the Cash Election Shares, the No Election Shares
and the shares held by shareholders subject to 1.07.C
which are not Stock Designated Shares and all Mixed Cash
Shares shall be converted into the right to receive the
Per Share Cash Amount.
(ii) Stock Elections and the Mixed Stock Shares More Than The
Total Stock Amount. If the number of shares of Interchange Stock
that would be issued upon the conversion into Interchange Stock
of the Stock Election Shares and Mixed Stock Shares is greater
than the Total Stock Amount, then:
a. all Mixed Cash Shares, Cash Election Shares and No
Election Shares shall be converted into the right to
receive the Per Share Cash Amount,
b. the Exchange Agent shall then select first from
among the shares held by the shareholders subject to
1.07.C, and then (if necessary) from among the Stock
Election Shares, by a pro rata selection process (as
described below) a sufficient number of shares ("Cash
Designated Shares") such that the number of shares of
Interchange Stock that will be issued in the Merger
equals as closely as practicable the Total Stock Amount,
and all Cash Designated Shares shall be converted into
the right to receive the Per Share Cash Amount, and
c. the Stock Election Shares and the shares held by
shareholders, subject to 1.07.C which are not Cash
Designated Shares and all Mixed Stock Shares shall be
converted into the right to receive the Per Share Stock
Amount.
(iii) Stock Elections and Mixed Stock Shares Equal to the
Total Stock Amount. If the number of shares of Interchange Stock
that would be issued upon conversion into Interchange Stock of
the Stock Election Shares and Mixed Stock Shares is equal or, in
Interchange's sole discretion, nearly equal to the Total Stock
Amount, then subparagraphs (i) and (ii) above and subparagraphs
(iv) and (v) below shall not apply and all Stock Election Shares
and Mixed Stock Shares shall be converted into the right to
receive the Per Share Stock Amount and all Cash Election Shares,
Mixed Cash Shares and No Election Shares shall be converted into
the right to receive the Per Share Cash Amount.
(iv) Stock Elections, Mixed Stock Shares and No Elections
Equal to Total Stock Amount. If the number of shares of
Interchange Stock that would be issued upon the conversion into
Interchange Stock of the Stock Election Shares, Mixed Stock
Shares and No Election Shares would equal or, in Interchange's
sole
7
discretion, nearly equal the Total Stock Amount, then
subparagraphs (i), (ii) and (iii) above and subparagraph (v)
below shall not apply and all Cash Election Shares and Mixed
Cash Shares shall be converted into the right to receive the Per
Share Cash Amount and all Stock Election Shares, Mixed Stock
Shares and No Election Shares shall be converted into the right
to receive the Per Share Stock Amount.
(v) Mixed Stock Shares More Than Total Stock Amount. If the
number of shares of Interchange Stock that would be issued upon
the conversion into Interchange Stock of the Mixed Stock Shares
is greater than the Total Stock Amount, then;
a. all Mixed Cash Shares, Cash Election Shares, No
Election Shares and Stock Election Shares shall be
converted into the right to receive the Per Share Cash
Amount,
b. the Exchange Agent shall select first from among
the shares held by the shareholders subject to 1.07.C,
and then (if necessary) from among the Mixed Stock
Shares by a pro rata selection process (as described
below) a sufficient number of shares ("Mixed Designated
Shares") such that the number of shares of Interchange
Stock that will be issued in the Merger equals as
closely as practicable the Total Stock Amount, and all
Mixed Designated Shares shall be converted into the
right to receive the Per Share Cash Amount, and
c. the Mixed Stock Shares and the shares held by
shareholders subject to 1.07.C that are not Mixed
Designated Shares shall be converted into the right to
receive the Per Share Stock Amount.
The pro rata selection process to be used by the Exchange Agent shall consist of
such equitable pro ration processes as shall be mutually determined by
Interchange and BVB.
F. Notwithstanding any other provision of this Agreement to
the contrary, if the tax opinion referred to in Section 8.10 cannot be rendered
because the counsel charged with providing such opinion reasonably determines
that the Merger may not satisfy the continuity of interest requirements
applicable to reorganizations under Section 368(a) of the Code, Interchange
shall reduce the Total Cash Amount by the minimum amount necessary to enable
such tax opinion to be rendered, and shall correspondingly increase the Total
Stock Amount by issuing additional shares of Interchange Stock based on the
Interchange Measurement Price so that the Aggregate Merger Consideration Value
remains unchanged.
Section 1.08 Exchange Procedures; Surrender of Certificates.
A. Each previous holder of a Certificate that has
surrendered such Certificate together with duly executed transmittal materials
included in the Election Form to Interchange or, at the election of Interchange,
the Exchange Agent, pursuant to Section 1.07 will, upon acceptance thereof by
Interchange or the Exchange Agent, be entitled to a certificate or certificates
representing the number of full shares of Interchange Stock and/or cash into
which
8
the Certificate so surrendered shall have been converted pursuant to this
Agreement and any distribution theretofore declared and not yet paid with
respect to such shares of Interchange Stock, without interest.
B. Interchange or, at the election of Interchange, the
Exchange Agent shall accept Certificates upon compliance with such reasonable
terms and conditions as Interchange or the Exchange Agent may impose to effect
an orderly exchange thereof in accordance with customary exchange practices.
Certificates shall be appropriately endorsed or accompanied by such instruments
of transfer as Interchange or the Exchange Agent may reasonably require.
C. Each outstanding Certificate shall, until duly
surrendered to Interchange or the Exchange Agent, be deemed to evidence
ownership of the consideration into which the stock previously represented by
such Certificate shall have been converted pursuant to this Agreement.
D. After the Effective Time, holders of Certificates shall
cease to have rights with respect to the stock previously represented by such
Certificates, and their sole rights shall be to exchange such Certificates for
the consideration provided for in this Agreement. After the Effective Time,
there shall be no further transfer on the records of BVB of Certificates, and if
such Certificates are presented to BVB for transfer, they shall be cancelled
against delivery of the consideration provided therefor in this Agreement.
Interchange shall not be obligated to deliver the consideration to which any
former holder of BVB Stock is entitled as a result of the Merger until such
holder surrenders the Certificates as provided herein.
E. Certificates surrendered for exchange by any person
constituting an "affiliate" of BVB for purposes of Rule 145 of the Securities
Act of 1933, as amended (together with the rules and regulations thereunder, the
"Securities Act"), shall not be exchanged for certificates representing
Interchange Stock until Interchange has received a written agreement from such
person in the form attached as Exhibit B.
F. Interchange and the Exchange Agent shall be entitled to
rely upon the stock transfer books of BVB to establish the identity of those
persons entitled to receive consideration specified in this Agreement, which
books shall be conclusive with respect thereto. In the event of a dispute with
respect to ownership of stock represented by any Certificate, Interchange and
the Exchange Agent shall be entitled to deposit any consideration represented
thereby in escrow with an independent third party and thereafter be relieved
with respect to any claims thereto.
G. In the event that any Certificate shall have been lost,
stolen or destroyed, upon the making of an affidavit of that fact by the person
claiming such Certificate to be lost, stolen or destroyed and, if required by
the Exchange Agent, the posting by such person of a bond in such amount as the
Exchange Agent may determine is necessary as indemnity against any claim that
may be made against it with respect to such Certificate, the Exchange Agent
shall deliver, in exchange for such lost, stolen or destroyed Certificate, the
consideration provided for in this Agreement.
H. If any certificate representing shares of Interchange
Stock is to be issued in a name other than that in which the Certificate
surrendered in exchange therefor is registered,
9
it shall be a condition of the issuance thereof that the Certificate so
surrendered shall be properly endorsed (or accompanied by an appropriate
instrument of transfer) and otherwise in proper form for transfer, and that the
person requesting such exchange shall pay to the Exchange Agent in advance any
transfer or other taxes required by reason of the issuance of a certificate
representing shares of Interchange Stock in any name other than that of the
registered holder of the Certificate surrendered, or required for any other
reason, or shall establish to the satisfaction of the Exchange Agent that such
tax has been paid or is not payable.
I. Notwithstanding the foregoing, neither the Exchange
Agent nor any other party to this Agreement shall be liable to any holder of any
Certificates for any amount delivered in good faith to a public official
pursuant to any applicable abandoned property, escheat or similar laws.
J. No dividends or other distributions of any kind which
are declared payable to the shareholders of record of Interchange after the
Effective Time shall be paid to persons entitled to receive such certificates
for Interchange Stock until such persons surrender their Certificates. Upon
surrender of such Certificates, the holder thereof shall be paid, without
interest, any dividends or other distributions with respect to the Interchange
Stock as to which the record date and payment date occurred on or after the
Effective Date and before the date of surrender, subject to Section 1.08.I
hereof.
Section 1.09 Treatment of BVB Stock Options. Each outstanding BVB
Stock Option which has not already become fully vested and exercisable shall
become fully vested and exercisable immediately prior to the Effective Time.
Unless exercised prior to the Effective Time, each BVB Stock Option shall
terminate immediately prior to the Effective Time, and each holder of such
terminated BVB Stock Option shall be entitled to receive from BVB, in lieu of
each share of BVB Stock that would otherwise have been issuable upon exercise
thereof, an amount in cash equal to the excess, if any, between (i) the value of
the consideration that a holder of such BVB Stock Option would have received
upon exercise of the BVB Stock Option (as determined by Interchange in
consultation with BVB, which determination, absent manifest error, shall be
binding); (ii) the exercise price of such BVB Stock Option. Any payments
pursuant to this Section 1.09 shall take place only after the satisfaction or
fulfillment or waiver of (iii) the covenants contained in Section 5.19 and (iv)
the conditions to Closing contained in Articles VII and VIII. BVB shall collect
in cash (and timely pay) all applicable withholding and payroll taxes with
respect to such options, awards and stock appreciation rights, and shall comply
with all payroll reporting requirements with respect thereto.
Section 1.10 Tax Consequences. It is intended that the Merger
shall constitute a reorganization within the meaning of Section 368 of the Code,
and that this Agreement shall constitute a "plan of reorganization" for the
purpose of Section 368 of the Code.
Section 1.11 Voting Agreement and Irrevocable Proxy. As a
condition to the execution of this Agreement, each member of the BVB Board is
executing and delivering to Interchange a Voting Agreement and Irrevocable Proxy
in substantially the form attached hereto as Exhibit A.
10
ARTICLE II
THE CLOSING AND THE CLOSING DATE
Section 2.01 Time and Place of the Closing and Closing Date.
A. On a date mutually agreeable to Interchange and BVB,
which is not less than 10 business days nor more than 45 calendar days after the
latter of (i) the receipt of all necessary regulatory approvals (including the
expiration of any mandatory waiting periods) or (ii) the receipt of all
necessary shareholder approvals, unless extended by mutual agreement of the
parties ("Closing Date"), a meeting (the "Closing") will take place at which the
parties to this Agreement will exchange certificates, opinions, letters and
other documents in order to determine whether all of the conditions set forth in
Articles VII and VIII of this Agreement have been satisfied or waived or whether
any condition exists that would permit a party to this Agreement to terminate
this Agreement. If no such condition then exists, or if no party elects to
exercise any right it may have to terminate this Agreement, then and thereupon
the appropriate parties shall execute such documents and instruments as may be
necessary or appropriate in order to effect the transactions contemplated by
this Agreement.
B. The Closing shall take place at the offices of
Interchange, Park 80 West/Plaza Two, Saddle Brook, New Jersey at 10:00 a.m.,
local time, on the Closing Date, or at such other time or place to which the
parties may mutually agree.
Section 2.02 Actions to be Taken at the Closing by BVB. At the
Closing, BVB shall execute and acknowledge, or cause to be executed and
acknowledged (as appropriate) and deliver to Interchange, such documents and
certificates necessary or appropriate to carry out the terms and provisions of
this Agreement, including without limitation, the following (all of such actions
constituting conditions precedent to Interchange's obligations to close
hereunder):
A. True, correct and complete copies of the Certificate of
Incorporation of BVB and all amendments thereto, duly certified as of a recent
date by the NJSOS;
B. True, correct and complete copies of the Certificate of
Incorporation of Bridge View Bank (the "Bank") and all amendments thereto, duly
certified as of a recent date by the New Jersey Department of Banking and
Insurance (the "NJDOBI");
C. True, correct and complete copies of the Certificate of
Incorporation of each BVB Subsidiary (other than the Bank) and all amendments
thereto, duly certified as of a recent date by the Secretary of State of the
state of incorporation for each respective Subsidiary;
D. A Standing Certificate issued by the NJSOS as of a
recent date reflecting the existence of BVB under the laws of the State of New
Jersey;
E. A Franchise Tax Certificate, dated as of a recent date,
issued by the New Jersey Department of Revenue duly certifying as to the good
standing of BVB in New Jersey;
F. A letter, dated as of a recent date, from the Federal
Reserve Bank of New York, to the effect that BVB is a registered bank holding
company under the BHCA;
11
G. A Certificate of Status issued by the NJDOBI as of a
recent date reflecting the authority of Bank to transact the business of banking
under the laws of the State of New Jersey;
H. A certificate, dated as of a recent date, issued by the
Federal Deposit Insurance Corporation (the "FDIC"), duly certifying that the
deposits of the Bank are insured by the FDIC pursuant to the Federal Deposit
Insurance Act;
I. A certificate, dated as of the Closing Date, duly
executed by the Secretary of BVB, acting solely in his or her capacity as an
officer of BVB, pursuant to which BVB shall certify (i) the due adoption by the
BVB Board of corporate resolutions attached to such certificate authorizing the
execution and delivery of this Agreement and any other agreements and documents
contemplated hereby, and the taking of all actions contemplated hereby and
thereby; (ii) the due adoption by the shareholders of BVB authorizing the
transactions and the execution and delivery of this Agreement and any other
agreements and documents contemplated hereby and the taking of all actions
contemplated hereby and thereby; (iii) the incumbency and true signatures of
those officers of BVB duly authorized to act on its behalf in connection with
the transactions contemplated by this Agreement and to execute and deliver this
Agreement and any other agreements and documents contemplated hereby and the
taking of all actions contemplated hereby and thereby on behalf of BVB; (iv)
that the copy of the bylaws of BVB attached to such certificate is true and
correct and such bylaws have not been amended except as reflected in such copy;
and (v) a true and correct list of the shareholders of BVB as of the Closing
Date;
J. A certificate duly executed by the President of BVB,
acting solely in his or her capacity as an officer of BVB, dated as of the
Closing Date, pursuant to which BVB shall certify that (i) all of the
representations and warranties made in Article III of this Agreement are true
and correct in all material respects on and as of the date of such certificate
as if made on such date, (ii) there has been no Material Adverse Change since
September 30, 2002, and (iii) BVB has performed and complied in all material
respects with all of its obligations and agreements required to be performed on
or before the Closing Date under this Agreement;
K. Evidence reasonably satisfactory to Interchange that, as
of the Effective Time, all Employee Plans (as defined in Section 3.37) required
by Interchange to be terminated prior to the Closing have been terminated in
accordance with the terms of such Employee Plans, the Code, the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"), and all other
applicable laws and regulations and that all affected participants have been
notified of such terminations;
L. All consents and approvals required to be obtained by
BVB from third parties to consummate the transactions contemplated by this
Agreement;
M. Signed Non-Compete Agreements from those persons
identified on Exhibit C attached hereto and in substantially the form attached
hereto as Exhibit D; and
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N. All other documents required to be delivered to
Interchange by BVB under the provisions of this Agreement and all other
documents, certificates and instruments as are reasonably requested by
Interchange or its counsel.
Section 2.03 Actions to be Taken at the Closing by Interchange. At
the Closing, Interchange shall execute and acknowledge (where appropriate) and
deliver to BVB, such documents and certificates necessary to carry out the terms
and provisions of this Agreement, including without limitation, the following
(all of such actions constituting conditions precedent to BVB's obligations to
close hereunder):
A. True, correct and complete copies of the Certificate of
Incorporation of Interchange and all amendments thereto, duly certified as of a
recent date by the NJSOS;
B. True, correct and complete copies of the Certificate of
Incorporation of Interchange Bank and all amendments thereto, duly certified as
of a recent date by the NJDOBI;
C. A Standing Certificate issued by the NJSOS as of a
recent date reflecting the existence of Interchange under the laws of the State
of New Jersey;
D. A Franchise Tax Certificate, dated as of a recent date,
issued by the New Jersey Department of Revenue duly certifying as to the good
standing of Interchange in New Jersey;
E. A letter, dated as of a recent date, from the Federal
Reserve Bank of New York, to the effect that BVB is a registered bank holding
company under the BHCA;
F. A Certificate of Status issued by the NJDOBI as of a
recent date reflecting the authority of Bank to transact the business of banking
under the laws of the State of New Jersey;
G. A certificate, dated as of a recent date, issued by the
FDIC, duly certifying that the deposits of Interchange Bank are insured by the
FDIC pursuant to the Federal Deposit Insurance Act;
H. A certificate, dated as of the Closing Date, executed by
the Secretary of Interchange, acting solely in his or her capacity as an officer
of Interchange, pursuant to which Interchange shall certify (i) the due adoption
by the Board of Directors of Interchange (the "Interchange Board") of corporate
resolutions attached to such certificate authorizing the execution and delivery
of this Agreement and the other agreements and documents contemplated hereby and
the taking of all actions contemplated hereby and thereby; (ii) the incumbency
and true signatures of those officers of Interchange duly authorized to act on
its behalf in connection with the transactions contemplated by this Agreement
and to execute and deliver this Agreement and other agreements and documents
contemplated hereby, and the taking of all actions contemplated hereby and
thereby on behalf of Interchange; and (iii) that the copy of the bylaws of
Interchange attached to such certificate is true and correct and such bylaws
have not been amended except as reflected in such copy;
13
I. A certificate, dated as of the Closing Date, executed by
the President of Interchange, acting solely in his capacity as an officer of
Interchange pursuant to which Interchange shall certify that (i) all of the
representations and warranties of Interchange made in Article IV of this
Agreement are true and correct in all material respects on and as of the date of
such certificate as if made on such date, and (ii) Interchange has performed and
complied in all material respects with all of its obligations and agreements
required to be performed on or before the Closing Date under this Agreement;
J. All consents and approvals required to be obtained by
Interchange from third parties to consummate the transactions contemplated by
this Agreement;
K. All other documents required to be delivered to BVB by
Interchange under the provisions of this Agreement.
Section 2.04 Further Assurances. At any time and from time to time
after the Closing, at the reasonable request of any party to this Agreement and
without further consideration, any party so requested will execute and deliver
such other instruments and take such other action as the requesting party may
reasonably deem necessary or desirable in order to effectuate the transactions
contemplated hereby. In the event that, at any time after the Closing any
further commercially reasonable action is necessary or desirable to carry out
the purposes of this Agreement, each party hereto shall take or cause to be
taken all such commercially reasonable actions.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF BVB
BVB hereby makes the following representations and warranties to
Interchange as of the date hereof and as of the Closing Date.
Section 3.01 Organization and Authority.
A. BVB is a New Jersey corporation duly organized, validly
existing under the laws of the State of New Jersey, and in good standing under
all laws, rules and regulations applicable to corporations located in the State
of New Jersey. BVB is a bank holding company registered under the BHCA. BVB has
all requisite corporate power and authority (including all licenses, franchises,
permits and other governmental authorizations as are legally required) to carry
on its business as now being conducted, to own, lease and operate its properties
and assets, including, but not limited to, as now owned, leased or operated, and
to enter into and carry out its obligations under this Agreement. True and
complete copies of the Certificate of Incorporation and Bylaws of BVB, as
amended to date, certified by the Corporate Secretary of BVB, have been
delivered to Interchange. The nature of the business of BVB does not require it
to be qualified to do business in any jurisdiction other than the State of New
Jersey. BVB does not, directly or indirectly, engage in any activity that is
prohibited by the Board of Governors of the Federal Reserve System (the "Federal
Reserve").
B. The Bank is a New Jersey banking corporation duly
organized, validly existing under the laws of the State of New Jersey, and is in
good standing under all laws, rules
14
and regulations applicable to banking corporations located in of the State of
New Jersey. The Bank has all requisite corporate power and authority (including
all licenses, franchises, permits and other governmental authorizations as are
legally required) to carry on its business as now being conducted, to own, lease
and operate its properties and assets, including, but not limited to, as now
owned, leased or operated. The Bank does not conduct any trust business. True
and complete copies of the Certificate of Incorporation and Bylaws of the Bank,
as amended to date, certified by the Secretary or Cashier of the Bank, have been
delivered to Interchange. The deposits of the Bank are insured by the Bank
Insurance Fund of the FDIC to the full extent permissible by law. The Bank does
not, directly or indirectly, engage in any activity that is prohibited by the
State of New Jersey, the FDIC or the Federal Reserve.
Section 3.02 Subsidiaries.
A. Schedule 3.02 sets forth a complete list of each
Subsidiary of BVB (individually, a "BVB Subsidiary" and collectively, the "BVB
Subsidiaries"), including Bridge View Bank (the "Bank"). Except as set forth on
Schedule 3.02, BVB does not, directly or indirectly, own or control any
Affiliate. Except as disclosed on Schedule 3.02, neither BVB nor any BVB
Subsidiary has any equity interest, direct or indirect, in any other bank or
corporation or in any partnership, joint venture or other business enterprise or
entity, except as acquired through settlement of indebtedness, foreclosure, the
exercise of creditors' remedies or in a fiduciary capacity, and the business
carried on by BVB and the BVB Subsidiaries has not been conducted through any
other direct or indirect Subsidiary or Affiliate of BVB or the Bank. No such
equity investment identified in Schedule 3.02 is prohibited by the Federal
Reserve, the FDIC or the State of New Jersey.
B. All of the issued and outstanding shares of each BVB
Subsidiary are owned, either directly or indirectly through another BVB
Subsidiary, by BVB free and clear of all liens, encumbrances, rights of first
refusal, options or other restrictions of any nature whatsoever, and all such
shares are duly authorized and validly issued and are fully paid, nonassessable
and free of preemptive rights of any person. There are no options, warrants or
rights outstanding to acquire any capital stock of any BVB Subsidiary, and no
person or entity has any other right to purchase or acquire any unissued shares
of stock of any BVB Subsidiary, nor does any such BVB Subsidiary have any
obligation of any nature with respect to its unissued shares of stock.
C. The nature of the business of the BVB Subsidiaries does
not require any of them to be qualified to do business in any jurisdiction other
than the State of New Jersey.
Section 3.03 Capitalization of BVB.
A. The entire authorized capital stock of BVB consists
solely of 10,000,000 shares of voting common stock, no par value per share
(previously defined as the "BVB Stock"), of which, as of the date hereof,
3,550,809 shares are issued and outstanding, and 594,749 additional shares of
which have been reserved for issuance to holders of outstanding BVB Stock
Options. All of the outstanding shares of capital stock of BVB are duly
authorized, validly issued, fully paid and nonassessable, and have not been
issued in violation of the preemptive rights of any person. Such shares of BVB
Stock have been issued in full compliance with
15
applicable law. There are no restrictions applicable to the payment of dividends
on the shares of the BVB Stock, except pursuant to applicable laws and
regulations, and all dividends declared prior to the date of this Agreement on
such capital stock have been paid.
B. Schedule 3.03(b) contains a list of each stock option
plan maintained by BVB (the "BVB Stock Option Plans"), including (i) the number
of outstanding options with respect to each BVB Stock Option Plan (the "BVB
Stock Options"), (ii) the exercise price per share with respect to each BVB
Stock Option, (iii) a list of all option holders with respect to each BVB Stock
Option Plan, and (iv) the number of vested and unvested BVB Stock Options with
respect to each such option holder in each BVB Stock Option Plan. All BVB Stock
Options were issued and, upon issuance in accordance with the terms of the
outstanding option agreements, the shares of BVB Stock shall be issued in
compliance with all applicable securities laws.
C. Except as set forth in paragraphs A and B above or as
disclosed on Schedule 3.03(c), there are no (i) other outstanding equity
securities of any kind or character, including but not limited to preferred
stock, or (ii) outstanding subscriptions, contracts, options, convertible
securities, preemptive rights, warrants, calls or other agreements or
commitments of any kind issued or granted by, binding upon or otherwise
obligating BVB to issue, sell or otherwise dispose of, or to purchase, redeem or
otherwise acquire, any shares of capital stock of BVB. There are no outstanding
contractual obligations of BVB to vote or dispose of any shares of the capital
stock of BVB.
D. Except for the agreements called for by Section 1.11
hereof and as disclosed in Schedule 3.03(d), there are no agreements between or
among any of the shareholders of BVB relating to a right of first refusal with
respect to the purchase or sale by any such shareholder of capital stock of BVB
or any voting agreement or voting trust with respect to shares of capital stock
of BVB.
Section 3.04 Execution and Delivery; No Violation.
A. BVB has full corporate power and authority to execute
and deliver this Agreement and, subject to the receipt of the approval of its
shareholders and receipt of regulatory approvals, to consummate the transactions
contemplated hereby. The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby have been duly and validly
approved by the BVB Board. The BVB Board has directed that this Agreement and
the transactions contemplated hereby be submitted to its shareholders for
approval at a special meeting and, except for the adoption of this Agreement by
the requisite affirmative vote of the outstanding BVB Stock entitled to vote
thereon, no other corporate proceedings on the part of BVB and no other
shareholder votes are necessary to approve this Agreement and to consummate the
transactions contemplated hereby. This Agreement has been duly and validly
executed and delivered to Interchange. Assuming due authorization, execution and
delivery by Interchange, this Agreement constitutes the valid and binding
obligation of BVB, enforceable against BVB in accordance with their respective
terms and conditions, except as enforceability may be limited by bankruptcy,
conservatorship, insolvency, moratorium, reorganization, receivership or similar
laws and judicial decisions affecting the rights of creditors generally and by
general principles of equity (whether applied in a proceeding at law or in
equity).
16
B. Neither the execution and delivery of this Agreement nor
the consummation of the transactions contemplated hereby, nor compliance by BVB
with any of the terms or provisions hereof or thereof (provided the required
regulatory and shareholder approvals are obtained) will (i) violate any
provision of the charters, articles, certificates or bylaws of BVB or any BVB
Subsidiary; (ii) violate any statute, code, ordinance, rule, regulation,
judgment, order, writ, decree or injunction applicable to BVB, the BVB
Subsidiaries or any of their respective Properties or assets; (iii) violate,
conflict with, result in a breach of any provision of or the loss of any benefit
under, constitute a default (or an event which, with notice or the lapse of
time, or both, would constitute a default) under, result in the termination or
cancellation under, accelerate the performance required by or rights or
obligations under, or result in the creation of any lien, claim, charge, option,
encumbrance, mortgage, pledge or security interest of any kind or nature
("Lien") upon any of the respective Properties or assets of BVB under, any of
the terms, conditions or provisions of any note, bond, mortgage, indenture, deed
of trust, license, lease, agreement, contract or other instrument or obligation
to which BVB is a party, or by which it or any of its Properties assets or
business activities may be bound or affected.
Section 3.05 Consents and Approvals. The BVB Board (at a meeting duly
called and held) has resolved, subject to its fiduciary duties to the
shareholders of BVB, to recommend to its shareholders the approval and adoption
of the Merger and this Agreement. Except for shareholder and regulatory approval
and except as disclosed in Schedule 3.05, no approval, consent, order or
authorization of, or registration, declaration or filing with, any governmental
authority or other third party is required on the part of BVB in connection with
the execution, delivery or performance of this Agreement or the agreements
contemplated hereby, or the consummation by BVB of the transactions contemplated
hereby, including, but not limited to, the Merger.
Section 3.06 Financial Statements.
A. BVB has furnished to Interchange true and complete
copies of the audited consolidated financial statements of BVB for the years
ended December 31, 1999 through December 31, 2001, and the unaudited
consolidated financial statements for the three- and nine-month periods ended
September 30, 2002 (collectively, the "BVB Financial Statements"). Except as
disclosed in Schedule 3.06(a), the BVB Financial Statements (including, in each
case, any related notes), were prepared in accordance with GAAP, applied on a
consistent basis throughout the periods involved (except as may be indicated in
the notes to such BVB Financial Statements) and fairly presented the financial
position of BVB at the dates and for the periods indicated. Except as disclosed
in Schedule 3.06(a), the BVB Financial Statements do not contain any items of
special or nonrecurring income or any other income not earned in the ordinary
course of business except as expressly specified therein.
B. BVB has furnished Interchange with a true and complete
copies of the Reports of Condition and Income as of March 31, 2002, June 30,
2002, and September 30, 2002 for the Bank (the "Bank Call Reports"). Except as
disclosed in Schedule 3.06(b), each of the Bank Call Reports fairly presents, in
all material respects, the financial position of the Bank and the results of its
operations at the dates and for the periods indicated in conformity with the
instructions for the preparation of the Call Report Instructions. Except as
disclosed in Schedule 3.06(b), the Bank Call Reports do not contain any items of
special or nonrecurring
17
income or any other income not earned in the ordinary course of business except
as expressly specified therein. The Bank has calculated its allowance for loan
losses in accordance with GAAP and, to the extent applicable, regulatory
accounting principles ("RAP") as applied to state non-member banks and in
accordance with all applicable rules and regulations. To the knowledge of BVB,
the allowance for loan losses account for the Bank is, and as of the Closing
Date should be, adequate in all material respects to provide for all losses, net
of recoveries relating to loans previously charged off, on all outstanding loans
of the Bank.
Section 3.07 No Adverse Change. Except as disclosed in the
representations and warranties made in this Article III and the Schedules
hereto, there has not been any Material Adverse Change since September 30, 2002,
nor has any event or condition occurred that has resulted in, or has a
reasonable possibility of resulting in the future, in a Material Adverse Change.
Section 3.08 Absence of Certain Changes or Events. Except as
disclosed on Schedule 3.08, BVB, including the BVB Subsidiaries, has, since
September 30, 2002, conducted its business only in the ordinary course and has
not, other than in the ordinary course of business and consistent with past
practices and safe and sound banking practices:
A. Incurred any obligation or liability, whether absolute,
accrued, contingent or otherwise, whether due or to become due (except deposits
taken and federal funds purchased and current liabilities for trade or business
obligations), which, individually or in the aggregate, result in a Material
Adverse Change;
B. Discharged or satisfied any Lien or paid any obligation
or liability, whether absolute or contingent, due or to become due;
C. Declared or made any payment of dividends or other
distribution to its shareholders, or purchased, retired or redeemed, or
obligated itself to purchase, retire or redeem, any of its shares of capital
stock or other securities;
D. Issued, reserved for issuance, granted, sold or
authorized the issuance of any shares of its capital stock or other securities
or subscriptions, options, warrants, calls, rights or commitments of any kind
relating to the issuance thereof;
E. Acquired any capital stock or other equity securities or
acquired any ownership interest in any bank, corporation, partnership or other
entity (except (i) through settlement of indebtedness, foreclosure, or the
exercise of creditors' remedies or (ii) in a fiduciary capacity, the ownership
of which does not expose it to any liability from the business, operations or
liabilities of such person);
F. Mortgaged, pledged or subjected to Lien or restriction
any of its Property, business or assets, tangible or intangible except (i) as
described in Schedule 3.08, (ii) statutory liens not yet delinquent, (iii)
consensual landlord liens, (iv) minor defects and irregularities in title and
encumbrances that do not materially impair the use thereof for the purpose for
which they are held, (v) pledges of assets to secure public funds deposits, and
(vi) those assets and Properties disposed of for fair value since the dates of
the BVB Financial Statements and the Bank Call Reports;
18
G. Sold, transferred, leased to others or otherwise
disposed of any of its assets or canceled or compromised any debt or claim, or
waived or released any right or claim;
H. Terminated, canceled or surrendered, or received any
notice of or threat of termination or cancellation of any contract, lease or
other agreement or suffered any damage, destruction or loss which, individually
or in the aggregate, would constitute a Material Adverse Change;
I. Disposed of, permitted to lapse, transferred or granted
any rights under, or entered into any settlement regarding the breach or
infringement of, any United States or foreign license or Proprietary Right or
modified any existing rights with respect thereto;
J. Made any change in the rate of compensation, commission,
bonus, vesting or other direct or indirect remuneration payable, paid or agreed
or orally promised to pay, conditionally or otherwise, any bonus, extra
compensation, pension or severance or vacation pay, to or for the benefit of any
of their shareholders, directors, officers, employees or agents, or entered into
any employment or consulting contract or other agreement with any director,
officer or employee or adopted, amended or terminated any pension, employee
welfare, retirement, stock purchase, stock option, stock appreciation rights,
termination, severance, income protection, golden parachute, savings or
profit-sharing plan (including trust agreements and insurance contracts
embodying such plans), any deferred compensation, or collective bargaining
agreement, any group insurance contract or any other incentive, welfare or
employee benefit plan or agreement maintained by BVB or the Bank for the benefit
of its directors, employees or former employees, except (i) periodic increases
consistent with past practices, and (ii) as specifically permitted by this
Agreement;
K. Except for improvements or betterments relating to any
of the Properties or assets of BVB or the BVB Subsidiaries, made any capital
expenditures or capital additions or betterments in excess of an aggregate of
$25,000;
L. Instituted, had instituted against them, settled or
agreed to settle any litigation, action or proceeding before any court or
governmental body relating to their property other than routine collection suits
instituted by them to collect amounts owed or suits in which the amount in
controversy is less than $10,000;
M. Suffered any change, event or condition that,
individually or in the aggregate, has caused or may result in a Material Adverse
Change or any Material Adverse Change in earnings or costs or relations with
their employees (exclusive of the termination of any employees in accordance
with their existing policies and procedures), agents, depositors, loan
customers, correspondent banks or suppliers;
N. Except for the transactions contemplated by this
Agreement or as otherwise permitted hereunder, entered into any transaction, or
entered into, modified or amended any contract or commitment;
O. Entered into or given any promise, assurance or
guarantee of the payment, discharge or fulfillment of any undertaking or promise
made by any person, firm or corporation;
19
P. Sold, or knowingly disposed of, or otherwise divested of
the ownership, possession, custody or control, of any corporate books or records
of any nature that, in accordance with sound business practice, normally are
retained for a period of time after their use, creation or receipt, except at
the end of the normal retention period;
Q. Made any, or acquiesced with any, change in any
accounting methods, principles or material practices except as required by GAAP
or RAP;
R. Sold (provided, however, that payment at maturity is not
deemed a sale) any Investment Securities or purchased any Investment Securities,
other than U.S. Treasury securities with a maturity of two (2) years or less;
S. Made, renewed, extended the maturity of, or altered any
of the material terms of any loan to any single borrower and his related
interests in excess of the principal amount of $250,000; or
T. Entered into any agreement or made any commitment
whether in writing or otherwise to take any of the types of action described in
subsections A through S above.
Section 3.09 Litigation.
A. Except as disclosed in Schedule 3.09, neither BVB nor
any BVB Subsidiary is a party to any, and there are no pending or, to the
knowledge of BVB, threatened, legal, administrative, arbitral or other
proceedings, claims, actions or governmental or regulatory investigations of any
nature against BVB or any BVB Subsidiary which are reasonably likely,
individually or in the aggregate, to result in a Material Adverse Effect as to
BVB, nor, to the knowledge of BVB, is there any basis for any proceeding, claim
or any action against BVB or any BVB Subsidiary that would be reasonably likely,
individually or in the aggregate, to result in a Material Adverse Effect as to
BVB. There is no injunction, order, judgment or decree imposed upon BVB or any
BVB Subsidiary or the assets or Property of BVB or the BVB Subsidiaries that has
resulted in, or is reasonably likely to result in, a Material Adverse Effect as
to BVB.
B. No legal action, suit or proceeding or judicial,
administrative or governmental investigation is pending or, to the best
knowledge of BVB, threatened against BVB that questions or might question the
validity of this Agreement or the agreements contemplated hereby or any actions
taken or to be taken by BVB pursuant hereto or thereto or seeks to enjoin or
otherwise restrain the transactions contemplated hereby or thereby.
Section 3.10 Taxes and Tax Returns.
A. BVB has duly and timely filed or caused to be filed all
federal, state, foreign and local tax returns and reports required to be filed
by it or any BVB Subsidiary on or prior to the date of this Agreement (all such
returns and reports being accurate and complete in all material respects) and
has duly paid or caused to be paid on its behalf all taxes that are due and
payable, other than taxes that are being contested in good faith and are
adequately reserved against or provided for (in accordance with GAAP) on the BVB
Financial Statements. Except as disclosed on Schedule 3.10, as of the date
hereof, neither BVB nor any BVB Subsidiary has any liability for taxes in excess
of the amount reserved or provided for in the BVB Financial
20
Statements (but excluding, for this purpose only, any liability reflected
thereon for deferred taxes to reflect timing differences between tax and
financial accounting methods).
B. Neither BVB nor any BVB Subsidiary will be required to
include any item of income in, or exclude any item of deduction from, taxable
income for any taxable period (or portion thereof) ending after the Closing Date
as a result of: (i) intercompany transactions or excess loss accounts described
in Treasury Regulations under Section 1502 of the Code (or any corresponding or
similar provision of state, local or foreign income tax law); (ii) installment
sale or open transaction disposition made on or prior to the Closing Date; or
(iii) prepaid amount received on or prior to the Closing Date.
C. Neither BVB nor any BVB Subsidiary has filed a consent
pursuant to the collapsible corporation provisions of Section 341(f) of the Code
(or any corresponding provision of state, local or foreign income tax law).
D. Neither BVB nor any BVB Subsidiary has ever been an "S
Corporation" within the meaning of Section 1361 of the Code.
E. Neither BVB nor any BVB Subsidiary is a party to any
safe harbor lease within the meaning of Section 168(f)(8) of the Code, as in
effect prior to the amendment by the Tax Equity and Fiscal Responsibility Act of
1982.
F. Neither BVB nor any BVB Subsidiary has entered into any
compensatory agreements with respect to the performance of services which
payment thereunder would result in a nondeductible expense to BVB or any BVB
Subsidiary pursuant to Section 162(m) of the Code.
G. Neither BVB nor any BVB Subsidiary has distributed stock
of another entity, or had had its stock distributed by another entity, in a
transaction that was purported or intended to be governed in whole or in part by
Section 355 or Section 361 of the Code.
H. Neither BVB nor any BVB Subsidiary is a party to or
bound by any tax allocation or sharing agreement. Neither BVB nor any BVB
Subsidiary: (i) has been a member of an affiliated group filing a consolidated
federal income tax return (other than a group the common parent of which was
BVB) or (ii) has any liability for the taxes of any other person or entity
(other than any of BVB or any BVB Subsidiary) under Treasury Regulation Section
1.1502-6 (or any similar provision of state, local, or foreign law), as a
transferee or successor, by contract, or otherwise.
I. There are no disputes pending with respect to, or claims
or assessments asserted in writing for, any material amount of taxes upon BVB or
any BVB Subsidiary, nor has BVB or any BVB Subsidiary given or been requested in
writing to give any currently effective waivers extending the statutory period
of limitation applicable to any tax return for any period.
J. Proper and accurate amounts have been withheld by BVB
and the BVB Subsidiaries from their employees, independent contractors,
creditors, stockholders or other third parties for all periods in compliance
with the tax withholding provisions of any applicable law.
21
K. Since December 31, 1996, BVB has not been required to
include in income any material adjustment pursuant to Section 481 of the Code by
reason of a voluntary change in accounting method initiated by BVB, and the
Internal Revenue Service ("IRS") has not initiated or proposed any such material
adjustment or change in accounting method (including any method for determining
reserves for bad debts maintained by BVB).
L. Since December 31, 1991, the federal income tax return
of BVB has not been audited or examined and no such audit is currently pending
or threatened against BVB.
M. As used in this Agreement, the terms "tax" and "taxes"
mean all federal, state, local and foreign income, excise, gross receipts, gross
income, ad valorem, profits, gains, property, capital, sales, transfer, use,
value-added, stamp, documentation, payroll, employment, severance, withholding,
duties, intangibles, franchise, backup withholding, and other taxes, charges,
levies or like assessments together with all penalties and additions to tax and
interest thereon.
N. As used in this Agreement, the term "tax return" means
any return, declaration, report, claim for refund, or information return or
statement relating to Taxes, including any schedule or attachment thereto, and
including any amendment thereof.
O. BVB has delivered to Interchange correct and complete
copies of all federal income tax returns filed with the IRS, examination
reports, and statements of deficiencies assessed against or agreed to by BVB
since December 31, 1998.
Section 3.11 Undisclosed Liabilities. Neither BVB nor any BVB
Subsidiary has any material liability or obligation, accrued, absolute,
contingent or otherwise and whether due or to become due (including, without
limitation, unfunded obligations under any Employee Plan or liabilities for
federal, state or local taxes or assessments) that are not reflected in or
disclosed in the BVB Financial Statements or the Bank Call Reports, except (i)
those liabilities and expenses incurred in the ordinary course of business and
consistent with past business practices since the date of BVB Financial
Statements or the Bank Call Reports, respectively or (ii) as disclosed on
Schedule 3.11.
Section 3.12 Title to Assets. Each of BVB and the BVB Subsidiaries
has good and marketable title to, or valid leasehold interests in, all their
respective Properties and assets. All such assets and Properties, other than
assets and Properties in which BVB or the BVB Subsidiaries has a leasehold
interest, are free and clear of all Liens (other than Liens for current taxes
not yet due and payable). True and complete copies of all existing deeds,
surveys, leases and title insurance policies for all real property owned or
leased by BVB or the BVB Subsidiaries, including all other real estate, and all
mortgages, deeds of trust, security agreements and other documents describing
encumbrances to which such property is subject, have been provided to
Interchange.
Section 3.13 Condition of Assets. Except as set forth on Schedule
3.13, all tangible assets, including furniture, fixtures and equipment, used by
BVB and the BVB Subsidiaries are in good operating condition, ordinary wear and
tear excepted, and conform with all material ordinances, regulations, zoning and
other laws, whether federal, state or local. BVB and the
22
BVB Subsidiaries own all of the assets and Properties necessary to carry on its
business in the manner in which it is presently conducted. The premises or
equipment of BVB and the BVB Subsidiaries are not in need of maintenance or
repairs other than ordinary routine maintenance and repairs that are not
material in nature or cost.
Section 3.14 Contracts. Schedule 3.14 sets forth an accurate and
complete description of all leases, subleases, licenses, contracts and
agreements to which BVB or the BVB Subsidiaries is a party or by which BVB or
the BVB Subsidiaries is bound that obligate or may obligate BVB or the BVB
Subsidiaries in the aggregate for an amount in excess of $50,000 over the entire
term of any such agreement or related contracts of a similar nature that in the
aggregate obligate or may obligate BVB or the BVB Subsidiaries for an amount in
excess of $50,000 over the entire term of such related contracts (the
"Contracts"). BVB has delivered to Interchange true and correct copies of all
Contracts. For the purposes of this Agreement, the Contracts shall be deemed not
to include loans made by, repurchase agreements made by, bankers acceptances of
or deposits by BVB or the Bank, but does include unfunded loan commitments and
letters of credit issued by BVB or the Bank where the borrowers' total direct
and indirect indebtedness to BVB or the Bank is in excess of $250,000. Except as
set forth in Schedule 3.14, no participations or loans have been sold that have
buy back, recourse or guaranty provisions that create contingent or direct
liabilities of BVB or the Bank. Each such lease or agreement is in full force
and effect and constitutes the legal, valid and binding obligation of the
respective parties thereto enforceable in accordance with its terms except as
enforceability may be limited by bankruptcy, conservatorship, insolvency,
moratorium, reorganization, receivership or similar laws and judicial decisions
affecting the rights of creditors generally and by general principles of equity
(whether applied in a proceeding at law or equity). BVB and the BVB Subsidiaries
have complied in all material respects with the terms of all leases to which it
is a party, and all such leases are in full force and effect. Neither BVB nor
any of the BVB Subsidiaries has received any notice of material default or any
notice of material noncompliance, including, without limitation, noncompliance
with any applicable Federal, state or local obligation as lessee that it has not
fully performed, or is aware of any expenditure required under the provisions of
any such lease for any purpose other than payment. For each lease in which BVB
or a BVB Subsidiary is named as lessee, such party is the owner and holder of
all the leasehold estates or other rights and interest purported to be granted
by such instruments, in each case free and clear of any security interests,
claims, liens (including tax liens), forfeitures, mortgages, pledges, penalties,
encumbrances, assignments or charges whatsoever except as established by the
lease or applicable law. BVB and the BVB Subsidiaries enjoy peaceful and
undisturbed possession under all leases under which it is currently operating.
Except as set forth in Schedule 3.14, neither BVB nor any of the BVB
Subsidiaries has any employment contracts (whether written or oral) or any
change in control agreements (whether written or oral) with any of its
respective officers or other employees.
Section 3.15 Investments. Schedule 3.15 contains a complete list, as
of December 31, 2001 and as of October 31, 2002, of all securities, including
municipal bonds, owned by BVB and the BVB Subsidiaries (the "Securities
Portfolio"). All securities in the Securities Portfolio are owned by BVB or the
BVB Subsidiaries, as the case may be, (i) of record, and (ii) beneficially, free
and clear of all mortgages, liens, pledges and encumbrances, except as disclosed
in Schedule 3.15.
23
Section 3.16 Interest Rate Risk Management Instruments. All interest
rate swaps, caps, floors and option agreements and other interest rate risk
management arrangements, whether entered into for the account of BVB or any of
the BVB Subsidiaries or for the account of a customer of BVB or any of the BVB
Subsidiaries, were entered into in the ordinary course of business and, to BVB's
knowledge, in accordance with prudent banking practice and applicable rules,
regulations and policies of any regulatory authority and with counterparties
believed to be financially responsible at the time and are legal, valid and
binding obligations of BVB or the BVB Subsidiaries enforceable in accordance
with their terms (except as may be limited by bankruptcy, insolvency,
moratorium, reorganization or similar laws affecting the rights of creditors
generally and the availability of equitable remedies), and are in full force and
effect. BVB and the BVB Subsidiaries have duly performed in all material
respects all of its material obligations thereunder to the extent that such
obligations to perform have accrued; and, to BVB's knowledge, there are no
material breaches, violations or defaults or allegations or assertions of such
by any party thereunder.
Section 3.17 Loans. Schedule 3.17 contains a true and complete list,
as of December 31, 2001 and as of October 31, 2002, of all loans (individually,
a "Loan", and collectively, the "Loans") of BVB and the BVB Subsidiaries,
showing for each such Loan the outstanding principal balance due, before
reduction for any discount. All currently outstanding Loans, including any
current extensions of any Loan, were solicited, originated and currently exist
in material compliance with all applicable requirements of federal and state law
and regulations promulgated thereunder. The Loans are adequately documented and
each note evidencing a Loan or credit agreement or security instrument related
to a Loan constitutes a valid and binding obligation of the obligor thereunder,
enforceable in accordance with the terms thereof, except where (a)
enforceability may be limited by bankruptcy, conservatorship, insolvency,
moratorium, reorganization, receivership or similar laws and judicial decisions
affecting the rights of creditors generally and by general principles of equity
(whether applied in a proceeding at law or in equity), or (b) the failure
thereof, individually or in the aggregate, would not have a Material Adverse
Effect. For the purposes of this Section 3.17, the phrase "enforceable in
accordance with the terms thereof" does not mean that the borrower has the
financial ability to pay a Loan or that any collateral is sufficient to result
in payment of the Loan secured thereby. There are no oral modifications or
amendments or additional agreements related to the Loans that are not reflected
in the records of BVB or the BVB Subsidiaries, and no claim of defense as to the
enforcement of any Loan has been asserted, and neither BVB nor the BVB
Subsidiaries are aware of any acts or omissions that would give rise to any
claim or right of rescission, set off, counterclaim or defense, except where
such claim would not have a Material Adverse Effect.
Section 3.18 Evidences of Indebtedness. All evidences of indebtedness
and leases that are reflected as assets of BVB or the BVB Subsidiaries are
legal, valid and binding obligations of the respective obligors thereof,
enforceable in accordance with their respective terms (except as limited by
applicable bankruptcy, insolvency, reorganization, moratorium and similar laws
affecting creditors generally and the availability of injunctive relief,
specific performance and other equitable remedies) and are not subject to any
known or threatened defenses, offsets or counterclaims that may be asserted
against BVB or the BVB Subsidiaries or the present holder thereof; provided,
however, that the foregoing sentence shall not be deemed to be a representation
or warranty of collectibility of any of the assets. The credit files of the Bank
24
contain all material information (excluding general, local or national industry,
economic or similar conditions) known to BVB that is required to evaluate in
accordance with generally prevailing practices in the banking industry the
collectibility of the loan portfolio of the Bank (including loans that will be
outstanding if any of them advances funds they are obligated to advance). The
Bank has disclosed all of the substandard, doubtful, loss, nonperforming or
problem loans on the internal watch list of the Bank or which have been
adversely classified by the FDIC or the State of New Jersey, a copy of which as
of October 31, 2002, has been provided to Interchange.
Section 3.19 Proprietary Rights. Except as set forth on Schedule
3.19, neither BVB nor any of the BVB Subsidiaries owns or requires the use of
any patent, patent application, patent right, invention, process, trademark
(whether registered or unregistered), trademark application, trademark right,
trade name, service name, service mark, copyright or any trade secret
("Proprietary Rights") for the business or operations of the BVB or the BVB
Subsidiaries. To the knowledge of BVB, neither BVB nor any of the BVB
Subsidiaries has received within the past three years any express or implied
notice of infringement of or conflict with, the rights of others with respect to
the use of Proprietary Rights.
Section 3.20 Deposit Summary. Schedule 3.20 contains a summary of the
amounts and types of the deposits held by the Bank as of December 31, 2001 and
as of October 31, 2002 and the weighted average interest rates being paid
thereon as of such date (the "Deposit Summary"). The Deposit Summary and other
data and information provided by BVB, relating to assets, liabilities and
business of the Bank is true, complete and correct in all material respects as
of the date thereof.
Section 3.21 Transactions with Certain Persons and Entities. Except
as disclosed in Schedule 3.21, neither BVB nor any of the BVB Subsidiaries owes
any amount to (excluding deposit liabilities), or has any loan, contract, lease,
commitment or other obligation from or to any of the present or former directors
or officers (other than compensation for current services not yet due and
payable and reimbursement of expenses arising in the ordinary course of
business) of BVB or the BVB Subsidiaries, and none of such persons owes any
amount to BVB or any of the BVB Subsidiaries. Except as set forth on Schedule
3.21, neither BVB nor any of the BVB Subsidiaries use any asset owned by any
shareholder or any present or former director or officer of BVB or any BVB
Subsidiary in its operations, nor do any of such persons own real property that
is adjacent to property on which BVB's or the BVB Subsidiaries' facilities are
located. Except as set forth on Schedule 3.21, there are no agreements,
instruments, commitments, extensions of credit, tax sharing or allocation
agreements or other contractual agreements of any kind between or among BVB or
the BVB Subsidiaries, whether on their own behalf or in their capacity as
trustee or custodian for the funds of any Employee Plan or any of their
Affiliates.
Section 3.22 Guaranties. None of the obligations or liabilities of
BVB or any of the BVB Subsidiaries is guaranteed by any other person, firm or
corporation, nor, except in the ordinary course of business, according to
prudent business practices and in compliance with applicable law, has BVB or any
of the BVB Subsidiaries guaranteed the obligations or liabilities of any other
person, firm or corporation.
25
Section 3.23 Insurance. Schedule 3.23 contains an accurate and
complete list and brief description of all policies of insurance, including
fidelity and bond insurance, of BVB and the BVB Subsidiaries. Except as set
forth on Schedule 3.23, all such policies (i) are sufficient for compliance by
BVB and the BVB Subsidiaries with all requirements of law and all agreements to
which BVB or any BVB Subsidiary is a party, (ii) are valid, outstanding and
enforceable, except as enforceability may be limited by bankruptcy,
conservatorship, insolvency, moratorium, reorganization, receivership, or
similar laws and judicial decisions affecting the rights of creditors generally
and by general principles of equity (whether applied in a proceeding at law or
equity), (iii) will not in any significant respect be affected by, and will not
terminate or lapse by reason of, the transactions contemplated by this
Agreement, and (iv) are presently in full force and effect, no notice has been
received of the cancellation, or threatened or proposed cancellation, of any
such policy and there are no unpaid premiums due thereon. Neither BVB nor any
BVB Subsidiary is in default with respect to the provisions of any such policy
or has failed to give any notice or present any claim thereunder in a due and
timely fashion. Each material Property of BVB and the BVB Subsidiaries is
insured for the benefit of BVB or the BVB Subsidiaries in amounts deemed
adequate by management of BVB against risks customarily insured against. Except
as set forth on Schedule 3.23, there have been no claims under any fidelity
bonds of BVB or the BVB Subsidiaries within the last three (3) years, and BVB is
not aware of any facts that would form the basis of a claim under such bonds.
Section 3.24 Compliance with Laws, Permits and Instruments.
A. Except as disclosed in Schedule 3.24(a), BVB and the BVB
Subsidiaries and their respective employees and agents hold all licenses,
registrations, franchises, permits and authorizations necessary for the lawful
conduct of BVB's business and are not in violation of any applicable law,
statute, order, rule, regulation, policy and/or guideline of any court,
administrative agency, commission or other governmental or regulatory authority
or instrumentality.
B. Except as disclosed in Schedule 3.24(b), BVB has in all
material respects performed and abided by all obligations required to be
performed by it to the date hereof, and has complied with, and is in compliance
with, and is not in default (or with the giving of notice or the passage of time
will be in default) under, or in violation of, (i) any provision of the
Certificate of Incorporation or Bylaws of BVB or any BVB Subsidiary, (ii) any
material provision of any mortgage, indenture, lease, contract, agreement or
other instrument applicable to BVB or the BVB Subsidiaries, or their respective
assets, operations, properties or businesses now conducted or heretofore
conducted or (iii) any permit, concession, grant, franchise, license,
authorization, judgment, writ, injunction, order, decree or award of any court,
arbitrator or any federal, state, municipal or other governmental department,
commission, board, bureau, agency or instrumentality applicable to BVB or the
BVB Subsidiaries or their respective assets, operations, properties or
businesses now conducted or heretofore conducted.
Section 3.25 Absence of Certain Business Practices. Neither BVB, the
BVB Subsidiaries nor any of their respective officers, employees or agents, nor
any other person acting on their behalf, has, directly or indirectly, within the
past five (5) years, given or agreed to give any gift or similar benefit to any
customer, supplier, governmental employee or other person who is or may be in a
position to help or hinder the business of BVB or the BVB Subsidiaries (or
26
assist BVB or the BVB Subsidiaries in connection with any actual or proposed
transaction) that (i) might subject BVB or any of the BVB Subsidiaries to any
damage or penalty in any civil, criminal or governmental litigation or
proceeding, (ii) if not given in the past, might have resulted in a Material
Adverse Change, or (iii) if not continued in the future might result in a
Material Adverse Change or might subject BVB or any of the BVB Subsidiaries to
suit or penalty in any private or governmental litigation or proceeding.
Section 3.26 Environmental Compliance.
A. There are no legal, administrative, arbitral or other
proceedings, claims or actions or any private environmental investigations or
remediation activities or governmental investigations of any nature that would
be reasonably likely to result in the imposition, on BVB or any of the BVB
Subsidiaries, of any liability or obligation arising under any Environmental
Laws, pending or threatened against BVB or any of the BVB Subsidiaries. To the
knowledge of BVB, there is no reasonable basis for any such proceeding, claim,
action or investigation that would impose any such liability or obligation.
Neither BVB nor any of the BVB Subsidiaries is subject to any agreement, order,
judgment or decree by or with any court, governmental authority, regulatory
agency or third party imposing any liability or obligation with respect to the
foregoing.
B. BVB and the BVB Subsidiaries and all of their Properties
and operations are in material compliance with all Environmental Laws. BVB is
not aware of or has received notice of, any past, present, or future conditions,
events, activities, practices or incidents that may interfere with or prevent
the compliance of BVB or the BVB Subsidiaries with all Environmental Laws.
C. BVB and the BVB Subsidiaries have obtained all material
permits, licenses and authorizations that are required under all Environmental
Laws.
D. To the knowledge of BVB, except for cleaning and office
supplies of the type and in the quantity customarily used in BVB's business, no
Hazardous Materials exist on, about or within any of BVB's or the BVB
Subsidiaries' Properties, nor have any Hazardous Materials previously existed
on, about or within or been used, generated, stored, transported, disposed of,
on or released from any of such Properties. The use that BVB and the BVB
Subsidiaries make and intend to make of their Properties will not result in the
use, generation, storage, transportation, accumulation, disposal or release of
any Hazardous Material on, in or from any of such Properties.
Section 3.27 Regulatory Compliance.
A. Except as set forth on Schedule 3.27, neither BVB nor
any of the BVB Subsidiaries is subject to any cease-and-desist or other order or
enforcement action issued by, or is a party to any written agreement, consent
agreement or memorandum of understanding with, or is a party to any commitment
letter or similar undertaking to, or is subject to any order or directive by, or
has been ordered to pay any civil penalty by, or is a recipient of a supervisory
letter from, or has adopted any board resolutions at the request or suggestion
of any Regulatory Agency or other Governmental Entity that restricts the conduct
of its business or that relates to
27
its capital adequacy, its ability to pay dividends, its credit or risk
management policies, its management or its business.
B. All reports, records, registrations, statements, notices
and other documents or information required to be filed by BVB and the BVB
Subsidiaries with any Regulatory Agency have been duly and timely filed and all
information and data contained in such reports, records or other documents are
substantially true, accurate, correct and complete.
Section 3.28 Community Reinvestment Act. The Bank is in material
compliance with the Community Reinvestment Act (12 U.S.C. Section 2901 et seq.)
and all regulations promulgated thereunder, and BVB has supplied Interchange
with copies of the Bank's current CRA Statement, all support papers therefor,
all letters and written comments received by the Bank since January 1, 1998
pertaining thereto and any responses by the Bank to such comments. The Bank has
a rating of "satisfactory" as of its most recent CRA compliance examination and
knows of no reason why it would not receive a rating of "satisfactory" or better
pursuant to its next CRA compliance examination or why the FDIC or any other
governmental entity may seek to restrain, delay or prohibit the transactions
contemplated hereby as a result of any act or omission of the Bank under the
CRA.
Section 3.29 Fair Housing Act, Home Mortgage Disclosure Act and Equal
Credit Opportunity Act. The Bank is in material compliance with the Fair Housing
Act (42 U.S.C. Section 3601 et seq.), the Home Mortgage Disclosure Act (12
U.S.C. Section 2801 et seq.) and the Equal Credit Opportunity Act (15 U.S.C.
Section 1691 et seq.) and all regulations promulgated thereunder. The Bank has
not received any notices of any violation of said acts or any of the regulations
promulgated thereunder, and the Bank has no notice of, or knowledge of, any
threatened administrative inquiry, proceeding or investigation with respect to
the Bank's compliance with such acts.
Section 3.30 Usury Laws and Other Consumer Compliance Laws. All loans
of BVB and the BVB Subsidiaries have been made substantially in accordance with
all applicable statutes and regulatory requirements at the time of such loan or
any renewal thereof, including without limitation, the New Jersey usury statutes
as they are currently interpreted, Regulation Z (12 C.F.R. Section 226 et seq.)
issued by the Federal Reserve, the Federal Consumer Credit Protection Act (15
U.S.C. Section 1601 et seq.) and all statutes and regulations governing the
operation of banks chartered under the laws of the State of New Jersey. Each
loan on the books of BVB and the BVB Subsidiaries was made in the ordinary
course of business.
Section 3.31 Bank Secrecy Act, Foreign Corrupt Practices Act and
U.S.A. Patriot Act. The Bank is in material compliance with the Bank Secrecy Act
(12 U.S.C. Sections 1730(d) and 1829(b)), the United States Foreign Corrupt
Practices Act and the International Money Laundering Abatement and
Anti-Terrorist Financing Act, otherwise known as the U.S.A. Patriot Act and all
regulations promulgated thereunder, and the Bank has properly certified all
foreign deposit accounts and has made all necessary tax withholdings on all of
its deposit accounts; furthermore, the Bank has timely and properly filed and
maintained all requisite Currency Transaction Reports and other related forms,
including, but not limited to, any requisite Custom Reports required by any
agency of the United States Treasury Department, including but not limited to
the IRS.
28
Section 3.32 Fiduciary Responsibilities. BVB and the BVB Subsidiaries
have performed in all material respects all of its duties as a trustee,
custodian, guardian or as an escrow agent in a manner that complies in all
material respects with all applicable laws, regulations, orders, agreements,
instruments and common law standards, where the failure to so perform would
result in a Material Adverse Change or have a Material Adverse Effect on the
transactions contemplated by this Agreement, and BVB has no reason to be aware
of any basis for the same.
Section 3.33 Registration Statement; Joint Proxy
Statement/Prospectus. None of the information supplied or to be supplied by BVB,
the BVB Subsidiaries or any of their respective directors, officers, employees
or agents for inclusion or in the Registration Statement (as defined in Section
5.02) or the Joint Proxy Statement/Prospectus (as defined in Section 5.02) will,
at the date the Joint Proxy Statement/Prospectus is mailed to the shareholders
of Interchange and BVB and, as the Registration Statement and Joint Proxy
Statement/Prospectus may be amended or supplemented, at the time of the
Interchange Meeting (as defined in Section 6.02) and the BVB Meeting (as defined
in Section 5.02), contain any untrue statement of a material fact or omit to
state any material fact with respect to BVB or the BVB Subsidiaries necessary in
order to make the statements therein with respect to BVB or the BVB
Subsidiaries, in light of the circumstances under which they are made, not
misleading or necessary to correct any statement in any earlier communication
with respect to the solicitation of any proxy for the Interchange Meeting or the
BVB Meeting. All documents that BVB and the BVB Subsidiaries are responsible for
filing with any regulatory or governmental agency in connection with the Merger
will comply with respect to BVB and the BVB Subsidiaries in all material
respects with the provisions of applicable law.
Section 3.34 BVB Statements and Reports. BVB has previously made
available to Interchange an accurate and complete copy of each (a) registration
statement, offering circular, prospectus, report, schedule and definitive proxy
statement filed since January 1, 1998 with the Securities and Exchange
Commission (the "S.E.C.") pursuant to the Securities Act, or the Securities
Exchange Act of 1934, as amended (together with the rules and regulations
thereunder, the "Exchange Act"), and prior to the date hereof (the "BVB
Reports"), and (b) communication mailed by BVB to its shareholders since January
1, 1998 and prior to the date hereof. No such BVB Report contained any untrue
statement of a material fact or omitted to state any material fact required to
be stated therein or necessary in order to make the statements therein, in light
of the circumstances in which they were made, not misleading, except that
information as of a later date shall be deemed to modify information as of an
earlier date. Since January 1, 1998, BVB has timely filed all BVB Reports and
other documents required to be filed by is under the Securities Act and the
Exchange Act, and, as of their respective dates, all BVB Reports complied in all
material respects with the published rules and regulations of the S.E.C. with
respect thereto.
Section 3.35 Books and Records. The minute books, stock certificate
books and stock transfer ledgers of BVB and the BVB Subsidiaries have been kept
accurately in the ordinary course of business and are complete and correct in
all material respects. The transactions entered therein represent bona fide
transactions, and there have been no material transactions involving the
business of BVB and the BVB Subsidiaries that properly should have been set
forth therein and that have not been accurately so set forth.
29
Section 3.36 Employee Relationships. BVB and the BVB Subsidiaries
have complied in all material respects with all applicable material laws
relating to its relationships with its employees, and BVB believes that the
relationships between BVB or any of the BVB Subsidiaries and their respective
employees is good. To the knowledge of BVB, no key executive officer or manager
of any of the operations operated by BVB or any of the BVB Subsidiaries or any
group of employees of BVB or any of the BVB Subsidiaries has or have any present
plans to terminate their employment with BVB or any of the BVB Subsidiaries.
Section 3.37 Employee Benefit Plans.
A. Set forth on Schedule 3.37(a) is a complete and correct
list of all "employee benefit plans" (as defined in Section 3(3) of ERISA), all
fringe benefit plans as defined in Section 6039D of the Code and, without
limitation, all bonus, incentive, compensation, deferred compensation, profit
sharing, stock option, stock appreciation right, stock bonus, stock purchase,
employee stock ownership, savings, severance, supplemental unemployment, layoff,
salary continuation, retirement, pension, health, life insurance, disability,
group insurance, vacation, holiday, sick leave, fringe benefit or welfare plan,
or any other similar plan, agreement, policy or understanding (whether written
or oral, qualified or nonqualified, currently effective or terminated), and any
trust, escrow or other agreement related thereto, which (i) is currently or has
been at any time within the last sixty (60) months, maintained or contributed to
by BVB or any of the BVB Subsidiaries, or with respect to which BVB or any of
the BVB Subsidiaries has any liability, or (ii) provides benefits, or describes
policies or procedures applicable to any director, officer, employee, service
provider, former director, former officer or former employee of BVB or any of
the BVB Subsidiaries, or the dependents of any thereof, regardless of whether
funded or unfunded (herein collectively the "Employee Plans" and each
individually an "Employee Plan"). BVB has delivered or made available to
Interchange true, accurate and complete copies of the documents comprising each
Employee Plan and any related trust agreements, summaries, employee booklets or
handbooks, annuity contracts, insurance policies or any other funding
instruments ("Funding Arrangements"), any contracts with independent contractors
(without limitation, actuaries investment managers, etc.) that relate to any
Employee Plan, the Form 5500 filed in each of the three (3) most recent plan
years with respect to each Employee Plan, and related schedules and opinions,
and such other documents, records or other materials related thereto reasonably
requested by Interchange.
B. No Employee Plan is a defined benefit plan within the
meaning of Section 3(35) of ERISA nor, without limitation, either a "multiple
employer plan," or "multi-employer plan" (as either such term is defined in
ERISA), nor has there been any such plan in existence since 1974. There have
been no prohibited transactions (described under Section 406 of ERISA or Section
4975(c) of the Code), breaches of fiduciary duty or any other breaches or
violations of any law applicable to the Employee Plans that would subject
Interchange or BVB to any taxes, penalties or other liabilities. Each Employee
Plan that is represented to be qualified under Section 401(a) of the Code has a
current favorable determination letter, does not have any amendments for which
the remedial amendment period under Code Section 401(b) (with extensions) has
expired, and has been operated in compliance with applicable law, and in
accordance with its terms, and, except as disclosed on Schedule 3.37(b), all
reports, descriptions and filings required by the Code, ERISA or any government
agency with respect to each Employee Plan have been timely and completely filed
or distributed. Each Employee Plan has
30
been operated in compliance with applicable law or in accordance with its terms
and any related trust is exempt from federal income tax under Section 501(a) of
the Code. There are no pending claims, lawsuits or actions relating to any
Employee Plan (other than ordinary course claims for benefits) and, to the
knowledge of BVB, none are threatened. No written or oral representations have
been made to any employee or former employee of BVB or any of the BVB
Subsidiaries promising or guaranteeing any employer payment or funding for the
continuation of medical, dental, life or disability coverage for such person,
their dependent, or any beneficiary for any period of time beyond the end of the
current plan year or beyond termination of employment. Compliance with FAS 106
will not create any material change to the BVB Financial Statements. Except as
disclosed on Schedule 3.37(b), neither the Merger, nor subsequent events where
consequences result solely as a result of both occurrence of the subsequent
event and the occurrence of the Merger, will not accelerate the time of payment
or vesting, or increase the amount, of compensation due to any employee,
officer, former employee or former officer of BVB or any of the BVB
Subsidiaries. Except as disclosed on Schedule 3.37(b), there are no contracts or
arrangements providing for payments that will be nondeductible or subject to
excise tax under Code Sections 4999 or 280G, nor will Interchange be required to
"gross up" or otherwise compensate any person because of the limits contained in
such Code sections. There are no surrender charges, penalties, or other costs or
fees that would be imposed by any person against BVB, any of the BVB
Subsidiaries, an Employee Plan, or any other person, including without
limitation, an Employee Plan participant or beneficiary as a result of the
consummation of the transactions contemplated by this Agreement with respect to
any insurance, annuity or investment contracts or other similar investment held
by any Employee Plan.
C. Each Employee Plan which is a "group health plan" (as
defined in the Code and ERISA) has been operated to the Closing such that
failures to operate such Employee Plan in full compliance with Part 6 of
Subtitle B of Title 1 of ERISA and Sections 4980B and 4980D of the Code would
not subject BVB or any of the BVB Subsidiaries to liability.
D. Except as described in Schedule 3.37(d), BVB and the BVB
Subsidiaries are completely insured by one or more insurance company(ies) for
all health, dental, life disability or similar claims relating to an Employee
Plan. No event has occurred or circumstances exist that could reasonably be
expected to result in a material increase in premium costs of Employee Plans.
E. All Employee Plan documents, annual reports or returns,
audited or unaudited financial statements, actuarial valuations, summary annual
reports, and summary plan descriptions issued with respect to the Employee Plans
are correct, complete, and current in all material respects, have been timely
filed, and there have been no changes in the information set forth therein.
F. All contributions (including, without limitations, all
employer contributions, employee salary reduction contributions and all premiums
or other payments (other than claims)) that are due to have been paid to or with
respect to each Employee Plan and all contributions (other than claims) for any
period ending on or before the Effective Time that are not yet due have been
paid to each such Employee Plan.
31
Section 3.38 Completion of Transaction. BVB has no knowledge of any
fact or circumstances relating to or affecting BVB and the BVB Subsidiaries that
it reasonably believes would prevent BVB from fulfilling its material
obligations under this Agreement and completing the transactions contemplated
hereby or that would, without the incurrence of undue expense or time, prevent
Interchange from obtaining all necessary regulatory approvals of the transaction
contemplated by this Agreement.
Section 3.39 Representations Not Misleading. To the knowledge of BVB,
all material facts relating to the business operations, Properties, assets,
liabilities (contingent or otherwise) and financial condition of BVB and the BVB
Subsidiaries has been disclosed to Interchange in or in connection with this
Agreement. No representation or warranty by BVB contained in this Agreement, nor
any written statement, exhibit or schedule furnished to Interchange by BVB under
and pursuant to, or in anticipation of this Agreement, contains or will contain
on the Closing Date any untrue statement of a material fact or omits or will
omit to state a material fact necessary to make the statements contained herein
or therein, in light of the circumstances under which it was or will be made,
not misleading and such representations and warranties would continue to be true
and correct following disclosure to any governmental authority having
jurisdiction over BVB, the BVB Subsidiaries or their respective Properties of
the facts and circumstances upon which they were based. Except as disclosed
herein, there is no matter that will have a Material Adverse Effect on BVB or
BVB's ability to perform the transactions contemplated by this Agreement or the
other agreements contemplated hereby, or to the knowledge of BVB, will in the
future result in a Material Adverse Change. No information material to the
Merger, and that is necessary to make the representations and warranties herein
contained not misleading, has been withheld by BVB.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF INTERCHANGE
Interchange hereby makes the following representations and warranties
to BVB as of the date hereof and as of the Closing Date.
Section 4.01 Organization and Authority.
A. Interchange is a New Jersey corporation duly organized,
validly existing under the laws of the State of New Jersey, and in good standing
under all laws, rules and regulations applicable to corporations located in the
State of New Jersey. Interchange is a bank holding company registered under the
BHCA. Interchange has all requisite corporate power and authority (including all
licenses, franchises, permits and other governmental authorizations as are
legally required) to carry on its business as now being conducted, to own, lease
and operate its properties and assets, including, but not limited to, as now
owned, leased or operated, and to enter into and carry out its obligations under
this Agreement. The nature of the business of Interchange does not require it to
be qualified to do business in any jurisdiction other than the State of New
Jersey. Interchange does not, directly or indirectly, engage in any activity
that is prohibited by the Federal Reserve.
32
B. Interchange Bank is a New Jersey banking corporation
duly organized, validly existing under the laws of the State of New Jersey, and
is in good standing under all laws, rules and regulations applicable to banking
corporations located in of the State of New Jersey. Interchange Bank has all
requisite corporate power and authority (including all licenses, franchises,
permits and other governmental authorizations as are legally required) necessary
to carry on its business as now being conducted in all material respects, to
own, lease and operate its properties and assets, including, but not limited to,
as now owned, leased or operated. True and complete copies of the Certificate of
Incorporation and Bylaws of Interchange Bank, as amended to date, certified by
the Secretary or Cashier of the Bank, have been delivered to BVB. The deposits
of Interchange Bank are insured by the Bank Insurance Fund of the FDIC to the
full extent permissible by law. Interchange Bank does not, directly or
indirectly, engage in any activity that is prohibited by the State of New
Jersey, the FDIC or the Federal Reserve.
Section 4.02 Capitalization of Interchange. The entire authorized
capital stock of Interchange consists solely of 22,500,000 shares of voting
common stock, no par value per share (previously defined as the "Interchange
Stock"), 9,817,958 shares of which are issued and outstanding, and 869,732
additional shares of which have been reserved for issuance to holders of
outstanding options to acquire shares of Interchange Stock. All of the
outstanding shares of capital stock of Interchange are duly authorized, validly
issued, fully paid and nonassessable, and have not been issued in violation of
the preemptive rights of any person and have been issued in compliance with
applicable securities laws. There are no restrictions applicable to the payment
of dividends on the shares of the capital stock of Interchange, except pursuant
to applicable laws and regulations, and all dividends declared prior to the date
of this Agreement on such capital stock have been paid.
Section 4.03 Execution and Delivery; No Violation.
A. Interchange has full corporate power and authority to
execute and deliver this Agreement and, subject to the receipt of the approval
of its shareholders and receipt of regulatory approvals, to consummate the
transactions contemplated hereby. The execution and delivery of this Agreement
and the consummation of the transactions contemplated hereby have been duly and
validly approved by the Interchange Board. The Interchange Board has directed
that the issuance of shares of Interchange Stock pursuant to the terms of this
Agreement be submitted to its shareholders for approval at a special meeting
and, except for the approval of the issuance of such additional shares by the
requisite affirmative vote of the outstanding Interchange Stock entitled to vote
thereon, no other corporate proceedings on the part of Interchange and no other
shareholder votes are necessary to approve this Agreement and to consummate the
transactions contemplated hereby. This Agreement has been duly and validly
executed and delivered to BVB. Assuming due authorization, execution and
delivery by BVB, this Agreement constitutes the valid and binding obligation of
Interchange, enforceable against Interchange in accordance with its terms and
conditions, except as enforceability may be limited by bankruptcy,
conservatorship, insolvency, moratorium, reorganization, receivership or similar
laws and judicial decisions affecting the rights of creditors generally and by
general principles of equity (whether applied in a proceeding at law or in
equity).
B. Neither the execution and delivery of this Agreement nor
the consummation of the transactions contemplated hereby, nor compliance by
Interchange with any
33
of the terms or provisions hereof (provided the required regulatory and
shareholder approvals are obtained) will (i) violate any provision of the
articles or bylaws of Interchange; (ii) violate any statute, code, ordinance,
rule, regulation, judgment, order, writ, decree or injunction applicable to
Interchange or any of its properties or assets; (iii) violate, conflict with,
result in a breach of any provision of or the loss of any benefit under,
constitute a default (or an event which, with notice or the lapse of time, or
both, would constitute a default) under, result in the termination or
cancellation under, accelerate the performance required by or rights or
obligations under, or result in the creation of any Lien upon any of the
properties or assets of Interchange under, any of the terms, conditions or
provisions of any note, bond, mortgage, indenture, deed of trust, license,
lease, agreement, contract or other instrument or obligation to which
Interchange is a party, or by which any of its properties, assets or business
activities may be bound or affected.
Section 4.04 Financial Statements.
A. Interchange has furnished to BVB true and complete
copies of the audited consolidated financial statements of Interchange for the
years ended December 31, 1999 through December 31, 2001, and the unaudited
consolidated financial statements for the three- and nine-month periods ended
September 30, 2002 (collectively, the "Interchange Financial Statements").
Except as disclosed in Schedule 4.04(a), each of the Interchange Financial
Statements (including, in each case, any related notes), were prepared in
accordance with GAAP, applied on a consistent basis throughout the periods
involved (except as may be indicated in the notes to such Interchange Financial
Statements) and fairly presented the financial position of Interchange at the
dates and for the periods indicated. Except as disclosed in Schedule 4.04(a),
the Interchange Financial Statements do not contain any items of special or
nonrecurring income or any other income not earned in the ordinary course of
business except as expressly specified therein.
B. Interchange has furnished BVB with a true and complete
copies of the Reports of Condition and Income as of March 31, 2002, June 30,
2002 and September 30, 2002 for Interchange Bank (the "Interchange Call
Reports"). Except as disclosed in Schedule 4.04(b), each of the Interchange Call
Reports fairly presents, in all material respects, the financial position of
Interchange Bank and the results of its operations at the dates and for the
periods indicated in conformity with the instructions for the preparation of the
Call Report Instructions. Except as disclosed in Schedule 4.04(b), the
Interchange Call Reports do not contain any items of special or nonrecurring
income or any other income not earned in the ordinary course of business except
as expressly specified therein. Interchange Bank has calculated its allowance
for loan losses in accordance with GAAP and, to the extent applicable, RAP as
applied to state non-member banks and in accordance with all applicable rules
and regulations. To the best knowledge of Interchange, the allowance for loan
losses account for Interchange Bank is, and as of the Closing Date should be,
adequate in all material respects to provide for all losses, net of recoveries
relating to loans previously charged off, on all outstanding loans of
Interchange Bank.
Section 4.05 No Adverse Change. Except as disclosed in the
representations and warranties made in this Article IV and the Schedules hereto,
there has not been any Material Adverse Change since September 30, 2002, nor has
any event or condition occurred that has resulted in, or has a reasonable
possibility of resulting in the future, in a Material Adverse Change.
34
Section 4.06 Absence of Certain Changes or Events. Except as
disclosed on Schedule 4.06, Interchange has, since September 30, 2002, conducted
its business only in the ordinary course and has not, other than in the ordinary
course of business and consistent with past practices:
A. Incurred any obligation or liability, whether absolute,
accrued, contingent or otherwise, whether due or to become due, except deposits
taken and federal funds purchased and current liabilities for trade or business
obligations, none of which, individually or in the aggregate, result in a
Material Adverse Change;
B. Declared or made any payment of dividends or other
distribution to its shareholders, or purchased, retired or redeemed, or
obligated itself to purchase, retire or redeem, any of its shares of capital
stock or other securities;
C. Except for transactions contemplated by this Agreement,
issued, reserved for issuance, granted, sold or authorized the issuance of any
shares of its capital stock or other securities or subscriptions, options,
warrants, calls, rights or commitments of any kind relating to the issuance
thereof;
D. Acquired any capital stock or other equity securities or
acquired any ownership interest in any bank, corporation, partnership or other
entity (except (i) through settlement of indebtedness, foreclosure, or the
exercise of creditors' remedies or (ii) in a fiduciary capacity, the ownership
of which does not expose it to any liability from the business, operations or
liabilities of such person);
E. Terminated, canceled or surrendered, or received any
notice of or threat of termination or cancellation of any contract, lease or
other agreement or suffered any damage, destruction or loss which, individually
or in the aggregate, would constitute a Material Adverse Change;
F. Suffered any change, event or condition that,
individually or in the aggregate, has caused or may result in a Material Adverse
Change or any Material Adverse Change in earnings or costs or relations with
their employees (exclusive of the termination of any employees in accordance
with their existing policies and procedures), agents, depositors, loan
customers, correspondent banks or suppliers;
G. Sold, or knowingly disposed of, or otherwise divested of
the ownership, possession, custody or control, of any corporate books or records
of any nature that, in accordance with sound business practice, normally are
retained for a period of time after their use, creation or receipt, except at
the end of the normal retention period;
H. Made any, or acquiesced with any, change in any
accounting methods, principles or material practices except as required by GAAP
or RAP;
I. Entered into any agreement or made any commitment
whether in writing or otherwise to take any of the types of action described in
subsections A through H above.
35
Section 4.07 Litigation.
A. Except as disclosed in Schedule 4.07, neither
Interchange nor any Interchange Subsidiary is a party to any, and there are no
pending or, to the knowledge of Interchange, threatened, legal, administrative,
arbitral or other proceedings, claims, actions or governmental or regulatory
investigations of any nature against Interchange or any Interchange Subsidiary
which are reasonably likely, individually or in the aggregate, to result in a
Material Adverse Effect as to Interchange, nor, to the knowledge of Interchange,
is there any basis for any proceeding, claim or any action against Interchange
or any Interchange Subsidiary that would be reasonably likely, individually or
in the aggregate, to result in a Material Adverse Effect as to Interchange.
There is no injunction, order, judgment or decree imposed upon Interchange or
any Interchange Subsidiary or the assets or Property of Interchange or the
Interchange Subsidiaries that has resulted in, or is reasonably likely to result
in, a Material Adverse Effect as to Interchange.
B. No legal action, suit or proceeding or judicial,
administrative or governmental investigation is pending or, to the best
knowledge of Interchange, threatened against Interchange that questions or might
question the validity of this Agreement or the agreements contemplated hereby or
any actions taken or to be taken by Interchange pursuant hereto or thereto or
seeks to enjoin or otherwise restrain the transactions contemplated hereby or
thereby.
Section 4.08 Taxes.
A. Except as disclosed on Schedule 4.08, Interchange has
duly and timely filed or caused to be filed all federal, state, foreign and
local tax returns and reports required to be filed by it on or prior to the date
of this Agreement (all such returns and reports being accurate and complete in
all material respects) and has duly paid or caused to be paid on its behalf all
taxes that are due and payable, other than taxes that are being contested in
good faith and are adequately reserved against or provided for (in accordance
with GAAP) on the Interchange Financial Statements. Except as disclosed on
Schedule 4.08, as of the date hereof, Interchange has no liability for taxes in
excess of the amount reserved or provided for in the Interchange Financial
Statements (but excluding, for this purpose only, any liability reflected
thereon for deferred taxes to reflect timing differences between tax and
financial accounting methods).
B. There are no disputes pending with respect to, or claims
or assessments asserted in writing for, any material amount of taxes upon
Interchange, nor has Interchange given or been requested in writing to give any
currently effective waivers extending the statutory period of limitation
applicable to any tax return for any period.
C. Proper and accurate amounts have been withheld by
Interchange from its employees, independent contractors, creditors, stockholders
or other third parties for all periods in compliance with the tax withholding
provisions of any applicable law.
D. Since December 31, 1991, the federal income tax return
of Interchange has not been audited or examined and no such audit is currently
pending or threatened against Interchange.
36
E. As used in this Agreement, the terms "tax" and "taxes"
mean all federal, state, local and foreign income, excise, gross receipts, gross
income, ad valorem, profits, gains, property, capital, sales, transfer, use,
value-added, stamp, documentation, payroll, employment, severance, withholding,
duties, intangibles, franchise, backup withholding, and other taxes, charges,
levies or like assessments together with all penalties and additions to tax and
interest thereon.
F. Interchange has delivered to BVB correct and complete
copies of all federal income tax returns filed with the IRS, examination
reports, and statements of deficiencies assessed against or agreed to by
Interchange since December 31, 1998.
G. Interchange is not and has never been an "S Corporation"
within the meaning of Section 1361 of the Code.
Section 4.09 Undisclosed Liabilities. Interchange has no material
liability or obligation, accrued, absolute, contingent or otherwise and whether
due or to become due (including, without limitation, unfunded obligations under
any employee benefit plan maintained by Interchange or any Interchange
Subsidiary or liabilities for federal, state or local taxes or assessments) that
are not reflected in or disclosed in the Interchange Financial Statements or the
Interchange Call Reports, except (i) those liabilities and expenses incurred in
the ordinary course of business and consistent with past business practices
since the date of Interchange Financial Statements or the Interchange Call
Reports, respectively or (ii) as disclosed on Schedule 4.09.
Section 4.10 Insurance. Schedule 4.10 contains an accurate and
complete list and brief description of all policies of insurance, including
fidelity and bond insurance, of Interchange and the Interchange Subsidiaries.
Except as set forth on Schedule 4.10, all such policies (i) are sufficient in
all material respects for compliance by Interchange and the Interchange
Subsidiaries with all requirements of law and all agreements to which
Interchange or any Interchange Subsidiary is a party, (ii) are valid,
outstanding and enforceable, except as enforceability may be limited by
bankruptcy, conservatorship, insolvency, moratorium, reorganization,
receivership, or similar laws and judicial decisions affecting the rights of
creditors generally and by general principles of equity (whether applied in a
proceeding at law or equity), (iii) will not in any significant respect be
affected by, and will not terminate or lapse by reason of, the transactions
contemplated by this Agreement, and (iv) are presently in full force and effect,
no notice has been received of the cancellation, or threatened or proposed
cancellation, of any such policy and there are no unpaid premiums due thereon.
Neither Interchange nor any Interchange Subsidiary is in default with respect to
the provisions of any such policy or has failed to give any notice or present
any claim thereunder in a due and timely fashion. Each material Property of
Interchange and the Interchange Subsidiaries is insured for the benefit of
Interchange or the Interchange Subsidiaries in amounts deemed adequate by
management of Interchange against risks customarily insured against. Except as
set forth on Schedule 4.10, there have been no claims under any fidelity bonds
of Interchange or the Interchange Subsidiaries within the last three (3) years,
and Interchange is not aware of any facts that would form the basis of a claim
under such bonds.
37
Section 4.11 Compliance with Laws, Permits and Instruments.
A. Except as disclosed in Schedule 4.11(a), Interchange
holds all licenses, registrations, franchises, permits and authorizations
necessary for the lawful conduct of its business and is not in violation of any
applicable law, statute, order, rule, regulation, policy and/or guideline of any
court, administrative agency, commission or other governmental or regulatory
authority or instrumentality.
B. Except as disclosed in Schedule 4.11(b), Interchange has
in all material respects performed and abided by all obligations required to be
performed by it to the date hereof, and has complied with, and is in compliance
with, and is not in default (or with the giving of notice or the passage of time
will be in default) under, or in violation of, (i) any provision of the
Certificate of Incorporation or Bylaws of Interchange or any Interchange
Subsidiary, (ii) any material provision of any mortgage, indenture, lease,
contract, agreement or other instrument applicable to Interchange or the
Interchange Subsidiaries, or their respective assets, operations, properties or
businesses now conducted or heretofore conducted or (iii) any permit,
concession, grant, franchise, license, authorization, judgment, writ,
injunction, order, decree or award of any court, arbitrator or any federal,
state, municipal or other governmental department, commission, board, bureau,
agency or instrumentality applicable in any material respect to Interchange or
the Interchange Subsidiaries or their respective assets, operations, properties
or businesses now conducted or heretofore conducted.
Section 4.12 Absence of Certain Business Practices. Neither
Interchange, the Interchange Subsidiaries nor any of their respective officers,
employees or agents, nor any other person acting on their behalf, has, directly
or indirectly, within the past five (5) years, given or agreed to give any gift
or similar benefit to any customer, supplier, governmental employee or other
person who is or may be in a position to help or hinder the business of
Interchange or the Interchange Subsidiaries (or assist Interchange or the
Interchange Subsidiaries in connection with any actual or proposed transaction)
that (i) might subject Interchange or any of the Interchange Subsidiaries to any
damage or penalty in any civil, criminal or governmental litigation or
proceeding, (ii) if not given in the past, might have resulted in a Material
Adverse Change, or (iii) if not continued in the future might result in a
Material Adverse Change or might subject Interchange or any of the Interchange
Subsidiaries to suit or penalty in any private or governmental litigation or
proceeding.
Section 4.13 Consents and Approvals. Except as disclosed in Schedule
4.13, no approval, consent, order or authorization of, or registration,
declaration or filing with, any governmental authority or other third party is
required on the part of Interchange in connection with the execution, delivery
or performance of this Agreement or the agreements contemplated hereby, or the
consummation by Interchange of the transactions contemplated hereby or thereby.
Section 4.14 Environmental Compliance.
A. There are no legal, administrative, arbitral or other
proceedings, claims or actions or any private environmental investigations or
remediation activities or governmental investigations of any nature that would
be reasonably likely to result in the imposition, on Interchange or any of the
Interchange Subsidiaries, of any liability or obligation arising under
38
any Environmental Laws, pending or threatened against Interchange or any of the
Interchange Subsidiaries. To the knowledge of Interchange, there is no
reasonable basis for any such proceeding, claim, action or investigation that
would impose any such liability or obligation. Neither Interchange nor any of
the Interchange Subsidiaries is subject to any agreement, order, judgment or
decree by or with any court, governmental authority, regulatory agency or third
party imposing any liability or obligation with respect to the foregoing.
B. Interchange and the Interchange Subsidiaries and all of
their Properties and operations are in material compliance with all
Environmental Laws. Interchange is not aware of or has received notice of, any
past, present, or future conditions, events, activities, practices or incidents
that may interfere with or prevent the compliance of Interchange or the
Interchange Subsidiaries with all Environmental Laws.
C. Interchange and the Interchange Subsidiaries have
obtained all material permits, licenses and authorizations that are required
under all Environmental Laws.
D. To the knowledge of Interchange, except for cleaning and
office supplies of the type and in the quantity customarily used in
Interchange's business, Hazardous Materials exist on, about or within any of
Interchange's or the Interchange Subsidiaries' Properties, nor have any
Hazardous Materials previously existed on, about or within or been used,
generated, stored, transported, disposed of, on or released from any of such
Properties. The use that Interchange and the Interchange Subsidiaries make and
intend to make of their Properties will not result in the use, generation,
storage, transportation, accumulation, disposal or release of any Hazardous
Material on, in or from any of such Properties.
Section 4.15 Regulatory Compliance.
A. Except as set forth on Schedule 4.15, neither
Interchange nor Interchange Bank is subject to any cease-and-desist or other
order or enforcement action issued by, or is a party to any written agreement,
consent agreement or memorandum of understanding with, or is a party to any
commitment letter or similar undertaking to, or is subject to any order or
directive by, or has been ordered to pay any civil penalty by, or is a recipient
of a supervisory letter from, or has adopted any board resolutions at the
request or suggestion of any Regulatory Agency or other Governmental Entity that
restricts the conduct of its business or that relates to its capital adequacy,
its ability to pay dividends, its credit or risk management policies, its
management or its business.
B. All reports, records, registrations, statements, notices
and other documents or information required to be filed by Interchange and
Interchange Bank with any Regulatory Agency have been duly and timely filed and
all information and data contained in such reports, records or other documents
are substantially true, accurate, correct and complete.
Section 4.16 Community Reinvestment Act. Interchange Bank is in
material compliance with the Community Reinvestment Act (12 U.S.C. Section 2901
et seq.) and all regulations promulgated thereunder, and Interchange has
supplied BVB with copies of Interchange Bank's current CRA Statement, all
support papers therefor, all letters and written comments received by
Interchange
39
Bank since January 1, 1998 pertaining thereto and any responses by Interchange
Bank to such comments. Interchange Bank has a rating of "satisfactory" as of its
most recent CRA compliance examination and knows of no reason why it would not
receive a rating of "satisfactory" or better pursuant to its next CRA compliance
examination or why the FDIC or any other governmental entity may seek to
restrain, delay or prohibit the transactions contemplated hereby as a result of
any act or omission of Interchange Bank under the CRA.
Section 4.17 Fair Housing Act, Home Mortgage Disclosure Act and Equal
Credit Opportunity Act. Interchange Bank is in material compliance with the Fair
Housing Act (42 U.S.C. Section 3601 et seq.), the Home Mortgage Disclosure Act
(12 U.S.C. Section 2801 et seq.) and the Equal Credit Opportunity Act (15 U.S.C.
Section 1691 et seq.) and all regulations promulgated thereunder. Interchange
Bank has not received any notices of any violation of said acts or any of the
regulations promulgated thereunder, and Interchange Bank has no notice of, or
knowledge of, any threatened administrative inquiry, proceeding or investigation
with respect to Interchange Bank's compliance with such acts.
Section 4.18 Usury Laws and Other Consumer Compliance Laws. All loans
of Interchange and the Interchange Subsidiaries have been made substantially in
accordance with all applicable statutes and regulatory requirements at the time
of such loan or any renewal thereof, including without limitation, the New
Jersey usury statutes as they are currently interpreted, Regulation Z (12 C.F.R.
Section 226 et seq.) issued by the Federal Reserve, the Federal Consumer Credit
Protection Act (15 U.S.C. Section 1601 et seq.) and all statutes and
regulations governing the operation of banks chartered under the laws of the
State of New Jersey. Each loan on the books of Interchange and the Interchange
Subsidiaries was made in the ordinary course of business.
Section 4.19 Bank Secrecy Act, Foreign Corrupt Practices Act and
U.S.A. Patriot Act. Interchange Bank is in material compliance with the Bank
Secrecy Act (12 U.S.C. Sections 1730(d) and 1829(b)), the United States Foreign
Corrupt Practices Act and the International Money Laundering Abatement and
Anti-Terrorist Financing Act, otherwise known as the U.S.A. Patriot Act and all
regulations promulgated thereunder, and Interchange Bank has properly certified
all foreign deposit accounts and has made all necessary tax withholdings on all
of its deposit accounts; furthermore, Interchange Bank has timely and properly
filed and maintained all requisite Currency Transaction Reports and other
related forms, including, but not limited to, any requisite Custom Reports
required by any agency of the United States Treasury Department, including but
not limited to the IRS.
Section 4.20 Registration Statement; Joint Proxy
Statement/Prospectus. None of the information supplied or to be supplied by
Interchange or any of its directors, officers, employees or agents for inclusion
or in the Joint Proxy Statement/Prospectus will, at the date the Joint Proxy
Statement/Prospectus is mailed to the shareholders of Interchange and BVB and,
as the Joint Proxy Statement/Prospectus may be amended or supplemented, at the
time of the Interchange Meeting or the BVB Meeting, contain any untrue statement
of a material fact or omit to state any material fact with respect to
Interchange necessary in order to make the statements therein with respect to
Interchange, in light of the circumstances under which they are made, not
misleading or necessary to correct any statement in any earlier communication
with respect to the solicitation of any proxy for the Interchange Meeting and
the BVB Meeting. All documents that Interchange is responsible for filing with
any regulatory or governmental agency in connection
40
with the Merger will comply with respect to Interchange in all material respects
with the provisions of applicable law.
Section 4.21 Interchange Statements and Reports. Interchange has
previously made available to BVB an accurate and complete copy of each (a)
registration statement, offering circular, prospectus, report, schedule and
definitive proxy statement filed since January 1, 1998 with the S.E.C. pursuant
to the Securities Act or the Exchange Act, and prior to the date hereof (the
"Interchange Reports"), and (b) communication mailed by Interchange to its
shareholders since January 1, 1998 and prior to the date hereof. No such
Interchange Report contained any untrue statement of a material fact or omitted
to state any material fact required to be stated therein or necessary in order
to make the statements therein, in light of the circumstances in which they were
made, not misleading, except that information as of a later date shall be deemed
to modify information as of an earlier date. Since January 1, 1998, Interchange
has timely filed all Interchange Reports and other documents required to be
filed by is under the Securities Act and the Exchange Act, and, as of their
respective dates, all Interchange Reports complied in all material respects with
the published rules and regulations of the S.E.C. with respect thereto.
Section 4.22 Books and Records. The minute books, stock certificate
books and stock transfer ledgers of Interchange have been kept accurately in the
ordinary course of business and are complete and correct in all material
respects. The transactions entered therein represent bona fide transactions, and
there have been no material transactions involving the business of Interchange
that properly should have been set forth therein and that have not been
accurately so set forth.
Section 4.23 Employee Benefit Plans.
A. Set forth on Schedule 4.23(a) is a complete and correct
list of all "employee benefit plans" (as defined in Section 3(3) of ERISA), all
fringe benefit plans as defined in Section 6039D of the Code and, without
limitation, all bonus, incentive, compensation, deferred compensation, profit
sharing, stock option, stock appreciation right, stock bonus, stock purchase,
employee stock ownership, savings, severance, supplemental unemployment, layoff,
salary continuation, retirement, pension, health, life insurance, disability,
group insurance, vacation, holiday, sick leave, fringe benefit or welfare plan,
or any other similar plan, agreement, policy or understanding (whether written
or oral, qualified or nonqualified, currently effective or terminated), and any
trust, escrow or other agreement related thereto, which (i) is currently or has
been at any time within the last sixty (60) months, maintained or contributed to
by Interchange or any of the Interchange Subsidiaries, or with respect to which
Interchange or any of the Interchange Subsidiaries has any material liability,
or (ii) provides benefits, or describes policies or procedures applicable to any
director, officer, employee, service provider, former director, former officer
or former employee of Interchange or any of the Interchange Subsidiaries, or the
dependents of any thereof, regardless of whether funded or unfunded (herein
collectively the "Employee Plans" and each individually an "Employee Plan").
Interchange has delivered or made available to Interchange true, accurate and
complete copies of the documents comprising each Employee Plan and any related
trust agreements, summaries, employee booklets or handbooks, annuity contracts,
insurance policies or any other funding instruments ("Funding Arrangements"),
any contracts with independent contractors (without limitation, actuaries
investment managers, etc.) that relate to any Employee Plan, the Form 5500
41
filed in each of the three (3) most recent plan years with respect to each
Employee Plan, and related schedules and opinions, and such other documents,
records or other materials related thereto reasonably requested by Interchange.
B. No Employee Plan is a defined benefit plan within the
meaning of Section 3(35) of ERISA nor, without limitation, either a "multiple
employer plan," or "multi-employer plan" (as either such term is defined in
ERISA), nor has there been any such plan in existence since 1974. There have
been no prohibited transactions (described under Section 406 of ERISA or Section
4975(c) of the Code), breaches of fiduciary duty or any other breaches or
violations of any law applicable to the Employee Plans that would subject
Interchange to any material taxes, penalties or other liabilities. Each Employee
Plan that is represented to be qualified under Section 401(a) of the Code has a
current favorable determination letter, does not have any amendments for which
the remedial amendment period under Code Section 401(b) (with extensions) has
expired, and has been operated in all material respects in compliance with
applicable law, and in accordance with its terms, and, except as disclosed on
Schedule 4.23(b), all reports, descriptions and filings required by the Code,
ERISA or any government agency with respect to each Employee Plan have been
timely and completely filed or distributed in all material respects. Each
Employee Plan has been operated in compliance with applicable law or in
accordance with its terms and any related trust is exempt from federal income
tax under Section 501(a) of the Code. There are no pending claims, lawsuits or
actions of a material nature relating to any Employee Plan (other than ordinary
course claims for benefits) and, to the knowledge of Interchange, none are
threatened. No written or oral representations have been made to any employee or
former employee of Interchange or any of the Interchange Subsidiaries promising
or guaranteeing any employer payment or funding for the continuation of medical,
dental, life or disability coverage for such person, their dependent, or any
beneficiary for any period of time beyond the end of the current plan year or
beyond termination of employment. Compliance with FAS 106 will not create any
material change to the Interchange Financial Statements.
C. Except as described in Schedule 4.23(d), Interchange and
the Interchange Subsidiaries are completely insured by one or more insurance
company(ies) for all health, dental, life disability or similar claims relating
to an Employee Plan. No event has occurred or circumstances exist that could
reasonably be expected to result in a material increase in premium costs of
Employee Plans.
D. All Employee Plan documents, annual reports or returns,
audited or unaudited financial statements, actuarial valuations, summary annual
reports, and summary plan descriptions issued with respect to the Employee Plans
are correct, complete, and current in all material respects, have been timely
filed, and there have been no changes in the information set forth therein.
E. All contributions (including, without limitations, all
employer contributions, employee salary reduction contributions and all premiums
or other payments (other than claims)) that are due to have been paid to or with
respect to each Employee Plan and all contributions (other than claims) for any
period ending on or before the Effective Time that are not yet due have been
paid to each such Employee Plan.
42
Section 4.24 Completion of Transaction. Interchange has no knowledge
of any fact or circumstances relating to or affecting Interchange and the
Interchange Subsidiaries that it reasonably believes would prevent Interchange
from fulfilling its material obligations under this Agreement and completing the
transactions contemplated hereby or that would, without the incurrence of undue
expense or time, prevent Interchange from obtaining all necessary regulatory
approvals of the transaction contemplated by this Agreement.
Section 4.25 Representations Not Misleading. No representation or
warranty by Interchange contained in this Agreement, or any written statement,
exhibit or schedule furnished to BVB by Interchange under and pursuant to, or in
anticipation of this Agreement, contains or will contain on the Closing Date any
untrue statement of a material fact or omits or will omit to state a material
fact necessary to make the statements contained herein or therein, in light of
the circumstances under which it was or will be made, not misleading and such
representations and warranties would continue to be true and correct following
disclosure to any governmental authority having jurisdiction over Interchange of
the facts and circumstances upon which they were based. Except as disclosed
herein, there is no matter that will have a Material Adverse Effect on
Interchange or Interchange's ability to perform the transactions contemplated by
this Agreement or the other agreements contemplated hereby, or to the knowledge
of Interchange, will in the future result in a Material Adverse Change. No
information material to the Merger, and that is necessary to make the
representations and warranties herein contained not misleading, has been
withheld by Interchange.
ARTICLE V
COVENANTS OF BVB
BVB hereby makes the covenants set forth in this Article V to
Interchange as follows:
Section 5.01 Best Efforts. BVB shall use its best efforts to perform
and fulfill all conditions and obligations on its part to be performed or
fulfilled under this Agreement and to cause the consummation of the transactions
contemplated hereby in accordance with the terms and conditions of this
Agreement.
Section 5.02 BVB Shareholders' Meeting. BVB, acting through the BVB
Board shall:
A. Duly call, give notice of, convene and hold, on a date
mutually selected by BVB and Interchange, a meeting of its shareholders (the
"BVB Meeting") as soon as practicable for the purpose of approving and adopting
this Agreement and the transactions contemplated hereby, including the Merger,
as required by the NJBCA;
B. Not impose a requirement that the holders of more than
the minimum required percentage (as set forth in BVB's current Certificate of
Incorporation, current Bylaws or pursuant to provisions of the NJBCA requiring
the lowest percentage vote) of the BVB Stock entitled to vote on this Agreement,
approve the Merger and this Agreement;
C. Cooperate and assist Interchange in (i) preparing a
Registration Statement on Form S-4 relating to the shares of Interchange Stock
to be issued to the shareholders of BVB as part of the Merger Consideration (the
"Registration Statement") and a joint proxy statement of
43
Interchange and BVB and prospectus of Interchange, including letter to
shareholders, notice of special meeting and form of proxy, to be sent to the
shareholders of Interchange and BVB in connection with the Merger (collectively,
the "Joint Proxy Statement/Prospectus") and (ii) filing the Registration
Statement and the Joint Proxy Statement/Prospectus (forming a part of the
Registration Statement) with the S.E.C., including furnishing to Interchange all
information concerning BVB that Interchange may reasonably request in connection
with preparation of such Registration Statement and Joint Proxy
Statement/Prospectus;
D. Subject to the fiduciary duties of the BVB Board to the
shareholders of BVB, (i) include in the Joint Proxy Statement/Prospectus the
recommendation of the BVB Board that the shareholders of BVB vote in favor of
the approval and adoption of the Merger and this Agreement and the transactions
contemplated hereby, (ii) use its best efforts to obtain such shareholder
approval of the Merger and this Agreement, and (iii) perform such other acts as
may reasonably be requested by Interchange to ensure that such shareholder
approval of the Merger and this Agreement is obtained; and
E. Cause the Joint Proxy Statement/Prospectus to be mailed
to the shareholders of BVB as soon as practicable following the effectiveness of
the Registration Statement.
Section 5.03 Information Furnished by BVB. BVB shall promptly, and in
any event within ten (10) business days following receipt of a written request
from Interchange, furnish or cause to be furnished to Interchange all
information concerning BVB, including but not limited to financial statements,
required for inclusion in any statement or application made or filed by
Interchange to any governmental body in connection with the transactions
contemplated by this Agreement (including the Registration Statement and the
Joint Proxy Statement/Prospectus) or in connection with any unrelated
transactions during the pendency of this Agreement. BVB represents and warrants
that all information so furnished shall be true and correct in all material
respects and shall not omit any material fact required to be stated therein or
necessary to make the statements made, in light of the circumstances under which
they were made, not misleading. BVB shall otherwise fully cooperate with
Interchange in the filing of any applications or other documents necessary to
consummate the transactions contemplated by this Agreement.
Section 5.04 Affirmative Covenants. Except as otherwise permitted in
writing by Interchange or required by this Agreement, from the date hereof until
the Effective Time, BVB shall and shall cause the BVB Subsidiaries to:
A. Maintain its corporate existence in good standing;
B. Maintain the general character of its business and
conduct its business in its ordinary and usual manner;
C. Extend credit only in accordance with existing lending
policies;
D. Use all reasonable efforts to preserve its business
organization intact; to retain the services of its present employees, officers,
directors and agents; to retain its present customers, depositors, suppliers and
correspondent banks; and to preserve its goodwill and the goodwill of its
suppliers, customers and others having business relationships with it;
44
E. Use all reasonable efforts to obtain any approvals or
consents required to maintain all existing contracts, leases and documents
relating to or affecting its assets, Properties and business;
F. Maintain all offices, machinery, equipment, materials,
supplies, inventories, vehicles and other Properties owned, leased or used by it
(whether under its control or the control of others), in good operating repair
and condition, ordinary wear and tear excepted;
G. Maintain and keep in full force and effect, in all
material respects, presently existing insurance coverage and give all notices
and present all claims under all insurance policies in due and timely fashion;
H. Comply in all material respects with all laws,
regulations, ordinances, codes, orders, licenses and permits applicable to the
properties and operations of BVB, the non-compliance with which could be
expected to have a Material Adverse Effect on BVB;
I. Permit Interchange and its representatives to examine
its books, records and Properties and to interview officers, employees and
agents at all reasonable times when it is open for business;
J. Timely file all tax returns required to be filed by it
and promptly pay all taxes, assessments, governmental charges, duties,
penalties, interest and fines that become due and payable, except those being
contested in good faith by appropriate proceedings;
K. Withhold from each payment made to each of its employees
the amount of all taxes (including, but not limited to, federal income taxes,
FICA taxes and state and local income and wage taxes) required to be withheld
therefrom and pay the same to the proper tax receiving officers;
L. Continue to follow and implement policies, procedures
and practices regarding the identification, monitoring, classification and
treatment of all assets in substantially the same manner as it has in the past;
M. Account for all transactions in accordance with GAAP
(unless otherwise instructed by RAP, in which instance account for such
transaction in accordance with RAP) and maintain the allowance for loan losses
account for BVB in an adequate amount to provide for all losses, net of
recoveries relating to loans previously charged off, on all outstanding loans of
BVB, but in no event shall BVB's allowance for loan losses account be less than
0.95% of its total loans outstanding;
N. Promptly charge-off all loans past due 90 days or more,
and charge-off all loans reasonably anticipated to be 90 days or more past due
as of the Closing Date.
O. Pay (or establish adequate reserves for) all costs,
expenses and other charges to be incurred by BVB associated with the
cancellation of any Contracts to be cancelled as a result of the Merger
(including without limitation the cost of termination of its existing data
processing agreement).
45
P. Pay (or establish adequate reserves for) all costs,
expenses and other charges to be incurred by BVB associated with the Merger.
Section 5.05 Negative Covenants. Except as otherwise contemplated or
required by this Agreement, from the date hereof until the Effective Time, BVB
shall not and shall cause the BVB Subsidiaries not to, without the prior written
consent of Interchange:
A. Amend or otherwise change its Articles of Incorporation,
Articles of Association, charter, or Bylaws;
B. Issue, sell or authorize the issue or sale, or grant any
options or make other agreements with respect to the issuance or sale or
conversion of, any shares of its capital stock, phantom shares or other share
equivalents, or any other of its securities;
C. Authorize or incur any long-term debt (other than
deposit liabilities);
D. Mortgage, pledge or subject to Lien or restriction any
of its Property, business or assets, tangible or intangible except in the
ordinary course of business and consistent with normal banking practices;
E. Enter into any material agreement, contract or
commitment in excess of $25,000, except for banking transactions in the ordinary
course of business and in accordance with policies and procedures in effect on
the date hereof;
F. Make any investments, except investments made by BVB in
the ordinary course of business, of Treasury securities with maximum maturities
not more than two years and in denominations of not more than $1,000,000;
G. Introduce any new material method of management or
operation;
H. Other than actions required by this Agreement, take any
action that could reasonably be anticipated to result in a Material Adverse
Change;
I. Take or fail to take any action that would cause or
permit the representations and warranties made in Article III hereof to be
inaccurate at the time of the Closing or preclude BVB from making such
representations and warranties at the time of the Closing;
J. Cause or allow the loss of insurance coverage, unless
replaced with coverage which is substantially similar (in amount and insurer) to
that now in effect;
K. Incur any obligation or liability, whether absolute or
contingent, except in the ordinary course of business and consistent with normal
banking practices;
L. Discharge or satisfy any Lien or pay any obligation or
liability, whether absolute or contingent, due or to become due, except in the
ordinary course of business consistent with normal banking practices;
46
M. Issue, reserve for issuance, grant, sell or authorize
the issuance of any shares of its capital stock or other securities or
subscriptions, options, warrants, calls, rights or commitments of any kind
relating to the issuance thereto;
N. Redeem, retire, purchase or otherwise acquire, directly
or indirectly, any of the capital stock of BVB, or obligate itself to purchase,
retire or redeem, any of its shares of capital stock;
O. Except as provided in Section 5.24, declare, make, set
aside or pay any dividend or other distribution with respect to its capital
stock;
P. Sell, transfer, lease to others or otherwise dispose of
any of its assets or Properties or cancel or compromise any debt or claim, or
waive or release any right or claim;
Q. Enter into any transaction other than in the ordinary
course of business;
R. Except in the ordinary course of the business and
consistent with past practices, enter into or give any promise, assurance or
guarantee of the payment, discharge or fulfillment of any undertaking or promise
made by any other person, firm or corporation;
S. Sell or knowingly dispose of, or otherwise divest itself
of the ownership, possession, custody or control, of any corporate books or
records of any nature that, in accordance with sound business practice, normally
are retained for a period of time after their use, creation or receipt, except
at the end of the normal retention period;
T. Increase the compensation of any officers, directors,
employees of BVB or the BVB Subsidiaries, except increases pursuant to existing
compensation plans or regular reviews and which increases as are consistent with
past practices, provided that no such increase shall be more than four percent
(4%) with respect to any individual officer, director or employee and provided
further that any increases, either singularly or in the aggregate, shall be
consistent with BVB's 2003 budget, a copy of which has been made available to
Interchange;
U. Engage in any transaction with any Affiliate or create
any liability owed to such persons other than in the form of loans, deposits,
wages, salaries and reimbursement of expenses created in the ordinary course of
business and consistent with past practices;
V. Acquire any capital stock or other equity securities or
acquire any equity or ownership interest in any bank, corporation, partnership
or other entity, except (i) through settlement of indebtedness, foreclosure, or
the exercise of creditors' remedies or (ii) in a fiduciary capacity, the
ownership of which does not expose it to any liability from the business,
operations or liabilities of such person;
W. Terminate, cancel or surrender any contract, lease or
other agreement that, individually or in the aggregate, would constitute a
Material Adverse Change;
X. Dispose of, permit to lapse, transfer or grant any
rights under, or breach or infringe upon, any United States or foreign license
or Proprietary Right or modify any existing
47
rights with respect thereto, except in the ordinary course of business and
consistent with past practices and safe and sound banking principles;
Y. Make any capital expenditures, capital additions or
betterments in excess of an aggregate of $10,000;
Z. Unless otherwise approved in writing by Interchange,
hire or employ any person with an annual salary equal to or greater than
$25,000;
AA. Sell (provided, however, that payment at maturity or
prepayment is not deemed a sale) any Investment Security or purchase any
Investment Security (other than U.S. Treasuries with a maturity of less than one
year);
BB. Other than loans fully secured by certificates of
deposit or liquid, readily marketable collateral, make or alter any of the
material terms of any loan to any single borrower and his related interests in
excess of the principal amount of $250,000, or renew or extend the maturity of
any loan to any single borrower and his related interests in excess of the
principal amount of $250,000 or that would increase the aggregate credit
outstanding to any such borrower or his related interests by more than $250,000,
without the prior consent of Interchange; or
CC. Make, or renew or extend the maturity of, or alter any
of the material terms of any classified loan.
Section 5.06 Access; Pre-Closing Investigation. Subject to the
provisions of Article X, BVB shall afford the officers, directors, employees,
attorneys, accountants, investment bankers and authorized representatives of
Interchange full access during normal business hours during the period prior to
the Effective Time or the termination of this Agreement to all of the
Properties, books, contracts, commitments, personnel and records of BVB, permit
Interchange to make such inspections (including without limitation with regard
to such Properties physical inspection of the surface and subsurface thereof and
any structure thereon) as they may require, and furnish to Interchange during
such period all such information concerning BVB and its affairs as Interchange
may reasonably request, so that Interchange may have full opportunity to make
such reasonable investigation as it shall desire to make of the affairs of BVB,
including, without limitation, access sufficient to verify the value of the
assets and the liabilities of BVB and the satisfaction of the conditions
precedent to Interchange's obligations described in Article VIII of this
Agreement. BVB agrees at any time, and from time to time, to furnish to
Interchange as soon as practicable, any additional information that Interchange
may reasonably request. No investigation by Interchange, or its representatives
shall affect the representations and warranties set forth herein.
Section 5.07 Invitations to and Attendance at Directors' and Committee
Meetings. BVB shall give notice to two (2) designees of Interchange (which
designees shall be reasonably acceptable to BVB), and shall invite such persons
to attend all regular and special meetings of the BVB Board and all regular and
special meetings of any senior management committee (including, but not limited
to, the executive committee and the loan and discount committee of BVB) of BVB;
provided, however, that Interchange's designees shall not have the right to
attend any portion of any meeting at which the advisability of the transactions
contemplated hereby is
48
to be considered, or at which information to be disclosed is of a nature such
that, in the reasonable opinion of the body holding the meeting following
consultation with counsel, attendance of Interchange's designees would be
inappropriate based on restrictions imposed by applicable antitrust, competition
or similar laws or regulations. If the Merger is finally disapproved by any
appropriate regulatory authority or if this Agreement is terminated pursuant to
its terms, Interchange's designees will no longer be entitled to notice of and
permission to attend such meetings.
Section 5.08 Additional Financial Statements. BVB shall promptly furnish
Interchange with true and complete copies of (i) Exchange Act reports and Call
Reports for the Bank as filed with the S.E.C. and Regulatory Authorities between
the date of this Agreement and the Effective Date, (ii) monthly directors'
reports of BVB, and (iii) unaudited month-end financial statements of BVB.
Section 5.09 Untrue Representations. BVB shall promptly notify
Interchange in writing if BVB becomes aware of any fact or condition that makes
untrue, or shows to have been untrue, in any material respect, any schedule or
any other information furnished to Interchange or any representation or warranty
made in or pursuant to this Agreement or that results in BVB's failure to comply
with any covenant, condition or agreement contained in this Agreement.
Section 5.10 Litigation and Claims. BVB shall promptly notify
Interchange in writing of any litigation, or of any claim, controversy or
contingent liability that might be expected to become the subject of litigation,
against BVB or any BVB Subsidiary or affecting any of their respective
Properties, if such litigation or potential litigation is reasonably likely, in
the event of an unfavorable outcome, to result in a Material Adverse Change, and
BVB shall promptly notify Interchange of any legal action, suit or proceeding or
judicial, administrative or governmental investigation, pending or, to the
knowledge of BVB, threatened against BVB or any BVB Subsidiary that questions or
might question the validity of this Agreement or the agreements contemplated
hereby, or any actions taken or to be taken by BVB pursuant hereto or seeks to
enjoin or otherwise restrain the transactions contemplated hereby or thereby.
Section 5.11 Notice of Material Adverse Changes. BVB shall promptly
notify Interchange in writing if any change or development shall have occurred
or been threatened (or any development shall have occurred or been threatened
involving a prospective change) in the business, financial condition, operations
or prospects of BVB that has resulted in or may reasonably be expected to result
in a Material Adverse Change or that would adversely affect, prevent or delay
the obtaining of any regulatory approval for the consummation of the
transactions contemplated by this Agreement. Notwithstanding the disclosure to
Interchange of any such changes, BVB shall not be relieved of any liability to
Interchange pursuant to this Agreement for, nor shall the providing of such
information by BVB to Interchange be deemed a waiver by Interchange of, the
breach of any representation or warranty of BVB contained in this Agreement.
Section 5.12 No Negotiation with Others. Except to the extent required
in order for the BVB Board to fulfill its fiduciary duties to shareholders of
BVB as determined by the written advice of counsel, neither BVB nor any of its
Subsidiaries, Affiliates, employees, directors, officers, financial advisors or
agents shall, directly or indirectly, (i) solicit, encourage, initiate or
49
participate in any negotiations or discussions with any third party with respect
to any offer or proposal to merge with or acquire BVB or any BVB Subsidiary or
all or substantially all the business of BVB or any BVB Subsidiary whether by
merger, acquisition, tender offer, exchange offer, purchase of stock, options,
warrants or assets or otherwise; (ii) disclose to any third party any
information concerning the business, Properties, books or records of BVB or any
BVB Subsidiary, except in the ordinary course of business for purposes other
than an acquisition or as compelled by law; or (iii) cooperate with any third
party to make any proposal to merge with or acquire all or any part of the
capital stock or assets of BVB or any BVB Subsidiary other than non-essential or
excess assets. Promptly upon receipt of any unsolicited offer, BVB will
communicate to Interchange the terms of any proposal or request for information
and the identity of the parties involved.
Section 5.13 Consents and Approvals. BVB (i) shall take all necessary
corporate and other action and use its best efforts to obtain at the earliest
practicable time all approvals of regulatory authorities, consents and other
approvals required of BVB to carry out the transactions contemplated by this
Agreement and (ii) will cooperate with Interchange and Interchange Bank to
obtain all such approvals and consents required of Interchange and Interchange
Bank.
Section 5.14 Environmental Investigation; Right to Terminate Agreement.
A. Interchange and its consultants, agents and
representatives, at the sole cost and expense of Interchange, shall have the
right to the same extent that BVB has the right, but not the obligation or
responsibility, to inspect any Property, including, without limitation,
conducting asbestos surveys and sampling, environmental assessments and
investigation, and other environmental surveys and analyses including soil,
water, asbestos, septic system and ground sampling ("Environmental Inspections")
at any time on or prior to twenty (20) days after the date of this Agreement.
If, as a result of any such Environmental Inspection, further investigation
("Secondary Investigation") including, without limitation, test borings, soil,
water, septic system and other sampling is deemed desirable by Interchange,
Interchange shall (i) notify BVB of any Property for which it intends to conduct
such a Secondary Investigation and the reasons for the Secondary Investigation,
and (ii) at the sole cost and expense of Interchange, commence the Secondary
Investigation, on or prior to forty-five (45) days after the date of this
Agreement. Interchange shall give reasonable notice to BVB of the Secondary
Investigation, and BVB may place reasonable time and place restrictions on the
Secondary Investigation.
B. Interchange shall not have any liability or
responsibility of any nature whatsoever for the results, conclusions or other
findings related to any Environmental Inspection, Secondary Investigation or
other environmental survey. If this Agreement is terminated, except as otherwise
required by law, reports to any governmental authority of the results of any
Environmental Inspection, Secondary Investigation or other environmental survey
shall not be made by Interchange. Interchange shall make no such report prior to
Closing unless required to do so by law, and in such case will give BVB
reasonable notice of Interchange's intentions.
C. Interchange shall have the right to terminate this
Agreement if (i) the factual substance of any warranty or representation set
forth in Section 3.26 is not materially true and accurate; (ii) the results of
such Environmental Inspection, Secondary Investigation or other environmental
survey are disapproved by Interchange because the Environmental Inspection,
50
Secondary Investigation or other environmental survey identifies material
violations or potential violations of Environmental Laws; (iii) BVB refuses to
allow Interchange to conduct an Environmental Inspection or Secondary
Investigation in a manner that Interchange reasonably considers necessary; (iv)
the Environmental Inspection, Secondary Investigation or other environmental
survey identifies any past or present event, condition or circumstance that
would or potentially would require remedial or cleanup action or result in a
Material Adverse Change; (v) the Environmental Inspection, Secondary
Investigation or other environmental survey identifies the presence of any
underground or above ground storage tank in, on or under any Property that is
not shown to be in compliance with all Environmental Laws applicable to the tank
either now or at a future time certain, or that has had a release of petroleum
or some other Hazardous Material that has not been cleaned up to the
satisfaction of the relevant governmental authority or any other party with a
legal right to compel cleanup; or (vi) the Environmental Inspection, Secondary
Investigation or other environmental survey identifies the presence of any
asbestos-containing material in, on or under any Property, the removal of which
would result in a Material Adverse Change.
D. BVB agrees to make available to Interchange and its
consultants, agents and representatives all documents and other material
relating to environmental conditions of any Property including, without
limitation, the results of other environmental inspections and surveys. BVB also
agrees that all engineers and consultants who prepared or furnished such reports
may discuss such reports and information with Interchange and shall be entitled
to certify the same in favor of Interchange and its consultants, agents and
representatives and make all other data available to Interchange and its
consultants, agents and representatives.
Section 5.15 Restrictions on Resales. At least twenty (20) days prior to
the Closing Date, BVB shall deliver to Interchange a list identifying each
person who may reasonably be deemed an "affiliate" of BVB within the meaning of
such term as used in Rule 145 under the Securities Act. BVB shall obtain and
deliver to Interchange, not less than ten (10) days prior to the Closing Date,
the signed agreement, in the form of Exhibit B hereto (the "Shareholder
Letter"), of each "affiliate" of BVB, and of any person who may become an
"affiliate" of BVB after the date of this Agreement, regarding compliance with
the provisions of such Rule 145.
Section 5.16 Shareholder Lists. After the date of this Agreement, BVB
shall from time to time make available to Interchange, upon its request, a list
of the shareholders of BVB and its addresses, a list showing all transfers of
the BVB Stock and such other information as Interchange may reasonably request
regarding both the ownership and prior transfers of the BVB Stock.
Section 5.17 Employee Plans. BVB agrees the Employee Plans including,
without limitation, the Bridge View Bank 401(k) Plan, and the Bridge View
Bancorp Directors' Retirement Plan, may be terminated and accrued benefits paid
in accordance with the provisions of such plan, frozen, modified or merged into
similar employee benefit plans maintained by Interchange or any Interchange
Subsidiary, including, without limitation, the Interchange State Bank Capital
Investment Plan, on or after the Effective Date, as determined by Interchange in
its sole discretion, subject to compliance with applicable law.
51
Section 5.18 Employee Health and Welfare Plans. Without limitation, BVB
agrees that BVB's employee welfare benefit plans, as defined in Section 3(1) of
ERISA, may be terminated, modified or merged into Interchange's welfare benefit
plans on or after the Effective Date, as determined by Interchange in its sole
discretion, subject to compliance with applicable law so long as any such action
preserves the rights of participants in such plans through the Effective Time.
Section 5.19 BVB Stock Option Plans and BVB Stock Options. BVB shall
take such action as is necessary under the BVB Stock Option Plans to (i)
terminate such Stock Option Plans as of immediately prior to the Effective Date,
(ii) cancel, effective as of immediately prior to the Effective Date, all BVB
Stock Options, awards and stock appreciation rights granted under such BVB Stock
Option Plans that are unexercised as of immediately prior to the Effective Date,
and (iii) enter into a written agreement with each holder of an outstanding BVB
Stock Option evidencing and acknowledging termination of the BVB Stock Option
Plans and cancellation of all unexercised BVB Stock Options held by such option
holder as of immediately prior to the Effective Date, providing for payment of
all unexercised BVB Stock Options in the manner set forth in Section 1.09, and
releasing BVB, the Bank, their respective boards of directors, agents,
attorneys, stockholders, successors and assigns (including Interchange,
Interchange Bank, their respective boards of directors, agents, attorneys and
stockholders) from any and all obligations to such holder under any grant
agreement regarding the BVB Stock Options.
Section 5.20 Voting Agreement. Simultaneously with the execution of this
Agreement, BVB and each of the directors of BVB shall execute and deliver to
Interchange the Voting Agreement and Irrevocable Proxy in the form of Exhibit A
attached hereto, and BVB acknowledges that pursuant to such agreement the
directors of BVB have agreed that they will vote the shares of the BVB Stock
owned by them in favor of this Agreement and the transactions contemplated
hereby, subject to required regulatory approvals.
Section 5.21 Non-Compete Agreements. Prior to the Closing Date, BVB
shall use its best efforts to cause each of the persons identified on Exhibit C
to enter into an agreement not to compete with Interchange to be dated as of the
Closing Date and to become effective on the Effective Date (each a "Non-Compete
Agreement"). The form of the Non-Compete Agreement is attached as Exhibit D
hereto.
Section 5.22 Accruals and Reserves. BVB shall establish such additional
accruals and reserves as may be necessary (i) to conform BVB's accounting and
credit loss reserve practices and methods to those of Interchange, consistent
with Interchange's plans with respect to the conduct of BVB's business following
the Merger and (ii) to the extent permitted by GAAP, to provide for the costs
and expenses relating to the consummation by BVB of the Merger and the other
transactions contemplated by this Agreement. BVB's representations, warranties,
and covenants contained in this Agreement shall not be deemed to be untrue or
breached in any respect for any purpose as a consequence of any modifications or
changes undertaken solely on account of this Section 5.22.
Section 5.23 280G Payments. BVB shall amend (as described herein) any
agreement(s) or understanding(s) providing for the payment, grant of any right
or provision of any benefit to an employee of BVB as a result of or in
connection with the Merger (including,
52
without limitation, any payment in connection with a change in control agreement
or in consideration of cancellation of outstanding BVB Stock Options) which
would cause the limitations of Section 280G of the Code with respect to tax
deductibility to be exceeded ("Excess 280G Agreements"). The amendment to any
such Excess 280G Agreements shall provide for a reduction in the aggregate
amount of all payments under such Excess 280G Agreements with respect to any
individual employee to a level that will not exceed the limitations of Section
280G of the Code with respect to tax deductibility.
Section 5.24 Dividends. BVB shall not declare, set aside or pay any
dividend in respect of the BVB Stock or make any other distribution to
shareholders (including, without limitation, any stock dividend, dividends in
kind or other distribution), whether in cash, stock or other property, after the
date of this Agreement, except that BVB may declare and pay its regular
quarterly dividend on the BVB Stock not to exceed $0.10 per share at
approximately the same time during each quarter which it has historically
declared and paid such dividend; provided, however, that BVB and Interchange
shall cooperate with each other to coordinate the record and payment dates of
their respective dividends for the quarter in which the Effective Date occurs
such that the holders of BVB Stock shall receive a quarterly dividend from
either BVB or Interchange, but not from both with respect to such quarter.
Section 5.25 Disclosure Schedules. At least ten (10) days prior to the
Closing, BVB agrees to provide Interchange with supplemental disclosure
Schedules to be delivered by BVB pursuant to this Agreement reflecting any
material changes thereto between the date of this Agreement and the Closing
Date.
ARTICLE VI
COVENANTS OF INTERCHANGE
Interchange hereby make the covenants set forth in this Article VI to
BVB as follows:
Section 6.01 Best Efforts. Interchange shall use its best efforts to
perform and fulfill all conditions and obligations on its part to be performed
or fulfilled under this Agreement and to cause the consummation of the
transactions contemplated hereby in accordance with the terms and conditions of
this Agreement.
Section 6.02 Interchange Shareholders' Meeting. Interchange, acting
through the Interchange Board of directors, shall:
A. Duly call, give notice of, convene and hold, on a date
mutually selected by BVB and Interchange, a meeting of its shareholders (the
"Interchange Meeting") as soon as practicable for the purpose of obtaining the
shareholder approval of the issuance of the Interchange Stock pursuant to the
terms of this Agreement;
B. Not impose a requirement that the holders of more than
the minimum required percentage (as set forth in Interchange's current
Certificate of Incorporation, current Bylaws or pursuant to provisions of the
NJBCA requiring the lowest percentage vote) of the Interchange Stock entitled to
vote to approve of the issuance of Interchange Stock pursuant to the terms of
this Agreement;
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C. Subject to its fiduciary duties of the Interchange Board
to the shareholders of Interchange, (i) include in the Joint Proxy
Statement/Prospectus the recommendation of the Interchange Board that the
shareholders of Interchange vote in favor of the approval of the issuance of the
Interchange Stock in connection with the transactions contemplated by this
Agreement, (ii) use its best efforts to obtain such shareholder approval of the
issuance of the Interchange Stock pursuant to the terms of this Agreement, and
(iii) perform such other acts as may reasonably be requested by BVB to ensure
such shareholder approval of the issuance of Interchange Stock; and
D. Cause the Joint Proxy Statement/Prospectus to be mailed
to the shareholders of Interchange as soon as practicable following the
effectiveness of the Registration Statement.
Section 6.03 Regulatory Approvals and Registration Statement.
A. Interchange, with the cooperation of BVB, shall promptly
file or cause to be filed applications for all regulatory approvals required to
be obtained by Interchange in connection with this Agreement and the
transactions contemplated hereby, including but not limited to the necessary
applications for the prior approval of the Merger by the Federal Reserve, the
NJDOBI and the FDIC. Interchange shall use its best efforts to obtain all such
regulatory approvals and any other approvals from third parties at the earliest
practicable time.
B. Interchange shall reserve and make available for
issuance in connection with the Merger and in accordance with the terms of this
Agreement, the Interchange Stock for the Merger Consideration and shall, with
the cooperation of BVB, file with the S.E.C. the Registration Statement, which
Registration Statement will contain the Proxy Statement/Prospectus, and
Interchange shall use its best efforts to cause the Registration Statement to
become effective. At the time the Registration Statement becomes effective, the
Registration Statement shall comply in all material respects with the provisions
of the Securities Act and the published rules and regulations thereunder, and
shall not contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the statements
therein not false or misleading, and at the time of mailing thereof to the
shareholders of BVB, at the time of the BVB Shareholders' Meeting and on the
Effective Date, the Proxy Statement/Prospectus included as part of the
Registration Statement, as amended or supplemented by any amendment or
supplement, shall not contain any untrue statement of a material fact or omit to
state any material fact necessary to make the statements therein not false or
misleading.
C. Interchange shall timely file all documents required to
obtain all necessary Blue Sky permits and approvals, if any, required to carry
out the transactions contemplated by this Agreement, shall pay all expenses
incident thereto and shall use its best efforts to obtain such permits and
approvals on a timely basis.
D. Interchange shall promptly and properly prepare and file
(i) any application required to list on Nasdaq the shares of Interchange Stock
to be issued pursuant to the Merger, and (ii) any filings required under the
Exchange Act, relating to the Merger and the transactions contemplated herein.
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E. Interchange shall keep BVB reasonably informed as to the
status of such applications and filings, and Interchange shall promptly furnish
BVB and its counsel with copies of all such regulatory filings and all
correspondence for which confidential treatment has not been requested.
F. Interchange shall not take any action at any time after
the Effective Date which would cause the Merger not to qualify as a
reorganization within the meaning of Section 368 of the Code.
Section 6.04 Information for Applications and Statements. Interchange
shall promptly, but in no event later than ten (10) business days after receipt
of a written request by BVB, furnish to BVB all information, data and documents
concerning Interchange, including, but not limited to, financial statements,
required for inclusion in any application or statement to be made by BVB to, or
filed by BVB with, any governmental body in connection with the transactions
contemplated by this Agreement, or in connection with any other transactions
during the pendency of this Agreement, and Interchange represents and warrants
that all information so furnished for such statements and applications shall be
true and correct in all material respects and shall not omit any material fact
required to be stated therein or necessary to make the statements made, in light
of the circumstances under which they were made, not misleading. Interchange
shall otherwise fully cooperate with BVB in the filing of any applications or
other documents necessary to consummate the transactions contemplated by this
Agreement.
Section 6.05 Prohibited Acts of Interchange. Prior to the Closing,
Interchange and, as applicable, the Interchange Subsidiaries shall not, without
the prior written consent of BVB:
A. Take any action that would reasonably be anticipated to
result in a Material Adverse Change with respect to Interchange;
B. Take or fail to take any action that would cause or
permit the representations and warranties made in Article IV hereof to be
inaccurate at the time of the Closing or preclude Interchange from making such
representations and warranties at the time of the Closing;
C. Make any, or acquiesce with any, change in any
accounting methods, principles or material practices, except as required by
changes in GAAP as concurred in by Interchange's independent auditors.
Section 6.06 Access; Pre-Closing Investigation. Subject to the
provisions of Article X, Interchange shall afford the officers, directors,
employees, attorneys, accountants, investment bankers and authorized
representatives of BVB full access during normal business hours during the
period prior to the Effective Time or the termination of this Agreement to all
of the Properties, books, contracts, commitments, personnel and records of
Interchange, permit BVB to make such inspections (including without limitation
with regard to such Properties physical inspection of the surface and subsurface
thereof and any structure thereon) as they may require, and furnish to BVB
during such period all such information concerning Interchange and its affairs
as BVB may reasonably request, so that BVB may have full opportunity to make
such reasonable investigation as it shall desire to make of the affairs of
Interchange, including,
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without limitation, access sufficient to verify the value of the assets and the
liabilities of Interchange and the satisfaction of the conditions precedent to
BVB's obligations described in Article VIII of this Agreement. Interchange
agrees at any time, and from time to time, to furnish to BVB as soon as
practicable, any additional information that BVB may reasonably request. No
investigation by BVB or its representatives shall affect the representations and
warranties set forth herein.
Section 6.07 Untrue Representations. Interchange shall promptly notify
BVB in writing if Interchange becomes aware of any fact or condition that makes
untrue, or shows to have been untrue, in any material respect, any schedule or
any other information furnished to BVB or any representation or warranty made in
or pursuant to this Agreement or that results in Interchange's failure to comply
with any covenant, condition or agreement contained in this Agreement.
Section 6.08 Litigation and Claims. Interchange shall promptly notify
BVB of any legal action, suit or proceeding or judicial, administrative or
governmental investigation, pending or, to the knowledge of Interchange,
threatened against Interchange that questions or might question the validity of
this Agreement or the agreements contemplated hereby, or any actions taken or to
be taken by Interchange pursuant hereto or seeks to enjoin or otherwise restrain
the transactions contemplated hereby or thereby.
Section 6.09 Notice of Material Adverse Changes. Interchange shall
promptly notify BVB in writing if any change or development shall have occurred
or, to the best knowledge of Interchange, been threatened (or any development
shall have occurred or been threatened involving a prospective change) in the
business, financial condition, operations or prospects of Interchange that has
resulted in or may reasonably be expected to result in a Material Adverse Change
with respect to Interchange or that would adversely affect, prevent or delay the
obtaining of any regulatory approval for the consummation of the transactions
contemplated by this Agreement.
Section 6.10 Consents and Approvals. Interchange shall use its best
efforts to obtain all consents and approvals from third parties necessary to
consummate the transactions contemplated by this Agreement at the earliest
practicable time.
Section 6.11 Employee Matters. Interchange shall, with respect to each
employee of BVB or any BVB Subsidiary at the Effective Time who continues in
employment with Interchange or its Subsidiaries (each a "Continued Employee"),
provide the benefits described in this Section 6.11. Subject to the right of
subsequent amendment, modification or termination in the sole discretion of
Interchange, each Continued Employee shall be entitled, as an employee of
Interchange or its Subsidiaries, to participate in the employee benefit plans of
Interchange as set forth in Schedule 6.11 hereto in effect as of the date of
this Agreement, if such Continued Employee shall be eligible and, if required,
selected for participation therein under the terms thereof. All such
participation shall be subject to such terms of such plans as may be in effect
from time to time and this Section 6.11 is not intended to give any Continued
Employee any rights or privileges superior to those of other similarly situated
employees of Interchange or its Subsidiaries. The provisions of this Section
6.11 shall not be deemed or construed so as to provide duplication of similar
benefits but, subject to that qualification, Interchange shall, for
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purposes of vesting and any age or period of service requirements for
commencement of participation with respect to any employee benefit plans in
which a Continued Employee may participate (excluding the Interchange Bank
non-contributory defined benefit pension plan), credit each Continued Employee
with his or her term of service with BVB or any BVB Subsidiary.
Section 6.12 Conduct of Business in the Ordinary Course. Except as
specifically provided for in this Agreement, Interchange shall conduct its
business in the ordinary course as heretofore conducted. For purposes of this
Section 6.12, the ordinary course of business shall consist of the banking and
related business as presently conducted by Interchange and the Interchange
Subsidiaries, and engaging in acquisitions and assisting in the management of
its Subsidiaries.
Section 6.13 Disclosure Schedules. At least ten (10) days prior to the
Closing, Interchange agrees to provide BVB with supplemental disclosure
Schedules to be delivered by Interchange pursuant to this Agreement reflecting
any material changes thereto between the date of this Agreement and the Closing
Date.
ARTICLE VII
CONDITIONS PRECEDENT TO THE OBLIGATIONS OF BVB
All obligations of BVB under this Agreement are subject to the
fulfillment (or, if legally permissible, waiver by BVB), prior to or at the
Closing, of each of the following conditions:
Section 7.01 Representations and Warranties. All representations and
warranties made by Interchange in this Agreement or in any document or schedule
delivered to BVB in connection with this Agreement shall have been true and
correct in all material respects when made and shall be true and correct in all
material respects as of the Closing with the same force and effect as if such
representations and warranties were made at and as of the Closing, except with
respect to those representations and warranties specifically made as of an
earlier date (in which case such representations and warranties shall be true
and correct in all material respects as of such earlier date).
Section 7.02 Performance of Interchange Obligations. Interchange shall
have, or shall have caused to be, performed or observed in all material respects
all agreements, terms, covenants and conditions required by this Agreement to be
performed or observed by Interchange at or prior to the Closing.
Section 7.03 Shareholder Approvals.
A. The holders of at least the minimum required percentage
of BVB Stock entitled to vote on this Agreement and the Merger shall have
approved this Agreement and the Merger.
B. The holders of at least the minimum required percentage
of Interchange Stock entitled to vote on the issuance of shares of Interchange
Stock comprising the Total Stock Consideration shall have approved the issuance
of such additional shares.
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Section 7.04 Government and Other Approvals. Interchange and BVB shall
have received approvals, acquiescence or consents, all on terms and conditions
acceptable to Interchange, of the transactions contemplated by this Agreement
from all necessary governmental agencies and authorities and other third
parties, including, but not limited to, the S.E.C., the Federal Reserve, the
FDIC and the New Jersey Department of Banking, and all applicable waiting
periods shall have expired, and Interchange and BVB shall have received the
approvals and consents of all third parties required to consummate this
Agreement and any other agreement contemplated hereby and the transactions
contemplated hereby. Such approvals and consents shall not have imposed, in the
reasonable judgment of Interchange, any material requirement upon Interchange,
including, without limitation, any requirement that Interchange sell or dispose
of any significant amount of its assets. Such approvals and the transactions
contemplated hereby shall not have been contested or threatened to be contested
by any federal or state governmental authority or by any other third party by
formal proceedings. It is understood that, if such contest is brought by formal
proceedings, Interchange may, but shall not be obligated to, answer and defend
such contest or otherwise pursue this transaction over such objection.
Section 7.05 No Litigation. No action shall have been taken, and no
statute, rule, regulation or order shall have been promulgated, enacted,
entered, enforced or deemed applicable to this Agreement, the Merger, or the
transactions contemplated hereby by any federal, state or foreign government or
governmental authority or by any court, domestic or foreign, including the entry
of a preliminary or permanent injunction, that would (i) make this Agreement or
any other agreement contemplated hereby, or the transactions contemplated hereby
illegal, invalid or unenforceable, (ii) require the divestiture of a material
portion of the assets of BVB or any of its Subsidiaries, (iii) impose material
limits on the ability of any party to this Agreement to consummate the Agreement
or any other agreement contemplated hereby, or the transactions contemplated
hereby, (iv) otherwise result in a Material Adverse Change, or (v) if this
Agreement or any other agreement contemplated hereby, or the transactions
contemplated hereby are consummated, subject Interchange or subject any officer,
director, shareholder or employee of Interchange to criminal or civil liability.
No action or proceeding before any court or governmental authority, domestic or
foreign, by any government or governmental authority or by any other person,
domestic or foreign, shall be threatened, instituted or pending that would
reasonably be expected to result in any of the consequences referred to in
clauses (i) through (v) above.
Section 7.06 Delivery of Closing Documents. BVB shall have received all
documents required to be received from Interchange on or prior to the Closing
Date as set forth in Section 2.03 hereof, all in form and substance reasonably
satisfactory to BVB.
Section 7.07 Registration Statement. The Registration Statement,
including any amendments or supplements thereto, shall be effective under the
Securities Act and no stop order suspending the effectiveness of the
Registration Statement shall be in effect or proceedings for purpose pending
before or threatened by the S.E.C. All state securities permits or approvals
required by applicable state securities laws to consummate the transactions
contemplated by this Agreement shall have been received and remain in effect.
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Section 7.08 Nasdaq Listing. The shares of Interchange Stock to be
issued in the Merger shall have been approved for listing on the Nasdaq.
Section 7.09 Federal Tax Opinion. BVB shall have received a copy of the
Tax Opinion (as defined in Section 8.10).
Section 7.10 No Material Adverse Change. There shall have been no
Material Adverse Change with respect to Interchange since September 30, 2002.
ARTICLE VIII
CONDITIONS PRECEDENT TO THE OBLIGATIONS OF INTERCHANGE
All obligations of Interchange under this Agreement are subject to the
fulfillment (or, if legally permissible, waiver by Interchange), prior to or at
the Closing, of each of the following conditions:
Section 8.01 Representations and Warranties. All representations and
warranties made by BVB in this Agreement or in any schedule delivered to
Interchange pursuant hereto shall have been true and correct when made and shall
be true and correct in all material respects as of the Closing Date with the
same force and effect as if such representations and warranties were made at and
as of the Closing Date, except with respect to those representations and
warranties specifically made as of an earlier date (in which case such
representations and warranties shall be true in all material respects as of such
earlier date).
Section 8.02 Performance of BVB Obligations. BVB shall have performed or
complied in all material respects with all agreements, terms, covenants and
conditions required by this Agreement to be performed or complied with by BVB
prior to or at the Closing.
Section 8.03 Shareholder Approvals.
A. The holders of at least the minimum required percentage
of BVB Stock entitled to vote on the Agreement and the Merger shall have
approved this Agreement and the Merger.
B. The holders of at least the minimum required percentage
of Interchange Stock entitled to vote on the issuance of the shares of
Interchange Stock comprising the Total Stock Consideration shall have approved
the issuance of such additional shares.
Section 8.04 Government and Other Approvals. Interchange and BVB shall
have received approvals, acquiescence or consents, all on terms and conditions
acceptable to Interchange, of the transactions contemplated by this Agreement
from all necessary governmental agencies and authorities and other third
parties, including, but not limited to, the S.E.C., the Federal Reserve, the
FDIC and the New Jersey Department of Banking, and all applicable waiting
periods shall have expired, and Interchange and BVB shall have received the
approvals and consents of all third parties required to consummate this
Agreement and any other agreement contemplated hereby, and the transactions
contemplated hereby. Such approvals and consents shall not have imposed, in the
sole judgment of Interchange, any material requirement
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upon Interchange, including, without limitation, any requirement that
Interchange sell or dispose of any significant amount of its assets. Such
approvals and the transactions contemplated hereby shall not have been contested
or threatened to be contested by any federal or state governmental authority or
by any other third party by formal proceedings. It is understood that, if such
contest is brought by formal proceedings, Interchange may, but shall not be
obligated to, answer and defend such contest or otherwise pursue this
transaction over such objection.
Section 8.05 No Litigation. No action shall have been taken, and no
statute, rule, regulation or order shall have been promulgated, enacted,
entered, enforced or deemed applicable to this Agreement, the Merger, or the
transactions contemplated hereby by any federal, state or foreign government or
governmental authority or by any court, domestic or foreign, including the entry
of a preliminary or permanent injunction, that would (i) make this Agreement or
any other agreement contemplated hereby, or the transactions contemplated hereby
illegal, invalid or unenforceable, (ii) require the divestiture of a material
portion of the assets of BVB or any of its Subsidiaries, (iii) impose material
limits on the ability of any party to this Agreement to consummate the Agreement
or any other agreement contemplated hereby, or the transactions contemplated
hereby, (iv) otherwise result in a Material Adverse Change, or (v) if this
Agreement or any other agreement contemplated hereby, or the transactions
contemplated hereby are consummated, subject Interchange or subject any officer,
director, shareholder or employee of Interchange to criminal or civil liability.
No action or proceeding before any court or governmental authority, domestic or
foreign, by any government or governmental authority or by any other person,
domestic or foreign, shall be threatened, instituted or pending that would
reasonably be expected to result in any of the consequences referred to in
clauses (i) through (v) above.
Section 8.06 Delivery of Closing Documents. Interchange shall have
received all documents required to be received from BVB on or prior to the
Closing Date as set forth in Section 2.02 hereof, all in form and substance
reasonably satisfactory to Interchange.
Section 8.07 Receipt of Shareholder Letters. Interchange shall have
received from BVB the signed Shareholder Letters, in the form attached hereto as
Exhibit B, of each person who may reasonably be deemed an "affiliate" of BVB
within the meaning of such term as used in Rule 145 under the Securities Act.
Section 8.08 Registration Statement. The Registration Statement,
including any amendments or supplements thereto, shall be effective under the
Securities Act and no stop order suspending the effectiveness of the
Registration Statement shall be in effect or proceedings for purpose pending
before or threatened by the S.E.C. All state securities permits or approvals
required by applicable state securities laws to consummate the transactions
contemplated by this Agreement shall have been received and remain in effect.
Section 8.09 Nasdaq Listing. The shares of Interchange Stock to be
issued in the Merger shall have been approved for listing on the Nasdaq.
Section 8.10 Federal Tax Opinion. Interchange shall have received an
opinion (the "Tax Opinion") of its counsel, Jenkens & Gilchrist, P.C.,
substantially to the effect that, if the Merger is consummated in accordance
with the terms set forth in this Agreement:
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A. the Merger will be treated for federal income tax
purposes as a reorganization within the meaning of Section 368 of the Code;
B. no gain or loss will be recognized for federal income
tax purposes by the holders of shares of BVB Stock who exchange their BVB Stock
solely for Interchange Stock in the Merger (except for cash received in lieu of
fractional shares);
C. the tax basis of the shares of Interchange Stock
received by the holders of BVB Stock who exchange all of their BVB Stock solely
for Interchange Stock in the Merger will be the same as the tax basis of the
shares of BVB Stock surrendered in exchange therefor, reduced by any amount
allocable to a fractional share interest of Interchange Stock for which cash is
received;
D. the holding period of the shares of Interchange Stock
received by such shareholders of BVB Stock pursuant to the Merger will include
the period during which the BVB Stock surrendered therefor was held, provided
such shares of BVB Stock were held as capital assets in the hands of the
shareholder as of the Effective Time;
E. with respect to a shareholder of BVB Stock who receives
solely cash in exchange for all of such shareholder's shares of BVB Stock
pursuant to the Merger (a) such shareholder generally will recognize gain or
loss equal to the difference between the amount of cash received and the
shareholder's aggregate tax basis for such shares or BVB Stock, (b) the nature
of the gain or loss recognized will be capital gain or loss if the shares of BVB
Stock exchanged were held as a capital asset, and (c) if, however, any such
shareholder of BVB constructively owns shares of BVB Stock that are exchanged
for shares of Interchange Stock in the Merger or owns shares of Interchange
Stock actually or constructively after the Merger, the attribution to the
shareholder of stock owned by a related party may prevent the transaction from
qualifying for capital gain tax rates and instead result in any gain being
treated as the distribution of a dividend, which is taxed at ordinary income
rates; and
F. with respect to a shareholder of BVB who receives a
combination of cash and Interchange Stock in exchange for all of such
shareholder's shares of BVB Stock pursuant to the Merger (a) such shareholder
generally will recognize gain, but not loss, to the extent of the lesser of: (1)
the excess, if any, of (A) the sum of the aggregate fair market value of the
Interchange Stock received (including any fractional share of Interchange Stock
deemed to be received and exchanged for cash) and the amount of cash received
(excluding any cash received in lieu of a fractional share of Interchange Stock)
over (B) the shareholder's aggregate tax basis in the shares of BVB Stock
exchanged in the Merger; and (2) the amount of cash received by such
shareholder, (b) the tax basis in the Interchange Stock received pursuant to the
Merger will equal such shareholder's aggregate tax basis in the shares of BVB
Stock being exchanged, reduced by any amount allocable to a fractional share
interest of Interchange Stock for which cash is received and by the amount of
any cash consideration received, and increased by the amount of taxable gain, if
any, recognized by such shareholder in the Merger (including any portion of such
gain that is treated as a dividend), (c) the holding period of the Interchange
Stock received in the Merger will include the holding period for which
shareholders of BVB Stock held their BVB Stock provided that such BVB Stock was
held as a capital asset.
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The federal income tax consequences of the Merger to a shareholder of
BVB generally will depend on whether the shareholder receives cash, Interchange
Stock or a combination thereof in exchange for the shareholder's shares of BVB
Stock. In rendering such opinion, such counsel may require and rely upon
representations and covenants including those contained in certificates of
officers of Interchange, BVB and others.
Section 8.11 Accounting Treatment. All accounting and tax treatment,
entries and adjustments in connection with the transactions contemplated by this
Agreement and the other agreements contemplated hereby (and not an accounting
matter solely relating to Interchange's operations apart from the Merger) shall
be reasonably satisfactory to Interchange (such condition shall be deemed not to
be satisfied by any adjustment that shall reduce any capital ratio of
Interchange to less than 50 basis points above "well capitalized" levels as
defined in 12 C.F.R. Section 225.2(r)), Interchange shall not have received
notification from any proper regulatory authority that Interchange's accounting
and tax treatment, entries and adjustments used in connection with the Merger
are improper, and Interchange shall not have been required by any such
regulatory authority to make any accounting or tax adjustments that would
constitute a Material Adverse Change.
Section 8.12 No Material Adverse Change. There shall have been no
Material Adverse Change in BVB since September 30, 2002.
Section 8.13 Termination and/or Integration of Employee Plans.
Interchange shall have received evidence reasonably satisfactory to Interchange
that, as of the Effective Time, all Employee Plans (other than such plans
Interchange elects not to terminate) have been terminated and/or properly
positioned to be integrated into the existing plans of Interchange or one of its
Subsidiaries in accordance with the terms of such Employee Plans, the Code,
ERISA and all other applicable laws and regulations on a basis satisfactory to
Interchange in its sole discretion and that, to the extent Interchange deems
necessary or appropriate, affected participants have been notified of such
terminations and/or integrations.
ARTICLE IX
TERMINATION AND ABANDONMENT
Section 9.01 Expenses. Each of the parties hereto shall bear its
respective costs and expenses incurred in connection with the consummation of
the transactions contemplated by this Agreement; provided, however, in the event
that:
A. this Agreement is terminated by Interchange because (i)
the Merger Agreement is not approved by the required vote of shareholders at the
BVB Shareholders' Meeting, and (ii) either (a) the BVB Board (subject to
compliance with its fiduciary duties as advised by counsel) shall have failed to
have used its best efforts to obtain shareholder approval or (b) BVB shall have
entered into an agreement to effect a Third Party Transaction (as defined in
Section 9.02.J herein) within twelve (12) months from the date of this
Agreement, BVB shall pay to Interchange within ten (10) business days after such
termination (y) a termination fee of $2,700,000, and (z) all documented fees and
expenses of Interchange related to this Agreement
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and the transactions contemplated hereby (which fees and expenses, as
communicated to BVB by Interchange within five (5) business days after
termination, shall not exceed $250,000);
B. this Agreement is terminated by BVB because of a Third
Party Transaction (as defined in Section 9.02.J herein), BVB shall pay to
Interchange within ten (10) business days after such termination (y) a
termination fee of $2,700,000, and (z) all documented fees and expenses of
Interchange related to this Agreement and the transactions contemplated hereby
(which fees and expenses, as communicated to BVB by Interchange within five (5)
business days after termination, shall not exceed $250,000); or
C. this Agreement is terminated by BVB because (i) the
issuance of shares of Interchange Stock pursuant to the terms of this Agreement
is not approved by the required vote of shareholders at the Interchange Meeting,
and (ii) either (a) the Interchange Board (subject to compliance with its
fiduciary duties as advised by counsel) shall have failed to have used its best
efforts to obtain shareholder approval or (b) Interchange shall have entered
into an agreement to effect a Third Party Transaction (as defined in Section
9.02.J herein; provided, however, that for purposes of this Section 9.01.C, any
reference to "BVB" in such definition shall be deemed to be a reference to
"Interchange", and any reference to "Interchange" in such definition shall be
deemed to be a reference to "BVB") within twelve (12) months from the date of
this Agreement, Interchange shall pay to BVB, within ten (10) business days
after such termination, a termination fee of $1,000,000.
The parties hereto acknowledge that the agreements contained in this
Section 9.01 are an integral part of the transactions contemplated in this
Agreement, and that, without these agreements, neither Interchange nor BVB would
enter into this Agreement.
Section 9.02 Right of Termination. Subject to any payments as provided
in Section 9.01, this Agreement and the transactions contemplated hereby may be
terminated at any time prior to the Effective Time, whether before or after
approval by the shareholders of BVB as follows, and in no other manner:
A. By mutual written agreement of BVB and Interchange, duly
authorized by their respective boards of directors.
B. By either BVB or Interchange (provided that the
terminating party is not in material breach of any representation, warranty,
covenant or other agreement contained herein) if the conditions precedent to
such parties' obligations to close specified in Articles VII and VIII,
respectively, shall not have been satisfied on or before June 30, 2003, or such
later date as may be mutually agreed to by Interchange and BVB.
C. By either BVB or Interchange if (i) any of the
transactions contemplated by this Agreement or any other agreement contemplated
hereby, are disapproved by any regulatory authority whose approval is required
to consummate such transactions, or (ii) any court of competent jurisdiction in
the United States or other United States (federal or state) governmental body
shall have issued an order, decree or ruling or taken any other action
restraining, enjoining, invalidating or otherwise prohibiting the Agreement or
any other
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agreement contemplated hereby, or the transactions contemplated hereby and such
order, decree, ruling or other action shall have been final and nonappealable.
D. By Interchange if any application for regulatory or
governmental approval necessary to consummate the Merger and the other
transactions contemplated hereby shall have been denied or withdrawn at the
request or recommendation of the applicable regulatory agency or governmental
authority or if any such application is approved with commitments, conditions or
understandings, whether contained in an approval letter or otherwise, which, in
the reasonable determination of Interchange, materially impairs the value of BVB
and the BVB Subsidiaries, taken as a whole, to Interchange or which alters the
economics of the transactions contemplated by this Agreement, including without
limitation, the Merger.
E. By Interchange if there shall have been any Material
Adverse Change with respect to BVB.
F. By BVB if there shall have been any Material Adverse
Change with respect to Interchange.
G. By Interchange, if BVB shall have breached or failed to
perform in any material respect any of its representations, warranties,
covenants or other agreements contained in this Agreement or any other agreement
contemplated hereby, and such failure shall not have been cured within a period
of thirty (30) calendar days after notice from Interchange.
H. By BVB, if Interchange shall have breached or failed to
perform in any material respect any of its representations, warranties,
covenants or other agreements contained in this Agreement, and such failure
shall not have been cured within a period of thirty (30) calendar days after
notice from BVB.
I. by Interchange or BVB, if this Agreement and the Merger
is not approved by the required vote of shareholders of BVB, or if the issuance
of additional shares of Interchange Stock is not approved by the required votes
of shareholders of Interchange;
J. by BVB, by written notice to Interchange, if (i) a
proposal for a Third Party Transaction (as defined below) involving BVB has been
made or received and the Board of Directors of BVB determines, in the exercise
of its good faith judgment (based on written advice of independent legal
counsel) that such termination is required in order for BVB's Board of Directors
to comply with its fiduciary duties to BVB's shareholders, or (ii) following
receipt by BVB of a proposal for a Third Party Transaction, the Board of
Directors of BVB shall have altered its determination to recommend that the
shareholders of BVB approve this Agreement and/or the Merger or shall have
failed to proceed to hold the BVB Shareholders' Meeting to approve this
Agreement and/or the Merger, in either case of which BVB shall give Interchange
prompt written notice of its election to terminate this Agreement pursuant to
this Section 9.02.J.
For purposes of this Section 9.02.J, a "Third Party Transaction" shall
include (i) any successful tender offer for more than 50% of the outstanding
shares of BVB, ii) any merger or consolidation of BVB with or into any entity
other than Interchange or an affiliate of Interchange, (iii) any sale of all or
substantially all of the assets of BVB, (iv) any reorganization of BVB or other
transaction that results or when completed would result in a disposition of
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substantially all of the assets of BVB, or (v) the issuance, sale or disposition
of securities representing 50% or more of the common stock of BVB;
K. By BVB, if both (i) the Interchange Measurement Price
during the Valuation Period shall be less than $13.64 (which number shall be
appropriately adjusted to give effect to any Share Adjustment relative to shares
of Interchange Stock), and (ii) the number obtained by dividing the Interchange
Average Price by the Interchange Initial Price (as defined below) is less than
the number obtained by dividing the Final Index Price (as defined below) by the
Initial Index Price (as defined below) and subtracting .20 from such quotient;
subject, however, to the following four sentences. If BVB elects to exercise its
right of termination pursuant to this Section 9.02.K, it shall give written
notice to Interchange on the fourth (4th) business day prior to the Closing
Date. Not later than the second (2nd) business day prior to the Closing Date,
Interchange shall have the option to increase the Aggregate Merger Consideration
Value to be received by the holders of BVB Stock hereunder (either by increasing
the Total Cash Consideration, the Total Stock Consideration or both) by an
amount equal to the product of (a) $13.64 minus the Interchange Measurement
Price and (b) the Total Stock Amount. For purposes of such right, additional
shares of Interchange Stock shall be valued at the Interchange Measurement
Price. If Interchange elects to exercise this option, it shall give prompt
written notice to BVB of such election and the revised Merger Consideration,
whereupon no termination shall have occurred pursuant to this Section 9.02.K and
this Agreement shall remain in effect in accordance with its terms (except as
the Merger Consideration shall have been so modified).
For purposes of this Section 9.02.K:
(i) "Index Group" shall mean all of those companies listed
on Exhibit E, the common stock of which is publicly traded and
as to which there is no pending publicly announced proposal at
any time during the period of twenty (20) trading days ending at
the end of the fifth trading day immediately preceding the
Closing Date for such company to be acquired or to acquire
another company in exchange for its stock where, in such later
case, such company to be acquired would be a "significant
subsidiary" of such acquiring company (as such term is defined
in Section 1-02(w) of Regulation S-X of the Securities Act. In
the event that any such company or companies are so removed from
the Index Group, the weights attributed to the remaining
companies shall be adjusted accordingly.
(ii) "Interchange Initial Price" shall be the average of the
closing bid and asked price of a share of Interchange Common on
the date of this Agreement.
(iii) "Initial Index Price" shall mean the weighted average
(weighted in accordance with the percentages listed on Exhibit
E) of the per share closing prices of the common stock of the
companies comprising the Index Group, as reported on the
consolidated transactions reporting system for the market or
exchange on which such common stock is publicly traded, on the
date of this Agreement.
(iv) "Final Price" of any company belonging to the Index
Group shall mean the average of the daily closing sale prices of
a share of common stock of such
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company, as reported in the consolidated transaction reporting
system for the market or exchange on which such common stock is
principally traded, during the period of twenty (20) trading
days ending on the fifth (5th) business day prior to the Closing
Date.
(v) "Final Index Price" shall mean the weighted average
(weighted in accordance with the percentages listed on Exhibit
E) the Final Prices for all of the companies comprising the
Index Group.
L. By BVB, if the Interchange Measurement Price during the
Valuation Period shall be less than $11.94 (which number shall be appropriately
adjusted to give effect to any Share Adjustment relative to shares of
Interchange Stock); subject, however, to the following four sentences. If BVB
elects to exercise its right of termination pursuant to this Section 9.02.L, it
shall give written notice to Interchange on the fourth (4th) business day prior
to the Closing Date. Not later than the second (2nd) business day prior to the
Closing Date, Interchange shall have the option to increase the Aggregate Merger
Consideration Value to be received by the holders of BVB Stock hereunder (either
by increasing the Total Cash Consideration, the Total Stock Consideration or
both) by an amount equal to the product of (a) $11.94 minus the Interchange
Measurement Price and (b) the Total Stock Amount. For purposes of such right,
additional shares of Interchange Stock shall be valued at the Interchange
Measurement Price. If Interchange elects to exercise this option, it shall give
prompt written notice to BVB of such election and the revised Merger
Consideration, whereupon no termination shall have occurred pursuant to this
Section 9.02.L and this Agreement shall remain in effect in accordance with its
terms (except as the Merger Consideration shall have been so modified).
M. By Interchange in accordance with the provisions of
Section 5.14.
Section 9.03 Notice of Termination. The power of termination provided
for by Section 9.02 hereof may be exercised only by a notice given in writing,
as provided in Section 12.06 of this Agreement.
Section 9.04 Effect of Termination. Without limiting any other relief to
which either party hereto may be entitled for breach of this Agreement, in the
event of termination of this Agreement pursuant to this Article IX, no party to
this Agreement shall have any liability or further obligation hereunder to the
other party hereto, except (i) for liability of BVB pursuant to Section 9.01
hereof, (ii) that Article X, Article XI, Section 9.04 and Section 12.02 shall
survive any termination of the Agreement, and (iii) notwithstanding anything to
the contrary herein, termination will not relieve a breaching party from
liability for any willful and material breach of any provision of this
Agreement.
ARTICLE X
CONFIDENTIAL INFORMATION
Section 10.01 Definition of "Recipient," "Disclosing Party" and
"Representative". For purposes of this Article X, the term "Recipient" shall
mean the party receiving the Subject Information (as such term is defined in
Section 10.02 hereof) and the term "Disclosing Party" shall mean the party
furnishing the Subject Information. The terms "Recipient" or "Disclosing
66
Party", as used herein, include: (i) all persons and entities related to or
affiliated in any way with the Recipient or the Disclosing Party, as the case
may be, and (ii) any person or entity controlling, controlled by or under common
control with the Recipient or the Disclosing Party, as the case may be. The term
"Representative" as used herein, shall include all directors, officers,
shareholders, employees, representatives, advisors, attorneys, accountants and
agents of any of the foregoing. The term "person" as used in this Article X
shall be broadly interpreted to include, without limitation, any corporation,
company, group, partnership, governmental agency or individual.
Section 10.02 Definition of "Subject Information". For purposes of this
Article X, the term "Subject Information" shall mean all information furnished
to the Recipient or its Representatives (whether prepared by the Disclosing
Party, its Representatives or otherwise and whether or not identified as being
non public, confidential or proprietary) by or on behalf of the Disclosing Party
or its Representatives relating to or involving the business, operations or
affairs of the Disclosing Party or otherwise in possession of the Disclosing
Party. The term "Subject Information" shall not include information that (i) was
already in the Recipient's possession at the time it was first furnished to
Recipient by or on behalf of Disclosing Party, provided that such information is
not known by the Recipient to be subject to another confidentiality agreement
with or other obligation of secrecy to the Disclosing Party, its Subsidiaries or
another party, or (ii) becomes generally available to the public other than as a
result of a disclosure by the Recipient or its Representatives, or (iii) becomes
available to the Recipient on a non-confidential basis from a source other than
the Disclosing Party, its Representative or otherwise, provided that such source
is not known by the Recipient to be bound by a confidentiality agreement with or
other obligation of secrecy to the Disclosing Party, its Representative or
another party.
Section 10.03 Confidentiality. Each Recipient hereby agrees that the
Subject Information will be used solely for the purpose of reviewing and
evaluating the transactions contemplated by this Agreement and any other
agreement contemplated hereby, and that the Subject Information will be kept
confidential by the Recipient and the Recipient's Representatives; provided,
however, that (i) any of such Subject Information may be disclosed to the
Recipient's Representatives (including, but not limited to, the Recipient's
accountants, attorneys and investment bankers) who need to know such information
for the purpose of evaluating any such possible transaction between the
Disclosing Party and the Recipient (it being understood that such
Representatives shall be informed by the Recipient of the confidential nature of
such information and that the Recipient shall direct and cause such persons to
treat such information confidentially); (ii) any of such Subject Information may
be disclosed by a Recipient who has been ordered by a court to do so or is
required by law to do so; and (iii) any disclosure of such Subject Information
may be made to which the Disclosing Party consents in writing prior to any such
disclosure by Recipient.
Section 10.04 Securities Law Concerns. Each Recipient hereby
acknowledges that the Recipient is aware, and the Recipient will advise the
Recipient's Representatives who are informed as to the matters that are the
subject of this Agreement, that the United States securities laws prohibit any
person who has received material, non-public information from an issuer of
securities from purchasing or selling securities of such issuer or from
communicating such
67
information to any other person under circumstances in which it is reasonably
foreseeable that such person is likely to purchase or sell such securities.
Section 10.05 Return of Subject Information. In the event of termination
of this Agreement, for any reason, the Recipient shall promptly return to the
Disclosing Party all written material containing or reflecting any of the
Subject Information other than information contained in any application, notice
or other document filed with any governmental agency and not returned to the
Recipient by such governmental agency. In making any such filing, the Recipient
will request confidential treatment of such Subject Information included in any
application, notice or other document filed with any governmental agency.
Section 10.06 Specific Performance/Injunctive Relief. Each Recipient
acknowledges that the Subject Information constitutes valuable, special and
unique property of the Disclosing Party critical to its business and that any
breach of Article X of this Agreement by it will give rise to irreparable injury
to the Disclosing Party that is not compensable in damages. Accordingly, each
Recipient agrees that the Disclosing Party shall be entitled to obtain specific
performance and/or injunctive relief against the breach or threatened breach of
Article X of this Agreement by the Recipient or its Representatives. Each
Recipient further agrees to waive, and use its reasonable efforts to cause its
Representatives to waive, any requirement for the securing or posting of any
bond in connection with such remedies. Such remedies shall not be deemed the
exclusive remedies for a breach of Article X of this Agreement, but shall be in
addition to all other remedies available at law or in equity to the Disclosing
Party.
ARTICLE XI
SURVIVAL OF REPRESENTATIONS AND WARRANTIES; ADDITIONAL REMEDIES
Section 11.01 Survival of Representations and Warranties. The parties
hereto agree that all of their respective representations and warranties
contained in this Agreement shall not survive Closing.
Section 11.02 Additional Remedies. Nothing contained in this Article XI
shall limit or otherwise affect the remedies available to Interchange, or its
officers, directors or agents with respect to any claim or cause of action
arising out of the willful misconduct, fraud or gross negligence of BVB or any
shareholder, employee or agent of BVB. Nothing contained in this Article XI
shall limit or otherwise affect the remedies available to BVB, or its officers,
directors, shareholders or agents with respect to any claim or cause of action
arising out of the willful misconduct, fraud or gross negligence of Interchange
or any shareholder, employee or agent of Interchange.
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ARTICLE XII
MISCELLANEOUS
Section 12.01 Brokerage Fees and Commissions.
A. Interchange hereby represents to BVB that, except as set
forth on Schedule 12.01(a), no agent, representative or broker has represented
Interchange in connection with the transactions described in this Agreement. BVB
shall have no responsibility or liability for any fees, expenses or commissions
payable to any agent, representative or broker of Interchange, and Interchange
hereby agrees to indemnify and hold BVB harmless for any amounts owed to any
agent, representative or broker of Interchange.
B. BVB hereby represents to Interchange that, except as set
forth on Schedule 12.01(b), no agent, representative or broker has represented
BVB, its directors and officers, or, to the knowledge of BVB, any of the
shareholders of BVB in connection with the transactions described in this
Agreement. Interchange shall have no responsibility or liability for any fees,
expenses or commissions payable to any agent, representative or broker of BVB or
any shareholder of BVB, and BVB agrees to indemnify and hold Interchange
harmless for any amounts owed to any agent, representative or broker of BVB or
any shareholder of BVB.
Section 12.02 Expenses. Except as otherwise specifically provided in
this Agreement, all costs and expenses incurred in connection with this
Agreement and the transactions contemplated hereby shall be paid by the party
incurring such expense.
Section 12.03 Entire Agreement. This Agreement (including the documents
and instruments referred to herein), and the other agreements, documents,
schedules and instruments executed and delivered by the parties to each other at
the Closing constitute the full understanding of the parties, a complete
allocation of risks between them and a complete and exclusive statement of the
terms and conditions of their agreement relating to the subject matter hereof
and supersede any and all prior agreements, whether written or oral, that may
exist between the parties with respect thereto. Except as otherwise specifically
provided in this Agreement, no conditions, usage of trade, course of dealing or
performance, understanding or agreement purporting to modify, vary, explain or
supplement the terms or conditions of this Agreement shall be binding unless
hereafter or contemporaneously herewith made in writing and signed by the party
to be bound, and no modification shall be effected by the acknowledgment or
acceptance of documents containing terms or conditions at variance with or in
addition to those set forth in this Agreement.
Section 12.04 Further Cooperation. The parties agree that they will, at
any time and from time to time after the Closing, upon request by the other and
without further consideration, do, perform, execute, acknowledge and deliver all
such further acts, deeds, assignments, assumptions, transfers, conveyances,
powers of attorney, certificates and assurances as may be reasonably required in
order to fully consummate the transactions contemplated hereby in accordance
with this Agreement or to carry out and perform any undertaking made by the
parties hereunder.
69
Section 12.05 Severability. If any term or other provision of this
Agreement is held to be illegal, invalid or unenforceable by any present or
future rule of law or public policy, then: (i) such term or provision shall be
fully severable and this Agreement shall be construed and enforced as if such
illegal, invalid or unenforceable provision were not a part hereof; (ii) the
remaining conditions and provisions of this Agreement shall remain in full force
and effect and shall not be affected by such illegal, invalid or unenforceable
provision or by its severance from this Agreement; and (iii) there shall be
added automatically as a part of this Agreement a provision as similar in terms
to such illegal, invalid or unenforceable provision as may be possible and still
be legal, valid and enforceable. If any provision of this Agreement is so broad
as to be unenforceable, the provision shall be interpreted to be only as broad
as is enforceable.
Section 12.06 Notices. Any and all payments (other than payments at the
Closing), notices, requests, instructions and other communications required or
permitted to be given under this Agreement after the date hereof by any party
hereto to any other party may be delivered personally or by nationally
recognized overnight courier service or sent by mail or (except in the case of
payments) by telex or facsimile transmission, at the respective addresses or
transmission numbers set forth below and shall be effective (i) in the case of
personal delivery, telex or facsimile transmission, when received; (ii) in the
case of mail, upon the earlier of actual receipt or three (3) business days
after deposit in the United States Postal Service, first class certified or
registered mail, postage prepaid, return receipt requested; and (iii) in the
case of nationally-recognized overnight courier service, one (1) business day
after delivery to such courier service together with all appropriate fees or
charges and instructions for such overnight delivery. The parties may change
their respective addresses and transmission numbers by written notice to all
other parties, sent as provided in this Section. All communications must be in
writing and addressed as follows:
If to BVB:
Bridge View Bancorp
457 Sylvan Avenue
Englewood Cliffs, New Jersey 07632
Telecopy No: (201) 871-3101
Attention: Mr. Albert F. Buzzetti
President and Chief Executive Officer
with a copy to:
Roger Mehner, Esq.
Charles Berman, Esq.
Bourne, Noll & Kenyon, P.C.
382 Springfield Avenue
Summit, New Jersey 07901
Telecopy No: (908) 277-6808
70
and:
John A. Schepisi, Esq.
Schepisi & McLaughlin
473 Sylvan Avenue
Englewood Cliffs, New Jersey 07632
Telecopy No: (201) 569-5350
If to Interchange:
Interchange Financial Services Corporation
Park 80 West/Plaza Two
Saddle Brook, New Jersey 07663
Telecopy No: (201) 843-3945
Attention: Mr. Anthony S. Abbate
President and Chief Executive Officer
with a copy to:
Peter G. Weinstock, Esq.
Scott J. Luedke, Esq.
Jenkens & Gilchrist, a Professional Corporation
1445 Ross Avenue, Suite 3200
Dallas, Texas 75202-2799
Telecopy No: (214) 855-4300
Section 12.07 Governing Law.
A. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW JERSEY (INCLUDING THOSE LAWS
RELATING TO CHOICE OF LAW) APPLYING TO CONTRACTS ENTERED INTO AND TO BE
PERFORMED WITHIN THE STATE OF NEW JERSEY, WITHOUT REGARD FOR THE PROVISIONS
THEREOF REGARDING CHOICE OF LAW.
B. VENUE FOR ANY CAUSE OF ACTION ARISING FROM THIS
AGREEMENT SHALL LIE IN BERGEN COUNTY, NEW JERSEY.
Section 12.08 Multiple Counterparts. This Agreement may be executed in
one or more counterparts, all of which shall be considered one and the same
agreement and shall become effective when one or more counterparts have been
signed by each of the parties and delivered to the other parties, it being
understood that all parties need not sign the same counterpart. A telecopy of
facsimile transmission of a signed counterpart of this Agreement shall be
sufficient to bind the party or parties whose signature(s) appear thereon.
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Section 12.09 Certain Definitions.
A. "Affiliate" means, with respect to any person, any
person that, directly or indirectly, controls, is controlled by, or is under
common control with, such person in question. For the purposes of this
definition, "control" (including, with correlative meaning, the terms
"controlled by" and "under common control with") as used with respect to any
person, shall mean the possession, directly or indirectly, of the power to
direct or cause the direction of the management and policies of such person,
whether through the ownership of voting securities or by contract or otherwise.
B. "Environmental Laws" mean all federal, state and local
laws, regulations, statutes, ordinances, codes, rules, decisions, orders or
decrees relating or pertaining to the public health and safety or the
environment, or otherwise governing the generation, use, handling, collection,
treatment, storage, transportation, recovery, recycling, removal, discharge or
disposal of Hazardous Materials, including, without limitation, (i) the Solid
Waste Disposal Act, 42 U.S.C. 6901 et seq., as amended ("SWDA," also known as
"RCRA" for a subsequent amending act), (ii) the Comprehensive Environmental
Response, Compensation and Liability Act, 42 U.S.C. Section 9601 et seq., as
amended ("CERCLA"), (iii) the Clean Water Act, 33 U.S.C. Section 251 et seq., as
amended ("CWA"), (iv) the Clean Air Act, 42 U.S.C. Section 7401 et seq., as
amended ("CAA"), (v) the Toxic Substances Control Act, 15 U.S.C. Section 2601 et
seq., as amended ("TSCA"), (vi) the Emergency Planning and Community Right to
Know Act, 15 U.S.C. Section 2601 et seq., as amended ("EPCRKA"), and (vii) the
Occupational Safety and Health Act, 29 U.S.C. Section 651 et seq., as amended.
C. "Governmental Entity" means any court, administrative
agency or commission or other governmental or regulatory authority or
instrumentality.
D. "Hazardous Material" means, without limitation, (i) any
"hazardous wastes" as defined under RCRA, (ii) any "hazardous substances" as
defined under CERCLA, (iii) any toxic pollutants as defined under CWA, (iv) any
hazardous air pollutants as defined under CAA, (v) any hazardous chemicals as
defined under TSCA, (vi) any hazardous substances or extremely hazardous
substances as defined under EPCRKA, (vii) asbestos, (viii) polychlorinated
biphenyls, (ix) underground storage tanks, whether empty, filled or partially
filled with any substance, (x) any substance the presence of which on the
property in question is prohibited under any Environmental Law, and (xi) any
other substance which under any Environmental Law requires special handling or
notification of or reporting to any federal, state or local governmental entity
in its generation, use, handling, collection, treatment, storage, re-cycling,
treatment, transportation, recovery, removal, discharge or disposal.
E. "Investment Securities" means all securities held by BVB
and reflected as an asset of BVB in accordance with GAAP.
F. "Material Adverse Change" means any material adverse
change in the financial condition, assets, Properties, key employees,
liabilities (absolute, accrued, contingent or otherwise), reserves, business or
results of operations or prospects of BVB or Interchange, as applicable, and
their respective Subsidiaries taken as a whole, and, in the case of BVB,
specifically includes, without limitation, any change that reduces the tangible
shareholders'
72
equity of BVB below $28,000,000; provided, however, that no action taken by BVB
solely in order to comply with the requirements of Section 5.22(i) hereof and no
payment pursuant to Section 1.09 hereof relative to the cancellation of
outstanding BVB Stock Options shall be deemed to result in a Material Adverse
Change.
G. "Material Adverse Effect" means any effect that (i) is,
or would reasonably be likely to be, material and adverse to the business,
operations, financial condition or results of operations or prospects of BVB or
Interchange, as applicable, and their respective Subsidiaries taken as a whole,
or (ii) does, or would reasonably likely to, prevent such party from
consummating the Merger and the other transactions contemplated hereby.
H. The term "Property" or "Properties" shall include all
real property owned or leased, including, but not limited to, properties that
have been foreclosed on as well as their respective premises and all
improvements and fixtures thereon.
I. "Regulatory Agency" means (i) any self-regulatory
organization, (ii) the Federal Reserve, (iii) the NJDOBI, (iv) the FDIC, or (v)
any other federal or state governmental or regulatory agency or authority having
or claiming jurisdiction over a party to this Agreement or the transactions
contemplated hereby.
J. "Subsidiary" means, when used with reference to an
entity, any corporation, partnership or limited liability company, twenty
percent (20%) of the outstanding voting securities of which are owned directly
or indirectly by such entity or any partnership, joint venture or other
enterprise in which any entity has, directly or indirectly, any equity interest.
Section 12.10 Specific Performance. Each of the parties hereto
acknowledges that the other party would be irreparably damaged and would not
have an adequate remedy at law for money damages in the event that any of the
covenants contained in this Agreement were not performed in accordance with its
terms or otherwise were materially breached. Each of the parties hereto
therefore agrees that, without the necessity of proving actual damages or
posting bond or other security, the other party shall be entitled to temporary
and/or permanent injunction or injunctions to prevent breaches of such
performance and to specific enforcement of such covenants in addition to any
other remedy to which they may be entitled, at law or in equity.
Section 12.11 Attorneys' Fees and Costs. In the event attorneys' fees or
other costs are incurred to secure performance of any of the obligations herein
provided for, or to establish damages for the breach thereof, or to obtain any
other appropriate relief, whether by way of prosecution or defense, the
prevailing party shall be entitled to recover reasonable attorneys' fees and
costs incurred therein.
Section 12.12 Interpretation. When a reference is made in this Agreement
to an Article, Section, Exhibit or Schedule, such reference shall be to an
Article or Section of, or an Exhibit or Schedule to, this Agreement unless
otherwise indicated. The table of contents and headings contained in this
Agreement are for convenience of reference only and shall not affect in any way
the meaning or interpretation of this Agreement. Whenever the words "include",
"includes" or "including" are used in this Agreement, they shall be deemed to be
followed by the words "without limitation." The words "hereof", "herein" and
"hereunder" and words of similar import
73
when used in this Agreement shall refer to this Agreement as a whole and not to
any particular provision in this Agreement. Each use herein of the masculine,
neuter or feminine gender shall be deemed to include the other genders. Each use
herein of the plural shall include the singular and vice versa, in each case as
the context requires or as is otherwise appropriate. The word "or" is used in
the inclusive sense. Any agreement, instrument or statute defined or referred to
herein or in any agreement or instrument that is referred to herein means such
agreement, instrument or statute as from time to time amended, modified or
supplemented, including (in the case of agreements or instruments) by waiver or
consent and (in the case of statutes) by succession of comparable successor
statutes and references to all attachments thereto and instruments incorporated
therein. References to a person are also to its permitted successors or assigns.
Section 12.13 No Third Party Beneficiaries. This Agreement (including
the documents and instruments referred to herein) is not intended to confer upon
any person other than the parties hereto any rights or remedies hereunder.
Section 12.14 Assignment. Neither this Agreement nor any of the rights,
interests or obligations under this Agreement may be assigned, in whole or in
part, by operation of law or otherwise by either of the parties hereto without
the prior written consent of the other party. Any assignment in violation of the
preceding sentence shall be void. Subject to the preceding two sentences, this
Agreement will be binding upon, inure to the benefit of, and be enforceable by,
the parties and their respective successors and assigns.
Section 12.15 Public Disclosure. Except as otherwise required by
applicable law or regulation, neither BVB nor Interchange shall, nor shall
either permit any of its Subsidiaries to, issue or cause the publication of any
press release or other public announcement with respect to, or otherwise make
any public statement concerning, the transactions contemplated by this Agreement
without the consent of the other party, which consent shall not be unreasonably
withheld or delayed.
Section 12.16 Extension; Waiver. At any time prior to the Closing Date,
the parties hereto, by action taken or authorized by their respective boards of
directors, may, to the extent legally allowed, (i) extend the time for the
performance of any of the obligations or other acts of the other party hereto,
(ii) waive any inaccuracies in the representations and warranties contained
herein or in any document, certificate or writing delivered pursuant hereto or
(iii) waive compliance with any of the agreements or conditions contained
herein. Any agreement on the part of a party hereto to any such extension or
waiver shall be valid only if set forth in a written instrument signed on behalf
of such party in the manner provided in Section 12.06 hereof, but such extension
or waiver or failure to insist on strict compliance with an obligation,
covenant, agreement or condition shall not operate as a waiver of, or estoppel
with respect to, any subsequent or other failure. No party to this Agreement
shall by any act (except by a written instrument given pursuant to Section 12.06
hereof) be deemed to have waived any right or remedy hereunder or to have
acquiesced in any breach of any of the terms and conditions hereof. No failure
to exercise, nor any delay in exercising any right, power or privilege hereunder
by any party hereto shall operate as a waiver thereof. No single or partial
exercise of any right, power or privilege hereunder shall preclude any other or
further exercise thereof or the exercise of any other right, power or privilege.
A waiver of any party of any right or remedy on any one
74
occasion shall not be construed as a bar to any right or remedy that such party
would otherwise have on any future occasion or to any right or remedy that any
other party may have hereunder.
Section 12.17 Amendments. To the extent permitted by applicable law,
this Agreement may be amended by the parties hereto, by action taken or
authorized by their respective boards of directors, at any time before or after
approval of this Agreement by the shareholders; provided, however, that after
the approval of this Agreement by the shareholders, there shall not be, without
the further approval of the shareholders, any amendment of this Agreement that
decreases the consideration to be paid for the BVB Stock as set forth in Section
1.06 or that materially and adversely affects the rights of the shareholders
hereunder. This Agreement may not be amended except by an instrument in writing
signed on behalf of each of the parties hereto.
[Signature Page Follows]
75
[Signature Page To Agreement and Plan of Merger]
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their duly authorized officers as of the date first above written.
Interchange: INTERCHANGE FINANCIAL SERVICES
CORPORATION
By: /s/ Anthony S. Abbate
----------------------------------------
Anthony S. Abbate,
President and Chief Executive Officer
BVB: BRIDGE VIEW BANCORP
By: /s/ Albert F. Buzzetti
----------------------------------------
Albert F. Buzzetti,
President and Chief Executive Officer
76
EXHIBIT A
FORM OF VOTING AGREEMENT AND IRREVOCABLE PROXY
VOTING AGREEMENT AND IRREVOCABLE PROXY
This VOTING AGREEMENT AND IRREVOCABLE PROXY (this "Agreement") dated as
of November 18, 2002, is executed by and among Bridge View Bancorp, a New Jersey
corporation located in Englewood Cliffs, New Jersey ("BVB"), Interchange
Financial Services Corporation, a New Jersey corporation located in Saddle Brook
New Jersey ("Interchange"), Anthony S. Abbate ("Abbate"), as a proxy, Albert F.
Buzzetti ("Buzzetti"), as a substitute proxy, and certain other shareholders of
BVB set forth on the signature page hereto (together with Buzzetti, referred to
herein individually as a "Shareholder" and collectively as the "Shareholders").
WHEREAS, Interchange and BVB have executed that certain Agreement and
Plan of Merger, dated as of November 18, 2002 (the "Reorganization Agreement"),
providing for the merger of BVB with and into Interchange (the "Merger"). Terms
with their initial letter capitalized and not otherwise defined herein shall
have the meanings given to them in the Merger Agreement;
WHEREAS, Sections 1.11 and 5.20 of the Merger Agreement require that BVB
deliver to Interchange the irrevocable proxies of the Shareholders as a
condition of, and simultaneously with, execution of the Merger Agreement; and
WHEREAS, Interchange is relying on the irrevocable proxies in incurring
expenses in reviewing BVB's business, in preparing information to be distributed
to BVB's shareholders in accordance with Section 5.02 of the Merger Agreement
("Shareholder Information"), in proceeding with the filing of applications for
regulatory approvals, and in undertaking other actions necessary for the
consummation of the Merger.
NOW, THEREFORE, for and in consideration of the foregoing and other good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, Interchange, BVB and the Shareholders undertake, promise, covenant
and agree with each other as follows:
1. As of the date hereof, the Shareholders beneficially own, and
own of record, that number of shares of common stock, no par value per share, of
BVB (the "BVB Stock") set forth below their names on the signature pages hereto
(all such shares and any shares hereafter acquired by the Shareholders prior to
the termination of this Agreement being referred to herein as the "Shares"). The
Shareholders have the full legal capacity and authority to execute, deliver and
perform this Agreement in accordance with its terms. The Shareholders hereby
agree to vote at the shareholders' meeting referred to in Section 5.02 of the
Merger Agreement (the "BVB Meeting") such Shareholder's Shares and to direct the
vote of all such Shares or to give written consent as to all such Shareholder's
Shares to an action in lieu of the BVB Meeting in favor of approval of the
Merger Agreement and all of the transactions contemplated by the Merger
Agreement, including the Merger.
2. If BVB conducts a meeting of, solicits written consents from, or
otherwise seeks a vote of its shareholders with respect to any Acquisition
Transaction (as that term is defined
A-1
below) or any other matter which may contradict any provision of this Agreement
or the Merger Agreement or may prevent Interchange or BVB from consummating the
Merger, then the Shareholders shall vote the shares in the manner most favorable
to consummation of the Merger and the transactions contemplated by the Merger
Agreement.
"Acquisition Transaction" shall, with respect to BVB, mean any of the
following: (i) a merger or consolidation, or any similar transaction (other than
the Merger) of any company or entity with BVB or any BVB Subsidiary, (ii) a
purchase, lease or other acquisition of all or substantially all the assets of
BVB or any BVB Subsidiary, (iii) a purchase or other acquisition of "beneficial
ownership" by any "person" or "group" (as such terms are defined in Section
13(d)(3) of the Securities Exchange Act of 1934) (including by way of merger,
consolidation, share exchange, or otherwise) which would cause such person or
group to become the beneficial owner of securities representing 25% or more of
the voting power of BVB or any BVB Subsidiary after the date of this Agreement,
(iv) a tender or exchange offer to acquire securities representing 25% or more
of the voting power of BVB or any BVB Subsidiary, (v) a public proxy or consent
solicitation made to stockholders of BVB seeking proxies in opposition to any
proposal relating to any of the transactions contemplated by this Agreement, or
(vi) the making of a bona fide offer or proposal to the BVB Board or
shareholders of BVB, to engage in one or more of the transactions referenced in
clauses (i) through (v) above.
3. In order to better effect the provisions of Sections 1, 2 and 5
of this Agreement, each Shareholder hereby revokes any previously executed
proxies and hereby constitutes and appoints Abbate, with full power of
substitution, his or her true and lawful proxy and attorney-in-fact (the "Proxy
Holder") to vote at the BVB Meeting or to give written consent to an action in
lieu of the BVB Meeting as to, all of such Shareholder's Shares in favor of the
approval of the Merger Agreement and the transactions contemplated by the Merger
Agreement, including the Merger, with such modifications to the Merger Agreement
as the parties thereto may make; provided, however, that this proxy shall not
apply with respect to any vote on the Merger Agreement or the Merger if the
Merger Agreement is modified so as to reduce the amount of consideration to be
received by the Shareholders or the tax consequences of the receipt thereof
under the Merger Agreement in its present form.
4. Abbate, by his execution below, hereby appoints Buzzetti as
substitute proxy to act as the Proxy Holder under this Agreement; provided,
however, that such appointment of Buzzetti as Proxy Holder is subject to
revocation by Abbate at any time upon notice to BVB. Buzzetti, by his execution
below as substitute Proxy Holder, agrees to vote all of the Shareholders' Shares
at the BVB Meeting or to give written consent to an action in lieu of the BVB
Meeting, in favor of the approval of the Merger Agreement and the transactions
contemplated by the Merger Agreement, including the Merger, with such
modifications to the Merger Agreement as the parties may make; provided,
however, that this proxy shall not apply with respect to any vote on the Merger
Agreement or the Merger if the Merger Agreement is modified so as to reduce the
amount of consideration to be received by the Shareholders or the tax
consequences of the receipt thereof under the Merger Agreement in its present
form.
5. Each Shareholder hereby covenants and agrees that, until this
Agreement is terminated in accordance with its terms, each Shareholder will not,
and will not agree to, directly or indirectly, without the prior written consent
of Interchange, (i) sell, assign, transfer or dispose
A-2
of any of such Shareholder's Shares, (ii) hypothecate such shares under terms
that would prevent the voting thereof, (iii) deposit such Shares into a voting
trust or enter into a voting agreement or arrangement with respect to such
Shares or grant any proxy with respect thereto except as herein provided, or
(iv) enter into any contract, option or other arrangement or undertaking with
respect to the direct or indirect sale, assignment, transfer or other
disposition of any of the Shares, in connection with a transaction pursuant to
which twenty-five percent (25%) or more of the voting power of BVB Stock is, or
control of BVB otherwise is, transferred to a person or entity other than a
party to this Agreement.
Notwithstanding any of the foregoing, any Shareholder may make such
gifts of such Shareholder's Shares as such Shareholder may choose to make so
long as the recipient of such Shareholder's Shares executes and delivers an
amendment to this Agreement whereby such recipient becomes bound by the terms of
this Agreement.
6. This proxy shall be limited strictly to the power to vote the
Shares with respect to the Merger in the manner set forth in Sections 2 and 3,
and shall not extend to any other matters.
7. The Shareholders acknowledge that Interchange is relying on this
Agreement in incurring expenses in reviewing BVB's business, in preparing the
Shareholder Information, in proceeding with the filing of applications for
regulatory approvals, and in undertaking other actions necessary for the
consummation of the Merger and that THE PROXY GRANTED HEREBY IS COUPLED WITH AN
INTEREST AND IS IRREVOCABLE TO THE FULL EXTENT PERMITTED BY APPLICABLE LAW,
INCLUDING SECTION 14A:5-19(3) OF THE NEW JERSEY BUSINESS CORPORATION ACT. The
Shareholders and BVB acknowledge that the performance of this Agreement is
intended to benefit Interchange.
8. This Agreement and the irrevocable proxy granted pursuant hereto
shall continue in effect until the earlier to occur of (i) the termination of
the Merger Agreement, as it may be amended or extended from time to time, or
(ii) the consummation of the transactions contemplated by the Merger Agreement.
9. The vote of the Proxy Holder shall control in any conflict
between his vote of the Shares and a vote by the Shareholders of the Shares, and
BVB agrees to recognize the vote of the Proxy Holder instead of the vote of the
Shareholders in the event the Shareholders do not vote in favor of the approval
of the Merger Agreement and the Merger as set forth in Section 1 hereof.
10. Each certificate representing any of the Shares shall bear the
following endorsement, noted conspicuously thereon:
The shares of stock represented by this certificate are subject
to the terms of a Voting Agreement and Irrevocable Proxy dated
November 18, 2002, a copy of which is on file in the principal
office of BVB.
11. This Agreement may not be modified, amended, altered or
supplemented with respect to a particular Shareholder except upon the execution
and delivery of a written agreement executed by Interchange, BVB and such
Shareholder.
A-3
12. This Agreement may be executed simultaneously in two or more
counterparts, each of which shall be deemed an original but all of which shall
constitute one and the same instrument. A telecopy or facsimile transmission of
a signed counterpart of this Agreement shall be sufficient to bind the party or
parties whose signature(s) appear thereon.
13. This Agreement, together with the Merger Agreement and the
agreements contemplated thereby, embody the entire agreement and understanding
of the parties hereto in respect to the subject matter contained herein. This
Agreement supersedes all prior agreements and understandings among the parties
with respect to such subject matter contained herein.
14. All notices, requests, demands and other communications required
or permitted hereby shall be in writing and shall be deemed to have been duly
given if delivered by hand or mail, certified or registered mail (return receipt
requested) with postage prepaid to the addresses of the parties hereto set forth
on below their signature on the signature pages hereof or to such other address
as any party may have furnished to the others in writing in accordance herewith.
15. THIS AGREEMENT AND THE RELATIONS AMONG THE PARTIES HERETO
ARISING FROM THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE
WITH THE LAWS OF THE STATE OF NEW JERSEY.
[Signature Page Follows]
A-4
[Signature Page to Voting Agreement and Irrevocable Proxy]
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date above written.
INTERCHANGE FINANCIAL SERVICES CORPORATION,
a New Jersey Corporation
By: /s/ Anthony S. Abbate
-----------------------------------------
Anthony S. Abbate, President and CEO
By: /s/ Benjamin Rosenzweig
-----------------------------------------
Benjamin Rosenzweig, Secretary
Address for Interchange:
Interchange Financial Services Corporation
Park 80 West/Plaza II
Saddle Brook, New Jersey 07663
BRIDGE VIEW BANCORP,
a New Jersey Corporation
By: /s/ Albert F. Buzzetti
-------------------------------------
Albert F. Buzzetti, President and CEO
By: /s/ Michele Albino
-------------------------------------
Michele Albino, Secretary
Address for BVB:
Bridge View Bancorp
457 Sylvan Avenue
Englewood Cliffs, New Jersey 07632
A-5
PROXY HOLDER:
/s/ Anthony S. Abbate
----------------------------------------------
Anthony S. Abbate
Address for Proxy Holder:
Interchange Financial Services Corporation
Park 80 West/Plaza II
Saddle Brook, New Jersey 07663
SUBSTITUTE PROXY HOLDER:
/s/ Albert F. Buzzetti
----------------------------------------------
Albert F. Buzzetti
Address for Substitute Proxy Holder:
Bridge View Bancorp
457 Sylvan Avenue
Englewood Cliffs, New Jersey 07632
SHAREHOLDERS:
/s/ Albert F. Buzzetti
----------------------------------------------
Name: Albert F. Buzzetti
Number of Shares Owned: 63,672
/s/ Gerald A. Calabrese, Jr.
----------------------------------------------
Name: Gerald A. Calabrese, Jr.
Number of Shares Owned: 112,133
/s/ Glenn L. Creamer
----------------------------------------------
Name: Glenn L. Creamer
Number of Shares Owned: 31,642
/s/ Mark Metzger
----------------------------------------------
Name: Mark Metzger
Number of Shares Owned: 151,865
A-6
/s/ Jeremiah F. O'Connor, Jr.
----------------------------------------------
Name: Jeremiah F. O'Connor, Jr.
Number of Shares Owned: 109,861
/s/ Joseph C. Parisi
----------------------------------------------
Name: Joseph C. Parisi
Number of Shares Owned: 123,643
/s/ John A. Schepisi
----------------------------------------------
Name: John A. Schepisi
Number of Shares Owned: 223,074
A-7
EXHIBIT B
FORM OF SHAREHOLDER LETTER
FORM OF SHAREHOLDER LETTER
Interchange Financial Services Corporation
Park 80 West/Plaza II
Saddle Brook, New Jersey 07663
Attention: Secretary
Gentlemen:
I have been advised that I might be considered to be an "affiliate," as
that term is defined for purposes of paragraphs (c) and (d) of Rule 145 ("Rule
145") promulgated by the Securities and Exchange Commission (the "Commission")
under the Securities Act of 1933, as amended (the "Securities Act") of Bridge
View Bancorp, a New Jersey corporation ("BVB").
Pursuant to an Agreement and Plan of Merger, dated as of November 18,
2002 (the "Merger Agreement") between BVB and Interchange Financial Services
Corporation, a New Jersey corporation ("Interchange"), it is contemplated that
BVB will merge with and into Interchange (the "Merger") and as a result, I will
receive, if I so elect, in exchange for each share of Common Stock, no par value
per share, of BVB ("BVB Stock") owned by me immediately prior to the Effective
Time of the Merger (as defined in the Reorganization Agreement), a number of
shares of Common Stock, no par value per share, of Interchange ("Interchange
Stock"), as more specifically set forth in the Merger Agreement.
I hereby agree as follows:
I will not offer to sell, transfer or otherwise dispose of any of the
shares of Interchange Stock issued to me pursuant to the Merger (the "Stock")
except (a) in compliance with the applicable provisions of Rule 145, (b) in a
transaction that is otherwise exempt from the registration requirements of the
Securities Act, or (c) in an offering registered under the Securities Act.
I consent to the endorsement of the certificates representing the Stock
issued to me pursuant to the Merger with a restrictive legend which will read
substantially as follows:
"The shares represented by this certificate were issued in a
transaction to which Rule 145 promulgated under the Securities Act of
1933, as amended (the "Act"), applies, and may be sold or otherwise
transferred only in compliance with the limitations of such Rule 145, or
upon receipt by Interchange Financial Services Corporation of an opinion
of counsel reasonably satisfactory to it that some other exemption from
registration under the Act is available, or pursuant to a registration
statement under the Act."
B-1
Interchange's transfer agent shall be given an appropriate stop transfer
order and shall not be required to register any attempted transfer of the shares
of the Stock, unless the transfer has been effected in compliance with the terms
of this letter agreement.
It is understood and agreed that this letter agreement shall terminate
and be of no further force and effect and the restrictive legend set forth above
shall be removed by delivery of substitute certificates without such legend, and
the related stop transfer restrictions shall be lifted forthwith, if (i) any
such shares of Stock shall have been registered under the Securities Act for
sale, transfer or other disposition by me or on my behalf and are sold,
transferred or otherwise disposed of, or (ii) any such shares of Stock are sold
in accordance with the provisions of paragraphs (c), (e), (f) and (g) of Rule
144 promulgated under the Securities Act, or (iii) I am not at the time of such
disposition an affiliate of Interchange and have been the beneficial owner of
the Stock for at least one year (or such other period as may be prescribed by
the Securities Act) and Interchange has filed with the Commission all of the
reports it is required to file under the Securities Exchange Act of 1934, as
amended, during the preceding twelve months, or (iv) I am not and have not been
for at least three months an affiliate of Interchange and have been the
beneficial owner of the Stock for at least two years (or such other period as
may be prescribed by the Securities Act, and the rules and regulations
promulgated thereunder), or (v) Interchange shall have received an opinion of
counsel acceptable to Interchange to the effect that the stock transfer
restrictions and the legend are not required.
I have carefully read this letter agreement and the Merger Agreement and
have discussed their requirements and other applicable limitations upon my
ability to offer to sell, transfer or otherwise dispose of shares of the Stock,
to the extent I felt necessary, with my counsel or counsel for BVB.
Sincerely,
-------------------------------------
B-2
EXHIBIT C
PERSONS TO DELIVER NON-COMPETE AGREEMENTS
Gerald A. Calabrese, Jr.
Glenn L. Creamer
Mark Metzger
Jeremiah F. O'Connor
Joseph C. Parisi
John A. Schepisi
EXHIBIT D
FORM OF NON-COMPETE AGREEMENT
FORM OF NON-COMPETE AGREEMENT
This NON-COMPETE AGREEMENT (the "Agreement") is made and entered into as
of the ____day of _________________ 2003, by and between Interchange Financial
Services Corporation, a New Jersey corporation ("Interchange"), and
_________________, an individual resident of the State of New Jersey ("Seller").
WITNESSETH:
WHEREAS, the Seller is a shareholder of Bridge View Bancorp ("BVB") and
an [officer/director] of BVB and/or one or more of its subsidiaries, including
Bridge View Bank (the "Bank"); and
WHEREAS, Interchange and BVB are parties to that certain Agreement and
Plan of Merger, dated November 18, 2002 (the "Merger Agreement"), pursuant to
which BVB will be merged with and into Interchange (the "Merger"), and
Interchange will acquire all of the capital stock of BVB in exchange for cash
and shares of the common stock of Interchange (the "Merger Consideration"); and
WHEREAS, pursuant to the terms of the Merger Agreement, all shareholders
of BVB, including Seller, will exchange 100% of the shares of capital stock of
BVB owned by them at the effective date of the Merger for the Merger
Consideration; and
WHEREAS, BVB owns 100% of the issued and outstanding capital stock of
the Bank; and
WHEREAS, Interchange will continue to carry on the business presently
conducted by BVB and the Bank; and
WHEREAS, as a condition to consummation of the transactions contemplated
by the Merger Agreement, Interchange and Seller are required to enter into this
Agreement (terms with their initial letter capitalized and not otherwise defined
herein shall have the meanings assigned to them in the Merger Agreement).
NOW, THEREFORE, in consideration of the premises and mutual covenants
contained herein and intending to be legally bound hereby, the parties agree as
follows:
1. Non-compete Covenants. For and in consideration of (i)
consummation of the Merger and the other transactions contemplated by the Merger
Agreement, (ii) the payment by Interchange to Seller of the Merger Consideration
set forth in the Merger Agreement, (iii) execution of this Agreement by
Interchange, (iv) the appointment of Seller to the Board of Directors of
Interchange or Interchange Bank pursuant to which Seller shall receive an annual
retainer and access to proprietary information regarding Interchange or
Interchange Bank, Seller agrees that, during the term of this Agreement as set
forth in Section 2 hereof, Seller shall not, directly or indirectly,
individually or as an employee, partner, officer, director or shareholder or in
any other capacity whatsoever:
D-1
A. Solicit the banking business of any current customers of the
Bank;
B. Within Bergen County, New Jersey:
(i) acquire, charter, operate or enter into any franchise or
other operating agreement with any financial
institution,
(ii) serve as an officer, director, agent or seller to any
financial institution, or
(iii) establish or operate a branch or other office of a
financial institution.
C. Recruit, hire, assist others in recruiting or hiring, discuss
employment with, or refer others concerning employment, any person who is, or
within the preceding twelve (12) months was, an employee of either BVB or the
Bank.
If any court of competent jurisdiction should determine that any term or
terms of this covenant is too broad in terms of time, geographic area, lines of
commerce or otherwise, such court shall reform such term or terms in order that
such term or terms comply with applicable law, and shall enforce such reformed
term or terms to the maximum extent permissible under applicable law.
2. Term and Termination.
A. The term of the Agreement shall commence on the Effective Date
of the Merger Agreement, and shall terminate and all obligations hereunder shall
cease, except for liabilities or claims that shall have arisen or accrued in
connection with such termination, on the earlier to occur of:
(i) two (2) years after the Seller ceases to be a director
of Interchange or Interchange Bank;
(ii) five (5) years after the date hereof;
(iii) upon the removal of Seller from the Board of Directors
of Interchange or Interchange Bank without cause; or
(iv) upon the effective date of a change in control of
Interchange.
B. The failure by any party to this Agreement on any occasion to
exercise its right to terminate this Agreement as provided herein shall not be
deemed to be a waiver of such party's right to terminate this Agreement in
respect to that breach (provided it shall be continuing) or of any subsequent
breach.
3. Specific Performance/Injunctive Relief. Seller acknowledges that
performance of the terms of this Agreement constitutes valuable, special and
unique property of Interchange critical to its business and that any breach of
this Agreement by him will give rise to irreparable injury to Interchange that
is not compensable in money damages. Accordingly, Seller agrees that
D-2
Interchange shall be entitled to obtain specific performance and/or injunctive
relief against the breach or threatened breach of this Agreement by Seller.
Seller further agrees to waive any requirement for the securing or posting of
any bond or the proof of any actual damages in connection with such remedies.
Such remedies shall not be exclusive and shall be in addition to any other
remedy that Interchange may have at law or in equity.
4. Deductions. Interchange shall not deduct from Seller's
consideration any Federal, state and local income taxes, social security taxes
or other amounts as Interchange would be required to deduct under applicable
laws and governmental regulations if such payments were made to its employees.
5. Reasonableness of Restrictions. Seller has carefully read and
considered the provisions of this Agreement and, having done so, agrees that the
restrictions set forth in this Agreement contain reasonable limitations as to
time, geographical area, scope of activity to be restrained, and do not impose a
greater restraint than is necessary to compensate Interchange for the
consideration paid to the Seller pursuant to the Merger Agreement and to protect
the goodwill or other legitimate business interests of Interchange.
6. Extension of Term of Restrictive Covenant. If Seller violates
any restrictive covenant contained in Section 1, or if an action to enforce a
restrictive covenant contained in Section 1 is pending in a court of competent
jurisdiction, then the term of such restrictive covenant will be extended by
adding to it the number of days that Seller's violation continues and the number
of days during which such court action is pending. If there are both a violation
and a pending court action, then the number of days that each continues will be
added to the term of such restrictive covenant, but days on which both continue
will be counted only once.
7. Disparagement of Interchange. Seller agrees, without limitation,
not to disparage or otherwise malign Interchange's, including its subsidiaries,
or the Bank's business or banking reputation.
8. Successors and Assigns. This Agreement shall be binding upon the
parties and their heirs, legal representatives, successors and assigns.
Interchange may assign its interest in this Agreement, and all covenants,
conditions and provisions hereunder shall inure to the benefit of and be
enforceable by its assignee or successor-in-interest. The rights and obligations
of Seller under this Agreement are personal to him, and no such rights, benefits
or obligations shall be assignable, except that his personal representatives and
heirs may enforce the obligations of Interchange hereunder.
9. Governing Law. THIS AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE
WITH AND GOVERNED BY THE LAWS OF THE STATE OF NEW JERSEY (INCLUDING THOSE LAWS
RELATING TO CHOICE OF LAW) APPLYING TO CONTRACTS ENTERED INTO AND TO BE
PERFORMED WITHIN THE STATE OF NEW JERSEY, WITHOUT REGARD FOR THE PROVISIONS
THEREOF REGARDING CHOICE OF LAW.
D-3
10. Legal Construction. If any one or more of the provisions
contained in this Agreement shall for any reason be held to be invalid, illegal
or unenforceable in any respect, any provision shall be fully severable, such
invalidity, illegality or unenforceability shall not affect any other provision
hereof, and this Agreement shall be construed and enforced as if such invalid,
illegal or unenforceable provision had never been contained herein, and the
remaining provisions of this Agreement shall remain in full force and effect and
shall not be affected by the illegal, invalid or unenforceable provision or by
its severance from this Agreement. Furthermore, in lieu of such illegal, invalid
or unenforceable provision, there shall be added automatically as a part of this
Agreement, a provision as similar in terms to such illegal, invalid or
unenforceable provision as may be possible and be valid and enforceable.
11. Notice. Unless otherwise provided herein, any and all payments,
notices, requests, instructions and other communications required or permitted
to be given under this Agreement after the date hereof by any party hereto to
any other party may be delivered personally or by nationally recognized
overnight courier service or sent by mail or (except in the case of payments) by
telex or facsimile transmission, at the respective addresses or transmission
numbers set forth below and shall be effective (a) in the case of personal
delivery, telex or facsimile transmission, when received; (b) in the case of
mail, upon the earlier of actual receipt or five (5) business days after deposit
in the United States Postal Service, first class certified or registered mail,
postage prepaid, return receipt requested; and (c) in the case of
nationally-recognized overnight courier service, one (1) business day after
delivery to such courier service together with all appropriate fees or charges
and instructions for such overnight delivery. The parties may change their
respective addresses and transmission numbers by written notice to all other
parties, sent as provided in this Section 11. All communications must be in
writing and addressed as follows:
IF TO SELLER:
__________________________
__________________________
__________________________
IF TO COMPANY:
Interchange Financial Services Corporation
Park 80 West/Plaza II
Saddle Brook, New Jersey 07663
Telecopy: (201) 843-3945
Attention: Mr. Anthony S. Abbate
President and Chief Executive Officer
12. Remedies. If Seller breaches or threatens to breach any term or
provision contained herein, Interchange will be entitled to seek and obtain a
temporary restraining order, a temporary injunction, and a permanent injunction
to enjoin and prohibit Seller from violating the terms and provisions of this
Agreement. Interchange's right to seek and obtain such relief will
D-4
not be construed to prevent Interchange from pursuing, either concurrently or
conjunctively, any other legal or equitable remedies available by contract, law,
or otherwise for such breach or threatened breach, nor to preclude Interchange
from seeking to recover damages from Seller.
13. No Delay, Waiver, Etc. No delay on the part of the parties
hereto in exercising any power or right hereunder shall operate as a waiver
thereof; nor shall any single or partial exercise of any power or right
hereunder preclude other or further exercise thereof or the exercise of any
other power or right.
14. Modification. No amendment hereof shall be effective unless
contained in a written instrument signed by the parties hereto.
15. Headings. The descriptive headings of the several sections of
this Agreement are inserted for convenience only and do not constitute a part of
this Agreement.
[Signatures Follow]
D-5
[Signature Page to Form of Non-Compete Agreement]
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of
the date first above written.
"Seller"
---------------------------------------------
INTERCHANGE FINANCIAL SERVICES CORPORATION,
a New Jersey corporation
---------------------------------------------
Anthony S. Abbate, President and Chief
Executive Officer
D-6
EXHIBIT E
INDEX GROUP
INSTITUTION WEIGHTING
- ----------- ---------
Harleysville National Corporation 9.34%
U.S.B. Holding Co., Inc. 6.52%
Sterling Financial Corporation 8.53%
Financial Institutions, Inc. 6.16%
Tompkins Trustco, Inc. 6.60%
Community Banks, Inc. 5.22%
Sterling Bancorp 5.33%
Suffolk Bancorp 7.64%
Arrow Financial Corporation 4.79%
State Bancorp, Inc. 3.06%
Lakeland Bancorp, Incorporated 5.41%
Omega Financial Corporation 6.05%
Royal Bancshares of Pennsylvania 4.15%
PennRock Financial Services 4.00%
Columbia Bancorp 3.01%
Patriot Bank Corp. 1.83%
First United Corporation 2.08%
Peapack-Gladstone Financial 4.70%
First of Long Island Corp. 2.83%
Sun Bancorp, Inc. 2.75%
1
ANNEX B
-------
OPINION OF McCONNELL, BUDD & ROMANO, INC.
ANNEX B
[LETTERHEAD OF McCONNELL, BUDD & ROMANO, INC.]
March 24, 2003
The Board of Directors
Interchange Financial Services Corporation
Park 80 West, Plaza II
Saddle Brook, NJ 07663
The Board of Directors:
You have requested our opinion as to the fairness, from a financial
point of view, to the stockholders of Interchange Financial Services Corporation
("Interchange") of the aggregate consideration to be paid to the stockholders of
Bridge View Bancorp ("Bridge View") in the form of $33,528,472 in cash and
2,949,719 shares of Interchange common stock in connection with the proposed
acquisition of Bridge View by Interchange. The transaction will be completed
pursuant to an Agreement and Plan of Merger (the "Agreement") dated November 18,
2002 by and between Interchange and Bridge View. Pursuant to the Agreement,
Bridge View will merge with and into Interchange, with Interchange as the
surviving entity (the "Merger").
As set forth with more specificity in the Agreement, at the Effective
Time (as defined in the Agreement), each outstanding share of Bridge View common
stock, except for shares held by Interchange and its subsidiaries or by Bridge
View (in both cases, other than shares held in a fiduciary capacity or as a
result of debts previously contracted), will be converted into the right to
receive, at the election of the holder and subject to certain procedures and
limitations as set forth in the Agreement, either cash, stock or a combination
of cash and stock, provided that (a) the aggregate amount of cash exchangeable
for shares of Bridge View common stock shall not exceed $33,528,472, less the
aggregate dollar amount of cash paid to the holders of Bridge View stock
options, and (b) the aggregate number of shares of Interchange common stock that
shall be issued in the merger shall not exceed 2,949,719 shares. The Agreement
may be terminated prior to the Effective Time by the board of directors of
either party based on defined criteria.
McConnell, Budd & Romano, Inc. ("MB&R"), as part of its investment
banking business, is regularly engaged in the valuation of bank holding
companies and banks, thrift holding companies and thrifts, financial holding
companies and their subsidiaries and the securities of such entities in
connection with mergers and acquisitions, negotiated underwritings, private
placements, market making as a NASD market maker, secondary distributions of
listed securities and valuations for
corporate, estate and other purposes. Our experience and familiarity with
Interchange includes having worked as an independent financial advisor to
Interchange since 1996, and most recently includes our participation in the
process and negotiations leading up to the proposed merger of Interchange and
Bridge View. In the course of our role as financial advisor to Interchange in
connection with the Merger, we received $25,000 upon signing of the Agreement,
and will receive $50,000 upon mailing of the joint proxy statement-prospectus
containing our opinion. In addition, contingent on the successful consummation
of the Merger, MB&R will receive a fixed fee of $275,000. Interchange has also
agreed to reimburse MB&R for reasonable out-of-pocket expenses and disbursements
and to indemnify MB&R for certain liabilities arising out of our engagement by
Interchange in connection with the Merger. A portion of MB&R's fee, as outlined
above, could be construed to be contingent upon the conclusion reached in the
opinion, based on the assumption that the probability of the Agreement being
signed, a joint proxy statement-prospectus being mailed and consummation of the
Merger would likely be reduced if the conclusion drawn in MB&R's opinion were
that the transaction was not fair to Interchange stockholders from a financial
point of view. No limitations were imposed by the Interchange board of directors
with respect to the investigations made or procedures followed in rendering our
opinion. MB&R has provided no services to Bridge View and has received no fees
from Bridge View. MB&R makes a market in Interchange common stock and certain of
its officers, directors, employees, and clients own Interchange common stock.
In arriving at our opinion, we have reviewed the Agreement as well as
participated in its negotiation. We have also reviewed certain publicly
available business, financial and stockholder information relating to
Interchange and its subsidiaries and to Bridge View and its subsidiaries. In
addition we have reviewed certain confidential financial information provided to
us by both Interchange and Bridge View pertaining to their respective business
plans and projections.
In connection with the foregoing, we have reviewed (i) the Agreement
dated November 18, 2002 by and between Interchange and Bridge View, (ii) the
joint proxy statement-prospectus to which this letter is an annex (in
substantially the form sent to stockholders), (iii) Interchange's public
earnings release for the quarter end year ended December 2002, (iv)
Interchange's annual reports on Form 10-K for the calendar years ended December
31, 1999, 2000, 2001 and 2002 (v) Interchange's annual reports to stockholders
for 1999, 2000, 2001 and 2002 and (vi) Interchange's quarterly reports on Form
10-Q for the trailing 3 calendar quarters through September 30, 2002. In
addition, we have reviewed (i) Bridge View's public earning release for the
quarter and year ended December 31, 2002, (ii) Bridge View's annual reports on
Form 10-K for 1999, 2000, 2001 and 2002 (iii) Bridge View's annual reports to
stockholders for 1999, 2000 and 2001, and (iv) Bridge View's quarterly reports
on Form 10-Q for the trailing 3 calendar quarters through September 30, 2002. In
addition, with respect to both Interchange and Bridge View we have reviewed
certain internal financial information and financial forecasts relating to the
business, earnings, cash flows, assets and prospects of the respective companies
furnished to MB&R by Interchange and Bridge View, and have held discussions with
members of senior management of Bridge View concerning the past and
2
current results of operations of Bridge View, its current financial condition
and management's opinion of its future prospects. We have also considered the
past and current results of operations of Interchange, its current financial
condition and management's opinion of its future prospects. We have also
reviewed the historical record of reported prices, trading volume and dividend
payments for both Interchange and Bridge View and have considered the current
state of and future prospects for the economy of the State of New Jersey (based
primarily on our observations, anecdotal information and input from management
from both Interchange and Bridge View) generally and the relevant market areas
for Interchange and Bridge View in particular. We have reviewed proprietary
merger analysis models to evaluate the business combination, reviewed the
reported financial terms of selected recent business combinations in the banking
industry and performed such other studies and analyses as MB&R considered
appropriate under the circumstances associated with this particular transaction.
In the course of our review and analysis we considered, among other
things, such topics as the historical and projected future contributions of
recurring earnings by the parties, the anticipated future earnings per share
("EPS") results for the parties on both a combined and stand-alone basis, the
potential to realize significant recurring operating expense reductions and the
impact thereof on projected future EPS, the relative capitalization, capital
adequacy and debt maturity schedule of each of the parties, the availability of
non-interest income to each of the parties, the possibility of the generation of
new non-interest income for one of the parties, the relative asset quality and
apparent adequacy of the reserve for loan and lease losses for each of the
parties. We also considered the composition of deposits and the composition of
the loan portfolio of each of Interchange and Bridge View and the potential
impact on the pro forma company from the combination of the parties' deposits
and loans. In addition, we considered the historical trading range, trading
pattern and relative market liquidity of the shares of Interchange and of the
shares of Bridge View.
In the conduct of our review and analysis we have relied upon and
assumed, without independent verification, the accuracy and completeness of the
financial information provided to us by Interchange and Bridge View and/or
otherwise publicly obtainable. In reaching our opinion we have not assumed any
responsibility for the independent verification of such information or any
independent valuation or appraisal of any of the assets or the liabilities of
either Interchange or Bridge View, nor have we been furnished with or obtained
from any other source, any current appraisals of the assets or liabilities of
either Interchange or Bridge View. We have also relied on the management of both
Interchange and Bridge View as to the reasonableness of various financial and
operating forecasts and of the assumptions on which they are based, which were
provided to us for use in our analyses.
In rendering this opinion, which is being rendered prior to the receipt
of certain required regulatory approvals necessary before consummation of the
Merger, we assume that no conditions will be imposed by any regulatory agency in
conjunction with its approval of the Merger that will have a material adverse
effect
3
on the results of operations, the financial condition or the prospects of
Interchange following consummation of the Merger. We refer the reader to the
section of the joint proxy statement-prospectus titled "The Merger - Opinion of
Interchange's Independent Financial Advisor" for more detail with respect to our
analysis.
Based upon and subject to the foregoing, it is our opinion, that as of
the date of this letter, the proposed consideration to be paid to the
stockholders of Bridge View in the Merger is fair to the stockholders of
Interchange from a financial point of view.
Very truly yours,
McConnell, Budd & Romano, Inc.
By /s/ C. Edward McConnell
--------------------------------
C. Edward McConnell
Managing Director
4
ANNEX C
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OPINION OF KEEFE BRUYETTE & WOODS, INC.
ANNEX C
[LETTERHEAD OF KEEFE, BRUYETTE & WOODS, INC.]
March 24, 2003
The Board of Directors
Bridge View Bancorp
457 Sylvan Avenue
Englewood Cliffs, NJ 07632
Members of the Board:
You have requested our opinion as investment bankers as to the
fairness, from a financial point of view, to the stockholders of Bridge View
Bancorp ("Bridge View") of the merger consideration in the proposed merger (the
"Merger") of Bridge View with and into Interchange Financial Services
Corporation ("Interchange"), pursuant to the Agreement and Plan of Merger, dated
as of November 18, 2002, between Bridge View and Interchange (the "Agreement").
Pursuant to the terms of the Agreement, Interchange will exchange 2,949,719
shares of common stock, no par value per share, and cash in the amount of
$33,528,472 for 100% of the outstanding shares of common stock, no par value per
share, of Bridge View (the "Common Shares").
Keefe, Bruyette & Woods, Inc., as part of its investment banking
business, is continually engaged in the valuation of bank and bank holding
company securities in connection with acquisitions, negotiated underwritings,
secondary distributions of listed and unlisted securities, private placements
and valuations for various other purposes. As specialists in the securities of
banking companies, we have experience in, and knowledge of, the valuation of the
banking enterprises. In the ordinary course of our business as a broker-dealer,
we may, from time to time purchase securities from, and sell securities to,
Bridge View and Interchange, and as a market maker in securities, we may from
time to time have a long or short position in, and buy or sell, debt or equity
securities of Bridge View and Interchange for our own account and for the
accounts of our customers. To the extent we have any such position as of the
date of this opinion it has been disclosed to Bridge View. We have acted
exclusively for the Board of Directors of Bridge View in rendering this fairness
opinion and will receive a fee from Bridge View for our services.
In connection with this opinion, we have reviewed, analyzed and relied
upon material bearing upon the financial and operating condition of Bridge View
and Interchange and the Merger, including among other things, the following: (i)
the Agreement; (ii) the Registration Statement on Form S-4 (including the joint
proxy statement-prospectus for the special meeting of stockholders of Bridge
View and Interchange to be held in connection with the Merger) of Interchange as
filed with the Securities and Exchange Commission on February 14, 2003; (iii)
the Annual Reports to Stockholders and Annual Reports on Form 10-K for the four
years ended December 31, 2002, of Bridge View and Interchange; (iv) certain
interim reports to stockholders and Quarterly Reports on Form 10-Q of Bridge
View and Interchange and certain other communications from Bridge View and
Interchange to their respective stockholders; and (v) other financial
information concerning the businesses and operations of Bridge View and
Interchange furnished to us by Bridge View and Interchange for purposes of our
analysis. We have also held discussions with senior management of Bridge View
and Interchange regarding the past and current business operations, regulatory
relations, financial condition and future prospects of their respective
companies and such other matters as we have deemed relevant to our inquiry. In
addition, we have compared certain financial and stock market information for
Bridge View and Interchange 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 and performed such
other studies and analyses as we considered appropriate.
In conducting our review and arriving at our opinion, we have relied
upon the accuracy and completeness of all of the financial and other information
provided to us or publicly available and we have not assumed any responsibility
for independently verifying the accuracy or completeness of any such
information. We have relied upon the management of Bridge View and Interchange
as to the reasonableness and achievability of the financial and operating
forecasts and projections (and the assumptions and bases therefor) provided to
us, and we have assumed that such forecasts and projections reflect the best
currently available estimates and judgments of such managements and that such
forecasts and projections will be realized in the amounts and in the time
periods currently estimated by such managements. We are not experts in the
independent verification of the adequacy of allowances for loan and lease losses
and we have assumed, with your consent, that the aggregate allowances for loan
and lease losses for Bridge View and Interchange are adequate to cover such
losses. In rendering our opinion, we have not made or obtained any evaluations
or appraisals of the property of Bridge View or Interchange, nor have we
examined any individual credit files.
We have considered such financial and other factors as we have deemed
appropriate under the circumstances, including, among others, the following: (i)
the historical and current financial position and results of operations of
Bridge View and Interchange; (ii) the assets and liabilities of Bridge View and
Interchange; and (iii) the nature and terms of certain other merger transactions
involving banks and bank holding companies. We have also taken into account our
assessment of general economic, market and financial conditions and our
experience in other transactions, as well as our experience in securities
valuation and knowledge of the banking industry generally. Our opinion is
necessarily based upon conditions as they exist and can be evaluated on the date
hereof and the information made available to us through the date hereof.
Based upon and subject to the foregoing, it is our opinion that, as of
the date hereof, the merger consideration in the Merger is fair, from a
financial point of view, to holders of the Common Shares.
Very truly yours,
/s/ Keefe, Bruyette & Woods, Inc.
Keefe, Bruyette & Woods, Inc.
ANNEX D
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AMENDED AND RESTATED AUDIT COMMITTEE CHARTER OF
INTERCHANGE FINANCIAL SERVICES CORPORATION
ANNEX D
INTERCHANGE FINANCIAL SERVICES CORPORATION
AUDIT COMMITTEE CHARTER
This Audit Committee Charter (Charter) has been adopted by the Board of
Directors (the Board) of Interchange Financial Services Corporation (the
Company). The Audit Committee of the Board (the Committee) shall review and
reassess this charter annually and recommend any proposed changes to the Board
for approval.
Role and Independence: Organization
The Committee assists the Board in fulfilling its responsibility for oversight
of the quality and integrity of the accounting, auditing, internal control and
financial reporting practices of the Company. The membership of the Committee
shall consist of at least three directors, who are each free of any relationship
that, in the opinion of the Board, may interfere with such member's individual
exercise of independent judgment. Each Committee member shall also meet the
independence, experience and financial literacy requirements for serving on
audit committees all as set forth in the applicable rules of the NASDAQ National
Market System, Section 10A(m)3 of the Securities and Exchange Act of 1934 (the
Exchange Act) and the rules and regulations of the Securities and Exchange
Commission. At least one member of the Committee shall be a financial expert as
that term is defined by the Commission. The Committee shall maintain free and
open communication with the independent auditors, the internal auditors and
Company management. In discharging its oversight role, the Committee is
empowered to investigate any matter relating to the Company's accounting,
auditing, internal control or financial reporting practices brought to its
attention, with full access to all Company books, records, facilities and
personnel. The Committee may retain outside counsel, auditors or other advisors,
as it deems necessary to carry out its duties.
One member of the Committee shall be appointed as chairman. The chairman shall
be responsible for leadership of the Committee, including scheduling and
presiding over meetings, preparing agendas, and making regular reports to the
Board. The chairman will also maintain regular liaison with the CEO, CFO, the
lead independent audit partner and VP in charge of internal audit.
The Committee shall meet at least four times a year, or more frequently as the
Committee considers necessary. At least once each year the Committee shall have
separate private meetings with the independent auditors, management and the
internal auditors.
Responsibilities
Although the Committee may wish to consider other duties from time to time, the
general recurring activities of the Committee in carrying out its oversight role
are described below. The Committee shall be responsible for:
1. Appointing the independent auditors to be retained (or nominated for
shareholder approval) to audit the financial statements of the Company.
2. Resolving any disagreements between management and the independent auditor
regarding financial reporting.
3. Evaluating the performance of the independent auditors and, where
appropriate, replacing such auditors.
4. Approving, in advance, all auditing and permissible non-audit services
(including fees and terms thereof) to be performed for the Company by its
independent auditor, subject to the de minimus exceptions for non-audit
services described in Section 10A(i)(1)(B) of the Exchange Act which are
approved by the Audit Committee prior to the completion of the audit.
5. Obtaining annually from the independent auditors a formal written statement
describing all relationships between the auditors and the Company,
consistent with Independence Standards Board Standard Number 1. The
Committee shall actively engage in a dialogue with the independent auditors
with respect to any relationships that may impact the objectivity and
independence of the auditors and shall take, or recommend that the Board
take, appropriate actions to oversee and satisfy itself as to the auditors'
independence.
6. Issuing annually a report to be included in the Company's proxy statement
as required by the rules of the Securities and Exchange Commission.
7. Overseeing the relationship with the independent auditors, including
discussing with the auditors the nature and rigor of the audit process,
receiving and reviewing audit reports, and providing the auditors full
access to the Committee (and the Board) to report on any and all
appropriate matters.
8. Discussing with a representative of management and the independent
auditors: (1) the interim financial information contained in the Company's
Quarterly Report on Form 10-Q [or 10-QSB] prior to its filing, (2) the
earnings announcement prior to its release (if practicable), and (3) the
results of the review of such information by the independent auditors.
(These discussions may be held with the Committee as a whole or with the
Committee Chairman in person or by telephone.)
9. Overseeing internal audit activities, including discussing with management
and the internal auditors the internal audit function's organization,
objectivity, responsibilities, plans, results, budget and staffing.
10. Reviewing the audited financial statements and discussing them with
management and the independent auditors. These discussions shall include
the matters required to be discussed under Statement of Auditing Standards
No. 61 and consideration of the quality of the Company's accounting
principles as applied in its financial reporting, including a review of
particularly sensitive accounting estimates, reserves and accruals,
judgmental areas, audit adjustments (whether or not recorded), and other
such inquiries as the Committee or the independent auditors shall deem
appropriate. Based on such review, the Committee shall make its
recommendation to the Board as to the inclusion of the Company's audited
financial statements
2
in the Company's Annual Report on Form 10-K [or 10-KSB (or the Annual
Report to Shareholders, if distributed prior to the filing of the Form
10-K)].
11. Reviewing and approving audit fees.
12. Reviewing codes of ethics and/or codes of conduct and management's system
to monitor compliance with such codes.
13. Discussing with management, the internal auditors and the independent
auditors the quality and adequacy of and compliance with the Company's
internal controls and financial reporting process.
14. Discussing with management and/or the Company's general counsel any legal
matters (including the status of pending litigation) that may have a
material impact on the Company's financial statements, and any material
reports or inquiries from regulatory or governmental agencies.
15. Disclosing in the Company's proxy statement that the Board of Directors has
adopted a written charter for the Audit Committee and include a copy of the
Committee's charter as an appendix to the Company's proxy statement at
least once every three years.
16. Discussing with management the status of internal control recommendations
made by the independent auditor and the internal auditors.
17. Ensuring the rotation of the lead audit partner having primary
responsibility for the audit and the audit partner responsible for
reviewing the audit as required by law.
18. Obtaining from the independent auditor assurance that Section 10A(b) of the
Exchange Act has not been implicated.
19. Establishing procedures for the receipt, retention and treatment of
complaints received by the Company regarding accounting, internal
accounting controls, or auditing matters, and the confidential, anonymous
submission by employees of concerns regarding questionable accounting or
auditing matters.
The Committee's job is one of oversight. Management is responsible for the
preparation of the Company's financial statements and the independent auditors
are responsible for auditing those financial statements. The Committee and the
Board recognize that management (including the internal audit staff) and the
independent auditors have more resources and time, and more detailed knowledge
and information regarding the Company's accounting, auditing, internal control
and financial reporting practices than the Committee does; accordingly the
Committee's oversight role does not provide any expert or special assurance as
to the financial statements and other financial information provided by the
Company to its shareholders and others.
Adopted 1/23/03 3
ANNEX E
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BRIDGE VIEW BANCORP ANNUAL REPORT ON FORM 10-K/A
FOR THE YEAR ENDED DECEMBER 31, 2002
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K/A
(Mark One)
(X) Annual report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the fiscal year ended December 31, 2002
( ) Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from _____________
to _____________.
Commission file number : 1-12165
Bridge View Bancorp
(Exact name of Registrant as specified in its charter)
New Jersey 22-3461336
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification)
457 Sylvan Avenue, Englewood Cliffs, NJ 07632
(Address of principal executive offices) (Zip Code)
201-871-7800
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Exchange Act:
Title of each class: Name of each exchange on which registered:
Common Stock, No Par Value American Stock Exchange
Securities registered pursuant to Section 12(g) of the Exchange Act: None
Indicate by check mark whether the Registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934, as amended, during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports); and (2) has been subject
to such filing requirements for the past 90 days. YES (X) NO___
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Issuer's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K/A or any amendments to
this Form 10-K/A. (X)
The aggregate market value of the voting stock held by non-affiliates of the
Issuer as of March 5, 2003 was approximately $54,994,000.
The number of shares of the Issuer's Common Stock, no par value, outstanding as
of March 5, 2003 was 3,745,002.
For the fiscal year ended December 31, 2002, the Issuer had total revenues of
$13,989,000.
TABLE OF CONTENTS
PAGE
PART I
Item 1. Description of Business 3
Item 2. Description of Property 10
Item 3. Legal Proceedings 10
Item 4. Submission of Matters to a Vote of 11
Security Holders
PART II
Item 5. Market for Registrant's Common Equity and 12
Related Stockholder Matters
Item 6. Selected Consolidated Financial Data 13
and Other Data
Item 7. Management's Discussion and Analysis of 14
Financial Condition and Results of Operations
Item 7A. Quantitative and Qualitative Disclosures 35
about Market Risk
Item 8. Financial Statements and Supplementary Data 35
Item 9. Changes In and Disagreements with Accountants 35
on Accounting and Financial Disclosures
PART III
Item 10. Directors and Executive Officers 35
of the Registrant
Item 11. Executive Compensation 38
Item 12. Security Ownership of Certain Beneficial 42
Owners and Management
Item 13. Certain Relationships and Related 44
Transactions
PART IV
Item 14. Exhibits and Financial Statement Schedules 45
2
PART I
ITEM 1. DESCRIPTION OF BUSINESS
General
Bridge View Bancorp (the "Company") is a one-bank holding company incorporated
under the laws of the State of New Jersey in May, 1996 to serve as a holding
company for Bridge View Bank (the "Bank"; unless the context otherwise requires,
all references to the "Company" in this Annual Report shall be deemed to refer
also to the Bank). The Company was organized at the direction of the Board of
Directors of the Bank for the purpose of acquiring all of the capital stock of
the Bank. Pursuant to the New Jersey Banking Act of 1948 (the "Banking Act"), as
amended, and pursuant to approval of the shareholders of the Bank, the Company
acquired the Bank and became its holding company on December 6, 1996. As part of
the Acquisition, shareholders of the Bank received two shares of common stock,
no par value, (the "Common Stock") of the Company for each outstanding share of
the common stock of the Bank, $5.00 per share par value ("Bank Common Stock").
The only significant activities of the Company are the ownership and supervision
of the Bank. The Company's main office is located at 457 Sylvan Avenue,
Englewood Cliffs, Bergen County, New Jersey, 07632.
The Bank is a commercial bank formed under the laws of the State of New Jersey
on October 11, 1988. The Bank operates from its main office at 457 Sylvan
Avenue, Englewood Cliffs, New Jersey, 07632, and its ten branch offices located
at 1605 Lemoine Avenue, Fort Lee, New Jersey, 07024, 115 River Road, Edgewater,
New Jersey, 07020, 899 Palisade Avenue, Fort Lee, New Jersey, 07024, 77 River
Street, Hackensack, NJ, 07601, 20 West Railroad Avenue, Tenafly, NJ 07670, 4
Park Street, Harrington Park, NJ 07640, 35 North Washington Avenue, Bergenfield,
NJ 07621, 819 Teaneck Road, Teaneck, NJ 07666, 245 Main Street, Ridgefield Park,
NJ 07660, 85 Jefferson Avenue, Westwood, NJ 07675. All branch locations are in
Bergen County, NJ.
The Bank is subject to the supervision and regulation of the Board of Governors
of the Federal Reserve System (the "FRB"). The Bank's deposits are insured by
the Bank Insurance Fund (the "BIF") of the Federal Deposit Insurance Corporation
("FDIC") up to applicable limits. The operation of the Company and the Bank are
subject to the supervision and regulation of the FRB, FDIC, and the New Jersey
Department of Banking and Insurance (the " Department"). The principal executive
offices of the Bank are located at 457 Sylvan Avenue, Englewood Cliffs, New
Jersey, 07632, and the telephone number is (201) 871 - 7800.
3
Business of the Company
The Company's primary business is ownership and supervision of the Bank. The
Company, through the Bank, conducts a traditional commercial banking business,
accepting deposits from the general public, including individuals, businesses,
non-profit organizations, and governmental units. The Bank makes commercial
loans, consumer loans, and both residential and commercial real estate loans. In
addition, the Bank provides other customer services and makes investments in
securities, as permitted by law. The Bank has sought to offer an alternative,
community-oriented style of banking in an area, which is presently dominated by
larger, statewide and national institutions. The Bank has sought to be a
positive force in the area by assisting in the development of the residential
sector, by serving the needs of small and medium-sized businesses and the local
professional community, and by meeting the requirements of individuals residing,
working, and shopping in the Bank's eastern Bergen County market area by
extending consumer, commercial, and real estate loans and by offering
depository services. The Bank believes that the following attributes
have attracted local business people and residents:
-- Competitively priced services;
-- Direct access to Bank management by members of the community,
whether during or after business hours;
-- Strategically located branch offices;
-- Full service business hours of 7:00 am to 7:00 pm weekdays and
9:00 am to 1:00 pm Saturdays;
-- Local conditions and needs are taken into account when
deciding loan applications and making other business decisions
affecting members of the community;
-- Responsiveness to requests for information and services by
depositors and others; and
-- Positive involvement in the community affairs of eastern
Bergen County.
Service Area
The Company's service area primarily consists of Bergen County, New Jersey. The
Company operates its main office in Englewood Cliffs, New Jersey and ten branch
offices in Fort Lee(2), Edgewater, Hackensack, Tenafly, Harrington Park,
Bergenfield, Teaneck, Ridgefield Park, and Westwood, New Jersey; all in Bergen
County, NJ.
4
Competition
The Company operates in a highly competitive environment competing for deposits
and loans with commercial banks, thrifts, and other financial institutions, many
of which have greater financial resources than the Company. Many large financial
institutions in New York City and other parts of New Jersey compete for the
business of New Jersey residents located in the Company's service area. In
addition, since passage of the Gramm-Leach-Bliley Financial Modernization Act of
1999 (the "Modernization Act"), securities firms and insurance companies have
been allowed to acquire or form financial institutions, thereby further
increasing competition in the financial services market. Certain of these
institutions have significantly higher lending limits than the Company and
provide services to their customers which the Company does not offer. In
addition, the Company's competitors generally have established positions in the
Service Area and have greater resources than the Company with which to pay for
advertising, physical facilities, personnel, and interest on deposited funds.
Management believes the Company is able to compete on a substantially equal
basis with its competitors because it provides responsive personalized services
through its knowledge and awareness of the Company's service area, customers,
and business.
Employees
At December 31, 2002, the Company employed ninety eight full-time equivalent
employees. None of these employees is covered by a collective bargaining
agreement. The Company believes that its employee relations remain good.
5
Supervision and Regulation
Bank holding companies and banks are extensively regulated under both federal
and state law. These laws and regulations are intended to protect depositors,
not stockholders. To the extent that the following information describes
statutory and regulatory provisions, it is qualified in its entirety by
reference to the particular statutory and regulatory provisions. Any change in
the applicable law or regulation may have a material effect on the business and
prospects of the Company and the Bank.
Bank Holding Company Regulations
As a bank holding company registered under the Bank Holding Company Act of 1956,
as amended (the "BHCA"), the Company is subject to the regulation and
supervision of the FRB. The Company is required to file with the FRB annual
reports and other information regarding its business operations and those of its
subsidiaries. Under the BHCA, the Company's activities and those of its
subsidiaries are limited to banking, managing or controlling banks, furnishing
services to or performing services for its subsidiaries or engaging in any other
activity which the FRB determines to be so closely related to banking or
managing or controlling banks as to be properly incident thereto.
The BHCA requires among other things , the prior approval of the FRB in any case
where a bank holding company proposes to: (i) acquire all or substantially all
of the assets of any other bank, (ii) acquire direct or indirect ownership or
control of more than 5% of the outstanding voting stock of any bank (unless it
owns a majority of such bank's voting shares), or (iii) merge or consolidate
with any other bank holding company. The FRB will not approve any acquisition,
merger, or consolidation that would have a substantially anti-competitive
effect, unless the anti-competitive impact of the proposed transaction is
clearly outweighed by a greater public interest in meeting the convenience and
needs of the community to be served, when reviewing acquisitions or mergers.
Additionally, the BHCA prohibits a bank holding company, with certain limited
exceptions, from (i) acquiring or retaining direct or indirect ownership or
control of more than 5% of the outstanding voting stock of any company which is
not a bank or bank holding company, or (ii) engaging directly or indirectly in
activities other than those of banking, managing, or controlling banks, or
performing services for its subsidiaries; unless such non-banking business is
determined by the FRB to be so closely related to banking or managing or
controlling banks as to be properly incident thereto. In making such
determinations, the FRB is required to weigh the expected benefits to the public
such as greater convenience, increased competition or gains in efficiency,
against the possible adverse effects, such as undue concentration of resources,
decreased or unfair competition, conflicts of interest, or unsound banking
practices.
The BHCA was substantially amended through the Modernization Act. The
Modernization Act permits bank holding companies and banks which meet certain
capital, management and Community Reinvestment Act standards to engage in a
broader range of non-banking activities. In addition, bank holding companies
which elect to become financial holding companies may engage in certain banking
and non-banking activities without prior FRB approval. Finally, the
Modernization Act imposes certain new privacy requirements on all financial
institutions and their treatment of consumer information. At this time, the
Company has elected not to become a financial holding company, as we do not
engage in any non-banking activities.
6
There are a number of obligations and restrictions imposed on bank holding
companies and their depository institution subsidiaries by law and regulatory
policy that are designed to minimize potential loss to the depositors of such
depository institutions and the FDIC insurance funds in the event the depository
institution becomes in danger of default. Under a policy of the FRB with respect
to bank holding company operations, a bank holding company is required to serve
as a source of financial strength to its subsidiary depository institutions and
to commit resources to support such institutions in circumstances where it might
not do so absent such policy. The FRB also has the authority under the BHCA to
require a bank holding company to terminate any activity or to relinquish
control of a non-banking subsidiary upon the FRB's determination that such
activity or control constitutes a serious risk to the financial soundness and
stability of any bank subsidiary of the bank holding company.
The Company is also under the jurisdiction of the Securities and Exchange
Commission for matters relating to the offering and sale of its securities and
is subject to the Securities and Exchange Commission's rules and regulations
relating to periodic reporting, reporting to shareholders, proxy solicitations,
and insider trading.
7
Capital Adequacy Guidelines for Bank Holding Companies.
The FRB has adopted risk-based capital guidelines for bank holding companies.
The risk-based capital guidelines are designed to make regulatory capital
requirements more sensitive to differences in risk profile among banks and bank
holding companies to account for off-balance sheet exposure and to minimize
disincentives for holding liquid assets. Under these guidelines, assets and
off-balance sheet items are assigned to broad risk categories each with
appropriate weights. The resulting capital ratios represent capital as a
percentage of total risk-weighted assets and off-balance sheet items.
The risk-based guidelines apply on a consolidated basis to bank holding
companies with consolidated assets of $150 million or more. The minimum ratio or
total capital to risk-weighted assets (including certain off-balance sheet
activities, such as standby letters of credit) is 8%. At least 4% of the total
capital is required to be "Tier I Capital", consisting of common stockholders'
equity and certain preferred stock, less certain goodwill items and other
intangible assets. The remainder, "Tier II Capital", may consist of (a) the
allowance for loan losses of up to 1.25% of risk-weighted assets, (b) excess of
qualifying preferred stock, (c) hybrid capital instruments, (d) debt, (e)
mandatory convertible securities, and (f) qualifying subordinated debt. Total
capital is the sum of Tier I and Tier II capital less reciprocal holdings of
other banking organizations' capital instruments, investments in unconsolidated
subsidiaries and any other deductions as determined by the FRB (determined on a
case-by-case basis or as a matter of policy after formal rule-making).
Bank holding company assets are given risk-weights of 0%, 20%, 50%, and 100%. In
addition, certain off-balance sheet items are given similar credit conversion
factors to convert them to asset equivalent amounts to which an appropriate
risk-weight will apply. These computations result in the total risk-weighted
assets. Most loans are assigned to the 100% risk category, except for performing
first mortgage loans fully secured by residential property which carry a 50%
risk-weighting. Most investment securities (including, primarily, general
obligation claims of states or other political subdivisions of the United
States) are assigned to the 20% category, except for municipal or state revenue
bonds, which have a 50% risk-weight, and direct obligations of the U.S. Treasury
or obligations backed by the full faith and credit of the U.S. Government, which
have a 0% risk-weight. In converting off-balance sheet items, direct credit
substitutes including general guarantees and standby letters of credit backing
financial obligations, are given a 10% risk-weighting. Transactions related to
contingencies such as bid bonds, standby letters of credit backing non-financial
obligations, and undrawn commitments (including commercial credit lines with an
initial maturity of more than one year) have a 50% risk-weighting. Short term
commercial letters of credit have a 20% risk-weighting and certain short-term
unconditionally cancelable commitments have a 0% risk-weighting.
In addition to the risk-based capital guidelines, the FRB has adopted a minimum
Tier I capital (leverage) ratio, under which a bank holding company must
maintain a minimum level of Tier I capital to average total consolidated assets
of at least 3% in the case of a bank holding company that has the highest
regulatory examination rating and is not contemplating a significant growth or
expansion. All other bank holding companies are expected to maintain a leverage
ratio of at least 100 to 200 basis points above the stated minimum.
8
Bank Regulation
As a New Jersey chartered commercial bank, the Bank is subject to the
regulation, supervision, and control of the New Jersey Department of Banking and
Insurance (the "Department"). As an FDIC-insured institution, the Bank is
subject to regulation, supervision, and control of the FDIC, an agency of the
federal government. The regulations of the FDIC and the Department impact
virtually all activities of the Bank, including the minimum level of capital the
Bank must maintain, the ability of the Bank to pay dividends, and the ability of
the Bank to expand through new branches or acquisitions and various other
matters.
Insurance of Deposits
The Bank's deposits are insured up to a maximum of $100,000 per depositor under
the Bank Insurance Fund (the "BIF"). The Federal Deposit Insurance Corporation
Improvements Act of 1991 ("FDICIA") affected a major restructuring of the
federal regulatory framework applicable to depository institutions and deposit
insurance. FDICIA requires the FDIC to establish a risk-based assessment system
for all insured depository institutions. Under this legislation, the FDIC has
established an insurance premium assessment matrix that sets the assessment
premium for a particular institution in accordance with its capital level and
overall rating by the primary regulator. Under the matrix as currently in
effect, the assessment ranges from 0 to 31 basis points of assessed deposits.
Dividend Rights
Under the Banking Act, a bank may declare and pay dividends only if, after
payment of the dividend, the capital stock of the Company will be unimpaired and
either the bank will have a surplus of not less than 50% of its capital stock or
the payment of the dividend will not reduce the bank's surplus.
Recent Developments
The Company has entered into an agreement to merge with and into Interchange
Financial Services Corporation, with Bridge View Bank merging with and into
Interchange Bank. This agreement is presently subject to regulatory approval and
shareholder approval of both Bridge View Bancorp and Interchange Financial
Services Corporation and is anticipated to close in second quarter, 2003.
9
ITEM 2. DESCRIPTION OF PROPERTY
The Company conducts its business through its main office located at 457 Sylvan
Avenue, Englewood Cliffs, New Jersey, and its eleven branch network. The
following table sets forth certain information regarding the Company's
properties as of December 31, 2002.
Leased Date of Lease
Location or Owned Expiration
457 Sylvan Avenue Owned N/A
Englewood Cliffs, NJ
1605 Lemoine Avenue Leased November, 2007
Fort Lee, NJ
115 River Road Leased April, 2005
Edgewater, NJ
899 Palisade Avenue Leased September, 2006
Fort Lee, NJ
77 River Street Leased December, 2012
Hackensack, NJ
20 West Railroad Avenue Leased April, 2005
Tenafly, NJ
4 Park Street Leased December, 2009
Harrington Park, NJ
35 North Washington Avenue Owned N/A
Bergenfield, NJ
819 Teaneck Road Owned N/A
Teaneck, NJ
245 Main Street Owned N/A
Ridgefield Park, NJ
85 Jefferson Street Leased May, 2025
Westwood, NJ
ITEM 3. LEGAL PROCEEDINGS
The Company and the Bank are periodically parties to or otherwise
involved in legal proceedings arising in the normal course of
business, such as claims to enforce liens, claims involving the making
and servicing of real property loans, and other issues incident to the
Bank's business. Management does not believe that there is any pending
or threatened proceedings against the Company or the Bank which, if
determined adversely, would have a material effect on the business,
financial position or results of operations of the Company or the
Bank.
10
PART II
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted for a vote of the Registrant's shareholders during the
Fourth Quarter of fiscal 2002.
11
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Commencing on December 20, 1996, the Company's Common Stock began
trading on the American Stock Exchange under the symbol "BVB". As of
December 31, 2002, there were 1,234 stockholders of record of the
Common Stock.
The following table sets forth the quarterly high and low bid
prices of the Common Stock as reported on the American Stock Exchange
for the periods presented. The stock prices and cash dividends are
adjusted to reflect stock dividends and stock splits through the 2002
stock dividend.
Bid
--------------------------
Cash
High Low Dividend
Year Ended December 31, 2002
Fourth Quarter $15.14 $12.00 $0.10
Third quarter 14.55 12.91 0.10
Second quarter 15.00 12.95 0.10
First quarter 13.97 12.72 0.09
Year Ended December 31, 2001
Fourth quarter $15.14 $12.00 $0.09
Third quarter 14.55 12.91 0.09
Second quarter 15.00 12.95 0.09
First quarter 13.97 12.72 0.08
The Company and its predecessor, the Bank, began paying quarterly dividends
during January, 1996. Although the amount of the dividends to be paid by the
Company will be determined by its Board of Directors while giving consideration
to the Company's earnings, capital needs, financial condition, and other
relevant factors, the Board of Directors of the Company currently intends to
adhere to the dividend policy previously established by the Bank.
12
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA AND OTHER DATA
Selected Consolidated Financial Data and Other Data
(in thousands, except per share data)
Set forth below is selected historical financial data of the
Company. This information is derived in part from and should be read
in conjunction with the consolidated financial statements and notes
thereto presented in the Annual Report to Stockholders.
Years Ended December 31,
2002 2001 2000 1999 1998
------------------------------------------------------------
Selected Operating Data:
Total interest income $13,989 $14,829 $15,232 $12,558 $10,883
Total interest expense 1,691 3,191 4,290 3,182 3,006
------------------------------------------------------------
Net interest income 12,298 11,638 10,942 9,376 7,877
Provision for loan losses 570 165 190 195 140
------------------------------------------------------------
Net interest income after
provision for
loan loss 11,728 11,473 10,752 9,181 7,737
Other income 2,522 1,907 1,501 1,409 1,301
Other expenses 8,826 6,299 5,950 5,662 4,848
------------------------------------------------------------
Income before income taxes 5,424 7,081 6,303 4,928 4,190
Income tax expense 2,066 2,512 2,201 1,792 1,587
------------------------------------------------------------
Net income $3,358 $4,569 $4,102 $3,136 $2,603
============================================================
Basic Earnings per Share (1) $0.95 $1.29 $1.16 $0.89 $0.74
Diluted Earnings per Share (1) $0.91 $1.25 $1.13 $0.86 $0.72
(1) All shares data has been restated to reflect stock dividends and stock split
through the 2002 stock dividend.
At December 31,
------------------------------------------------------------
Selected Financial Data: 2002 2001 2000 1999 1998
------------------------------------------------------------
Total Assets $281,566 $237,820 $234,927 $203,272 $170,768
Net Loans 188,804 149,308 131,385 116,961 96,955
Total Deposits 251,050 209,624 208,365 183,205 152,700
Stockholders' Equity 29,032 26,866 23,263 19,329 17,237
At or for the year ended December 31,
------------------------------------------------------------
Selected Financial Ratios: 2002 2001 2000 1999 1998
------------------------------------------------------------
Return on Average Assets (ROA) 1.30% 1.98% 1.92% 1.66% 1.67%
Return on Average Equity (ROE) 11.93% 18.32% 19.47% 17.07% 16.05%
Equity to Total Assets at Year-End 10.31% 11.30% 9.90% 9.51% 10.09%
Dividend Payout Ratio 41.27% 27.60% 14.84% 17.53% 20.13%
13
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATION
The following discussion and analysis of financial condition and results of
operations should be read in conjunction with the Company's consolidated
financial statements and the notes thereto included herein. When necessary,
reclassifications have been made to prior years' data throughout the following
discussion and analysis for purposes of comparability.
In addition to historical information, this discussion and analysis contains
forward-looking statements. The forward-looking statements contained herein are
subject to certain risks and uncertainties that could cause actual results to
differ materially from those projected in the forward-looking statements.
Important factors that might cause such a difference include, but are not
limited to, those discussed in this section, and also include economic
conditions, both in the Company's trade area and nationally, changes in interest
rates and monetary policy, the continued viability of the Company's customers
and a variety of other matters, most, if not at all of which, are beyond the
Company's control. Readers are cautioned not to place undue reliance on these
forward-looking statements, which reflect management's analysis only as of the
date of the report. The Company undertakes no obligation to publicly revise or
update these forward-looking statements to reflect events and circumstances that
arise after such date.
OVERVIEW AND STRATEGY
The Company was formed in 1996 to act as a holding company for the Bank, which
began full service operation as a commercial bank on March 15, 1990. The Company
accepts deposits from the general public, including individuals, businesses,
non-profit organizations and governmental units located primarily within its
trade area. The Company makes commercial loans, consumer loans, residential and
commercial real estate loans, and issues both mastercard and visa credit cards.
In addition, the Company provides other customer services and makes investments
in securities, as permitted by law. The Company has sought to offer an
alternative, community-oriented style of banking in an area presently dominated
by larger, statewide and national institutions. The Company has sought to be a
positive force in its area by assisting in the development of the residential
sector; by serving the needs of small and medium-sized businesses and the local
professional community, and by meeting the requirements of individuals residing,
working, and shopping in the eastern Bergen County, New Jersey market area by
extending consumer, commercial, and real estate loans and by offering depository
services. The Company believes that the following attributes have made the
Company attractive to local business people and residents:
-- Competitively priced services;
-- Strategically located branch offices;
-- Full service business hours of 7:00 am to 7:00 pm weekdays and
9:00 am to 1:00 pm Saturdays;
-- Local conditions and needs are taken into account when
deciding loan applications and making other business decisions
affecting members of the community;
-- Responsiveness to requests for information and services by
depositors and others; and
-- Positive involvement in the community affairs of eastern
Bergen County.
14
Since opening in 1990, the Bank has increased its branch network to eleven
branches, including its main office.
RESULTS OF OPERATIONS - 2002 versus 2001
The Company's results of operations depend primarily on its net interest income,
which is the difference between the interest earned on its interest-earning
assets and the interest paid on funds borrowed to support those assets,
primarily deposits. Net interest margin is the difference between the weighted
average rate received on interest-earning assets and the weighted average rate
paid on interest-bearing liabilities, as well as the average level of
interest-earning assets as compared with that of interest-bearing liabilities.
Net income is also affected by the amount of non-interest income and other
operating expenses.
15
NET INCOME
For the year ended December 31, 2002, net income decreased by $1,211,000, or
26.5%, to $3,358,000 from $4,569,000 for the year ended December 31, 2001. The
decrease in net income for the year ended December 31, 2002 compared to 2001
included increase in the provision for loan losses, increases in non-interest
expense associated with opening and staffing of four new branches, funding of
the Directors' Retirement Plan, and included an increase of almost 2.5% in the
Company's effective tax rate as a result of the New Jersey State Legislature's
enactment of the Business Tax Reform Act. Additionally, certain expenses related
to the proposed merger with Interchange Financial Services Corporation
contributed to the decrease in net income. The Company experienced an increase
in non-interest income, reaching $2,522,000 for the year ended December 31, 2002
from $1,907,000 for the same period in 2001. The increase in non-interest income
reflects the combination of an increase in average deposit levels and a
recognized gain of $102,500 from the sale of a security during the second
quarter 2002.
On a per share basis, basic earnings per share for the year ended December 31,
2002 were $0.95 as compared to $1.29 for the year ended December 31, 2001,
representing a decrease of 26.4%. Diluted earnings per share were $0.91 for 2002
as compared to $1.25 for 2001. All share data has been restated to reflect all
stock dividends and stock splits through the March 5, 2002 stock dividend.
Analysis of Net Interest Income
Net interest income represents the difference between income on interest-earning
assets and expense on interest-bearing liabilities. Net interest income depends
upon the volume of interest-earning assets and interest bearing liabilities and
the interest rate paid on them. For the year ended December 31, 2002, net
interest income increased by $660,000, or 5.7%, to $12,298,000 from $11,638,000
for the year ended December 31, 2001. This increase in net interest income is
primarily the result of a 47.0% decrease in interest expense from $3,191,000 in
2001 to $1,691,000 in 2002, partially offset by a reduction of $840,000 in total
interest income. The decrease in interest expense reflects a reduction in the
rates paid on the Company's interest bearing liabilities to 1.16% for the twelve
months ended December 31, 2002 from the 2.41% paid in the prior year, as well as
an $11.1 million increase in the average balance of non-interest bearing
deposits year over year. The reductions in rate were partially offset by a $13.7
million increase in the average balance of interest bearing liabilities for 2002
compared to 2001.
Average Balance Sheets
The following table sets forth certain information relating to the Company's
average assets and liabilities for the years ended December 31, 2002, 2001, and
2000, and reflects the average yield on assets and average cost of liabilities
for the period indicated. Such yields are derived by dividing income or expense,
on a tax-equivalent basis, by the average balance of assets or liabilities,
respectively, for the periods shown. Securities available for sale are reflected
in the following table at amortized cost. Non-accrual loans are included in the
average loan balance. Amounts have been computed on a fully tax-equivalent
basis, assuming a blended tax rate of 38% in 2002 and 36% during 2001 and 2000.
16
For the years ended December 31,
(dollars in thousands)
2002 2001 2000
----------------------------- ----------------------------- -----------------------------
Average Average Average Average Average Average
Balance Interest Yield/Cost Balance Interest Yield/Cost Balance Interest Yield/Cost
--------- -------- ---------- --------- -------- ---------- --------- -------- ----------
ASSETS :
Interest-Earning Assets:
Loans (net of unearned income) $169,712 $12,010 7.08% $136,732 $11,115 8.13% $125,214 $11,048 8.82%
Tax-Exempt Securities 8,214 295 3.59 7,684 501 6.52 10,375 620 5.98
Taxable Investment Securities 33,455 1,418 4.24 43,347 2,433 5.61 52,225 3,209 6.15
Federal Funds Sold 19,517 306 1.57 22,321 913 4.09 7,394 490 6.63
Interest-earning cash accounts 2,469 55 2.23 226 13 5.75 513 38 7.41
FHLB Stock 431 17 3.94 480 34 7.08 512 38 7.42
--------- -------- --------- -------- --------- --------
Total Interest-earning Assets 233,798 14,101 6.03% 210,790 15,009 7.12% 196,233 15,443 7.87%
--------- -------- --------- -------- --------- --------
Non-interest earning Assets 26,378 21,453 18,294
Allowance for Loan Losses (1,650) (1,499) (1,368)
--------- --------- ---------
TOTAL ASSETS $258,526 $230,744 $213,159
========= ========= =========
LIABILITIES AND
STOCKHOLDERS' EQUITY
Interest-Bearing
Liabilities :
Demand Deposits $45,132 $236 0.52% $38,725 $472 1.22% $31,673 $551 1.74%
Savings Deposits 29,301 136 0.46 22,857 219 0.96 22,144 310 1.40
Money Market Deposits 25,681 201 0.78 15,988 213 1.33 14,133 265 1.88
Time Deposits 45,643 1,117 2.45 52,840 2,212 4.19 59,897 3,136 5.24
Short Term Borrowings 64 1 1.56 1,760 75 4.26 206 28 6.59
---------- -------- ---------- -------- --------- --------
Total Interest-Bearing
Liabilities 145,821 1,691 1.16% 132,170 3,191 2.41% 128,053 4,290 3.35%
---------- -------- ---------- -------- --------- --------
Non-Interest Bearing
Liabilities:
Demand Deposits 83,650 72,535 62,863
Other Liabilities 913 1,094 1,178
---------- ---------- ---------
Total Non-Interest Bearing
Liabilities 84,563 73,629 64,041
Stockholders' Equity 28,142 24,945 21,065
---------- ---------- ---------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $258,526 $230,744 $213,159
========== ========== =========
Net Interest Income
(Tax Equivalent Basis) $12,410 $11,818 $11,153
Tax Equivalent Basis
adjustment (112) (180) (211)
--------- --------- --------
Net Interest Income $12,298 $11,638 $10,942
========= ========= ========
Net Interest Rate Spread 4.87% 4.71% 4.52%
========= ========= ========
Net Interest Margin 5.31% 5.61% 5.68%
========= ========= ========
Ratio of Interest-Earning
Assets to Interest-
Bearing Liabilities 1.60 1.59 1.53
========== ========== =========
17
Rate/Volume Analysis
The following table presents, by category, the major factors that contributed to
the changes in net interest income on a tax equivalent basis for each of the
years ended December 31, 2002 and 2001.
Year Ended Year Ended
December 31, December 31,
2002 versus 2001 versus
2001 2000
--------------------------------- ----------------------------------------
( in thousands )
Increase (Decrease) Increase (Decrease)
due to change in due to change in
Average Average
Volume Rate Net Volume Rate Net
--------------------------------- ----------------------------------------
Interest Income :
Loans (net of
unearned income) $ 2,677 $ (1,782) $ 895 $ 1,016 $ (949) $ 67
Tax Exempt Securities 35 (241) (206) (161) 42 (119)
Taxable Investment
Securities (557) (458) (1,015) (546) (230) (776)
Federal Funds Sold (115) (492) (607) 990 (567) 423
Interest earning cash
accounts 129 (87) 42 (21) (4) (25)
Federal Home Loan
Bank Stock (3) (14) (17) (2) (2) (4)
--------------------------------- ----------------------------------------
Total Interest Income 2,166 (3,074) (908) 1,276 (1,710) (434)
--------------------------------- ----------------------------------------
Interest Expense :
Demand Deposits 80 (316) (236) 123 (202) (79)
Savings Deposits 64 (147) (83) 10 (101) (91)
Money Market Deposits 129 (141) (12) 35 (87) (52)
Time Deposits (301) (794) (1,095) (370) (554) (924)
Short Term Borrowings (72) (2) (74) 102 (55) 47
--------------------------------- ----------------------------------------
Total Interest
Expense (100) (1,400) (1,500) (100) (999) (1,099)
--------------------------------- ----------------------------------------
Net change in
Interest Income $ 2,266 $ (1,674) $ 592 $ 1,376 $ (711) $ 665
================================= ========================================
18
PROVISION FOR LOAN LOSSES
For the year ended December 31, 2002, the Company's provision for loan losses
was $570,000, an increase of $405,000 from the provision of $165,000 for the
year ended December 31, 2001. The increased provision is directly related to the
growth of the loan portfolio, which experienced an increase of 26.3% from $151.4
million at December 31, 2001 to $191.2 million at December 31, 2002 as well as
an increase in net charge-offs which experienced a $226,000 increase during
2002.
OTHER INCOME
Other income, which was primarily attributable to service fees received from
deposit accounts, for the year ended December 31, 2002, was $2,522,000, an
increase of $615,000 or 32.2% above the $1,907,000 received during the year
ended December 31, 2001. The increase in other income reflects the combination
of an increase in average deposit levels and a recognized gain of $102,500 from
the sale of a security during the second quarter 2002.
OTHER EXPENSES
Other expenses for the year ended December 31, 2002 amounted to $8,826,000, an
increase of $2,257,000 or 40.1% over the $6,299,000 for the year ended December
31, 2001. This increase is related, primarily, to opening and staffing of four
new branches, data processing costs, increases for employee and director
benefits, as well as other administrative expenses resulting from the Company's
growth since December 31, 2001 or related to the proposed merger.
INCOME TAX EXPENSE
The income tax provision, which includes both federal and state taxes, for the
years ended December 31, 2002 and 2001 was $2,066,000 and $2,512,000,
respectively. The income tax expense includes the effect of an almost 2.5%
increase in the Company's effective tax rate as a result of the New Jersey State
Legislature's enactment of the Business Tax Reform Act during 2002.
RESULTS OF OPERATIONS - 2001 versus 2000
NET INCOME
For the year ended December 31, 2001, net income increased by $467,000 or 11.4%
to $4,569,000 from $4,102,000 for the year ended December 31, 2000. The increase
in net income for 2001 compared to 2000 is a result of a 6.4% increase in net
interest income to $11,638,000 from $10,942,000 in the prior year coupled with a
27.0%, or $406,000, increase in fee income to $1,907,000 from $1,501,000 for
2000. The increase in net interest income is primarily the result of a 25.6%
decrease in interest expense from $4,290,000 in 2000 to $3,191,000 in 2001.
Other expenses increased by $349,000 or 5.9%, to $6,299,000 for the year ended
December 31, 2001 from $5,950,000 for the year ended December 31, 2000. This
increase is related primarily to data processing fees, customary increases for
salary and employee benefits, as well as other administrative expenses resulting
from the Company's growth since December 31, 2000.
19
On a per share basis, basic earnings per share for the year ended December 31,
2001 were $1.29 as compared to $1.16 for the year ended December 31, 2000,
representing an increase of 11.2%. Diluted earnings per share were $1.25 for
2001 as compared to $1.13 for 2000. All share data has been restated to reflect
all stock dividends and stock splits through the March 5, 2002 stock dividend.
FINANCIAL CONDITION
At December 31, 2002, the Company's total assets were $281,566,000 compared to
$237,820,000 at December 31, 2001. Total loans increased to $191,226,000 at
December 31, 2002 from $151,384,000 at December 31, 2001. Total deposits at year
end 2002 were $251,050,000 compared to $209,624,000 at December 31, 2001.
LOAN PORTFOLIO
At December 31, 2001, the Company's total loans were $191,226,000, an increase
of $39,842,000 or 26.3% over total loans of $151,384,000 at December 31, 2001.
The increase in the loan portfolio continues to be attributable to the effect of
customer referrals, selective marketing, and growth within the local Bergen
County community as well as the effect of successful marketing and networking
related to the four new branches. Management believes that the Company will
remain successful in loan acquisition within this market due to the fact that,
through mergers and acquisitions, the Company's trade area is now primarily
served by large institutions, frequently headquartered out of state. Management
maintains that it is not cost-efficient for these larger institutions to provide
the level of personal service to small business borrowers.
The Company's loan portfolio consists of commercial loans, real estate loans,
and consumer loans. Commercial loans are made for the purpose of providing
working capital, financing the purchase of equipment or inventory, as well as
for other business purposes. Real estate loans consist of loans secured by
commercial or residential real property and loans for the construction of
commercial or residential property. Consumer loans are made for the purpose of
financing the purchase of consumer goods, home improvements, and other personal
needs, and are generally secured by the personal property being purchased.
The Company's loans are primarily to businesses and individuals located in
eastern Bergen County, New Jersey. The Company has not made loans to borrowers
outside of the United States. Commercial lending activities are focused
primarily on lending to small business borrowers. The Company believes that its
strategy of customer service, competitive rate structures, and selective
marketing have enabled the Company to gain market entry to local loans. Bank
mergers and lending restrictions at larger banks competing with the Company have
also contributed to the Company's efforts to attract borrowers.
20
The following table sets forth the classification of the Company's loans by
major category as of December 31, 2002, 2001, 2000, 1999, and 1998,
respectively:
December 31,
--------------------------------------------------------------
2002 2001 2000 1999 1998
----------- ---------- ----------- ---------- ------------
(in thousands)
Commercial and Industrial $32,187 $30,655 $26,087 $17,610 $18,906
Real Estate :
Non-residential properties 73,508 65,633 55,699 51,553 33,487
Residential properties 62,558 43,112 43,000 39,981 37,703
Construction 18,158 8,443 4,902 6,901 5,443
Consumer 4,815 3,541 3,567 2,500 2,694
----------- ---------- ----------- ---------- ------------
Total Loans $191,226 $151,384 $133,255 $118,545 $98,233
=========== ========== =========== ========== ============
The following table sets forth fixed and adjustable rate loans as of December
31, 2002 in terms of interest rate sensitivity (in thousands) :
Within
One Year 1 to 5 After 5
Years Years Total
--------- --------- --------- -----------
Loans with Fixed Rate $23,998 $23,689 $92,224 $139,911
Loans with Adjustable Rate 48,980 1,489 846 51,315
ASSET QUALITY
The Company's principal assets are its loans. Inherent in the lending function
is the risk of the borrower's inability to repay a loan under its existing
terms. Risk elements include non-accrual loans, past due and restructured loans,
potential problem loans, loan concentrations, and other real estate owned.
Non-performing assets include loans that are not accruing interest (non-accrual
loans) as a result of principal or interest being in default for a period of 90
days or more. When a loan is classified as non-accrual, interest accruals
discontinue and all past due interest, including interest applicable to prior
years, is reversed and charged against current income. Until the loan becomes
current, any payments received from the borrower are applied to outstanding
principal until such time as management determines that the financial condition
of the borrower and other factors merit recognition of such payments of
interest.
The Company attempts to minimize overall credit risk through loan
diversification and its loan approval procedures. Due diligence begins at the
time a borrower and the Company begin to discuss the origination of a loan.
Documentation, including a borrower's credit history, materials establishing the
value and liquidity of potential collateral, the purpose of the loan, the source
and timing of the repayment of the loan, and other factors are analyzed before a
loan is submitted for approval. Loans made are also subject to periodic audit
and review.
21
The following table sets forth information concerning the Company's
non-performing assets as of the dates indicated :
December 31,
--------------------------------------------------------------
2002 2001 2000 1999 1998
----------- ---------- ----------- ----------- -----------
(in thousands)
Non-performing loans $0 $0 $25 $25 $0
Other real estate owned 0 0 0 0 163
----------- ---------- ----------- ----------- -----------
Total non-performing assets $0 $0 $25 $25 $163
Non-performing assets to total gross
loans and other real estate
owned N/A N/A 0.02% 0.02% 0.17%
Non-performing assets to total
assets N/A N/A 0.01% 0.01% 0.10%
Non-performing loans to total gross
loans N/A N/A 0.02% 0.02% 0.00%
Allowance for possible loan losses
as a percentage of
non-performing loans N/A N/A 5,892.00% 5,240.00% N/A
As of December 31, 2002 and 2001, respectively, the Company had no non-accrual
loans. At December 31, 2000, the Company had one non-accrual loan which
represented a line of credit.
Other than as disclosed above, there were no loans where information about
possible credit problems of borrowers causes management to have serious doubts
as to the ultimate collectibility of such loans.
As of December 31, 2002 and 2001, there were no concentrations of loans
exceeding 25% of the Company's total loans and the Company had no foreign loans.
The Company's loans are primarily to businesses and individuals located in
eastern Bergen County, New Jersey.
22
ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses represents a critical accounting policy. The
allowance is a reserve established through charges to earnings in the form of a
provision for loan losses. The Company maintains an allowance for loan losses at
a sufficient level to provide for losses inherent in the loan portfolio. Loan
losses are charged directly to the allowance when they occur and any recovery is
credited to the allowance. Risks within the loan portfolio are analyzed on a
continuous basis by the Company's officers, by external independent loan review
function, and by the Company's audit committee. A risk system, consisting of
multiple grading categories, is utilized as an analytical tool to assess risk
and appropriate reserves. In addition to the risk system, management further
evaluates risk characteristics of the loan portfolio under current and
anticipated economic conditions and considers such factors as the financial
condition of the borrower, past and expected loss experience, and other factors
which management feels deserve recognition in establishing an appropriate
reserve. These estimates are reviewed at least quarterly, and, as adjustments
become necessary, they are realized in the periods in which they become known.
Additions to the allowance are made by provisions charged to the expense and the
allowance is reduced by net-chargeoffs (i.e. loans judged to be uncollectible
are charged against the reserve, less any recoveries on the loans.) Although
management attempts to maintain the allowance at an adequate level, future
additions to the allowance may be required based upon changes in market
conditions. Additionally, various regulatory agencies periodically review the
allowance for loan losses. These agencies may require additional provisions
based upon their judgment about information available to them at the time of
their examination. Although management uses the best information available, the
level of the allowance for loan losses remains an estimate which is subject to
significant judgment and short term change.
The Company's allowance for loan losses totaled $1,916,000 and $1,605,000 at
December 31, 2002 and 2001, respectively. This increase in the allowance is due
to the continued growth of the loan portfolio. The following is a summary of the
reconciliation of the allowance for loan losses for the periods indicated :
At December 31,
-------------------------------------------------------------
2002 2001 2000 1999 1998
---------- ---------- ----------- ---------- ------------
(in
thousands)
Balance, beginning of year $1,605 $1,473 $1,310 $1,127 $1,009
Charge-offs
Commercial and Industrial (2) (25) (25) - -
Real Estate (267) (30) - - -
Consumer (7) - (4) (13) (22)
---------- ---------- ----------- ---------- ------------
Total Charge-offs (276) (55) (29) (13) (22)
Recoveries
Commercial and Industrial - - 2 - -
Real Estate 17 - - - -
Consumer - 22 - 1 -
---------- ---------- ----------- ---------- ------------
Total Recoveries 17 22 2 1 -
Provision charged to expense 570 165 190 195 140
---------- ---------- ----------- ---------- ------------
Balance, end of year $1,916 $1,605 $1,473 $1,310 $1,127
Ratio of net charge-offs to average
loans outstanding 0.15% 0.02% 0.02% 0.01% 0.03%
Balance of allowance at end of year as
a percentage of loans at end of year 1.00% 1.06% 1.11% 1.11% 1.15%
23
The following table sets forth, for each of the Company's major lending areas,
the amount and percentage of the Company's allowance for loan losses
attributable to such category, and the percentage of total loans represented by
such category, as of the periods indicated:
Allocation of the Allowance for Loan Losses by Category
For the years ended December 31,
(dollars in thousands)
2002 2001 2000 1999 1998
% of % of % of % of % of
Total Total Total Total Total
Amount % of Loans Amount % of Loans Amount % of Loans Amount % of Loans Amount % of Loans
ALL ALL ALL ALL ALL
---------------------------------------------------------------------------------------------------------
Balance applicable to:
Commercial $692 36.12% 16.83% $613 38.19% 20.25% $506 34.36% 19.58% $466 35.57% 14.86% $342 30.35% 19.25%
Real Estate :
Non-
residential
property 499 26.04% 38.44% 456 28.41% 43.35% 416 28.24% 41.80% 350 26.72% 43.48% 306 27.15% 34.09%
Residential
property 403 21.03% 32.71% 279 17.38% 28.86% 279 18.94% 34.55% 233 17.79% 35.50% 224 19.88% 38.38%
Construction 182 9.50% 9.50% 84 5.23% 5.58% 50 3.39% 3.68% 68 5.19% 5.82% 54 4.79% 5.54%
Consumer 60 3.13% 2.52% 39 2.44% 1.96% 36 2.44% 0.39% 26 1.98% 0.34% 22 1.95% 2.74%
-------------- -------------- -------------- -------------- --------------
Sub-total $1,836 95.82%100.00%$1,471 91.65%100.00%$1,287 87.37%100.00%$1,143 87.25%100.00% $948 84.12%100.00%
-------------- -------------- -------------- -------------- --------------
Unallocated
Reserves 80 4.18% 134 8.35% 186 12.63% 167 12.75% 179 15.88%
------- ------- ------- ------- -------
TOTAL $1,916 100.00%100.00%$1,605 100.00%100.00%$1,473 100.00%100.00%$1,310 100.00%100.00%$1,127 100.00%100.00%
=========================================================================================================
24
INVESTMENT SECURITIES
The Company maintains an investment portfolio to fund increased loan demand or
deposit withdrawals and other liquidity needs and to provide an additional
source of interest income. The portfolio is composed of U.S. Treasury
Securities, obligations of U.S. Government Agencies, selected municipal and
state obligations, stock in the Federal Home Loan Bank, and equity securities of
another financial institution.
Securities are classified as "held-to-maturity" (HTM), "available for sale"
(AFS), or "trading" at time of purchase. Securities classified as HTM are based
upon management's intent and the Company's ability to hold them to maturity.
Such securities are stated at cost, adjusted for unamortized purchase premiums
and discounts. Securities which are bought and held principally for the purpose
of selling them in the near term are classified as trading securities, which are
carried at market value. Realized gains and losses as well as gains and losses
from marking the portfolio to market value are included in trading revenue. The
Company has no trading securities. Securities not classified as HTM or trading
securities are classified as AFS and are stated at fair value. Unrealized gains
and losses on AFS securities are excluded from results of operations, and are
reported as a component of accumulated other comprehensive income(loss) which is
included in stockholders' equity, net of taxes. Securities classified as AFS
include securities that may be sold in response to changes in interest rates,
changes in prepayment risks, the need to increase regulatory capital, or other
similar requirements.
Management determines the appropriate classification of securities at the time
of purchase. At December 31, 2002, $525,000 of the Company's investment
securities were classified as held to maturity and $40,110,000 were classified
as available for sale. At December 31, 2002, the Company held no securities
which it classified as trading securities.
At December 31, 2002, total investment securities were $40,635,000, a decrease
of $11,338,000, from total investment securities of $51,973,000 at December 31,
2001. This decrease in investment securities from year end 2001 to year end 2002
reflects the maturity of investment securities which continue to be used to fund
loan growth.
25
The following table sets forth the carrying value of the Company's security
portfolio as of the dates indicated.
At December 31,
-----------------------------------------------------------------
(in thousands)
2002 2001 2000
-------------------- ---------------------- --------------------
Amortized Market Amortized Market Amortized Market
Cost Value Cost Value Cost Value
--------- --------- --------- ---------- ---------- ----------
Available for sale
U.S. Government and agency
Obligations $29,322 $29,824 $34,702 $35,080 $20,076 $20,076
Municipal and state
obligations 9,536 9,536 2,878 2,878 - -
FHLBNY stock 431 431 430 430 512 512
Other equity securities 469 319 469 340 469 340
--------- --------- --------- ---------- --------- ----------
Total available for sale $39,758 $40,110 $38,479 $38,728 $21,057 $20,928
Held to Maturity
U.S. Government and agency
Obligations $ 525 $ 558 $ 8,573 $ 8,682 $24,586 $24,636
Municipal and state
obligations - - 4,672 4,671 10,155 10,160
--------- --------- --------- ---------- --------- ----------
Total held to maturity $525 $558 $13,245 $13,353 $34,741 $34,796
Total Investment
Securities $40,283 $40,668 $51,724 $52,081 $55,798 $55,724
========= ========= ========= ========== ========= ==========
The following table sets forth as of December 31, 2002 and December 31, 2001,
the maturity distribution of the Company's debt investment portfolio :
Maturity of Debt Investment Securities
December 31, 2002
(in thousands)
Securities Securities
Held to Maturity Available for Sale
Weighted Weighted
Amortized Market Average Amortized Market Average
Cost Value Yield Cost Value Yield
---------- ---------- --------- ---------- --------- ----------
Within 1 year - - - $14,557 $14,698 2.74%
1 to 5 years $525 $558 5.00% 22,196 22,518 3.58%
Over 5 years - - - 2,105 2,144 5.00%
---------- ---------- ---------- ---------
$525 $558 $38,858 $39,360
========== ========== ========== =========
26
December 31, 2001
(in thousands)
Securities Securities
Held to Maturity Available for Sale
Weighted Weighted
Amortized Market Average Amortized Market Average
Cost Value Yield Cost Value Yield
---------- ---------- --------- ---------- --------- ----------
Within 1 year $12,709 $12,807 5.14% $2,878 $2,878 3.30%
1 to 5 years 536 546 5.00% 33,703 34,073 4.77%
Over 5 years - - - 999 1,007 8.02%
---------- ---------- ---------- ---------
$13,245 $13,353 $37,580 $37,958
========== ========== ========== =========
During 2002, the Company sold one security and recognized a gain of $102,500
from the transaction. The Company sold no securities from its portfolio during
2001.
DEPOSITS
Deposits are the Company's primary source of funds. The Company experienced a
growth in average deposit balances of $26,462,000 or 11.5% to $229,407,000 at
December 31, 2002 as compared to $202,945,000 at December 31, 2001. This market
penetration was accomplished as a result of the combined effect of four new
branches and continued customer referrals during 2002. Average non-interest
bearing demand deposits increased by $11,115,000 or 15.3% and average interest
bearing demand deposits increased by $16,100,000 or 29.4% from 2001 to 2002.
Average time deposits experienced a decrease of $7,197,000, or 13.6%, from
$52,840,000 in 2001 to $45,643,000 in 2002. The aggregate amount of average
non-interest bearing deposits totaled 36.5% of the Company's total average
deposits at December 31, 2002 as compared to 35.7% at December 31, 2001. The
Company has no foreign deposits, nor are there any material concentrations of
deposits.
The following table sets forth the average amount of various types of deposits
for each of the periods indicated :
December 31,
(Dollars in Thousands)
2002 2001 2000
---------------------- ---------------------- ------------------------
Average Average Average
Amount Yield/Rate Amount Yield/Rate Amount Yield/Rate
---------- ---------- --------- ---------- --------- --------------
Non-interest Bearing
Demand $83,650 - $72,535 - $62,863 -
Interest Bearing Demand 70,813 0.62% 54,713 1.25% 45,806 1.78%
Savings 29,301 0.46% 22,857 0.96% 22,144 1.40%
Time Deposits 45,643 2.45% 52,840 4.19% 59,897 5.24%
---------- --------- ---------
$229,407 $202,945 $190,710
========== ========= =========
27
The Company does not actively solicit short-term deposits of
$100,000 or more because of the liquidity risks posed by such
deposits. The following table summarizes the maturity distribution of
certificates of deposit of denominations of $100,000 or more as of
December 31, 2002
(in thousands).
Three months or less $ 11,264
Over three months through twelve months 5,929
Over one year through three years 427
Over three years 0
Total $ 17,620
LIQUIDITY
The Company's liquidity is a measure of its ability to fund loans,
withdrawals or maturities of deposits, and other cash outflows in a
cost-effective manner. The Company's principal sources of funds are
deposits, scheduled amortization and prepayments of loan principal,
maturities of investment securities, and funds provided by operations.
While scheduled loan payments and maturing investments are relatively
predictable sources of funds, deposit flow and loan prepayments are
greatly influenced by general interest rates, economic conditions, and
competition.
The Company's total deposits equaled $251,050,000 at December 31,
2002 as compared to $209,624,000 at December 31, 2001. The increase in
funds provided by deposit inflows during this period has been
sufficient to provide for the Company's loan demand.
Through the investment portfolio, the Company has generally sought
to obtain a safe, yet slightly higher yield than would have been
available to the Company as a net seller of overnight federal funds
while still maintaining liquidity. Through its investment portfolio,
the Company also attempts to manage its maturity gap by seeking
maturities of investments which coincide as closely as possible with
maturities of deposits. The investment portfolio also includes
securities held for sale to provide liquidity for anticipated loan
demand and liquidity needs.
Although the Company has traditionally been a net "seller" of
federal funds, the Company does have lines of credit with the Federal
Home Loan Bank of New York and First Tennessee Bank for "purchase" of
federal funds in the event that temporary liquidity needs arise. The
Company also has the ability to borrow from the Federal Home Loan Bank
of New York should that need arise.
Management believes that the Company's current sources of funds
provide adequate liquidity for the current cash flow needs of the
Company.
28
INTEREST RATE SENSITIVITY ANALYSIS
The principal objective of the Company's asset and liability
management function is to evaluate the interest-rate risk included in
certain balance sheet accounts; determine the level of risk
appropriate given the Company's business focus, operating environment,
capital and liquidity requirements; establish prudent asset
concentration guidelines; and manage the risk consistent with Board
approved guidelines. The Company seeks to reduce the vulnerability of
its operations to changes in interest rates and to manage the ratio of
interest-rate sensitive assets to interest-rate sensitive liabilities
within specified maturities or repricing dates. The Company's actions
in this regard are taken under the guidance of the Asset/Liability
Committee (ALCO) of the Board of Directors. The ALCO generally reviews
the Company's liquidity, cash flow needs, maturities of investments,
deposits and borrowings, and current market conditions and interest
rates.
One of the monitoring tools used by the ALCO is an analysis of the
extent to which assets and liabilities are interest rate sensitive and
measures the Company's interest rate sensitivity "gap". An asset or
liability is said to be interest rate sensitive within a specific time
period if it will mature or reprice within that time period. A gap is
considered positive when the amount of interest rate sensitive assets
exceeds the amount of interest rate sensitive liabilities. A gap is
considered negative when the amount of interest rate sensitive
liabilities exceeds the amount of interest rate sensitive assets.
Accordingly, during a period of rising rates, a negative gap may
result in the yield on the institution's assets increasing at a slower
rate than the increase in its cost of interest-bearing liabilities
resulting in a decrease in net interest income. Conversely, during a
period of falling interest rates, an institution with a negative gap
would experience a repricing of its assets at a slower rate than its
interest-bearing liabilities which, consequently, may result in its
net interest income growing.
The following table sets forth the amounts of interest-earning
assets and interest-bearing liabilities outstanding at the periods
indicated which are anticipated by the Company, based upon certain
assumptions, to reprice or mature in each of the future time periods
presented. Except as noted, the amount of assets and liabilities which
reprice or mature during a particular period were determined in
accordance with the earlier of the term to repricing or the
contractual terms of the asset or liability. Because the Bank has no
interest bearing liabilities with a maturity greater than five years,
management believes that a static gap for the over five year time
period reflects a more accurate assessment of interest rate risk. The
Company's loan repayment assumptions are based upon actual historical
repayment rates. At December 31, 2002, the Company is within the
target gap range as established by the Asset/Liability Committee of
the Board of Directors.
29
Cumulative Rate Sensitive Balance Sheet
December 31, 2002
(in thousands)
0 - 3 0 - 6 0 - 1 Year 0 - 5 5 + Years All Others
Months Months Years TOTAL
----------- ------ ---------- -------- -------- ---------- -----
Investment Securities $2,056 $4,263 $14,644 $37,741 $2,144 $0 $39,885
Loans :
Commercial 33,298 36,527 43,924 58,379 72,920 0 131,299
Mortgages 1 39 429 9,957 19,666 0 29,623
Consumer 27,031 28,284 28,625 29,820 484 0 30,304
Federal Funds Sold 19,500 19,500 19,500 19,500 0 0 19,500
Other Assets 0 0 0 0 0 30,955 30,955
------------------------------------------------------------ ------------
TOTAL ASSETS $81,886 $88,613 $107,122 $155,397 $250,611 $281,566 $281,566
============================================================ ============
Transaction /
Demand Accounts $47,231 $47,231 $47,231 $47,231 $ 0 $ 0 $47,231
Money Market 21,049 21,049 21,049 21,049 0 0 21,049
Savings 33,113 33,113 33,113 33,113 0 0 33,113
CD's less than
$100,000 18,185 31,456 35,615 38,004 0 0 38,004
CD's greater than
$100,000 11,264 17,153 17,193 17,620 0 0 17,620
Other Liabilities 0 0 0 0 0 95,517 95,517
Equity 0 0 0 0 0 29,032 29,032
------------------------------------------------------------ ------------
TOTAL LIABILITIES AND
EQUITY $130,842 $150,002 $154,201 $157,017 $157,017 $281,566 $281,566
============================================================ ============
Dollar Gap (48,956) (61,389) (47,079) (1,620) 93,594
Gap / Total Assets -17.40% -21.82% -16.74% -0.58% 33.24%
Target Gap Range +/-35.0% +/- 30.0% +/- 25.0% +/-25.0% -
RSA / RSL 62.58% 59.07% 69.47% 98.97% 159.61%
(Rate Sensitive Assets to
Rate Sensitive Liabilities)
30
MARKET RISK
Market risk is the risk of loss from adverse changes in market
prices and rates. The Company's market risk arises primarily from
interest rate risk inherent in its lending and deposit taking
activities. Thus, management actively monitors and manages its
interest rate risk exposure.
The Company's profitability is affected by fluctuations in
interest rates. A sudden and substantial increase in interest rates
may adversely impact the Company's earnings to the extent that the
interest rates borne by assets and liabilities do not change at the
same speed, to the same extent, or on the same basis. The Company
monitors the impact of changing interest rates on its net interest
income using several tools. One measure of the Company's exposure to
differential changes in interest rates between assets and liabilities
is shown in the Company's Cumulative Rate Sensitive Balance Sheet
under the Interest Rate Sensitivity Analysis caption.
The Company's primary objective in managing interest rate risk is
to minimize the adverse impact of changes in interest rates on the
Company's net interest income and capital, while structuring the
Company's asset-liability structure to obtain the maximum yield-cost
spread on that structure. The Company relies primarily on its
asset-liability structure to control interest rate risk.
The Company continually evaluates interest rate risk management
opportunities. Management believes that hedging instruments currently
available are not cost-effective, and therefore, has focused its
efforts on increasing the Company's yield-cost spread through retail
growth opportunities.
The following table discloses the Company's financial instruments
that are sensitive to change in interest rates, categorized by
expected maturity, and the instruments' fair values at December 31,
2002. Market risk sensitive instruments are generally defined as on-
and off- balance sheet financial instruments.
31
Expected Maturity/Principal Repayment
December 31, 2002
(Dollars in thousands)
Avg. There- Fair
Int. After Total Value
Rate 2003 2004 2005 2006 2007
------ ----- ----- ----- ------- ----- ------ ----- -----
Interest
Rate
Sensitive
Assets :
Loans 7.08% 72,978 6,567 6,465 7,051 5,095 93,070 191,226 195,188
Tax Exempt
Securities 3.59% 9,536 -- -- -- -- -- 9,536 9,536
Investment
Securities 4.24% 5,108 10,288 9,707 1,010 2,092 2,144 30,349 30,382
Fed Funds
Sold 1.57% 19,500 -- -- -- -- -- 19,500 19,500
Interest
Bearing
Cash 2.23% 2,377 -- -- -- -- -- 2,377 2,377
Interest
Rate
Sensitive
Liabilities:
Demand
Deposits 0.52% 47,231 -- -- -- -- -- 47,231 47,231
Savings
Deposits 0.46% 33,113 -- -- -- -- -- 33,113 33,113
Money Market
Deposits
0.78% 21,049 -- -- -- -- -- 21,049 21,049
Time
Deposits 2.45% 52,808 2,816 -- -- -- -- 55,624 56,024
Short Term
Borrowings 1.56% -- -- -- -- -- -- -- --
CAPITAL
A significant measure of the strength of a financial institution
is its capital base. The Company's federal regulators have classified
and defined Company capital into the following components : (1) Tier I
Capital, which includes tangible shareholders' equity for common stock
and qualifying preferred stock, and (2) Tier II Capital, which
includes a portion of the allowance for possible loan losses, certain
qualifying long-term debt, and preferred stock which does not qualify
for Tier I Capital. Minimum capital levels are regulated by risk-based
capital adequacy guidelines which require certain capital as a percent
of the Company's assets and certain off-balance sheet items adjusted
for predefined credit risk factors (risk-adjusted assets).
A Bank Holding Company is required to maintain, at a minimum, Tier
I Capital as a percentage of risk-adjusted assets of 4.0% and combined
Tier I and Tier II Capital as a percentage risk-adjusted assets of
8.0%.
In addition to the risk-based guidelines, the Company's regulators
require that an institution which meets the regulator's highest
performance and operation standards maintain a minimum leverage ratio
(Tier I Capital as a percentage of tangible assets) of 3.0%. For those
institutions with higher levels of risk or that are experiencing or
anticipating significant growth, the minimum leverage ratio will be
evaluated through the ongoing regulatory examination process. The Bank
is subject to substantially similar regulations by its federal
regulations.
32
The following table summarizes the risk-based and leverage capital
ratios for the Company at December 31, 2002, as well as the required
minimum regulatory capital ratios :
Minimum
December 31, Regulatory
2002 Requirements
------------ -----------
Risk-Based Capital :
Tier I Capital Ratio 14.46% 4.0%
Total Capital Ratio 15.42% 8.0%
Leverage Ratio 10.40% 4.0%
IMPACT OF INFLATION AND CHANGING PRICES
The consolidated financial statements of the Company and notes
thereto, presented elsewhere herein, have been prepared in accordance
with generally accepted accounting principles, which require the
measurement of financial position and operating results in terms of
historical dollars without considering the change in the relative
purchasing power of money over time and due to inflation. The impact
of inflation is reflected in the increased cost of the Company's
operations. Unlike most industrial companies, nearly all of the assets
and liabilities of the Company are monetary. As a result, interest
rates have a greater impact on the Company's performance than do the
effects of general levels of inflation. Interest rates do not
necessarily move in the same direction or to the same extent as the
prices of goods and services.
RECENTLY ISSUED ACCOUNTING STANDARDS AND OTHER OPERATIONAL ISSUES
SFAS No. 145
In April, 2002, the FASB issued SFAS No. 145, Rescission of FASB
Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and
Technical Corrections. The Statement was issued to eliminate an
inconsistency in the required accounting for sale-leaseback
transactions and certain lease modifications that were similar to
sale-leaseback transactions and to rescind FASB Statement No. 44,
Accounting for Intangible Assets of Motor Carrier as well as amending
other existing authoritative pronouncements to make various technical
corrections.
SFAS No. 145 also rescinds SFAS No. 4, Reporting Gains and Losses
from Extinguishments of Debt and SFAS No. 64, Extinguishments of Debt
Made to Satisfy Sinking-Fund Requirements. Under SFAS No. 4, as
amended by SFAS No. 64, gains and losses from the extinguishment of
debt were required to be classified as an extraordinary item, if
material. Under SFAS No. 145, gains or losses from the extinguishment
of debt are to be classified as a component of operating income,
rather than as an extraordinary item. SFAS No. 145 is effective for
fiscal years beginning after May 15, 2002, with early adoption of the
provisions related to the rescission of SFAS No. 4 encouraged. Upon
adoption, companies must reclassify prior period amounts previously
classified as an extraordinary item. Management does not anticipate
that the initial adoption of SFAS No. 145 will have a significant
impact on the Company's consolidated financial statements.
33
SFAS No. 146
In July, 2002, the FASB issued SFAS No. 146, Accounting for Costs
Associated with Exit or Disposal Activities. The standard requires
companies to recognize costs associated with exit or disposal
activities when they are incurred rather than at the date of a
commitment to an exit or disposal plan. The Statement is to be applied
prospectively to exit or disposal activities initiated after December
31, 2002.
SFAS No. 147
In October, 2002, the FASB issued Statement No. 147, Acquisitions
of Certain Financial Institutions- an amendment to FASB Statements No.
72 and 144 and FASB Interpretation No. 9. This Statement removes
acquisitions of financial institutions from the scope of both
Statement 72 and Interpretation 9 and requires that those transactions
be accounted for in accordance with FASB Statements No. 141, Business
Combinations, and No. 142, Goodwill and Other Intangible Assets. The
provisions of Statement No. 147 that relate to the application of the
purchase method of accounting apply to all acquisitions of financial
institutions, except transactions between two or more mutual
enterprises.
Statement No. 147 clarifies that a branch acquisition that meets
the definition of a business should be accounted for as a business
combination, otherwise the transaction should be accounted for as an
acquisition of net assets that does not result in the recognition of
goodwill. The provisions of Statement No. 147 are effective October 1,
2002. This Statement will not have any impact on the consolidated
financial statements.
SFAS No. 148
In December, 2002, the Financial Accounting Standards Board (FASB)
issued Statement of Financial Accounting Standards (SFAS) No. 148,
"Accounting for Stock-Based Compensation, Transition and Disclosure."
SFAS No. 148 provides alternative methods of transition for a
voluntary change to the fair value based method of accounting for
stock-based employee compensation. SFAS No. 148 also requires that
disclosures of the pro forma effect of using the fair value method of
accounting for stock-based employee compensation be displayed more
prominently and in a tabular format. Additionally, SFAS No. 148
requires disclosure of the pro forma effect in interim financial
statements. The additional disclosure requirements of SFAS No. 148 are
effective for fiscal years ended after December 15, 2002. The Company
has adopted the expanded disclosure provisions of this statement
effective December 31, 2002.
34
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
See disclosures on market risk in Management's Discussion and
Analysis on pages 31 and 32.
ITEM 8. FINANCIAL STATEMENTS
The Consolidated Statements of Financial Condition of the Company
as of December 31, 2002 and 2001, and the related Consolidated
Statements of Income, Stockholders' Equity, and Cash Flows for each of
the years in the three year period ended December 31, 2002 are
included herein as indicated on the "Index to Consolidated Financial
Statements" on page 46.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURES
None.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
The following table sets forth the names of the directors of the
Company, their ages, a brief description of their recent business
experience, including present occupations, and the year in which each
became a director of the Company or the Bank.
Name, Age and Position with Principal Occupations During the Director Term
the Company Past Five Years Since (1) Expires
- ---------------------------------------------------------------------------------
Mark Metzger, 61, Director Private Investor 1988 2003
- ---------------------------------------------------------------------------------
Joseph C. Parisi, 77, Chairman and Chief Executive
Chairman of the Board Officer,
Otterstedt Insurance Agency 1988 2003
- ---------------------------------------------------------------------------------
John A. Schepisi, 58, Vice Senior Partner, Schepisi &
Chairman of the Board McLaughlin,
Attorneys at Law 1988 2003
- ---------------------------------------------------------------------------------
Albert F. Buzzetti, 63, President and Chief Executive
President and Chief Officer of the Company and the
Executive Officer, Bank
Director 1988 2004
- ---------------------------------------------------------------------------------
Jeremiah F. O'Connor, 46, President, USA Running Co. LLC
Director 1988 2005
- ---------------------------------------------------------------------------------
Gerald A. Calabrese, Jr., President, Century 21, Calabrese
52, Realty and Chairman and Chief
Director Executive Officer,Metropolitan
Mortgage Company 1988 2004
- ---------------------------------------------------------------------------------
Glenn L. Creamer, 50, Executive Vice President
Director J. Fletcher Creamer & Son, Inc.
(Construction) 1988 2004
- ---------------------------------------------------------------------------------
______________________
(1) Includes prior service on Board of Directors of the Bank
35
No director of the Company is also a director of any other company
registered pursuant to Section 12 of the Securities Exchange Act of
1934 or subject to the requirements of Section 15(d) of such Act or
any company registered as an investment company under the Investment
Company Act of 1940.
Board of Directors' Meetings
Pursuant to the New Jersey Business Corporation Act and the
Company's Bylaws, the Company's business and affairs are managed under
the direction of the Board of Directors. The Board of Directors of the
Company held 13 meetings during 2002. The Board of Directors holds
regularly scheduled meetings each month and special meetings as
circumstances require.
All of the directors of the Company attended at least 75% of the
total number of Board meetings held and committee meetings held during
2002.
Committees of the Board
During 2002, the Board of Directors maintained an Audit Committee,
Personnel Committee and a Stock Option Committee. The full Board of
Directors acts as a Nominating Committee.
Audit Committee. The Audit Committee of the Company and the Bank
consists of Directors Jeremiah F. O'Connor (Chairman), Glenn L.
Creamer, Joseph C. Parisi (ex officio), Mark Metzger, and John A.
Schepisi (ex officio).
Audit Committee Report
The Audit Committee meets periodically to consider the adequacy of
the Company's financial controls and the objectivity of its financial
reporting. The Audit Committee meets with the Company's independent
auditors and the Company's internal auditors, both whom have
unrestricted access to the Audit Committee.
All Directors who serve on the Audit Committee are "independent"
for purposes of the American Stock Exchange listing standards. The
Board has adopted a written charter for the Audit Committee setting
for the audit related functions the Audit Committee is to perform. A
copy of the Charter was attached as an exhibit to the Company's Proxy
Statement for the 2001 Annual Meeting.
In connection with this year's financial statements, the Audit
Committee has reviewed and discussed the Company's audited financial
statements with the Company's officers and KPMG, LLP, our independent
auditors. We have discussed with KPMG, LLP the matters required to be
discussed by Statement on Auditing Standards 61 (Communication with
Audit Committees). We also have received the written disclosures and
letters from KPMG, LLP required by Independence Standards Board
Standard No. 1 (Independence Discussions with Audit Committees), and
have discussed with representatives of KPMG, LLP their independence.
36
Based on these reviews and discussions, the Audit Committee
recommended to the Board of Directors that the audited financial
statements be included in the Company's Annual Report on Form 10-K/A for
the fiscal year 2002 for filing with the U.S. Securities and Exchange
Commission.
Jeremiah F. O'Connor (Chairman)
Glenn L. Creamer
Mark Metzger
Joseph C. Parisi (ex officio)
John A. Schepisi (ex officio)
Personnel Committee. The Company maintains a Personnel Committee
which sets the compensation for the executive officers of the Company
and provides oversight on executive hiring. In 2002, the Committee
consisted of Directors Jeremiah F. O'Connor, Jr. (Chairman), Gerald A.
Calabrese, Jr., Glenn L. Creamer, Albert F. Buzzetti, Joseph C. Parisi
(ex officio) and John A. Schepisi (ex officio) and met one time.
Stock Option Committee. The Company maintains a Stock Option
Committee which recommends granting of certain stock options form time
to time and determines the exercise price at which such options may be
granted. The Committee met one time in 2002. The Committee consists of
Directors, Mark Metzger, Jeremiah F. O'Connor, Jr., Albert F.
Buzzetti, Joseph C. Parisi (ex officio) and John A. Schepisi (ex
officio).
Compensation of Directors
Directors' Fees. Directors of the Company, other than full-time
employees of the Company, received fees of $800 per Board meeting
attended and $400 per committee meeting attended in 2002. For 2003 the
fees will remain unchanged.
1994 Stock Option Plan for Non-Employee Directors. The Company
maintains the 1994 Stock Option Plan for Non-Employee Directors (the
"1994 Non-Employee Plan"). Under the 1994 Non-Employee Plan, 146,174
shares of Common Stock have been reserved for issuance. Non-employee
directors of the Company, the Bank and any other subsidiaries which
the Company may acquire or incorporate may participate in the 1994
Non-Employee Plan. Under the 1994 Non-Employee Plan, each current
non-employee member of the Board of Directors has received options to
purchase 21,926 shares of Common Stock at exercise prices ranging from
$3.16 to $3.40, 100% of the fair market value on the date such options
were granted. No options remain available for grant under the 1994
Non-Employee Plan.
1998 Stock Option Plan for Non-Employee Directors. The Company
maintains the 1998 Stock Option Plan for Non-Employee Directors (the
"1998 Non-Employee Plan"). Under the 1998 Non-Employee Plan, 186,760
shares of Common Stock have been reserved for issuance. Non-employee
directors of the Company, the Bank and any other subsidiaries which
the Company may acquire or incorporate may participate in the 1998
Non-Employee Plan. Under the 1998 Non-Employee Plan, each current
non-employee member of the Board of Directors has received options to
purchase 22,680 shares of Common Stock at an exercise price of $20.05,
100% of the fair market value on the date such options were granted.
Under the 1998 Non-Employee Plan, 13,339 options remain available for
grant.
37
2001 Stock Option Plan for Non-Employee Directors. The Company
maintains the 2001 Stock Option Plan for Non-Employee Directors (the
"2001 Non-Employee Plan"). Under the 2001 Non-Employee Plan, 141,929
shares of Common Stock have been reserved for issuance. Non-employee
directors of the Company, the Bank and any other subsidiaries which
the Company may acquire or incorporate may participate in the 2001
Non-Employee Plan. Under the 2001 Non-Employee Plan, each current
non-employee member of the Board of Directors has received options to
purchase 20,091 shares of Common Stock at an exercise price of $13.64, 100% of
the fair market value on the date such options were granted.
One thousand two hundred eighty nine options remain available for
grant under the 2001 Non-Employee Plan.
Director Retirement Plan. Directors of the Company participate in
the Director Retirement Plan, a deferred compensation plan funded in
the form of whole-life insurance. The Company contributes $10,000 per
Director to the Director Retirement Plan annually.
COMPLIANCE WITH SECTION 16(a)
OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's officers and directors, and persons who own more than ten
percent of a registered class of the Company's equity securities, to
file reports of ownership and changes in ownership with the Securities
and Exchange Commission. Officers, directors and greater than ten
percent stockholders are required by regulation of the Securities and
Exchange Commission to furnish the Company with copies of all Section
16(a) forms they file.
Based solely on its review of the copies of Section 16(a) forms
received by it or written representations from certain reporting
persons that no Forms 5 were required for those persons, the Company
believes that, during the fiscal year ended December 31, 2002, all
filing requirements applicable to all officers, directors and greater
than ten percent beneficial owners were met.
ITEM 11. EXECUTIVE COMPENSATION
Personnel Committee Report on Executive Compensation
The Company's compensation package for its executive officers
consists of base salary, an annual bonus, annual discretionary stock
option grants and various broad based employee benefits. The objective
of the Company's executive compensation is to enhance the Company's
long-term profitability by providing compensation that will attract
and retain superior talent, reward performance and align the interests
of the executive officers with the long term interests of the
shareholders of the Company.
Base salary levels for the Company's executive officers are
competitively set relative to companies in peer businesses. The annual
financial performance of the Company is one of the most important
factors in reviewing base salaries and bonuses. In reviewing base
salaries, the Personnel Committee also takes into account individual
experience and performance.
The Company's annual bonuses are intended to provide a direct cash
incentive to executive officers and other key employees to maximize
the Company's profitability. Financial performance is compared against
budgets as well as peer businesses.
38
Stock options are intended to encourage officers and other key
employees to remain employed by the Company by providing them with a
long term interest in the Company's overall performance as reflected
by the performance of the market of the Company's Common Stock. In
granting stock options, the Personnel Committee and the Stock Option
Committee take into account prior stock option grants and consider the
executive's level of compensation and past contributions to the
Company.
Albert F. Buzzetti was the President and Chief Executive Officer
of the Company and the Bank for 2002. Mr. Buzzetti's base salary is
set competitively relative to other chief executive officers in
financial service companies in the Company's market area. In
determining Mr. Buzzetti's base salary as well as annual bonus, the
Committee reviewed independent compensation data and the Company's
performance as compared against budgets and peer businesses. As with
the Company's other executive officers, Mr. Buzzetti's total
compensation involves certain subjective judgments and is not based
solely upon any specific objective criteria or weighting.
Jeremiah F. O'Connor, Jr. Albert F. Buzzetti (ex officio)
Gerald A. Calabrese, Jr. Joseph C. Parisi (ex officio)
Glenn L. Creamer John A. Schepisi (ex officio)
Compensation Committee Interlocks And Insider Participation
The members of the Personnel Committee of the Board of Directors
of the Company for the fiscal year ended December 31, 2002 were
Jeremiah F. O'Connor, Jr. (Chairman), Gerald A. Calabrese, Jr., Glenn
L. Creamer, Albert F. Buzzetti (ex officio), Joseph C. Parisi (ex
officio) and John A. Schepisi (ex officio). Mr. Buzzetti is the only
member of the Personnel Committee who is also an officer or employee
of the Company.
Mr. Schepisi is a partner in the law firm of Schepisi &
McLaughlin, Attorneys at Law, who have acted as the Company's general
counsel since April 1995. During 2002, the Company paid legal fees
totaling $115,000 to Schepisi & McLaughlin.
Mr. Parisi is Chief Executive Officer of the Otterstedt Agency, an
insurance agency through which the Company's Blanket Bond insurance
policy as well as other policies have been placed with various
insurance carriers. Gross insurance premiums in 2002 totaled $78,000.
Mr. Calabrese, a state-licensed appraiser, has conducted
appraisals related to the Company's home equity lines of credit at the
expense of the Company. The cost of 2002 appraisals was $40,000.
Mr. Creamer is the Treasurer and Safety Director of J. Fletcher
Creamer and Son, Inc., a construction company. During 2002, the
Company paid construction costs totaling $22,000 to J. Fletcher
Creamer and Son, Inc..
39
Information with respect to Executive Officers
The following table sets forth the names of the Company's
executive officers not serving on the Board and whose individual
remuneration exceeded $100,000 for the last fiscal year, their ages, a
brief description of their recent business experience, including
present occupations, and the year in which each became an officer of
the Company or the Bank.
Name and Address of Principal Occupation for Past Five Officer
Executive Officer (1) Years Since
(2)
- ----------------------------------------------------------------------
Thomas W. Thomasma, 49, Senior Vice President and Chief
Senior Vice President Lending Officer of the Company
and Chief Lending
Officer 1994
- ----------------------------------------------------------------------
_______________
(1) The address for Mr. Thomasma is c/o Bridge View Bancorp, 457
Sylvan Avenue, Englewood Cliffs, New Jersey 07632.
(2) Includes prior service as an officer of the Bank.
Executive Compensation and All Other Compensation
The following table sets forth a summary for the last three fiscal
years of the cash and non-cash compensation awarded to, earned by, or
paid to, the Chief Executive Officer of the Company and each of the
four most highly compensated executive officers whose individual
remuneration exceeded $100,000 for the last fiscal year.
SUMMARY COMPENSATION TABLE
Cash and Cash Equivalent Forms
of Remuneration
Long Term Awards Long Term Payouts
Annual Compensation
-----------------------------------------------------------------------
Name and Principal Position Other Securities LTIP All Other
Year Salary Bonus Annual Underlying Payouts Compensation
($) ($) ($)(1) Options/SARs (2) ($)
(#)
- -----------------------------------------------------------------------------------------------------
Albert F. Buzzetti, President 2002 $210,000 $40,000 $12,035 0 None 0
and CEO -----------------------------------------------------------------------
2001 $200,000 $35,000 $12,035 0 None 0
-----------------------------------------------------------------------
2000 $190,000 $35,000 $12,035 0 None 0
- -----------------------------------------------------------------------------------------------------
Thomas W. Thomasma, Senior 2002 $124,000 0 $2,700 0 None 0
Vice President -----------------------------------------------------------------------
2001 $118,000 0 $2,700 0 None 0
-----------------------------------------------------------------------
2000 $112,000 0 $2,700 0 None 0
=====================================================================================================
_______________
(1) Other annual compensation includes the estimated personal
benefit of use of Company-leased automobiles or automobile allowances.
Other annual compensation with respect to Mr. Buzzetti includes the
cost of a life insurance policy, the beneficiary of which is
designated by Mr. Buzzetti.
40
(2) For fiscal year 2002, 2001 and 2000, the Company had no
long-term incentive plans in existence, and therefore made no payouts
for awards under such plans.
1994 and 2001 Employee Stock Option Plans. The Company maintains
the 1994 Employee Stock Option Plan (the "1994 Plan") and the 2001
Employee Stock Option Plan (the "2001 Plan"). Under the 1994 Plan,
146,174 shares of Common Stock have been reserved for issuance. Under
the 2001 Plan, 128,557 shares of Common Stock have been reserved for
issuance. Employees of the Company, the Bank and any subsidiaries
which the Company may incorporate or acquire are eligible to
participate in the each of the 1994 Plan and the 2001 Plan. The Stock
Option Committee manages the 1994 and 2001 Plans and approves
participants from the eligible employees. No option granted under the
1994 or 2001 Plans may be exercised more than 10 years after the date
of its grant. The purchase price for shares of Common Stock subject to
options under the 1994 and 2001 Plans may not be less than 100% of the
fair market value on the date such option is granted.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
During fiscal year 2002, there were no individual grants of stock
options made to each of the named executive officers.
41
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The following table sets forth information concerning the
beneficial ownership of the Common Stock, no par value, as of December
31, 2002, by (i) each person who is known by the Company to own
beneficially more than five percent (5%) of the issued and outstanding
Common Stock, (ii) each director and nominee for director of the
Company, (iii) each executive officer of the Company described in this
Form 10-K/A under the caption "Executive Compensation" and (iv)
all directors and executive officers of the Company as a group. Other
than as set forth in this table, the Company is not aware of any
individual or group which holds in excess of 5% of the outstanding
Common Stock.
Name and Address of Number of Shares Percent
Beneficial Owner(1) Beneficially Owned (2) of Class
- ---------------------------------------------------------------------------------------------
Albert F. Buzzetti (3) 144,194 4.06%
- ---------------------------------------------------------------------------------------------
Gerald A. Calabrese, Jr. (4) 178,124 5.01%
- ---------------------------------------------------------------------------------------------
Glenn L. Creamer (5) 100,336 2.82%
- ---------------------------------------------------------------------------------------------
Estate of Bernard Mann (6) 216,080 6.08%
- ---------------------------------------------------------------------------------------------
Mark Metzger (7) 220,559 6.21%
- ---------------------------------------------------------------------------------------------
Jeremiah F. O'Connor (8) 178,555 5.02%
- ---------------------------------------------------------------------------------------------
Joseph C. Parisi (9) 192,337 5.41%
- ---------------------------------------------------------------------------------------------
John A. Schepisi(10) 291,768 8.21%
- ---------------------------------------------------------------------------------------------
Thomas W. Thomasma 5,752 *
- ---------------------------------------------------------------------------------------------
Directors and Executive Officers
as a Group (8 persons)(11) 1,311,625 36.74%
- ---------------------------------------------------------------------------------------------
_______________
* Ownership of less than 1%
(1) The address for all persons listed is c/o Bridge View Bancorp,
457 Sylvan Avenue, Englewood Cliffs, New Jersey 07632.
(2) 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 a spouse, minor
children or by relatives sharing the same home, (ii) by entities owned
or controlled by the named person, or (iii) by other persons if the
named person has the right to acquire such shares within 60 days by
the exercise of any right or option. Unless otherwise noted, all
shares are owned of record and beneficially by the named person,
either directly or through the dividend reinvestment plan.
(3) Includes 2,686 shares owned by Mr. Buzzetti's wife. Mr.
Buzzetti disclaims beneficial ownership of the shares owned by his
wife and of shares owned by other family members. Includes an
aggregate of 80,522 shares purchasable pursuant to options which are
presently exercisable or exercisable within sixty (60) days.
42
(4) Includes 5,197 shares owned by Mr. Calabrese's minor children.
Mr. Calabrese disclaims any beneficial ownership of shares owned by
other family members who are not dependents. Includes an aggregate of
68,694 shares purchasable pursuant to options which are presently
exercisable or exercisable within sixty (60) days.
(5) Mr. Creamer disclaims any beneficial ownership of shares owned
by family members who are not dependents. Includes an aggregate of
68,694 shares purchasable pursuant to options which are presently
exercisable or exercisable within sixty (60) days.
(6) Mr. Mann died october 31, 2002.Includes 49,983 shares owned by Mr.
Mann's wife. Mr. Mann's estate disclaims any beneficial ownership of shares
owned by his wife as well as shares by other family members. Includes an
aggregate of 68,694 shares purchasable pursuant to options which are presently
exercisable or exercisable within sixty (60) days.
(7) Includes 2,039 shares owned by Mr. Metzger's wife and 1,170
shares owned by the Metzger Family Partnership of which he is trustee.
Mr. Metzger disclaims beneficial ownership of shares owned by his wife
and of any other shares held by emancipated members of his family.
Includes an aggregate of 46,771 shares purchasable pursuant to options
which are presently exercisable or exercisable within sixty (60) days.
(8) Includes 8,069 shares owned by Mr. O'Connor's dependent
children, and 19,284 shares held by the AtHome Medical Pension Plan.
Mr. O'Connor disclaims beneficial ownership of shares owned by
emancipated family members. Includes an aggregate of 68,694 shares
purchasable pursuant to options which are presently exercisable or
exercisable within sixty (60) days.
(9) Includes 88,988 shares owned jointly by Mr. Parisi and his
wife. Mr. Parisi disclaims beneficial ownership of any shares owned by
emancipated family members. Includes an aggregate of 68,694 shares
purchasable pursuant to options which are presently exercisable or
exercisable within sixty (60) days.
(10) Includes 7,652 shares owned by Mr. Schepisi's wife, and
20,145 shares owned by Homaro Co., a partnership which Mr. Schepisi
manages but with regard to which he disclaims beneficial interest. Mr.
Schepisi disclaims beneficial ownership of any shares owned by his
wife or by any emancipated family members. Includes an aggregate of
68,694 shares purchasable pursuant to options which are presently
exercisable or exercisable within sixty (60) days.
(11) Includes 470,763 shares purchasable pursuant to options which
are presently exercisable or exercisable within sixty (60) days.
43
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
By Board policy, the Company does not extend credit to any
director, officer, their affiliates or unemancipated family members.
The firm of Schepisi & McLaughlin, Attorneys at Law, has acted as
the Company's general counsel since April 1995. John A. Schepisi, the
firm's Senior Partner, is Vice Chairman of the Company's Board. During
2002, the Company paid legal fees totaling $115,000 to Schepisi &
McLaughlin.
The Company's Blanket Bond insurance policy, as well as other
policies, have been placed with various insurance carriers by the
Otterstedt Agency of which the Company's Board Chairman, Joseph C.
Parisi, is Chief Executive Officer. Gross insurance premiums in 2002
totaled $78,000.
Residential appraisals on the Company's home equity lines of
credit are conducted at the expense of the Company. Certain of those
appraisals were conducted by Gerald A. Calabrese, Jr., a
state-licensed appraiser, who is a Director of the Company. The cost
of 2002 appraisals was $40,000.
The construction company, J. Fletcher Creamer and Son, Inc.
performed certain building construction for the Company. Glenn L.
Creamer, is Treasurer and Safety Director of J. Fletcher Creamer and
Son, Inc. and serves as a Director of the Company. During 2002, the
Company paid construction costs aggregating $22,000 to J. Fletcher
Creamer and Son, Inc..
44
ITEM 14. EXHIBITS, LIST AND REPORTS ON FORM 8-K
(a) Exhibits.
=====================================================================
Exhibit
Number Description of Exhibits
---------------------------------------------------------------------------
(2) Agreement and Plan of Merger dated November 18, 2002 by and
between Interchange Financial Services and Bridge View Bancorp (1)
---------------------------------------------------------------------------
3(i) Certificate of Incorporation of the Company (2)
----------------------------------------------------------------------------
3(ii) Bylaws of the Company (2)
-------------------------------------------------------------------------
4(i) Form of Non-Transferable Warrant Certificate (2)
---------------------------------------------------------------------------
4(ii) Form of Stock Certificate (3)
---------------------------------------------------------------------------
10(i) Bridge View Bank 1994 Stock Option Plan (2)
---------------------------------------------------------------------------
10(ii) Bridge View Bank 1994 Stock Option Plan for Non-Employee Directors(2)
----------------------------------------------------------------------------
10(i) Bridge View Bancorp 2001 Employee Stock Option Plan (4)
----------------------------------------------------------------------------
10(ii) Bridge View Bancorp 2001 Stock Option Plan for Non-Employee
Directors (4)
----------------------------------------------------------------------------
21 Subsidiaries of the Registrant
----------------------------------------------------------------------------
23 Consent of Independent Auditors
----------------------------------------------------------------------------
27 Financial Data Schedule
----------------------------------------------------------------------------
98 Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
----------------------------------------------------------------------------
99 Certifications pursuant to Item 307 of SEC Regulations S-K and S-B
============================================================================
(1) Incorporated by reference from Exhibit 2.1 to the Company's
Current Report on Form 8-K dated November 22, 2002.
(2) Incorporated by reference from Exhibits 2(a) to 6(b) from the
Company's Registration Statement on Form 10-SB, Registration No.
1-12165.
(3) Incorporated by reference from Exhibit 4(ii) from the Company's
Registration Statement on Form SB-2, Registration No. 333-20697.
(4) Incorporated by reference from Exhibit B and C from the Company's
Definitive Proxy Statement filed April 18, 2001.
(b) Reports on Form 8-K
Report on Form 8-K dated January 11, 2002
Report on Form 8-K dated November 22, 2002.
45
BRIDGE VIEW BANCORP AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
Independent Auditors' Report............................................ 47
Consolidated Statements of Financial Condition
as of December 31, 2002 and 2001.......................................48
Consolidated Statements of Income for the years ended December
31, 2002, 2001, and 2000.............................. 49
Consolidated Statements of Stockholders' Equity
for the years ended December 31, 2002, 2001, and 2000...................50
Consolidated Statements of Cash Flows for the years ended
December 31, 2002, 2001, and 2000....................................51
Notes to Consolidated Financial Statements...............................52
Explanatory Note: This Form 10-K/A contains certain "forward looking
statements" within the meaning of the Private Securities Litigation
Reform Act of 1995 which involve risks and uncertainties. Such
statements are not historical facts and include expressions about
management's confidence, strategies, and expectations about new and
existing programs, products, relationships, opportunities, technology,
and market conditions. These statements may be identified by the use
of such words as "believe," "expect," "anticipate," "should," "may,"
"potential," or similar statements or variations of such terms.
Examples of forward looking statements include, but are not limited
to, estimates with respect to the financial condition, results of
operations, and business of Bridge View Bancorp, that are subject to
various factors which could cause actual results to differ materially
from these estimates. These factors include: changes in general,
economic and market conditions, legislative and regulatory conditions,
or the development of an interest rate environment which adversely
affects Bridge View Bancorp's interest rate margin or other income
anticipated from operations and investments. As used in this Form
10-K, "we" and "us" and "our" refer to Bridge View Bancorp and its
consolidated subsidiary Bridge View Bank, depending on the context.
46
Independent Auditors' Report
The Board of Directors and Stockholders of
Bridge View Bancorp:
We have audited the accompanying consolidated statements of
financial condition of Bridge View Bancorp and subsidiaries as of
December 31, 2002 and 2001, and the related consolidated statements of
income, stockholders' equity, and cash flows for each of the years in
the three-year period ended December 31, 2002. These consolidated
financial statements are the responsibility of the Corporation's
management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with auditing standards
generally accepted in the United States of America. Those standards
require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the financial position
of Bridge View Bancorp and subsidiaries as of December 31, 2002 and
2001, and the results of their operations and their cash flows for
each of the years in the three-year period ended December 31, 2002 in
conformity with accounting principles generally accepted in the United
States of America.
/s/ KPMG LLP
Short Hills, New Jersey
January 31, 2003
47
BRIDGE VIEW BANCORP AND SUBSIDIARIES
Consolidated Statements of Financial Condition
December 31, 2002 and 2001
(Dollars in Thousands)
Assets 2002 2001
Cash and cash equivalents:
Cash and due from banks (note 3) $19,673 $13,771
Federal funds sold 19,500 10,500
--------------------------------------
Total cash and cash equivalents 39,173 24,271
--------------------------------------
Securities available for sale (note 4) 40,110 38,728
Investment securities, estimated market value
of
$558 in 2002 and $13,353 in 2001 (note 4) 525 13,245
Loans (note 5):
Commercial 131,299 109,978
Mortgage 29,623 19,770
Consumer and other 30,304 21,636
--------------------------------------
Total loans 191,226 151,384
Deferred loan fees (506) (471)
Allowance for loan losses (1,916) (1,605)
--------------------------------------
Net loans 188,804 149,308
--------------------------------------
Premises and equipment, net (note 6) 10,326 9,523
Accrued interest receivable 1,265 1,412
Other assets (note 8) 1,363 1,333
--------------------------------------
Total assets $281,566 $237,820
======================================
Liabilities and Stockholders' Equity
Deposits (note 7):
Noninterest-bearing demand deposits 94,034 78,894
Interest bearing deposits:
Savings and time deposits 139,396 109,150
Certificates of deposit of $100,000 or
more 17,620 21,580
--------------------------------------
Total deposits 251,050 209,624
Accounts payable and accrued liabilities 1,484 1,330
Total liabilities 252,534 210,954
--------------------------------------
Commitments and contingencies (notes 9 and 15)
Stockholders' equity (notes 12 and 14):
Capital stock , no par value. Authorized
10,000,000 shares; issued and
outstanding
3,576,344 shares in 2002 and 3,548,763
shares
in 2001 27,196 25,277
Retained earnings 1,618 1,428
Other comprehensive income(loss), net of
taxes 218 161
--------------------------------------
Total stockholders' equity 29,032 26,866
--------------------------------------
Total liabilities and
stockholders' equity $281,566 $237,820
======================================
See accompanying notes to consolidated financial statements.
48
BRIDGE VIEW BANCORP AND SUBSIDIARIES
Consolidated Statements of Income
Years ended December 31, 2002, 2001 and 2000
(Dollars in thousands, except per share data)
2002 2001 2000
Interest income:
Loans $12,010 $11,115 $11,036
Municipals - nontaxable 183 321 409
Investment securities 1,490 2,433 3,221
Federal funds sold and FHLBNY income 306 960 566
------------------------------------
Total interest income 13,989 14,829 15,232
------------------------------------
Interest expense:
Savings and time deposits 1,220 1,944 2,574
Certificates of deposit of $100,000 or more 470 1,173 1,688
Short term borrowings 1 74 28
------------------------------------
Total interest expense 1,691 3,191 4,290
------------------------------------
Net interest income 12,298 11,638 10,942
Provision for loan losses (note 5) 570 165 190
------------------------------------
Net interest income after provision
for loan
losses 11,728 11,473 10,752
Other income - principally fees and service
charges 2,522 1,907 1,501
------------------------------------
Other expenses:
Salaries and employee benefits (note 13) 4,402 3,255 2,945
Occupancy and equipment expense (note 9) 1,815 1,284 1,230
Professional fees 344 202 228
Director and stockholder expense (note 13) 537 292 244
Advertising and business promotion 115 37 18
Stationary and supplies 245 154 231
Data processing 572 469 436
FDIC expense 40 46 42
Other operating expenses 756 560 576
------------------------------------
Total other expenses 8,826 6,299 5,950
------------------------------------
Income before income taxes 5,424 7,081 6,303
Income tax expense (note 8) 2,066 2,512 2,201
------------------------------------
Net Income $3,358 $4,569 $4,102
====================================
Earnings per share: (note 11)
Basic $0.95 $1.29 $1.16
====================================
Diluted $0.91 $1.25 $1.13
====================================
All share data has been restated to reflect all stock dividends
and stock splits through the 2002 stock dividend.
See accompanying notes to consolidated financial statements.
49
BRIDGE VIEW BANCORP AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity
Years ended December 31, 2002, 2001 and 2000
(Dollars in Thousands)
Accumulated
Other
Comprehensive
Capital Retained (Loss)income,
Stock Earnings net of tax Total
-------------------------------------------------
Balance at December 31, 1999 $ 19,035 779 (485) 19,329
Net income - 4,102 - 4,102
Other comprehensive income(loss):
Unrealized
holding losses on securities available
for
sale (net of taxes $(227)) - - 403 403
------------
Total comprehensive income - - - 4,505
5% stock dividend 2,226 (2,226) - -
Common stock issued upon exercise of stock
options 5 - - 5
Cash dividends paid - (576) - (576)
-------------------------------------------------
Balance at December 31, 2000 21,266 2,079 (82) 23,263
Net income - 4,569 - 4,569
Other comprehensive income(loss):
Unrealized
holding gains on securities available
for
sale (net of taxes $(158)) - - 243 243
------------
Total comprehensive income - - - 4,812
5% stock dividend 3,959 (3,959) - -
Common stock issued upon exercise of stock
options 52 - - 52
Cash dividends paid - (1,261) - (1,261)
-------------------------------------------------
Balance at December 31, 2001 25,277 1,428 161 26,866
Net income - 3,358 - 3,358
Other comprehensive income(loss):
Unrealized
Holding gains on securities available
for
sale (net of taxes $(75)) - - 121 121
Reclassification adjustment for gains
included in income (net of taxes of
$39) - - (64) (64)
------------
Total comprehensive income - - - 3,415
10% stock dividend 1,782 (1,782) - -
Common stock issued upon exercise of stock
options 137 - - 137
Cash dividends paid - (1,386) - (1,386)
-------------------------------------------------
Balance at December 31, 2002 $ 27,196 1,618 218 29,032
=================================================
See accompanying notes to consolidated financial statements.
50
BRIDGE VIEW BANCORP AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years ended December 31, 2002, 2001 and 2000
(Dollars in Thousands)
2002 2001 2000
Cash flows from operating activities:
Net income $3,358 $4,569 $4,102
Adjustments to reconcile net income to net cash
provided by
Operating activities:
Provision for loan losses 570 165 190
Depreciation and amortization 453 319 403
Deferred tax (benefit)expense (260) 185 (67)
Net amortization and accretion of premiums and
discounts on
investment securities (119) 25 18
Net gains from securities transactions (103) 0 0
Gains from sale of loans held for sale 0 (40) (23)
Changes in operation assets and liabilities:
Decrease(Increase) in accrued interest
receivable 147 385 (224)
(Increase)decrease in other assets (30) (586) (185)
Increase in accounts payable and accrued
liabilities 154 31 561
---------------------------
Net cash provided by operating
activities 4,170 5,053 4,775
---------------------------
Cash flows from investing activities:
Purchases of investment securities - (7,089) (17,445)
Maturities of investment securities 12,720 28,585 29,714
Maturities/calls of securities available for sale 25,177 38,085 3,000
Sale of securities available for sale 4,103 - -
Purchases of securities available for sale (30,693) (55,977) (1,600)
Net increase in loans (39,496) (17,923) (14,424)
Purchase of FHLBNY stock - - -
Purchases of premises and equipment, net (1,256) (6,074) (318)
---------------------------
Net cash used in investing activities (29,445) (20,393) (1,073)
---------------------------
Cash flows from financing activities:
Net increase in deposits 41,426 1,259 25,160
Proceeds from FHLB Advance - - 2,000
Repayment of FHLB Advance - (2,000) -
Issuance of common stock and options exercised 137 52 5
Dividends paid (1,386) (1,261) (576)
---------------------------
Net cash provided by (used in)
financing activities 40,177 (1,950) 26,589
---------------------------
Increase(decrease) in cash and cash
equivalents 14,902 (17,290) 30,291
Cash and cash equivalents at beginning of year 24,271 41,561 11,270
---------------------------
Cash and cash equivalents at end of year $39,173 $24,271 $41,561
===========================
Supplemental information:
Cash paid during the year for:
Interest $1,655 $3,394 $4,291
===========================
Income taxes $3,022 $2,861 $1,968
===========================
See accompanying notes to consolidated financial statements.
51
BRIDGE VIEW BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2002 and 2001
(1) Summary of Significant Accounting Policies
The accompanying consolidated financial statements include the
accounts of Bridge View Bancorp (the Company) and its direct and
indirect wholly-owned subsidiaries, Bridge View Bank, Bridge View
Investment Company, and Bridge View Delaware, Inc. (the Bank).
Organization
The Bank is a commercial bank which provides a full range of
banking services to individuals and corporate customers in New Jersey.
The Bank is subject to competition from other financial institutions.
The Bank is regulated by state and federal agencies and is subject to
periodic examinations by those regulatory authorities.
Basis of Financial Statement Presentation
The consolidated financial statements have been prepared in
conformity with accounting principles generally accepted in the United
States of America. All significant intercompany accounts and
transactions have been eliminated. In preparing the consolidated
financial statements, management is required to make estimates and
assumptions that affect the reported amounts of assets and liabilities
as of the date of the consolidated statement of financial condition
and revenues and expenses for the year. Actual results could differ
significantly from those estimates. Certain prior period amounts have
been reclassified to conform to the financial statement presentation
of 2001. The reclassifications have no effect on stockholders' equity
or net income as previously reported.
Material estimates that are particularly susceptible to
significant change in the near term relate to the determination of the
allowance for loan losses. In connection with the determination of the
allowance for loan losses, management generally obtains independent
appraisals for significant properties.
Securities Available for Sale
Management determines the appropriate classification of securities
at the time of purchase. If management has the intent and the Bank has
the ability at the time of purchase to hold securities until maturity,
they are classified as investment securities. Securities to be held
for indefinite periods of time and not intended to be held to maturity
are classified as securities available for sale. Gains or losses on
sales of securities available for sale are based upon the specific
identification method. Securities available for sale are reported at
fair value with changes in the carrying value included in accumulated
other comprehensive income(loss) which is a separate component of
stockholders' equity.
52
Investment Securities
Investment securities are carried at the principal amount
outstanding, adjusted for amortization of premiums and accretion of
discounts using a method that approximates the level-yield method over
the terms of the securities. Investment securities are carried at the
principal amount outstanding because the Bank has the ability and the
intent to hold these securities to maturity.
Premises and Equipment
Premises and equipment are stated at historical cost, less
accumulated depreciation and amortization. Depreciation of fixed
assets is accumulated on a straight-line basis over the estimated
useful lives of the related asset. Leasehold improvements are
amortized on a straight-line basis over the shorter of their estimated
useful lives or the term of the lease. Maintenance and repairs are
charged to expense in the year incurred.
Loans
Loans are stated at their principal amount outstanding, net of
deferred loan origination fees and costs. Interest income on loans is
accrued and credited to interest income when earned. A loan which is
90 days past due is reviewed to determine whether such loan should be
placed on a nonaccrual status. A loan is placed on nonaccrual when
collection of principal and interest is deemed unlikely. Loans which
are well secured and in the process of collection are not placed on a
nonaccrual status. Once a loan is placed on nonaccrual status,
interest previously accrued and uncollected is charged against current
earnings, and interest is included in earnings thereafter to the
extent received in cash. Loan origination fees and certain direct loan
origination costs are deferred and recognized over the life of the
loan as an adjustment to yield using a method which approximates the
interest method.
Management, considering current information and events regarding
the borrowers' ability to repay their obligations, considers a loan to
be impaired when it is probable that the Company will be unable to
collect all amounts due according to the contractual terms of the loan
agreement. When a loan is considered to be impaired, the amount of
impairment is measured based on the present value of expected future
cash flows discounted at the loan's effective interest rate or the
fair value of the collateral. Impairment losses are included in the
allowance for loan losses through provisions charged to operations.
Allowance for Loan Losses
Losses on loans are charged to the allowance for loan losses.
Additions to this allowance are made by recoveries of loans previously
charged off and by a provision charged to expense. The determination
of the balance of the allowance for loan losses is based on an
analysis of the loan portfolio, economic conditions and other factors
warranting recognition. Management believes that the allowance for
loan losses is maintained at a sufficient level to provide for losses
inherent in the loan portfolio. While management uses available
information to recognize losses on loans, future additions may be
necessary based on changes in economic conditions, particularly in New
Jersey. In addition, various regulatory agencies, as an integral part
of their examination process, periodically review the Bank's allowance
for loan losses. Such agencies may require the Bank to recognize
additions to the allowance based on their judgments about information
available to them at the time of their examination.
53
Stock-Based Compensation
Stock based compensation is accounted for under the intrinsic
value based method. Included in the Notes to Consolidated Financial
Statements are the pro forma disclosures required by Statement of
Financial Accounting Standards (SFAS) No. 123, "Accounting for
Stock-Based Compensation", which assumes the fair value based method
of accounting had been adopted.
The Corporation applies APB Opinion No. 25 in accounting for its
Plans and, accordingly, no compensation cost has been recognized for
its stock options in the consolidated financial statements. Had the
Company determined compensation cost based on the fair value at the
grant date for its stock options under SFAS No. 123, the Corporation's
net income and earnings per share would have been reduced to the pro
forma amounts indicated below (in thousands, except per share data):
2002 2001 2000
------------------------------------------
Net income:
As reported $3,358 $4,569 $4,102
LESS: compensation expense determined
under the fair value based method
for all awards, net of tax 482 478 245
------------------------------------------
Pro forma 2,876 4,091 3,857
==========================================
Basic earnings per share:
As reported $0.95 $1.29 $1.16
Pro forma 0.81 1.15 1.09
==========================================
Diluted earnings per share:
As reported $0.91 $1.25 $1.13
Pro forma 0.78 1.12 1.06
==========================================
54
The per share weighted-average fair values of stock options
granted during 2002, 2001, and 2000 were $18.40, $13.43 and $11.57,
respectively, on the date of grant using th e Black Scholes
option-pricing model with the following weighted-average assumptions
for 2002, 2001 and 2000, respectively : expected dividend yields of
6.00% and 3.00%, risk-free interest rates of 3.25% and 5.0%, and
expected lives of five years.
Income Taxes
The Bank uses the asset and liability method of accounting for
income taxes. Under this method, deferred tax assets and liabilities
are recognized for the estimated future tax consequences attributable
to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases.
Deferred tax assets and liabilities are measured using enacted tax
rates in effect for the year in which those temporary differences are
expected to be recovered or settled. The effect on deferred tax assets
and liabilities of a change in tax rates is recognized in income in
the period that includes the enactment date.
Earnings Per Share
Basic Earnings Per Share excludes dilution and represents the
effect of earnings upon the weighted average number of shares
outstanding for the period. Diluted Earnings Per Share reflects the
effect of earnings upon weighted average shares including the
potential dilution that could occur if securities or contracts to
issue common stock were converted or exercised, utilizing the treasury
stock method. All per share data has been restated to reflect changes
due to stock dividends.
Comprehensive Income
Comprehensive income consists of net income or loss for the
current period and income, expenses, or gains and losses that bypass
the income statement and are reported directly as a separate component
of equity. The Company includes the required disclosures in the
consolidated statements of stockholders' equity.
Cash and Cash Equivalents
Cash and cash equivalents include cash and due from banks and
federal funds sold, which are generally sold for one-day periods.
55
(2) Formation of Bank Holding Company and Exchange of Common Stock
The Company is a New Jersey corporation organized in May 1996 at
the direction of the Board of Directors of the Bank for the purpose of
acquiring all of the capital stock of the Bank. As part of the
acquisition in December 1996, shareholders of the Bank received shares
of the Company's common stock, no par value per share (the Common
Stock), in a ratio of two shares of Common Stock for each outstanding
share of the Common Stock of the Bank, $5.00 per share par value. The
acquisition was accounted for in a manner similar to a pooling of
interest resulting in no changes in the underlying assets and
liabilities.
(3) Cash on Hand and Due from Banks
Included in cash on hand and due from banks at December 31, 2002
and 2001 was $0.1 million and $0.1 million, respectively, representing
reserves required to be maintained at the Federal Reserve Bank of New
York.
(4) Securities Available for Sale and Investment Securities
A comparative summary of securities available for sale at December
31, 2002 and 2001 is as follows (in thousands):
Gross Gross
AmortizedCostUnrealizedUnrealized Market
2002 Gains Losses Value
- ------------------------------- -------------------------------------------
U.S. Government and
Agency obligations $ 29,322 502 0 $29,824
Municipal and state obligations 9,536 0 0 9,536
FHLBNY stock 431 0 0 431
Other equity securities 469 0 (150) 319
-------------------------------------------
Total available for sale $39,758 502 (150) $40,110
===========================================
2001
- -------------------------------
U.S. Government and
Agency obligations $ 34,702 385 ( 7) $35,080
Municipal and state obligations 2,878 0 0 2,878
FHLBNY stock 430 0 0 430
Other equity securities 469 0 (129) 340
-------------------------------------------
Total available for sale $38,479 385 (136) $38,728
===========================================
56
A comparative summary of held to maturity investment securities at
December 31, 2002 and 2001 is as follows (in thousands):
Gross Gross
Amortized Cost Unrealized Unrealized Market
2002 Gains Losses Value
- ------------------------------- -------------------------------------------
U.S. Government and
Agency obligations $ 525 33 0 $ 558
-------------------------------------------
Total held to maturity $525 33 0 $558
===========================================
2001
- -------------------------------
U.S. Government and
Agency obligations $ 8,573 109 0 $ 8,682
Municipal and state obligations 4,672 0 (1) 4,671
-------------------------------------------
Total held to maturity $13,245 109 (1) $13,353
===========================================
Debt investment securities held at December 31, 2002 mature as
follows (in thousands):
Securities Securities
Held to Maturity Available for Sale
Amortized Market Amortized Market
Cost Value cost Value
----------- ----------- ----------- -----------
Within one year - - $14,557 $14,698
One to five years 525 558 22,196 22,518
Over five years - - 2,105 2,144
----------- ----------- ----------- -----------
$ 525 $ 558 $38,858 $39,360
=========== =========== =========== ===========
For the year ended December 31, 2002, the Company sold one
security with a carrying amount of $4,102,500 and recognized a gain of
$102,500 from the transaction. For the years ended December 31, 2001
and 2000, respectively, there were no sales of securities.
Securities with an amortized cost of $2.1 million and $2.1
million, respectively, were pledged to secure public funds on deposit
at December 31, 2002 and 2001.
The Bank is a member of the Federal Home Loan Bank of New York
(FHLBNY). As a result, the Bank is required to hold shares of capital
stock of FHLBNY, which are carried at cost, based upon a specified
formula. The Bank has an $11,864,000 line of credit with the FHLBNY
which is renewable each year. The interest rate is variable and
generally at 10 basis points above the federal funds rate. At December
31, 2002, no amount was outstanding under this line of credit.
57
(5) Loans and Allowance for Loan Losses
The activity in the allowance for loan losses is as follows (in
thousands):
2002 2001 2000
---------------------------------
Balance at beginning of year $1,605 $1,473 $1,310
Provision charged to expense 570 165 190
Loans charged off (276) (55) (29)
Recoveries 17 22 2
---------------------------------
Balance at end of year $1,916 $1,605 $1,473
=================================
There were no impaired loans at December 31, 2002 and 2001. As of
December 31, 2002 and 2001, respectively, the Company had no
non-accrual loans compared to one non-accrual loan for $25,000 at
December 31, 2000.
The Company grants commercial, mortgage and installment loans to
those New Jersey residents and businesses within its local trading
area. Its borrowers' abilities to repay their obligations are
dependent upon various factors, including the borrowers' income and
net worth, cash flows generated by the underlying collateral, value of
the underlying collateral and priority of the Company's lien on the
property. Such factors are dependent upon various economic conditions
and individual circumstances beyond the Company's control; the Company
is therefore subject to risk of loss. The Company believes its lending
policies and procedures adequately minimize the potential exposure to
such risks and that adequate provisions for loan losses are provided
for all known and inherent risks.
58
(6) Premises and Equipment, net
At December 31, premises and equipment consists of the following
(in thousands):
2002 2001
---------------------------------------------------
Land $4,330 $4,330
Building 4,984 4,867
Furniture and equipment 2,606 1,631
Leasehold improvements 1,071 907
---------------------------------------------------
12,991 11,735
Less accumulated depreciation and
amortization 2,665 2,212
---------------------------------------------------
Total premises and equipment, net $10,326 $9,523
===================================================
During, 2002, the Bank received regulatory approval to open and
operate four new branches. The branches were opened at the following
locations: 35 North Washington Avenue, Bergenfield, New Jersey; 819
Teaneck Road, Teaneck, New Jersey; 245 Main Street, Ridgefield Park,
New Jersey; and 85 Jefferson Avenue, Westwood, New Jersey; all in
Bergen County, New Jersey.
Depreciation expense amounted to $453,000, $319,000, and $403,000
for the years ended December 31, 2002, 2001, and 2000, respectively.
59
(7) Deposits
At December 31, a summary of the maturity of certificates of
deposit is as follows(in thousands):
2002 2001
Certificates of deposit maturing:
One year or less $ 52,808 $ 39,975
One to three years 2,693 555
Over three years 123 0
Total certificates of deposit $ 55,624 $ 40,530
(8) Income Taxes
Income tax expense from operations for the years ended December 31
is as follows (in thousands):
2002 2001 2000
---------------------------------
Federal:
Current $1,931 $1,901 $2,052
Deferred (224) 225 (57)
---------------------------------
1,707 2,126 1,995
---------------------------------
State:
Current 395 426 216
Deferred (36) (40) (10)
---------------------------------
359 386 206
---------------------------------
$2,066 $2,512 $2,201
=================================
Total income tax expense for the years ended December 31 is
allocated as follows (in thousands):
2002 2001 2000
---------------------------------
Income tax expense from operations $2,066 $2,512 $2,201
Stockholders' equity - unrealized gain on
Securities available for sale 36 158 227
---------------------------------
$2,102 $2,670 $2,428
=================================
Income tax expense from operations differed from the amounts
computed by applying the U.S. federal income tax rate (38% in 2002,
34% in 2001 and 2000) to income taxes as a result of the following (in
thousands):
2002 2001 2000
---------------------------------
Computed "expected" tax expense $1,844 $2,408 $2,143
Increase(decrease) in taxes resulting from:
State taxes, net of federal income tax
benefit 237 255 136
Tax-exempt income (62) (109) (139)
Other 47 (42) 61
---------------------------------
$2,066 $2,512 $2,201
----------------------===========
The tax effects of temporary differences that give rise to
significant portions of the deferred tax assets and deferred tax
liabilities as of December 31, 2002 and 2001 are as follows (in
thousands):
2002 2001
Deferred tax assets:
Bank premises, furniture and equipment,
principally due to differences in depreciation $ 197 154
Deferred compensation 184 87
Loans, principally due to allowance for loan
losses and deferred fee income 723 621
Other 19 8
Total gross deferred tax assets 1,123 870
Deferred tax liabilities:
Deferred fee income 4 15
Unrealized gains on securities available
for sale 98 62
Investment securities, principally due to
accretion of discounts 21 17
Total gross deferred tax liabilities 123 94
Net deferred tax asset $1,000 $ 776
At December 31, 2002, management believes that no valuation
allowance for the deferred tax asset is necessary due to sufficient
taxes paid in the statutory carryback period.
60
(9) Leases
The Company leases banking facilities under operating leases which
expire at various dates through 2012, containing certain renewal
options. Rental expense amounted to $665,000, $562,000 and $521,000
for the years ended December 31, 2002, 2001, and 2000, respectively.
The following is a schedule of future minimum lease payments
(exclusive of payments for maintenance, insurance, taxes and
additional rental payments based on increases in certain indexes) for
operating leases with initial or remaining terms in excess of one year
from December 31, 2002 (in thousands):
Year ending December 31:
2003 $ 645
2004 611
2005 584
2006 565
2007 549
Thereafter 3,055
(10) Related-party Transactions
Certain directors of the Bank are associated with professional
firms that rendered various professional services for the Bank. The
Bank paid the firms, excluding rental payments, approximately
$255,000, $199,000 and $133,000 during the years ended December 31,
2002, 2001 and 2000, respectively. It is the Bank's policy not to
originate loans to directors, executive officers or their affiliates.
61
(11) Earnings Per Share Reconciliation
The Company's calculation of earnings per share is as follows:
Year Ended December 31,
2002 2001 2000
(in thousands, except per share data)
Basic earnings per share :
Net Income $3,358 $4,569 $4,102
Average number of shares outstanding 3,552 3,549 3,534
Basic earnings per share $ 0.95 $ 1.29 $ 1.16
Diluted earnings per share :
Net Income $3,358 $4,569 $4,102
Average number of shares of common
stock and equivalents outstanding:
Average common shares outstanding 3,552 3,549 3,534
Additional shares considered in
diluted computation assuming :
Exercise of options and warrants 130 100 96
Average number of shares outstanding
on a diluted basis 3,682 3,649 3,630
Diluted earnings per share $ 0.91 $ 1.25 $ 1.13
62
(12) Stockholders' Equity and Dividend Restrictions
The Bank declared a two for one stock split effective December 1,
1997 and December 6, 1996 as well as 10% stock dividends effective
March 5, 2002 and March 1, 2001 as well as 5% stock dividends effective
March 30, 2000, April 1, 1999, April 3, 1998, April 1, 1997, April 1,
1996, April 1, 1995, and February 28, 1994.
The Company's ability to pay cash dividends is based on its
ability to receive cash from its bank subsidiary. New Jersey law
provides that no dividend may be paid unless, after the payment of
such dividend, the capital of the Bank will not be impaired and either
the Bank will have statutory surplus of not less than 50% of its
capital stock or the payment of such dividend will not reduce the
statutory surplus of the Bank. At December 31, 2002, this restriction
did not result in any effective limitations on the manner in which the
Bank is currently operating.
(13) Benefit Plans
During 1994, the Company's stockholders approved the 1994 Stock
Option Plan for Non Employee Directors (Directors' Plan) and the 1994
Employee Stock Option Plan (Employees' Plan). The Directors' Plan
provided for options to purchase up to 153,489 shares of the Company's
common stock to be issued to directors who are not employees of the
Company. The Employees' Plan provided for options to purchase up to
153,489 shares of the Company's common stock to be issued to employees
of the Company. Previously issued options to an employee of the
Company were terminated upon adoption of these plans. The option price
per share approximates the market value of the Company's stock on the
date of grant. At December 31, 2002, 131,538 granted options to
purchase shares remain outstanding under the Directors' Plan and
47,092 granted options are outstanding under the Employees' Plan.
During 1998, the Company's stockholders approved the adoption of
an additional stock option plan for non-employee directors of the
Company (the 1998 Stock Option Plan). The 1998 Stock Option Plan
authorized the granting of 200,103 options to purchase shares of the
Company's common stock to individuals who were then directors of
Bridge View Bancorp. During 1998, 186,760 options were granted to
non-employee directors. At December 31, 2002, 186,760 granted options
to purchase shares remain outstanding under the Directors' Plan and
30,146 granted options are outstanding under the Employees' Plan.
During 2001, the Company's stockholders approved the 2001 Stock
Option Plan for Non-Employee Directors ("2001 Directors Plan") and the
2001 Employee Stock Option Plan ("2001 Employee Plan"). The 2001
Directors Plan provided for options to purchase up to 141,930 shares
of the Company's common stock to be issued to directors who are not
employees of the Company. The 2001 Employee Plan provided for options
to purchase up to 141,930 shares of the Company's common stock to be
issued to employees of the Company. The option price per share
approximates the market value of the Company's stock on the date of
the grant. At December 31, 2002, 140,637 granted options to purchase
shares remain outstanding under the 2001 Directors Plan and 33,591
granted options are outstanding under the 2001 Employee Plan.
63
(13) Benefit Plans, continued
A summary of the stock option plans for the years ended December
31, 2001, 2000, and 1999 is as follows:
Number
Of Option Price
Shares Per Share
-------------- -----------------
Outstanding at December 31, 1999 417,115 3.16 - 20.06
Granted 3,025 12.19
Forfeited - -
Exercised (1,335) 3.91
--------------
Outstanding at December 31, 2000 418,805 3.16 - 20.06
Granted 175,994 11.57 - 13.64
Forfeited - -
Exercised - -
Outstanding at December 31, 2001 594,799 3.16 - 20.06
Granted 2,500 18.40
Forfeited - -
Exercised (27,535) -
--------------
Outstanding at December 31, 2002 569,764 3.16 - 20.06
At December 31, 2002, 2001, and 2000, the number of options
outstanding was 569,764, 594,799, and 418,805, respectively, and the
weighted-average price of those options was $12.72, $12.47, and
$11.76, respectively.
During 2002, 2,500 options were granted. During 2001, 175,994
options were granted. During 2000, 3,025 options were granted.
The Company currently offers a 401(k) profit sharing plan (the
Plan) covering all full-time employees, wherein employees can invest
up to 15% of their pretax earnings. The Company matches a percentage
of employee contributions at the Board's discretion. The Company made
matching contributions of $55,000, $46,000, and $38,000 in the years
ended December 31, 2002, 2001, and 2000, respectively.
During 1998, the Company provided its directors with a Director
Retirement Plan. The Plan provides for a retirement benefit payable
over a 5 year period or a death benefit to be provided to the
director's beneficiaries. During 2002, 2001, and 2000, the amount
charged to expense related to the Retirement Plan was $526,000,
$135,000, and $118,000, respectively.
64
(14) Regulatory Capital Requirements
Federal Deposit Insurance Corporation (FDIC) regulations require
banks to maintain minimum levels of regulatory capital. Under the
regulations in effect at December 31, 2002, the Bank was required to
maintain (i) a minimum leverage ratio of Tier I capital to total
adjusted assets of 4.0%, and (ii) minimum ratios of Tier I and total
capital to risk-weighted assets of 4.0% and 8.0%, respectively.
Under its prompt corrective actions regulations, the FDIC is
required to take certain supervisory actions (and may take additional
discretionary actions) with respect to an undercapitalized
institution. Such actions could have a direct material effect on the
institution's financial statements. The regulations establish a
framework for the classification of savings institutions into five
categories: well capitalized, adequately capitalized,
undercapitalized, significantly undercapitalized, and critically
undercapitalized. Generally, an institution is considered well
capitalized if it has a leverage (Tier I) capital ratio of at least
5.0%; a Tier I risk-based capital ratio of at least 6.0%; and a total
risk-based capital ratio of at least 10.0%.
The foregoing capital ratios are based in part on specific
quantitative measures of assets, liabilities and certain
off-balance-sheet items as calculated under regulatory accounting
practices. Capital amounts and classifications are also subject to
qualitative judgments by the FDIC about capital components, risk
weightings and other factors.
Management believes that, as of December 31, 2002, the Bank meets
all capital adequacy requirements to which it is subject. Further, the
most recent FDIC notification categorized the Bank as a
well-capitalized institution under the prompt corrective action
regulations. There have been no conditions or events since that
notification that management believes have changed the Bank's capital
classification.
The following is a summary of the Bank's actual capital amounts
and ratios as of December 31, 2002 and 2001, compared to the FDIC
minimum capital adequacy requirements and the FDIC requirements for
classification as a well-capitalized institution:
FDIC requirements
-----------------------------------------
Minimum capital For classification
Bank actual adequacy as well capitalized
-------------------- -----------------------------------------
Amount Ratio Amount Ratio Amount Ratio
-------------------- ------------------- -------------------
December 31, 2002:
Leverage (Tier I)
Capital $28,814 10.40% $11,081 4.00% $13,852 5.00%
Risk-based capital:
Tier I 28,814 14.46 7,972 4.00 11,958 6.00
Total 30,730 15.42 15,944 8.00 19,930 10.00
December 31, 2001:
Leverage (Tier I)
Capital $26,621 11.43% $9,313 4.00% $11,642 5.00%
Risk-based capital:
Tier I 26,621 16.27 6,531 4.00 9,829 6.00
Total 28,226 17.25 13,106 8.00 16,382 10.00
65
(15) Commitments and Contingencies
The Bank is a party to transactions with off-balance-sheet risk in
the normal course of business in order to meet the financing needs of
its customers. These transactions consist of commitments to extend
credit and involve, to varying degrees, elements of credit and
interest rate risk in excess of the amount recognized in the
accompanying consolidated statements of financial condition.
The Bank uses the same credit policies and collateral requirements
in making commitments and conditional obligations as it does for
on-balance-sheet loans. Commitments to extend credit are agreements to
lend to customers as long as there is no violation of any condition
established in the contract. Commitments generally have fixed
expiration dates or other termination clauses and may require payment
of a fee. Since the commitments may expire without being drawn upon,
the total commitment amounts do not necessarily represent future cash
requirements. The Bank evaluates each customer's creditworthiness on a
case-by-case basis. The amount of collateral obtained, if deemed
necessary by the Bank upon extension of credit, is based on
management's credit evaluation of the borrower. Outstanding available
loan commitments, primarily variable rate home equity loans, at
December 31, 2002 and 2001 totaled $22.6 million and $35.6 million,
respectively. Additionally, unused credit card commitments totaled
$1,125,000 at December 31, 2002.
66
(15), Continued
Most of the Company's lending activity is with customers located
in Bergen County, New Jersey. At December 31, 2002 and 2001,
respectively, the Company had outstanding letters of credit to
customers totaling $1,272,000 and $1,376,000 whereby the Company
guarantees performance to a third party. These letters of credit
generally have fixed expiration dates of one year or less.
(16) Financial Information of Parent Company
The following information on the parent only financial statements
as of December 31, 2002 and 2001 and for the years then ended should
be read in conjunction with the notes to the consolidated financial
statements.
Statement of Financial Condition
(in thousands)
December 31,
2002 2001
(in thousands)
Assets:
Cash and due from subsidiary $1,053 $919
Equity securities 340 340
Investment in subsidiary 27,608 25,576
Other assets 52 52
--------------------------------------
Total assets $29,053 $26,887
======================================
Liabilities:
Due to subsidiary $21 $21
Stockholders' equity:
Common stock 27,196 25,277
Other comprehensive (loss)income, net
of taxes 218 161
Retained earnings 1,618 1,428
--------------------------------------
Total stockholders' equity 29,032 26,866
--------------------------------------
Total liabilities and
stockholders'
Equity $ 29,053 $ 26,887
======================================
67
(16), Continued
Statement of Income
(in thousands)
For the years ended
December 31,
2002 2001 2000
Dividend income from subsidiary $1,383 $1,257 $576
Expenses 0 0 0
---------------------------------------------------------
Income before equity in undistributed
earnings of subsidiary bank 1,383 1,257 576
Equity in undistributed
earnings of subsidiary bank 1,975 3,312 3,526
---------------------------------------------------------
Net income $3,358 $4,569 $4,102
=========================================================
Statement of Cash Flow
(in thousands)
For the years ended
December 31,
2002 2001 2000
Cash flows from operating activities:
Net income $3,358 $4,569 $4,102
Adjustments to reconcile net income to
net cash
provided by operating activities:
Equity in undistributed earnings
of the
subsidiary bank (1,975) (3,312) (3,526)
Decrease in other assets, net 0 4 0
---------------------------------------------------------
Net cash provided by
operating activities 1,383 1,261 576
Cash flows from investing activities:
Purchases of securities - - -
---------------------------------------------------------
Net cash provided by financing
activities - - -
Cash flows from financing activities:
Dividends paid (1,386) (1,261) (576)
Proceeds from exercise of options 137 52 5
---------------------------------------------------------
Net cash (used in)provided by
financing
Activities (1,249) (1,209) (571)
Net change in cash for the period 134 52 5
Net cash at beginning of year 919 867 862
---------------------------------------------------------
Net cash at end of year $1,053 $919 $867
=========================================================
68
(17) Fair Value of Financial Instruments
Statement of Financial Accounting Standards No. 107, "Disclosures
About Fair Value of Financial Instruments," requires that the Bank
disclose the estimated fair value of its financial instruments whether
or not recognized in the consolidated balance sheet. Fair value
estimates and assumptions are set forth below for the Bank's financial
instruments at December 31, 2002 and 2001 (in thousands):
2002 2001
-------------------------------------------
Esti- Esti-
Carry- mated Carry- Mated fair
ing amount fair ing amount value
value
-------------------------------------------
Financial assets:
Cash and cash equivalents $ 39,173 39,173 24,271 24,271
Securities available for sale 40,110 40,110 38,728 38,728
Investment securities 525 558 13,245 13,353
Net loans 188,804 192,766 149,308 154,334
Financial liabilities:
Deposits 251,050 251,451 209,624 209,824
Short term borrowings - - - -
The following methods and assumptions were used to estimate the
fair value of each class of financial instruments:
Cash and Cash Equivalents
The carrying amount approximates fair value.
Securities Available for Sale
All securities available for sale are valued using quoted market
prices.
Investment Securities
All investment securities are valued using quoted market prices.
Net Loans
Fair values are estimated for portfolios of loans with similar
financial characteristics. Loans are segregated by type, such as
residential and commercial real estate, commercial and other consumer.
The fair value of loans is estimated by discounting contractual cash
flows using estimated market discount rates which reflect the credit
and interest rate risk inherent in the loans.
69
(17), Continued
Deposits
The fair value of deposits with no stated maturity, such as
noninterest-bearing demand deposits, is equal to the amount payable on
demand as of year end. The fair value of certificates of deposit is
based on the discounted value of contractual cash flows. The discount
rate is estimated using the rates currently offered for deposits of
similar remaining maturities.
Short term borrowings
The carrying amount approximates fair value.
Commitments to Extend Credit
The fair value of commitments is estimated using the fees
currently charged to enter into similar agreements, taking into
account the remaining terms of the agreements; at December 31, 2002
and 2001, such amounts were not material.
Limitation
The preceding fair value estimates were made at December 31, 2002
and 2001, based on pertinent market data and relevant information on
the financial instrument. These estimates do not include any premium
or discount that could result from an offer to sell at one time the
Bank's entire holdings of a particular financial instrument or
category thereof. Since no market exists for a substantial portion of
the Bank's financial instruments, fair value estimates were
necessarily based on judgments regarding future expected loss
experience, current economic conditions, risk assessment of various
financial instruments, and other factors. Given the innately
subjective nature of these estimates, the uncertainties surrounding
them and the matter of significant judgment that must be applied,
these fair value estimates cannot be calculated with precision.
Modifications in such assumptions could meaningfully alter these
estimates.
Since these fair value approximations were made solely for on- and
off-balance-sheet financial instruments at December 31, 2002 and 2001,
no attempt was made to estimate the value of anticipated future
business. Furthermore, certain tax implications related to the
realization of the unrealized gains and losses could have a
substantial impact on these fair value estimates and have not been
incorporated into the estimates.
70
(18) Quarterly Financial Data (unaudited)
The following represents summarized unaudited quarterly financial data of
the Company which, in the opinion of management, reflects adjustments
(comprising only normal recurring accruals) necessary for fair presentation.
Three Months Ended
(in thousands, except per share data)
December 31 September 30 June 30 March 31
2002
Interest income $ 3,672 $ 3,495 $ 3,463 $ 3,359
Interest expense 479 395 412 405
Net interest income 3,193 3,100 3,051 2,954
Provision for loan losses 240 120 150 60
Other expense, net 2,123 1,525 1,330 1,326
Provision for federal and state
income taxes 330 668 535 533
Net income $ 500 $ 787 $ 1,036 $ 1,035
Net earnings per share:
Basic $ 0.14 $ 0.22 $ 0.29 $ 0.29
Diluted $ 0.14 $ 0.21 $ 0.28 $ 0.28
2001
Interest income $ 3,515 $ 3,711 $ 3,750 $ 3,853
Interest expense 495 694 872 1,130
Net interest income 3,020 3,017 2,878 2,723
Provision for loan losses 65 60 30 10
Other expense, net 966 1,047 1,173 1,206
Provision for federal and state
income taxes 730 668 587 527
Net income $ 1,259 $ 1,242 $ 1,088 $ 980
Net earnings per share:
Basic $ 0.36 $ 0.38 $ 0.31 $ 0.27
Diluted $ 0.35 $ 0.37 $ 0.30 $ 0.27
71
(19) Recent Accounting Pronouncements
SFAS No. 145
In April, 2002, the FASB issued SFAS No. 145, Rescission of FASB
Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and
Technical Corrections. The Statement was issued to eliminate an
inconsistency in the required accounting for sale-leaseback
transactions and certain lease modifications that were similar to
sale-leaseback transactions and to rescind FASB Statement No. 44,
Accounting for Intangible Assets of Motor Carrier as well as amending
other existing authoritative pronouncements to make various technical
corrections.
SFAS No. 145 also rescinds SFAS No. 4, Reporting Gains and Losses
from Extinguishments of Debt and SFAS No. 64, Extinguishments of Debt
Made to Satisfy Sinking-Fund Requirements. Under SFAS No. 4, as
amended by SFAS No. 64, gains and losses from the extinguishment of
debt were required to be classified as an extraordinary item, if
material. Under SFAS No. 145, gains or losses from the extinguishment
of debt are to be classified as a component of operating income,
rather than as an extraordinary item. SFAS No. 145 is effective for
fiscal years beginning after May 15, 2002, with early adoption of the
provisions related to the rescission of SFAS No. 4 encouraged. Upon
adoption, companies must reclassify prior period amounts previously
classified as an extraordinary item. Management does not anticipate
that the initial adoption of SFAS No. 145 will have a significant
impact on the Company's consolidated financial statements.
SFAS No. 146
In July, 2002, the FASB issued SFAS No. 146, Accounting for Costs
Associated with Exit or Disposal Activities. The standard requires
companies to recognize costs associated with exit or disposal
activities when they are incurred rather than at the date of a
commitment to an exit or disposal plan. The Statement is to be applied
prospectively to exit or disposal activities initiated after December
31, 2002.
72
SFAS No. 147
In October, 2002, the FASB issued Statement No. 147, Acquisitions
of Certain Financial Institutions- an amendment to FASB Statements No.
72 and 144 and FASB Interpretation No. 9. This Statement removes
acquisitions of financial institutions from the scope of both
Statement 72 and Interpretation 9 and requires that those transactions
be accounted for in accordance with FASB Statements No. 141, Business
Combinations, and No. 142, Goodwill and Other Intangible Assets. The
provisions of Statement No. 147 that relate to the application of the
purchase method of accounting apply to all acquisitions of financial
institutions, except transactions between two or more mutual
enterprises.
Statement No. 147 clarifies that a branch acquisition that meets
the definition of a business should be accounted for as a business
combination, otherwise the transaction should be accounted for as an
acquisition of net assets that does not result in the recognition of
goodwill. The provisions of Statement No. 147 are effective October 1,
2002. This Statement will not have any impact on the consolidated
financial statements.
SFAS No. 148
In December, 2002, FASB issued Statement of Financial Accounting
Standards Statement No. 148, "Accounting for Stock-Based Compensation,
Transition and Disclosure." Statement No. 148 provides alternative
methods of transition for a voluntary change to the fair value based
method of accounting for stock-based employee compensation. Statement
No. 148 also requires that disclosures of the pro forma effect of
using the fair value method of accounting for stock-based employee
compensation be displayed more prominently and in a tabular format.
Additionally, Statement No. 148 requires disclosure of the pro forma
effect in interim financial statements. The additional disclosure
requirements of Statement No. 148 are effective for fiscal years ended
after December 15, 2002. The Company has adopted the expanded
disclosure provisions of this statement effective December 31, 2002.
(20) Subsequent Event (unaudited)
The Company has entered into an agreement to merge with and into
Interchange Financial Services Corporation, with Bridge View Bank
merging with and into Interchange Bank. This agreement is presently
subject to regulatory approval and shareholder approval of both Bridge
View Bancorp and Interchange Financial Services Corporation and is
anticipated to close in second quarter 2003.
73
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused this
report to be signed on its behalf by the undersigned, thereunto duly
authorized.
BRIDGE VIEW BANCORP
By: /s/ Albert F. Buzzetti
--------------------------
Albert F. Buzzetti
President and CEO
Dated : March 24, 2003
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed by the following persons on behalf
of the Registrant and in the capacities and on the dates indicated.
=========================================
Name Title Date
/s/ Albert F. Buzzetti
---------------------
Albert F. Buzzetti President, Chief March 24, 2003
Executive Officer and
Director
/s/ Gerald A. Calabrese
-----------------------
Gerald A. Calabrese Director March 24, 2003
/s/ Glenn L. Creamer
--------------------
Glenn L. Creamer Director March 24, 2003
/s/ Mark Metzger
----------------
Mark Metzger Director March 24, 2003
/s/ Jeremiah F. O'Connor
------------------------
Jeremiah F. O'Connor Director March 24, 2003
/s/ Joseph C. Parisi
--------------------
Joseph C. Parisi Director March 24, 2003
/s/ John A. Schepisi
--------------------
John A. Schepisi Director March 24, 2003
74
INDEX TO EXHIBITS, LIST AND REPORTS ON FORM 8-K
(a) Exhibits.
=====================================================================
Exhibit
Number Description of Exhibits
----------------------------------------------------------------------------
(3) Agreement and Plan of Merger dated November 18, 2002 by and
between Interchange Financial Services and
Bridge View Bancorp(1)
----------------------------------------------------------------------------
3(i) Certificate of Incorporation of the Company (2)
----------------------------------------------------------------------------
3(ii) Bylaws of the Company (2)
----------------------------------------------------------------------------
4(i) Form of Non-Transferable Warrant Certificate (2)
----------------------------------------------------------------------------
4(ii) Form of Stock Certificate (3)
----------------------------------------------------------------------------
10(i) Bridge View Bank 1994 Stock Option Plan (2)
----------------------------------------------------------------------------
10(ii) Bridge View Bank 1994 Stock Option Plan for Non-Employee
Directors (2)
----------------------------------------------------------------------------
10(i) Bridge View Bancorp 2001 Employee Stock Option Plan (4)
----------------------------------------------------------------------------
10(ii) Bridge View Bancorp 2001 Stock Option Plan for Non-Employee
Directors (4)
----------------------------------------------------------------------------
21 Subsidiaries of the Registrant
----------------------------------------------------------------------------
23 Consent of Independent Auditors
----------------------------------------------------------------------------
28 Financial Data Schedule
----------------------------------------------------------------------------
98 Certifications pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002
----------------------------------------------------------------------------
99 Certifications pursuant to Item 307 of SEC Regulations S-K and
S-B
============================================================================
(5) Incorporated by reference from Exhibit 2.1 to the Company's Current
Report on Form 8-K dated November 22, 2002.
(6) Incorporated by reference from Exhibits 2(a) to 6(b) from the
Company's Registration Statement on Form 10-SB, Registration No.
1-12165.
(7) Incorporated by reference from Exhibit 4(ii) from the Company's
Registration Statement on Form SB-2, Registration No. 333-20697.
(8) Incorporated by reference from Exhibit B and C from the Company's
Definitive Proxy Statement filed April 18, 2001.
(b) Reports on Form 8-K
Report on Form 8-K dated January 11, 2002
Report on Form 8-K dated November 22, 2002.
75
EXHIBIT 21
SUBSIDIARIES OF REGISTRANT
The Registrant has one subsidiary, Bridge View Bank.
Bridge View Bank has one wholly-owned subsidiary, Bridge View Investment
Company.
Bridge View Investment Company has one wholly-owned subsidiary, Bridge View
Delaware, Inc..
76
EXHIBIT 23
Independent Auditors' Consent
The Board of Directors
Bridge View Bancorp :
We consent to the incorporation by reference in Registration Statement
No.333-19741 on Form S-8 of Bridge View Bancorp of our report dated January 31,
2003, relating to the consolidated statements of financial condition of Bridge
View Bancorp and subsidiaries as of December 31, 2002 and 2001, and the related
consolidated statements of income, stockholders' equity, and cash flows for each
of the years in the three-year period ended December 31, 2002, which report
appears in the Annual Report on Form 10-K/A of Bridge View Bancorp for the year
ended December 31, 2002.
/s/ KPMG LLP
------------
Short Hills, New Jersey
March 24, 2003
77
Exhibit 98
CERTIFICATION PURSUANT TO SECTION 906
OF THE SARBANES-OXLEY ACT OF 2002
The undersigned, Albert F. Buzzetti and Michael Lesler hereby
jointly certify as follows:
(a) They are the Chief Executive Officer and the Chief Financial Officer,
respectively, of Bridge View Bancorp (the "Company");
(b) To the best of their knowledge, the Company's Annual Report on Form
10-K/A for the year ended December 31, 2002 (the "Report") complies in
all material respects with the requirements of Section 13(a) of the
Securities Exchange Act of 1934, as amended; and
(c) To the best of their knowledge, based upon a review of the Report, the
information contained in the Report fairly presents, in all material
respects, the financial condition and results of operations of the
Company
/s/ Albert F. Buzzetti
----------------------
Albert F. Buzzetti
President and Chief Executive Officer
Date: March 24, 2003
/s/ Michael Lesler
----------------------
Michael Lesler
Senior Vice President and
Chief Financial Officer
Date: March 24, 2003
78
CERTIFICATIONS PURSUANT TO ITEM 307 OF
SEC REGULATIONS S-K AND S-B
I, Albert F. Buzzetti, President, certify that:
1. I have reviewed this annual report on Form 10-K/A of Bridge View Bancorp;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the
period in which this annual report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this annual
report (the "Evaluation Date"); and
c) presented in this annual report our conclusions about the effectiveness of
the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent
functions):
a) all significant deficiencies in the design or operation of internal controls
which could adversely affect the registrant's ability to record, process,
summarize and report financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this
annual report whether or not there were significant changes in internal controls
or in other factors that could significantly affect internal controls subsequent
to the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
/s/ Albert F. Buzzetti
----------------------
Albert F. Buzzetti
President and Chief Executive Officer
Date: March 24, 2003
79
CERTIFICATIONS PURSUANT TO ITEM 307 OF
SEC REGULATIONS S-K AND S-B
I, Michael Lesler, Senior Vice President, certify that:
1. I have reviewed this annual report on Form 10-K/A of Bridge View Bancorp;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the
period in which this annual report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this annual
report (the "Evaluation Date"); and
c) presented in this annual report our conclusions about the effectiveness of
the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent
functions):
a) all significant deficiencies in the design or operation of internal controls
which could adversely affect the registrant's ability to record, process,
summarize and report financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this
annual report whether or not there were significant changes in internal controls
or in other factors that could significantly affect internal controls subsequent
to the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
/s/ Michael Lesler
-------------------
Michael Lesler
Senior Vice President and
Chief Financial Officer
Date: March 24, 2003
80