UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. _)
Filed by the Registrant
x
Filed by a Party other than the Registrant
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Check the appropriate box:
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Preliminary Proxy Statement
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Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))
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Definitive Proxy Statement
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Definitive Additional Materials
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Soliciting Material Pursuant to Rule 14a-12
Harleysville National Corporation
(Name of Registrant as Specified In Its Charter)
Not Applicable
(Name of Person(s) Filing Proxy Statement if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
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x
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No fee required.
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Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
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(1)
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Title of each class of securities to which transaction applies:
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(2)
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Aggregate number of securities to which transaction applies:
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(3)
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Per unit price or other underlying value of transaction computed pursuant to Exchange
Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it
was determined):
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(4)
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Proposed maximum aggregate value of transaction:
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(5)
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Fee paid previously with preliminary materials.
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Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and
identify the filing for which the offsetting fee was paid previously. Identify the previous
filing by registration statement number, or the Form or Schedule and the date of its filing.
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(1)
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Amount Previously Paid:
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(2)
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Form, Schedule or Registration Statement No.:
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(3)
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Filing Party:
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(4)
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Date Filed:
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To the Shareholders of Harleysville National Corporation:
A Merger Proposal Your Vote Is Very Important
On July 26, 2009, the board of directors of Harleysville National Corporation
unanimously approved a merger agreement between Harleysville National Corporation and First
Niagara Financial Group, Inc. pursuant to which Harleysville National Corporation will be
merged with and into First Niagara Financial Group, Inc. Harleysville National Corporation
is sending you this document to ask you to vote on the adoption of the merger agreement
with First Niagara Financial Group, Inc.
If the merger agreement is adopted and the merger is subsequently completed, each
outstanding share of Harleysville National Corporation common stock will be converted into
the right to receive 0.474 share of First Niagara Financial Group, Inc. common stock for
each share of Harleysville National Corporation common stock, subject to adjustment as
described in the merger agreement and this document. The value of the merger consideration
will fluctuate with the market price of First Niagara Financial Group Inc.s common stock
and is subject to adjustment based on outstanding loan delinquencies of Harleysville
National Corporation prior to the closing and may also be adjusted under a limited set of
other circumstances, as more fully described in The Merger and the Merger Agreement-Merger
Consideration. Based on the average five day closing price of First Niagara Financial
Group Inc.s common stock ended July 22, 2009, the 0.474 exchange ratio represented
approximately $5.50 in value for each share of Harleysville National Corporations common
stock. Based on the closing price of First Niagara Financial Group, Inc.s common stock on
December 7, 2009, the 0.474 exchange ratio represented approximately $6.29 in value for
each share of Harleysville National Corporations common stock. You should obtain current
stock price quotations for First Niagara Financial Group Inc.s and Harleysville National
Corporations common stock. First Niagara Financial Group, Inc. common stock trades on the
Nasdaq Global Select Market under the symbol FNFG and Harleysville National Corporation
trades on the Nasdaq Global Select Market under the symbol HNBC.
Your board of directors has unanimously determined that the merger and the merger
agreement are fair and in the best interests of Harleysville National Corporation and its
shareholders and unanimously recommends that you vote FOR adoption of the merger
agreement.
The merger cannot be completed unless a majority of the issued and outstanding
shares of common stock of
Harleysville National Corporation vote to
adopt
the merger
agreement. Whether or not you plan to attend the special meeting of shareholders, please
take the time to vote by completing the enclosed proxy card and mailing it in the enclosed
envelope.
If you sign, date and mail your proxy card without indicating how you want to
vote, your proxy will be counted as a vote FOR adoption of the merger agreement
.
If you
fail to vote, or you do not instruct your broker how to vote any shares held for you in
street name, it will have the same effect as voting AGAINST the merger agreement.
This proxy statement-prospectus gives you detailed information about the special
meeting of shareholders to be held on January 22, 2010, the merger and other related
matters. You should carefully read this entire document, including the appendices.
In
particular, you should carefully consider the discussion in the section entitled Risk
Factors on page 20
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On behalf of the board of directors, I thank you for your prompt attention to this important
matter.
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Walter E. Daller
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Chairman of the Board
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Neither the Securities and Exchange Commission nor any state securities commission has
approved or disapproved of the securities to be issued in connection with the merger or
determined if this document is accurate or complete. Any representation to the contrary is
a criminal offense.
The securities to be issued in connection with the merger are not savings accounts,
deposits or other obligations of any bank or savings association and are not insured by the
Federal Deposit Insurance Corporation or any other governmental agency.
This document is dated December 9, 2009, and is first being mailed on or about December 17,
2009.
WHERE YOU CAN FIND MORE INFORMATION
Both First Niagara Financial Group, Inc. and Harleysville National Corporation file
annual, quarterly and special reports, proxy statements and other information with the
Securities and Exchange Commission. You may obtain copies of these documents by mail from
the public reference room of the Securities and Exchange Commission at 100 F Street, N.E.,
Room 1580, Washington, D.C. 20549, at prescribed rates. Please call the Securities and
Exchange Commission at (800) SEC-0330 for further information on the public reference room.
In addition, First Niagara Financial Group, Inc. and Harleysville National Corporation
file reports and other information with the Securities and Exchange Commission
electronically, and the Securities and Exchange Commission maintains a web site located at
http://www.sec.gov
containing this information.
This document incorporates by reference important business and financial information
about First Niagara Financial Group, Inc. and Harleysville National Corporation from
documents that are not included in or delivered with this proxy statement-prospectus. These
documents are available without charge to you upon written or oral request at the
applicable companys address and telephone number listed below:
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First Niagara Financial Group, Inc.
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Harleysville National Corporation
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726 Exchange Street
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483 Main Street
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Suite 618
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Harleysville, Pennsylvania 19438
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Buffalo, New York 14210
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Attention: Liz Chemnitz
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Attention: John Mineo, Corporate Secretary
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(800) 423-3955
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(716) 819-5859
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To obtain timely delivery, you must request the information no later than January 15, 2010.
First Niagara Financial Group, Inc. has filed a registration statement on Form S-4 to
register with the Securities and Exchange Commission up to 21,140,400 shares of First
Niagara Financial Group, Inc. common stock. This document is a part of that registration
statement. As permitted by Securities and Exchange Commission rules, this document does
not contain all of the information included in the registration statement or in the
exhibits or schedules to the registration statement. You may read and copy the
registration statement, including any amendments, schedules and exhibits at the addresses
set forth above. Statements contained in this document as to the contents of any contract
or other documents referred to in this document are not necessarily complete. In each
case, you should refer to the copy of the applicable contract or other document filed
as an exhibit to the registration statement. This document incorporates by reference
documents that First Niagara Financial Group, Inc. and Harleysville National Corporation
have previously filed with the Securities and Exchange Commission. They contain important
information about the companies and their financial condition. See Incorporation of
Certain Documents by Reference on page 92.
First Niagara Financial Group, Inc. common stock is traded on the Nasdaq Global Select
Market under the symbol FNFG, and Harleysville National Corporation common stock is
traded on the Nasdaq Global Select Market under the symbol HNBC.
(ii)
HARLEYSVILLE NATIONAL CORPORATION
483 MAIN STREET
HARLEYSVILLE, PENNSYLVANIA 19438
NOTICE OF THE SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON JANUARY 22, 2010
NOTICE IS HEREBY GIVEN that a special meeting of the shareholders of Harleysville
National Corporation will be held at Best Western, The Inn at Towamencin, 1750 Sumneytown
Pike, Kulpsville, Pennsylvania 19443, at 10:30 a.m., New York time, on January 22, 2010,
for the following purposes:
1. To consider and vote upon a proposal to adopt the Agreement and Plan of Merger by
and between First Niagara Financial Group, Inc., and Harleysville National Corporation,
dated as of July 26, 2009, and the transactions contemplated by the merger agreement, as
discussed in the attached proxy statement-prospectus.
2. To transact any other business that properly comes before the special meeting of
shareholders, or any adjournments or postponements of the special meeting, including,
without limitation, a motion to adjourn the special meeting to another time or place for
the purpose of soliciting additional proxies in order to adopt the merger agreement and the
merger or otherwise.
The proposed merger is described in more detail in this proxy statement-prospectus,
which you should read carefully in its entirety before voting. A copy of the merger
agreement is attached as Appendix A to this document. Only Harleysville National
Corporation shareholders of record as of the close of business on December 7, 2009, are
entitled to notice of and to vote at the special meeting of shareholders or any
adjournments of the special meeting.
Your vote is very important. To ensure your representation at the special meeting of
shareholders, please complete, execute and promptly mail your proxy card in the return
envelope enclosed.
This will not prevent you from voting in person, but it will help to
secure a quorum and avoid added solicitation costs. Your proxy may be revoked at any time
before it is voted.
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BY ORDER OF THE BOARD OF DIRECTORS
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Walter E. Daller, Jr.
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Chairman of the Board
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Harleysville, Pennsylvania
December 17, 2009
HARLEYSVILLE NATIONAL CORPORATIONS BOARD OF DIRECTORS
UNANIMOUSLY RECOMMENDS THAT YOU VOTE FOR ADOPTION OF THE MERGER AGREEMENT.
PLEASE MARK, SIGN, DATE AND RETURN YOUR PROXY CARD PROMPTLY, WHETHER OR NOT YOU PLAN
TO ATTEND THE SPECIAL MEETING OF
SHAREHOLDERS.
DO NOT SEND STOCK CERTIFICATES WITH THE PROXY CARD. UNDER SEPARATE COVER, WHICH WILL
BE SENT FOLLOWING THE CLOSING OF THE MERGER, YOU WILL RECEIVE INSTRUCTIONS FOR DELIVERING
YOUR STOCK CERTIFICATES.
TABLE OF CONTENTS
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Page
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ii
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1
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3
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10
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20
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34
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36
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APPENDICES
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A-1
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B-1
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QUESTIONS AND ANSWERS ABOUT VOTING AT THE
SPECIAL MEETING OF SHAREHOLDERS
The following are answers to certain questions that you may have regarding the special
meeting. We urge you to read carefully the remainder of this document because the
information in this section may not provide all that might be important to you in
determining how to vote. Additional important information is also contained in the
appendices to, and the documents incorporated by reference in, this document.
WHAT ARE HOLDERS OF HARLEYSVILLE NATIONAL CORPORATION COMMON STOCK BEING ASKED TO VOTE ON?
A. Holders of Harleysville National Corporation common stock are being asked to vote on the
adoption of the merger agreement and to approve the adjournment of the special meeting, if
necessary or appropriate, to solicit additional proxies in favor of adoption of the merger
agreement.
Q: WHAT DO I NEED TO DO NOW?
A: After you have carefully read this document, you may vote using the internet at the address
shown on your proxy card, or by telephone using the number on your proxy card or by completing,
signing, dating and returning your proxy card in the enclosed prepaid return envelope as soon as
possible. This will enable your shares to be represented and voted at the special meeting.
Q: WHY IS MY VOTE IMPORTANT?
A: The merger agreement must be adopted by a majority of the issued and outstanding shares of
Harleysville National Corporation common stock. A failure to vote will have the same effect as a
vote against the merger agreement.
Q: IF MY BROKER HOLDS MY SHARES IN STREET NAME WILL MY BROKER AUTOMATICALLY VOTE MY SHARES FOR
ME?
A:
No. Your broker will
not
be able to vote your shares without instructions from you. You should
instruct your broker to vote your shares, following the instructions your broker provides.
Q: WHAT IF I FAIL TO INSTRUCT MY BROKER TO VOTE MY SHARES?
A: If you fail to instruct your broker to vote your shares, the broker will submit an unvoted proxy
(a broker non-vote) as to your shares. Broker non-votes will count toward a quorum at the special
meeting. However, broker non-votes will
not
count as a vote with respect to the merger agreement,
and therefore will have the same effect as a vote against the merger agreement.
Q: CAN I ATTEND THE SPECIAL MEETING AND VOTE MY SHARES IN PERSON?
A: Yes. All shareholders are invited to attend the special meeting. Shareholders of record can
vote in person at the special meeting by executing a proxy card. If a broker holds your shares in
street name, then you are not the shareholder of record and you must ask your broker how you can
vote your shares at the special meeting.
1
Q: CAN I CHANGE MY VOTE?
A: Yes. If you have not voted through your broker, you can change your vote after you have sent in
your proxy card by:
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providing written notice to the Secretary of Harleysville National Corporation;
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submitting a new proxy card or vote again by telephone or internet (any earlier
proxies will be revoked automatically); or
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attending the special meeting and voting in person. Any earlier proxy will be
revoked. However, simply attending the special meeting without voting will not revoke your
proxy.
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If you have instructed a broker to vote your shares, you must follow your brokers
directions to change your vote.
Q: SHOULD I SEND IN MY STOCK CERTIFICATES NOW?
A: Please
DO NOT
send your stock certificates with your proxy card. Instructions will be sent to
you under separate cover following completion of the merger.
Q: WHEN DO YOU EXPECT THE MERGER TO BE COMPLETED?
A: First Niagara Financial Group, Inc. and Harleysville National Corporation currently expect to
complete the merger in the first quarter of 2010, assuming all of the conditions to completion of
the merger have been satisfied.
Q: WHAT WILL SHAREHOLDERS OF HARLEYSVILLE NATIONAL CORPORATION RECEIVE IN THE MERGER?
A: If the merger agreement is adopted and the merger is subsequently completed, each outstanding
share of Harleysville National Corporation common stock will be converted into the right to receive
0.474 share of First Niagara Financial Group, Inc. for each share of Harleysville National
Corporation common stock, subject to adjustment as described in the merger agreement and in this
document.
Q: WHOM SHOULD I CALL WITH QUESTIONS?
A: You should direct any questions regarding the special meeting of shareholders or the merger to
Harleysville National Corporations proxy solicitor, The Altman Group, who can be contacted at
(866) 207-3649, Monday to Friday, 9:00 a.m. to 11:00 p.m. prevailing Eastern Time.
2
SUMMARY
This summary highlights selected information included in this document and does not
contain all of the information that may be important to you. You should read this entire
document and its appendices and the other documents to which we refer you before you decide
how to vote with respect to the merger agreement. In addition, we incorporate by reference
important business and financial information about Harleysville National Corporation and
First Niagara Financial Group, Inc. into this document. For a description of this
information, see Incorporation of Certain Documents by Reference on page 92. You may
obtain the information incorporated by reference into this document without charge by
following the instructions in the section entitled Where You Can Find More Information on
the inside front cover of this document. Each item in this summary
includes a page reference directing you to a more complete description of that item.
This document, including information included or incorporated by reference in this
document, contains forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995. These forward-looking statements include, but are not
limited to: (i) statements of goals, intentions and expectations; (ii) statements regarding
business plans, prospects, growth and operating strategies; (iii) statements regarding the
asset quality of loan and investment portfolios; (iv) statements regarding estimates of
risks and future costs and benefits; and (iv) other statements identified by words such as
expects, anticipates, intends, plans, believes, seeks, estimates, or words of
similar meaning. These forward-looking statements are based on current beliefs and
expectations of the management of First Niagara Financial Group, Inc. and Harleysville
National Corporation and are inherently subject to significant business, economic and
competitive uncertainties and contingencies, many of which are beyond First Niagara
Financial Group, Inc.s and Harleysville National Corporations control. In addition, these
forward-looking statements are subject to assumptions with respect to future business
strategies and decisions that are subject to change. Actual results may differ materially
from the anticipated results discussed in these forward-looking statements. See
Forward-Looking Statements on page 94.
THE MERGER
The merger agreement is attached to this document as Appendix A. We encourage you to
read this agreement carefully, as it is the legal document that governs the merger of
Harleysville National Corporation with and into First Niagara Financial Group, Inc.
Parties to the Merger
First Niagara Financial Group
,
Inc. (page 36)
First Niagara Bank
First Niagara Financial Group, Inc. (First Niagara), a Delaware corporation,
provides a wide range of retail and commercial banking as well as other financial services
through its wholly-owned, federally chartered savings bank subsidiary, First Niagara Bank.
First Niagara is positioned as a leading community-oriented bank in Upstate New York and
Western Pennsylvania, providing its retail consumer and business customers with banking
services including residential and commercial real estate loans, commercial business loans
and leases, consumer loans, wealth management products, as well as retail and commercial
deposit products. Additionally, First Niagara offers insurance and employee benefits
consulting services through a wholly-owned subsidiary of First Niagara Bank. At September
30, 2009, First Niagara had $14.1 billion of assets, $9.9 billion in deposits and
stockholders equity of $2.4 billion.
First Niagara was organized in April 1998 in connection with the conversion of First
Niagara Bank from a New York State chartered mutual savings bank to a New York State
chartered stock savings
3
bank and a reorganization to a two-tiered mutual holding company. In November 2002, First Niagara
converted First Niagara Bank and the mutual holding company to a federal charter subject to Office
of Thrift Supervision regulation. In January 2003, First Niagara converted the
mutual holding company to stock form, with shares of common stock owned by the mutual holding
company being sold to depositors and other investors. In connection with the acquisition of
Harleysville National Corporation and Harleysville National Bank, First Niagara has applied to the
Board of Governors of the Federal Reserve System (Federal Reserve) to register as a bank holding
company. Since 1998, First Niagara deployed the proceeds from several stock offerings through
multiple whole-bank and nonbank financial services company acquisitions, as well as the opening of
a number of de novo branches in target markets across Upstate New York. This strategy, coupled
with its organic growth initiatives, included an emphasis on expanding its commercial operations
and financial services businesses.
On April 6, 2009, First Niagara Bank entered into a Purchase and Assumption Agreement
with National City Bank (NatCity) and The PNC Financial Services Group, Inc. (PNC)
pursuant to which First Niagara Bank agreed to acquire certain assets and assume certain
liabilities of 57 NatCity branch locations (the NatCity Branches) in the Pittsburgh, Erie
and Warren, Pennsylvania banking markets (the Branch Acquisition). The Federal Reserve
and the U.S. Department of Justice (the DOJ) required NatCity to divest these and other
branch locations in connection with the merger of PNC and NatCitys former parent company,
National City Corporation.
On September 4, 2009, First Niagara Bank completed the Branch Acquisition and assumed
approximately $3.9 billion of deposit liabilities, acquired approximately $756.9 million of
performing loans and $3.1 billion in cash, as well as the real and personal property
associated with the NatCity Branches.
First Niagaras principal executive offices are located at 726 Exchange Street, Suite
618, Buffalo, New York 14210, and our telephone number is (716) 819-5500.
First Niagara Bank was organized in 1870, and is a community-oriented savings bank
providing financial services to individuals, families, and businesses through its branch
network located across Upstate New York and Western Pennsylvania. As of September 30, 2009,
First Niagara Bank and all of its subsidiaries had $14.1 billion of assets, deposits of
$9.9 billion, $1.8 billion of stockholders equity, employed approximately 2,600 people,
and operated through 170 branches, including branches acquired in the Branch Acquisition,
and several financial services subsidiaries.
First Niagara Banks subsidiaries provide a range of financial services to individuals
and companies in its market areas and include: First Niagara Commercial Bank (the
Commercial Bank), its New York State chartered bank whose primary purpose is to generate
municipal deposits; First Niagara Funding, Inc., a real estate investment trust (REIT)
which primarily holds certain of its commercial real estate and business loans; and First
Niagara Risk Management, Inc. (FNRM), a full service insurance agency and employee
benefits consulting firm engaged in the sale of insurance products, including business and
personal insurance, surety bonds, life, disability and long-term care coverage, and other
risk management advisory services. FNRMs risk management consulting business includes
alternative risk and self-insurance, claims investigation and adjusting services, and
third-party administration of self insured workers compensation plans. FNRMs employee
benefits consulting business includes a retirement plan practice, compliance services and
benefit plan administration, as well as a compensation consulting practice.
4
Harleysville National Corporation (page 38)
Harleysville National Bank
Harleysville National Corporation is the bank holding company of Harleysville National
Bank and Trust Company (Harleysville National Bank), headquartered in Harleysville,
Pennsylvania. Harleysville National Bank operates 83 branch offices and provides a full
range of banking services including loans and deposits, investment management and trust and
investment advisory services to individual and corporate customers located primarily in
Eastern Pennsylvania. Harleysville National Corporation engages in full-service commercial
banking and trust businesses, including accepting time and demand deposits, making secured
and unsecured commercial and consumer loans, financing commercial transactions, making
construction and mortgage loans and performing corporate pension and personal investment
and trust services. As of September 30, 2009, Harleysville National Corporation had assets
of $5.2 billion, deposits of $3.9 billion and shareholders equity of $260.7 million.
Harleysville National Corporations principal executive office is located at 483 Main
Street, Harleysville, Pennsylvania 19438, and the telephone number is (215) 256-8851.
What Harleysville National Corporation Shareholders Will Receive In the Merger (page 39)
If the merger agreement is adopted and the merger is subsequently completed, each
outstanding share of Harleysville National Corporation common stock will be converted into
the right to receive 0.474 share of First Niagara common stock for each share of
Harleysville National Corporation common stock, which is referred to as the exchange ratio.
This exchange ratio is subject to a downward adjustment, as described in this document and
the merger agreement, in the event that Harleysville National Corporations delinquent
loans are $237.5 million or greater as of the month end prior to the closing date of this
transaction and First Niagara will have the right to terminate the merger agreement if such
delinquent loans equal or exceed $350.0 million as of any month end on or prior to February
28, 2010. If, however, the closing occurs on or after March 1, 2010, the amount of
Harleysville National Corporation delinquent loans will be calculated as of February 28,
2010. As of July 31, 2009 and November 30, 2009, the amount of such delinquent loans was
$209.1 million and $173.6 million, respectively. In addition, in the event of certain
decreases in the stock price of First Niagara, as described in the merger agreement and
this document, Harleysville National Corporation may elect to terminate the merger
agreement unless First Niagara elects to increase the exchange ratio. See The Merger and
the Merger Agreement-Merger Consideration for a more complete discussion of the merger
consideration to be paid in this proposed transaction and -Termination; Amendment; Waiver
for a more complete discussion of the circumstances under which the merger agreement could
be terminated.
Material United States Federal Income Tax Consequences of the Merger (page 77)
First Niagara and Harleysville National Corporation will not be required to complete
the merger unless they receive legal opinions from their respective counsel to the effect
that the merger will qualify as a tax-free reorganization for United States federal income
tax purposes.
We expect that, for United States federal income tax purposes, you generally will not
recognize any gain or loss with respect to your shares of Harleysville National Corporation
common stock upon receiving shares of First Niagara common stock in the merger, except with
respect to any cash received in lieu of a fractional share interest in
First Niagara common stock.
You should read Material United States Federal Income Tax Consequences of the Merger
starting on page 77 for a more complete discussion of the federal income tax consequences
of the merger. Tax matters can be complicated and the tax consequences of the merger to you
will depend on your
5
particular tax situation. You should consult your tax advisor to fully understand the tax
consequences of the merger to you.
Your Board of Directors Unanimously Recommends Shareholder Adoption of the Merger
(
page 49
)
Harleysville National Corporations board of directors unanimously approved the merger
agreement and all directors have agreed to vote shares of Harleysville National Corporation
stock they own as of the record date in favor of the adoption of the merger agreement.
Harleysville National Corporations board of directors believes that the merger and the
merger agreement are fair to and in the best interests of Harleysville National Corporation
and its shareholders and unanimously recommends that you vote FOR adoption of the merger
agreement. See Harleysville National Corporations Reasons for the Merger-Recommendation
of Harleysville National Corporations Board of Directors.
Opinion of Harleysville National Corporations Financial Advisor (page 53 and Appendix B)
On July 26, 2009, J.P. Morgan Securities Inc. (JPMorgan) rendered its opinion to the
board of directors of Harleysville National Corporation that as of the date of the opinion,
and based upon and subject to the factors and assumptions set forth in the opinion, the
exchange ratio in the proposed merger was fair, from a financial point of view, to
Harleysville National Corporations common shareholders. JPMorgans opinion assumed, with
Harleysville National Corporations consent, that the exchange ratio will be 0.474, and
that the level of HNC Delinquent Loans (as defined in the merger agreement) will not result
in any adjustment thereto. The full text of JPMorgans written opinion, which sets forth
the assumptions made, procedures followed, matters considered and limitations on the review
undertaken in connection with the opinion, is attached to this document as Appendix B.
Harleysville National Corporation shareholders are urged to read the opinion in its
entirety. JPMorgans written opinion is addressed to the board of directors of
Harleysville National Corporation, is directed only to the exchange ratio in the merger and
does not constitute a recommendation as to how any holder of Harleysville National
Corporation common stock should vote with respect to the merger or any other matter.
Special Meeting of Shareholders of Harleysville National Corporation
(
page 34
)
Harleysville National Corporation will hold a special meeting of its shareholders on
January 22, 2010, at 10:30 a.m., New York time, at Best Western, The Inn at Towamencin,
1750 Sumneytown Pike, Kulpsville, Pennsylvania 19443. At the special meeting of
shareholders, you will be asked to vote to adopt the merger agreement.
You may vote at the special meeting of shareholders if you owned shares of
Harleysville National Corporation common stock at the close of business on the record
date, December 7, 2009. On that date, there were 43,139,426 shares of Harleysville
National Corporation common stock outstanding and entitled to vote at the special meeting
of shareholders. You may cast one vote for each share of Harleysville National Corporation
common stock you owned on the record date.
Even if you expect to attend the special meeting of shareholders, Harleysville
National Corporation recommends that you promptly complete and return your proxy card in
the enclosed return envelope.
Shareholder Vote Required
(
page 35
)
Adoption of the merger agreement requires the affirmative vote of the holders of a
majority of the shares of Harleysville National Corporation common stock issued and
outstanding on the record date. A failure to vote or an abstention will have the same
effect as a vote against the merger. As of the record
6
date, directors of Harleysville National Corporation beneficially owned approximately 2,519,000
shares of Harleysville National Corporation common stock entitled to vote at the special meeting of
shareholders. This represents approximately 5.8% of the total votes entitled to be cast at the
special meeting of shareholders. These individuals have agreed to vote FOR adoption of the merger
agreement.
Holders of Harleysville National Corporation Common Stock Do Not Have Dissenters Rights (page 63)
Dissenters rights are statutory rights that, if available under law, enable
shareholders to dissent from an extraordinary transaction, such as a merger, and to demand
that the corporation pay the fair value for their shares as determined by a court in a
judicial proceeding instead of receiving the consideration offered to shareholders in
connection with the extraordinary transaction. Dissenters rights are not available in all
circumstances, and exceptions to these rights are provided under the Pennsylvania Business
Corporation Law of 1988, as amended. As a result of one of these exceptions, the holders of
Harleysville National Corporation common stock are not entitled to dissenters rights in the
merger.
Interests of Harleysville National Corporations Directors and Officers In the Merger (page 64)
In considering the recommendation of the board of directors of Harleysville National
Corporation to adopt the merger agreement, you should be aware that officers and directors
of Harleysville National Corporation have employment and other compensation agreements or
plans that give them interests in the merger that are somewhat different from, or in
addition to, their interests as Harleysville National Corporation shareholders. These
interests and agreements include:
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employment agreements that provide for severance payments in connection with a
termination of employment without cause or for good reason following a change in control;
|
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|
change in control agreements that provide for severance payments in connection
with a termination of employment without cause or for good reason following a change in
control;
|
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|
|
supplemental executive benefit agreements that provide for full vesting upon any
termination of employment within 12 months following a change in control;
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the accelerated vesting of all outstanding unvested stock options held by
Harleysville National Corporation officers and directors and the exchange of these stock
options for options to purchase a number of shares of First Niagara, appropriately
adjusted by the exchange ratio; and
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rights of Harleysville National Corporation officers and directors to
indemnification and directors and officers liability insurance.
|
Regulatory Approvals Required For the Merger (page 73)
The merger cannot be completed without prior regulatory approval. First Niagara has
applied to the Board of Governors of the Federal Reserve System for approval to register as
a bank holding company and acquire Harleysville National Bank and Trust Company as a
separate banking subsidiary. Ultimately, First Niagara intends to merge First Niagara Bank
and Harleysville National Bank and Trust Company. However, the timing of the merger of the
banking subsidiaries has not yet been determined. While First Niagara does not know of any
reason why it would not be able to obtain the necessary Federal Reserve approval in a
timely manner, First Niagara cannot assure you that this approval will occur or
7
what the timing may be or that this approval will not be subject to one or more conditions that
affect the advisability of the merger.
Conditions to the Merger (page 72)
Completion of the merger depends on a number of conditions being satisfied or waived,
including the following:
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Harleysville National Corporation shareholders must have adopted the merger
agreement;
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the representations and warranties of the parties to the merger
agreement must be, subject to certain limited exceptions, true and correct except to the
extent that the failure of the representations and warranties to be so true and correct do
not have and are not reasonably expected to have, individually or in the aggregate, a
material adverse effect on Harleysville National Corporation or First Niagara, as
appropriate;
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the receipt of all regulatory approvals and other necessary approvals of
governmental entities (other than those the failure of which to obtain would not cause a
material adverse effect);
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there must be no statute, rule, regulation, order, injunction or decree in
existence which prohibits or makes completion of the merger illegal;
|
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there must be no litigation, statute, law, regulation, order or decree by which the
merger is restrained or enjoined;
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First Niagaras registration statement of which this document is a part shall have
become effective and no stop order suspending its effectiveness shall have been issued and
no proceedings for that purpose shall have been initiated or threatened by the Securities
and Exchange Commission;
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the shares of First Niagara common stock to be issued to Harleysville National
Corporation shareholders in the merger must have been approved for listing on the Nasdaq
Global Select Market and such shares must be delivered to the exchange agent before the
closing date of the transaction;
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both First Niagara and Harleysville National Corporation must have received a legal
opinion from their respective counsels that the merger will qualify as a tax-free
reorganization under United States federal income tax laws; and
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all necessary third party consents shall have been obtained.
|
Although we anticipate the closing will occur during the first quarter of 2010,
because the satisfaction of certain of these conditions is beyond our control, we cannot be
certain when, or if, the conditions to the merger will be satisfied or waived or whether or
not the merger will be completed.
No Solicitation (page 74)
Subject to certain exceptions, Harleysville National Corporation has agreed not to
initiate, solicit, induce or knowingly encourage any inquiries or the making of any
proposal or offer from any third party relating to an acquisition of Harleysville National
Corporation, or enter into an agreement relating to an
8
acquisition proposal by a third party. Notwithstanding these restrictions, however, the merger
agreement provides that, under specified circumstances, in response to an unsolicited acquisition
proposal or inquiry from a third party which, in the good faith judgment of the Harleysville
National Corporation board of directors, is or reasonable likely to result in a proposal which is
superior to the merger with First Niagara. Harleysville National Corporation may furnish
information regarding Harleysville National Corporation and participate in discussions and
negotiations with such third party.
Termination of the Merger Agreement (page 75)
First Niagara and Harleysville National Corporation may mutually agree at any time to
terminate the merger agreement without completing the merger, even if the Harleysville
National Corporation shareholders have adopted it. Also, either party may decide, without
the consent of the other party, to terminate the merger agreement under specified
circumstances, including if the merger is not consummated by July 31, 2010, if the
required regulatory approval is not received or if the shareholders of Harleysville
National Corporation do not approve the merger. In addition, either party may terminate
the merger agreement if there is a breach of the agreement by the other party that would
cause the failure of conditions to the terminating partys obligation to close, unless the
breach is capable of being cured and is cured within 30 days of the notice of breach
(provided that the terminating party is not then in material breach of the merger
agreement). First Niagara may also terminate the merger agreement if Harleysville
National Corporation delinquent loans equal or exceed $350.0 million as of any month
end prior to the closing date of the merger, excluding any month end after February 28,
2010. In addition, Harleysville National Corporation may terminate the merger agreement
if First Niagaras stock price falls below thresholds set forth in the merger agreement
and First Niagara does not increase the exchange ratio pursuant to a prescribed formula
or, under certain limited circumstances, if Harleysville National Corporation has received
a proposal which its board of directors determines is superior to the merger with First
Niagara.
Termination Fee (page 76)
If the merger is terminated pursuant to specified situations in the merger agreement
(and Harleysville National Corporation accepts a superior proposal, as defined in the
merger agreement, or enters into an acquisition proposal under certain circumstances),
Harleysville National Corporation may be required to pay a termination fee to First
Niagara of $10.0 million. Harleysville National Corporation agreed to this termination
fee arrangement in order to induce First Niagara to enter into the merger agreement. The
termination fee requirement may discourage other companies from trying or proposing to
combine with Harleysville National Corporation before the merger is completed.
Litigation Related to the Merger (page 68)
Certain litigation is pending in connection with the merger. See The
MergerLitigation Related to the Merger.
Comparison of Shareholders Rights (page 82)
The rights of Harleysville National Corporation shareholders who continue as First
Niagara shareholders after the merger will be governed by Delaware law and the certificate
of incorporation and bylaws of First Niagara rather than by Pennsylvania law and the
certificate of incorporation and bylaws of Harleysville National Corporation.
9
SELECTED HISTORICAL FINANCIAL DATA FOR FIRST NIAGARA FINANCIAL GROUP,
INC. AND HARLEYSVILLE NATIONAL CORPORATION
First Niagara Financial Group, Inc. Selected Historical Financial and Other Data
The following tables set forth selected historical financial and other data of First
Niagara for the periods and as of the dates indicated. The information at and for the nine
months ended September 30, 2009 and 2008 is unaudited. However, in the opinion of
management of First Niagara, all adjustments, consisting of normal recurring adjustments,
necessary for a fair presentation of the results of operations for the unaudited periods
have been made. The selected operating data presented below for the nine months ended
September 30, 2009, are not necessarily indicative of a full years operations.
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As of or for the Nine Months
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Ended September 30,
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As of or for the Years Ended December 31,
|
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2009
|
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2008
|
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|
2008
|
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|
2007
|
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2006
|
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|
2005
|
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|
2004
|
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|
(In thousands, except per share data)
|
|
Selected financial condition data:
|
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|
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Total assets
|
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$
|
14,137,504
|
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|
$
|
9,008,383
|
|
|
$
|
9,331,372
|
|
|
$
|
8,096,228
|
|
|
$
|
7,945,526
|
|
|
$
|
8,064,832
|
|
|
$
|
5,078,374
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|
Loans, net
|
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|
7,132,685
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|
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|
6,343,814
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|
6,385,982
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|
5,654,705
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5,593,512
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5,216,299
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3,215,255
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Securities available for sale:
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Mortgage-backed
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|
3,076,274
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|
891,899
|
|
|
|
1,232,383
|
|
|
|
817,614
|
|
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|
717,601
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|
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|
867,037
|
|
|
|
618,156
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|
Other
|
|
|
575,987
|
|
|
|
358,175
|
|
|
|
340,718
|
|
|
|
399,550
|
|
|
|
342,821
|
|
|
|
737,851
|
|
|
|
551,973
|
|
Securities held to maturity
(1)
|
|
|
1,085,258
|
|
|
|
|
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|
|
|
|
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|
|
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|
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|
|
|
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Deposits
|
|
|
9,923,368
|
|
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|
5,816,720
|
|
|
|
5,943,613
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|
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|
5,548,984
|
|
|
|
5,709,736
|
|
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|
5,479,412
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|
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|
3,337,682
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|
Borrowings
|
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|
1,515,148
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|
|
|
1,603,777
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|
|
|
1,540,227
|
|
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|
1,094,981
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|
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|
747,554
|
|
|
|
1,096,427
|
|
|
|
750,686
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Shareholders equity
|
|
$
|
2,383,604
|
|
|
$
|
1,441,022
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|
|
$
|
1,727,263
|
|
|
$
|
1,353,179
|
|
|
$
|
1,387,197
|
|
|
$
|
1,374,423
|
|
|
$
|
928,162
|
|
Common shares outstanding
|
|
|
188,151
|
|
|
|
109,992
|
|
|
|
118,562
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|
|
|
104,770
|
|
|
|
110,719
|
|
|
|
112,808
|
|
|
|
82,318
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|
Preferred shares outstanding
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|
|
|
|
|
|
|
|
|
|
184
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
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Selected operations data:
|
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|
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|
|
|
|
|
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|
|
Interest income
|
|
$
|
345,401
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|
|
$
|
331,340
|
|
|
$
|
441,138
|
|
|
$
|
422,772
|
|
|
$
|
415,830
|
|
|
$
|
375,217
|
|
|
$
|
224,578
|
|
Interest expense
|
|
|
93,904
|
|
|
|
134,469
|
|
|
|
172,561
|
|
|
|
198,594
|
|
|
|
169,349
|
|
|
|
125,067
|
|
|
|
68,476
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
|
251,497
|
|
|
|
196,871
|
|
|
|
268,577
|
|
|
|
224,178
|
|
|
|
246,481
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|
|
|
250,150
|
|
|
|
156,102
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|
Provision for credit losses
|
|
|
32,650
|
|
|
|
14,500
|
|
|
|
22,500
|
|
|
|
8,500
|
|
|
|
6,456
|
|
|
|
7,348
|
|
|
|
8,442
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income after provision for
credit losses
|
|
|
218,847
|
|
|
|
182,371
|
|
|
|
246,077
|
|
|
|
215,678
|
|
|
|
240,025
|
|
|
|
242,802
|
|
|
|
147,660
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|
Noninterest income
|
|
|
90,458
|
|
|
|
88,092
|
|
|
|
115,735
|
|
|
|
131,811
|
|
|
|
111,218
|
|
|
|
90,663
|
|
|
|
51,866
|
|
Noninterest expense
|
|
|
231,952
|
|
|
|
170,855
|
|
|
|
228,410
|
|
|
|
222,466
|
|
|
|
211,851
|
|
|
|
188,206
|
|
|
|
120,850
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
77,353
|
|
|
|
99,608
|
|
|
|
133,402
|
|
|
|
125,023
|
|
|
|
139,392
|
|
|
|
145,259
|
|
|
|
78,676
|
|
Income taxes
|
|
|
26,880
|
|
|
|
33,976
|
|
|
|
44,964
|
|
|
|
40,938
|
|
|
|
47,533
|
|
|
|
52,400
|
|
|
|
26,859
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
50,473
|
|
|
|
65,632
|
|
|
|
88,438
|
|
|
|
84,085
|
|
|
|
91,859
|
|
|
|
92,859
|
|
|
|
51,817
|
|
Preferred stock dividend and accretion
|
|
|
12,046
|
|
|
|
|
|
|
|
1,184
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income available to common
shareholders
|
|
$
|
38,427
|
|
|
$
|
65,632
|
|
|
$
|
87,254
|
|
|
$
|
84,085
|
|
|
$
|
91,859
|
|
|
$
|
92,859
|
|
|
$
|
51,817
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock and related per share data:
|
|
|
|
|
|
|
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|
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|
|
|
|
|
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|
|
|
|
|
|
|
|
Earnings per common share
(2)
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.29
|
|
|
$
|
0.62
|
|
|
$
|
0.81
|
|
|
$
|
0.82
|
|
|
$
|
0.86
|
|
|
$
|
0.85
|
|
|
$
|
0.66
|
|
Diluted
|
|
|
0.29
|
|
|
|
0.62
|
|
|
|
0.81
|
|
|
|
0.81
|
|
|
|
0.85
|
|
|
|
0.84
|
|
|
|
0.65
|
|
Cash dividends
|
|
|
0.42
|
|
|
|
0.42
|
|
|
|
0.56
|
|
|
|
0.54
|
|
|
|
0.46
|
|
|
|
0.38
|
|
|
|
0.30
|
|
Book value
|
|
$
|
12.90
|
|
|
$
|
13.55
|
|
|
$
|
15.02
|
|
|
$
|
13.41
|
|
|
$
|
12.99
|
|
|
$
|
12.65
|
|
|
$
|
11.86
|
|
Market Price (NASDAQ: FNFG):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
High
|
|
$
|
16.32
|
|
|
$
|
22.38
|
|
|
$
|
22.38
|
|
|
$
|
15.13
|
|
|
$
|
15.43
|
|
|
$
|
15.16
|
|
|
$
|
15.78
|
|
Low
|
|
|
9.48
|
|
|
|
9.98
|
|
|
|
9.98
|
|
|
|
11.15
|
|
|
|
13.38
|
|
|
|
12.05
|
|
|
|
11.49
|
|
Close
|
|
$
|
12.33
|
|
|
$
|
15.75
|
|
|
$
|
16.17
|
|
|
$
|
12.04
|
|
|
$
|
14.86
|
|
|
$
|
14.47
|
|
|
$
|
13.95
|
|
(footnotes on following page)
10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of or for the Nine Months
|
|
|
|
|
|
|
Ended September 30,
|
|
|
As of or for the Years Ended December 31,
|
|
|
|
2009
(3)
|
|
|
2008
(3)
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
(Dollars and share amounts in thousands, except per share data)
|
Selected financial ratios and other data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Performance ratios
(2)
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Return on average assets
|
|
|
0.63
|
%
|
|
|
0.98
|
%
|
|
|
0.99
|
%
|
|
|
1.05
|
%
|
|
|
1.14
|
%
|
|
|
1.18
|
%
|
|
|
1.05
|
%
|
Return on average equity
|
|
|
3.59
|
|
|
|
6.16
|
|
|
|
5.99
|
|
|
|
6.24
|
|
|
|
6.67
|
|
|
|
6.76
|
|
|
|
5.59
|
|
Net interest rate spread
|
|
|
3.38
|
|
|
|
3.15
|
|
|
|
3.19
|
|
|
|
2.84
|
|
|
|
3.20
|
|
|
|
3.46
|
|
|
|
3.38
|
|
Net interest margin
|
|
|
3.63
|
|
|
|
3.51
|
|
|
|
3.55
|
|
|
|
3.33
|
|
|
|
3.61
|
|
|
|
3.75
|
|
|
|
3.66
|
|
As a percentage of average assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest income
(4)
|
|
|
0.85
|
%
|
|
|
0.99
|
%
|
|
|
1.29
|
%
|
|
|
1.45
|
%
|
|
|
1.39
|
%
|
|
|
1.15
|
%
|
|
|
1.05
|
%
|
Noninterest expense
|
|
|
2.17
|
|
|
|
1.92
|
|
|
|
2.55
|
|
|
|
2.78
|
|
|
|
2.64
|
|
|
|
2.40
|
|
|
|
2.44
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net overhead
|
|
|
1.32
|
|
|
|
0.93
|
|
|
|
1.26
|
|
|
|
1.33
|
|
|
|
1.25
|
|
|
|
1.25
|
|
|
|
1.39
|
|
Efficiency ratio
(4)
|
|
|
67.83
|
|
|
|
59.96
|
|
|
|
59.43
|
|
|
|
65.47
|
|
|
|
59.23
|
|
|
|
55.22
|
|
|
|
58.11
|
|
Dividend payout ratio
|
|
|
144.83
|
%
|
|
|
67.74
|
%
|
|
|
69.14
|
%
|
|
|
65.85
|
%
|
|
|
53.49
|
%
|
|
|
44.71
|
%
|
|
|
45.45
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital ratios:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total risk-based capital
(5)
|
|
|
11.96
|
%
|
|
|
11.30
|
%
|
|
|
12.72
|
%
|
|
|
11.35
|
%
|
|
|
12.16
|
%
|
|
|
12.26
|
%
|
|
|
17.65
|
%
|
Tier 1 risk-based capital
(5)
|
|
|
10.92
|
|
|
|
10.05
|
|
|
|
11.48
|
|
|
|
10.10
|
|
|
|
10.91
|
|
|
|
11.01
|
|
|
|
16.40
|
|
Tier 1 (core) capital
(5)
|
|
|
6.67
|
|
|
|
7.58
|
|
|
|
8.47
|
|
|
|
7.54
|
|
|
|
7.73
|
|
|
|
7.56
|
|
|
|
11.40
|
|
Tangible capital
(5)
|
|
|
6.67
|
|
|
|
7.58
|
|
|
|
8.47
|
|
|
|
7.54
|
|
|
|
7.73
|
|
|
|
7.56
|
|
|
|
11.40
|
|
Ratio of shareholders equity to total
assets
|
|
|
16.86
|
|
|
|
16.00
|
|
|
|
18.51
|
|
|
|
16.71
|
|
|
|
17.46
|
|
|
|
17.04
|
|
|
|
18.28
|
|
Ratio of tangible common shareholders
equity
to tangible assets
|
|
|
10.95
|
%
|
|
|
7.77
|
%
|
|
|
8.96
|
%
|
|
|
8.21
|
%
|
|
|
8.88
|
%
|
|
|
8.40
|
%
|
|
|
12.31
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset quality ratios:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total nonaccruing loans
|
|
$
|
66,806
|
|
|
$
|
44,698
|
|
|
$
|
46,417
|
|
|
$
|
28,054
|
|
|
$
|
15,528
|
|
|
$
|
21,930
|
|
|
$
|
12,028
|
|
Other nonperforming assets
|
|
|
8,872
|
|
|
|
2,782
|
|
|
|
2,001
|
|
|
|
237
|
|
|
|
632
|
|
|
|
843
|
|
|
|
740
|
|
Allowance for credit losses
|
|
|
83,077
|
|
|
|
77,664
|
|
|
|
77,793
|
|
|
|
70,247
|
|
|
|
71,913
|
|
|
|
72,340
|
|
|
|
41,422
|
|
Net loan charge-offs
|
|
$
|
27,366
|
|
|
$
|
9,973
|
|
|
$
|
17,844
|
|
|
$
|
10,084
|
|
|
$
|
6,883
|
|
|
$
|
7,114
|
|
|
$
|
7,090
|
|
Total nonaccruing loans to total loans
|
|
|
0.93
|
%
|
|
|
0.70
|
%
|
|
|
0.72
|
%
|
|
|
0.49
|
%
|
|
|
0.27
|
%
|
|
|
0.41
|
%
|
|
|
0.37
|
%
|
Total nonperforming assets as a
percentage of
total assets
|
|
|
0.54
|
|
|
|
0.53
|
|
|
|
0.52
|
|
|
|
0.35
|
|
|
|
0.20
|
|
|
|
0.28
|
|
|
|
0.25
|
|
Allowance for credit losses to nonaccruing
loans
|
|
|
124.36
|
|
|
|
173.75
|
|
|
|
167.60
|
|
|
|
250.40
|
|
|
|
463.12
|
|
|
|
329.87
|
|
|
|
344.38
|
|
Allowance for credit losses to total loans
|
|
|
1.15
|
|
|
|
1.21
|
|
|
|
1.20
|
|
|
|
1.23
|
|
|
|
1.27
|
|
|
|
1.37
|
|
|
|
1.27
|
|
Net charge-offs to average loans
|
|
|
0.56
|
%
|
|
|
0.25
|
%
|
|
|
0.28
|
%
|
|
|
0.18
|
%
|
|
|
0.12
|
%
|
|
|
0.14
|
%
|
|
|
0.23
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of banking centers
|
|
|
170
|
|
|
|
114
|
|
|
|
114
|
|
|
|
110
|
|
|
|
119
|
|
|
|
118
|
|
|
|
71
|
|
Full time equivalent employees
|
|
|
2,672
|
|
|
|
1,910
|
|
|
|
1,909
|
|
|
|
1,824
|
|
|
|
1,922
|
|
|
|
1,984
|
|
|
|
1,200
|
|
|
|
|
(1)
|
|
All securities held to maturity are
mortgage-backed securities.
|
|
(2)
|
|
Computed using daily averages.
|
|
(3)
|
|
Annualized where appropriate.
|
|
(4)
|
|
Excluded gain on branch sales and loss on sale of
securities available for sale in 2007.
|
|
(5)
|
|
Ratios presented for First Niagara Bank.
|
11
Harleysville National Corporation Selected Historical Financial Data
The following tables set forth selected historical financial data of Harleysville
National Corporation for the periods and at the dates indicated. The information at and
for the nine months ended September 30, 2009 and 2008 is unaudited. However, in the
opinion of management of Harleysville National Corporation, all adjustments, consisting of
normal recurring adjustments, necessary for a fair presentation of the results of
operations for the unaudited periods have been made. The selected operating data presented
below for the nine months ended September 30, 2009, are not necessarily indicative of a
full years operations.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Unaudited)
|
|
|
|
|
Nine Months Ended
|
|
|
|
|
September 30,
|
|
Year Ended December 31,
|
|
|
2009
(1)(2)
|
|
2008
|
|
2008
(2)
|
|
2007
(3)
|
|
2006
(4)
|
|
2005
|
|
2004
(5)
|
|
|
(Dollars in thousands, except per share information)
|
Income and expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
$
|
178,688
|
|
|
$
|
151,711
|
|
|
$
|
206,294
|
|
|
$
|
194,561
|
|
|
$
|
178,941
|
|
|
$
|
151,739
|
|
|
$
|
127,729
|
|
Interest expense
|
|
|
78,493
|
|
|
|
77,018
|
|
|
|
102,154
|
|
|
|
112,127
|
|
|
|
95,768
|
|
|
|
64,618
|
|
|
|
42,638
|
|
Net interest income
|
|
|
100,195
|
|
|
|
74,693
|
|
|
|
104,140
|
|
|
|
82,434
|
|
|
|
83,173
|
|
|
|
87,121
|
|
|
|
85,091
|
|
Provision for loan losses
|
|
|
53,871
|
|
|
|
7,647
|
|
|
|
15,567
|
|
|
|
10,550
|
|
|
|
4,200
|
|
|
|
3,401
|
|
|
|
2,555
|
|
Net interest income after
provision for loan
losses
|
|
|
46,324
|
|
|
|
67,046
|
|
|
|
88,573
|
|
|
|
71,884
|
|
|
|
78,973
|
|
|
|
83,720
|
|
|
|
82,536
|
|
Noninterest income
|
|
|
50,145
|
|
|
|
32,873
|
|
|
|
46,217
|
|
|
|
43,338
|
|
|
|
45,348
|
|
|
|
29,990
|
|
|
|
28,158
|
|
Noninterest expense
|
|
|
331,592
|
|
|
|
73,329
|
|
|
|
104,622
|
|
|
|
81,355
|
|
|
|
70,830
|
|
|
|
62,479
|
|
|
|
59,561
|
|
(Loss) income before income taxes
|
|
|
(235,123
|
)
|
|
|
26,590
|
|
|
|
30,168
|
|
|
|
33,867
|
|
|
|
53,491
|
|
|
|
51,231
|
|
|
|
51,133
|
|
Income tax (benefit) expense
|
|
|
(12,846
|
)
|
|
|
5,320
|
|
|
|
5,075
|
|
|
|
7,272
|
|
|
|
14,076
|
|
|
|
12,403
|
|
|
|
12,566
|
|
Net (loss) income
|
|
$
|
(222,277
|
)
|
|
$
|
21,270
|
|
|
$
|
25,093
|
|
|
$
|
26,595
|
|
|
$
|
39,415
|
|
|
$
|
38,828
|
|
|
$
|
38,567
|
|
Per share information
(6)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic (loss) earnings
|
|
$
|
(5.16
|
)
|
|
$
|
0.68
|
|
|
$
|
0.78
|
|
|
$
|
0.91
|
|
|
$
|
1.36
|
|
|
$
|
1.34
|
|
|
$
|
1.35
|
|
Diluted (loss) earnings
|
|
|
(5.16
|
)
|
|
|
0.67
|
|
|
|
0.78
|
|
|
|
0.90
|
|
|
|
1.34
|
|
|
|
1.32
|
|
|
|
1.31
|
|
Cash dividends paid
|
|
|
0.11
|
|
|
|
0.60
|
|
|
|
0.80
|
|
|
|
0.80
|
|
|
|
0.75
|
|
|
|
0.72
|
|
|
|
0.65
|
|
Book value
|
|
$
|
6.04
|
|
|
$
|
9.90
|
|
|
$
|
11.05
|
|
|
$
|
10.83
|
|
|
$
|
10.18
|
|
|
$
|
9.48
|
|
|
$
|
9.34
|
|
Basic average common shares
outstanding
|
|
|
43,058,489
|
|
|
|
31,363,779
|
|
|
|
32,201,150
|
|
|
|
29,218,671
|
|
|
|
28,946,847
|
|
|
|
28,891,412
|
|
|
|
28,505,392
|
|
Diluted average common shares
outstanding
|
|
|
43,058,489
|
|
|
|
31,531,942
|
|
|
|
32,364,137
|
|
|
|
29,459,898
|
|
|
|
29,353,128
|
|
|
|
29,490,216
|
|
|
|
29,465,613
|
|
Average balance sheet
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans
|
|
$
|
3,502,250
|
|
|
$
|
2,492,498
|
|
|
$
|
2,585,101
|
|
|
$
|
2,123,170
|
|
|
$
|
2,014,420
|
|
|
$
|
1,900,023
|
|
|
$
|
1,625,419
|
|
Investments
|
|
|
1,167,658
|
|
|
|
1,025,241
|
|
|
|
1,037,112
|
|
|
|
944,464
|
|
|
|
925,635
|
|
|
|
903,063
|
|
|
|
941,910
|
|
Other interest-earning assets
|
|
|
320,436
|
|
|
|
56,825
|
|
|
|
48,474
|
|
|
|
72,087
|
|
|
|
79,670
|
|
|
|
51,740
|
|
|
|
41,064
|
|
Total assets
|
|
|
5,444,633
|
|
|
|
3,882,546
|
|
|
|
3,997,972
|
|
|
|
3,371,304
|
|
|
|
3,229,224
|
|
|
|
3,039,186
|
|
|
|
2,773,405
|
|
Deposits
|
|
|
4,040,478
|
|
|
|
2,933,760
|
|
|
|
3,004,070
|
|
|
|
2,557,546
|
|
|
|
2,469,514
|
|
|
|
2,259,831
|
|
|
|
2,094,998
|
|
Borrowed funds
|
|
|
914,339
|
|
|
|
545,701
|
|
|
|
586,088
|
|
|
|
471,296
|
|
|
|
434,938
|
|
|
|
456,599
|
|
|
|
372,141
|
|
Shareholders equity
|
|
|
404,603
|
|
|
|
333,554
|
|
|
|
336,654
|
|
|
|
298,393
|
|
|
|
281,847
|
|
|
|
272,974
|
|
|
|
251,963
|
|
Balance sheet at period-end
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans
|
|
$
|
3,250,095
|
|
|
$
|
2,539,037
|
|
|
$
|
3,685,244
|
|
|
$
|
2,460,823
|
|
|
$
|
2,047,355
|
|
|
$
|
1,985,493
|
|
|
$
|
1,845,802
|
|
Investments
|
|
|
1,082,032
|
|
|
|
983,349
|
|
|
|
1,231,661
|
|
|
|
982,915
|
|
|
|
911,889
|
|
|
|
901,208
|
|
|
|
943,563
|
|
Other interest-earning assets
|
|
|
538,189
|
|
|
|
103,966
|
|
|
|
27,221
|
|
|
|
135,473
|
|
|
|
62,975
|
|
|
|
37,455
|
|
|
|
56,291
|
|
Total assets
|
|
|
5,163,359
|
|
|
|
3,949,730
|
|
|
|
5,490,509
|
|
|
|
3,903,001
|
|
|
|
3,249,828
|
|
|
|
3,117,359
|
|
|
|
3,024,515
|
|
Deposits
|
|
|
3,941,908
|
|
|
|
3,018,276
|
|
|
|
3,938,432
|
|
|
|
2,985,058
|
|
|
|
2,516,855
|
|
|
|
2,365,457
|
|
|
|
2,212,563
|
|
Borrowed funds
|
|
|
874,664
|
|
|
|
546,953
|
|
|
|
990,498
|
|
|
|
508,285
|
|
|
|
389,495
|
|
|
|
439,168
|
|
|
|
488,182
|
|
Shareholders equity
|
|
|
260,656
|
|
|
|
310,994
|
|
|
|
474,707
|
|
|
|
339,310
|
|
|
|
294,751
|
|
|
|
273,232
|
|
|
|
270,532
|
|
Performance ratios
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Return on average assets
|
|
|
(5.46
|
)%
|
|
|
0.73
|
%
|
|
|
0.63
|
%
|
|
|
0.79
|
%
|
|
|
1.22
|
%
|
|
|
1.28
|
%
|
|
|
1.39
|
%
|
Return on average equity
|
|
|
(73.45
|
)
|
|
|
8.52
|
|
|
|
7.45
|
|
|
|
8.91
|
|
|
|
13.98
|
|
|
|
14.22
|
|
|
|
15.31
|
|
Average equity to average assets
|
|
|
7.43
|
|
|
|
8.59
|
|
|
|
8.42
|
|
|
|
8.85
|
|
|
|
8.73
|
|
|
|
8.98
|
|
|
|
9.08
|
|
Dividend payout ratio
|
|
|
|
|
|
|
89.55
|
|
|
|
100.06
|
|
|
|
88.82
|
|
|
|
55.26
|
|
|
|
53.41
|
|
|
|
48.16
|
|
Net interest margin
|
|
|
2.86
|
|
|
|
3.00
|
|
|
|
3.04
|
|
|
|
2.82
|
|
|
|
2.95
|
|
|
|
3.27
|
|
|
|
3.55
|
|
Asset Quality Ratios
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonperforming loans to total loans
|
|
|
4.79
|
%
|
|
|
1.50
|
%
|
|
|
2.12
|
%
|
|
|
0.90
|
%
|
|
|
0.87
|
%
|
|
|
0.42
|
%
|
|
|
0.31
|
%
|
Net charge offs to average loans
outstanding
|
|
|
1.01
|
|
|
|
0.18
|
|
|
|
0.23
|
|
|
|
0.36
|
|
|
|
0.14
|
|
|
|
0.10
|
|
|
|
0.16
|
|
Allowance for loan losses to total
loans
|
|
|
2.38
|
|
|
|
1.25
|
|
|
|
1.36
|
|
|
|
1.11
|
|
|
|
1.03
|
|
|
|
1.00
|
|
|
|
1.00
|
|
Allowance for loan losses to
nonperforming
loans
|
|
|
50.90
|
|
|
|
84.30
|
|
|
|
65.00
|
|
|
|
124.50
|
|
|
|
119.90
|
|
|
|
238.20
|
|
|
|
324.60
|
|
|
|
|
(1)
|
|
The results of operations include a non-cash goodwill impairment charge of $214.5 million
during the second quarter of 2009 resulting from the decrease in the market value of Harleysville
National Corporations common stock.
|
|
(2)
|
|
The results of operations include the acquisition of Willow Financial Bancorp, Inc. effective
December 5, 2008.
|
|
(3)
|
|
The results of operations include the acquisition of East Penn Financial Corporation
effective November 16, 2007 and the sale lease-back of bank properties during the fourth quarter
of 2007.
|
|
(4)
|
|
The results of operations include the acquisition of the Cornerstone Companies effective
January 1, 2006 and the sale of the Banks Honesdale branch effective November 10, 2006.
|
|
(5)
|
|
The results of operations include the acquisition of Millennium Bank effective April 30, 2004.
|
|
(6)
|
|
Adjusted for a five percent stock dividend effective September 15, 2006, September 15, 2005 and
September 15, 2004.
|
12
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION
RELATING TO THE HARLEYSVILLE ACQUISITION
The following table shows information about First Niagaras consolidated financial
condition and operations, including per share data, after giving effect to the proposed
merger with Harleysville National Corporation. The table sets forth the information as if
the transaction had become effective on September 30, 2009, with respect to financial
condition data, and at the beginning of the periods presented, with respect to operations
data. The fair value adjustments contained in the unaudited pro forma condensed
consolidated financial information are preliminary estimates based on data as of September
30, 2009. Final fair value adjustments will be determined as of the closing date and could
differ significantly. This table should be read in conjunction with, and is qualified in
its entirety by, the historical financial statements, including the notes thereto, of First
Niagara and Harleysville National Corporation incorporated by reference in this document.
In December 2007, the Financial Accounting Standards Board issued revised guidance
which retains the fundamental requirements in prior guidance, that the acquisition method
of accounting be used for all business combinations and for an acquirer to be identified
for each business combination.
This new guidance revises the definition of the acquisition date as the date the
acquirer obtains control of the acquiree. This is typically the closing date and is used to
measure the fair value of the consideration paid. When the acquirer issues equity
instruments as full or partial payment for the acquiree, the fair value of the acquirers
equity instruments will be measured at the acquisition date. Under this new guidance all
loans are transferred at fair value, including adjustments for credit, and no allowance for
credit losses is carried over. In addition, the new guidance nullifies Emerging Issues
Task Force No. 95-3, Recognition of Liabilities in Connection with a Purchase Business
Combination, and requires costs associated with restructuring or exit activities that do
not meet the recognition criteria in Financial Accounting Standards Board Accounting
Standards Codification (ASC) 420, Exit or Disposal Cost Obligations, as of the
acquisition date to be subsequently recognized as post-combination costs when those
criteria are met.
While the recording of the acquired loans and leases at their estimated fair value, as
required by the new guidance will impact the prospective determination of the provision for
credit losses and the allowance for credit losses, for purposes of the Unaudited Pro Forma
Condensed Consolidated Statements of Income for the year ended December 31, 2008 and for
the nine months ended September 30, 2009, we assumed no adjustments to the historic amount
of Harleysville National Corporations provision for credit losses. If such an adjustment
were estimated, there may be a reduction in the historic amounts of Harleysville National
Corporations provision for credit losses, and that adjustment could be significant.
First Niagara anticipates that the merger with Harleysville National Corporation will
provide the combined company with financial benefits that include reduced operating
expenses. The pro forma information, while helpful in illustrating the financial
characteristics of the combined company under one set of assumptions, does not reflect the
benefits of expected cost savings or opportunities to earn additional revenue 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.
13
Unaudited Pro Forma Combined Condensed Consolidated Statement of Financial Condition
As of September 30, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Harleysville Merger
|
|
|
|
First Niagara
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
Financial Group,
|
|
|
Acquired and
|
|
|
Pro Forma
|
|
|
First Niagara
|
|
|
|
Inc.
|
|
|
Liabilities
|
|
|
Acquisition
|
|
|
Financial Group,
|
|
|
|
Historical
|
|
|
Assumed
(1)
|
|
|
Adjustments
|
|
|
Inc. Pro Forma
|
|
|
|
(In thousands)
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
823,243
|
|
|
$
|
593,259
|
|
|
$
|
(42,166
|
)
|
|
$
|
1,374,336
|
|
Securities available for sale
|
|
|
3,652,261
|
|
|
|
1,006,898
|
|
|
|
|
|
|
|
4,659,159
|
|
Securities held to maturity
|
|
|
1,085,258
|
|
|
|
32,059
|
|
|
|
|
|
|
|
1,117,317
|
|
Loans and leases
|
|
|
7,215,762
|
|
|
|
3,250,095
|
|
|
|
(346,458
|
)
(3)
|
|
|
10,119,399
|
|
Less: Allowance for credit losses
|
|
|
83,077
|
|
|
|
77,276
|
|
|
|
(77,276
|
)
|
|
|
83,077
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loans and leases
|
|
|
7,132,685
|
|
|
|
3,172,819
|
|
|
|
(269,182
|
)
|
|
|
10,036,322
|
|
Bank-owned life insurance
|
|
|
131,094
|
|
|
|
89,420
|
|
|
|
|
|
|
|
220,514
|
|
Premises and equipment, net
|
|
|
145,245
|
|
|
|
48,682
|
|
|
|
22,225
|
(4)
|
|
|
216,152
|
|
Goodwill
|
|
|
879,107
|
|
|
|
22,750
|
|
|
|
123,630
|
(5)
|
|
|
1,025,487
|
|
Core deposit and other intangibles, net
|
|
|
59,580
|
|
|
|
22,755
|
|
|
|
51,222
|
(6)
|
|
|
133,557
|
|
Other assets
|
|
|
229,031
|
|
|
|
174,717
|
(2)
|
|
|
84,674
|
(7)
|
|
|
488,422
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
14,137,504
|
|
|
$
|
5,163,359
|
|
|
$
|
(29,597
|
)
|
|
$
|
19,271,266
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Stockholders Equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Savings
|
|
$
|
913,144
|
|
|
$
|
309,586
|
|
|
$
|
|
|
|
$
|
1,222,730
|
|
Interest-bearing checking
|
|
|
1,062,681
|
|
|
|
629,378
|
|
|
|
|
|
|
|
1,692,059
|
|
Money market deposit accounts
|
|
|
3,457,837
|
|
|
|
895,463
|
|
|
|
|
|
|
|
4,353,300
|
|
Noninterest-bearing
|
|
|
1,213,978
|
|
|
|
495,644
|
|
|
|
|
|
|
|
1,709,622
|
|
Certificates of deposit
|
|
|
3,275,728
|
|
|
|
1,611,837
|
|
|
|
14,000
|
(8)
|
|
|
4,901,565
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deposits
|
|
|
9,923,368
|
|
|
|
3,941,908
|
|
|
|
14,000
|
|
|
|
13,879,276
|
|
Short-term borrowings
|
|
|
750,437
|
|
|
|
89,728
|
|
|
|
|
|
|
|
840,165
|
|
Long-term borrowings
|
|
|
752,339
|
|
|
|
691,130
|
|
|
|
|
|
|
|
1,443,469
|
|
Subordinated debt
|
|
|
12,372
|
|
|
|
93,806
|
|
|
|
|
|
|
|
106,178
|
|
Other liabilities
|
|
|
315,384
|
|
|
|
86,131
|
|
|
|
|
|
|
|
401,515
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
11,753,900
|
|
|
|
4,902,703
|
|
|
|
14,000
|
|
|
|
16,670,603
|
|
Stockholders equity
|
|
|
2,383,604
|
|
|
|
260,656
|
|
|
|
(43,597
|
)
(9)
|
|
|
2,600,663
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders
equity
|
|
$
|
14,137,504
|
|
|
$
|
5,163,359
|
|
|
$
|
(29,597
|
)
|
|
$
|
19,271,266
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Represents the assets acquired and liabilities assumed in the merger with Harleysville National
Corporation.
|
|
(2)
|
|
Accrued interest receivable on the loans acquired is included in other assets. Accrued
interest receivable is not considered to be material to this unaudited pro forma combined
condensed consolidated statement of financial condition.
|
|
(3)
|
|
The purchase accounting adjustment on loans relates to the estimated fair value
adjustment, which includes both an interest rate component and a credit adjustment for estimated
lifetime losses.
|
|
(4)
|
|
The pro forma adjustment includes anticipated capital expenditures.
|
|
(5)
|
|
The pro forma adjustment results from recording the acquired assets and liabilities at fair
value. These adjustments are preliminary and are subject to change. The final adjustments will be
calculated when the merger is effective and may be materially different than those presented here.
|
|
(6)
|
|
Represents the estimated fair value of the core deposit intangible asset associated with
deposit liabilities assumed.
|
|
(7)
|
|
The pro forma adjustment represents the net deferred tax asset associated with the fair value
adjustments related to the acquired assets and liabilities.
|
|
(8)
|
|
The purchase accounting adjustment on deposits relates to the estimated fair value adjustment
of the certificate of deposit liabilities.
|
|
(9)
|
|
The pro forma adjustment represents the net impact of the issuance of First Niagara common
stock in connection with the merger, the elimination of Harleysville National Corporation
stockholders equity, the after-tax integration expenses (approximately $19.9 million), primarily
professional, legal and conversion related expenditures and a charitable contribution to First
Niagara Bank Foundation in an effort to maintain an appropriate level of charitable giving in
southeastern Pennsylvania.
|
14
Unaudited Pro Forma Condensed Consolidated Statement
of Income
For the Nine Months Ended September 30, 2009
(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First Niagara
|
|
|
Harleysville
|
|
|
|
|
|
|
|
|
|
Financial
|
|
|
National
|
|
|
Pro forma
|
|
|
|
|
|
|
Group, Inc
|
|
|
Corporation
|
|
|
Acquisition
|
|
|
Pro forma
|
|
|
|
Historical
|
|
|
Historical
|
|
|
Adjustments
|
|
|
Combined
|
|
|
|
(In thousands, except per share amounts)
|
|
Interest Income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans and leases
|
|
$
|
263,742
|
|
|
$
|
136,954
|
|
|
$
|
(3,165
|
)
(2)
|
|
$
|
397,531
|
|
Investment securities and other
|
|
|
81,659
|
|
|
|
41,734
|
|
|
|
(900
|
)
(2)
|
|
|
122,493
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest income
|
|
|
345,401
|
|
|
|
178,688
|
|
|
|
(4,065
|
)
|
|
|
520,024
|
|
Interest expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
|
56,159
|
|
|
|
56,696
|
|
|
|
(1,500
|
)
(2)
|
|
|
111,355
|
|
Borrowings
|
|
|
37,745
|
|
|
|
21,797
|
|
|
|
|
|
|
|
59,542
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest expense
|
|
|
93,904
|
|
|
|
78,493
|
|
|
|
(1,500
|
)
|
|
|
170,897
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
|
251,497
|
|
|
|
100,195
|
|
|
|
(2,565
|
)
|
|
|
349,127
|
|
Provision for credit losses
|
|
|
32,650
|
|
|
|
53,871
|
|
|
|
|
|
|
|
86,521
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income after provision
for credit losses
|
|
|
218,847
|
|
|
|
46,324
|
|
|
|
(2,565
|
)
|
|
|
262,606
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Banking services
|
|
|
32,522
|
|
|
|
12,859
|
|
|
|
|
|
|
|
45,381
|
|
Insurance and benefits consulting
|
|
|
37,884
|
|
|
|
|
|
|
|
|
|
|
|
37,884
|
|
Wealth management services
|
|
|
5,900
|
|
|
|
13,953
|
|
|
|
|
|
|
|
19,853
|
|
Bank-owned life insurance
|
|
|
3,931
|
|
|
|
2,337
|
|
|
|
|
|
|
|
6,268
|
|
Gain on sales of investment securities,
net
|
|
|
|
|
|
|
8,280
|
|
|
|
|
|
|
|
8,280
|
|
Other-than-temporary impairment losses
(OTTI) on available for sale
securities
|
|
|
(162
|
)
|
|
|
(13,562
|
)
|
|
|
|
|
|
|
(13,724
|
)
|
Portion of OTTI losses recognized in
other comprehensive loss (before
taxes)
|
|
|
|
|
|
|
7,038
|
|
|
|
|
|
|
|
7,038
|
|
Gain on mortgage banking sales, net
|
|
|
2,949
|
|
|
|
6,753
|
|
|
|
|
|
|
|
9,702
|
|
Other
|
|
|
7,434
|
|
|
|
12,487
|
|
|
|
|
|
|
|
19,921
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total noninterest income
|
|
|
90,458
|
|
|
|
50,145
|
|
|
|
|
(3)
|
|
|
140,603
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries and employee benefits
|
|
|
110,629
|
|
|
|
55,831
|
|
|
|
|
|
|
|
166,460
|
|
Occupancy and equipment
|
|
|
19,987
|
|
|
|
11,667
|
|
|
|
|
|
|
|
31,654
|
|
Amortization of core deposit and other
intangibles
|
|
|
6,004
|
|
|
|
3,313
|
|
|
|
3,592
|
(4)
|
|
|
12,909
|
|
Federal deposit insurance premiums
|
|
|
12,333
|
|
|
|
11,070
|
|
|
|
|
|
|
|
23,403
|
|
Goodwill impairment
|
|
|
|
|
|
|
214,536
|
|
|
|
|
|
|
|
214,536
|
|
Litigation settlement, net
|
|
|
2,845
|
|
|
|
|
|
|
|
|
|
|
|
2,845
|
|
Merger and acquisition integration
expenses
|
|
|
27,458
|
|
|
|
|
|
|
|
26,976
|
(5)
|
|
|
54,434
|
|
Other
|
|
|
52,696
|
|
|
|
35,175
|
|
|
|
5,000
|
(6)
|
|
|
92,871
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total noninterest expense
|
|
|
231,952
|
|
|
|
331,592
|
|
|
|
35,568
|
(7)
|
|
|
599,112
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes
|
|
|
77,353
|
|
|
|
(235,123
|
)
|
|
|
(38,133
|
)
|
|
|
(195,903
|
)
|
Income tax expense (benefit)
|
|
|
26,880
|
|
|
|
(12,846
|
)
|
|
|
(15,253
|
)
(8)
|
|
|
(1,219
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
|
50,473
|
|
|
|
(222,277
|
)
|
|
|
(22,880
|
)
|
|
|
(194,684
|
)
|
Preferred stock dividend
|
|
|
3,731
|
|
|
|
|
|
|
|
|
|
|
|
3,731
|
|
Accretion of preferred stock discount
|
|
|
8,315
|
|
|
|
|
|
|
|
|
|
|
|
8,315
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) available to
common stockholders
|
|
$
|
38,427
|
|
|
$
|
(222,277
|
)
|
|
$
|
(22,880
|
)
|
|
$
|
(206,730
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.29
|
|
|
$
|
(5.16
|
)
|
|
$
|
|
|
|
$
|
(1.34
|
)
|
Diluted
|
|
$
|
0.29
|
|
|
$
|
(5.16
|
)
|
|
$
|
|
|
|
$
|
(1.34
|
)
|
Weighted average common shares
outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
134,022
|
|
|
|
43,058
|
|
|
|
20,440
|
(9)
|
|
|
154,462
|
|
Diluted
|
|
|
134,386
|
|
|
|
43,058
|
|
|
|
20,440
|
(9)
|
|
|
154,826
|
|
(Notes to Unaudited Pro Forma Condensed Consolidated Statement of Income follow on page 17)
15
Unaudited Pro Forma Condensed Consolidated Statement
of Income
For the Year Ended December 31,
2008
(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First Niagara
|
|
|
Harleysville
|
|
|
|
|
|
|
|
|
|
Financial
|
|
|
National
|
|
|
Pro forma
|
|
|
|
|
|
|
Group, Inc
|
|
|
Corporation
|
|
|
Acquisition
|
|
|
Pro forma
|
|
|
|
Historical
|
|
|
Historical
|
|
|
Adjustments
|
|
|
Combined
|
|
|
|
|
|
|
|
(In thousands, except per share amounts)
|
|
|
|
|
|
Interest Income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans and leases
|
|
$
|
377,037
|
|
|
$
|
153,725
|
|
|
$
|
(12,660
|
)
(2)
|
|
$
|
518,102
|
|
Investment securities and other
|
|
|
64,101
|
|
|
|
52,569
|
|
|
|
(3,600
|
)
(2)
|
|
|
113,070
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest income
|
|
|
441,138
|
|
|
|
206,294
|
|
|
|
(16,260
|
)
|
|
|
631,172
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
|
118,683
|
|
|
|
78,911
|
|
|
|
(6,000
|
)
(2)
|
|
|
191,594
|
|
Borrowings
|
|
|
53,878
|
|
|
|
23,243
|
|
|
|
|
|
|
|
77,121
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest expense
|
|
|
172,561
|
|
|
|
102,154
|
|
|
|
(6,000
|
)
|
|
|
268,715
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
|
268,577
|
|
|
|
104,140
|
|
|
|
(10,260
|
)
|
|
|
362,457
|
|
|
Provision for credit losses
|
|
|
22,500
|
|
|
|
15,567
|
|
|
|
|
|
|
|
38,067
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income after provision
for credit losses
|
|
|
246,077
|
|
|
|
88,573
|
|
|
|
(10,260
|
)
|
|
|
324,390
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Banking services
|
|
|
40,082
|
|
|
|
13,515
|
|
|
|
|
|
|
|
53,597
|
|
Insurance and benefits consulting
|
|
|
49,733
|
|
|
|
|
|
|
|
|
|
|
|
49,733
|
|
Wealth management services
|
|
|
9,922
|
|
|
|
18,644
|
|
|
|
|
|
|
|
28,566
|
|
Bank-owned life insurance
|
|
|
5,449
|
|
|
|
2,777
|
|
|
|
|
|
|
|
8,226
|
|
Gain on sales of investment securities,
net
|
|
|
|
|
|
|
2,642
|
|
|
|
|
|
|
|
2,642
|
|
Other-than-temporary impairment losses
on available for sale securities
|
|
|
(700
|
)
|
|
|
(1,923
|
)
|
|
|
|
|
|
|
(2,623
|
)
|
Other
|
|
|
11,249
|
|
|
|
10,562
|
|
|
|
|
|
|
|
21,811
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total noninterest income
|
|
|
115,735
|
|
|
|
46,217
|
|
|
|
|
(3)
|
|
|
161,952
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries and employee benefits
|
|
|
134,195
|
|
|
|
56,108
|
|
|
|
|
|
|
|
190,303
|
|
Occupancy and equipment
|
|
|
24,915
|
|
|
|
14,533
|
|
|
|
|
|
|
|
39,448
|
|
Amortization of core deposit and other
intangibles
|
|
|
8,824
|
|
|
|
4,208
|
|
|
|
14,368
|
(4)
|
|
|
27,400
|
|
Merger expenses
|
|
|
|
|
|
|
3,430
|
|
|
|
28,235
|
(5)
|
|
|
31,665
|
|
Other
|
|
|
60,476
|
|
|
|
26,343
|
|
|
|
5,000
|
(6)
|
|
|
91,819
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total noninterest expense
|
|
|
228,410
|
|
|
|
104,622
|
|
|
|
47,603
|
(7)
|
|
|
380,635
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes
|
|
|
133,402
|
|
|
|
30,168
|
|
|
|
(57,863
|
)
|
|
|
105,707
|
|
Income tax expense (benefit)
|
|
|
44,964
|
|
|
|
5,075
|
|
|
|
(23,145
|
)
(8)
|
|
|
26,894
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
|
88,438
|
|
|
|
25,093
|
|
|
|
(34,718
|
)
|
|
|
78,813
|
|
Preferred stock dividend
|
|
|
1,022
|
|
|
|
|
|
|
|
|
|
|
|
1,022
|
|
Accretion of preferred stock discount
|
|
|
162
|
|
|
|
|
|
|
|
|
|
|
|
162
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) available to
common stockholders
|
|
$
|
87,254
|
|
|
$
|
25,093
|
|
|
$
|
(34,718
|
)
|
|
$
|
77,629
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.81
|
|
|
$
|
0.78
|
|
|
$
|
|
|
|
$
|
0.61
|
|
Diluted
|
|
$
|
0.81
|
|
|
$
|
0.78
|
|
|
$
|
|
|
|
$
|
0.60
|
|
Weighted average common shares
outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
107,531
|
|
|
|
32,201
|
|
|
|
20,440
|
(9)
|
|
|
127,971
|
|
Diluted
|
|
|
108,174
|
|
|
|
32,364
|
|
|
|
20,440
|
(9)
|
|
|
128,614
|
|
(Notes to Unaudited Pro Forma Condensed Consolidated Statement of Income follow on page 17)
16
(Notes to Unaudited Pro Forma Condensed Consolidated Statement of Income)
|
|
|
(1)
|
|
Assumes the merger of Harleysville National Corporation was completed at the beginning of the periods presented.
|
|
(2)
|
|
The pro forma acquisition adjustments reflect the amortization/accretion of fair market value adjustments related to loans,
investment securities, and deposits utilizing the interest method over the estimated lives of the related asset or liability.
|
|
(3)
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Noninterest income does not reflect revenue enhancement opportunities.
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(4)
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Represents amortization of core deposit intangible amortized using the double-declining balance method over 10 years.
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(5)
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The pro forma acquisition adjustment reflects integration expenses, primarily professional, legal and conversion related
expenditures.
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(6)
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The pro forma acquisition adjustment reflects a charitable contribution to First Niagara Bank Foundation in an effort to
maintain an appropriate level of charitable giving in southeastern Pennsylvania.
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(7)
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Noninterest expenses do not reflect anticipated cost savings.
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(8)
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Reflects the tax impact of the pro forma acquisition adjustments at First Niagaras statutory income tax rate of 40%.
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(9)
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The pro forma acquisition adjustment reflects the 20.4 million shares expected to be issued in connection with the merger.
However, the merger agreement establishes loan delinquency thresholds and provides for a reduction in the exchange ratio
and the ability to terminate the merger agreement in the event of specific increases in Harleysville National Corporation
loan delinquencies. As of November 30, 2009, Harleysville National Corporation loan delinquencies were approximately
$173.6 million.
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17
COMPARATIVE PRO FORMA PER SHARE DATA
The table below summarizes selected per share information about First Niagara and
Harleysville National Corporation. First Niagara share information is presented on a
pro forma basis to reflect the merger with Harleysville National Corporation. The
Harleysville National Corporation per share information is presented both historically,
and on a pro forma basis to reflect the merger. First Niagara has also assumed that the
consideration in the merger will be paid in 20.4 million shares of First Niagara common
stock.
The data in the table should be read together with the financial information and the
financial statements of First Niagara and Harleysville National Corporation incorporated by
reference in this proxy statement-prospectus. The pro forma per share data or combined
results of operations per share data is presented as an illustration only. The data does
not necessarily indicate the combined financial position per share or combined results of
operations per share that would have been reported if the merger had occurred when
indicated, nor is the data a forecast of the combined financial position or combined
results of operations for any future period. No pro forma adjustments have been included
herein which reflect potential effects of merger integration expenses, cost savings or
operational synergies which may be obtained by combining the operations of First Niagara
and Harleysville National Corporation or the costs of combining the companies and their
operations.
It is further assumed that First Niagara will pay a cash dividend after the
completion of the merger at the annual rate of $0.56 per share. The actual payment of
dividends is subject to numerous factors, and no assurance can be given that First
Niagara will pay dividends following the completion of the merger or that dividends will
not be reduced in the future.
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Combined Pro
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Forma Amounts
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for First Niagara
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Pro Forma
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Financial Group,
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Harleysville
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Harleysville
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Inc./
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National
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First Niagara
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National
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Harleysville
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Corporation
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Financial Group,
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Corporation
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National
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Equivalent
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Inc. Historical
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Historical
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Corporation
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Shares
(1)
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(Shares in thousands)
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Book value per share at September 30, 2009
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$
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12.90
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$
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6.04
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$
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12.67
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$
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6.01
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Book value per share at December 31, 2008
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15.02
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11.05
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14.36
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6.81
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Shares outstanding at September 30, 2009
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188,151
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43,123
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208,591
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Shares outstanding at December 31, 2008
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118,562
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42,946
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139,002
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Cash dividends paid per common share for
the nine months
ended September 30, 2009
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$
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0.42
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$
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0.11
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$
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0.42
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0.20
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Cash dividends paid per common share for
the year ended December 31, 2008
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0.56
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0.80
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0.56
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0.27
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Basic earnings (loss) per share from
continuing operations:
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For the nine months ended September 30, 2009
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$
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0.29
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$
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(5.16
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)
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$
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(1.34
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)
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$
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(0.64
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)
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For the year ended December 31, 2008
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0.81
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0.78
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0.61
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0.29
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Diluted earnings (loss) per share from
continuing operations:
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For the nine months ended September 30, 2009
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$
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0.29
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$
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(5.16
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)
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$
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(1.34
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)
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$
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(0.64
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)
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For the year ended December 31, 2008
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0.81
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0.78
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0.60
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0.28
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(1)
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Calculated by multiplying amounts in the Combined Pro Forma Amounts for First
Niagara/Harleysville National Corporation column by a 0.474 exchange ratio which represents the
number of shares of First Niagara common stock a Harleysville National Corporation shareholder
will receive for each share of stock owned.
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18
The following table shows trading information for Harleysville National Corporation
common stock and First Niagara common stock as of market close on July 24, 2009 and
December 7, 2009. July 24, 2009 was the last trading date before the parties announced
the merger. December 7, 2009 is a recent date before this proxy statement-prospectus was
finalized.
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First Niagara
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Equivalent Value for
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Financial Group,
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Harleysville National
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Each Harleysville
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Inc.
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Corporation
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National
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Date
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Common Stock
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Common Stock
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Corporation Share
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July 24, 2009
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$
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11.74
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$
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4.00
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$
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5.56
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December 7, 2009
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13.26
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5.97
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6.29
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19
RISK FACTORS
In addition to the other information contained in or incorporated by reference into
this proxy statement-prospectus, including the matters addressed under the caption
Forward-Looking Statements, you should carefully consider the following risk factors in
deciding whether to vote for adoption of the merger agreement.
Risks related to the Merger
Regulatory Approvals May Not be Received, May Take Longer Than Expected or May Impose Conditions
That are Not Presently Anticipated or Cannot be Met.
Before the transactions contemplated in the merger agreement, including the merger,
may be completed, various approvals or consents must be obtained from the Federal Reserve
to register First Niagara Financial Group, Inc. as a bank holding company and various bank
regulatory and other authorities. These governmental entities may impose conditions on the
completion of the merger or require changes to the terms of the merger agreement. Although
Harleysville National Corporation does not currently expect that any such conditions or
changes would be imposed, there can be no assurance that they will not be, and such
conditions or changes could have the effect of delaying completion of the transactions
contemplated in the merger agreement or imposing additional costs on or limiting First
Niagaras revenues, any of which might have a material adverse effect on First Niagara
following the merger. There can be no assurance as to whether the regulatory approvals will
be received, the timing of those approvals, or whether any conditions will be imposed.
If the Merger Agreement is Terminated, Certain Pre-Merger Transactions Between First Niagara and
Harleysville National Corporation Designed to Alleviate Regulatory Pressure on Harleysville
National Bank May Not Have Their Intended Results.
On May 28, 2009, the Office of the Comptroller of the Currency (the OCC) imposed an
individual minimum capital requirement on Harleysville National Bank,
requiring it to increase its regulatory capital ratios. To enable Harleysville
National Bank to achieve and maintain capital ratios consistent with those of a
well-capitalized institution not subject to individual minimum capital ratios pending
completion of the merger, and to address the OCCs supervisory concerns, on December 4,
2009, First Niagara loaned $35 million to Harleysville National Corporation, the proceeds
of which were contributed to Harleysville National Bank as Tier One capital. The loan is
secured by a pledge of all of the stock of Harleysville National Bank, and is part of a $50
million loan facility extended by First Niagara to Harleysville National Corporation. If
the merger agreement is terminated, Harleysville National Corporation will have between 30
and 90 days to repay the loan to First Niagara (subject to immediate acceleration if
Harleysville National Bank is significantly undercapitalized under regulatory standards).
If Harleysville National Corporation cannot repay the loan by its due date, First Niagara
could foreclose on the stock of Harleysville National Bank under the pledge security
agreement. There can be no assurance that Harleysville National Corporation will be able
to raise funds sufficient to repay the loan from First Niagara if the merger agreement is
terminated (including the requirement that Harleysville National Corporation repay the loan
within 30 days if Harleysville National Corporation shareholders fail to adopt the merger
agreement). If the merger agreement is terminated, First Niagara could lose all or a
portion of the funds loaned to Harleysville National Corporation.
20
First Niagara is also prepared to purchase up to $80 million in performing
commercial loans from Harleysville National Bank and allow Harleysville National Bank
to originate residential and home equity loans on behalf of First Niagara via a
correspondent relationship, both of which actions would further enhance Harleysville
National Banks regulatory capital ratios and boost lending activities. There can be
no assurance that these actions will result in achieving the desired results, or that
all of these actions will be implemented.
The Merger Agreement May Be Terminated in Accordance With Its Terms and The Merger May Not Be
Completed.
The merger agreement with Harleysville National Corporation is subject to a number of
conditions which must be fulfilled in order to close. Those conditions include: Harleysville
National Corporation shareholder approval, regulatory approval, the continued accuracy of certain
representations and warranties by both parties and the performance by both parties of certain
covenants and agreements. In particular, the merger agreement defines the occurrence of $350.0
million or greater in Harleysville National Corporation delinquent loans as of any month end prior
to the closing date, excluding any month end subsequent to February 28, 2010, as a material adverse
effect which would allow First Niagara to terminate the merger agreement. As of November 30, 2009,
the amount of Harleysville National Corporation delinquent loans was $173.6 million. In addition,
certain circumstances exist where Harleysville National Corporation may choose to terminate the
merger agreement, including the acceptance of a superior proposal or the decline in First Niagaras
share price to below $9.28 as of the first date when all regulatory approvals for the merger have
been received combined with such decline being at least 20% greater than a corresponding price
decline of the Nasdaq Bank Index, with no adjustment made to the exchange ratio by First Niagara.
Under such circumstances, First Niagara may, but is not required to, increase the exchange ratio in
order to avoid termination of the merger agreement. First Niagara has not determined whether it
would increase the exchange ratio in order to avoid termination of the merger agreement by
Harleysville National Corporation. See The Merger and the Merger Agreement-Merger Consideration
for a more complete discussion of the merger
consideration to be paid in this proposed transaction and -Termination; Amendment; Waiver for a
more complete discussion of the circumstances under which the merger agreement could be terminated.
There can be no assurance that the conditions to closing the merger will be fulfilled or that the
merger will be completed.
Harleysville National Corporations Asset Quality May Deteriorate Prior to Completion of the
Merger.
Harleysville National Corporations nonperforming assets were $153.7 million at
September 30, 2009 and $138.9 million at June 30, 2009, compared to $78.5 million at
December 31, 2008. Nonperforming assets as a percentage of total assets were 2.98% at
September 30, 2009 and 2.67% at June 30, 2009, compared to 1.43% at December 31, 2008 and
0.98% at September 30, 2008. Net charge-offs for the third quarter of 2009 were $7.8
million, compared to $2.1 million in the same period of 2008. The allowance for credit
losses increased to $77.3 million at September 30, 2009, compared to $50.0 million at
December 31, 2008, and $31.7 million at September 30, 2008. Should these adverse trends
continue, they may have an adverse effect on Harleysville National Corporations financial
and capital positions, and may differ from First Niagaras estimates thereof.
21
First Niagara Could Record Future Impairment Losses on Harleysville National Corporations Holdings
of Investment Securities Available For Sale. First Niagara May Not Receive Full Future Interest
Payments on These Securities.
Harleysville National Corporations investment portfolio of securities available for
sale includes trust preferred securities, private label collateralized mortgage
obligations and collateralized debt obligations. Harleysville National Corporation
recognized an other than temporary impairment charge totaling approximately $6.5 million
for the nine months ended September 30, 2009 as a result of impairment charges related to
collateralized debt obligations, collateralized mortgage obligations and equity
securities. If the merger with Harleysville National Corporation is completed, First
Niagara will take ownership of these securities. A number of factors or combinations of
factors could cause First Niagara to conclude in one or more future reporting periods that
an unrealized loss that exists with respect to these securities constitutes an additional
impairment that is other than temporary, which could result in material losses to First
Niagara. These factors include, but are not limited to, continued failure to make
scheduled interest payments, an increase in the severity of the unrealized loss on a
particular security, an increase in the continuous duration of the unrealized loss without
an improvement in value or changes in market conditions and/or industry or issuer specific
factors that would render First Niagara unable to forecast a full recovery in value. In
addition, the fair values of these investment securities could decline if the overall
economy and the financial condition of some of the issuers continue to deteriorate and
there remains limited liquidity for these securities.
First Niagara May Fail to Realize the Anticipated Benefits of the Merger
.
The success of the merger will depend on, among other things, First Niagaras ability
to realize anticipated cost savings and to combine the businesses of First Niagara Bank
and Harleysville National Bank in a manner that permits growth opportunities and does not
materially disrupt the existing customer relationships of Harleysville National Bank nor
result in decreased revenues resulting from any loss of customers. If First Niagara is
not able to successfully achieve these objectives, the anticipated benefits of
the merger may not be realized fully or at all or may take longer to realize than
expected.
First Niagara and Harleysville National Corporation have operated and, until the
completion of the merger, will continue to operate, independently. Certain employees of
Harleysville National Corporation will not be employed by First Niagara after the merger.
In addition, employees of Harleysville National Corporation that First Niagara wishes to
retain may elect to terminate their employment as a result of the merger which could delay
or disrupt the integration process. It is possible that the integration process could
result in the disruption of Harleysville National Corporations ongoing businesses or
inconsistencies in standards, controls, procedures and policies that adversely affect the
ability of First Niagara to maintain relationships with customers and employees or to
achieve the anticipated benefits of the merger.
Harleysville National Corporation Directors and Officers Have Interests in the Merger Besides Those
of a Shareholder.
Harleysville National Corporations directors and officers have various interests
in the merger besides being Harleysville National Corporation shareholders. These
interests include:
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|
|
the potential payment of certain benefits to Paul Geraghty, the President and
Chief Executive Officer of Harleysville National Corporation, George Rapp, the Chief
Financial Officer of Harleysville National Corporation and Harleysville National
|
22
|
|
|
Bank, Brent Peters, the Executive Vice President of Harleysville National
Corporation and the President of East Penn Bank, James McGowan, the Chief Credit
Officer of Harleysville National Corporation and Harleysville National Bank, Lewis
Cyr, the Chief Lending Officer of Harleysville National Corporation and Harleysville
National Bank, Joseph Blair, the President of Millennium Wealth Management, under
their existing employment agreements with Harleysville Management Services, LLC;
|
|
|
|
|
the potential payment of certain benefits to Ammon Baus under his
existing employment agreement with Willow Financial Bank that was assumed by
Harleysville National Corporation;
|
|
|
|
|
the potential payment of certain benefits to Demetra Takes, the President and
Chief Executive Officer of Harleysville National Bank under her existing employment
agreement with Harleysville National Corporation and Harleysville National Bank;
|
|
|
|
|
the potential payment of certain benefits to Randy McGarry, the Chief Information
Technology Officer of Harleysville National Bank and Stephen Murray, a Senior Vice
President of Harleysville National Bank, under their existing change in control
agreements with Harleysville Management Services, LLC;
|
|
|
|
|
the potential payment of certain benefits to Paul Geraghty and James McGowan under
their existing supplemental executive benefit agreements with Harleysville Management
Services, LLC, and the potential payment of certain benefits to Demetra Takes under her
existing supplemental executive benefit agreements with Harleysville National Bank;
|
|
|
|
|
the payment of the outstanding benefit obligations to the participants in the
Harleysville National Bank Directors Fee Deferral Plan, which obligations will be
unchanged by the merger;
|
|
|
|
|
the payment of outstanding benefit obligations to Donna Coughey, an Executive Vice
President of Harleysville National Bank, under her existing supplemental executive benefit
agreement with Willow Financial Bancorp, Inc that was assumed by Harleysville National
Corporation, which obligations will be unchanged by the merger;
|
|
|
|
|
the payment of the outstanding benefit obligations to Brent Peters under his
existing supplemental executive retirement plan agreement with East Penn Bank, as assumed
by Harleysville National Corporation, which obligations will be unchanged by the merger;
|
|
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|
|
the payment of the outstanding benefit obligations to Walter Daller, Jr., the
Chairman of the Board of Directors of Harleysville National Corporation under his existing
supplemental executive benefit agreement with Harleysville National Bank, which
obligations will be unchanged by the merger;
|
|
|
|
|
the payment of additional amounts to certain other current and former officers
and employees and former directors under change in control agreements and deferred
compensation arrangements;
|
23
|
|
|
the accelerated vesting of all outstanding unvested stock options under the
following equity plans: (i) Harleysville National Corporation 1993 Stock Incentive Plan;
(ii) the Harleysville National Corporation 1998 Independent Directors Stock Option Plan, as
amended; (iii) the Harleysville National Corporation 1998 Stock Incentive Plan; (iv) the
Harleysville National Corporation 2004 Omnibus Stock Incentive Plan (as amended and
restated effective November 9, 2006); (v) Harleysville National Corporation 2008-2010
Restricted Stock Incentive Plan; (vi) East Penn Financial Corporation 1999 Stock Incentive
Plan, as assumed by Harleysville National Corporation; (vii) Willow Financial Bancorp, Inc.
Amended and Restated 1999 Stock Option Plan, as assumed by Harleysville National
Corporation; (viii) Willow Financial Bancorp, Inc. Amended and Restated 2002 Stock Option
Plan, as assumed by Harleysville National Corporation; (ix) East Penn Financial Corporation
1999 Independent Directors Stock Incentive Plan; (x) Chester Valley Bancorp, Inc. 1997
Stock Option Plan; and (xi) Millennium Bank Stock Compensation Program, and in each case as
amended; and
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|
|
the agreement by First Niagara to indemnify Harleysville National
Corporation directors and officers.
|
Harleysville National Corporation Shareholders Cannot Be Certain of the Amount of Nor the Market
Value of The Merger Consideration They Will Receive, Because the Market Price of First Niagara
Common Stock Will Fluctuate and The Exchange Ratio is Subject to a Downward Adjustment in the
Event that Harleysville National Corporation Delinquent Loans are $237.5 Million or Greater.
Upon completion of the merger, each share of Harleysville National Corporation common
stock will be converted into merger consideration consisting of 0.474 of a share of First
Niagara common stock. This exchange ratio is subject to downward adjustment, as described
in the merger agreement and in this document, in the event that certain of Harleysville
National Corporation delinquent loans are $237.5 million or greater as of the month end
prior to closing date of this transaction. As of November 30, 2009, the amount of
Harleysville National Corporations loan delinquencies was $173.6 million. See The Merger
and the Merger Agreement-Merger Consideration for a more complete discussion of the merger
consideration to be paid in this proposed transaction and Termination; Amendment; Waiver
for a more complete discussion of the circumstances
under which the merger agreement could be terminated.
As a result, the amount of merger consideration a shareholder will receive if the
merger is consummated is subject to change. In addition, the market value of the merger
consideration may vary from the closing price of First Niagara common stock on the date it
announced the merger, on the date that this document was mailed to Harleysville National
Corporation shareholders, on the date of the special meeting of the Harleysville National
Corporation shareholders and on the date it completes the merger and thereafter. Any change
in exchange ratio or the market price of First Niagara common stock prior to completion of
the merger will affect the amount of and the market value of the merger consideration that
Harleysville National Corporation shareholders will receive upon completion of the merger.
Accordingly, at the time of the special meeting, Harleysville National Corporation
shareholders will not know or be able to calculate with certainty the amount nor the market
value of the merger consideration they would receive upon completion of the merger. Stock
price changes may result from a variety of factors, including general market and economic
conditions, changes in its respective businesses, operations and prospects, and regulatory
considerations. Many of these factors are beyond First
24
Niagaras control. You should obtain current market quotations for shares of First Niagara
common stock and for shares of Harleysville National Corporation common stock before you vote.
Harleysville National Corporation Shareholders Will Have a Reduced Ownership and Voting Interest
After the Merger and Will Exercise Less Influence Over Management.
Harleysville National Corporations shareholders currently have the right to vote in
the election of the Harleysville National Corporation board of directors and on other
matters affecting Harleysville National Corporation. When the merger occurs, each
Harleysville National Corporation shareholder that receives shares of First Niagara common
stock will become a shareholder of First Niagara with a percentage ownership of the
combined organization that is much smaller than the shareholders percentage ownership of
Harleysville National Corporation. Because of this, Harleysville National Corporations
shareholders will have less influence on the management and policies of First Niagara than
they now have on the management and policies of Harleysville National Corporation.
Termination of the Merger Agreement Could Negatively Impact Harleysville National
Corporation.
First Niagara may terminate the merger agreement for the reasons set forth in the
merger agreement, including if Harleysville National Corporation delinquent loans equal or
exceed $350.0 million as of any month end prior to the closing date of the merger,
excluding any month end after February 28, 2010. If the merger agreement is terminated,
there may be various consequences including:
|
|
|
Harleysville National Corporations businesses may have been adversely impacted by
the failure to pursue other beneficial opportunities due to the focus of management on
the merger, without realizing any of the anticipated benefits of completing the
merger; and
|
|
|
|
|
the market price of Harleysville National Corporation common stock might
decline to the extent that the current market price reflects a market assumption
that the merger will be completed.
|
If the merger agreement is terminated and Harleysville National Corporations board of
directors seeks another merger or business combination, Harleysville National Corporation
shareholders cannot be certain that Harleysville National Corporation will be able to find
a party willing to pay an equivalent or more attractive price than the price First Niagara
has agreed to pay in the merger.
If the Merger Agreement is Terminated, Harleysville National Bank and Trust Company May be Forced
to Divest Certain of its Financial Subsidiaries.
Harleysville National Bank and Trust Company (the Bank) is party to an agreement
with the OCC pursuant to which the Bank must take certain mutually-agreed upon actions to
address certain of the OCCs concerns about the Banks management and capital position, as
reflected in the OCCs most recent examination report. If the merger agreement is
terminated and the Bank subsequently fails to address adequately the OCCs concerns, the
Bank could be forced to divest certain of its financial subsidiaries, which could adversely
affect Harleysville National Corporations condition (financial or otherwise), prospects,
earnings and business.
25
The Opinion of Harleysville National Corporations Financial Advisor Will Not Reflect Changes in
Circumstances Between Signing the Merger Agreement and the Merger, Including Any Reduction in the
Merger Consideration as a Result of Harleysville National Corporations Loan Delinquencies.
Harleysville National Corporations financial advisor, JPMorgan, rendered an opinion
dated July 26, 2009, to the Harleysville National Corporation board of directors, that,
as of such date, and based upon and subject to the factors and assumptions set forth in
its written opinion (including, without limitation, that the exchange ratio would be
0.474, and that the level of Harleysville National Corporation delinquent loans would not
result in any adjustment to the exchange ratio), as well as the extraordinary
circumstances facing Harleysville National Corporation referred to in such written
opinion, the exchange ratio of 0.474 of a share of First Niagara common stock to be
received in respect of each share of Harleysville National Corporation common stock
pursuant to the merger agreement was fair from a financial point of view to the holders
of Harleysville National Corporation common stock. The opinion of JPMorgan, which will
not be applicable if the exchange ratio is reduced due to the level of Harleysville
National Corporation delinquent loans, was based on economic, market and other conditions
as in effect on, and the information made available to it as of, the date thereof.
JPMorgan assumed no responsibility for updating, revising or reaffirming its opinion
based on circumstances, developments or events occurring after the date thereof.
Changes in the operations and prospects of First Niagara or Harleysville National
Corporation, general market and economic conditions and other factors on which Harleysville
National Corporations financial advisors opinion was based, may significantly alter the
value of First Niagara or Harleysville National Corporation or the prices of shares of
First Niagara common stock or Harleysville National Corporation common stock by the time
the merger is completed. The opinion does not speak as of the time the merger will be
completed or as of any date other than the date of such opinion. The Harleysville National
Corporation board of directors recommendation that holders
of Harleysville National Corporation common stock vote FOR adoption of the merger
agreement, however, is as of the date of this document. For a description of the opinion
that Harleysville National Corporation received from its financial advisor, please refer to
The Merger Opinion of Harleysville National Corporations Financial Advisor. For a
description of the other factors considered by Harleysville National Corporations board of
directors in determining to approve the merger, please refer to The Merger Harleysville
National Corporations Reasons for the Merger; Recommendation of the Harleysville National
Corporation Board of Directors.
The Merger Agreement Limits Harleysville National Corporations Ability to Pursue
Alternatives to the Merger.
The merger agreement contains no shop provisions that, subject to limited
exceptions, limit Harleysville National Corporations ability to discuss, facilitate or
commit to competing third-party proposals to acquire all or a significant part of
Harleysville National Corporation. In addition, Harleysville National Corporation has
agreed to pay First Niagara a termination fee in the amount of $10.0 million in the event
that Harleysville National Corporation terminates the merger agreement for certain
reasons. These provisions might discourage a potential competing acquirer that might
have an interest in acquiring all or a significant part of Harleysville National
Corporation from considering or proposing that acquisition even if it were prepared to
pay consideration with a higher per share market price than that proposed in the merger,
or might result in a potential competing acquirors proposing to pay a lower per share
price to acquire
26
Harleysville National Corporation than it might otherwise have proposed to pay. Harleysville
National Corporation can consider and participate in discussions and negotiations with respect to
an alternative proposal so long as the Harleysville National Corporation board of directors
determines in good faith (after consultation with legal counsel) that failure to do so would be
reasonably likely to result in a violation of its fiduciary duties to Harleysville National
Corporation shareholders under applicable law.
The Merger is Subject to the Receipt of Consents and Approvals From Government Entities that
May Impose Conditions that Could Have an Adverse Effect on the Combined Company Following the
Merger.
Before the merger may be completed, various approvals or consents must be obtained
from the Federal Reserve and other governmental entities. These government entities,
including the Federal Reserve, may impose conditions on the completion of the merger or
require changes to the terms of the merger. Although First Niagara and Harleysville
National Corporation do not currently expect that any such material conditions or changes
would be imposed, there can be no assurance that they will not be, and such conditions or
changes could have the effect of delaying completion of the merger or imposing additional
costs on or limiting the revenues of First Niagara following the merger, any of which might
have a material adverse effect on First Niagara following the merger.
The Merger is Subject to Closing Conditions, Including Shareholder Approval, that, if Not
Satisfied or Waived, Will Result in the Merger Not Being Completed, Which May Result in
Material Adverse Consequences to Harleysville National Corporations Business and Operations.
The merger is subject to closing conditions, including the approval of Harleysville
National Corporation shareholders that, if not satisfied, will prevent the merger from
being completed. The closing condition that Harleysville National Corporation shareholders
adopt the merger agreement may not be waived under applicable law and must be satisfied
for the merger to be completed. All directors of Harleysville National Corporation have
agreed to vote their shares of Harleysville National Corporation common stock in favor of
the proposals presented at the special meeting. If Harleysville National Corporations
shareholders do not adopt the merger agreement and the merger is not completed, the
resulting failure of the merger could have a material adverse impact on Harleysville
National Corporations business and operations. In addition to the required approvals and
consents from governmental entities and the approval of Harleysville National Corporation
shareholders, the merger is subject to other conditions beyond First Niagaras and
Harleysville National Corporations control that may prevent, delay or otherwise
materially adversely affect its completion. First Niagara cannot predict whether and when
these other conditions will be satisfied. See The Merger Agreement Conditions to the
Merger.
The Shares of First Niagara Common Stock to be Received by Harleysville National Corporation
Shareholders as a Result of the Merger Will Have Different Rights From the Shares of
Harleysville National Corporation Common Stock.
Upon completion of the merger, Harleysville National Corporation shareholders will
become First Niagara shareholders and their rights as shareholders will be governed by
the certificate of incorporation and bylaws of First Niagara. The rights associated with
Harleysville National Corporation common stock are different from the rights
associated with First Niagara
27
common stock. Please see Comparison of Shareholders Rights for a discussion of the different
rights associated with First Niagara common stock.
Several Lawsuits Have Been Filed Against Harleysville National Corporation and the Members of
the Harleysville National Corporation Board of Directors, As Well As First Niagara, Challenging
the Merger, and an Adverse Judgment in Such Lawsuits May Prevent the Merger From Becoming
Effective or From Becoming Effective Within the Expected Timeframe.
Harleysville National Corporation and the members of the Harleysville National
Corporation board of directors are named as defendants in purported class action lawsuits brought
by Harleysville National Corporation shareholders challenging the proposed merger, seeking, among
other things, to enjoin the defendants from consummating the merger on the agreed-upon terms.
First Niagara is also named as a defendant in some, but not all, of these lawsuits.
Additionally, the directors of Harleysville National Corporation have been named as defendants in
four shareholder derivative lawsuits that also seek, among other things, to enjoin the
consummation of the merger. See Litigation Relating to the Merger for more information about
the class action lawsuits related to the merger that have been filed.
One of the conditions to the closing of the merger is that no order, decree or
injunction issued by a court or agency of competent jurisdiction that enjoins or prohibits
the consummation of the merger shall be in effect. As such, if the plaintiffs are
successful in obtaining an injunction prohibiting the defendants from consummating the
merger on the agreed upon terms, then such injunction may prevent the merger from becoming
effective, or from becoming effective within the expected timeframe.
Risks About First Niagara Financial Group, Inc.
Economic Conditions May Adversely Affect First Niagaras Liquidity and Financial
Condition
.
Recent significant declines in the values of mortgage-backed securities and
derivative securities by financial institutions, government sponsored entities, and major
commercial and investment banks has led to decreased confidence in financial markets among
borrowers, lenders, and depositors, as well as disruption and extreme volatility in the
capital and credit markets and the failure of some entities in the financial sector. As a
result, many lenders and institutional investors have reduced or ceased to provide funding
to borrowers. Continued turbulence in the capital and credit markets may adversely affect
First Niagaras liquidity and financial condition and the willingness of certain
counterparties and customers to do business with First Niagara.
Commercial Loans Increase First Niagaras Exposure to Credit Risks
.
At September 30, 2009, First Niagaras portfolio of commercial loans totaled $4.6
billion, or 64% of total loans. First Niagara plans to continue to emphasize the
origination of these types of loans, which generally exposes First Niagara to a greater
risk of nonpayment and loss than residential real estate loans because repayment of such
loans often depends on the successful operations and income stream of the borrowers.
Additionally, such loans typically involve larger loan balances to single borrowers or
groups of related borrowers compared to residential real estate loans. Also, many of First
Niagaras borrowers have more than one commercial loan outstanding. Consequently, an
adverse development with respect to one loan or one credit
28
relationship can expose First Niagara to a significantly greater risk of loss compared to an
adverse development with respect to a residential real estate loan.
First Niagara targets its business lending and marketing strategy towards small to
middle market businesses. These small to middle market businesses generally have fewer
financial resources in terms of capital or borrowing capacity than larger entities. If
general economic conditions negatively impact these businesses, First Niagaras results of
operations and financial condition may be adversely affected.
Increases to the Allowance for Credit Losses May Cause First Niagaras Earnings to Decrease
.
First Niagaras customers may not repay their loans according to the original terms,
and the collateral securing the payment of those loans may be insufficient to pay any
remaining loan balance. Hence, First Niagara may experience significant loan losses, which
could have a material adverse effect on its operating results. First Niagara makes various
assumptions and judgments about the collectibility of its loan portfolio, including the
creditworthiness of its borrowers and the value of the real estate and other assets serving
as collateral for the repayment of loans. In determining the amount of the allowance for
credit losses, First Niagara relies on loan quality reviews, past loss experience, and an
evaluation of economic conditions, among other factors. If First Niagaras assumptions
prove to be incorrect, First Niagaras allowance for credit losses may not be sufficient to
cover losses inherent in First Niagaras loan portfolio, resulting in additions to the
allowance. Material additions to the allowance would materially decrease its net income.
First Niagaras emphasis on the origination of commercial loans is one of the more
significant factors in evaluating its allowance for credit losses. As First Niagara
continues to increase the amount of these loans, additional or increased provisions for
credit losses may be necessary and as a result would decrease First Niagaras earnings.
Bank regulators periodically review First Niagaras allowance for credit losses and
may require First Niagara to increase its provision for credit losses or loan
charge-offs. Any increase in First Niagaras allowance for credit losses or loan
charge-offs as required by these regulatory authorities could have a material adverse
effect on its results of operations and/or financial condition.
Concentration of Loans in First Niagaras Primary Market Area May Increase Risk
.
First Niagaras success depends primarily on the general economic conditions in
Upstate New York and Western Pennsylvania, as nearly all of First Niagaras loans are to
customers in these markets. Accordingly, the local economic conditions in Upstate New York
and Western Pennsylvania have a significant impact on the ability of borrowers to repay
loans. In addition, the merger will expand First Niagaras market to the Southeastern
Pennsylvania area. As such, a decline in real estate valuations in this market would lower
the value of the collateral securing those loans. A significant weakening in general
economic conditions such as inflation, recession, unemployment, or other factors beyond its
control could also negatively affect First Niagaras financial results.
29
Changes in Interest Rates Could Adversely Affect First Niagaras Results of Operations and
Financial Condition
.
First Niagaras results of operations and financial condition are significantly
affected by changes in interest rates. First Niagaras financial results depend
substantially on net interest income, which is the difference between the interest income
that First Niagara earns on interest-earning assets and the interest expense First Niagara
pays on interest-bearing liabilities. Because First Niagaras interest-bearing liabilities
generally reprice or mature more quickly than its interest-earning assets, an increase in
interest rates generally would tend to result in a decrease in its net interest income.
First Niagara has taken steps to mitigate this risk such as holding fewer longer-term
residential mortgages as well as investing excess funds in shorter-term investments.
Changes in interest rates also affect the fair value of First Niagaras
interest-earning assets and in particular its investment securities available for sale.
Generally, the fair value of First Niagaras investment securities fluctuates inversely
with changes in interest rates. At September 30, 2009, the fair value of First Niagaras
investment securities available for sale totaled $3.7 billion. Unrealized gains on its
securities available for sale, net of tax, amounted to
$34.1 million and are reported in other comprehensive income as a separate component of
stockholders equity. Decreases in the fair value of First Niagaras investment securities
available for sale, therefore, could have an adverse effect on its stockholders equity or
its earnings if the decrease in fair value is deemed to be other than temporary.
Changes in interest rates may also affect the average life of First Niagaras loans and
mortgage-related securities. Decreases in interest rates can result in increased prepayments
of loans and mortgage-related securities, as borrowers refinance to reduce borrowing costs.
Under these circumstances, First Niagara is subject to reinvestment risk to the extent that
it is unable to reinvest the cash received from such prepayments at rates that are
comparable to the rates on its existing loans and securities. Additionally, increases in
interest rates may decrease loan demand and make it more difficult for borrowers to repay
adjustable rate loans.
Conditions in Insurance Markets Could Adversely Affect First Niagaras Earnings
.
As First Niagara has become increasingly reliant on noninterest income, particularly
insurance fees and commissions, these revenue levels could be negatively impacted by the
fluctuating premiums in the insurance market caused by capacity constraints and losses due
to natural disasters. Other factors that affect its insurance revenue are profitability
and growth of its clients, continued development of new products and services, as well as
its access to markets.
First Niagaras Ability to Grow May Be Limited if It Cannot Make Acquisitions
.
In an effort to fully deploy First Niagaras capital and to increase its loans and
deposits, First Niagara intends to continue to acquire other financial institutions,
financial services companies, or branches. First Niagara competes with other financial
institutions with respect to proposed acquisitions. First Niagara cannot predict if or
when it will be able to identify and attract acquisition candidates or make acquisitions
on favorable terms. In addition, First Niagara incurs risks and challenges associated with
the integration of acquired institutions in a timely and efficient manner, and it cannot
guarantee that it will be successful in retaining existing customer relationships or
achieving anticipated operating efficiencies.
30
First Niagaras Expanding Branch Network May Affect Its Financial Performance
.
Since 1998, First Niagara has expanded its branch network by both acquiring
financial institutions and establishing de novo branches. At September 30, 2009, First
Niagara operated 170 branches, and, if the merger is completed, it will acquire
approximately 83 branch locations in Southeastern Pennsylvania from Harleysville National
Corporation. First Niagara cannot assure that its ongoing branch expansion strategy will
be accretive to earnings, or that it will be accretive to earnings within a reasonable
period of time. Numerous factors contribute to the performance of a new branch, such as a
suitable location, qualified personnel, and an effective marketing strategy.
Additionally, it takes time for a new branch to gather sufficient loans and deposits to
generate enough income to offset its expenses, some of which, like salaries and occupancy
expense, are relatively fixed costs.
Strong Competition May Limit First Niagaras Growth and Profitability
.
Competition in the banking and financial services industry is intense. First Niagara
competes with commercial banks, savings institutions, mortgage brokerage firms, credit
unions, finance companies, mutual funds, insurance companies, and brokerage and investment
banking firms operating locally and elsewhere. Many of these competitors (whether regional
or national institutions) have substantially greater resources and lending limits than
First Niagara and may offer certain services that it does not or cannot provide. First
Niagaras profitability depends upon its ability to successfully compete in its market
area.
First Niagara Operates in a Highly Regulated Environment and May Be Adversely Affected by Changes
in Laws and Regulations
.
Currently, First Niagara is subject to extensive regulation, supervision, and
examination by the Office of Thrift Supervision, Federal Deposit Insurance Corporation and
the New York State Banking Department. First Niagara has applied to the Federal Reserve to
register as a bank holding company and intends to keep First Niagara Bank and Harleysville
National Bank as separate subsidiaries for an indeterminate period of time. As such, First
Niagara Bank will continue to be regulated by the OTS and Harleysville National Bank will
continue to be regulated by the OCC. First Niagara recently applied to the OCC to become a
commercial bank and, assuming OCC approval of such application, will be subject to
regulation and supervision by the OCC. First Niagara, as a bank holding company, will be
subject to regulation by the Federal Reserve. Such regulators govern the activities in
which First Niagara may engage, primarily for the protection of depositors. These
regulatory authorities have extensive discretion in connection with its supervisory and
enforcement activities, including the imposition of restrictions on the operation of a
bank, the classification of assets by a bank, and the adequacy of a banks allowance for
credit losses. Any change in such regulation and oversight, whether in the form of
regulatory policy, regulations, or legislation, could have a material impact on First
Niagara and its operations. First Niagara believes that it is in substantial compliance
with applicable federal, state and local laws, rules and regulations. Because First
Niagaras business is highly regulated, the laws, rules and applicable regulations are
subject to regular modification and change. There can be no assurance that proposed laws,
rules and regulations, or any other laws rule or regulation, will not be adopted in the
future, which could make compliance more difficult or expensive or
otherwise adversely affect First Niagaras business, financial condition or prospects.
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The Soundness of Other Financial Services Institutions May Adversely Affect First Niagaras Credit
Risk.
First Niagara relies on other financial services institutions through trading,
clearing, counterparty, and other relationships. First Niagara maintains limits and
monitor concentration levels of its counterparties as specified in its internal policies.
First Niagaras reliance on other financial services institutions exposes it to credit
risk in the event of default by these institutions or counterparties. These losses could
adversely affect First Niagaras results of operations and financial condition.
A Substantial Decline in the Value of First Niagaras FHLB of New York Common Stock May Adversely
Affect Its Financial Condition.
First Niagara owns common stock of Federal Home Loan Bank (FHLB) of New York in
order to qualify for membership in the FHLB system, which enables it to borrow funds
under the FHLB of New Yorks advance program. The carrying value and fair market value of
First Niagaras FHLB of New York common stock was $46.0 million as of September 30, 2009.
Recent published reports indicate that certain member banks of the FHLB system may be
subject to asset quality risks that could result in materially lower regulatory capital
levels. In an extreme situation, it is possible that the capitalization of a FHLB,
including FHLB of New York, could be substantially diminished or reduced to zero.
Consequently, given that there is no market for First Niagaras FHLB of New York common
stock, First Niagara believes that there is a risk that its investment could be deemed
other than temporarily impaired at some time in the future. If this occurs, it may
adversely affect First Niagaras results of operations and financial condition.
If the capitalization of FHLB of New York is substantially diminished and if it
further reduces or suspends its dividend, First Niagaras liquidity may be adversely
impaired if it is not able to obtain an alternative source of funding.
First Niagara Holds Certain Intangible Assets that Could Be Classified as Impaired in The
Future. If These Assets Are Considered To Be Either Partially or Fully Impaired in the Future,
First Niagaras Earnings and the Book Values of These Assets Would Decrease.
Pursuant to ASC 350, Intangibles-Goodwill and Other, First Niagara is required to
test its goodwill and core deposit intangible assets for impairment on a periodic basis.
The impairment testing process considers a variety of factors, including the current market
price of its common shares, the estimated net present value of its assets and liabilities,
and information concerning the terminal valuation of similarly situated insured depository
institutions. The market price for its common shares was below its book value at September
30, 2009. Although the market price of these shares recovered to some extent during the
three month period ended September 30, 2009, the shares generally traded below their book
value during the first nine months of 2009. If the duration of this decline in the market
value of First Niagaras common shares and the decline in the market prices of the common
shares of similarly situated insured depository institutions persists during future
reporting periods, or if the severity of the decline increases, it is possible that future
impairment testing could result in a partial or full impairment of the value of its
goodwill or core deposit intangible assets, or both. If
an impairment determination is made in a future reporting period, First Niagaras
earnings and the book value of these intangible assets will be reduced by the amount of the
impairment. If an impairment loss is recorded, it will have little or no impact on the
tangible book value of First Niagaras common shares or its regulatory capital levels.
32
Any Future FDIC Insurance Premiums Will Adversely Impact First Niagaras Earnings.
On May 22, 2009, the FDIC adopted a final rule levying a five basis point special
assessment on each insured depository institutions assets minus Tier 1 capital as of
June 30, 2009. The special assessment was payable on September 30, 2009. First Niagara
recorded an expense of $5.4 million during the quarter ended June 30, 2009 to reflect the
special assessment. On September 29, 2009 the FDIC board increased assessment rates on
deposit insurance premiums by three basis points effective January 1, 2011. In addition,
in lieu of another special assessment, on November 12, 2009, the FDIC board adopted a
final rule requiring insured institutions to prepay their estimated quarterly risk-based
assessments for the fourth quarter of 2009, as well as for all of 2010, 2011 and 2012 on
December 30, 2009. First Niagara estimates that such prepayment will amount to
approximately $39.0 million.
FDIC guidance provides that as of December 31, 2009, and each quarter thereafter,
each insured institution will be required to record an expense for its regular quarterly
assessment and an offsetting credit to the prepaid assessment until the asset is
exhausted. Once the asset is exhausted, the institution would resume paying and
accounting for quarterly deposit insurance assessments as it currently does. Any further
special assessments that the FDIC levies will be recorded as an expense during the
appropriate period. The prepayment of the future premiums, coupled with any future
assessments, could have a material adverse effect on our results of operations and/or
financial condition.
33
HARLEYSVILLE NATIONAL CORPORATION SPECIAL MEETING OF SHAREHOLDERS
Harleysville National Corporation is mailing this proxy statement-prospectus to you
as a Harleysville National Corporation shareholder on or about December 17, 2009. With
this document, Harleysville National Corporation is sending you a notice of the
Harleysville National Corporation special meeting of shareholders and a form of proxy that
is solicited by the Harleysville National Corporation board of directors. The special
meeting will be held on January 22, 2010 at 10:30 a.m., local time, at Best Western, The
Inn at Towamencin, 1750 Sumneytown Pike, Kulpsville, Pennsylvania 19443.
Matter to be Considered
The sole purpose of the special meeting of shareholders is to vote on the adoption
of the Agreement and Plan of Merger by and between First Niagara and Harleysville
National Corporation and Harleysville National Bank, dated as of July 26, 2009, by which
Harleysville National Corporation and Harleysville National Bank will be acquired by
First Niagara.
You are also being asked to vote upon a proposal to adjourn or postpone the
special meeting of shareholders. Harleysville National Corporation could use any
adjournment or postponement for the purpose, among others, of allowing additional
time to solicit proxies.
Proxy Card, Revocation of Proxy
You should vote, by using the internet at the address shown on your proxy card, by
telephone using the number on your proxy card or by completing and returning the proxy
card accompanying this document to ensure that your vote is counted at the special
meeting of shareholders, regardless of whether you plan to attend. You can revoke your
proxy at any time before the vote is taken at the special meeting by:
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submitting written notice of revocation to Liz Chemnitz, Senior Vice
President, Assistant Corporate Secretary of Harleysville National Corporation;
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submitting a properly executed proxy bearing a later date before the special
meeting of shareholders; or
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voting in person at the special meeting of shareholders. However, simply
attending the special meeting without voting will not revoke an earlier proxy.
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If your shares are held in street name, you should follow the instructions of your
broker regarding revocation of proxies.
All shares represented by valid proxies and unrevoked proxies will be voted in
accordance with the instructions on the proxy card. If you sign your proxy card, but
make no specification on the card as to how you want your shares voted, your proxy card
will be voted FOR approval of the foregoing proposal. The board of directors of
Harleysville National Corporation is presently unaware of any other matter that may be
presented for action at the special meeting of shareholders. If any other matter does
properly come before the special meeting, the board of directors of Harleysville National
Corporation intends that shares represented by properly submitted proxies will be voted,
or not voted, by and at the discretion of the persons named as proxies on the proxy card.
34
Solicitation of Proxies
The cost of solicitation of proxies will be borne by Harleysville National
Corporation. Harleysville National Corporation will reimburse brokerage firms and other
custodians, nominees and fiduciaries for reasonable expenses incurred by them in sending
proxy materials to the beneficial owners of common stock. Harleysville National
Corporation has retained The Altman Group to assist in the solicitation of proxies for a
fee of $5,500 plus reasonable out-of-pocket expenses. In addition to solicitations by
mail, Harleysville National Corporations directors, officers and regular employees may
solicit proxies personally or by telephone without additional compensation.
Record Date
The close of business on December 7, 2009 has been fixed as the record date for
determining the Harleysville National Corporation shareholders entitled to receive notice
of and to vote at the special meeting of shareholders. At that time, 43,139,426 shares
of Harleysville National Corporation common stock were outstanding, and were held by
approximately 5,480 holders of record.
Voting Rights, Quorum Requirements and Vote Required
The presence, in person or by properly executed proxy, of the holders of a majority of
the outstanding shares of Harleysville National Corporation common stock
entitled to vote is necessary to constitute a quorum at the special meeting of
shareholders. Abstentions and broker non-votes will be counted for the purpose of
determining whether a quorum is present but will not be counted as votes cast either for or
against the merger agreement.
Adoption of the merger agreement requires the affirmative vote of the holders of a
majority of the shares of Harleysville National Corporation common stock issued and
outstanding on the record date. Accordingly, a failure to vote or an abstention will have
the same effect as a vote against the merger agreement. As of the record date, the
directors of Harleysville National Corporation beneficially owned approximately 2,519,000
shares of Harleysville National Corporation common stock entitled to vote at the special
meeting of shareholders. This represents approximately 5.8% of the total votes entitled to
be cast at the special meeting. These individuals have entered into voting agreements
pursuant to which they have agreed to vote FOR adoption of the merger agreement.
Recommendation of the Board of Directors
The Harleysville National Corporation board of directors has unanimously approved the
merger agreement and the transactions contemplated by the merger agreement. The board of
directors of Harleysville National Corporation believes that the merger agreement is fair
to Harleysville National Corporation shareholders and is in the best interest of
Harleysville National Corporation and its shareholders and recommends that you vote FOR
the adoption of the merger agreement. See The Merger and the Merger
AgreementRecommendation of the Harleysville National Corporation Board of Directors and
Reasons for the Merger.
35
THE MERGER AND THE MERGER AGREEMENT
The description of the merger and the merger agreement contained in this proxy
statement-prospectus describes the material terms of the merger agreement; however, it
does not purport to be complete. It is qualified in its entirety by reference to the
merger agreement. We have attached a copy of the merger agreement as Appendix A.
General
Pursuant to the merger agreement, Harleysville National Corporation will merge into
First Niagara Financial Group, Inc., with First Niagara as the surviving entity.
Outstanding shares of Harleysville National Corporation common stock will be converted into
the right to receive shares of First Niagara common stock. Cash will be paid in lieu of
any fractional share of Harleysville National Corporation common stock. See Merger
Consideration below. As a result of the merger, the separate corporate existence of
Harleysville National Corporation will cease and First Niagara will succeed to all the
rights and be responsible for all the obligations of Harleysville National Corporation.
Immediately after the merger of Harleysville National Corporation into First Niagara
Financial Group, Inc., the separate corporate existence of Harleysville National
Corporation shall cease to exist.
The Parties
First Niagara Financial Group, Inc.
First Niagara Financial Group, Inc., a Delaware corporation, provides a wide
range of retail and commercial banking as well as other financial services through
its wholly-owned, federally chartered savings bank subsidiary, First Niagara Bank. First
Niagara is positioned as a leading community-oriented-bank in Upstate New York and
Western Pennsylvania, providing its retail consumer and business customers with banking
services including residential and commercial real estate loans, commercial business
loans and leases, consumer loans, wealth management products, as well as retail and
commercial deposit products. Additionally, First Niagara offers insurance and employee
benefits consulting services through a wholly-owned subsidiary of First Niagara Bank.
At September 30, 2009, First Niagara had
$14.1 billion of assets, $9.9 billion in deposits and shareholders equity of $2.4 billion.
First Niagara was organized in April 1998 in connection with the conversion of
First Niagara Bank from a New York State chartered mutual savings bank to a New York
State chartered stock savings bank and reorganization to a two-tiered mutual holding
company. In November 2002, First Niagara converted First Niagara Bank and the mutual
holding company to a federal charter subject to OTS regulation. In January 2003, First
Niagara converted the mutual holding company to stock form, with its shares of common
stock owned by the mutual holding company being sold to depositors and other investors.
In connection with the acquisition of Harleysville National Corporation and Harleysville
National Bank, First Niagara applied to the Federal Reserve to register as a bank
holding company. Since 1998, First Niagara has deployed the proceeds from several stock
offerings through multiple whole-bank and nonbank financial services company
acquisitions, as well as the opening of a number of de novo branches in target markets
across Upstate New York. This strategy, coupled with its organic growth initiatives,
included an emphasis on expanding its commercial operations and financial services
businesses.
On September 4, 2009, First Niagara completed the acquisition of 57 branch
locations in Western Pennsylvania from NatCity, including $3.9 billion of deposit
liabilities and $756.9
36
million of performing loans. On July 26, 2009, First Niagara entered into a merger agreement
with Harleysville National Corporation, the parent company of Harleysville National Bank and
Trust Company. At September 30, 2009, Harleysville National Corporation had $5.2 billion in
assets, $3.9 billion in deposits, and operated 83 branch locations in metropolitan Philadelphia,
Pennsylvania.
First Niagaras principal executive offices are located at 726 Exchange Street,
Suite 618, Buffalo, New York 14210, and its telephone number is (716) 819-5500.
First Niagara Bank
First Niagara Bank was organized in 1870, and is a community-oriented savings bank
providing financial services to individuals, families, and businesses through its branch
network located across Upstate New York and Western Pennsylvania. As of September 30,
2009, First Niagara Bank and all of its subsidiaries had $14.1 billion of assets,
deposits of $9.9 billion, employed approximately 2,600 people, and operated through 170
full service branches and several financial services subsidiaries.
First Niagara Banks subsidiaries provide a range of financial services to
individuals and companies in its market areas and include: First Niagara Commercial Bank,
its New York State chartered bank whose primary purpose is to generate municipal
deposits; First Niagara Funding, Inc., its real estate investment trust (REIT)
which primarily holds certain of its commercial real estate and business loans; and First
Niagara Risk Management, Inc. (FNRM), its full service insurance agency and employee
benefits consulting firm engaged in the sale of insurance products, including business and
personal insurance, surety bonds, life, disability and long-term care coverage, and other
risk management advisory services. FNRMs risk management consulting business includes
alternative risk and self-insurance, claims investigation and adjusting services, and
third-party administration of self insured workers compensation plans. FNRMs employee
benefits consulting business includes a retirement plan practice, compliance services and
benefit plan administration, as well as a compensation consulting practice.
The Acquisition of National City Branch Locations
On April 6, 2009, First Niagara Bank entered into a Purchase and Assumption Agreement
with NatCity and PNC pursuant to which First Niagara Bank agreed to acquire certain assets
and assume certain liabilities of 57 NatCity Branches in the Pittsburgh, Erie and Warren,
Pennsylvania banking markets. The Federal Reserve and the DOJ required NatCity to divest
these and other branch locations in connection with the merger of PNC and NatCitys former
parent company, National City Corporation.
On September 4, 2009, First Niagara Bank completed the Branch Acquisition, and
assumed $3.9 billion of deposit liabilities, acquired $756.9 million of performing
loans and $3.1 billion in cash, as well as the real and personal property associated
with the NatCity Branches.
Concurrently with the Purchase and Assumption Agreement, First Niagara entered into a
Securities Purchase Agreement with PNC and NatCity pursuant to which it had the right to
require PNC to purchase shares of its common stock having an aggregate purchase price not
to exceed $75.0 million, and to require NatCity to purchase up to $150.0 million of its
12% Senior Notes due in 2014, less the amount of common stock purchased. Concurrent with
the closing of
37
the Branch Acquisition, First Niagara elected to have NatCity purchase $150.0 million of its
12% Senior Notes due in 2014.
Harleysville National Corporation
Harleysville National Bank
Harleysville National Corporation is the bank holding company of Harleysville
National Bank, a national banking association, headquartered in Harleysville,
Pennsylvania. Harleysville National Bank operates 83 branch offices and provides a full
range of banking services including loans and deposits, investment management and trust
and investment advisory services to individual and corporate customers located primarily
in Eastern Pennsylvania. Harleysville National Corporation engages in full-service
commercial banking and trust business, including accepting time and demand deposits,
making secured and unsecured commercial and consumer loans, financing commercial
transactions, making construction and mortgage loans and performing corporate pension and
personal investment and trust services. As of September 30, 2009, Harleysville National
Corporation had assets of $5.2 billion, deposits of $3.9 billion and shareholders equity
of $260.7 million.
Harleysville National Corporation, a Pennsylvania corporation, was incorporated
June 1, 1982. On January 1, 1983, it became the parent bank holding company of
Harleysville National Bank, established in 1909.
Since commencing operations, Harleysville National Corporations business has
consisted primarily of providing financial services through its subsidiaries and has
acquired nine financial institutions since 1991 including the recent acquisitions of
Willow Financial Bancorp, Inc. and its banking subsidiary, Willow Financial Bank in
December 2008 and East Penn Financial Corporation and its banking subsidiary, East Penn
Bank in November 2007.
Additionally, Harleysville National Corporation completed the acquisition of the Cornerstone
Companies (registered investment advisors) in January 2006. Harleysville National Corporation is
also the parent holding company of HNC Financial Company and HNC Reinsurance Company. HNC Financial
Company was incorporated on March 17, 1997 as a Delaware Corporation and its principal business
function is to expand the investment opportunities of the Corporation. HNC Reinsurance Company was
incorporated on March 30, 2001 as an Arizona Corporation and reinsures consumer loan credit life
and accident and health insurance.
Harleysville National Bank is a national banking association under the supervision of
the OCC. Harleysville National Corporations and Harleysville National Banks legal
headquarters are located at 483 Main Street, Harleysville, Pennsylvania 19438. HNC
Financial Companys legal headquarters is located at 2751 Centerville Road, Suite 3164,
Wilmington, Delaware 19808. HNC Reinsurance Companys legal headquarters is located at 101
North First Avenue, Suite 2460, Phoenix, AZ 85003.
Harleysville National Bank provides a full range of banking services including loans
and deposits, investment management and trust and investment advisory services to
individual and corporate customers located primarily in Eastern Pennsylvania.
Harleysville National Bank engages in the full-service commercial banking and trust
business, including accepting time and demand deposits, making secured and unsecured
commercial and consumer loans, financing commercial transactions, making construction and
mortgage loans and performing corporate pension and personal investment and trust
services. Deposits are insured by the Federal Deposit Insurance Corporation to the extent
provided by law. As of September 30, 2009, Harleysville
38
National Bank operated 83 branch locations located in Montgomery, Bucks, Chester, Berks,
Carbon, Lehigh, Monroe, Northampton and Philadelphia counties, Pennsylvania.
Harleysville National Bank has maintained a stable base of core deposits and is a
leading community bank in its service areas. Harleysville National Bank believes it has
gained its position as a result of strategic acquisitions, a customer-oriented philosophy
and a strong commitment to service. Senior management has made the development of a sales
orientation throughout Harleysville National Bank one of their highest priorities and
emphasizes this objective with extensive training and sales incentive programs.
Harleysville National Bank maintains close contact with the local business community to
monitor commercial lending needs and believes it responds to customer requests quickly and
with flexibility.
Harleysville National Bank opened new branches in Flourtown, Montgomery County and
Whitehall, Lehigh County and relocated its Pottstown East End branch in Montgomery County
during 2008. The Conshohocken branch in Montgomery County was opened in February 2009.
Merger Consideration
Under the terms of the merger agreement, each outstanding share of Harleysville
National Corporation common stock will be converted into the right to receive 0.474 share
of First Niagara common stock for each share of Harleysville National Corporation common
stock, subject to the adjustment mechanism described below.
No fractional shares of First Niagara will be issued in connection with the merger.
Instead, First Niagara will make a cash payment to each Harleysville National Corporation
shareholder who would otherwise receive a fractional share. Each share of Harleysville
National Corporation common stock that is exchanged for First Niagara common stock will be
converted into the right to receive 0.474 share of First Niagara common stock. Based upon
the closing price of First Niagara on December 7, 2009, each 0.474 share of First Niagara
would have a value of $6.29.
If the aggregate amount of Harleysville National Corporations delinquent loans as of
the month end prior to the date the merger is completed is $237.5 million or greater, the
exchange ratio shall decrease as follows:
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|
|
|
|
HNC Delinquent Loans
|
|
Exchange Ratio
|
(dollars in millions)
|
|
(x)
|
|
Less than $237.5
|
|
|
0.474
|
x
|
$237.5 or more, less than or equal to $240
|
|
|
0.466
|
|
Greater than $240, less than or equal to $245
|
|
|
0.463
|
|
Greater than $245, less than or equal to $250
|
|
|
0.460
|
|
Greater than $250, less than or equal to $255
|
|
|
0.456
|
|
Greater than $255, less than or equal to $260
|
|
|
0.452
|
|
Greater than $260, less than or equal to $265
|
|
|
0.448
|
|
Greater than $265, less than or equal to $270
|
|
|
0.444
|
|
Greater than $270, less than or equal to $275
|
|
|
0.440
|
|
Greater than $275, less than or equal to $280
|
|
|
0.434
|
|
Greater than $280, less than or equal to $285
|
|
|
0.429
|
|
Greater than $285, less than or equal to $290
|
|
|
0.423
|
|
Greater than $290, less than or equal to $295
|
|
|
0.417
|
|
Greater than $295, less than or equal to $300
|
|
|
0.412
|
|
Greater than $300, less than or equal to $305
|
|
|
0.402
|
|
Greater than $305, less than or equal to $310
|
|
|
0.393
|
|
Greater than $310, less than or equal to $315
|
|
|
0.384
|
|
Greater than $315, less than or equal to $320
|
|
|
0.374
|
|
Greater than $320, less than or equal to $325
|
|
|
0.365
|
|
39
|
|
|
|
|
HNC Delinquent Loans
|
|
Exchange Ratio
|
(dollars in millions)
|
|
(x)
|
Greater than $325, less than or equal to $330
|
|
|
0.352
|
|
Greater than $330, less than or equal to $335
|
|
|
0.339
|
|
Greater than $335, less than or equal to $340
|
|
|
0.326
|
|
Greater than $340, less than or equal to $345
|
|
|
0.313
|
|
Greater than $345, less than or equal to $350
|
|
|
0.300
|
|
The term Harleysville National Corporation delinquent loans is defined as (i) all
loans with principal and/or interest that are 30-89 days past due, (ii) all loans with
principal and/or interest that are at least 90 days past due and still accruing, (iii) all
loans with principal and/or interest that are nonaccruing, (iv) Other Real Estate Owned
and (v) net charge-offs from the date of the merger agreement through the last business
day of the month prior to the completion of the merger. If the merger is completed after
March 31, 2010, the amount of Harleysville National Corporation delinquent loans will be
calculated as of February 28, 2010 for purposes of any adjustment in the exchange ratio.
As of July 31, 2009 and November 30, 2009, the amount of such delinquent loans was $209.1
million and $173.6 million, respectively.
Additionally, Harleysville National Corporation may terminate the merger agreement
if, at any time during the five-day period commencing on the first date on which all bank
regulatory approvals (and waivers, if applicable) necessary for consummation of the merger
have been received (disregarding any waiting period) (the determination date), such
termination to be effective tenth day following such determination date if both of the
following conditions are satisfied:
|
|
|
the average of the daily closing price of First Niagara common stock as reported on
the Nasdaq Global Select Market for the five consecutive trading days immediately preceding
the determination date (the FNFG Market Value) is less than $9.28; and
|
|
|
|
|
the number obtained by dividing the FNFG Market Value by $11.60 (the Initial FNFG
Market Value, which may be adjusted to account for certain transactions involving the
stock of First Niagara, such as a stock dividend, reclassification or similar transaction
between the date of the merger agreement and the determination date) (the FNFG Ratio) is
less than the quotient (such quotient, the Index Ratio) obtained by dividing the average
of the daily closing value for the five consecutive trading days immediately preceding the
determination date of a group of financial institution holding
companies comprising the Nasdaq Bank Index (the Final Index Price) by the closing value
of a group of financial institution holding companies comprising the Nasdaq Bank Index on
the trading date ended two days preceding the execution of the merger agreement (the
Initial Index Price), minus 0.20.
|
If Harleysville National Corporation elects to exercise its termination right as
described above, it must give prompt written notice thereof to First Niagara. During the
five-business day period commencing with its receipt of such notice, First Niagara shall
have the option to increase the consideration to be received by the holders of
Harleysville National Corporation common stock by adjusting the exchange ratio to one of
the following quotients at its sole discretion (i) a quotient, the numerator of which is
equal to the product of the Initial FNFG Market Value, the exchange ratio (as then in
effect), and the Index Ratio, minus 0.20, and the denominator of which is equal to FNFG
Market Value on the determination date; or (ii) the quotient determined by dividing the
Initial FNFG Market Value by the FNFG Market Value on the determination date, and
multiplying the quotient by the product of the exchange ratio (as then in effect) and
0.80. If First Niagara elects, it shall give, within such five business day period,
written notice to Harleysville National Corporation of such election and the revised
exchange ratio, whereupon no termination shall be deemed to have occurred and the merger
agreement shall remain in full force
40
and effect in accordance with its terms (except as the exchange ratio shall have been so modified).
Because the formula is dependent on the future price of First Niagaras common stock and that of
the index group, it is not possible presently to determine what the adjusted merger consideration
would be at this time, but, in general, more shares of First Niagara common stock would be issued,
to take into account the extent by which the average price of First Niagaras common stock exceeded
the decline in the average price of the common stock of the index group.
Surrender of Stock Certificates
First Niagara will deposit with the exchange agent the certificates representing First
Niagaras common stock to be issued to Harleysville National Corporation shareholders in exchange
for Harleysville National Corporations common stock. Within five business days after the
completion of the merger, the exchange agent will mail to Harleysville National Corporation
shareholders a letter of transmittal, together with instructions for the exchange of their
Harleysville National Corporation stock certificates for the merger consideration. Upon
surrendering his or her certificate(s) representing shares of Harleysville National Corporations
common stock, together with the signed letter of transmittal, the Harleysville National Corporation
shareholder shall be entitled to receive, as applicable (i) certificate(s) representing a number of
whole shares of First Niagara common stock (if any) determined in accordance with the exchange
ratio and (ii) a check representing the amount of cash in lieu of fractional shares, if any. Until
you surrender your Harleysville National Corporation stock certificates for exchange after
completion of the merger, you will not be paid dividends or other distributions declared after the
merger with respect to any First Niagara common stock into which your shares have been converted.
No interest will be paid or accrued to Harleysville National Corporation shareholders on the cash
in lieu of fractional shares or unpaid dividends and distributions, if any. After the completion
of the merger, there will be no further transfers of Harleysville National Corporation common
stock. Harleysville National Corporation stock certificates presented for transfer will be
canceled and exchanged for the merger consideration.
If your stock certificates have been lost, stolen or destroyed, you will have to prove your
ownership of these certificates and that they were lost, stolen or destroyed before you submit an
election form and before you receive any consideration for your shares. Upon request,
Harleysville National Corporations transfer agent, American Stock Transfer & Trust Company, LLC
will send you instructions on how to provide evidence of ownership.
If any certificate representing shares of First Niagaras common stock is to be issued in a
name other than that in which the certificate for shares surrendered in exchange is registered, or
cash is to be paid to a person other than the registered holder, it will be a condition of
issuance or payment that the certificate so surrendered be properly endorsed or otherwise be in
proper form for transfer and that the person requesting the exchange either:
|
|
|
pay to the exchange agent in advance any transfer or other taxes required by reason
of the issuance of a certificate or payment to a person other than the registered holder of
the certificate surrendered, or
|
|
|
|
|
establish to the satisfaction of the exchange agent that the tax has been paid or
is not payable.
|
Any portion of the purchase price made available to the exchange agent that remains
unclaimed by Harleysville National Corporation shareholders for twelve months after the effective
time of the merger will be returned to First Niagaras transfer agent. Any Harleysville
41
National Corporation shareholder who has not exchanged shares of Harleysville National
Corporations common stock for the purchase price in accordance with the merger agreement before
that time may look only to First Niagara for payment of the purchase price for these shares and any
unpaid dividends or distributions after that time. Nonetheless, First Niagara, Harleysville
National Corporation, the exchange agent or any other person will not be liable to any Harleysville
National Corporation shareholder for any amount properly delivered to a public official under
applicable abandoned property, escheat or similar laws.
Treatment of Harleysville National Corporation Stock Options and Other Equity
Arrangements
In accordance with the merger agreement, at the effective time of the merger, each
option to purchase shares of Harleysville National Corporation common stock outstanding and
unexercised immediately prior to the effective time of the merger will become vested, to
the extent not already vested, and immediately exercisable. At the effective time of the
merger, each holder of an option to purchase shares of Harleysville National Corporation
common stock will receive an option to purchase the number of shares of First Niagara
common stock equal to the product of the number of Harleysville National Corporation common
stock shares subject to the Harleysville National Corporation option and the exchange ratio
(rounded down to the nearest share) and with an exercise price per share equal to the
exercise price per share of the Harleysville National Corporation option divided by the
exchange ratio, provided that the exercise price is rounded up to the nearest cent.
Pursuant to the merger agreement, Harleysville National Corporation has agreed to
terminate the Harleysville National Corporation Dividend Reinvestment and Stock Purchase
Plan as soon as practicable following the date of the merger agreement, but no later than
the effective time of the merger.
Background of the Merger
In November of 2008, faced with deteriorating economic conditions, the
management and board of directors of Harleysville National Corporation concluded that
it was in the best interest of Harleysville National Corporation and its shareholders to
apply for $120 million of funding from the Troubled Asset Relief Program (TARP), which
was the maximum amount for which Harleysville National Corporation could apply.
At the end of 2008, Harleysville National Banks total risk-based capital position
fell to adequately capitalized from well-capitalized. As a result of this
deterioration, Harleysville National Corporation became subject to greater regulatory
scrutiny, was generally prohibited from accepting brokered deposits and its insurance
premiums with the FDIC increased. To increase its capital levels and as part of an effort
to regain its status as a well-capitalized bank holding company
,
Harleysville National
Corporation decreased the dividend on Harleysville National Corporation common stock from
$0.20 to $0.10 per share for the first quarter of 2009 and Harleysville National
Corporation retained J.P. Morgan Securities Inc. as its financial advisor. During the
first quarter of 2009, Harleysville National Corporation faced a difficult economic
environment and continued turmoil in the financial markets, as well as markedly increasing
loan losses and non-performing assets, which contributed significantly to Harleysville
National Banks worsening capital position.
During the early months of 2009, the management and board of directors of
Harleysville National Corporation engaged in frequent discussions with the OCC about the
best manner in
42
which to restore Harleysville National Bank to well-capitalized status under the OCCs
regulations as well as potentially higher capital requirements the OCC expected Harleysville
National Bank to meet. On March 25, 2009, Harleysville National Corporations and Harleysville
National Banks management presented to the OCC a broad-based plan to restore the bank to
wellcapitalized status by December 31, 2009.
On April 22, 2009, the OCC notified Harleysville National Bank of regulatory concerns
based on credit, capital and earnings concerns, and also advised Harleysville National Bank
that the OCC expected to initiate an enforcement action to address Harleysville National
Banks regulatory ratings after completion of its examination activities which were set to
begin in June 2009. The OCC also sent to Harleysville National Bank a notice of intent to
establish individual minimum capital ratios (IMCRs) for Harleysville National Bank in
excess of those generally required to achieve well-capitalized status and in excess of
those previously discussed with the OCC. The notice also required Harleysville National
Bank to submit a capital plan to the OCC by May 29, 2009 detailing how Harleysville
National Bank would achieve and maintain the proposed IMCRs. Representatives of the OCC
met with the board of directors of Harleysville National Corporation and Harleysville
National Bank on April 23, 2009 to discuss these concerns. The OCC also requested that
Harleysville National Bank provide bi-weekly reports to the OCC describing its actions to
improve capital levels during each subsequent two-week period. In light of these
regulatory actions and in response to Harleysville National Corporations deteriorating
capital position, the board of directors of Harleysville National Corporation determined to
further decrease the quarterly dividend on Harleysville National Corporation common stock
to $0.01 per share for the second quarter of 2009. The board also instructed Harleysville
National Corporation management to continue exploring options to raise capital with
assistance from JPMorgan. Additionally, based on managements belief, after discussions
with the
OCC, that Harleysville National Corporations TARP application was unlikely to be
approved, the board of directors also authorized the withdrawal of Harleysville National
Corporations TARP application.
Harleysville National Corporation retained Paul, Hastings, Janofsky & Walker LLP
(PHJW) as regulatory counsel to assist Harleysville National Corporation with regulatory
matters. Throughout May, Harleysville National Corporations management continued to
discuss with the OCC the appropriate capital ratios for the bank.
In a letter dated May 28, 2009, the OCC notified Harleysville National Bank that it
had established IMCRs requiring Harleysville National Bank to have a Tier 1 leverage ratio
of at least eight percent (8%) of adjusted total assets, a Tier 1 risk-based capital ratio
of at least ten percent (10%) and a total risk-based capital ratio of at least twelve
percent (12%), each of which exceeded the well-capitalized ratios generally applicable to
banks under then-current regulations, and to achieve the IMCRs by June 30, 2009.
Furthermore, at a meeting at the OCCs Northeast District Office on June 4, 2009,
Harleysville National Bank was again informed by the OCC that Harleysville National Bank
may receive a formal enforcement action upon completion of the ongoing OCC examination of
Harleysville National Bank, which would address, among other things, any failure by
Harleysville National Bank to comply with the IMCRs by June 30, 2009. On June 8, 2009,
Harleysville National Corporation publicly-announced strategic initiatives designed to
strengthen the capital base and position of the bank in light of the challenging economic
environment and regulatory actions. These initiatives included raising additional capital,
executing potential asset sales, repositioning Harleysville National Corporations balance
sheet and restructuring funding sources.
43
Beginning in May 2009, senior management of Harleysville National Corporation
instructed JPMorgan to contact private-equity investors regarding a possible transaction
designed to improve Harleysville National Corporations capital position. JPMorgan
contacted 16 potential private-equity investors and during May and June 2009, 11 of the 16
private equity investors expressed initial interest in an investment in Harleysville
National Corporation and entered into confidentiality agreements. Harleysville National
Corporations management made presentations to nine of these 11 private equity investors.
Thereafter, Harleysville National Corporation received four indications of interest from
private equity investors. In June 2009, representatives of JPMorgan discussed each of
these indications of interest with the Harleysville National Corporation board of
directors.
Harleysville National Bank was unable to satisfy with the IMCRs by June 30, 2009 and
continued to operate thereafter at capital levels below the mandated IMCRs. Harleysville
National Bank continued to report to the OCC, on a bi-weekly basis, and to engage in
discussions with the OCC regarding Harleysville National Banks financial condition and
efforts to raise capital. Harleysville National Corporation management was becoming
increasingly concerned about the potential impact of future regulatory action, Harleysville
National Banks failure to achieve the OCC-mandated IMCRs and future negative developments
in Harleysville National Corporations operations, any of which would have a severe and
adverse effect on Harleysville National Corporation.
On June 26, 2009, John R. Koelmel, the President and Chief Executive Officer of First
Niagara, asked to have a phone conversation with Paul D. Geraghty, President and Chief
Executive Officer of Harleysville National Corporation, about a potential combination of
the companies. During a conversation on June 28, 2009, Mr. Koelmel did
not mention, and Messrs. Koelmel and Geraghty did not discuss, any firm offer from
First Niagara to acquire or merge with Harleysville National Corporation. On June 29,
2009, during an executive session, the board of directors of Harleysville National
Corporation reiterated its desire to pursue a capital infusion transaction from private
equity sources, but authorized Mr. Geraghty to meet with Mr. Koelmel to discuss a potential
transaction in greater detail. Messrs. Geraghty and Koelmel subsequently met on July 1,
2009 to discuss the opportunity to partner and to share preliminary information regarding a
potential acquisition of Harleysville National Corporation by First Niagara.
On July 2, 2009, Harleysville National Corporation retained Dechert LLP as
special counsel to assist Harleysville National Corporation in a transaction to
satisfy the IMCRs.
On July 2, 2009, the company received a draft term sheet from three of the private
equity investors that had previously provided separate indications of interest
(collectively, Investor X). The term sheet provided by Investor X included, among other
terms, a termination fee which Harleysville National Corporations management and legal
and financial advisors believed to be excessive. In subsequent discussions and
correspondence, Investor X indicated that it would not participate in an auction process in
connection with Harleysville National Corporations solicitation of potential equity
investments and Investor X sought to limit the ability of Harleysville National
Corporations board of directors to evaluate competing proposals after a firm bid date
mandated by Investor X. On July 10, 2009, Investor X withdrew its proposal citing Investor
Xs refusal to participate in an auction process and Harleysville National Corporations
failure to sign a term sheet from Investor X, which proposed terms and conditions that
would have limited and dictated the manner in which Harleysville National Corporation could
run a bidding process.
44
On July 13, 2009, the Federal Home Loan Bank informed Harleysville National Bank that
it required dollar-for-dollar collateral to secure Harleysville National Banks
borrowings. In light of this request for collateral, and because other counterparties to
loan agreements with Harleysville National Corporation and Harleysville National Bank also
had the right to require collateral from the company to secure their loans, Harleysville
National Corporations management and board of directors became increasingly concerned
about Harleysville National Banks liquidity position. In addition, given the relatively
concentrated geographic location of Harleysville National Banks depositor base,
management and the board of directors of Harleysville National Corporation were acutely
aware of the negative impact adverse publicity about the banks liquidity and credit
positions could have on its total deposits.
Of the two remaining private equity investors who had provided written indications of
interest, both performed on-site due diligence at the companys headquarters in
Harleysville, Pennsylvania. One investor (Investor Y) performed substantial due
diligence during the weeks of July 6 and July 13, 2009. On July 20, 2009, after completing
due diligence, Investor Y informed Harleysville National Corporation that it was no longer
interested in providing capital to Harleysville National Corporation primarily because it
had concluded that Harleysville National Corporations operating infrastructure was
insufficient to serve as a platform for Investor Ys expansion plans.
On July 15, 2009 members of the First Niagara senior management team, including Mr.
Koelmel, met with members of Harleysville National Corporations senior management,
including Mr. Geraghty, at a Harleysville National Corporation
facility to discuss information regarding the companies and a potential transaction.
On July 15, 2009, Harleysville National Bank received written notice from the OCC
that it was deemed to be in troubled condition. Throughout much of July, Harleysville
National Corporations management had frequent conversations with officials from the OCC
about Harleysville National Banks financial condition and regulatory status.
The third private equity investor who had provided an indication of interest
(Investor Z) performed due diligence on site at the company during the week of July 20,
2009. In addition, Harleysville National Corporations management met with Investor Z on
several occasions and certain members of Harleysville National Corporations board of
directors met with Investor Z. As Harleysville National Corporation management evaluated a
potential transaction with Investor Z, Harleysville National Corporations regulatory
counsel expressed concerns over Investor Zs ability to obtain the regulatory approvals on
a timely basis required for Investor Z to make a significant equity investment in
Harleysville National Corporation.
Additionally, Harleysville National Corporations management and board of directors seriously
questioned Investor Zs ability to close a transaction with Harleysville National Corporation
because Investor Z was not a well-known financial institution with a track record of completing
capital infusion transactions with banks. Moreover, Investor Zs failure to present a firm offer
for a transaction with Harleysville National Corporation and the extreme negativity expressed by
Investor Z about Harleysville National Banks credit portfolio, investment portfolio and operating
platform as Investor Z completed its due diligence led management and the board of directors of
Harleysville National Corporation to believe that there was no assurance Investor Z would even
submit a firm offer for a transaction. Investor Z had also previously indicated that it would be
willing to pay an implied per share price which was less than the then-current trading price of
Harleysville National Corporation stock and that it would seek to own a majority of the stock on a
post-transaction basis.
45
In a letter dated July 20, 2009, Visa, provider of Harleysville National Banks check
cards, indicated that it would demand collateral for outstanding transaction volume.
Harleysville National Corporation management grew increasingly concerned that future
regulatory actions or the passage of time and future Harleysville National Corporation
public announcements without a capital infusion satisfying the IMCRs could cause other
counterparties to require collateral or otherwise take actions that would constrain
Harleysville National Banks liquidity.
As a result of Harleysville National Corporations continued need for capital to
satisfy the mandated IMCRs, the decreasing likelihood that necessary capital could be
obtained through a private equity transaction on attractive terms on a timely basis and the
interest expressed by First Niagara, in July Harleysville National Corporation entered into
a revised engagement letter with JPMorgan providing for expanded services in connection
with a potential sale of Harleysville National Corporation. On or about July 6, 2009,
senior management of Harleysville National Corporation instructed JPMorgan to begin
contacting financial institutions regarding a possible combination with Harleysville
National Corporation. Nine financial institutions were contacted, of which eight expressed
initial interest in a proposed combination. Ultimately, four of the nine financial
institutions withdrew their indications of interest and three financial institutions (in
addition to First Niagara) provided oral or written indications of interest pertaining to a
combination with Harleysville National Corporation prior to meetings with Harleysville
National Corporations management and without conducting extensive due diligence. Of
these three preliminary indications of interest, two stated a per share price that was
lower than that which was offered by First Niagara. The third proposal provided a range of
possible price per share, only 25% of which was above the price offered by First Niagara.
In analyzing this share price range, representatives of JPMorgan and senior management
advised the Harleysville National Corporation board of directors that, based upon past
experience, it was unlikely that this institution, which had done only limited due
diligence and had not accepted an offer from Harleysville National Corporation management
to hear a management presentation, would offer a per-share price at the higher part of the
range after the completion of financial due diligence on Harleysville National Corporation,
including a review of Harleysville National Corporations loan portfolio.
In light of the companys ongoing non-compliance with the IMCRs, a projected loss for
the second quarter of approximately $11 million, mounting credit losses and non-performing
assets and concerns regarding liquidity (including deposit outflows), Harleysville National
Corporations management believed that it was imperative that Harleysville National
Corporation announce a capital infusion or sale transaction prior to, or in connection
with, the announcement of Harleysville National Corporations second-quarter financial
results, which were scheduled to be announced on July 31, 2009. Management believed that
failure to enter into a transaction within that time-frame could substantially impair
Harleysville National Corporations ability to operate in the normal course and its ability
to enter into an equity infusion or merger transaction in the future as well as have a
significant adverse impact on Harleysville National Corporations liquidity, deposit base
and stock price.
Moreover, management believed that expeditiously entering into a
transaction was necessary to avoid further and more severe regulatory action against
Harleysville National Bank by the OCC and the consequences of such actions on Harleysville
National Corporation and its shareholders
.
First Niagara performed on-site due diligence at Harleysville National Corporation
headquarters during the beginning of the week of July 20, 2009 and Mr. Koelmel met with Mr.
Geraghty and certain of Harleysville National Corporations independent directors on the
evening of July 21, 2009.
46
On the evening of Wednesday, July 22, 2009 First Niagara provided Harleysville
National Corporation with a written indication of interest at a price per share of $5.50 in
a stock-for-stock transaction with a fixed exchange ratio to be set prior to the signing of
definitive documentation. The board of directors of Harleysville National Corporation and
Harleysville National Bank met in joint session on the morning of July 23, 2009, at a
regularly scheduled meeting attended by representatives of JPMorgan, Dechert LLP and PHJW.
The board engaged in extensive discussion of Investor Z and the various potential financial
institution acquirers. Members of the companys management and board of directors voiced
concerns over a transaction with Investor Z because of the relatively low price implied by
Investor Zs preliminary indications as well as Investor Zs proposal that it obtain a
majority of the companys stock on a post-transaction basis. Also, the companys
management underscored that there was no assurance that Investor Z would put forth a firm
offer and that any transaction with Investor Z would be accompanied by relatively high
levels of execution risk because of the uncertainty surrounding the receipt of required
regulatory approvals and Investor Zs unproven track record in completing similar
transactions. The board considered managements concerns
over the adverse effects that the second quarter earnings release and the inability to
enter into a transaction or otherwise satisfy the IMCRs by the end of July could have on
the companys liquidity, deposit base, stock price and its ability to enter into such a
transaction in the future. The board also engaged in extensive discussion of the
possibility and consequences of further regulatory action by the OCC on Harleysville
National Corporation and Harleysville National Corporations shareholders. The board of
directors directed JPMorgan and management to continue diligently cultivating any other
possible offers.
Along with its written offer, First Niagara also provided a draft of the proposed
merger agreement which the board discussed at its July 23
rd
meeting. The proposed merger
agreement contained a mechanism that would adjust the exchange ratio downward based upon
the amount of delinquent loans (as defined by, and calculated pursuant to, the draft merger
agreement) Harleysville National Corporation had prior to the closing date (the Price
Adjustment Mechanism). At this meeting, representatives of JPMorgan also presented a
brief overview of First Niagara, including with respect to its recent financial and stock
performance, its current branch locations, recent analyst recommendations, its senior
management and recent merger and acquisition activity.
After discussions about the draft terms with representatives of JPMorgan, Dechert LLP
and PHJW, the board instructed Harleysville National Corporation management and advisors to
(i) pursue negotiations with First Niagara to increase the per share purchase price, reduce
the termination fee proposed by First Niagara, eliminate or modify the Price Adjustment
Mechanism and increase the likelihood that the transaction would be consummated; (ii)
conduct due diligence on First Niagara in light of the fact that Harleysville National
Corporation shareholders would receive First Niagara stock in the proposed transaction,
focusing on First Niagaras ability to integrate multiple transactions (considering First
Niagaras then-pending acquisition of branches from PNC) as well as the combined capital
base of Harleysville National Corporation and First Niagara; and (iii) continue to pursue
aggressively other available alternative transactions or potential acquirers. In light of
the boards instructions, Harleysville National Corporation management, Dechert LLP, PHJW
and First Niagara, along with its legal counsel Luse Gorman Pomerenk & Schick, P.C.,
negotiated the merger agreement from July 23
rd
through July 27
th
.
On July 25, 2009, members of Harleysville National Corporations management team
traveled to Lockport, New York to meet with representatives of First Niagara. During
this meeting, members of Harleysville National Corporations management team and
Harleysville National Corporations legal counsel and representatives of JPMorgan
(participating via
47
teleconference) attended business and legal due diligence meetings with management of First
Niagara. Over the course of this due diligence trip, Harleysville National Corporations
management team satisfied itself that First Niagara could effectively integrate multiple
acquisitions and that the combined capital base of First Niagara and Harleysville National
Corporation would benefit Harleysville National Corporations shareholders, depositor and customer
base, and other constituencies. Additionally, Harleysville National Corporations management noted
that First Niagara had access to $150 million in additional capital as a result of the impending
consummation of its branch acquisition transaction with PNC.
On July 26, 2009, the board of directors of First Niagara held a special meeting for the
purpose of approving the proposed merger. The board of directors of First Niagara unanimously
approved the merger transaction.
Late in the afternoon of July 26, 2009, Dechert LLP advised Harleysville National Corporation
management that it believed negotiations with First Niagara and its advisors over the draft merger
agreement were substantially complete. Accordingly, on the evening of July 26, 2009 the board of
directors of Harleysville National Corporation reconvened. Representatives of JPMorgan provided
the board with a review of the results to date of the search for a private equity investor or a
strategic acquirer. Representatives of JPMorgan then reviewed with the Harleysville National
Corporation board the financial terms of the First Niagara proposal, including the implied
transaction value, form of consideration and the Price Adjustment Mechanism. Representatives of
Dechert LLP then discussed with Harleysville National Corporations board of directors their legal
duties in connection with consideration of a possible strategic transaction and presented an
in-depth review of the legal terms of the merger agreement. During this discussion,
representatives from Dechert LLP explained that in accordance with the boards instructions,
management and its advisors negotiated for, but did not receive, an increase in the per-share
purchase price offered by First Niagara. However, First Niagara did agree to reduce the economic
impact of the Price Adjustment Mechanism by modifying the purchase price adjustments triggered by
various levels of delinquent loans and by increasing the threshold providing a First Niagara
termination right from $300 million to $350 million of delinquent loans and that First Niagara also
agreed to other modifications that lessened the risk that the closing conditions to the merger
would not be satisfied.
Representatives of JPMorgan then made a presentation which included discussion of the matters
described under Fairness Opinion of Harleysville National Corporations Financial Advisor,
including but not limited to an extensive review of the implied per-share valuation range of
Harleysville National Corporations common stock. At the conclusion of the presentation, JPMorgan
delivered to Harleysville National Corporations board of directors its oral opinion, subsequently
confirmed in writing, that based upon and subject to the factors and assumptions stated in that
opinion, as of such date, the exchange ratio of 0.474 shares of First Niagara stock to be received
in respect of each share of Harleysville National Corporation common stock in the transaction was
fair to Harleysville National Corporation common shareholders from a financial point of view. The
JPMorgan representatives noted that the fairness opinion assumed that the final exchange ratio
would be the initial 0.474 exchange ratio and that the level of delinquent loans would not result
in any adjustment to that ratio. The board of directors of Harleysville National Corporation and
counsel then reviewed and discussed JPMorgans fairness opinion, including the fact that the
fairness opinion would not address any exchange ratio that may result if the Price Adjustment
Mechanism were implicated. Following these discussions and extensive review and discussion among
Harleysville National Corporations directors, including consideration of the implied per-share
valuations presented by JPMorgan and the other factors described under Reasons for the Merger;
Recommendation of Harleysville
48
National Corporations Board of Directors and consideration of JPMorgan and Dechert LLPs
presentations, Harleysville National Corporations board of directors unanimously approved the
merger agreement and the transactions contemplated thereby and authorized Harleysville National
Corporations officers to negotiate the final form of the agreement.
During the early morning of July 27, 2009, representatives of Harleysville National
Corporation and First Niagara management and outside legal advisors worked to finalize the merger
agreement and related documents. Thereafter, the parties executed the merger agreement. The
transaction was announced prior to the opening of the financial markets in New York City on July
27, 2009.
Subsequent to the signing of the merger agreement, in communications with Harleysville
National Corporations management and directors the OCC reiterated that Harleysville National Bank
should continue to seek to raise capital in light of the IMCRs. Due to certain restrictions
imposed by the merger agreement on Harleysville National Corporation and its subsidiaries ability
to raise additional capital, Harleysville National Corporation was generally prohibited from
seeking capital from sources other than First Niagara. Harleysville National Corporation and First
Niagara and their respective counsel discussed various potential transactions between Harleysville
National Corporation and First Niagara designed to alleviate any continuing regulatory pressure on
Harleysville National Bank. Ultimately, the parties agreed to a loan transaction whereby First
Niagara would initially loan $35 million to Harleysville National Corporation that would be
downstreamed to Harleysville National Bank as additional capital and would commit to lend an
additional $15 million if necessary to maintain the capital ratios of Harleysville National Bank at
levels at least equal to those of a Well Capitalized bank under applicable regulatory standards.
Based upon the analysis of the parties and their respective advisors, this loan transaction,
coupled with the sale of various assets from Harleysville National Bank to First Niagara Bank,
would increase Harleysville National Banks capital ratios to ratios consistent with those of a
well capitalized bank, though still below the IMCRs. When approached by Harleysville National
Corporation and First Niagara prior to the consummation of these proposed transactions,
representatives of the OCC expressed their support. On December 4, 2009, the $35 million loan
from First Niagara to Harleysville National Corporation closed in accordance with its terms, and
the stock of Harleysville National Bank was pledged to First Niagara. Also on such date, and based
on the foregoing, the OCC extended the deadline for compliance with the previously announced IMCRs
from June 30, 2009 to March 31, 2010. The extension for compliance is conditioned upon
Harleysville National Bank achieving and maintaining capital ratios at least equal to those of a
well-capitalized bank under applicable regulations and its continuing progress in addressing
certain concerns raised by the OCC in its most recent examination of Harleysville National Bank.
Recommendation of the Harleysville National Corporation Board of Directors and Reasons for the
Merger
After careful consideration, Harleysville National Corporations board of directors determined
that the merger agreement and the transactions contemplated by the merger agreement were advisable
and in the best interests of Harleysville National Corporation and its shareholders and approved
the merger agreement and the transactions contemplated by the merger agreement, including the
merger. Accordingly, Harleysville National Corporations board recommends that Harleysville
National Corporation shareholders vote FOR adoption of the merger agreement at the Harleysville
National Corporation special meeting.
49
In reaching its decision, the board of directors, with advice from its financial and legal
advisors, considered a number of factors, including the following:
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The implied value of the merger consideration as of July 26, 2009 of $5.50 for each
share of Harleysville National Corporation stock represented a 37.5% premium over the
closing price of $4.00 on July 24, 2009, the last trading day before Harleysville
National Corporation and First Niagara announced the signing of the merger agreement and
the transactions contemplated thereby.
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The limited strategic alternatives available to Harleysville National Corporation,
notwithstanding the exhaustive search and evaluation of alternatives conducted by
Harleysville National Corporation management with the assistance of its legal and
financial advisors.
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The execution of the voting agreements, through which each of the members of the
board of directors of Harleysville National Corporation agreed to vote in favor of the
adoption and approval of the merger agreement and the merger.
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The unavailability of firm and attractive offers for private capital infusions into
Harleysville National Corporation, the expected timing of any private capital infusions,
the likelihood that a private capital infusion transaction would not be a long-term
solution to Harleysville National Corporations financial and regulatory problems, the
anticipated substantial ownership dilution to current shareholders that would likely
result from a private capital infusion and the fact that the proposed merger
consideration represented superior value to current shareholders compared to potential
private capital infusion transactions.
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The assessment of Harleysville National Corporations management, advisors and board
of directors that Harleysville National Corporation would be unlikely to receive TARP
funding.
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The concern about the effect releasing earnings for the second quarter of 2009
(which would show a net operating loss as well as significantly increased loan losses
and non-performing assets) without having met the individual minimum capital ratios
(the IMCRs) established by the OCC would have on Harleysville National Corporation.
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The significant amount of time that had passed since Harleysville National Bank
had failed to meet the IMCRs.
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The likelihood of regulatory action in the absence of a transaction and the negative
consequences of such action to Harleysville National Corporations shareholders and
other constituencies.
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Harleysville National Corporations and First Niagaras respective businesses,
operations, financial conditions, asset quality, earnings and prospects. In reviewing
these factors, Harleysville National Corporations board concluded that First Niagaras
earnings and prospects should result in the combined company having superior future
earnings and prospects compared to Harleysville National Corporations earnings and
prospects on a stand-alone basis.
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The current and prospective environment in which Harleysville National Corporation
operates, which reflects challenging and uncertain banking industry conditions and risks
that were likely to persist, including the volatile valuations of certain financial
assets and exposures and generally uncertain economic conditions. The board also
considered the effect these factors could have on Harleysville National Corporations
liquidity position and funding capabilities, as well as potential deposit outflows.
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50
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The current condition of financial markets and historical market prices and volatility
with respect to Harleysville National Corporations common stock, including the
possibility that if Harleysville National Corporation remained a stand-along public
company, in the event of a decline in the market price of Harleysville National
Corporations common stock or the stock market in general, the price that might be
received by Harleysville National Corporations shareholders in the open market or in a
future transaction might be less than the merger consideration.
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The fact that the receipt of shares of First Niagara common stock by holders of
Harleysville National Corporation common stock will not be taxable.
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The fact that shareholders of Harleysville National Corporation would be able to
participate in future dividends, if any, declared and paid by First Niagara.
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The fact that the merger agreement is not subject to approval by First Niagaras
shareholders which lessens the risk of the merger not being consummated.
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The ability of Harleysville National Corporation to specifically enforce the terms of
the merger agreement.
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The impact on shareholders, depositors, employees and other constituencies if a
depository institution experiences a loss of liquidity that leads to an FDIC
receivership.
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The reputation, business practices and experience of First Niagara and its management.
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That Harleysville National Corporation shareholders will receive shares of First
Niagara common stock in the merger, which would allow Harleysville National Corporation
shareholders to participate in a portion of the future performance of the combined
Harleysville National Corporation and First Niagara businesses and synergies resulting
from the merger, and the value to Harleysville National Corporations shareholders
represented by that consideration. The board of directors also considered the adequacy
of the merger consideration, not only in relation to the current market price of
Harleysville National Corporations common stock, but also in relation to the historical,
present and anticipated future operating results and financial position of Harleysville
National Corporation.
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The likelihood that Harleysville National Corporation and First Niagara would receive
the necessary regulatory approvals to complete the transactions contemplated in the
merger agreement, including the merger in a timely fashion, and the possibility that
other potential partners would have difficulty obtaining necessary approvals.
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The significant deposit outflows experienced by Harleysville National Corporation
during the second quarter of 2009, as well as the net loss from operations of $8.0
million, excluding the non-cash goodwill charge of $214.5 million, experienced by
Harleysville National Corporation in the second quarter of 2009.
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First Niagaras ability to negotiate and execute a definitive agreement on an
expedited basis and risks associated with Harleysville National Corporation continuing to
operate without complying with the IMCRs mandated by the OCC.
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That Harleysville National Corporation has the right to terminate the merger agreement
if, subject to First Niagaras ability to increase the merger consideration, the average
of the daily closing sales prices of a share of First Niagara common stock for the five
consecutive trading days preceding the date on which all required regulatory approvals
required for the merger have been obtained or waived is less than $9.28 per share and
certain other per share valuation metrics described in the merger agreement are met.
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The likelihood and anticipated time of completion of the merger.
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51
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The arms-length negotiations resulting in the merger agreement.
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The opinion, analyses and presentations of JPMorgan, including the oral opinion of
JPMorgan (which subsequently was confirmed in writing), that the exchange ratio was fair,
from a financial point of view to Harleysville National Corporation common shareholders,
as well as the implied range of values of Harleysville National Corporation common stock
presented by JPMorgan to the board of directors, as described above.
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In addition, Harleysville National Corporations board of directors also recognized the
following in connection with its decision to adopt the merger agreement:
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The fact that the consideration received by Harleysville National Corporations
shareholders could be adjusted downward pursuant to the terms of the merger agreement
prior to the closing of the merger in the event delinquent loans (as defined by and
calculated in the merger agreement) equal or exceed $237.5 million, and First Niagara
has the right to terminate the merger agreement if delinquent loans equal or exceed
$350.0 million as of any month end prior to the closing date of the merger (excluding
any month end subsequent to February 28, 2010).
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The fact that the merger agreement obligates Harleysville National Corporation to
pay to First Niagara a termination fee of $10.0 million if Harleysville National
Corporation terminates the merger agreement to accept a superior proposal, which may
deter others from proposing an alternative transaction that may be more advantageous
to Harleysville National Corporations shareholders.
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That certain provisions of the merger agreement limit Harleysville National
Corporations ability to solicit (as opposed to respond to) proposals for alternative
transactions.
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The circumstances under which First Niagara has the right to terminate the merger
agreement.
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That pursuant to the merger agreement, Harleysville National Corporation must
generally conduct its business in the ordinary course and Harleysville National
Corporation is subject to a variety of other restrictions on the conduct of its
business prior to the completion of the merger or termination of the merger
agreement.
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The fact that Harleysville National Corporation will cease to exist as
an independent, publicly traded company.
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The risk that potential benefits and synergies sought in the merger may not be
realized or may not be realized within the expected time period, and the risks
associated with the integration of Harleysville National Corporation and First
Niagara.
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The fact that because the stock consideration in the merger is a fixed exchange ratio
of shares of First Niagara common stock to Harleysville National Corporation common
stock, Harleysville National Corporation shareholders could be adversely affected by a
decrease in the trading price of First Niagara common stock during the pendency of the
merger.
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The potential for diversion of management and employee attention, and for employee
attrition, during the period prior to the completion of the merger and the potential
effect on Harleysville National Corporations business and relations with customers,
service providers and other stakeholders, whether or not the merger is consummated.
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The risks described in the section entitled Risk Factors beginning on page 20.
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52
Harleysville National Corporations board concluded that the anticipated benefits of
the merger would outweigh the preceding considerations.
The reasons set forth above are not intended to be exhaustive, but include material
facts considered by the board of directors in approving the merger agreement. Although each
member of Harleysville National Corporations board individually considered these and other
factors, the board did not collectively assign any specific or relative weights to the
factors considered and did not make any determination with respect to any individual
factor. The board collectively made its determination with respect to the merger based on
the conclusion reached by its members, in light of the factors that each of them considered
appropriate, that the merger is in the best interests of Harleysville National Corporation
and its shareholders.
Harleysville National Corporations board of directors realized there can be no
assurance about future results, including results expected or considered in the factors
listed above. However, the board concluded the potential positive factors outweighed the
potential risks of completing the merger.
During its consideration of the merger described above, Harleysville National
Corporations board of directors was also aware that some of its directors and executive officers
may have interests in the merger that are different from or in addition to those of its
shareholders generally, as described under The MergerInterests of Certain Harleysville National
Corporation Directors and Officers in the Merger.
Fairness Opinion of Harleysville National Corporations Financial Advisor
At the meeting of the board of directors of Harleysville National Corporation on July
26, 2009, JPMorgan rendered its oral opinion to the board of directors of Harleysville
National Corporation that, as of such date and based upon and subject to the factors and
assumptions set forth in its written opinion, the exchange ratio in the proposed merger was
fair, from a financial point of view, to Harleysville National Corporations common
shareholders. JPMorgans opinion assumed, with Harleysville National Corporations
consent, that the exchange ratio will be 0.474, and that the level of HNC Delinquent Loans
(as defined in the merger agreement) will not result in any adjustment thereto. The
issuance of JPMorgans opinion was approved by a fairness committee of JPMorgan.
The full text of the subsequently delivered written opinion of JPMorgan dated July 26,
2009, which sets forth the assumptions made, matters considered and limits on the review
undertaken, is attached as Appendix B to this document and is incorporated herein by
reference. Harleysville National Corporations shareholders are urged to read the opinion
in its entirety. JPMorgans written opinion is addressed to the board of directors of
Harleysville National Corporation, is directed only to the exchange ratio in the merger and
does not constitute a recommendation as to how any holder of Harleysville National
Corporation common stock should vote with respect to the merger or any other matter. The
summary of the opinion of JPMorgan set forth in this document is qualified in its entirety
by reference to the full text of such opinion.
In arriving at its opinion and performing its related financial analyses, JPMorgan,
among other things:
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reviewed the merger agreement;
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53
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reviewed and discussed with Harleysville National Corporation and First Niagara
certain publicly available business and financial information concerning Harleysville
National Corporation and First Niagara and the industries in which they operate;
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reviewed and discussed with Harleysville National Corporation and First Niagara
matters relating to their respective liquidity, leverage and capital adequacy;
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compared the proposed financial terms of the merger with the publicly available
financial terms of certain transactions involving companies JPMorgan deemed relevant;
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compared the financial and operating performance of Harleysville National
Corporation and First Niagara with publicly available information concerning certain
other companies JPMorgan deemed relevant and reviewed the current and historical
market prices of Harleysville National Corporation common stock and First Niagara
common stock and certain publicly traded securities of such other companies;
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reviewed and discussed with Harleysville National Corporation certain internal
financial analyses and forecasts prepared by the management of Harleysville National
Corporation relating to its business;
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reviewed and discussed with First Niagara the estimated amount and timing of cost
savings and related expenses expected to result from the merger, which JP Morgan
refers to as synergies;
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reviewed certain publicly available research analyst reports for First Niagara; and
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performed such other financial studies and analyses and considered such other
information as JPMorgan deemed appropriate for the purposes of its opinion.
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JPMorgan also held discussions with certain members of the management of Harleysville
National Corporation and First Niagara with respect to certain aspects of the merger, and
the past and current business operations of Harleysville National Corporation and First
Niagara, the financial condition and future prospects and operations of Harleysville
National Corporation and First Niagara, the effects of the merger (including the synergies)
on the financial condition and future prospects of Harleysville National Corporation and
First Niagara and certain other matters JPMorgan believed necessary or appropriate to its
inquiry.
JPMorgan relied upon and assumed, without assuming responsibility or liability for
independent verification, the accuracy and completeness of all information that was
publicly available or was furnished to or discussed with JPMorgan by Harleysville National
Corporation and First Niagara or otherwise reviewed by or for JPMorgan and JPMorgan did not
independently verify any such information or its accuracy or completeness. JPMorgan did
not review individual credit files of Harleysville National Corporation or First Niagara,
and did not conduct or was not provided with any valuation or appraisal of any assets or
liabilities (including any derivative or off-balance sheet liabilities) of Harleysville
National Corporation or First Niagara, nor did JPMorgan evaluate the solvency of
Harleysville National Corporation or First Niagara under any state or federal laws relating
to bankruptcy, insolvency or similar matters. JPMorgan is not an expert in the evaluation
of loan and lease portfolios for purposes of assessing the adequacy of the allowances for
losses with respect thereto and, accordingly, JPMorgan did not make an
54
independent evaluation of the adequacy of the allowance for loan losses of Harleysville National
Corporation or First Niagara and JPMorgan assumed, with Harleysville National Corporations
consent, that the respective allowances for loan losses for both Harleysville National Corporation
and First Niagara, respectively, are adequate to cover such losses and will be adequate on a pro
forma basis for the combined entity. In relying on financial analyses and forecasts provided to it
by Harleysville National Corporation or derived therefrom, JPMorgan assumed that they had been
reasonably prepared based on assumptions reflecting the best currently available estimates and
judgments by management as to the expected future results of operations and financial condition of
Harleysville National Corporation to which such analyses or forecasts relate. The management of
First Niagara did not make available to JPMorgan its forecasts of the future financial performance
of First Niagara. With Harleysville National Corporations consent, JPMorgans review of First
Niagara was limited to publicly-available information and a discussion with the management of First
Niagara regarding the past and current business operations, financial condition and future
prospects of First Niagara, which included a discussion of publicly-available estimates issued by
certain research analysts with respect to First Niagara. JPMorgan also assumed, at Harleysville
National Corporations direction and with its consent, that the synergies and the First Niagara
consensus earnings estimates used in JPMorgans analyses will be realized in the amounts and at the
times contemplated thereby. JPMorgan expressed no view as to any analyses, forecasts, estimates or
synergies referred to above, or the assumptions on which they were based. JPMorgan also assumed
that the merger and the other transactions contemplated by the merger agreement will qualify as a
tax-free reorganization for United States federal income tax purposes and will be consummated as
described in the merger agreement. JPMorgan also assumed that the representations and warranties
made by Harleysville National Corporation and First Niagara in the merger agreement and the related
agreements were and will be true and correct in all respects material to its analysis and that the
covenants and agreements contained therein will be performed in all respects material to its
analysis. JPMorgan is not a legal, regulatory or tax expert and has relied on the assessments made
by advisors to Harleysville National Corporation with respect to such issues. JPMorgan has further
assumed that all material governmental, regulatory or other consents and approvals necessary for
the consummation of the merger will be obtained without any adverse effect on Harleysville National
Corporation or First Niagara or on the contemplated benefits of the merger.
JPMorgans opinion was based on economic, market and other conditions as in effect on,
and the information made available to JPMorgan as of, the date of its opinion. It should
be understood that subsequent developments may affect JPMorgans opinion, and JPMorgan does
not have any obligation to update, revise, or reaffirm such opinion. JPMorgans opinion is
limited to the fairness, from a financial point of view, to the holders of Harleysville
National Corporation common stock of the exchange ratio in the proposed merger, and
JPMorgan has expressed no opinion as to the fairness of the merger to, or any consideration
to be paid to, the holders of any other class of securities, creditors or other
constituencies of Harleysville National Corporation or as to the underlying decision by
Harleysville National Corporation to engage in the merger. Furthermore, JPMorgan expressed
no opinion with respect to the amount or nature of any compensation to any officers,
directors, or employees of any party to the merger, or any class of such persons relative
to the exchange ratio applicable to the holders of Harleysville National Corporation common
stock in the merger or with respect to the fairness of any such compensation. JPMorgan
expressed no opinion as to the price at which Harleysville National Corporation common
stock or First Niagara common stock will trade at any future time.
In accordance with customary investment banking practice, JPMorgan employed generally accepted
valuation methods in reaching its opinion. The following is a summary of the material financial
analyses utilized by JPMorgan in connection with providing its opinion. The
55
following summary, however, does not purport to be a complete description of the financial analyses
performed by JPMorgan, nor does the order of analyses described represent relative importance or
weight given to those analyses by JPMorgan. Some of the summaries of the financial analyses
include information presented in tabular format. The tables must be read together with the full
text of each summary. The tables along do not constitute a complete description of JPMorgans
financial analyses, including the methodologies and assumptions underlying the analyses, and if
viewed in isolation could create a misleading or incomplete view of the financial analyses
performed by JPMorgan.
The projections furnished to JPMorgan for Harleysville National Corporation and used in
JPMorgans financial analyses were prepared by the management of Harleysville National Corporation.
Harleysville National Corporation does not publicly disclose internal management projections of
the type provided to JPMorgan in connection with JPMorgans analysis of the merger, and such
projections were not prepared with a view toward public disclosure. These projections were based
on numerous variables and assumptions that are inherently uncertain and may be beyond the control
of management, including, without limitation, factors related to general economic and competitive
conditions and prevailing interest rates as well as the challenges and risks facing Harleysville
National Corporation discussed below under Situation Overview. Accordingly, actual results could
vary significantly from those set forth in such projections.
Situation Overview
. Harleysville National Corporations management discussed with JPMorgan
numerous interrelated challenges facing Harleysville National Corporation as of July 26, 2009 and
advised JPMorgan that Harleysville National Corporation had been negatively affected in a
significant manner by, and continued to have considerable exposure to, risks related to its recent
financial performance and credit issues, including the impact thereof on capital and liquidity.
The challenges that Harleysville National Corporations management discussed with JPMorgan
included, among others, the previously announced action by the OCC requiring Harleysville National
Corporations bank subsidiary to meet certain enhanced individual minimum capital ratios by June
30, 2009, Harleysville National Corporations inability to successfully complete, and its limited
prospects to complete in the near term, its previously announced strategic initiative to raise
capital to protect against future losses, and that Harleysville National Corporation had been
facing significant liquidity pressures in recent months including requirements by certain business
counterparties and liquidity providers that Harleysville National Corporation provide collateral or
additional collateral to support its obligations to such counterparties and liquidity providers.
Harleysville National Corporations management also advised JPMorgan of its belief that the failure
to quickly take action to resolve these capital and liquidity pressures could substantially impair
Harleysville National Corporations ability to operate in the normal course and could also lead to
further and more severe regulatory actions that could materially adversely impact Harleysville
National Corporation. JPMorgan performed its financial analyses with a view towards these
challenges and the several risks facing Harleysville National Corporation, as well as managements
concern that these adverse events could continue and worsen.
Implied Value
. Based upon an assumed exchange ratio of 0.474 and the $11.74 closing market
price of First Niagara common stock on July 24, 2009, JPMorgan calculated that the implied value of
the aggregate consideration was $5.56 per share of Harleysville National Corporation common stock.
This implied value represents approximately a 39% premium to the July 24, 2009 closing market price
of Harleysville National Corporation common stock of $4.00 and a 31% premium to the previous two
weeks (July 13, 2009 to July 24, 2009) volume weighted average price of Harleysville National
Corporation common stock. The implied offer
56
price also represented a multiple of 1.22x the price to tangible book value per share and a
core deposit premium of 1.3%.
Harleysville National Corporation Historical Trading Analysis
. In addition, JPMorgan
reviewed the share price trading history of Harleysville National Corporation common stock
for the one-year period beginning on July 24, 2008 and ending on July 24, 2009. During
this period, JPMorgan noted that Harleysville National Corporation common stock traded as
low as $3.61 and as high as $20.60, as compared to the closing price of Harleysville
National Corporation common stock on July 24, 2009 of $4.00.
Harleysville National Corporation Selected Companies Analysis.
Using publicly
available information, JPMorgan compared selected financial and market data of
Harleysville National Corporation with similar data for the following companies:
Selected Companies (primary peers shown in bold)
F.N.B. Corporation
First Commonwealth Financial Corp.
Fulton Financial Corp.
National Penn
Bancshares Inc.
S&T Bancorp Inc.
Sandy Spring Bancorp Inc.
Susquehanna Bancshares, Inc.
Wilmington Trust Corporation
JPMorgan calculated and compared various financial multiples and ratios based on
publicly available financial data as of June 30, 2009 (or March 31, 2009 if June 30
data was unavailable) and market data as of July 24, 2009. With respect to the
selected companies, the information JPMorgan presented included:
|
|
|
price as a percentage of the selected companys 52-week high;
|
|
|
|
|
multiple of price to I/B/E/S estimated earnings per share for 2009 and 2010;
and
|
|
|
|
|
multiple of price to stated book value and tangible book value per share.
|
Set forth below are observations that resulted from the comparison of the data related to the
selected companies described above:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Harleysville
|
|
|
|
|
|
|
National
|
|
All Selected Companies
|
|
Primary Peers
|
|
|
Corporation
|
|
Median
|
|
Low/High Range
|
|
Low/High Range
|
% of 52-week high
|
|
|
19.4
|
%
|
|
|
28.4
|
%
|
|
|
16.0% - 57.1
|
%
|
|
|
16.0% - 36.3
|
%
|
Price to 2009 EPS
|
|
|
10.1
|
x
|
|
|
19.8
|
x
|
|
|
13.0x - 44.3
|
x
|
|
|
18.4x - 30.9
|
x
|
Price to 2010 EPS
|
|
|
5.0
|
x
|
|
|
10.8
|
x
|
|
|
8.2x - 31.4
|
x
|
|
|
8.2x - 15.6
|
x
|
Price to Book Value
|
|
|
0.37
|
x
|
|
|
0.76
|
x
|
|
|
0.23x - 0.83
|
x
|
|
|
0.23x - 0.72
|
x
|
Price to Tangible Book Value
|
|
|
0.87
|
x
|
|
|
1.15
|
x
|
|
|
0.65x - 1.46
|
x
|
|
|
0.65x - 1.14
|
x
|
Selected Transaction Analysis.
Using publicly available information, JPMorgan
examined the following post-October 1, 2008 transactions involving a U.S. bank holding
company or thrift as a target company. Due to a lack of comparable transactions in
2009, all of the selected transactions were announced in 2008. The following is a list
of those specified transactions:
57
|
|
|
|
|
Announcement Date
|
|
Acquirer
|
|
Target
|
December 3, 2008
|
|
Capital One Financial Corp.
|
|
Chevy Chase Bank, F.S.B.
|
October 24, 2008
|
|
The PNC Financial Services Group, Inc.
|
|
National City Corporation
|
October 13, 2008
|
|
Banco Santander, S.A.
|
|
Sovereign Bancorp, Inc.
|
October 3, 2008
|
|
Wells Fargo & Company
|
|
Wachovia Corporation
|
For each of the selected transactions, JPMorgan examined:
|
|
|
the multiple of the implied transaction price to book value;
|
|
|
|
|
the multiple of the implied transaction price to tangible book
value;
|
|
|
|
|
the price as a multiple of managements projections of the current year earnings per share;
and
|
|
|
|
|
the premium to core deposits.
|
Set forth below are observations that resulted from the comparison of the data
related to the selected transactions described above:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Implied Valuation Per
|
|
|
Low/High Range
|
|
Median
|
|
Share
|
Price to Book Value
|
|
|
0.29x - 0.59x
|
|
|
|
0.37x
|
|
|
$
|
3.90
|
|
Price to Tangible Book Value
|
|
|
0.36x - 0.76x
|
|
|
|
0.61x
|
|
|
$
|
2.76
|
|
Price to Current Year EPS
(1)
|
|
|
5.2x - 5.2x
|
|
|
|
5.2x
|
|
|
NM
|
Core Deposit Premium (%)
|
|
NM
|
|
NM
|
|
NM
|
|
|
|
(1)
|
|
Data only available for one of the selected transactions
|
Harleysville National Corporation Stand Alone Dividend Discount Analysis
. JPMorgan
calculated a range of implied values for the Harleysville National Corporation common
stock implied by discounting to present values estimates of Harleysville National
Corporations future dividend stream and terminal value. In performing its analysis,
JPMorgan utilized the following assumptions, among others:
|
|
|
cash flow projections for 2009 to 2014 based on Harleysville National
Corporation managements estimates;
|
|
|
|
|
5% long-term earnings growth rate;
|
|
|
|
|
5% asset growth rate;
|
|
|
|
|
December 31, 2009 valuation date;
|
|
|
|
|
terminal value of Harleysville National Corporation common stock at the end of 2014
based on a price to earnings multiple range of 9.0x to 11.0x;
|
|
|
|
|
base case loss
estimates of $175 million;
|
|
|
|
|
discount rates from 12.0% to 14.0% to calculate the
present value of the dividend stream and terminal values;
|
|
|
|
|
target tangible common
equity to tangible asset ratio of 6%; and
|
|
|
|
|
35% tax rate.
|
58
These calculations resulted in a range of implied values of $2.65 to $4.92 per
share of Harleysville National Corporation common stock, as illustrated by the
following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Terminal Multiple
|
Discount Rate
|
|
9.0x
|
|
10.0x
|
|
11.0x
|
12.0%
|
|
$
|
3.69
|
|
|
$
|
4.30
|
|
|
$
|
4.92
|
|
14.0%
|
|
$
|
3.14
|
|
|
$
|
3.70
|
|
|
$
|
4.26
|
|
16.0%
|
|
$
|
2.65
|
|
|
$
|
3.16
|
|
|
$
|
3.67
|
|
JPMorgan also sensitized its analysis based on additional loan loss provisions of $0,
$50 million and $150 million beyond those included in the current Harleysville National
Corporation management projections. These calculations resulted in a range of implied
values of $2.14 to $4.30 per share of Harleysville National Corporation common stock, as
illustrated by the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount Rate
|
Additional Provisions
|
|
12.0%
|
|
14.0%
|
|
16.0%
|
$0
|
|
$4.30
|
|
$
|
3.70
|
|
|
$
|
3.16
|
|
$50
|
|
$3.80
|
|
$
|
3.20
|
|
|
$
|
2.65
|
|
$150
|
|
$3.29
|
|
$
|
2.69
|
|
|
$
|
2.14
|
|
First Niagara Financial Group, Inc. Historical Trading Analysis
. JPMorgan reviewed
the share price trading history of First Niagara common stock for the one-year period
beginning on July 24, 2008 and ending on July 24, 2009. During this period, JPMorgan
noted that First Niagara common stock traded as low as $9.48 and as high as $22.39, as
compared to the closing price of First Niagara common stock on July 24, 2009 of $11.74.
First Niagara Financial Group, Inc. Selected Companies Analysis.
Using publicly
available information, JPMorgan compared selected financial and market data of First
Niagara with similar data for the following companies:
Selected Companies
Community Bank System
Inc. F.N.B. Corporation
FirstMerit Corp.
NBT Bancorp, Inc.
New Alliance Bancshares Inc.
Peoples United Financial Inc.
Signature Bank
JPMorgan calculated and compared various financial multiples and ratios based on
publicly available financial data as of June 30, 2009 (or March 31, 2009 if June 30 data
was unavailable) and market data as of July 24, 2009. The financial data provided for
First Niagara is pro forma based on its pending previously announced acquisition of
certain National City branches. With respect to the selected companies, the information
JPMorgan presented included:
|
|
|
price as a percentage of the selected companys 52-week high;
|
|
|
|
|
multiple of price to I/B/E/S estimated earnings per share for 2009 and 2010;
and
|
|
|
|
|
multiple of price to stated book value and tangible book value per share.
|
Set forth below are observations that resulted from the comparison of the data
related to the selected companies described above:
59
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First Niagara
|
|
|
|
|
Financial Group,
|
|
Selected Companies
|
|
|
Inc.
|
|
Median
|
|
Low/High Range
|
% of 52-week high
|
|
|
52.4
|
%
|
|
|
59.7
|
%
|
|
|
31.4% - 72.4
|
%
|
Price to 2009 EPS
|
|
|
21.0
|
x
|
|
|
21.7
|
x
|
|
|
13.0x- 50.8
|
x
|
Price to 2010 EPS
|
|
|
13.8
|
x
|
|
|
16.2
|
x
|
|
|
10.7x - 40.4
|
x
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Price to Book Value
|
|
|
0.92
|
x
|
|
|
1.04
|
x
|
|
|
0.76x - 1.69
|
x
|
Price to Tangible Book Value
|
|
|
1.75
|
x
|
|
|
1.61
|
x
|
|
|
1.46x - 2.48
|
x
|
First Niagara Financial Group, Inc. Stand Alone Dividend Discount Analysis
. JPMorgan
calculated a range of implied values for First Niagara common stock implied by discounting
to present values equity research estimates for First Niagaras future dividend stream and
terminal value. In performing its analysis, JPMorgan utilized the following assumptions,
among others:
|
|
|
cash flow projections from 2009 to 2014 based on I/B/E/S consensus estimates;
|
|
|
|
|
8.0% long-term earnings growth rate;
|
|
|
|
|
5.0% asset growth rate;
|
|
|
|
|
December 31, 2009 valuation date;
|
|
|
|
|
terminal value of First Niagara common stock at the end of 2014 based on a price to
earnings multiple range of 11.0x to 13.0x;
|
|
|
|
|
discount rate from 10% to 12%;
|
|
|
|
|
target tangible common equity to tangible asset ratio of 6%;
|
|
|
|
|
constant $0.14 quarterly dividend; and
|
|
|
|
|
35% tax rate.
|
These calculations resulted in a range of implied values of $11.65 to $14.16 per
share of First Niagara common stock, as illustrated by the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Terminal Multiple
|
Discount Rate
|
|
11.0x
|
|
12.0x
|
|
13.0x
|
10%
|
|
$
|
12.54
|
|
|
$
|
13.35
|
|
|
$
|
14.16
|
|
11%
|
|
$
|
12.08
|
|
|
$
|
12.86
|
|
|
$
|
13.63
|
|
12%
|
|
$
|
11.65
|
|
|
$
|
12.39
|
|
|
$
|
13.13
|
|
JPMorgan also sensitized its analysis using a range of long-term earnings
growth percentages from 7.0% to 9.0%. These calculations resulted in a range of
implied values of
$12.12 to $13.64 per share of First Niagara common stock, as illustrated by the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term earnings growth percentage
|
Discount Rate
|
|
7.0%
|
|
8.0%
|
|
9.0%
|
10.0%
|
|
$
|
13.06
|
|
|
$
|
13.35
|
|
|
$
|
13.64
|
|
11.0%
|
|
$
|
12.58
|
|
|
$
|
12.86
|
|
|
$
|
13.14
|
|
12.0%
|
|
$
|
12.12
|
|
|
$
|
12.39
|
|
|
$
|
12.66
|
|
Historical Exchange Ratio Analysis
. JPMorgan compared the historical share prices
of Harleysville National Corporation common stock and First Niagara common stock during
different periods between July 2008 and July 2009 and calculated the implied average
exchange ratios during these time periods and calculated the implied offer price, the
implied premium to current price and the implied Harleysville National Corporation
ownership based on the these
60
implied average exchange ratios. Set forth below are observations that resulted from the
comparison of the historical share prices:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Implied Harleysville
|
|
|
Average Exchange
|
|
|
|
|
|
Implied premium to
|
|
National Corporation
|
Time period
|
|
Ratio
|
|
Implied Offer Price
|
|
July 24, 2009 price
|
|
ownership
|
July 24, 2009
|
|
|
0.341x
|
|
|
$
|
4.00
|
|
|
|
0.0
|
%
|
|
|
8.9
|
%
|
1-week
|
|
|
0.368x
|
|
|
$
|
4.32
|
|
|
|
7.9
|
%
|
|
|
9.6
|
%
|
10-day
|
|
|
0.364x
|
|
|
$
|
4.28
|
|
|
|
7.0
|
%
|
|
|
9.5
|
%
|
20-day
|
|
|
0.376x
|
|
|
$
|
4.42
|
|
|
|
10.4
|
%
|
|
|
9.8
|
%
|
1-month
|
|
|
0.387x
|
|
|
$
|
4.54
|
|
|
|
13.5
|
%
|
|
|
10.0
|
%
|
3-month
|
|
|
0.497x
|
|
|
$
|
5.83
|
|
|
|
45.8
|
%
|
|
|
12.5
|
%
|
6-month
|
|
|
0.561x
|
|
|
$
|
6.59
|
|
|
|
64.8
|
%
|
|
|
13.9
|
%
|
12-month
|
|
|
0.753x
|
|
|
$
|
8.85
|
|
|
|
121.1
|
%
|
|
|
17.8
|
%
|
12-month high
|
|
|
1.108x
|
|
|
$
|
13.01
|
|
|
|
225.2
|
%
|
|
|
24.1
|
%
|
12-month low
|
|
|
0.321x
|
|
|
$
|
3.76
|
|
|
|
(5.9
|
%)
|
|
|
8.4
|
%
|
Offer
|
|
|
0.474
|
|
|
$
|
5.56
|
|
|
|
39.0
|
%
|
|
|
12.0
|
%
|
Pro Forma Analyses
. JPMorgan prepared an illustrative analysis of the implied pro
forma equity value of First Niagara common stock after giving effect to the merger. This
pro forma equity value was calculated by adding the Harleysville National Corporation and
First Niagara stand-alone present values from the dividend discount valuation ($159 million
and $1.928 billion, respectively) to the present value of expected synergies ($83 million)
which resulted in an aggregate pro forma equity value of $2.17 billion or $12.74 per share.
The $83 million in synergies was comprised of annual synergies of $15 million, net of
restructuring charges, phased in 75% in 2010 and 100% thereafter, assuming 3% perpetuity
growth. JPMorgan also assumed, as instructed by Harleysville National Corporation
management, a First Niagara capital raise of $75 million in common equity at market, which
would reduce the per share pro forma equity value to $12.70 per share.
The foregoing summary of certain material financial analyses does not purport to be a
complete description of the analyses or data presented by JPMorgan. The preparation of a
fairness opinion is a complex process and is not necessarily susceptible to partial
analysis or summary description. JPMorgan believes that the foregoing summary and its
analyses must be considered as a whole and that selecting portions of the foregoing summary
and these analyses, without considering all of its analyses as a whole, could create an
incomplete view of the processes underlying the analyses and its opinion. In arriving at
its opinion, JPMorgan did not attribute any particular weight to any analyses or factors
considered by it and did not form an opinion as to whether any individual analysis or
factor (positive or negative), considered in isolation, supported or failed to support its
opinion. Rather, JPMorgan considered the totality of the factors and analyses
performed in determining its opinion. Analyses based upon forecasts of future results
are inherently uncertain, as they are subject to numerous factors or events beyond the
control of the parties and their advisors. Accordingly, forecasts and analyses used or made
by JPMorgan are not necessarily indicative of actual future results, which may be
significantly more or less favorable than suggested by those analyses. Moreover, JPMorgans
analyses are not and do not purport to be appraisals or otherwise reflective of the prices
at which businesses actually could be bought or sold. None of the selected companies
reviewed as described in the above summary is identical to Harleysville National
Corporation or First Niagara, and none of the selected transactions reviewed was identical
to the merger. However, the companies selected were chosen because they are publicly traded
companies with operations and businesses that, for purposes of JPMorgans analysis, may be
considered similar to those of Harleysville National Corporation or First Niagara, as
applicable. The transactions selected were similarly chosen because their participants,
size and other factors, for purposes of JPMorgans analysis, may be considered similar to
the merger. The analyses necessarily involve complex considerations and judgments
concerning
61
differences in financial and operational characteristics of the companies involved and other
factors that could affect the companies compared to Harleysville National Corporation or First
Niagara, as applicable and the transactions compared to the merger.
The merger consideration was determined through arms-length negotiations between
Harleysville National Corporation and First Niagara and was approved by Harleysville
National Corporations board of directors. Although JPMorgan provided advice to
Harleysville National Corporation during these negotiations, JPMorgan did not recommend
any specific amount of consideration to Harleysville National Corporation or its board of
directors or that any specific amount of consideration constituted the only appropriate
consideration for the merger.
As a part of its investment banking business, JPMorgan and its affiliates are
continually engaged in the valuation of businesses and their securities in connection
with mergers and acquisitions, investments for passive and control purposes, negotiated
underwritings, secondary distributions of listed and unlisted securities, private
placements, and valuations for estate, corporate and other purposes. JPMorgan was
selected to advise Harleysville National Corporation with respect to the merger on the
basis of such experience and its familiarity with Harleysville National Corporation.
Pursuant to an engagement letter dated June 17, 2009, as amended on July 15, 2009,
Harleysville National Corporation retained JPMorgan as its financial advisor in connection
with the proposed merger. For services rendered in connection with the merger, Harleysville
National Corporation has agreed to pay JPMorgan a fee of $4 million plus 1.5% of the value
of any merger consideration in excess of $200 million, of which $1 million became payable
when JPMorgan delivered its opinion to the Harleysville National Corporation board of
directors and the balance of which is contingent upon consummation of the merger. In
addition, Harleysville National Corporation has agreed to reimburse JPMorgan for its
reasonable expenses incurred in connection with its services, including the fees and
disbursements of counsel, and will indemnify JPMorgan against certain liabilities,
including liabilities arising under the federal securities laws.
During the two years preceding the date of its opinion, JPMorgan and its affiliates
have had commercial or investment banking relationships with Harleysville
National Corporation and First Niagara, respectively, for which it and such affiliates
have received customary compensation. Such services during such period have included
acting as financial advisor for Harleysville National Corporation beginning in January,
2009; providing securities, trading and foreign exchange services (primarily providing
interest rate swaps), credit services, treasury and security services, and other
miscellaneous financial services to Harleysville National Corporation; and providing
securities, trading and foreign exchange services (primarily providing interest rate swaps)
and treasury and security services to First Niagara. In the ordinary course of their
businesses, JPMorgan and its affiliates may actively trade the debt and equity securities
of Harleysville National Corporation or First Niagara for their own accounts or for the
accounts of customers and, accordingly, they may at any time hold long or short positions
in such securities.
Employee Matters
The merger agreement provides that First Niagara will review all Harleysville
National Corporation compensation and employee benefit plans that do not otherwise
terminate (whether pursuant to the terms of any such plan or the merger agreement) to
determine whether to maintain, terminate or continue such plans. In the event employee
compensation or benefits as currently provided by Harleysville National Corporation or
Harleysville National Bank are changed or terminated by First Niagara, First Niagara has
agreed to provide compensation and
62
benefits to continuing employees that are, in the aggregate, substantially similar to the
compensation and benefits provided to similarly situated First Niagara (or applicable First
Niagara subsidiary) employees, as of the date of any such compensation or benefit is provided.
All Harleysville National Corporation employees who become participants in any of the
First Niagara compensation or benefit plans will be given credit for service at
Harleysville National Corporation or its subsidiaries for eligibility to participate in
and the satisfaction of vesting requirements (but not for pension benefit accrual
purposes) under First Niagaras compensation and benefit plans (but not for any purpose
under the First Niagara employee stock ownership plan). In addition, all employees of
Harleysville National Corporation or any subsidiary who cease participation on a
Harleysville National Corporation health plan and become participants in a comparable
First Niagara health plan will receive credit for any co-payment and deductibles paid
under Harleysville National Corporations health plan for purposes of satisfying any
applicable deductible or out-of-pocket requirements under the First Niagara health plan.
Further, any coverage limitation under the First Niagara health plan due to any
pre-existing condition will be waived to the degree that such condition was covered by the
Harleysville National Corporation health plan and such condition would otherwise be
covered under the First Niagara health plan.
Any employee of Harleysville National Corporation or any subsidiary who is not a
party to an employment agreement, change in control agreement or other arrangement that
provides for severance benefits and whose employment is terminated at or before the
effective time of the merger or within six months following the effective time of the
merger, will receive severance benefits in accordance with Harleysville National
Corporations severance practice in effect on the date of the merger agreement.
First Niagara has agreed to honor all obligations under all employment, consulting and
change in control agreements applicable to employees of Harleysville National Corporation
and its subsidiaries, but is not obligated under the merger agreement to maintain the
employment of any particular individual after the merger is consummated. See Interests of
Harleysville National Corporations Directors and Executive Officers In the Merger below
for a discussion of the employment agreements and other compensation arrangements
applicable to directors and executive officers of Harleysville National Corporation that
will be honored by First Niagara.
Dissenters Rights
Dissenters rights are statutory rights that, if applicable under law, enable
shareholders to dissent from an extraordinary transaction, such as a merger, and to demand
that the corporation pay the fair value for their shares as determined by a court in a
judicial proceeding instead of receiving the consideration offered to shareholders in
connection with the extraordinary transaction. Dissenters rights are not available in all
circumstances. Under Pennsylvania law, shareholders of a corporation are not entitled to
exercise dissenters rights if, as of the record date, shares of the corporation are either
listed on a national securities exchange or held beneficially or of record by more than
2,000 people. Consequently, because shares of Harleysville National Corporations common
stock are traded on Nasdaq as of the record date, you will not have the right to exercise
dissenters rights. If the merger agreement is adopted and the merger is completed,
shareholders who voted against the adoption of the merger agreement will be treated the
same as shareholders who voted to adopt the merger agreement and their shares will
automatically be converted into the right to receive the merger consideration.
63
Interests of Harleysville National Corporations Directors and Officers In the Merger
The following table sets forth the estimated potential severance benefits to
Harleysville National Corporations most highly compensated executive officers on
termination of employment following a change in control as well as the total number of
outstanding options (including the number of unvested options) held by such executive
officers:
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Estimated
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Potential
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Severance on
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Weighted
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Termination
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Health
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Average
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Following a
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Benefits
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Total Number of
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Weighted Average
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Number of
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Exercise Price
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Change in
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Payment
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Outstanding
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Exercise Price for
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Unvested
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for Unvested
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Executive
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Control
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Period
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Options
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Outstanding Options
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Options
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Options
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Paul D. Geraghty
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$
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931,500
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24 months
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75,000
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$
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14.20
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75,000
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$
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14.20
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Demetra M. Takes
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$
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619,920
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24 months
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48,022
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$
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19.14
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28,005
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$
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15.61
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Brent L. Peters
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$
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592,000
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24 months
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21,053
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$
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14.06
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21,053
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$
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14.06
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Joseph D. Blair
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$
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550,000
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24 months
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19,559
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$
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14.06
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19,559
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$
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14.06
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George S. Rapp
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$
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456,000
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24 months
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19,198
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$
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15.85
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15,229
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$
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14.80
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These estimated amounts above assume a termination date as of the closing of the
merger and that no individual exercised any options in the interim period.
Acceleration of Vesting of Option Awards.
Under the terms of the merger agreement,
all options, including those held by directors and executive officers, will become
immediately vested and exercisable and will be converted into fully vested and exercisable
options to purchase shares of common stock of First Niagara. Please see Treatment of
Harleysville National Corporation Stock Options and Other Equity Arrangements.
Employment Agreements with Paul Geraghty, George Rapp, Brent Peters, James McGowan,
Lewis Cyr, Joseph Blair, Louis Spinelli, Demetra Takes, and Ammon Baus.
Following the
completion of the merger, First Niagara has agreed to honor the existing employment
agreements between Harleysville Management Services, LLC and each of Messrs. Geraghty,
Rapp, Peters, McGowan, Cyr, Blair and Spinelli, the existing employment agreement between
Harleysville National Corporation, Harleysville National Bank and Ms. Takes, and the
employment agreement between Mr. Baus and Willow Financial Bank, as assumed by
Harleysville National Corporation. The consummation of the merger constitutes a change
in control for purposes of the employment agreements.
With respect to Messrs. Geraghty, Rapp, Peters, McGowan, Cyr, Blair, Spinelli, and Ms.
Takes, the employment agreements provide that following the merger in the event of the
executives involuntary termination for reasons other than cause, or constructive
resignation at anytime during the remaining term of the executives existing agreements,
the executives will be entitled to a severance payment equal to two times their highest
annual base salary, payable in 24 equal monthly installments following their date of
termination. For Messrs. Geraghty and Cyr, their severance payments will equal two times
their highest annual base salary, plus the highest rate of bonus paid to them during the
previous two years prior to the merger. For Mr. Spinelli, his severance payment will be one times his highest annual base salary, payable in 12 equal monthly
installments following his date of termination. In addition, First Niagara will reimburse
the executives for the monthly cost to obtain substantially similar employee benefits to
what they are currently receiving, until the earlier of 24 months (12 months for Mr.
Spinelli) following their date of termination or until they secure substantially similar
benefits through other employment.
64
Mr. Baus employment agreement with Willow Financial Bank, as assumed by Harleysville
National Corporation, provides that, if his employment is involuntarily terminated without
cause or for good reason within 12 months following the merger, he will be entitled to
receive a lump sum payment equal to two times his average annual compensation, defined
as the average amount of base salary and cash bonus paid to him during the most recent
five calendar years preceding the year during which his termination occurs plus an amount
equal to the projected cost of providing employee benefits (other than welfare benefits)
for the 12 months following his termination of employment. In addition, First Niagara
will provide continued welfare benefits until the earlier of 12 months following his
termination date or until he secures substantially similar benefits through other
employment.
The employment agreements also provide that in the event that any severance payments
or benefits constitute an excess parachute payment under Section 280G of the Internal
Revenue Code, such benefits will be reduced accordingly to avoid penalties.
Employment
Agreements with Malcolm Cowen, Thomas Scalici, and John
Yaissle.
Following the
consummation of the merger, Messrs. Cowen, Scalici, and Yaissle will fully vest in
their benefits under their Incentive Compensation Pool Agreements. As a result, Messrs. Cowen,
Scalici, and Yaissle will be paid $421,200, $280,000, and $702,000, respectively, within 60 days
following the merger. In addition, following the merger, in the event of the executives
constructive resignation during the remaining term of their agreements, the executives will be
entitled to a severance payment equal to two times their base salary, payable in 24 equal monthly
installments following their date of termination, and continued participation in First Niagaras
employee benefit plans until the earlier of 12 months following their date of termination or until
they secure substantially similar benefits through other employment.
Change in Control Agreements for Stephen Murray and Randy McGarry.
Following the
completion of the merger, First Niagara has agreed to honor the existing change in control
agreements between Harleysville Management Services, LLC and Messrs. Murray and McGarry.
Payments for Mr. Murray are triggered under the change in control agreement in the event of
his involuntary termination for reasons other than cause, or constructive resignation
within 12 months following the merger, which constitutes a change in control for purposes
of the change in control agreements. For Mr. McGarry, payments are triggered under his
agreement in the event of his involuntary termination for reasons other than for cause
within 24 months following the merger or in the event of his constructive resignation
within 12 months following the merger. Upon their termination date, the executives will be
entitled to a severance payment equal to their current monthly base salary payable for
three months for Mr. Murray and 12 months for Mr. McGarry, plus a pro-rata bonus for the
year of termination. In addition, the executives will be eligible to continue to
participate in First Niagaras employee benefit plans until the earlier of three months for
Mr. Murray and 12 months for Mr. McGarry following the executives date of termination or
the date on which they obtain substantially similar benefits through other employment.
The change in control agreements also provide that in the event that any severance
payments or benefits constitute an excess parachute payment under Section 280G of the
Internal Revenue Code, such benefits will be reduced accordingly to avoid the imposition
of an excise tax.
Harleysville Management Services, LLC Supplemental Executive Benefit
Agreements for Paul Geraghty and James McGowan; Harleysville National Bank Supplemental Executive
65
Benefit Agreement for Demetra Takes.
Following the completion of the merger, First Niagara has
agreed to honor the existing Harleysville Management Services, LLC Supplemental Executive Benefit
Agreements for each of Mr. Geraghty and Mr. McGowan, and also the Harleysville National Bank
Supplemental Executive Benefit Agreement for Ms. Takes. Under Mr. Geraghtys agreement, upon his
retirement on or after attaining age 65, he will be entitled to receive an annual SERP benefit
equal to 60% of the sum of his annual base salary for the year prior to his retirement plus the
average of the last three years bonuses, offset by (i) 50% of his annual social security benefit,
and (ii) 100% of his projected annual income from his 401(k) plan employer matching contributions.
Under the supplemental retirement agreements for Mr. McGowan and Ms. Takes, upon the executives
retirement on or after attaining age 65, the executives will be entitled to a supplemental
retirement benefit equal to a percentage (16% for Mr. McGowan and 50% for Ms. Takes) of their
average annual compensation that was earned during the five previous calendar years, offset by (i)
50% of their annual social security retirement benefit, (ii) 100% of their annual defined pension
benefit, and (iii) 100% of their projected annual income from their 401(k) plan employer matching
contributions.
Under
each supplemental retirement agreement, if the executives employment terminates
within 12 months following the merger (which constitutes a change in control for purposes
of each agreement), their supplemental retirement benefit will vest in full. Payment of
the annual supplemental benefit will commence on the first day of the first month following
the executives 65
th
birthday, and will be payable in equal monthly installments over their
lifetime, with a minimum payout of 120 months (180 months for Mr. Geraghty).
Willow Financial Bancorp, Inc. Supplemental Executive Benefit Agreement for Donna
Coughey, as assumed by Harleysville National Corporation.
First Niagara has agreed to
honor the outstanding benefit obligations under the Willow Financial Bancorp, Inc.
Supplemental Executive Benefit Agreement for Ms. Coughey, who is currently in pay status.
These obligations will be unchanged as a result of the merger. Following the closing date
of the merger, First Niagara will be obligated to pay Ms. Coughey her outstanding four
annual installment payments of $59,263.
East Penn Bank Supplemental Executive Retirement Plan Agreement for Brent Peters, as
assumed by Harleysville National Corporation.
First Niagara has agreed to honor the
outstanding benefit obligations under the East Penn Bank Supplemental Executive Retirement
Plan Agreement for Brent Peters. These obligations will be unchanged as a result of the
merger. Following Mr. Peters retirement from employment with Harleysville National
Corporation, Mr. Peters will be entitled to receive 15 annual installment payments of
$60,000, which will commence on the first day of the first month following his retirement
date.
The Harleysville National Bank Supplemental Executive Retirement Benefit Agreement for
Walter Daller, Jr.
First Niagara has agreed to honor the outstanding benefit obligations
under the Harleysville National Bank Supplemental Executive Retirement Benefit Agreement
for Mr. Daller, who is currently in pay status. These obligations will be unchanged as a
result of the merger. Following the closing date of the merger, First Niagara will be
obligated to pay Mr. Daller his outstanding 62 monthly installment payments of $33,487.
The Harleysville National Bank Directors Deferred Fee Plan.
First Niagara has agreed
to honor the outstanding benefit obligations under the Harleysville National Bank Directors Deferred Fee Plan to Walter Daller, Jr. and two former directors of
Harleysville National Bank. Following the closing date of the merger, First Niagara will
be obligated to pay the outstanding
66
110 monthly installment payments of $5,538 to Mr. Daller, as well as the monthly installment
payments owed to the two former directors.
Other.
In addition to the foregoing, Harleysville National Corporation and its
subsidiaries are parties to change in control agreements and deferred compensation
arrangements with certain current and former officers and employees, and former directors.
Upon the completion of the merger, First Niagara will assume liability for payments under
such compensation arrangements.
Arrangements of Certain Harleysville National Corporation Officers with First
Niagara.
Steve Murray and Tracie Young have been offered retention bonuses by First
Niagara, in return for their continued provision of services through a specified date
following the completion of the merger, payable in a lump sum following their date of
termination. If the executive is offered a position with First Niagara, he or she will
not be entitled to receive the retention bonus. The terms of the retention bonuses,
including the bonus amounts, have not been finalized. Any retention bonus would be
effective upon the completion of the merger.
Indemnification.
Pursuant to the merger agreement, First Niagara has agreed that
from and after the effective date of the merger through the sixth anniversary thereof, it
will indemnify, defend and hold harmless each present and former officer, director or
employee of Harleysville National Corporation and its subsidiary (as defined in the merger
agreement) against all losses, claims, damages, costs, expenses (including attorneys
fees), liabilities, judgments and amounts that are paid in settlement (with the approval
of First Niagara, which approval shall not be unreasonably withheld) of or in connection
with any claim, action, suit, proceeding or investigation, based in whole or in part on,
or arising in whole or in part out of, the fact that such person is or was a director,
officer or employee of Harleysville National Corporation or its subsidiary if such claim
pertains to any matter of fact arising, existing or occurring at or before the closing
date to the fullest extent to which directors and officers of Harleysville National
Corporation are entitled under applicable law, First Niagaras Certificate of
Incorporation and Bylaws, Harleysville National Corporation Certificate of Incorporation
and bylaws, or other applicable law in effect on the date of the merger agreement (and
First Niagara will pay expenses in advance of the final disposition of any such action or
proceeding to the fullest extent permitted to under applicable law, provided that the
person to whom such expenses are advanced agrees to repay such expenses if it is
ultimately determined that such person is not entitled to indemnification).
Directors and Officers Insurance.
First Niagara has further agreed, for a period of
six years after the effective date, to cause the persons serving as officers and directors
of Harleysville National Corporation immediately prior to the effective date to continue to
be covered by Harleysville National Corporations current directors and officers
liability insurance policy (provided that First Niagara may substitute therefore policies
of at least the same coverage and amounts containing terms and conditions which are
substantially no less advantageous than such policy) with respect to acts or omissions
occurring prior to the effective date which were committed by such officers and directors
in their capacity as such. First Niagara is not required to spend more than 200% of the
annual cost currently incurred by Harleysville National Corporation for its insurance
coverage.
67
Management and Operations of Harleysville National Corporation and Harleysville National Bank After
the Merger
Upon consummation of the merger between Harleysville National Corporation and First
Niagara, Harleysville National Corporation will be merged into First Niagara and the
separate existence of Harleysville National Corporation will cease. The directors and
officers of First Niagara and First Niagara Bank immediately prior to the merger will
continue to be its directors and officers. Harleysville National Bank and Trust Company
initially will be held as a separate bank subsidiary as of the closing of the merger.
Ultimately, First Niagara intends to merger First Niagara Bank and Harleysville National
Bank and Trust Company. However, the timing of the merger of the banking subsidiaries has
not yet been determined.
Effective Date of Merger
The parties expect that the merger will be effective during the first quarter of 2010
or as soon as possible after the receipt of all regulatory and shareholder approvals and
after the expiration of all regulatory waiting periods, but no earlier than January 4,
2010. The merger will be completed legally by the filing of the certificate of merger with
the Secretary of State of the State of Delaware and with the Pennsylvania Department of
State. If the merger is not consummated by July 31, 2010, the merger agreement may be
terminated by either Harleysville National Corporation or First Niagara, unless the failure
to consummate the merger by this date is due to the breach by the party seeking to
terminate the merger agreement of any of its obligations under the merger agreement. See
Conditions to the Merger below.
Litigation Related to the Merger
Beginning on July 28, 2009, seven lawsuits were commenced in The Court of Common
Pleas of Montgomery County and The Court of Common Pleas of Philadelphia County in
Pennsylvania by Harleysville National Corporation shareholders challenging Harleysville
National Corporations proposed merger with First Niagara.
In the three purported class actions filed in The Court of Common Pleas of Montgomery
County (No.09-23331, 09-23764 and 09-23602), the plaintiffs alleged that the Harleysville
National Corporation board of directors breached its fiduciary duties to Harleysville
National Corporation shareholders by failing to maximize shareholder value in approving
the merger agreement with First Niagara. In addition, two of these purported class
actions (09-23331 and 09-23764) alleged that Harleysville National Corporation and First Niagara aided and abetted this
alleged breach of fiduciary duty.
In the four shareholder derivative complaints filed in The Court of Common Pleas of
Philadelphia County (No. 09704227, 090800490, 09081172 and 09080094), the plaintiffs
asserted that the Harleysville National Corporation directors breached their fiduciary
duties by failing to maximize shareholder value in approving the merger agreement with
First Niagara. In addition, three of these shareholder derivative complaints (090800490,
09081172 and 09080094) alleged that the Harleysville directors abused their control of the
corporation and engaged in gross mismanagement by approving the merger agreement with First
Niagara.
All of these actions seek, among other things, to enjoin the defendants
from consummating the proposed merger on the agreed upon terms.
68
On August 27, 2009, the Harleysville National Corporation defendants filed a Motion for
Coordination, Consolidation and Transfer (the Coordination Motion) in The Court of Common Pleas
of Montgomery County, seeking to coordinate and consolidate all seven (7) actions in one court. On
September 11, 2009, the Court ordered all seven (7) actions stayed pending the Courts decision on
the Coordination Motion. As of November 30, 2009, the Coordination Motion is still pending and all
actions related to the merger are stayed.
Harleysville National Corporation and First Niagara believe these lawsuits are
without merit.
Conduct of Business Pending the Merger
The merger agreement contains various restrictions on the operations of Harleysville
National Corporation before the effective time of the merger. In general, the merger
agreement obligates Harleysville National Corporation to conduct its business in the
usual, regular and ordinary course of business and use reasonable efforts to preserve its
business organization and assets and maintain its rights and franchises. In addition,
Harleysville National Corporation has agreed that, except as expressly contemplated by the
merger agreement or specified in a schedule to the merger agreement, without the prior
written consent of First Niagara, it will not, among other things:
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change or waive any provision of its Certificate of Incorporation or Bylaws, or
appoint a new director to the board of directors;
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change the number of authorized or issued shares of its capital stock, issue any
shares of Harleysville National Corporation common stock, make any grant or award under the
Harleysville National Corporation option plans, or split, combine or reclassify any shares
of capital stock, or declare, set aside or pay any dividend or other distribution in
respect of capital stock, or redeem or otherwise acquire any shares of capital stock,
except that Harleysville National Corporation may pay its normal quarterly dividend in the
amount of $0.01 per share with respect to shares of outstanding Harleysville National
Corporation common stock, with record and payment dates consistent with past practice
(provided the declaration of the last quarterly dividend by Harleysville National
Corporation prior to the date the transaction is completed and the payment thereof shall be
coordinated with First Niagara so that the holders of Harleysville National Corporation
common stock do not receive dividends on both Harleysville National Corporation common
stock and First Niagara common stock or fail to receive a dividend on at least one of the
Harleysville National Corporation common stock or First Niagara common stock received in
the merger in respect of such quarter);
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enter into, amend in any material respect or terminate any contract or
agreement (including without limitation any settlement agreement with respect to
litigation) except in the ordinary course of business;
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make application for the opening or closing of any, or open or close any,
branch or automated banking facility;
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grant or agree to pay any bonus, severance or termination to, or enter into,
renew or amend any employment agreement, severance agreement and/or supplemental executive
agreement with, or increase in any manner the compensation or fringe benefits of, any of
its directors, officers or employees, except in the ordinary course of business consistent
with past practice to non-officer employees;
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enter into or, except as may be required by law, materially modify any pension, retirement,
stock option, stock purchase, stock appreciation right, stock grant, savings, profit sharing,
deferred compensation, supplemental retirement, consulting, bonus, group insurance or other
employee benefit, incentive or welfare contract, plan or arrangement, or any trust agreement
related thereto, in respect of any of its directors, officers or employees; or make any
contributions to any defined contribution plan not in the ordinary course of business consistent
with past practice;
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change any method, practice or principle of accounting, except as may be required from
time to time by Generally Accepted Accounting Principles (without regard to any optional early
adoption date) or any bank regulator responsible for regulating Harleysville National Corporation
or Harleysville National Bank;
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purchase any equity securities, or purchase any securities other than securities (i)
rated AAA by either Standard & Poors Ratings Services or Moodys Investors Service, (ii) having
a face amount of not more than $5.0 million, (iii) with a weighted average life of not more than
two years and (iv) otherwise in the ordinary course of business consistent with past practice;
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make any new loan or other credit facility commitment (including without limitation, lines
of credit and letters of credit) in an amount in excess of $1.0 million for a commercial real
estate loan or $3.5 million for a commercial business loan, or in excess of $500 thousand for a
residential loan. In addition, the prior approval of First Niagara is required with respect to the
foregoing: (i) any new loan or credit facility commitment in an amount of $1.5 million or greater
to any borrower or group of affiliated borrowers whose credit exposure with Harleysville National
Bank, Harleysville National Corporation or any Harleysville National Corporation subsidiary, in the
aggregate, exceeds $7.5 million prior thereto or as a result thereof; and (ii) any new loan or
credit facility commitment in excess of $100 thousand to any person residing, or any property
located, outside of the Commonwealth of Pennsylvania;
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make any capital expenditures in excess of $25,000 individually or $50,000 in the
aggregate, other than pursuant to binding commitments existing on the date of the merger agreement
and expenditures necessary to maintain existing assets in good repair;
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purchase or
otherwise acquire, or sell or otherwise dispose of, any assets or incur any liabilities other than
in the ordinary course of business consistent with past practices and policies;
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enter into any lease, contract or other commitment for its account, other than in the
normal course of providing credit to customers as part of its banking business, involving a payment
by Harleysville National Corporation or Harleysville National Bank of more than $25,000 annually,
or containing any financial commitment extending beyond 24 months from the date of the merger
agreement; or
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pay, discharge, settle or compromise any claim, action, litigation, arbitration or
proceeding, other than any such payment, discharge, settlement or compromise in the ordinary course
of business consistent with past practice that involves solely money damages in the amount not in
excess of $25,000 individually or $50,000 in the aggregate, provided that Harleysville National
Corporation may charge-off through settlement, compromise or discharge up to 7% of the outstanding
principle balance of any Harleysville National Corporation delinquent loans.
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In addition to these covenants, the merger agreement contains various other
customary covenants, including, among other things, access to information, each partys
efforts to cause its representations and warranties to be true and correct on the closing
date; and each partys agreement to use its reasonable best efforts to cause the merger
to qualify as a tax-free reorganization.
On May 28, 2009, the OCC imposed an individual minimum capital requirement on
Harleysville National Bank, requiring it to increase its regulatory capital ratios. To
enable Harleysville National Bank to achieve and maintain capital ratios consistent with
those of a well-capitalized institution not subject to individual minimum capital ratios
pending completion of the merger, and to address the OCCs supervisory concerns, on
December 4, 2009 First Niagara loaned $35 million to Harleysville National Corporation, the
proceeds of which were contributed to Harleysville National Bank as Tier One capital. The
loan is secured by a pledge of all of the stock of Harleysville National Bank, and is part
of a $50 million loan facility extended by First Niagara to Harleysville National
Corporation. Also on such date, and based on the foregoing, the OCC extended the deadline
for compliance with the previously announced IMCRs from June 30, 2009 to March 31, 2010.
The extension for compliance is conditioned upon Harleysville National Bank achieving and
maintaining capital ratios at least equal to those of a well-capitalized bank under
applicable regulations and its continuing progress in addressing certain concerns raised by
the OCC in its most recent examination of Harleysville National Bank.
If the merger agreement is terminated, Harleysville National Corporation will have
between 30 and 90 days to repay the loan to First Niagara (subject to immediate
acceleration if Harleysville National Bank is significantly undercapitalized under
regulatory standards). If Harleysville National Corporation cannot repay the loan by its
due date, First Niagara could foreclose on the stock of Harleysville National Bank under
the pledge security agreement. There can be no assurance that Harleysville National
Corporation will be able to raise funds sufficient to repay the loan from First Niagara if
the merger agreement is terminated (including the requirement that Harleysville National
Corporation repay the loan within 30 days if Harleysville National Corporation shareholders
fail to adopt the merger agreement). If the merger agreement is terminated, First Niagara
could lose all or a portion of the funds loaned to Harleysville National Corporation.
First Niagara is also prepared to purchase up to $80 million in performing
commercial loans from Harleysville National Bank and allow Harleysville National Bank
to originate residential and home equity loans on behalf of First Niagara via a
correspondent relationship, both of which actions would further enhance Harleysvilles
regulatory capital ratios and boost lending activities. There can be no assurance that
these actions will result in achieving the desired results, or that all of these
actions will be implemented.
Representations and Warranties
The merger agreement contains a number of customary representations and warranties by
First Niagara and Harleysville National Corporation regarding aspects of their respective
businesses, financial condition, structure and other facts pertinent to the merger that are
customary for a transaction of this kind. They include, among other things:
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the organization, existence, and corporate power and authority, and capitalization of
each of the companies;
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the absence of conflicts with and violations of law and various documents,
contracts and agreements;
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the absence of any development materially adverse to the
companies;
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the absence of adverse material litigation;
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accuracy of reports and financial statements filed with the Securities and
Exchange Commission;
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the accuracy and completeness of the statements of fact made in filings
with governmental entities in connection with the merger agreement;
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the existence, performance and legal effect of certain contracts (Harleysville
National Corporation only);
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no violations of law by either company;
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the filing of tax returns, payment of taxes and other tax matters by either
party;
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labor and employee benefit matters; and
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compliance with
applicable environmental laws by both parties.
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All representations, warranties and covenants of the parties, other than those
covenants and agreements which by their terms apply in whole or part after the
consummation of the merger, terminate upon the consummation of the merger.
Conditions to the Merger
The respective obligations of First Niagara and Harleysville National Corporation to
complete the merger are subject to various conditions prior to the merger. The conditions
include the following:
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the receipt of all regulatory approvals and other necessary approvals of
governmental entities (other than those the failure of which to obtain would not cause a
material adverse effect (as defined in the merger agreement)), including the Federal
Reserves approval of First Niagara Financial Group, Inc. as a bank holding company and
the expiration of all applicable statutory waiting periods;
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approval of the merger agreement by the affirmative vote of a majority of the
issued and outstanding shares of Harleysville National Corporation;
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there must be no statute, rule, regulation, order, injunction or decree in
existence which prohibits or makes completion of the merger illegal;
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there must be no litigation, statute, law, regulation, order or decree by
which the merger is restrained or enjoined;
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First Niagaras registration
statement of which this document is a part shall have become effective and no stop
order suspending its effectiveness of shall have been issued and no proceedings for
that purpose shall have been initiated or threatened by the Securities and Exchange
Commission;
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the shares of First Niagara common stock to be issued to Harleysville National
Corporation shareholders in the merger must have been approved for listing on the Nasdaq
Global Select Market and such shares must be delivered to the exchange agent before the
closing date of the transaction;
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with respect to each of Harleysville National Corporation and First Niagara, the
representations and warranties of the other party to the merger agreement must be true and
correct as of the date of the merger agreement and as of the date of the closing (except to
the extent such representations and warranties speak as of an earlier date), except where
the failure to be true and correct has not had or is reasonably not expected to have,
individually or in the aggregate, a material adverse effect on Harleysville National
Corporation or First Niagara, as applicable. If a representation or warranty was qualified
as to materiality, it has to be true or correct after giving effect to the materiality
standard; and
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both First Niagara and Harleysville National Corporation must have received a
legal opinion from their respective counsels that the merger will qualify as a tax-free
reorganization under United States federal income tax laws.
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The parties may waive conditions to their obligations unless they are legally
prohibited from doing so. Shareholder approval and regulatory approvals may not be
legally waived.
Regulatory Approvals Required for the Merger
General.
Harleysville National Corporation and First Niagara have agreed to use all
reasonable efforts to obtain all permits, consents, approvals and authorizations of all
third parties and governmental entities that are necessary or advisable to consummate the
merger. This includes the approval of the Federal Reserve, which must approve the bank
holding company application filed by First Niagara, since First Niagara Bank and
Harleysville National Bank and Trust Company initially will be held as separate bank
subsidiaries following the closing of the merger. First Niagara has filed the application
necessary to obtain this regulatory approval. The merger cannot be completed without such
approval. First Niagara cannot assure that it will obtain the required regulatory
approval, when it will be received, or whether there will be conditions in the approval or
any litigation challenging the approvals. First Niagara also cannot assure that the DOJ or
any state attorney general will not attempt to challenge the merger on antitrust grounds,
or what the outcome will be if such a challenge is made.
First Niagara is not aware of any material governmental approvals or actions that
are required prior to the merger other than those described below. First Niagara
presently contemplates that it will seek any additional governmental approvals or
actions that may be required in addition to those requests for approval currently
pending; however, First Niagara cannot assure that it will obtain any such additional
approvals or actions.
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Federal Reserve Board
.
First Niagaras application to register as a bank holding
company and to acquire Harleysville National Bank is subject to approval by the Federal
Reserve. First Niagara Bank has filed the required applications with the Federal Reserve.
The Federal Reserve may not approve any transaction that would result in a monopoly or
otherwise substantially lessen competition or restrain of trade, unless it finds that the
anti-competitive effects of the transaction are clearly outweighed by the public interest.
In addition, the Federal Reserve considers the financial and managerial resources of the
company and its banking subsidiary and the convenience and needs of the communities to be
served. Under the Community Reinvestment Act (CRA), the Federal Reserve must take into
account each institutions record of performance in meeting the credit needs of its entire
communities, including low and moderate income neighborhoods, served by each company. First
Niagara Bank and Harleysville National Bank each has a satisfactory CRA rating. The
Federal Reserve will also take into account the effectiveness of each institutions
anti-money laundering program under the Bank Secrecy Act.
Federal law requires publication of notice of, and the opportunity for public comment
on, the bank holding application submitted with the Federal Reserve by First Niagara for
approval to register as a bank holding company and to acquire Harleysville National Bank,
which expires on December 27, 2009 and authorizes the Federal Reserve to hold a public
hearing in connection with the application if it determines that such a hearing would be
appropriate. Any such hearing or comments provided by third parties could prolong the
period during which the application is subject to review. In addition, under federal law,
a period of 30 days must expire following approval by the Federal Reserve within which
period the DOJ may file objections to the merger under the federal antitrust laws. This
waiting period may be reduced to 15 days if the DOJ has not provided any adverse comments
relating to the competitive factors of the transaction. If the DOJ were to commence an
antitrust action, that action would stay the effectiveness of Federal Reserve approval of
the merger unless a court specifically orders otherwise. In reviewing the merger, the DOJ
could analyze the mergers effect on competition differently than the Federal Reserve, and
thus it is possible that the DOJ could reach a different conclusion than the Federal
Reserve regarding the mergers competitive effects.
No Solicitation
Until the merger is completed or the merger agreement is terminated, Harleysville
National Corporation has agreed that it, and its subsidiaries, officers, employees,
directors and representatives will not:
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initiate, solicit, induce or knowingly encourage any inquiries, offers or
proposals to acquire Harleysville National Corporation;
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participate in any discussions or negotiations regarding any proposal to acquire
Harleysville National Corporation, or furnish, or otherwise afford access, to any person
any information or data with respect to Harleysville National Corporation or otherwise
relating to an acquisition proposal;
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release any person from, waive any provisions of, or fail to enforce any
confidentiality agreement or standstill agreement to which Harleysville National
Corporation is a party; or
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enter into any agreement, agreement in principle, or letter of intent with respect
to any proposal to acquire Harleysville National Corporation, or approve or resolve to
approve an acquisition proposal.
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Harleysville National Corporation may, however, furnish information regarding
Harleysville National Corporation to, or enter into and engage in discussion with, any
person or entity in response to a bona fide unsolicited written proposal by the person or
entity relating to an acquisition proposal if:
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Harleysville National Corporations board of directors determines in good faith, after
consultation with and having considered the advice of its outside legal counsel and its
independent financial advisor, that such proposal may be or could be superior to the First
Niagara merger from a financial point-of-view for Harleysville National Corporations
shareholders;
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Harleysville National Corporation notifies First Niagara within at least one (1)
business day prior to such determination; and
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Harleysville National Corporation receives a confidentiality agreement from a third
party with terms no less favorable to Harleysville National Corporation than the
existing confidentiality agreement between Harleysville National Corporation and First
Niagara.
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Termination; Amendment; Waiver
The merger agreement may be terminated prior to the closing, before or after adoption
by Harleysville National Corporations shareholders, as follows:
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by mutual written agreement of First Niagara and Harleysville National Corporation;
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by either First Niagara or Harleysville National Corporation if the merger has not
occurred on or before July 31, 2010, and such failure to close is not due to the
terminating partys material breach of any representation, warranty, covenant or other
agreement contained in the merger agreement;
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by First Niagara or Harleysville National Corporation if Harleysville
National Corporation shareholders do not adopt the merger agreement and merger;
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by the board of directors of a non-breaching party if the other party (1) breaches
any covenants or agreements contained in the merger agreement or (2) breaches any
representations or warranties contained in the merger agreement, in each case if such
breach by its nature cannot be cured by July 31, 2010 or has not been cured within thirty
days after notice from the terminating party and which breach would cause the failure of
conditions to the terminating partys obligation to close (provided that the terminating
party is not then in material breach of the merger agreement);
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by First Niagara if Harleysville National Corporation delinquent loans equal or
exceed $350.0 million as of any month end prior to the closing date of the merger,
excluding any month end after February 28, 2010;
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by either party if any required regulatory approvals for consummation of the
merger are not obtained;
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by either party if the shareholders of Harleysville National Corporation do
not approve the merger;
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by First Niagara if Harleysville National Corporation shall have received a
superior proposal and the Harleysville National Corporation board of directors enters into
an acquisition agreement with respect to a superior proposal and terminated the merger
agreement or failed to recommend that the shareholders of Harleysville National Corporation
adopt the merger agreement or has withdrawn, modified or changed such recommendation in a
manner which is adverse to First Niagara; or
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by Harleysville National Corporation in order to accept a superior proposal,
which has been received and considered by Harleysville National Corporation in
compliance with the applicable terms of the merger agreement.
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Under the latter two scenarios described above, if the merger agreement is
terminated, Harleysville National Corporation shall pay to First Niagara a fee of $10.0
million. This fee would also be payable to First Niagara if Harleysville National
Corporation enters into a merger agreement with a third party within twelve months of the
termination of the merger agreement by First Niagara, if the termination was due to a
willful breach of a representation, warranty, covenant or agreement by Harleysville
National Corporation or the failure of the shareholders of Harleysville National
Corporation to approve the merger agreement after the public disclosure or public
awareness that Harleysville National Corporation received a third party acquisition
proposal.
Additionally, Harleysville National Corporation may terminate the merger agreement
if, at any time during the five-day period commencing on the first date on which all bank
regulatory approvals (and waivers, if applicable) necessary for consummation of the merger
have been received (disregarding any waiting period) (the determination date), such
termination to be effective tenth day following such determination date if both of the
following conditions are satisfied:
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the average of the daily closing price of First Niagara common stock as reported
on the Nasdaq for the five consecutive trading days immediately preceding the
determination date (the FNFG Market Value) is less than $9.28; and
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the number obtained by dividing the FNFG Market Value by $11.60 (the Initial FNFG
Market Value, which may be adjusted to account for certain transactions involving the
stock of First Niagara, such as a stock dividend, reclassification or similar transaction
between the date of the merger agreement and the determination date) (the FNFG Ratio) is
less than the quotient (such quotient, the Index Ratio) obtained by dividing the average
of the daily closing value for the five consecutive trading days immediately preceding the
determination date of a group of financial institution holding companies comprising the
Nasdaq Bank Index (the Final Index Price) by the closing value of a group of financial
institution holding companies comprising the Nasdaq Bank Index on the trading date ended
two days preceding the execution of the merger agreement (the Initial Index Price),
minus 0.20.
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If Harleysville National Corporation elects to exercise its termination right as described
above, it must give prompt written notice thereof to First Niagara. During the five-business day
period commencing with its receipt of such notice, First Niagara shall have the option to increase
the consideration to be received by the holders of Harleysville National Corporation common stock
by adjusting the exchange ratio to one of the following quotients at its sole discretion (i) a
quotient, the numerator of which is equal to the product of the Initial FNFG Market Value, the
exchange ratio (as then in effect), and the Index Ratio, minus 0.20, and the denominator of which
is equal to FNFG Market Value on the determination date; or (ii) the quotient determined by
dividing the Initial FNFG Market Value by the FNFG Market Value on the determination date, and
multiplying the quotient by the product of the exchange ratio (as then in effect) and 0.80. If
First Niagara elects, it shall give, within such five-business day period, written notice to
Harleysville National Corporation of such election and the revised exchange ratio, whereupon no
termination shall be deemed to have occurred and the merger agreement shall remain in full force
and effect in accordance with its terms (except as the exchange ratio shall have been so modified).
Because the formula is dependent on the future price of First Niagaras common stock and that of
the index group, it is not possible presently to determine what the adjusted merger consideration
would be at this time, but, in general, more shares of First Niagara common stock would be issued,
to take into account the extent by which the average price of First Niagaras common stock exceeded
the decline in the average price of the common stock of the index group.
The merger agreement may be amended by the parties at any time before or after
adoption of the merger agreement by the Harleysville National Corporation shareholders.
However, after such adoption, no amendment may be made without their approval if it
reduces the amount, value or changes the form of consideration to be delivered to
Harleysville National Corporations shareholders.
The parties may waive any of their conditions to closing, unless they may not be
waived under law.
Fees and Expenses
First Niagara and Harleysville National Corporation will each pay its own costs and expenses
in connection with the merger agreement and the transactions contemplated thereby except as
described above.
Material United States Federal Income Tax Consequences Of The Merger
General.
The following is a summary of the material anticipated United States federal income
tax consequences generally applicable to a U.S. Holder (as defined below) of Harleysville National
Corporation common stock with respect to the exchange of Harleysville National Corporation common
stock for First Niagara common stock pursuant to the merger. This discussion assumes that U.S.
Holders hold their Harleysville National Corporation common stock as capital assets within the
meaning of section 1221 of the Internal Revenue Code. This summary is based on the Internal Revenue
Code, administrative pronouncements, judicial decisions and Treasury Regulations, each as in effect
as of the date of this joint proxy statement-prospectus. All of the foregoing are subject to change
at any time, possibly with retroactive effect, and all are subject to differing interpretation. No
advance ruling has been sought or obtained from the Internal Revenue Service, regarding the United
States federal income tax consequences of the merger. As a result, no assurance can be given that
the Internal Revenue Service would not assert, or that a court would not sustain, a position
contrary to any of the tax consequences set forth below.
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This summary does not address any tax consequences arising under United States federal
tax laws other than United States federal income tax laws, nor does it address the laws of any
state, local, foreign or other taxing jurisdiction. In addition, this summary does not address
all aspects of United States federal income taxation that may apply to U.S. Holders of
Harleysville National Corporation common stock in light of their particular circumstances or
U.S. Holders that are subject to special rules under the Internal Revenue Code, such as
holders of Harleysville National Corporation common stock that are not U.S. Holders, holders
that are partnerships or other pass-through entities (and persons holding their Harleysville
National Corporation common stock through a partnership or other pass-through entity), persons
who acquired shares of Harleysville National Corporation common stock as a result of the
exercise of employee stock options or otherwise as compensation or through a tax-qualified
retirement plan, persons subject to the alternative minimum tax, tax-exempt organizations,
financial institutions, broker-dealers, traders in securities that have elected to apply a
mark to market method of accounting, insurance companies, persons having a functional
currency other than the U.S. dollar and persons holding their Harleysville National
Corporation common stock as part of a straddle, hedging, constructive sale or conversion
transaction.
For purposes of this summary, a U.S. Holder is a beneficial owner of
Harleysville National Corporation common stock that is for United States federal
income tax purposes:
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a United States citizen or resident alien;
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a corporation, or other entity taxable as a corporation for United States federal
income tax purposes, created or organized under the laws of the United States or any state
therein or the District of Columbia;
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a trust if (1) it is subject to the primary supervision of a court within the United
States and one or more United States persons have the authority to control all substantial
decisions of the trust, or (2) it was in existence on August 20, 1996 and has a valid election
in effect under applicable Treasury Regulations to be treated as a United States person and
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an estate, the income of which is subject to United Sates federal income
taxation regardless of its source.
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If a partnership (including an entity treated as a partnership for United States
federal income tax purposes) holds Harleysville National Corporation common stock, the
tax treatment of a partner in the partnership will generally depend on the status of
such partner and the activities of the partnership.
First Niagara and Harleysville National Corporation have structured the merger to
qualify as a reorganization within the meaning of Section 368(a) of the Internal Revenue
Code. The obligation of First Niagara to consummate the merger is conditioned upon the
receipt of an opinion from Luse Gorman Pomerenk & Schick, P.C., counsel to First Niagara,
to the effect that the merger will for federal income tax purposes qualify as a
reorganization based upon customary representations made by First Niagara and Harleysville
National Corporation. The obligation of Harleysville National Corporation to consummate
the merger is conditioned upon the receipt of an opinion from Dechert LLP, counsel to
Harleysville National Corporation, to the effect that the merger will for federal income
tax purposes qualify as a reorganization based upon customary representations made by First
Niagara and Harleysville National Corporation. First Niagara and
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Harleysville National Corporation have not requested and do not intend to request any ruling from
the Internal Revenue Service. Accordingly, First Niagara urges each Harleysville National
Corporation shareholder to consult their own tax advisors as to the specific tax consequences
resulting from the merger, including tax return reporting requirements, the applicability and
effect of federal, state, local and other applicable tax laws and the effect of any proposed
changes in the tax laws. The material United States federal income tax consequences of the merger
are as follows:
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no gain or loss will be recognized by First Niagara, its subsidiaries or
Harleysville National Corporation or Harleysville National Bank by reason of the
merger;
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you will not recognize gain or loss if you exchange your Harleysville National
Corporation common stock solely for First Niagara common stock, except to the extent
of any cash received in lieu of a fractional share of First Niagara common stock;
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your aggregate tax basis in the First Niagara common stock that you receive in the
merger (including any fractional share interest you are deemed to receive and exchange for
cash), will equal your aggregate tax basis in the Harleysville National Corporation common
stock you surrendered, less any basis attributable to fractional share interests in
Harleysville National Corporation common stock for which cash is received; and
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your holding period for the First Niagara common stock that you receive in
the merger will include your holding period for the shares of Harleysville National
Corporation common stock that you surrender in the merger.
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Cash Received Instead of a Fractional Share of First Niagara Financial Group, Inc. Common
Stock
. A shareholder of Harleysville National Corporation who receives cash instead of a
fractional share of First Niagara common stock will be treated as having received the fractional
share pursuant to the merger and then as having exchanged the fractional share for cash in a
redemption of First Niagara. As a result, a Harleysville National Corporation shareholder will
generally recognize gain or loss equal to the difference between the amount of cash received and
the basis in his or her fractional share interest as set forth above. This gain or loss will
generally be capital gain or loss, and will be long-term capital gain or loss if, as of the
effective date of the merger, the holding period for such shares is greater than one year.
Backup Withholding and Information Reporting
. Payments of cash to a holder of Harleysville
National Corporation common stock instead of a fractional share of First Niagara common stock may,
under certain circumstances, be subject to information reporting and backup withholding at a rate
of 28% of the cash payable to the holder, unless the holder provides proof of an applicable
exemption or furnishes its taxpayer identification number, and otherwise complies with all
applicable requirements of the backup withholding rules. Any amounts withheld from payments to a
holder under the backup withholding rules are not additional tax and will be allowed as a refund or
credit against the holders U.S. federal income tax liability, provided the required information is
furnished to the Internal Revenue Service.
The preceding discussion is intended only as a summary of material United States federal income tax
consequences of the merger. It is not a complete analysis or discussion of all potential tax
effects that may be important to you. Thus, Harleysville National Corporation urges Harleysville
National Corporation shareholders to consult their own tax advisors as
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to the specific tax consequences to them resulting from the merger, including tax return reporting
requirements, the applicability and effect of federal, state, local, and other applicable tax laws
and the effect of any proposed changes in the tax laws.
Accounting Treatment
In accordance with current accounting guidance, the merger will be accounted for using
the purchase method. The result of this is that the recorded assets and liabilities of
First Niagara will be carried forward at their recorded amounts, the historical operating
results will be unchanged for the prior periods being reported on and that the assets and
liabilities of Harleysville National Corporation will be adjusted to fair value at the date
of the merger. In addition, all identified intangibles will be recorded at fair value and
included as part of the net assets acquired. To the extent that the purchase price,
consisting of cash plus the number of shares of First Niagara common stock to be issued to
former Harleysville National Corporation shareholders and option holders at fair value,
exceeds the fair value of the net assets including identifiable intangibles of Harleysville
National Corporation at the merger date, that amount will be reported as goodwill. In
accordance with current accounting guidance, goodwill will not be amortized but will be
evaluated for impairment annually. Identified intangibles will be amortized over their
estimated lives. Further, the purchase accounting method results in the operating results
of Harleysville National Corporation being included in the consolidated income of First
Niagara beginning from the date of consummation of the merger.
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Stock Trading and Dividend Information
Harleysville National Corporation common stock is currently listed on the Nasdaq
Global Select Market under the symbol HNBC. The following table sets forth the high and
low trading prices for shares of Harleysville National Corporation common stock and
dividend payments made. As of November 6, 2009, there were 43,139,426 shares of
Harleysville National Corporation common stock issued and outstanding.
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Dividends Per
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Year Ending December 31, 2009
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High
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Low
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Share
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Fourth quarter (through December 7, 2009)
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$
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6.21
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$
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5.29
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$
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Third quarter
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6.24
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3.61
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Second quarter
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10.00
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4.40
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0.01
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First quarter
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14.58
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4.17
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0.10
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Dividends Per
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Year Ended December 31, 2008
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High
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Low
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Share
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Fourth quarter
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$
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17.15
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$
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10.24
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$
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0.20
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Third quarter
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20.60
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10.51
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0.20
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Second quarter
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15.45
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11.13
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0.20
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First quarter
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16.00
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|
|
12.01
|
|
|
|
0.20
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends Per
|
Year Ended December 31, 2007
|
|
High
|
|
Low
|
|
Share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fourth quarter
|
|
$
|
17.24
|
|
|
$
|
13.10
|
|
|
$
|
0.20
|
|
Third quarter
|
|
|
19.10
|
|
|
|
13.79
|
|
|
|
0.20
|
|
Second quarter
|
|
|
18.25
|
|
|
|
15.50
|
|
|
|
0.20
|
|
First quarter
|
|
|
20.25
|
|
|
|
17.08
|
|
|
|
0.20
|
|
On July 24, 2009, the business day immediately preceding the public announcement of
the merger, and on December 7, 2009, the closing prices of Harleysville National
Corporation common stock as reported on the Nasdaq Global Select Market were $4.00 per
share and $6.02 per share, respectively.
81
COMPARISON OF SHAREHOLDERS RIGHTS
General
First Niagara is incorporated under the laws of the State of Delaware and,
Harleysville National Corporation is incorporated in the Commonwealth of Pennsylvania.
As a result of the merger, Harleysville National Corporation shareholders will become
shareholders of First Niagara. Thus, following the merger, the rights of Harleysville
National Corporation shareholders who become First Niagara shareholders in the merger
will be governed by the laws of the State of Delaware and will also then be governed by
the First Niagara certificate of incorporation and the First Niagara bylaws. The First
Niagara certificate of incorporation and bylaws will be unaltered by the merger.
Comparison of Shareholders Rights
Set forth on the following page is a summary comparison of material differences
between the rights of a First Niagara shareholder under the First Niagara certificate of
incorporation, First Niagara bylaws, and Delaware law (right column) and the rights of
a shareholder under the Harleysville National Corporation certificate of incorporation,
Harleysville National Corporation bylaws and Pennsylvania law (left column). The summary
set forth below is not intended to provide a comprehensive summary of Delaware law or of
each companys governing documents. This summary is qualified in its entirety by reference
to the full text of the First Niagara certificate of incorporation and First Niagara
bylaws, and the Harleysville National Corporation certificate of incorporation and
Harleysville National Corporation bylaws. Copies of the governing corporate instruments
delivered, are available, without charge, to any person, including any beneficial owner to
whom this document is delivered, by following the instructions listed under Where You Can
Find More Information on page ii.
82
|
|
|
HARLEYSVILLE NATIONAL
CORPORATION
|
|
FIRST NIAGARA FINANCIAL GROUP, INC.
|
CAPITAL STOCK
Authorized Capital
|
|
|
|
200 million shares
of common stock, par
value $1.00 per
share, 8 million
shares of preferred
stock, $1.00 per
value per share. As
of September 30,
2009 there were
43,122,929 shares of
Harleysville
National Corporation
common stock issued
and outstanding and
no shares of
preferred stock
issued and
outstanding.
|
|
250 million shares of common stock, par value $0.01
per share, 50 million shares of preferred stock,
par value $0.01 per share. As of September 30,
2009, there were 188,150,867 shares of First
Niagara common stock issued and outstanding and no
shares of preferred stock issued and outstanding.
|
|
|
|
Preferred Stock.
Harleysville
National
Corporations
articles of
incorporation
authorize the board
of directors,
without further
shareholder action,
to issue up to 8
million shares of
preferred stock, in
one or more series,
and determine by
resolution any
designations,
preferences,
qualifications,
privileges,
limitations,
restrictions or
special or relative
rights of additional
series. The rights
of preferred
shareholders may
supersede the rights
of common
shareholders.
|
|
Preferred Stock.
First Niagaras certificate of
incorporation authorizes the board of directors,
without further shareholder action, to issue up to
50 million shares of preferred stock, in one or
more series, and determine by resolution any
designations, preferences, qualifications,
privileges, limitations, restrictions, or special or
relative rights of additional series. The rights of
preferred shareholders may supersede the rights
of common shareholders.
|
BOARD OF DIRECTORS
Number of
Directors
Such number as is fixed by the board of directors from time to time. First Niagara
currently has nine directors and Harleysville National Corporation has 12 directors.
83
Qualification of Directors
|
|
|
Harleysville National Corporations bylaws
provide that no person who is 72 years of age or
older shall be elected, or shall serve, as a
director. Any director who attains age 72 during
his term of office shall resign as a director
effective as of the date of his 72
nd
birthday. The
board of directors shall have the right to appoint
any person who has resigned as a director by
reason of attaining age 72 as a director emeritus
for a term, to be determined in the discretion of
the board of directors, of one, two, or three
years. No person who is 75 years of age or older
shall be elected, or shall serve, as a director
emeritus. A person so appointed as a director
emeritus may be compensated for each meeting
attended but shall have no responsibility or be
subject to any liability in connection with any
act or omission relating to his position as
director emeritus.
|
|
First Niagaras bylaws provide that unless
otherwise approved by a 2/3 vote of the Board of
Directors, no person shall be eligible for initial
election as a Director who is 65 years of age or
more. The office of a director shall become
vacant on the last day of the month in which
such director reaches his or her 70
th
birthday.
|
|
|
|
Removal of Directors
|
|
|
|
Harleysville National Corporations articles of
incorporation and bylaws do not have special
provisions relating to removal of directors by
shareholders. Under the Pennsylvania Business
Corporation Law, the entire board of directors, a
class or a director can only be removed for cause
and not by less than a majority of the votes
entitled to be cast on the matter.
|
|
First Niagaras certificate of incorporation
provides that subject to the rights of any holders
of any series of preferred stock then outstanding,
any director or the entire board of directors may
be removed by shareholders only for cause and
by the affirmative vote of not less than eighty
percent of the voting power of all of the
then-outstanding capital stock entitled to vote
generally in the election of directors, voting as a
single class.
|
|
|
|
Vacancies and Newly Created Directorships
|
|
|
|
Filled by a majority vote of the directors then in
office, whether or not a quorum. The person
who fills any such vacancy holds office for the
unexpired term of the director to whom such
person succeeds.
|
|
Filled by a majority vote of the directors then in
office, even if less than a quorum. The person
who fills any such vacancy holds office for the
unexpired term of the director to whom such
person succeeds.
|
|
|
|
Special Meeting of the Board
|
|
|
|
Special meetings of the board of directors may
be called by the chairman of the board, the
president or upon the written request of three
directors then in office.
|
|
Special meetings of the board of directors may
be called by one-third of the directors then in
office, or by the chairman of the board or the
chairman of the executive committee.
|
84
|
|
|
|
|
|
Special Meeting of Shareholders
|
|
|
|
Special meeting of shareholders may be called
by the chairman, president, the executive vice
president, if any, a majority of the board of
directors or of its executive committee or by
shareholders entitled to cast at least one-fifth of
the votes which all shareholders are entitled to
cast at the particular meeting.
|
|
Special meetings of the shareholders may be
called by a resolution adopted by a majority of
the whole board of directors.
|
85
DESCRIPTION OF CAPITAL STOCK OF FIRST NIAGARA FINANCIAL GROUP, INC.
First Niagara is authorized to issue 250,000,000 shares of common stock, par value
$0.01 per share, and 50,000,000 shares of preferred stock, par value $0.01 per share. At
September 30, 2009, there were 188,150,867 shares of First Niagara common stock issued and
outstanding. First Niagara has no outstanding shares of preferred stock. Each share of
First Niagara common stock has the same relative rights as, and is identical in all
respects with, each other share of common stock.
The common stock of First Niagara represents nonwithdrawable capital, is not an
account of an insurable type, and is not insured by the Federal Deposit Insurance
Corporation or any other government agency.
Common Stock
Dividends
.
First Niagara may pay dividends out of statutory surplus or from net
earnings if, as and when declared by its board of directors. The payment of dividends by
First Niagara is subject to limitations that are imposed by law and applicable regulation.
The holders of common stock of First Niagara will be entitled to receive and share equally
in dividends as may be declared by the board of directors of First Niagara out of funds
legally available therefor. If First Niagara issues shares of preferred stock, the holders
thereof may have a priority over the holders of the common stock with respect to dividends.
Voting Rights
.
The holders of common stock of First Niagara have exclusive voting
rights in First Niagara. They elect First Niagaras board of directors and act on other
matters as are required to be presented to them under Delaware law or as are otherwise
presented to them by the board of directors. Generally, each holder of common stock is
entitled to one vote per share and will not have any right to cumulate votes in the
election of directors. If First Niagara issues shares of preferred stock, holders of the
preferred stock may also possess voting rights. Certain matters require an 80% shareholder
vote.
Liquidation
.
In the event of any liquidation, dissolution or winding up of First
Niagara Bank, First Niagara, as the holder of 100% of First Niagara Banks capital stock,
would be entitled to receive, after payment or provision for payment of all debts and
liabilities of First Niagara Bank, including all deposit accounts and accrued interest
thereon, and after distribution of the balance in the special liquidation account to
eligible account holders and supplemental eligible account holders, all assets of First
Niagara Bank available for distribution. In the event of liquidation, dissolution or
winding up of First Niagara, the holders of its common stock would be entitled to receive,
after payment or provision for payment of all its debts and liabilities, all of the assets
of First Niagara available for distribution. If preferred stock is issued, the holders
thereof may have a priority over the holders of the common stock in the event of
liquidation or dissolution.
Preemptive Rights
.
Holders of the common stock of First Niagara will not be entitled
to preemptive rights with respect to any shares that may be issued. The common stock is not
subject to redemption.
Preferred Stock
None of the shares of First Niagaras authorized preferred stock are outstanding.
Preferred stock may be issued with preferences and designations as the board of
directors may from time to time determine. First Niagaras board of directors may, without
shareholder approval, issue shares of preferred stock with voting, dividend, liquidation
and conversion rights that could dilute the voting strength of the
86
holders of the common stock and may assist management in impeding an unfriendly takeover or
attempted change in control.
CERTAIN PROVISIONS OF THE FIRST NIAGARA FINANCIAL GROUP, INC.
CERTIFICATE OF INCORPORATION AND BYLAWS
The following discussion is a general summary of the material provisions of First
Niagaras certificate of incorporation and bylaws and certain other regulatory provisions
that may be deemed to have an anti-takeover effect. The following description of certain
of these provisions is necessarily general and, with respect to provisions contained in
First Niagaras certificate of incorporation and bylaws, reference should be made in each
case to the document in question.
First Niagaras certificate of incorporation and bylaws contain a number of
provisions, relating to corporate governance and rights of shareholders, that might
discourage future takeover attempts. As a result, shareholders who might desire to
participate in such transactions may not have an opportunity to do so. In addition, these
provisions will also render the removal of the board of directors or management of First
Niagara more difficult.
The following description is a summary of the provisions of the certificate of
incorporation and bylaws. See Where You Can Find More Information as to how to review a
copy of these documents.
Directors
.
The board of directors is divided into three classes. The members of each
class will be elected for a term of three years and only one class of directors will be
elected annually. Thus, it would take at least two annual elections to replace a majority
of First Niagaras board of directors. Further, the bylaws impose notice and information
requirements in connection with the nomination by shareholders of candidates for election
to the board of directors or the proposal by shareholders of business to be acted upon at
an annual meeting of shareholders.
Restrictions on Call of Special Meetings
.
The certificate of incorporation and bylaws
provide that special meetings of shareholders can be called only by the board of directors
pursuant to a resolution adopted by a majority of the total number of authorized
directorships. Shareholders are not authorized to call a special meeting of shareholders.
Prohibition of Cumulative Voting
.
The certificate of incorporation prohibits
cumulative voting for the election of directors.
Limitation of Voting Rights
.
The certificate of incorporation provides that in no
event will any record owner of any outstanding common stock which is beneficially owned,
directly or indirectly, by a person who beneficially owns more than 10% of the then
outstanding shares of common stock, be entitled or permitted to vote any of the shares held
in excess of the 10% limit.
Restrictions on Removing Directors from Office
.
The certificate of incorporation
provides that directors may only be removed for cause, and only by the affirmative vote of the holders of at least 80% of the voting power of all of its
then-outstanding common stock entitled to vote (after giving effect to the limitation on
voting rights discussed above in Limitation of Voting Rights).
Authorized but Unissued Shares
. First Niagara has authorized but unissued shares of
common and preferred stock. See Description of Capital Stock of First Niagara Financial
Group, Inc. The certificate of incorporation authorizes 50,000,000 shares of serial
preferred stock. First Niagara is authorized to issue preferred stock from time to time in
one or more series subject to applicable provisions of law, and the board of directors is
authorized to fix the designations, and relative preferences,
87
limitations, voting rights, if any, including without limitation, offering rights of such shares
(which could be multiple or as a separate class). In the event of a proposed merger, tender offer
or other attempt to gain control of First Niagara that the board of directors does not approve, it
might be possible for the board of directors to authorize the issuance of a series of preferred
stock with rights and preferences that would impede the completion of the transaction. An effect
of the possible issuance of preferred stock, therefore may be to deter a future attempt to gain
control of First Niagara. The board of directors has no present plan or understanding to issue any
preferred stock.
Amendments to Certificate of Incorporation and Bylaws.
Amendments to the certificate
of incorporation must be approved by First Niagaras board of directors and also by a
majority of the outstanding shares of First Niagaras voting stock; provided, however, that
approval by at least 80% of the outstanding voting stock is generally required to amend the
following provisions:
|
(i)
|
|
The limitation on voting rights of persons who directly or indirectly offer to acquire
or acquire the beneficial ownership of more than 10% of any class of equity security of
First Niagara;
|
|
|
(ii)
|
|
The inability of shareholders to act by written consent;
|
|
|
(iii)
|
|
The inability of shareholders to call special meetings of shareholders;
|
|
|
(iv)
|
|
The division of the board of directors into three staggered classes;
|
|
|
(v)
|
|
The ability of the board of directors to fill vacancies on the board;
|
|
|
(vi)
|
|
The inability to deviate from the manner prescribed in the bylaws by which
shareholders nominate directors and bring other business before meetings of shareholders;
|
|
|
(vii)
|
|
The requirement that at least 80% of shareholders must vote to remove directors, and
can only remove directors for cause;
|
|
|
(viii)
|
|
The ability of the board of directors to amend and repeal the bylaws; and
|
|
|
(ix)
|
|
The ability of the board of directors to evaluate a variety of factors in evaluating
offers to purchase or otherwise acquire First Niagara.
|
The bylaws may be amended by the affirmative vote of a majority of the directors of
First Niagara or the affirmative vote of at least 80% of the total votes eligible to be
voted at a duly constituted meeting of shareholders.
Change of Control Regulations
The Change In Bank Control Act provides that no person, acting directly or indirectly
or through or in concert with one or more other persons, may acquire control of a bank
holding company unless the Federal Reserve has been given 60 days prior written notice.
For this purpose, the term control means the acquisition of the ownership, control or
holding of the power to vote 25% or more of any class of a bank holding companys voting
stock, and the term person includes an individual, corporation, partnership, and various
other entities. In addition, an acquiring person is presumed to acquire control if the
person acquires the ownership, control or holding of the power to vote of 10% or more of
any class of the holding companys voting stock if (a) the bank holding companys
shares are registered pursuant to Section 12 of the Exchange Act or (b) no other person will own, control or hold the power to vote a
88
greater percentage of that class of voting securities. Accordingly, the prior approval of the
Federal Reserve would be required before any person could acquire 10% or more of the common stock
of First Niagara.
The Federal Reserve may prohibit an acquisition of control if:
|
|
|
it would result in a monopoly or substantially lessen competition;
|
|
|
|
|
the financial condition of the acquiring person might jeopardize the financial
stability of the institution; or
|
|
|
|
|
the competence, experience or integrity of the acquiring person indicates that
it would not be in the interest of the depositors or of the public to permit the
acquisition of control by such person.
|
The bank holding company act provides that no company may acquire control of a bank
directly or indirectly without the prior approval of the Federal Reserve. Any company that
acquires control of a bank becomes a bank holding company subject to registration,
examination and regulation by the Federal Reserve. Pursuant to federal regulations, the
term company is defined to include banks, corporations, partnerships, associations, and
certain trusts and other entities, and control of a bank is deemed to exist if a company
has voting control, directly or indirectly of at least 25% of any class of a banks voting
stock, and may be found to exist if a company controls in any manner the election of a
majority of the directors of the bank or has the power to exercise a controlling influence
over the management or policies of the bank. In addition, a bank holding company must
obtain Federal Reserve approval prior to acquiring voting control of more than 5% of any
class of voting stock of a bank or another bank holding company.
An acquisition of control of a bank that requires the prior approval of the Federal Reserve
under the bank holding company act is not subject to the notice requirements of the Change In Bank
Control Act. Accordingly, the prior approval of the Federal Reserve under the bank holding company
act would be required (a) before any bank holding company could acquire 5% or more of the common
stock of First Niagara and (b) before any other company could acquire 25% or more of the common
stock of First Niagara.
EXPERTS
The consolidated statements of condition of First Niagara Financial Group, Inc. and
subsidiary as of December 31, 2008 and 2007, and the related consolidated statements of
income, comprehensive income and changes in stockholders equity and cash flows for each of
the years in the three-year period ended December 31, 2008, and the effectiveness of
internal control over financial reporting as of December 31, 2008, included in our 2008
Annual Report on Form 10-K, as amended, for the year ended December 31, 2008, and
incorporated by reference herein, have been incorporated by reference herein in reliance
upon the reports of KPMG LLP, independent registered public accounting firm, and upon the
authority of said firm as experts in accounting and auditing.
The consolidated financial statements of Harleysville National Corporation and
Subsidiaries (Harleysville) as of December 31, 2008 and 2007, and for each of the years in
the three-year period ended December 31, 2008, incorporated by reference into this
Prospectus and elsewhere in the registration statement, have been so incorporated by
reference in reliance upon the reports of Grant Thornton LLP, (which report on the
consolidated financial statements of Harleysville expresses an unqualified opinion and
contains an explanatory paragraph relating to the adoption by Harleysville of Financial
Accounting
89
Standards Board Statement (FASB) No. 158, Employers Accounting for Defined Benefit Pension and
Other Postretirement Plans An Amendment of FASB Statements No. 87, 88, 106 and 132(R) and FASB
No. 123(R), Share Based Payments in 2006 and the adoption of FASB No. 157, Fair Value Measurements,
and No. 159, the Fair Value Option for Financial Assets and Financial Liabilities-Including an
amendment of FASB Statement No. 115, in 2008) independent registered public accountants, upon the
authority of said firm as experts in accounting and auditing in giving said reports.
LEGAL OPINIONS
The validity of the common stock to be issued in the merger will be passed upon for by
Luse Gorman Pomerenk & Schick, P.C., Washington, D.C., counsel to First Niagara. Luse
Gorman Pomerenk & Schick, P.C. and Dechert LLP will deliver their opinions to First
Niagara and Harleysville National Corporation, respectively, as to certain United States
federal income tax consequences of the merger. See The MergerMaterial United States
Federal Income Tax Consequences of the Merger.
ADJOURNMENT OF THE SPECIAL MEETING
In the event that there are not sufficient votes to constitute a quorum or approve the
adoption of the merger agreement at the time of the special meeting, the merger agreement may not
be adopted unless the special meeting is adjourned to a later date or dates in order to permit
further solicitation of proxies. In order to allow proxies that have been received by Harleysville
National Corporation at the time of the special meeting to be voted for an adjournment, if
necessary, Harleysville National Corporation has submitted the question of adjournment to its
shareholders as a separate matter for their consideration. The board of directors of Harleysville
National Corporation unanimously recommends that shareholders vote FOR the adjournment proposal.
If it is necessary to adjourn the special meeting, no notice of the adjourned special meeting is
required to be given to shareholders (unless the adjournment is for more than 30 days or if a new
record date is fixed), other than an announcement at the special meeting of the hour, date and
place to which the special meeting is adjourned.
CERTAIN BENEFICIAL OWNERS OF
HARLEYSVILLE NATIONAL CORPORATION COMMON STOCK
The following table sets forth, to the best knowledge and belief of Harleysville
National Corporation, certain information regarding the beneficial ownership of the
Harleysville National Corporation common stock as of November 30, 2009 by (i) each person
known to Harleysville National Corporation to be the beneficial owner of more than 5% of
the outstanding Harleysville National Corporation common stock, (ii) each director and
certain named executive officers of Harleysville National Corporation and (iii) all of
Harleysville National Corporations directors and executive officers as a group.
Security Ownership of Management
Direct and indirect ownership of common stock by each of the directors, each of the
Named Executive Officers and by all executive officers as a group is set forth in the
following table as of November 30, 2009, together with the percentage of total shares
outstanding represented by such ownership. For purposes of this table, beneficial
ownership has been determined in accordance with the provisions of Rule 13d-3 under
the Exchange Act, under which, in general, a person is deemed to be the beneficial
owner of a security if he or she has or shares the power to vote or to direct the voting of
the security or the power to dispose or to direct the disposition of the security, or if he
or she has the right to acquire the beneficial ownership of the security within 60 days.
90
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount and Nature of Beneficial Ownership
|
|
|
|
|
Common
|
|
Rights to
|
|
|
|
|
|
Percent of
|
Name of Beneficial Owner
|
|
Stock
(1)
|
|
Acquire
(2)
|
|
Total
|
|
Class
(3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Directors:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LeeAnn B. Bergey
(4)
|
|
|
17,671
|
|
|
|
37,547
|
|
|
|
55,218
|
|
|
|
*
|
|
John J. Cunningham, III
(5)
|
|
|
10,158
|
|
|
|
12,469
|
|
|
|
22,627
|
|
|
|
*
|
|
Walter E. Daller, Jr.
(6)
|
|
|
537,608
|
|
|
|
287,753
|
|
|
|
825,361
|
|
|
|
1.91
|
%
|
Paul D. Geraghty
(7)
|
|
|
13,418
|
|
|
|
|
|
|
|
13,418
|
|
|
|
*
|
|
Harold A. Herr
(8)
|
|
|
39,648
|
|
|
|
40,047
|
|
|
|
79,695
|
|
|
|
*
|
|
Thomas C. Leamer
(9)
|
|
|
2,483
|
|
|
|
13,651
|
|
|
|
16,134
|
|
|
|
*
|
|
James E. McErlane
(10)
|
|
|
341,821
|
|
|
|
12,469
|
|
|
|
354,290
|
|
|
|
*
|
|
Stephanie S. Mitchell
(11)
|
|
|
101,833
|
|
|
|
13,651
|
|
|
|
115,484
|
|
|
|
*
|
|
A. Ross Myers
(12)
|
|
|
5,743
|
|
|
|
|
|
|
|
5,743
|
|
|
|
*
|
|
Brent L. Peters
(13)
|
|
|
105,227
|
|
|
|
|
|
|
|
105,227
|
|
|
|
*
|
|
Demetra M. Takes
(14)
|
|
|
61,510
|
|
|
|
20,018
|
|
|
|
81,528
|
|
|
|
*
|
|
James A. Wimmer
(15)
|
|
|
816,412
|
|
|
|
27,481
|
|
|
|
843,893
|
|
|
|
1.96
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Named Executive Officers
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Donna M. Coughey
(16)
|
|
|
71,053
|
|
|
|
15,377
|
|
|
|
86,430
|
|
|
|
*
|
|
George S. Rapp
(17)
|
|
|
1,125
|
|
|
|
3,969
|
|
|
|
5,094
|
|
|
|
*
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All Directors and Executive Officers as a group (23 persons)
|
|
|
2,153,731
|
|
|
|
535,890
|
|
|
|
2,689,621
|
|
|
|
6.23
|
%
|
|
|
|
*
|
|
Less than one percent (1%) unless otherwise indicated.
|
|
(1)
|
|
Includes shares for which the named person (i) has sole voting and investment power and (ii) has shared voting and investment power with a spouse. This information
has been provided by the directors and officers or is based upon Section 16 filings made with the SEC by the directors and officers.
|
|
(2)
|
|
Represents shares of stock that can be acquired upon the exercise of vested stock options through November 30, 2009.
|
|
(3)
|
|
Assumes the exercise of all outstanding options issued to independent directors, employee directors and officers, and, therefore, on a pro forma basis, 44,291,122
shares of common stock outstanding.
|
|
(4)
|
|
Class B Director whose term expires in 2012. 16,658 shares held solely by Ms. Bergey and 1,013 held jointly with her spouse.
|
|
(5)
|
|
Class A Director whose term expires in 2011. Shares held solely by Mr. Cunningham.
|
|
(6)
|
|
Class D Director whose term expires in 2010. Ownership includes the following:
|
|
|
|
41,329 shares held solely by Mr. Dallers spouse, and
|
|
|
|
73,583 vested stock options held by an Irrevocable Trust for the benefit of Mr. Dallers 3 children
|
|
(7)
|
|
Class C Director whose term expires in 2009 and nominee for Class C Director whose term will expire in 2013. Shares held solely by Mr. Geraghty.
|
|
(8)
|
|
Class A Director whose term expires in 2011. Shares held solely by Mr. Herr.
|
|
(9)
|
|
Class D Director whose term expires in 2010. Shares held solely by Dr. Leamer.
|
|
(10)
|
|
Class B Director whose term expires in 2012. Ownership includes the following:
|
|
|
|
141,696 shares held jointly with his spouse, and
|
|
|
|
157,113 held in the McErlane Family Trust.
|
|
(11)
|
|
Class A Director whose term expires in 2011. Ownership includes the following:
|
|
|
|
16,100 shares held by Ms. Mitchells spouse,
|
|
|
|
43,410 shares held by her company, and
|
|
|
|
3,180 shares held by a trust for which Ms. Mitchell acts as Co-Trustee.
|
|
(12)
|
|
Class D Director whose term expires in 2010. Shares held solely by Mr. Myers.
|
|
(13)
|
|
Class A Director whose term expires in 2011. Ownership includes the following:
|
|
|
|
27,374 shares held jointly by Mr. Peters and his spouse; and
|
|
|
|
42,454 shares held solely by Mr. Peters spouse.
|
|
(14)
|
|
Class B Director whose term expires in 2012.
|
|
|
|
Ownership includes 5,542 shares held solely by parent living in Ms. Takes home.
|
|
(15)
|
|
Class C Director whose term expires in 2009 and nominee for Class C Director whose term will expire in 2013. Ownership includes the following:
|
|
|
|
619,696 shares held solely by Mr. Wimmers spouse, and
|
|
|
|
15,887 shares held by a trust for which Mr. Wimmer acts as Co-Trustee.
|
|
(16)
|
|
Executive Vice President. Ownership includes the following:
|
|
|
|
41,520 shares held jointly with her spouse;
|
|
|
|
8,824 shares held solely by Ms. Cougheys spouse.
|
|
(17)
|
|
Executive Vice President and Chief Financial Officer. Shares held solely by Mr. Rapp.
|
91
Security Ownership of Certain Beneficial Owners
The following sets forth certain information concerning each person known to
Harleysville National Corporation who may be considered a beneficial owner of more than 5%
of the outstanding shares of Harleysville National Corporation common stock as of September
15, 2009.
|
|
|
|
|
|
|
|
|
|
|
Amount and
|
|
|
|
|
Nature of
|
|
|
|
|
Beneficial
|
|
Percent of
|
Name and Address of Beneficial Owner
|
|
Ownership
(1)
|
|
Class
|
|
Barclays Global Investors, NA and Barclays Global Fund Advisors
|
|
|
2,270,181
|
(2)
|
|
|
5.26
|
%
|
400 Howard Street
|
|
|
|
|
|
|
|
|
San Francisco, CA 94105
|
|
|
|
|
|
|
|
|
|
Dimensional Fund Advisors LP
|
|
|
2,246,805
|
(3)
|
|
|
5.21
|
%
|
1299 Ocean Avenue, 11
th
Floor
|
|
|
|
|
|
|
|
|
Santa Monica, CA 90401
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Based upon filings made pursuant to the Securities Exchange Act of 1934 and information furnished by the respective entities.
|
|
(2)
|
|
Information obtained from a Schedule 13G, filed September 30, 2009, with the SEC with respect to shares of common stock
beneficially
owned by Barclays Global Investors, NA and Barclays Global Fund Advisors.
|
|
(3)
|
|
Information obtained from a Schedule 13G, filed September 30, 2009, with the SEC with respect to shares of common stock
beneficially
owned by Dimensional Fund Advisors LP. The Schedule 13G states that Dimensional has the sole voting and dispositive power as
to all of
these shares. Dimensional disclaims beneficial ownership of these shares.
|
OTHER MATTERS
As of the date of this document, the Harleysville National Corporation board of directors
knows of no matters that will be presented for consideration at its special meeting other than as
described in this document. However, if any other matter shall properly come before this special
meeting or any adjournment or postponement thereof and shall be voted upon, the proposed proxy will
be deemed to confer authority to the individuals named as authorized therein to vote the shares
represented by the proxy as to any matters that fall within the purposes set forth in the notice of
special meeting. However, no proxy that is voted against the merger agreement will be voted in
favor of any adjournment or postponement.
Harleysville National Corporation Annual Meeting Shareholder Proposals
If a shareholder wants Harleysville National Corporation to include a proposal in its
proxy statement for presentation at its 2010 Annual Meeting of shareholders, the proposal
must be submitted in writing by Wednesday, November 25, 2009, to the Secretary of
Harleysville National Corporation at 483 Main Street, P.O. Box 195, Harleysville, PA
19438-0195. If the merger between Harleysville National Corporation and First Niagara is
consummated in the first quarter of 2010, there will be no annual meeting of Harleysville
National Corporation in 2010 or thereafter.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The Securities and Exchange Commission allows First Niagara and Harleysville National
Corporation to incorporate certain information into this document by reference to other
information that has been filed with the Securities and Exchange Commission.
The information incorporated by reference is deemed to be part of this document,
except for any information that is superseded by information in this document. The
documents that are incorporated by reference contain important information about the
companies and you should read this document together with any other documents incorporated
by reference in this document.
92
This document incorporates by reference the following documents that have previously
been filed with the Securities and Exchange Commission by First Niagara Financial Group,
Inc. (File No. 0-23975):
|
|
|
Annual Reports on Form 10-K and 10-K/A for the year ended December 31, 2008;
|
|
|
|
|
Quarterly Reports on Form 10-Q for the quarters ended March 31, 2009, June 30, 2009 and
September 30, 2009;
|
|
|
|
|
Current Reports on Form 8-K filed April 7, 2009, April 13, 2009, April 15, 2009, April
20, 2009, April 30, 2009, May 28, 2009, June 16, 2009, June 29, 2009, June 30, 2009, July
14, 2009, July 17, 2009, July 27, 2009, September 9, 2009, September 10, 2009, September
23, 2009, September 25, 2009, September 30, 2009, November 18, 2009, November 27, 2009 and
December 3, 2009 (other than the portions of those documents not deemed to be filed) and;
|
|
|
|
|
The description of First Niagara Financial Group, Inc. common stock set forth in the
registration statement on Form 8-A (0-23975) filed pursuant to Section 12 of the
Securities Exchange Act, including any amendment or report filed with the Securities and
Exchange Commission for the purpose of updating this description.
|
This document also incorporates by reference the following documents that have
previously been filed with the Securities and Exchange Commission by Harleysville National
Corporation (File No. 0-15237):
|
|
|
Annual Report on Form 10-K for the year ended December 31, 2008;
|
|
|
|
|
Quarterly Reports on Form 10-Q for the quarters ended March 31, 2009, June 30, 2009 and
September 30, 2009; and
|
|
|
|
|
Current Reports on Form 8-K filed February 2, 2009, April 30, 2009, May 13, 2009, June
8, 2009, June 18, 2009, July 27, 2009, July 28, 2009, August 18, 2009, October 30, 2009,
December 7, 2009 and December 9, 2009 (other than the portions of those documents not
deemed to be filed).
|
In addition, First Niagara and Harleysville National Corporation are incorporating by
reference any documents they may file under Section 13(a), 13(c), 14 or 15(d) of the
Securities Exchange Act of 1934, as amended after the date of this document and prior to
the date of the special meeting of Harleysville National Corporation shareholders.
Neither First Niagara nor Harleysville National Corporation has authorized anyone to
give any information or make any representation about the merger or its companies that is
different from, or in addition to, that contained in this document or in any of the
materials that have been incorporated into this document. Therefore, if anyone does give
you information of this sort, you should not rely on it. If you are in a jurisdiction where
offers to exchange or sell, or solicitations of offers
to exchange or purchase, the securities offered by this document or the solicitation
of proxies is unlawful, or if you are a person to whom it is unlawful to direct these types
of activities, then the offer presented in this document does not extend to you. The
information contained in this document speaks only as of the date of this document unless
the information specifically indicates that another date applies.
93
FORWARD-LOOKING STATEMENTS
This document, including information included or incorporated by reference in this
document may contain forward-looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995. These forward-looking statements include, but are
not limited to, (i) the financial condition, results of operations and business of First
Niagara and Harleysville National Corporation; (ii) statements about the benefits of the
merger, including future financial and operating results, cost savings, enhancements to
revenue and accretion to reported earnings that may be realized from the merger; (iii)
statements about our respective plans, objectives, expectations and intentions and other
statements that are not historical facts; and (iv) other statements identified by words
such as expects, anticipates, intends, plans, believes, seeks, estimates, or
words of similar meaning. These forward-looking statements are based on current beliefs and
expectations of our management and are inherently subject to significant business, economic
and competitive uncertainties and contingencies, many of which are beyond our control. In
addition, these forward-looking statements are subject to assumptions with respect to
future business strategies and decisions that are subject to change.
The following factors, among others, could cause actual results to differ materially
from the anticipated results or other expectations expressed in the forward-looking
statements:
|
|
|
general economic conditions in the areas in which First Niagara operates;
|
|
|
|
|
First Niagaras businesses may not be combined successfully, or such combination may
take longer to accomplish than expected;
|
|
|
|
|
delays or difficulties in the integration by First Niagara of recently acquired
businesses including the acquisition of the National City Bank branches;
|
|
|
|
|
the growth opportunities and cost savings from the merger may not be fully realized
or may take longer to realize than expected;
|
|
|
|
|
the risk that the merger consideration to be received by Harleysville National
Corporation shareholders may be adjusted downward in the event the amount of Harleysville
National Corporation delinquent loans equals or exceeds $237.5 million for any month end
prior to the closing date. As of July 31, 2009 and November 30, 2009, the amount of such
delinquent loans was $209.1 million and $173.6 million, respectively;
|
|
|
|
|
the risk that the merger agreement may be terminated in certain circumstances which
would require Harleysville National Corporation to pay First Niagara a termination fee of
$10.0 million;
|
|
|
|
|
operating costs, customer losses and business disruption following the merger,
including adverse effects of relationships with employees, may be greater than expected;
|
|
|
|
|
governmental approvals of the merger may not be obtained, or adverse regulatory
conditions may be imposed in connection with governmental approvals of the merger;
|
|
|
|
|
adverse governmental or regulatory policies may be enacted;
|
|
|
|
|
the interest rate environment may change, causing margins to compress and adversely
affecting net interest income;
|
94
|
|
|
the risks associated with continued diversification of assets and adverse changes
to credit quality;
|
|
|
|
|
competition from other financial services companies in our markets; and
|
|
|
|
|
the risk that the continuing economic slowdown could adversely affect credit
quality and loan originations.
|
Additional factors that could cause actual results to differ materially from those
expressed in the forward-looking statements are discussed in our respective reports filed
with the Securities and Exchange Commission.
All subsequent written and oral forward-looking statements concerning the proposed
transaction or other matters attributable to either of us or any person acting on our
behalf are expressly qualified in their entirety by the cautionary statements above.
Neither of us undertake any obligation to update any forward-looking statement to reflect
circumstances or events that occur after the date the forward-looking statements are made.
95
(This page intentionally left blank)
APPENDIX A
AGREEMENT AND PLAN OF MERGER
BY AND BETWEEN
FIRST NIAGARA FINANCIAL GROUP, INC.
AND
HARLEYSVILLE NATIONAL CORPORATION
TABLE OF CONTENTS
|
|
|
|
|
|
|
ARTICLE I CERTAIN DEFINITIONS
|
|
|
A-1
|
|
1.1.
|
|
Certain Definitions
|
|
|
A-1
|
|
ARTICLE II THE MERGER
|
|
|
A-8
|
|
2.1.
|
|
Merger
|
|
|
A-8
|
|
2.2.
|
|
Effective Time
|
|
|
A-8
|
|
2.3.
|
|
Certificate of Incorporation and Bylaws
|
|
|
A-9
|
|
2.4.
|
|
Directors and Officers of Surviving Corporation
|
|
|
A-9
|
|
2.5.
|
|
Effects of the Merger
|
|
|
A-9
|
|
2.6.
|
|
Tax Consequences
|
|
|
A-9
|
|
2.7.
|
|
Possible Alternative Structures
|
|
|
A-9
|
|
2.8.
|
|
Bank Merger
|
|
|
A-10
|
|
ARTICLE III CONVERSION OF SHARES
|
|
|
A-10
|
|
3.1.
|
|
Conversion of HNC Common Stock; Merger Consideration
|
|
|
A-10
|
|
3.2.
|
|
Procedures for Exchange of HNC Common Stock
|
|
|
A-11
|
|
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF HNC
|
|
|
A-14
|
|
4.1.
|
|
Reserved
|
|
|
A-14
|
|
4.2.
|
|
Organization
|
|
|
A-14
|
|
4.3.
|
|
Capitalization
|
|
|
A-15
|
|
4.4.
|
|
Authority; No Violation
|
|
|
A-16
|
|
4.5.
|
|
Consents
|
|
|
A-16
|
|
4.6.
|
|
Financial Statements
|
|
|
A-17
|
|
4.7.
|
|
Taxes
|
|
|
A-18
|
|
4.8.
|
|
No Material Adverse Effect
|
|
|
A-19
|
|
4.9.
|
|
Material Contracts; Leases; Defaults
|
|
|
A-19
|
|
4.10.
|
|
Ownership of Property; Insurance Coverage
|
|
|
A-21
|
|
4.11.
|
|
Legal Proceedings
|
|
|
A-22
|
|
4.12.
|
|
Compliance With Applicable Law
|
|
|
A-22
|
|
4.13.
|
|
Employee Benefit Plans
|
|
|
A-23
|
|
4.14.
|
|
Brokers, Finders and Financial Advisors
|
|
|
A-26
|
|
4.15.
|
|
Environmental Matters
|
|
|
A-26
|
|
4.16.
|
|
Loan Portfolio
|
|
|
A-27
|
|
4.17.
|
|
Securities Documents
|
|
|
A-28
|
|
4.18.
|
|
Related Party Transactions
|
|
|
A-28
|
|
4.19.
|
|
Deposits
|
|
|
A-29
|
|
4.20.
|
|
Antitakeover Provisions Inapplicable; Required Vote
|
|
|
A-29
|
|
4.21.
|
|
Registration Obligations
|
|
|
A-29
|
|
4.22.
|
|
Risk Management Instruments
|
|
|
A-29
|
|
4.23.
|
|
Fairness Opinion
|
|
|
A-29
|
|
4.24.
|
|
Trust Accounts
|
|
|
A-30
|
|
4.25.
|
|
Intellectual Property
|
|
|
A-30
|
|
4.26.
|
|
Labor Matters
|
|
|
A-30
|
|
4.27.
|
|
HNC Information Supplied
|
|
|
A-30
|
|
ARTICLE V REPRESENTATIONS AND WARRANTIES OF FNFG
|
|
|
A-31
|
|
5.1.
|
|
Reserved
|
|
|
A-31
|
|
5.2.
|
|
Organization
|
|
|
A-31
|
|
(i)
|
|
|
|
|
|
|
5.3.
|
|
Capitalization
|
|
|
A-32
|
|
5.4.
|
|
Authority; No Violation
|
|
|
A-32
|
|
5.5.
|
|
Consents
|
|
|
A-33
|
|
5.6.
|
|
Financial Statements
|
|
|
A-33
|
|
5.7.
|
|
Taxes
|
|
|
A-34
|
|
5.8.
|
|
No Material Adverse Effect
|
|
|
A-35
|
|
5.9.
|
|
Ownership of Property; Insurance Coverage
|
|
|
A-35
|
|
5.10.
|
|
Legal Proceedings
|
|
|
A-36
|
|
5.11.
|
|
Compliance With Applicable Law
|
|
|
A-36
|
|
5.12.
|
|
Employee Benefit Plans
|
|
|
A-37
|
|
5.13.
|
|
Environmental Matters
|
|
|
A-38
|
|
5.14.
|
|
Securities Documents
|
|
|
A-39
|
|
5.15.
|
|
Brokers, Finders and Financial Advisors
|
|
|
A-39
|
|
5.16.
|
|
FNFG Common Stock
|
|
|
A-39
|
|
5.17.
|
|
FNFG Information Supplied
|
|
|
A-39
|
|
5.18.
|
|
PBCL Sections 2538 and 2553
|
|
|
A-40
|
|
ARTICLE VI COVENANTS OF HNC
|
|
|
A-40
|
|
6.1.
|
|
Conduct of Business
|
|
|
A-40
|
|
6.2.
|
|
Current Information
|
|
|
A-44
|
|
6.3.
|
|
Access to Properties and Records
|
|
|
A-45
|
|
6.4.
|
|
Financial and Other Statements
|
|
|
A-46
|
|
6.5.
|
|
Maintenance of Insurance
|
|
|
A-47
|
|
6.6.
|
|
Disclosure Supplements
|
|
|
A-47
|
|
6.7.
|
|
Consents and Approvals of Third Parties
|
|
|
A-47
|
|
6.8.
|
|
Reasonable Best Efforts
|
|
|
A-47
|
|
6.9.
|
|
Failure to Fulfill Conditions
|
|
|
A-47
|
|
6.10.
|
|
No Solicitation
|
|
|
A-47
|
|
6.11.
|
|
Reserves and Merger-Related Costs
|
|
|
A-50
|
|
6.12.
|
|
Board of Directors and Committee Meetings
|
|
|
A-51
|
|
ARTICLE VII COVENANTS OF FNFG
|
|
|
A-51
|
|
7.1.
|
|
Conduct of Business
|
|
|
A-51
|
|
7.2.
|
|
Current Information
|
|
|
A-51
|
|
7.3.
|
|
Financial and Other Statements
|
|
|
A-52
|
|
7.4.
|
|
Disclosure Supplements
|
|
|
A-52
|
|
7.5.
|
|
Consents and Approvals of Third Parties
|
|
|
A-52
|
|
7.6.
|
|
All Reasonable Efforts
|
|
|
A-52
|
|
7.7.
|
|
Failure to Fulfill Conditions
|
|
|
A-52
|
|
7.8.
|
|
Employee Benefits
|
|
|
A-52
|
|
7.9.
|
|
Directors and Officers Indemnification and Insurance
|
|
|
A-54
|
|
7.10.
|
|
Stock Listing
|
|
|
A-55
|
|
7.11.
|
|
Stock and Cash Reserve
|
|
|
A-55
|
|
ARTICLE VIII REGULATORY AND OTHER MATTERS
|
|
|
A-55
|
|
8.1.
|
|
HNC Shareholder Meeting
|
|
|
A-55
|
|
8.2.
|
|
Proxy Statement-Prospectus
|
|
|
A-55
|
|
8.3.
|
|
Regulatory Approvals
|
|
|
A-56
|
|
(ii)
|
|
|
|
|
|
|
ARTICLE IX CLOSING CONDITIONS
|
|
|
A-57
|
|
9.1.
|
|
Conditions to Each Partys Obligations under this Agreement
|
|
|
A-57
|
|
9.2.
|
|
Conditions to the Obligations of FNFG under this Agreement
|
|
|
A-58
|
|
9.3.
|
|
Conditions to the Obligations of HNC under this Agreement
|
|
|
A-59
|
|
ARTICLE X THE CLOSING
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10.1.
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Time and Place
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10.2.
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Deliveries at the Pre-Closing and the Closing
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ARTICLE XI TERMINATION, AMENDMENT AND WAIVER
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11.1.
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Termination
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11.2.
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Effect of Termination
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11.3.
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Amendment, Extension and Waiver
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ARTICLE XII MISCELLANEOUS
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12.1.
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Confidentiality
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12.2.
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Public Announcements
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12.3.
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Survival
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12.4.
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Notices
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12.5.
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Parties in Interest
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12.6.
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Complete Agreement
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12.7.
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Counterparts
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12.8.
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Severability
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12.9.
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Governing Law
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12.10.
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Interpretation
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12.11.
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Specific Performance; Jurisdiction
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Exhibit A
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Form of HNC Voting Agreement
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Exhibit B
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Form of Bank Merger Agreement
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Exhibit C
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Exchange Ratio Adjustment Schedule
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(iii)
AGREEMENT AND PLAN OF MERGER
This AGREEMENT AND PLAN OF MERGER (this Agreement) is dated as of July 26, 2009, by
and between First Niagara Financial Group, Inc., a Delaware corporation (FNFG), and
Harleysville National Corporation, a Pennsylvania corporation (HNC).
WHEREAS
, the Board of Directors of each of FNFG and HNC (i) has determined that this
Agreement and the business combination and related transactions contemplated hereby are in
the best interests of their respective companies and shareholders and (ii) has determined
that this Agreement and the transactions contemplated hereby are consistent with and in
furtherance of their respective business strategies, and (iii) has adopted a resolution
approving this Agreement and declaring its advisability; and
WHEREAS
, in accordance with the terms of this Agreement, HNC will merge with and into
FNFG (the Merger), and immediately thereafter Harleysville National Bank, a national bank
and wholly owned subsidiary of HNC (HNB), will be merged with and into First Niagara
Bank, a federally chartered stock savings bank and wholly owned subsidiary of FNFG (First
Niagara Bank); and
WHEREAS
, as a condition to the willingness of FNFG to enter into this Agreement, each
of the directors of HNC has entered into a Voting Agreement, substantially in the form of
Exhibit A hereto, dated as of the date hereof, with FNFG (the HNC Voting Agreements),
pursuant to which each such director has agreed, among other things, to vote all shares of
common stock of HNC owned by such person in favor of the approval of this Agreement and the
transactions contemplated hereby, upon the terms and subject to the conditions set forth in
the HNC Voting Agreements; and
WHEREAS
, the parties intend the Merger to qualify as a reorganization within the
meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended (the Code),
and that this Agreement be and is hereby adopted as a plan of reorganization within the
meaning of Sections 354 and 361 of the Code; and
WHEREAS
, the parties desire to make certain representations, warranties and agreements
in connection with the business transactions described in this Agreement and to prescribe
certain conditions thereto.
NOW, THEREFORE
, in consideration of the mutual covenants, representations, warranties
and agreements herein contained, and of other good and valuable consideration, the receipt
and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:
ARTICLE I
CERTAIN
DEFINITIONS
1.1.
Certain Definitions.
As used in this Agreement, the following terms have the following meanings (unless the
context otherwise requires, references to Articles and Sections refer to Articles and
Sections of this Agreement).
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Affiliate means any Person who directly, or indirectly, through one or more
intermediaries, controls, or is controlled by, or is under common control with, such Person
and, without limiting the generality of the foregoing, includes any executive officer or
director of such Person and any Affiliate of such executive officer or director.
Agreement means this agreement, and any amendment hereto.
Applications means the applications for regulatory approval that are required by the
transactions contemplated hereby.
Bank Merger shall mean the merger of HNB with and into First Niagara Bank, with
First Niagara Bank as the surviving institution, which merger shall occur immediately
following the Merger.
Bank Regulator shall mean any Federal or state banking regulator, including but not
limited to the OTS, OCC, the FRB, the FDIC and the Department, which regulates First
Niagara Bank or HNB, or any of their respective holding companies or subsidiaries, as the
case may be.
BHCA shall mean the Bank Holding Company Act of 1956, as amended.
Certificate shall
mean certificates evidencing shares of HNC Common Stock. Closing shall have the
meaning set forth in Section 2.2.
Closing Date shall have the meaning set forth in Section 2.2.
COBRA shall mean the Consolidated Omnibus Budget Reconciliation Act of 1985, as
amended.
Code shall mean the Internal Revenue Code of 1986, as amended.
Confidentiality Agreement shall mean the confidentiality agreement referred to in
Section 12.1 of this Agreement.
Department shall mean the Banking Department of the State of New York, and where
appropriate shall include the Superintendent of Banks of the State of New York and the
Banking Board of the State of New York.
DGCL shall mean the Delaware General Corporation Law.
Effective Time shall mean the date and time specified pursuant to Section 2.2 hereof
as the effective time of the Merger.
Environmental Laws means any applicable Federal, state or local law, statute,
ordinance, rule, regulation, code, license, permit, authorization, approval, consent,
order, judgment, decree, injunction or agreement with any governmental entity relating to
(1) the protection, preservation or restoration of the environment (including, without
limitation, air, water vapor, surface water, groundwater, drinking water supply, surface
soil, subsurface soil,
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plant and animal life or any other natural resource), and/or (2) the use, storage, recycling,
treatment, generation, transportation, processing, handling, labeling, production, release or
disposal of Materials of Environmental Concern. The term Environmental Laws includes without
limitation (a) the Comprehensive Environmental Response, Compensation and Liability Act, as
amended, 42 U.S.C. §9601, et seq; the Resource Conservation and Recovery Act, as amended,
42 U.S.C. §6901, et seq; the Clean Air Act, as amended, 42 U.S.C. §7401, et seq; the Federal Water
Pollution Control Act, as amended, 33 U.S.C. §1251, et seq; the Toxic Substances Control Act, as
amended, 15 U.S.C. §2601, et seq; the Emergency Planning and Community Right to Know Act, 42 U.S.C.
§11001, et seq; the Safe Drinking Water Act, 42 U.S.C. §300f, et seq; and all comparable state and
local laws, and (b) any common law (including without limitation common law that may impose strict
liability) that may impose liability or obligations for injuries or damages due to the presence of
or exposure to any Materials of Environmental Concern.
ERISA shall mean the Employee Retirement Income Security Act of 1974, as amended.
Exchange Act shall mean the Securities Exchange Act of 1934, as amended.
Exchange Agent shall mean American Stock Transfer & Trust Company, or such other
bank or trust company or other agent designated by FNFG, and reasonably acceptable to HNC,
which shall act as agent for FNFG in connection with the exchange procedures for converting
Certificates into the Merger Consideration.
Exchange Fund shall have the meaning set forth in Section 3.2.1.
Exchange Ratio shall have the meaning set forth in Section 3.1.3.
FDIA shall mean the Federal Deposit Insurance Act, as amended.
FDIC shall mean the Federal Deposit Insurance Corporation or any successor thereto.
FHLB shall mean the Federal Home Loan Bank of New York.
First Niagara Bank shall mean First Niagara Bank, a federally chartered stock
savings association, with its principal offices located at 6950 South Transit Road, P.O.
Box 514, Lockport, New York, which is a wholly owned subsidiary of
FNFG.
First Niagara Commercial Bank shall mean the wholly owned, commercial bank
subsidiary of First Niagara Bank that is chartered under the laws of the State of New York
and is limited to those activities set forth in Section 2(a)(5)(E)(ii) of the BHCA.
FNFG shall mean First Niagara Financial Group, Inc., a Delaware corporation, with
its principal executive offices located at 6950 South Transit Road, Lockport, New York
14095.
FNFG Common Stock shall mean the common stock, par value $.01 per share, of FNFG.
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FNFG Disclosure Schedule shall mean a written disclosure schedule delivered by FNFG
to HNC specifically referring to the appropriate section of this Agreement.
FNFG Financial Statements shall mean the (i) the audited consolidated statements of
condition (including related notes and schedules) of FNFG and subsidiaries as of December
31, 2008 and 2007 and the consolidated statements of income, comprehensive income, changes
in stockholders equity and cash flows (including related notes and schedules, if any) of
FNFG and subsidiaries for each of the three years ended December 31, 2008, 2007 and 2006,
as set forth in FNFGs annual report for the year ended December 31, 2008, and (ii) the
unaudited interim consolidated financial statements of FNFG and subsidiaries as of the end
of each calendar quarter following December 31, 2008, and for the periods then ended, as
filed by FNFG in its Securities Documents.
FNFG Regulatory Agreement shall have the meaning set forth in Section 5.11.3.
FNFG Stock Benefit Plans shall mean the 1999 Stock Option Plan, the 1999 Recognition
and Retention Plan and the 2002 Long-Term Incentive Stock Benefit Plan.
FNFG Subsidiary means any corporation, of which more than 50% of the capital stock
is owned, either directly or indirectly, by FNFG or First Niagara Bank, except any
corporation the stock of which is held in the ordinary course of the lending activities of
First Niagara Bank.
FRB shall mean the Board of Governors of the Federal Reserve System and, where
appropriate, the Federal Reserve Bank of New York.
GAAP shall mean accounting principles generally accepted in the United States of
America, consistently applied with prior practice.
Governmental Entity shall mean any Federal or state court, administrative agency or
commission or other governmental authority or instrumentality.
HMS shall mean Harleysville Management Services, LLC, a wholly-owned subsidiary of
HNB.
HNB shall mean Harleysville National Bank, a national bank, with its principal
offices located at 483 Main Street, Harleysville, Pennsylvania 19438, which is a wholly
owned subsidiary of HNC.
HNC shall mean Harleysville National Corporation, a Pennsylvania corporation, with
its principal offices located at 2483 Main Street, Harleysville, Pennsylvania 19438.
HNC Common Stock shall mean the common stock, par value $1.00 per share, of HNC.
HNC Delinquent Loans shall mean (i) all loans with principal and/or interest that are
30-89 days past due, (ii) all loans with principal and/or interest that are at least 90 days past
due and still accruing, (iii) all loans with principal and/or interest that are nonaccruing, (iv)
Other
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Real Estate Owned and (v) net charge-offs from the date of this Agreement through the last business
day of the month prior to the Closing Date.
HNC Disclosure Schedule shall mean a written disclosure schedule delivered by HNC to
FNFG specifically referring to the appropriate section of this Agreement.
HNC Financial Statements shall mean (i) the audited consolidated balance sheets
(including related notes and schedules, if any) of HNC and subsidiaries as of December 31,
2008 and 2007 and the consolidated statements of operations, stockholders equity and cash
flows (including related notes and schedules, if any) of HNC and subsidiaries for each of
the three years ended December 31, 2008, 2007 and 2006, and (ii) the unaudited interim
consolidated financial statements of HNC and subsidiaries as of the end of each calendar
quarter following December 31, 2008 and for the periods then ended, as filed by HNC in its
Securities Documents.
HNC Option Plans shall mean the (i) the Harleysville National Corporation 1993 Stock
Incentive Plan; (ii) the Harleysville National Corporation 1998 Independent Directors Stock
Option Plan, as amended; (iii) the Harleysville National Corporation 1998 Stock Incentive
Plan; (iv) the Harleysville National Corporation 2004 Omnibus Stock Incentive Plan (as
amended and restated effective November 9, 2006); (v) Harleysville National Corporation
2008-2010 Restricted Stock Incentive Plan; (vi) East Penn Financial Corporation 1999 Stock
Incentive Plan, as assumed by HNC; (vii) Willow Financial Bancorp, Inc. Amended and
Restated 1999 Stock Option Plan, as assumed by HNC; (viii) Willow Financial Bancorp, Inc.
Amended and Restated 2002 Stock Option Plan, as assumed by HNC; (ix) East Penn Financial
Corporation 1999 Independent Directors Stock Incentive Plan; (x) Chester Valley Bancorp,
Inc. 1997 Stock
Option Plan; and (xi) Millennium Bank Stock Compensation Program, and in each case as
amended.
HNC Option shall mean an option to purchase shares of HNC Common Stock granted
pursuant to the HNC Option Plans and as set forth in HNC Disclosure Schedule 4.3.1.
HNC Recommendation shall have the meaning set forth in Section 8.1.
HNC Regulatory Agreement shall have the meaning set forth in Section 4.12.3.
HNC Regulatory Reports means the Call Reports of HNB and accompanying schedules, as
filed with the FDIC, for each calendar quarter beginning with the quarter ended March 31,
2008, through the Closing Date, and all Reports filed with the OCC by HNC from March 31,
2008 through the Closing Date.
HNC Shareholders Meeting shall have the meaning set forth in Section 8.1.
HNC Subsidiary means any corporation, of which more than 50% of the capital stock is
owned, either directly or indirectly, by HNC or HNB, except any corporation the stock of
which is held in the ordinary course of the lending activities of HNB.
HOLA shall mean the Home Owners Loan Act, as amended.
IRS shall mean the United States Internal Revenue Service.
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Knowledge as used with respect to a Person (including references to such Person
being aware of a particular matter) means those facts that are known or should have been
known after due inquiry by the executive officers (as defined in Rule 3b-7 under the
Exchange Act) of such Person, and in the case of HNC shall include, without limitation,
those persons set forth in HNC Disclosure Schedule 1.1, and includes any facts, matters or
circumstances set forth in any written notice from any Bank Regulator or any other material
written notice received by that Person.
Material Adverse Effect shall mean, with respect to FNFG or HNC, respectively, any
effect that (i) is material and adverse to the financial condition, results of operations
or business of FNFG and the FNFG Subsidiaries taken as a whole, or HNC and the HNC
Subsidiaries taken as a whole, respectively, or (ii) does or would materially impair the
ability of either HNC, on the one hand, or FNFG, on the other hand, to perform its
obligations under this Agreement or otherwise materially threaten or materially impede the
consummation of the transactions contemplated by this Agreement; provided that Material
Adverse Effect shall not be deemed to include the impact of (a) changes in laws and
regulations affecting banks or thrift institutions or their holding companies generally, or
interpretations thereof by courts or governmental agencies, (b) changes in GAAP or
regulatory accounting principles generally applicable to financial institutions and their
holding companies, (c) actions and omissions of a
party hereto (or any of its Subsidiaries) taken with the prior written consent of the
other party, (d) the announcement of this Agreement and the transactions contemplated
hereby, and compliance with this Agreement on the business, financial condition or results
of operations of the parties and their respective subsidiaries, including the expenses
incurred by the parties hereto in consummating the transactions contemplated by this
Agreement, (e) changes in national or international political or social conditions
including the engagement by the United States in hostilities, whether or not pursuant to
the declaration of a national emergency or war, or the occurrence of any military or
terrorist attack upon or within the United States, or any of its territories, possessions
or diplomatic or consular offices or upon any military installation, equipment or personnel
of the United States, unless it uniquely affects either or both of the parties or any of
their Subsidiaries (f) changes in the value of the securities or loan portfolio, or any
change in the value of the deposits or borrowings, of FNFG or HNC, or any of the FNFG
Subsidiaries or the HNC Subsidiaries, respectively, resulting from a change in interest
rates generally, (g) changes in HNCs stock price or trading volume, or any failure by HNC
to meet internal or published projections, forecasts or revenue or earnings predictions for
any period (it being agreed that the facts giving rise or contributing to any such failure
may be a Material Adverse Effect); (h) the termination of any employees or independent
contractors, (i) any increase in HNC Delinquent Loans, which is addressed in the last
sentence of this paragraph; (j) charges or reserves taken by HNC at the request of FNFG
pursuant to Section 6.11 of this Agreement; or (k) in the case of HNC and each HNC
Subsidiary, the issuance in and of itself of any orders or directives by any Bank Regulator
(it being agreed that the effects of the underlying facts giving rise or contributing to
the issuance of such orders or directives or the effects of the issuance of the orders or
directives may be a Material Adverse Effect). In addition, and without regard to any other
provision of this Agreement, and without limiting other events or circumstances that may
constitute a Material Adverse Effect, a Material Adverse Effect shall include, solely
with respect to HNC: if the aggregate amount of HNC Delinquent Loans equals or exceeds
$350,000,000 as of any month end prior to the Closing Date, excluding any month end
subsequent to February 28, 2010.
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Material Contracts shall have the meaning set forth in Section 4.9.3.
Materials of Environmental Concern means pollutants, contaminants, wastes, toxic
substances, petroleum and petroleum products, and any other hazardous or toxic materials
regulated under Environmental Laws.
Merger shall have the meaning set forth in the preamble.
Merger Consideration shall mean the FNFG Common Stock in an aggregate per share
amount to be paid by FNFG for each share of HNC Common Stock, as set forth in Section 3.1.
Merger Registration Statement shall mean the registration statement, together with
all amendments, filed with the SEC under the Securities Act for the
purpose of registering shares of FNFG Common Stock to be offered to holders of HNC
Common Stock in connection with the Merger.
Nasdaq shall mean the Nasdaq Global Select Market.
OCC shall mean the Office of the Comptroller of the Currency.
OTS shall mean the Office of Thrift Supervision or any successor thereto.
PBCL shall mean the Pennsylvania Business Corporation Law.
PBGC shall mean the Pension Benefit Guaranty Corporation, or any successor thereto.
Pension Plan shall have the meaning set forth in Section 4.13.2.
Person shall mean any individual, corporation, partnership, joint venture,
association, trust or group (as that term is defined under the Exchange Act).
Proxy Statement-Prospectus shall have the meaning set forth in Section 8.2.1.
Regulatory Approvals means the approval of any Bank Regulator that is necessary in
connection with the consummation of the Merger, the Bank Merger and the related
transactions contemplated by this Agreement.
Rights shall mean warrants, options, rights, convertible securities, stock
appreciation rights and other arrangements or commitments which obligate an entity to issue
or dispose of any of its capital stock or other ownership interests or which provide for
compensation based on the equity appreciation of its capital stock.
SEC shall mean the Securities and Exchange Commission or any successor thereto.
Securities Act shall mean the Securities Act of 1933, as amended.
Securities Documents shall mean all reports, offering circulars, proxy statements,
registration statements and all similar documents filed, or required to be filed, pursuant
to the Securities Laws.
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Securities Laws shall mean the Securities Act; the Exchange Act; the Investment
Company Act of 1940, as amended; the Investment Advisers Act of 1940, as amended; the Trust
Indenture Act of 1939, as amended, and the rules and regulations of the SEC promulgated
thereunder.
Significant Subsidiary shall have the meaning set forth in Rule 1-02 of SEC
Regulation S-X promulgated under the Securities Act and the Exchange Act.
Surviving Corporation shall have the meaning set forth in Section 2.1 hereof.
Termination Date shall mean July 31, 2010.
Treasury Stock shall have the meaning set forth in Section 3.1.2.
Other terms used herein are defined in the preamble and elsewhere in this Agreement.
ARTICLE II
THE MERGER
2.1.
Merger.
Subject to the terms and conditions of this Agreement, at the Effective Time: (a) HNC
shall merge with and into FNFG, with FNFG as the resulting or surviving corporation (the
Surviving Corporation); and (b) the separate existence of HNC shall cease and all of the
rights, privileges, powers, franchises, properties, assets, liabilities and obligations of
HNC shall be vested in and assumed by FNFG. As part of the Merger, each share of HNC
Common Stock (other than Treasury Stock) will be converted into the right to receive the
Merger Consideration pursuant to the terms of Article III hereof. Immediately after the
Merger, HNB shall merge with and into First Niagara Bank, with First Niagara Bank as the
resulting institution.
2.2.
Effective Time.
The closing (Closing) shall occur no later than the close of business on the fifth
business day following the satisfaction or (to the extent permitted by applicable law)
waiver of the conditions set forth in Article IX (other than those conditions that by their
terms are to be satisfied at the Closing, but subject to the satisfaction or (to the extent
permitted by applicable law) waiver of those conditions), or such other date that may be
agreed to in writing by the parties. Notwithstanding the foregoing, the Closing shall not
occur prior to January 4, 2010, unless FNFG agrees otherwise. The Merger shall be effected
by the filing of a certificate of merger with the Delaware Office of the Secretary of State
and the Pennsylvania Department of State on the day of the Closing (the Closing Date), in
accordance with the DGCL and the PBCL. The Effective Time means the date and time upon
which the certificate of merger is filed with the Delaware Office of the Secretary of
State, or as otherwise stated in the certificate of merger, in accordance with the DGCL and
the PBCL.
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2.3.
Certificate of Incorporation and Bylaws.
The Certificate of Incorporation and Bylaws of FNFG as in effect immediately prior to
the Effective Time shall be the Certificate of Incorporation and Bylaws of the Surviving
Corporation, until thereafter amended as provided therein and by applicable law.
2.4.
Directors and Officers of Surviving Corporation.
The directors of FNFG immediately prior to the Effective Time shall be the initial
directors of the Surviving Corporation, each to hold office in
accordance with the Certificate of Incorporation and Bylaws of the Surviving
Corporation. The officers of FNFG immediately prior to the Effective Time shall be the
initial officers of Surviving Corporation, in each case until their respective successors
are duly elected or appointed and qualified.
2.5.
Effects of the Merger.
At and after the Effective Time, the Merger shall have the effects as set forth in the
DGCL and the PBCL.
2.6.
Tax Consequences.
It is intended that the Merger shall constitute a reorganization within the meaning of
Section 368(a) of the Code, and that this Agreement shall constitute a plan of
reorganization as that term is used in Sections 354 and 361 of the Code. From and after
the date of this Agreement and until the Closing, each party hereto shall use its
reasonable best efforts to cause the Merger to qualify, and will not knowingly take any
action, cause any action to be taken, fail to take any action or cause any action to fail
to be taken which action or failure to act could prevent the Merger from qualifying as a
reorganization under Section 368(a) of the Code. Following the Closing, neither FNFG, HNC
nor any of their affiliates shall knowingly take any action, cause any action to be taken,
fail to take any action or cause any action to fail to be taken, which action or failure to
act could cause the Merger to fail to qualify as a reorganization under Section 368(a) of
the Code. FNFG and HNC each hereby agrees to deliver certificates substantially in
compliance with IRS published advance ruling guidelines, with customary exceptions and
modifications thereto, to enable counsel to deliver the legal opinion contemplated by
Section 9.1.6, which certificates shall be effective as of the date of such opinion.
2.7.
Possible Alternative Structures.
Notwithstanding anything to the contrary contained in this Agreement, prior to the
Effective Time FNFG shall be entitled to revise the structure of the Merger or the Bank
Merger, including without limitation, by merging HNC into a wholly-owned subsidiary of
FNFG, provided that (i) any such subsidiary shall become a party to, and shall agree to be
bound by, the terms of this Agreement (ii) there are no adverse Federal or state income tax
or other adverse tax consequences to HNC shareholders as a result of the modification;
(iii) the consideration to be paid to the holders of HNC Common Stock under this Agreement
is not thereby changed in kind or value or reduced in amount; and (iv) such modification
will not delay or jeopardize the receipt of Regulatory Approvals or other consents and
approvals relating to the consummation of the Merger and the Bank Merger, otherwise delay
or jeopardize the satisfaction of any condition to
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Closing set forth in Article IX or otherwise adversely affect HNC or the holders of HNC Common
Stock. The parties hereto agree to appropriately amend this Agreement and any related documents in
order to reflect any such revised structure.
2.8.
Bank Merger.
FNFG and HNC shall use their reasonable best efforts to cause the Bank Merger to
occur as soon as practicable after the Effective Time. In addition, following the
execution and delivery of this Agreement, FNFG will cause First Niagara Bank, and HNC will
cause HNB, to execute and deliver the Plan of Bank Merger substantially in the form
attached to this Agreement as Exhibit B.
ARTICLE III
CONVERSION OF SHARES
3.1.
Conversion of HNC Common Stock; Merger Consideration.
At the Effective Time, by virtue of the Merger and without any action on the part of
FNFG, HNC or the holders of any of the shares of HNC Common Stock, the Merger shall be
effected in accordance with the following terms:
3.1.1. Each share of FNFG Common Stock that is issued and outstanding
immediately prior to the Effective Time shall remain issued and outstanding
following the Effective Time and shall be unchanged by the Merger.
3.1.2. All shares of HNC Common Stock held in the treasury of HNC (Treasury
Stock) and each share of HNC Common Stock owned by FNFG immediately prior to the
Effective Time (other than shares held in a fiduciary capacity or in connection
with debts previously contracted) shall, at the Effective Time, cease to exist, and
the certificates for such shares shall be canceled as promptly as practicable
thereafter, and no payment or distribution shall be made in consideration
therefore.
3.1.3. Subject to the provisions of this Article III, each share of HNC Common
Stock issued and outstanding immediately prior to the Effective Time (other than
Treasury Stock) shall become and be converted into, as provided in and subject to
the limitations set forth in this Agreement, the right to receive 0.474 shares of
FNFG Common Stock (the Exchange Ratio), subject to adjustment in accordance with
Section 3.1.7.
3.1.4. After the Effective Time, shares of HNC Common Stock shall be no longer
outstanding and shall automatically be canceled and shall cease to exist, and shall
thereafter by operation of this section represent the right to receive the Merger
Consideration and any dividends or distributions with respect thereto or any
dividends or distributions with
a record date prior to the Effective Time that were declared or made by HNC on
such shares of HNC Common Stock in accordance with the terms of this Agreement on
or prior to the Effective Time and which remain unpaid at the Effective Time.
3.1.5. In the event FNFG changes (or establishes a record date for changing)
the number of, or provides for the exchange of, shares of FNFG Common Stock issued
and
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outstanding prior to the Effective Time as a result of a stock split, stock dividend,
recapitalization, reclassification, or similar transaction with respect to the outstanding FNFG
Common Stock and the record date therefor shall be prior to the Effective Time, the Exchange Ratio
shall be proportionately and appropriately adjusted;
provided
,
that
no such adjustment shall be
made with regard to FNFG Common Stock if FNFG issues additional shares of FNFG Common Stock and
receives fair market value consideration for such shares.
3.1.6.
No Fractional Shares.
Notwithstanding anything to the contrary
contained herein, no certificates or scrip representing fractional shares of FNFG
Common Stock shall be issued upon the surrender for exchange of Certificates, no
dividend or distribution with respect to FNFG Common Stock shall be payable on or
with respect to any fractional share interest, and such fractional share interests
shall not entitle the owner thereof to vote or to any other rights of a shareholder
of FNFG. In lieu of the issuance of any such fractional share, FNFG shall pay to
each former holder of HNC Common Stock who otherwise would be entitled to receive a
fractional share of FNFG Common Stock, an amount in cash, rounded to the nearest
cent and without interest, equal to the product of (i) the fraction of a share to
which such holder would otherwise have been entitled and (ii) the average of the
daily closing sales prices of a share of FNFG Common Stock as reported on the
Nasdaq for the five consecutive trading days immediately preceding the Closing
Date. For purposes of determining any fractional share interest, all shares of HNC
Common Stock owned by an HNC shareholder shall be combined so as to calculate the
maximum number of whole shares of FNFG Common Stock issuable to such HNC
shareholder.
3.1.7.
Adjustment to Exchange Ratio.
If the aggregate amount of HNC
Delinquent Loans as of the month end prior to the Closing Date is $237,500,000 or
greater, the Exchange Ratio shall adjust in the manner set forth in Exhibit C
(which Exchange Ratio as adjusted in accordance with Exhibit C shall become the
Exchange Ratio for purposes of this Agreement). Provided further, that if the
Closing Date is subsequent to March 31, 2010, the aggregate amount of HNC
Delinquent Loans shall be calculated as of February 28, 2010 for purposes of any
adjustment in the Exchange Ratio.
3.2.
Procedures for Exchange of HNC Common Stock.
3.2.1.
FNFG to Make Merger Consideration Available.
At or prior to the
Effective Time, FNFG shall deposit, or shall cause to be deposited, with the
Exchange Agent for the benefit of the holders of HNC Common Stock, for exchange in
accordance with this Section 3.2, certificates representing the shares of FNFG
Common Stock and an aggregate amount of cash sufficient to pay the aggregate amount
of cash payable pursuant to this Article III (including any cash that may be
payable in lieu of any fractional shares of HNC Common Stock) (such cash and
certificates for shares of FNFG Common Stock, together with any dividends or
distributions with respect thereto, being hereinafter referred to as the Exchange
Fund).
3.2.2.
Exchange of Certificates
. FNFG shall cause the Exchange Agent, within
five (5) business days after the Effective Time, to mail to each holder of a
Certificate or Certificates, a form letter of transmittal for return to the
Exchange Agent and instructions for use in effecting the surrender of the
Certificates for the Merger Consideration and cash in lieu of fractional shares, if
any, into which the HNC Common Stock represented by such Certificates
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shall have been converted as a result of the Merger. The letter of transmittal shall be subject to
the approval of HNC (which shall not be unreasonably withheld, conditioned or delayed) and specify
that delivery shall be affected, and risk of loss and title to the Certificates shall pass, only
upon delivery of the Certificates to the Exchange Agent. Upon proper surrender of a Certificate for
exchange and cancellation to the Exchange Agent, together with a properly completed letter of
transmittal, duly executed, the holder of such Certificate shall be entitled to receive in exchange
therefor, as applicable, (i) a certificate representing that number of shares of FNFG Common Stock
(if any) to which such former holder of HNC Common Stock shall have become entitled pursuant to the
provisions of Section 3.1 hereof and (ii) a check representing the amount of cash (if any) payable
in lieu of fractional shares of FNFG Common Stock, which such former holder has the right to
receive in respect of the Certificate surrendered pursuant to the provisions of Section 3.2, and
the Certificate so surrendered shall forthwith be cancelled. No interest will be paid or accrued
on the cash payable in lieu of fractional shares.
3.2.3.
Rights of Certificate Holders after the Effective Time
. The holder of
a Certificate that prior to the Merger represented issued and outstanding HNC
Common Stock shall have no rights, after the Effective Time, with respect to such
HNC Common Stock except to surrender the Certificate in exchange for the Merger
Consideration as provided in this Agreement. No dividends or other distributions
declared after the Effective Time with respect to FNFG Common Stock shall be paid
to the holder of any unsurrendered Certificate until the holder thereof shall
surrender such Certificate in accordance with this Section 3.2. After the
surrender of a Certificate in accordance with this Section 3.2, the record holder
thereof shall be entitled to receive, without any interest thereon, any such
dividends or other distributions with a record date after the
Effective Time, which theretofore had become payable with respect to shares of
FNFG Common Stock represented by such Certificate.
3.2.4.
Surrender by Persons Other than Record Holders
. If the Person
surrendering a Certificate and signing the accompanying letter of transmittal is
not the record holder thereof, then it shall be a condition of the payment of the
Merger Consideration that: (i) such Certificate is properly endorsed to such Person
or is accompanied by appropriate stock powers, in either case signed exactly as the
name of the record holder appears on such Certificate, and is otherwise in proper
form for transfer, or is accompanied by appropriate evidence of the authority of
the Person surrendering such Certificate and signing the letter of transmittal to
do so on behalf of the record holder; and (ii) the Person requesting such exchange
shall pay to the Exchange Agent in advance any transfer or other taxes required by
reason of the payment to a Person other than 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.
3.2.5.
Closing of Transfer Books
. From and after the Effective Time, there
shall be no transfers on the stock transfer books of HNC of the HNC Common Stock
that were issued and outstanding immediately prior to the Effective Time other than
to settle transfers of HNC Common Stock that occurred prior to the Effective Time.
If, after the Effective Time, Certificates representing such shares are presented
for transfer to the Exchange Agent, they shall be exchanged for the Merger
Consideration and canceled as provided in this Section 3.2.
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3.2.6.
Return of Exchange Fund
. At any time following the twelve (12) month
period after the Effective Time, FNFG shall be entitled to require the Exchange
Agent to deliver to it any portions of the Exchange Fund which had been made
available to the Exchange Agent and not disbursed to holders of Certificates
(including, without limitation, all interest and other income received by the
Exchange Agent in respect of all funds made available to it), and thereafter such
holders shall be entitled to look to FNFG (subject to abandoned property, escheat
and other similar laws) with respect to any Merger Consideration that may be
payable upon due surrender of the Certificates held by them. Notwithstanding the
foregoing, neither FNFG nor the Exchange Agent shall be liable to any holder of a
Certificate for any Merger Consideration delivered in respect of such Certificate
to a public official pursuant to applicable abandoned property, escheat or other
similar law.
3.2.7.
Lost, Stolen or Destroyed Certificates
. In the event any Certificate
shall have been lost, stolen or destroyed, upon the making of an affidavit of that
fact by the person claiming such Certificate to be lost, stolen or destroyed and,
if reasonably required by FNFG, the posting by such person of a bond in such amount
as FNFG may reasonably direct
as indemnity against any claim that may be made against it with respect to
such Certificate, the Exchange Agent will issue in exchange for such lost, stolen
or destroyed Certificate the Merger Consideration deliverable in respect thereof.
3.2.8.
Withholding.
FNFG or the Exchange Agent will be entitled to deduct and
withhold from the consideration otherwise payable pursuant to this Agreement or the
transactions contemplated hereby to any holder of HNC Common Stock such amounts as
FNFG (or any Affiliate thereof) or the Exchange Agent are required to deduct and
withhold with respect to the making of such payment under the Code, or any
applicable provision of U.S. federal, state, local or non-U.S. tax law. To the
extent that such amounts are properly withheld by FNFG or the Exchange Agent, such
withheld amounts will be treated for all purposes of this Agreement as having been
paid to the holder of the HNC Common Stock in respect of whom such deduction and
withholding were made by FNFG or the Exchange Agent.
3.2.9.
Treatment of HNC Options
. HNC Disclosure Schedule 3.2.9 sets forth all
of the outstanding HNC Options as of the date hereof, which schedule includes, for
each option grant, the name of the individual grantee, the date of grant, the
exercise price, the vesting schedule and the expiration date.
(a) At the Effective Time, all HNC Options which are outstanding and
unexercised immediately prior thereto shall become fully vested and exercisable
and be converted, in their entirety, automatically into fully vested and
exercisable options to purchase shares of FNFG Common Stock (the Continuing
Options) in an amount and at an exercise price determined as provided below (and
otherwise subject to the terms of HNC Option Plans):
(1) The number of shares of FNFG Common Stock to be subject to the
Continuing Options shall be equal to the product of the number of shares
of HNC Common Stock subject to the HNC Options and the Exchange Ratio,
provided that any fractional shares of FNFG Common Stock resulting from
such multiplication shall be rounded down to the nearest share; and
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(2) The exercise price per share of FNFG Common Stock under the
Continuing Options shall be equal to the exercise price per share of HNC
Common Stock under the HNC Options divided by the Exchange Ratio, provided
that such exercise price shall be rounded up to the nearest cent.
The adjustment provided herein with respect to any options which are incentive stock options (as
defined in Section 422 of the Internal Revenue Code of 1986, as amended (the Code)) shall be and
is intended to be effected in a manner which is consistent with
Section 424(a) of the Code. The duration and other terms of the Continuing Options shall be the
same as the HNC Options, except that all references to HNC shall be deemed to be references to
FNFG.
(b) At all times after the Effective Time, FNFG shall reserve for issuance
such number of shares of FNFG Common Stock as necessary so as to permit the
exercise of Continuing Options in the manner contemplated by this Agreement and in
the instruments pursuant to which such options were granted.
3.2.10. Continuing Options may be exercised in accordance with the terms of
the HNC Options in effect immediately prior to the Effective Time, subject to
applicable law and regulation.
3.2.11.
Reservation of Shares
. FNFG shall reserve for issuance a sufficient
number of shares of the FNFG Common Stock for the purpose of issuing shares of FNFG
Common Stock to the HNC shareholders in accordance with this Article III.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF HNC
HNC represents and warrants to FNFG that the statements contained in this Article IV
are correct and complete as of the date of this Agreement, except as set forth in the HNC
Disclosure Schedules delivered by HNC to FNFG on the date hereof. HNC has made a good
faith effort to ensure that the disclosure on each schedule of the HNC Disclosure Schedule
corresponds to the section referenced herein. However, for purposes of the HNC Disclosure
Schedule, any item disclosed on any schedule therein is deemed to be fully disclosed with
respect to all schedules under which such item may be relevant as and to the extent that
it is reasonably clear on the face of such schedule that such item applies to such other
schedule. References to the Knowledge of HNC shall include the Knowledge of HNB.
4.1.
Reserved.
4.2.
Organization.
4.2.1. HNC is a corporation duly organized, validly existing and in good
standing under the laws of the Commonwealth of Pennsylvania, and is duly registered
as a bank holding company under the BHCA. HNC has the requisite corporate power
and authority to carry on its business as now conducted and is duly licensed or
qualified to do business in the states of the United States and foreign
jurisdictions where its ownership or leasing of property or the conduct of its
business requires such qualification.
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4.2.2. HNB is a national bank duly organized and validly existing under the
laws of the United States. The deposits of HNB are
insured by the FDIC to the fullest extent permitted by law, and all premiums
and assessments required to be paid in connection therewith have been paid by HNB
when due. HNB is a member in good standing of the FHLB and owns the requisite
amount of stock therein.
4.2.3. HNC Disclosure Schedule 4.2.3 sets forth each HNC Subsidiary. Each HNC
Subsidiary is a corporation, limited liability company or other entity duly
organized, validly existing and in good standing under the laws of its jurisdiction
of incorporation or organization.
4.2.4. The respective minute books of HNC, HNB and each other HNC Subsidiary
accurately records, in all material respects, all material corporate actions of
their respective shareholders and boards of directors (including committees).
4.2.5. Prior to the date of this Agreement, HNC has made available to FNFG
true and correct copies of the articles of incorporation or charter and bylaws of
HNC, HNB and each other HNC Subsidiary.
4.3.
Capitalization.
4.3.1. The authorized capital stock of HNC consists of 200,000,000 shares of
common stock, $1.00 par value per share, of which 43,090,911 shares are
outstanding, validly issued, fully paid and nonassessable and free of preemptive
rights. There are 22,718 shares of HNC Common Stock held by HNC as treasury stock.
Neither HNC nor any HNC Subsidiary has or is bound by any Rights of any character
relating to the purchase, sale or issuance or voting of, or right to receive
dividends or other distributions on any shares of HNC Common Stock, or any other
security of HNC or an HNC Subsidiary or any securities representing the right to
vote, purchase or otherwise receive any shares of HNC Common Stock or any other
security of HNC or any HNC Subsidiary, other than (i) shares issuable under the HNC
Option Plans, (ii) capital securities issued by HNC Statutory Trusts I, II, III and
IV (the Trusts); (iii) debentures issued by HNC to the Trusts; (iv) the
guarantee issued by HNC to the holders of the capital securities issued by the
Trusts, and (v) the warrants listed on HNC Disclosure Schedule 4.3.1. HNC
Disclosure Schedule 4.3.1 sets forth the name of each holder of options to purchase
HNC Common Stock, the number of shares each such individual may acquire pursuant to
the exercise of such options, the grant and vesting dates, and the exercise price
relating to the options held.
4.3.2. HNC owns all of the capital stock of HNB, free and clear of any lien or
encumbrance. Except for the HNC Subsidiaries, HNC does not possess, directly or
indirectly, any material equity interest in any corporate entity, except for equity
interests held in the investment portfolios of HNC Subsidiaries, equity interests
held by HNC Subsidiaries in a fiduciary capacity, and equity interests held in
connection with the lending activities of HNC Subsidiaries, including stock in the
FHLB. Either HNC or HNB owns all of the outstanding shares of capital stock of each
HNC Subsidiary free and clear of all liens, security interests, pledges, charges,
encumbrances, agreements and restrictions of any kind or nature, except that, in
the case of the Trusts, HNC owns 100% of the common securities and less than 100%
of the preferred securities.
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4.3.3. To HNCs Knowledge, no Person or group (as that term is used in
Section 13(d)(3) of the Exchange Act), is the beneficial owner (as defined in
Section 13(d) of the Exchange Act) of 5% or more of the outstanding shares of HNC
Common Stock.
4.4.
Authority; No Violation.
4.4.1. HNC has full corporate power and authority to execute and deliver this
Agreement and, subject to the receipt of the Regulatory Approvals and the approval
of this Agreement by HNCs shareholders, to consummate the transactions
contemplated hereby. The execution and delivery of this Agreement by HNC and the
consummation by HNC of the transactions contemplated hereby, including the Merger,
have been duly and validly approved by the Board of Directors of HNC, and no other
corporate proceedings on the part of HNC, except for the approval of the HNC
shareholders, is necessary to consummate the transactions contemplated hereby,
including the Merger. This Agreement has been duly and validly executed and
delivered by HNC, and subject to approval by the shareholders of HNC and receipt of
the Regulatory Approvals and due and valid execution and delivery of this Agreement
by FNFG, constitutes the valid and binding obligation of HNC, enforceable against
HNC in accordance with its terms, subject to applicable bankruptcy, insolvency and
similar laws affecting creditors rights generally, and subject, as to
enforceability, to general principles of equity.
4.4.2. Subject to receipt of Regulatory Approvals and HNCs and FNFGs
compliance with any conditions contained therein, and to the receipt of the
approval of the shareholders of HNC, (A) the execution and delivery of this
Agreement by HNC, (B) the consummation of the transactions contemplated hereby, and
(C) compliance by HNC with any of the terms or provisions hereof will not (i)
conflict with or result in a breach of any provision of the certificate of
incorporation or bylaws of HNC or any HNC Subsidiary or the charter and bylaws of
HNB; (ii) violate any statute, code, ordinance, rule, regulation, judgment, order,
writ, decree or injunction applicable to HNC or any HNC Subsidiary or any of their
respective properties or assets; or (iii) violate, conflict with, result in a
breach of any provisions of, constitute a default (or an event which, with notice
or lapse of time, or both, would constitute a default), under, result in the
termination of, accelerate the performance required by, or result in a right of
termination or acceleration or the creation of any lien, security interest, charge
or other encumbrance upon any of the properties or assets of HNC or HNB under any
of the terms, conditions or provisions of any
note, bond, mortgage, indenture, deed of trust, license, lease, agreement or
other investment or obligation to which HNC or HNB is a party, or by which they or
any of their respective properties or assets may be bound or affected, except for
such violations, conflicts, breaches or defaults under clause (ii) or (iii) hereof
which, either individually or in the aggregate, will not have a Material Adverse
Effect on HNC and the HNC Subsidiaries taken as a whole.
4.5.
Consents.
Except for (a) filings with Bank Regulators, the receipt of the Regulatory Approvals,
and compliance with any conditions contained therein, (b) the filing of the Certificate of
Merger with the Secretary of State of the State of Delaware, (c) the filing with the SEC
of (i) the Merger Registration Statement and (ii) such reports under Sections 13(a),
13(d), 13(g) and 16(a) of the Exchange Act as may be required in connection with this
Agreement and the transactions
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contemplated hereby and the obtaining from the SEC of such orders as may be required in connection
therewith, (d) approval of the listing of FNFG Common Stock to be issued in the Merger on the
Nasdaq, (e) such filings and approvals as are required to be made or obtained under the securities
or Blue Sky laws of various states in connection with the issuance of the shares of FNFG Common
Stock pursuant to this Agreement, and (f) the approval of this Agreement by the requisite vote of
the shareholders of HNC, no consents, waivers or approvals of, or filings or registrations with,
any Governmental Entity are necessary, and, to HNCs Knowledge, no consents, waivers or approvals
of, or filings or registrations with, any other third parties are necessary, in connection with (x)
the execution and delivery of this Agreement by HNC, and (y) the completion of the Merger and the
Bank Merger by HNC. HNC has no reason to believe that any Regulatory Approvals or other required
consents or approvals will not be received.
4.6.
Financial Statements.
4.6.1. HNC has previously made available to FNFG the HNC Regulatory Reports.
The HNC Regulatory Reports have been prepared in all material respects in
accordance with applicable regulatory accounting principles and practices
throughout the periods covered by such statements.
4.6.2. HNC has previously made available to FNFG the HNC Financial Statements.
The HNC Financial Statements have been prepared in accordance with GAAP, and
(including the related notes where applicable) fairly present in each case in all
material respects (subject in the case of the unaudited interim statements to
normal year-end adjustments and to any other adjustments described therein), the
consolidated financial position, results of operations and cash flows of HNC and
the HNC Subsidiaries on a consolidated basis as of and for the respective periods
ending on the dates thereof, in accordance with GAAP during the periods involved,
except as indicated in the notes thereto, or in
the case of unaudited statements, as permitted by Form 10-Q.
4.6.3. At the date of each balance sheet included in the HNC Financial
Statements or the HNC Regulatory Reports, neither HNC nor HNB, as applicable, had
any liabilities, obligations or loss contingencies of any nature (whether absolute,
accrued, contingent or otherwise) of a type required to be reflected in such HNC
Financial Statements or HNC Regulatory Reports or in the footnotes thereto which
are not fully reflected or reserved against therein or fully disclosed in a
footnote thereto, except for liabilities, obligations and loss contingencies which
are not material individually or in the aggregate or which are incurred in the
ordinary course of business, consistent with past practice, and except for
liabilities, obligations and loss contingencies which are within the subject matter
of a specific representation and warranty herein and subject, in the case of any
unaudited statements, to normal, recurring audit adjustments and the absence of
footnotes.
4.6.4. The records, systems, controls, data and information of HNC and its
Subsidiaries are recorded, stored, maintained and operated under means (including
any electronic, mechanical or photographic process, whether computerized or not)
that are under the exclusive ownership and direct control of HNC or its
Subsidiaries or accountants (including all means of access thereto and there from),
except for any non-exclusive ownership and non-direct control
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that would not reasonably be expected to have a material adverse effect on the system of internal
accounting controls described below in this Section 4.6.4. HNC (x) has implemented and maintains a
system of internal control over financial reporting (as required by Rule 13a-15(a) of the Exchange
Act) that is designed to provide reasonable assurances regarding the reliability of financial
reporting and the preparation of its financial statements for external purposes in accordance with
GAAP, (y) has implemented and maintains disclosure controls and procedures (as defined in Rule
13a-15(e) of the Exchange Act) to ensure that material information relating to HNC, including its
consolidated Subsidiaries, is made known to the chief executive officer and the chief financial
officer of HNC by others within those entities, and (z) has disclosed, based on its most recent
evaluation prior to the date hereof, to HNCs outside auditors and the audit committee of HNCs
Board of Directors (i) any significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting (as defined in Rule 13a-15(f) of the
Exchange Act) which are reasonably likely to adversely affect HNCs ability to record, process,
summarize and report financial information and (ii) any fraud, whether or not material, that
involves management or other employees who have a significant role in HNCs internal control over
financial reporting. These disclosures (if any) were made in writing by management to HNCs
auditors and audit committee and a copy has previously been made available to FNFG. As of the date
hereof, to the knowledge of HNC, its chief executive officer and chief financial officer will be
able to give the certifications required pursuant to the rules and regulations adopted pursuant to
Section 302 of the Sarbanes-Oxley Act, without qualification, when
next due.
4.6.5. Since December 31, 2008, (i) neither HNC nor any of its Subsidiaries
nor, to the Knowledge of HNC, any director, officer, employee, auditor, accountant
or representative of HNC or any of its Subsidiaries has received or otherwise had
or obtained knowledge of any material complaint, allegation, assertion or claim,
whether written or oral, regarding the accounting or auditing practices,
procedures, methodologies or methods of HNC or any of its Subsidiaries or their
respective internal accounting controls, including any material complaint,
allegation, assertion or claim that HNC or any of its Subsidiaries has engaged in
illegal accounting or auditing practices, and (ii) no attorney representing HNC or
any of its Subsidiaries, whether or not employed by HNC or any of its Subsidiaries,
has reported evidence of a material violation of Securities Laws, breach of
fiduciary duty or similar violation by HNC or any of its officers, directors,
employees or agents to the Board of Directors of HNC or any committee thereof or to
any director or officer of HNC.
4.7.
Taxes.
HNC and the HNC Subsidiaries are members of the same affiliated group within the
meaning of Code Section 1504(a). HNC and each HNC Subsidiary has duly filed all federal,
state and material local tax returns required to be filed by or with respect to HNC and
every HNC Subsidiary on or prior to the Closing Date, taking into account any extensions
(all such returns, to HNCs Knowledge, being accurate and correct in all material
respects) and has duly paid or made provisions for the payment of all material federal,
state and local taxes which have been incurred by or are due or claimed to be due from HNC
and any HNC Subsidiary by any taxing authority or pursuant to any written tax sharing
agreement on or prior to the Closing Date other than taxes or other charges which (i) are
not delinquent, (ii) are being contested in good faith, or (iii) have not yet been fully
determined. Except as set forth in HNC Disclosure Schedule 4.7, as of the date of this
Agreement, HNC has received no written notice of, and to HNCs Knowledge
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there is no audit examination, deficiency assessment, tax investigation or refund litigation with
respect to any taxes of HNC or any HNC Subsidiary, and no written claim has been made by any
authority in a jurisdiction where HNC or any HNC Subsidiary does not file tax returns that HNC or
any HNC Subsidiary is subject to taxation in that jurisdiction. HNC and the HNC Subsidiaries have
not executed an extension or waiver of any statute of limitations on the assessment or collection
of any material tax due that is currently in effect. HNC and each HNC Subsidiary has withheld and
paid all taxes required to have been withheld and paid in connection with amounts paid or owing to
any employee, independent contractor, creditor, shareholder or other third party, and HNC and each
HNC Subsidiary, to HNCs Knowledge, has timely complied with all applicable information reporting
requirements under Part III, Subchapter A of Chapter 61 of the Code and similar applicable state
and local information reporting requirements.
4.8.
No Material Adverse Effect.
HNC has not suffered any Material Adverse Effect since March 31, 2009 and no event
has occurred or circumstance arisen since that date which, in the aggregate, has had or is
reasonably likely to have a Material Adverse Effect on HNC.
4.9.
Material Contracts; Leases; Defaults.
4.9.1. Except as set forth in HNC Disclosure Schedule 4.9.1, neither HNC nor
any HNC Subsidiary is a party to or subject to: (i) any employment, consulting or
severance contract or material arrangement with any past or present officer,
director or employee of HNC or any HNC Subsidiary, except for at will
arrangements; (ii) any plan, material arrangement or contract providing for
bonuses, pensions, options, deferred compensation, retirement payments, profit
sharing or similar material arrangements for or with any past or present officers,
directors or employees of HNC or any HNC Subsidiary; (iii) any collective
bargaining agreement with any labor union relating to employees of HNC or any HNC
Subsidiary; (iv) any agreement which by its terms limits the payment of dividends
by HNC or any HNC Subsidiary; (v) any instrument evidencing or related to material
indebtedness for borrowed money whether directly or indirectly, by way of purchase
money obligation, conditional sale, lease purchase, guaranty or otherwise, in
respect of which HNC or any HNC Subsidiary is an obligor to any person, which
instrument evidences or relates to indebtedness other than deposits, repurchase
agreements, FHLB advances, bankers acceptances, and treasury tax and loan
accounts and transactions in federal funds in each case established in the
ordinary course of business consistent with past practice, or which contains
financial covenants or other restrictions (other than those relating to the payment
of principal and interest when due) which would be applicable on or after the
Closing Date to FNFG or any FNFG Subsidiary; (vi) any other agreement, written or
oral, that obligates HNC or any HNC Subsidiary for the payment of more than $50,000
annually or for the payment of more than $100,000 over its remaining term, which is
not terminable without cause on 60 days or less notice without penalty or payment
(other than agreements for commercially available off-the-shelf software), or
(vii) any agreement (other than this Agreement), contract, arrangement, commitment
or understanding (whether written or oral) that restricts or limits in any material
way the conduct of business by HNC or any HNC Subsidiary (it being understood that
any non-compete or similar provision shall be deemed material, but any limitation
on the scope of any license granted under any such agreement shall not be deemed
material).
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4.9.2. Each real estate lease that requires the consent of the lessor or its
agent resulting from the Merger or the Bank Merger by virtue
of the terms of any such lease, is listed in HNC Disclosure Schedule 4.9.2
identifying the section of the lease that contains such prohibition or restriction.
Subject to any consents that may be required as a result of the transactions
contemplated by this Agreement, to its Knowledge, neither HNC nor any HNC
Subsidiary is in default in any material respect under any material contract,
agreement, commitment, arrangement, lease, insurance policy or other instrument to
which it is a party, by which its assets, business, or operations may be bound or
affected, or under which it or its assets, business, or operations receive
benefits, and there has not occurred any event that, with the lapse of time or the
giving of notice or both, would constitute such a default.
4.9.3. True and correct copies of agreements, contracts, arrangements and
instruments referred to in Section 4.9.1 and 4.9.2 (Material Contracts) have
been made available to FNFG on or before the date hereof, and are in full force
and effect on the date hereof and neither HNC nor any HNC Subsidiary (nor, to the
Knowledge of HNC, any other party to any such contract, arrangement or instrument)
has materially breached any provision of, or is in default in any respect under
any term of, any Material Contract. Except as listed on HNC Disclosure Schedule
4.9.3, no party to any Material Contract will have the right to terminate any or
all of the provisions of any such Material Contract as a result of the execution
of, and the consummation of the transactions contemplated by, this Agreement.
4.9.4. Since December 31, 2008, through and including the date of this
Agreement, except as publicly disclosed by HNC in the Securities Documents filed or
furnished by HNC prior to the date hereof, neither HNC nor any HNC Subsidiary has
(i) except for (A) normal increases for employees (other than officers and
directors subject to the reporting requirements of Section 16(a) of the Exchange
Act) made in the ordinary course of business consistent with past practice, or (B)
as required by applicable law, increased the wages, salaries, compensation,
pension, or other fringe benefits or perquisites payable to any executive officer,
employee, or director from the amount thereof in effect as of December 31, 2008
(which amounts have been previously made available to FNFG), granted any severance
or termination pay, entered into any contract to make or grant any severance or
termination pay (except as required under the terms of agreements or severance
plans listed on HNC Disclosure Schedule 4.13.1, as in effect as of the date
hereof), or paid any bonus other than the customary year-end bonuses in amounts
consistent with past practice, (ii) granted any options to purchase shares of HNC
Common Stock, or any right to acquire any shares of its capital stock to any
executive officer, director or employee other than grants to employees (other than
officers subject to the reporting requirements of Section 16(a) of the Exchange
Act) made in the ordinary course of business consistent with past practice under
HNC Option Plans, (iii) increased or established
any bonus, insurance, severance, deferred compensation, pension, retirement,
profit sharing, stock option (including, without limitation, the granting of stock
options, stock appreciation rights, performance awards, or restricted stock
awards), stock purchase or other employee benefit plan, (iv) made any material
election for federal or state income tax purposes, (v) made any material change in
the credit policies or procedures of HNC or any of its Subsidiaries, the effect of
which was or is to make any such policy or procedure less restrictive in any
material respect, (vi) made any material acquisition or disposition of any assets
or properties, or any contract for any such acquisition or disposition entered into
other than loans and loan commitments, (vii) entered into any lease of real or
personal property requiring annual payments in excess of $100,000, other than
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in connection with foreclosed property or in the ordinary course of business consistent with past
practice, (viii) changed any accounting methods, principles or practices of HNC or its Subsidiaries
affecting its assets, liabilities or businesses, including any reserving, renewal or residual
method, practice or policy or (ix) suffered any strike, work stoppage, slow-down, or other labor
disturbance.
4.10.
Ownership of Property; Insurance Coverage.
4.10.1. HNC and each HNC Subsidiary has good and, as to real property,
marketable title to all material assets and properties owned by HNC or each HNC
Subsidiary in the conduct of its businesses, whether such assets and properties are
real or personal, tangible or intangible, including assets and property reflected
in the balance sheets contained in the HNC Regulatory Reports and in the HNC
Financial Statements or acquired subsequent thereto (except to the extent that such
assets and properties have been disposed of in the ordinary course of business,
since the date of such balance sheets), subject to no material encumbrances, liens,
mortgages, security interests or pledges, except (i) those items which secure
liabilities for public or statutory obligations or any discount with, borrowing
from or other obligations to FHLB, inter-bank credit facilities, or any transaction
by an HNC Subsidiary acting in a fiduciary capacity, (ii) statutory liens for
amounts not yet delinquent or which are being contested in good faith, (iii)
non-monetary liens affecting real property which do not adversely affect the value
or use of such real property, and (iv) those described and reflected in the HNC
Financial Statements. HNC and the HNC Subsidiaries, as lessee, have the right under
valid and existing leases of real and personal properties used by HNC and its
Subsidiaries in the conduct of their businesses to occupy or use all such
properties as presently occupied and used by each of them.
4.10.2. With respect to all material agreements pursuant to which HNC or any
HNC Subsidiary has purchased securities subject to an agreement to resell, if any,
HNC or such HNC Subsidiary, as the case may be, has a lien or security interest
(which to HNCs Knowledge is a valid,
perfected first lien) in the securities or other collateral securing the
repurchase agreement, and the value of such collateral equals or exceeds the amount
of the debt secured thereby.
4.10.3. HNC and each HNC Subsidiary currently maintain insurance considered by
each of them to be reasonable for their respective operations. Neither HNC nor any
HNC Subsidiary, except as disclosed in HNC Disclosure Schedule 4.10.3, has received
notice from any insurance carrier during the past five years that (i) such
insurance will be canceled or that coverage thereunder will be reduced or
eliminated, or (ii) premium costs (other than with respect to health or disability
insurance) with respect to such policies of insurance will be substantially
increased. There are presently no material claims pending under such policies of
insurance and no notices have been given by HNC or any HNC Subsidiary under such
policies (other than with respect to health or disability insurance). All such
insurance is valid and enforceable and in full force and effect, and within the
last three years HNC and each HNC Subsidiary has received each type of insurance
coverage for which it has applied and during such periods has not been denied
indemnification for any material claims submitted under any of its insurance
policies. HNC Disclosure Schedule 4.10.3 identifies all material policies of
insurance maintained by HNC and each HNC Subsidiary as well as the other matters
required to be disclosed under this Section.
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4.11.
Legal Proceedings.
Neither HNC nor any HNC Subsidiary is a party to any, and there are no pending or, to
HNCs Knowledge, threatened legal, administrative, arbitration or other proceedings,
claims (whether asserted or unasserted), actions or governmental investigations or
inquiries of any nature (i) against HNC or any HNC Subsidiary, (ii) to which HNC or any
HNC Subsidiarys assets are or may be subject, (iii) challenging the validity or propriety
of any of the transactions contemplated by this Agreement, or (iv) which could adversely
affect the ability of HNC or HNB to perform under this Agreement, except for any
proceeding, claim, action, investigation or inquiry which, if adversely determined,
individually or in the aggregate, would not be reasonably expected to have a Material
Adverse Effect on HNC.
4.12.
Compliance With Applicable Law.
4.12.1. To HNCs Knowledge, each of HNC and each HNC Subsidiary is in
compliance in all material respects with all applicable federal, state, local and
foreign statutes, laws, regulations, ordinances, rules, judgments, orders or
decrees applicable to it, its properties, assets and deposits, its business, and
its conduct of business and its relationship with its employees, including, without
limitation, the USA PATRIOT Act, the Equal Credit Opportunity Act, the Fair Housing
Act, the Community Reinvestment Act of 1977, the Home Mortgage Disclosure Act, and
all
other applicable fair lending laws and other laws relating to discriminatory
business practices and neither HNC nor any HNC Subsidiary has received any written
notice to the contrary. The Board of Directors of HNB has adopted and HNB has
implemented an anti-money laundering program that contains adequate and appropriate
customer identification verification procedures that has not been deemed
ineffective by any Governmental Entity and that meets the requirements of Sections
352 and 326 of the USA PATRIOT Act and the regulations thereunder.
4.12.2. Each of HNC and each HNC Subsidiary has all material permits,
licenses, authorizations, orders and approvals of, and has made all filings,
applications and registrations with, all Governmental Entities and Bank Regulators
that are required in order to permit it to own or lease its properties and to
conduct its business as presently conducted except where the failure to hold such
permits, licensees, authorizations, orders or approvals, or the failure to make
such filings, applications or registrations would not, individually or in the
aggregate, reasonably be expected to have a Material Adverse Effect on HNC; all
such permits, licenses, certificates of authority, orders and approvals are in full
force and effect in all material respects and, to the Knowledge of HNC, no
suspension or cancellation of any such permit, license, certificate, order or
approval is threatened or will result from the consummation of the transactions
contemplated by this Agreement, subject to obtaining Regulatory Approvals.
4.12.3. Other than those listed on HNC Disclosure Schedule 4.12.3, for the
period beginning January 1, 2007, neither HNC nor any HNC Subsidiary has received
any written notification or, to HNCs Knowledge, any other communication from any
Bank Regulator (i) asserting that HNC or any HNC Subsidiary is not in material
compliance with any of the statutes, regulations or ordinances which such Bank
Regulator enforces; (ii) threatening to revoke any license, franchise, permit or
governmental authorization which is material to HNC or any HNC Subsidiary; (iii)
requiring, or threatening to require, HNC or any HNC Subsidiary, or indicating
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that HNC or any HNC Subsidiary may be required, to enter into a cease and desist order, agreement
or memorandum of understanding or any other agreement with any federal or state governmental agency
or authority which is charged with the supervision or regulation of banks or engages in the
insurance of bank deposits restricting or limiting, or purporting to restrict or limit, in any
material respect the operations of HNC or any HNC Subsidiary, including without limitation any
restriction on the payment of dividends; or (iv) directing, restricting or limiting, or purporting
to direct, restrict or limit, in any manner the operations of HNC or any HNC Subsidiary, including
without limitation any restriction on the payment of dividends (any such notice, communication,
memorandum, agreement or order described in this sentence is hereinafter referred to as a HNC
Regulatory Agreement). Neither HNC nor any HNC Subsidiary has consented to or
entered into any HNC Regulatory Agreement that is currently in effect or that was in effect since
January 1, 2008. The most recent regulatory rating given to HNB as to compliance with the
Community Reinvestment Act (CRA) is satisfactory or better.
4.12.4. Since January 1, 2007, HNC has been and is in compliance in all
material respects with (i) the applicable provisions of the Sarbanes-Oxley Act and
(ii) the applicable listing and corporate governance rules and regulations of the
Nasdaq. HNC Disclosure Schedule 4.12.4 sets forth, as of December 31, 2008, a
schedule of all executive officers and directors of HNC who have outstanding loans
from HNC or HNB, and there has been no default on, or forgiveness or waiver of, in
whole or in part, any such loan during the two years immediately preceding the date
hereof.
4.13.
Employee Benefit Plans.
4.13.1. HNC Disclosure Schedule 4.13.1 includes a list of all existing bonus,
incentive, deferred compensation, supplemental executive retirement plans, pension,
retirement, profit-sharing, thrift, savings, employee stock ownership, stock bonus,
stock purchase, restricted stock, stock option, stock appreciation, phantom stock,
severance, welfare benefit plans (including paid time off policies and other
material benefit policies and procedures), fringe benefit plans, employment,
consulting, settlement and change in control agreements and all other material
benefit practices, policies and arrangements maintained by HNC or any HNC
Subsidiary in which any employee or former employee, consultant or former
consultant or director or former director of HNC or any HNC Subsidiary participates
or to which any such employee, consultant or director is a party or is otherwise
entitled to receive benefits (the HNC Compensation and Benefit Plans). Neither
HNC nor any HNC Subsidiary has any commitment to create any additional HNC
Compensation and Benefit Plan or to materially modify, change or renew any existing
HNC Compensation and Benefit Plan (any modification or change that increases the
cost of such plans would be deemed material), except as required to maintain the
qualified status thereof, HNC has made available to FNFG true and correct copies of
the HNC Compensation and Benefit Plans.
4.13.2. To the Knowledge of HNC, HNB and HMS and except as disclosed in HNC
Disclosure Schedule 4.13.2, each HNC Compensation and Benefit Plan has been
operated and administered in all material respects in accordance with its terms and
with applicable law, including, but not limited to, ERISA, the Code, the Securities
Act, the Exchange Act, the Age Discrimination in Employment Act, COBRA, the Health
Insurance Portability and Accountability Act (HIPAA) and any regulations or rules
promulgated thereunder, and all material filings,
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disclosures and notices required by ERISA, the Code, the Securities Act, the Exchange
Act, the Age Discrimination in Employment Act, COBRA and HIPAA and any other applicable law have
been timely made or any interest, fines, penalties or other impositions for late filings have been
paid in full. Each HNC Compensation and Benefit Plan which is an employee pension benefit plan
within the meaning of Section 3(2) of ERISA (a Pension Plan) and which is intended to be
qualified under Section 401(a) of the Code has received a favorable determination letter from the
IRS, and HNC is not aware of any circumstances which are reasonably likely to result in revocation
of any such favorable determination letter. There is no material pending or, to the Knowledge of
HNC, HNB and HMS, threatened action, suit or claim relating to any of the HNC Compensation and
Benefit Plans (other than routine claims for benefits). Neither HNC nor any HNC Subsidiary has
engaged in a transaction, or omitted to take any action, with respect to any HNC Compensation and
Benefit Plan that would reasonably be expected to subject HNC or any HNC Subsidiary to a material
unpaid tax or penalty imposed by either Section 4975 of the Code or Section 502 of ERISA.
4.13.3. No liability under Title IV of ERISA has been incurred by HNC or any
HNC Subsidiary with respect to any HNC Compensation and Benefit Plan which is
subject to Title IV of ERISA (HNC Pension Plan) currently or formerly maintained
by HNC or any entity which is considered one employer with HNC under Section
4001(b)(1) of ERISA or Section 414 of the Code (an HNC ERISA Affiliate) since the
effective date of ERISA that has not been satisfied in full, and no condition
exists that presents a material risk to HNC or any HNC ERISA Affiliate of incurring
a liability under such Title. No HNC Pension Plan had an accumulated funding
deficiency (as defined in Section 302 of ERISA), whether or not waived, as of the
last day of the end of the most recent plan year ending prior to the date hereof;
the fair market value of the assets of each HNC Pension Plan exceeds the present
value of the benefit liabilities (as defined in Section 4001(a)(16) of ERISA)
under such HNC Pension Plan as of the end of the most recent plan year with respect
to the respective HNC Pension Plan ending prior to the date hereof, calculated on
the basis of the actuarial assumptions used in the most recent actuarial valuation
for such HNC Pension Plan as of the date hereof; there is not currently pending
with the PBGC any filing with respect to any reportable event under Section 4043 of
ERISA nor has any reportable event occurred as to which a filing is required and
has not been made (other than as might be required with respect to this Agreement
and the transactions contemplated thereby). Neither HNC nor any HNC ERISA
Affiliate has contributed to any multiemployer plan, as defined in Section 3(37)
of ERISA. Neither HNC, nor any HNC ERISA Affiliate, nor any HNC Compensation and
Benefit Plan, including any HNC Pension Plan, nor any trust created thereunder, nor
any trustee or administrator thereof has engaged in a transaction in connection
with which HNC, any HNC ERISA Affiliate, and any HNC Compensation and Benefit Plan,
including any HNC Pension Plan or any such trust or any trustee or administrator
thereof, could reasonably be expected to be subject to either a civil liability or
penalty pursuant to Section 409, 502(i)
or 502(l) of ERISA or a tax imposed pursuant to Chapter 43 of the Code.
4.13.4. All material contributions required to be made under the terms of any
HNC Compensation and Benefit Plan have been timely made, and all anticipated
contributions and funding obligations are accrued on HNCs consolidated financial
statements to the extent required by GAAP. HNC and each HNC Subsidiary has
expensed and accrued as a liability the present
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value of future benefits under each applicable HNC Compensation and Benefit Plan for financial
reporting purposes as required by GAAP.
4.13.5. Neither HNC nor any HNC Subsidiary has any obligations to provide
retiree health, life insurance, or disability insurance, or, except as set forth in
HNC Disclosure Schedule 4.13.5, any retiree death benefits under any HNC
Compensation and Benefit Plan, other than benefits mandated by Section 4980B of the
Code. Except as set forth in HNC Disclosure Schedule 4.13.5, there has been no
communication to employees by HNC or any HNC Subsidiary that would reasonably be
expected to promise or guarantee such employees retiree health, life insurance, or
disability insurance, or any retiree death benefits, other than as set forth in HNC
Disclosure Schedule 4.13.5.
4.13.6. HNC and its Subsidiaries do not maintain any HNC Compensation and
Benefit Plans covering employees who are not United States residents.
4.13.7. With respect to each HNC Compensation and Benefit Plan, if applicable,
HNC has provided or made available to FNFG copies of the: (A) trust instruments
and insurance contracts; (B) three most recent Forms 5500 filed with the IRS; (C)
three most recent actuarial reports and financial statements; (D) most recent
summary plan description; (E) most recent determination letter issued by the IRS;
(F) any Form 5310 or Form 5330 filed with the IRS within the last three years; (G)
most recent nondiscrimination tests performed under ERISA and the Code (including
401(k) and 401(m) tests); and (H) PBGC Form 500 and 501 filings, along with the
Notice of Intent to Terminate, ERISA Section 204(h) Notice, Notice of Plan
Benefits, and all other documentation related to the termination of the HNC Pension
Plan.
4.13.8. Except as provided in HNC Disclosure Schedule 4.13.8 and in Section
3.2.9, the consummation of the Merger will not, directly or indirectly (including,
without limitation, as a result of any termination of employment or service at any
time prior to or following the Effective Time) (A) entitle any employee, consultant
or director to any payment or benefit (including severance pay, change in control
benefit, or similar compensation) or any increase in compensation, (B) entitle any
employee or independent contractor to terminate any plan, agreement or
arrangement without cause and continue to accrue future benefits thereunder, or
result in the vesting or acceleration of any benefits under any HNC Compensation
and Benefit Plan, (C) result in any material increase in benefits payable under
any HNC Compensation and Benefit Plan, or (D) entitle any current or former
employee, director or independent contractor of HNC or any HNC Subsidiary to any
actual or deemed payment (or benefit) which could constitute a parachute payment
(as such term is defined in Section 280G of the Code).
4.13.9. Except as disclosed in HNC Disclosure Schedule 4.13.9, neither HNC nor
any HNC Subsidiary maintains any compensation plans, programs or arrangements under
which any payment is reasonably likely to become non-deductible, in whole or in
part, for tax reporting purposes as a result of the limitations under Section
162(m) of the Code and the regulations issued thereunder.
4.13.10. Except as disclosed in HNC Disclosure Schedule 4.13.10, all deferred
compensation plans, programs or arrangements are in material compliance, both in
form and operation, with Section 409A of the Code and all guidance issued
thereunder.
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4.13.11. Except as disclosed in HNC Disclosure Schedule 4.13.11, there are no
stock options, stock appreciation or similar rights, earned dividends or dividend
equivalents, or shares of restricted stock, outstanding under any of the HNC
Compensation and Benefit Plans or otherwise as of the date hereof and none will be
granted, awarded, or credited after the date hereof.
4.13.12. HNC Disclosure Schedule 4.13.12 sets forth, as of the payroll date
immediately preceding the date of this Agreement, a list of the full names of all
officers, and employees whose annual rate of salary is $50,000 or greater, of HNB
or HNC, their title and rate of salary, and their date of hire.
4.14.
Brokers, Finders and Financial Advisors.
Neither HNC nor any HNC Subsidiary, nor any of their respective officers, directors,
employees or agents, has employed any broker, finder or financial advisor in connection
with the transactions contemplated by this Agreement, or incurred any liability or
commitment for any fees or commissions to any such person in connection with the
transactions contemplated by this Agreement except for the retention of JPMorgan
Securities, Inc. (JP Morgan) by HNC and the fee payable pursuant thereto. A true and
correct copy of the engagement agreement with JPMorgan, setting forth the fee payable to
JPMorgan for its services rendered to HNC in connection with the Merger and transactions
contemplated by this Agreement, is attached to HNC Disclosure Schedule 4.14.
4.15.
Environmental Matters.
4.15.1. Except as may be set forth in HNC Disclosure Schedule 4.15 and any
Phase I Environmental Report identified therein, with respect to HNC and each HNC
Subsidiary:
(A) To the Knowledge of HNC, neither the conduct nor operation of its
business nor any condition of any property currently or previously owned
or operated by it (including Participation Facilities) (including, without
limitation, in a fiduciary or agency capacity), or on which it holds a
lien, results or resulted in a violation of any Environmental Laws that is
reasonably likely to impose a material liability (including a material
remediation obligation) upon HNC or any HNC Subsidiary. To the Knowledge
of HNC, no condition has existed or event has occurred with respect to any
of them or any such property that, with notice or the passage of time, or
both, is reasonably likely to result in any material liability to HNC or
any HNC Subsidiary by reason of any Environmental Laws. Neither HNC nor
any HNC Subsidiary during the past five years has received any written
notice from any Person or Governmental Entity that HNC or any HNC
Subsidiary or the operation or condition of any property ever owned,
operated (including Participation Facilities), or held as collateral or in
a fiduciary capacity by any of them are currently in violation of or
otherwise are alleged to have liability under any Environmental Laws or
relating to Materials of Environmental Concern (including, but not limited
to, responsibility (or potential responsibility) for the cleanup or other
remediation of any Materials of Environmental Concern at, on, beneath, or
originating from any such property) for which a material liability is
reasonably likely to be imposed upon HNC or any HNC Subsidiary;
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(B) There is no suit, claim, action, demand, executive or
administrative order, directive, investigation or proceeding pending or,
to the HNC s Knowledge, threatened, before any court, governmental agency
or other forum against HNC or any HNC Subsidiary (x) for alleged
noncompliance (including by any predecessor) with, or liability under, any
Environmental Law or (y) relating to the presence of or release (defined
herein) into the environment of any Materials of Environmental Concern (as
defined herein), whether or not occurring at or on a site owned, leased or
operated by HNC or any HNC Subsidiary;
(C) To HNCs Knowledge, there are no underground storage tanks on, in
or under any properties owned or operated by HNC or any of the HNC
Subsidiaries, and to HNCs Knowledge, no underground storage tanks have
been closed or
removed from any properties owned or operated by HNC or any of the
HNC Subsidiaries or any Participation Facility except in compliance with
Environmental Laws in all material respects; and
(D) Participation Facility means any facility in which HNC or its
Subsidiaries participates in the management, whether as a fiduciary,
lender in control of the facility, owner or operator.
4.16.
Loan Portfolio.
4.16.1. The allowance for loan losses reflected in HNCs audited consolidated
balance sheet at December 31, 2008 was, and the allowance for loan losses shown on
the balance sheets in HNCs Securities Documents for periods ending after December
31, 2008 was, adequate, as of the date thereof, under GAAP.
4.16.2. HNC Disclosure Schedule 4.16.2 sets forth a listing, as of June 30,
2009, by account, of: (A) all loans (including loan participations) of HNB or any
other HNC Subsidiary that have been accelerated during the past twelve months; (B)
all loan commitments or lines of credit of HNB or any other HNC Subsidiary which
have been terminated by HNB or any other HNC Subsidiary during the past twelve
months by reason of a default or adverse developments in the condition of the
borrower or other events or circumstances affecting the credit of the borrower; (C)
each borrower, customer or other party which has notified HNB or any other HNC
Subsidiary during the past twelve months of, or has asserted against HNB or any
other HNC Subsidiary, in each case in writing, any lender liability or similar
claim, and, to the Knowledge of HNB, each borrower, customer or other party which
has given HNB or any other HNC Subsidiary any oral notification of, or orally
asserted to or against HNB or any other HNC Subsidiary, any such claim; (D) all
loans, (1) that are contractually past due 90 days or more in the payment of
principal and/or interest, (2) that are on non-accrual status, (3) that as of the
date of this Agreement are classified as Other Loans Specially Mentioned,
Special Mention, Substandard, Doubtful, Loss, Classified, Criticized,
Watch list or words of similar import, together with the principal amount of and
accrued and unpaid interest on each such Loan and the identity of the obligor
thereunder, (4) where, during the past three years, the interest rate terms have
been reduced and/or the maturity dates have been extended subsequent to the
agreement under which the loan was originally created due to concerns regarding the
borrowers ability to pay in accordance with such initial terms, or (5) where a
specific reserve allocation exists in connection therewith, and (E) all assets
classified by HNB or any HNB Subsidiary as real estate acquired through foreclosure
or in lieu of foreclosure, including in-substance
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foreclosures, and all other assets currently held that were acquired through foreclosure or in lieu
of foreclosure. Disclosure Schedule 4.16.2 may exclude any individual loan with a principal
outstanding balance of less than $50,000.
4.16.3. All loans receivable (including discounts) and accrued interest
entered on the books of HNC and the HNC Subsidiaries arose out of bona fide
arms-length transactions, were made for good and valuable consideration in the
ordinary course of HNCs or the appropriate HNC Subsidiarys respective business,
and the notes or other evidences of indebtedness with respect to such loans
(including discounts) are true and genuine and are what they purport to be. To the
Knowledge of HNC, the loans, discounts and the accrued interest reflected on the
books of HNC and the HNC Subsidiaries are subject to no defenses, set-offs or
counterclaims (including, without limitation, those afforded by usury or
truth-in-lending laws), except as may be provided by bankruptcy, insolvency or
similar laws affecting creditors rights generally or by general principles of
equity. All such loans are owned by HNC or the appropriate HNC Subsidiary free and
clear of any liens. Disclosure Schedule 4.16.3 may exclude any individual loan with
a principal outstanding balance of less than $50,000.
4.16.4. The notes and other evidences of indebtedness evidencing the loans
described above, and all pledges, mortgages, deeds of trust and other collateral
documents or security instruments relating thereto are, in all material respects,
valid, true and genuine, and what they purport to be.
4.17.
Securities Documents.
HNC has made available to FNFG copies of its (i) annual reports on Form 10-K for the
years ended December 31, 2008, 2007 and 2006, (ii) quarterly reports on Form 10-Q for the
quarter ended March 31, 2009, and (iii) proxy materials used or for use in connection with
its meetings of shareholders held in 2009, 2008 and 2007. Such reports, prospectus and
proxy materials complied, as to form, at the time filed with the SEC, in all material
respects, with the Securities Laws.
4.18.
Related Party Transactions.
Except as described in HNCs Proxy Statement distributed in connection with the
annual meeting of shareholders held in April 2009 (which has previously been provided to
FNFG), or as set forth in HNC Disclosure Schedule 4.18, neither HNC nor any HNC Subsidiary
is a party to any transaction (including any loan or other credit accommodation) with any
Affiliate of HNC or any HNC Affiliate. All such transactions (a) were made in the ordinary
course of business, (b) were made on substantially the same terms, including interest
rates and collateral, as those prevailing at the time for comparable transactions with
other Persons, and (c) did not involve substantially more than the normal risk of
collectability or present other unfavorable features (as such terms are used under
Item 404 of SEC Regulation S-K promulgated under the Securities Act and the Exchange Act).
No loan or credit accommodation to any Affiliate of HNC or any HNC Subsidiary is presently
in default or, during the three year period prior to the date of this Agreement, has been
in default or has been restructured, modified or extended. To the Knowledge of HNC,
neither HNC nor any HNC Subsidiary has been notified that principal and interest with
respect to any such loan or other credit accommodation will not be paid when due
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or that the loan grade classification accorded such loan or credit accommodation by HNC is
inappropriate.
4.19.
Deposits.
As of the date of this Agreement, none of the deposits of HNC or any HNC Subsidiary is
a brokered deposit as defined in 12 CFR Section 337.6(a)(2).
4.20.
Antitakeover Provisions Inapplicable; Required Vote.
Assuming the accuracy of the representations and warranties of FNFG set forth in
Section 5.18, the Board of Directors of HNC, to the extent such statute is applicable,
taken all action (including appropriate approvals of the Board of Directors of HNC)
necessary to exempt FNFG, the Merger, the Merger Agreement and the transactions
contemplated hereby from Chapter 25 of the PBCL. Assuming the accuracy of the
representations and warranties of FNFG set forth in Section 5.18, the affirmative vote of a
majority of the issued and outstanding shares of HNC Common Stock is required to approve
this Agreement and the Merger under HNCs certificate of incorporation and the PBCL. HNC
shareholders do not have dissenters rights with respect to the Merger under the PBCL.
4.21.
Registration Obligations.
Neither HNC nor any HNC Subsidiary is under any obligation, contingent or otherwise,
which will survive the Effective Time by reason of any agreement to register any
transaction involving any of its securities under the Securities Act.
4.22.
Risk Management Instruments.
All material interest rate swaps, caps, floors, option agreements, futures and forward
contracts and other similar risk management arrangements, whether entered into for HNCs
own account, or for the account of one or more of HNCs Subsidiaries or their customers
(all of which are set forth in HNC Disclosure Schedule 4.22), were in all material respects
entered into in compliance with all applicable laws, rules, regulations and regulatory
policies, and to the Knowledge of HNC, with counterparties believed to be financially
responsible at the time; and to HNCs Knowledge each of them constitutes the valid and
legally binding obligation of HNC or one of its Subsidiaries, enforceable in accordance
with its
terms (except as enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium, fraudulent transfer and similar laws of general applicability
relating to or affecting creditors rights or by general equity principles), and is in full
force and effect. Neither HNC nor any HNC Subsidiary, nor to the Knowledge of HNC any
other party thereto, is in breach of any of its obligations under any such agreement or
arrangement in any material respect.
4.23.
Fairness Opinion.
HNC has received a written opinion from JP Morgan to the effect that, subject to the
terms, conditions and qualifications set forth therein, as of the date hereof, the Exchange
Ratio (assuming that the level of HNC Delinquent Loans will not result in any adjustment)
to be received by the shareholders of HNC pursuant to this Agreement is fair to such
shareholders
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from a financial point of view. Such opinion has not been amended or rescinded as of the date of
this Agreement.
4.24.
Trust Accounts.
HNB and each of its subsidiaries has properly administered all accounts for which it
acts as a fiduciary, including but not limited to accounts for which it serves as trustee,
agent, custodian, personal representative, guardian, conservator or investment advisor, in
accordance with the terms of the governing documents and applicable laws and regulations.
Neither HNB nor any other HNC Subsidiary, and to the Knowledge of HNC, nor has any of their
respective directors, officers or employees, committed any breach of trust with respect to
any such fiduciary account and the records for each such fiduciary account.
4.25.
Intellectual Property.
HNC and each HNC Subsidiary owns or, to HNCs Knowledge, possesses valid and binding
licenses and other rights (subject to expirations in accordance with their terms) to use
all patents, copyrights, trade secrets, trade names, service marks and trademarks, which
are material to the conduct of their business as currently conducted, each without payment,
except for all license agreements under which license fees or other payments are due in the
ordinary course of HNCs or each of HNCs Subsidiaries business, and neither HNC nor any
HNC Subsidiary has received any notice of conflict with respect thereto that asserts the
rights of others. HNC and each HNC Subsidiary has performed all the material obligations
required to be performed, and are not in default in any respect, under any contract,
agreement, arrangement or commitment relating to any of the foregoing. To the Knowledge of
HNC, the conduct of the business of HNC and each HNC Subsidiary as currently conducted or
proposed to be conducted does not, in any material respect, infringe upon, dilute,
misappropriate or otherwise violate any intellectual property owned or controlled by any
third party.
4.26.
Labor Matters.
There are no labor or collective bargaining agreements to which HNC or any HNC
Subsidiary is a party. To the Knowledge of HNC, there is no union organizing effort
pending or to the Knowledge of HNC, threatened against HNC or any HNC Subsidiary. There is
no labor strike, labor dispute (other than routine employee grievances that are not related
to union employees), work slowdown, stoppage or lockout pending or, to the Knowledge of
HNC, threatened against HNC or any HNC Subsidiary. There is no unfair labor practice or
labor arbitration proceeding pending or, to the Knowledge of HNC, threatened against HNC or
any HNC Subsidiary (other than routine employee grievances that are not related to union
employees). HNC and each HNC Subsidiary is in compliance in all material respects with all
applicable laws respecting employment and employment practices, terms and conditions of
employment and wages and hours, and are not engaged in any unfair labor practice.
4.27.
HNC Information Supplied.
The information relating to HNC and any HNC Subsidiary to be contained in the Merger
Registration Statement, or in any other document filed with any Bank Regulator or other
Governmental Entity in connection herewith, will not contain any untrue statement of a
material
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fact or omit to state a material fact necessary to make the statements therein, in light of the
circumstances in which they are made, not misleading.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF FNFG
FNFG represents and warrants to HNC that the statements contained in this Article V
are correct and complete as of the date of this Agreement, except as set forth in the FNFG
Disclosure Schedules delivered by FNFG to HNC on the date hereof. FNFG has made a good
faith effort to ensure that the disclosure on each schedule of the FNFG Disclosure
Schedule corresponds to the section referenced herein. However, for purposes of the FNFG
Disclosure Schedule, any item disclosed on any schedule therein is deemed to be fully
disclosed with respect to all schedules under which such item may be relevant as and to
the extent that it is reasonably clear on the face of such schedule that such item applies
to such other schedule. References to the Knowledge of FNFG shall include the Knowledge
of First Niagara Bank and First Niagara Commercial Bank.
5.1.
Reserved.
5.2.
Organization.
5.2.1. FNFG is a corporation duly organized, validly existing and in good
standing under the laws of the State of Delaware, and is duly registered as a
savings and loan holding company under the HOLA. FNFG has full corporate power and
authority to carry on its business as now conducted and is duly licensed or
qualified to do business
in the states of the United States and foreign jurisdictions where its
ownership or leasing of property or the conduct of its business requires such
qualification.
5.2.2. First Niagara Bank is a federal savings bank duly organized and validly
existing under the laws of the United States. The deposits of First Niagara Bank
are insured by the FDIC to the fullest extent permitted by law, and all premiums
and assessments required to be paid in connection therewith have been paid when
due. First Niagara Bank is a member in good standing of the FHLB and owns the
requisite amount of stock therein.
5.2.3. First Niagara Commercial Bank is a New York chartered commercial bank
duly organized and validly existing under the laws of the State of New York. The
deposits of First Niagara Commercial Bank are insured by the FDIC to the fullest
extent permitted by law, and all premiums and assessments required to be paid in
connection therewith have been paid by First Niagara Commercial Bank when due. The
activities of First Niagara Commercial Bank have been limited to those set forth in
Section 2(a)(5)(E)(ii) of the BHCA.
5.2.4. FNFG Disclosure Schedule 5.2.4 sets forth each FNFG Subsidiary. Each
FNFG Subsidiary is a corporation or limited liability company duly organized,
validly existing and in good standing under the laws of its jurisdiction of
incorporation or organization.
5.2.5. The respective minute books of FNFG and each FNFG Subsidiary accurately
records, in all material respects, all material corporate actions of their
respective shareholders and boards of directors (including committees).
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5.2.6. Prior to the date of this Agreement, FNFG has made available to HNC
true and correct copies of the certificate of incorporation and bylaws of FNFG and
First Niagara Bank and the FNFG Subsidiaries.
5.3.
Capitalization.
5.3.1. The authorized capital stock of FNFG consists of 250,000,000 shares of
common stock, $0.01 par value, of which 149,786,706 shares are outstanding, validly
issued, fully paid and nonassessable and free of preemptive rights, and 50,000,000
shares of preferred stock, $0.01 par value (FNFG Preferred Stock), none of which
are outstanding. There are 6,682,555 shares of FNFG Common Stock held by FNFG as
treasury stock. Neither FNFG nor any FNFG Subsidiary has or is bound by any Rights
of any character relating to the purchase, sale or issuance or voting of, or right
to receive dividends or other distributions on any shares of FNFG Common Stock, or
any other security of FNFG or any securities representing the right to vote,
purchase or otherwise receive any shares of FNFG Common Stock or any other
security of FNFG, other than shares issuable under the FNFG Stock Benefit
Plans.
5.3.2. FNFG owns all of the capital stock of First Niagara Bank free and clear
of any lien or encumbrance. First Niagara Bank owns all of the capital stock of
First Niagara Commercial Bank free and clear of any lien or encumbrance.
5.3.3. To the Knowledge of FNFG, no Person or group (as that term is used in
Section 13(d)(3) of the Exchange Act) is the beneficial owner (as defined in
Section 13(d) of the Exchange Act) of 5% or more of the outstanding shares of FNFG
Common Stock.
5.4.
Authority; No Violation.
5.4.1. FNFG has full corporate power and authority to execute and deliver this
Agreement and, subject to receipt of the Regulatory Approvals, to consummate the
transactions contemplated hereby. The execution and delivery of this Agreement by
FNFG and the completion by FNFG of the transactions contemplated hereby, including
the Merger, have been duly and validly approved by the Board of Directors of FNFG,
and no other corporate proceedings on the part of FNFG, are necessary to complete
the transactions contemplated hereby, including the Merger. This Agreement has
been duly and validly executed and delivered by FNFG, and subject to the receipt of
the Regulatory Approvals and due and valid execution and delivery of this Agreement
by HNC, constitutes the valid and binding obligations of FNFG, enforceable against
FNFG in accordance with its terms, subject to applicable bankruptcy, insolvency and
similar laws affecting creditors rights generally, and subject, as to
enforceability, to general principles of equity.
5.4.2. Subject to receipt of Regulatory Approvals and HNCs and FNFGs
compliance with any conditions contained therein, (A) the execution and delivery of
this Agreement by FNFG, (B) the consummation of the transactions contemplated
hereby, and (C) compliance by FNFG with any of the terms or provisions hereof will
not (i) conflict with or result in a breach of any provision of the certificate of
incorporation or bylaws of FNFG or any FNFG Subsidiary; (ii) violate any statute,
code, ordinance, rule, regulation, judgment, order, writ, decree or injunction
applicable to FNFG or any FNFG Subsidiary or any of their respective properties or
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assets; or (iii) violate, conflict with, result in a breach of any provisions of, constitute a
default (or an event which, with notice or lapse of time, or both, would constitute a default),
under, result in the termination of, accelerate the performance required by, or result in a right
of termination or acceleration or the creation of any lien, security interest, charge or other
encumbrance upon any of the properties or assets of FNFG or any FNFG Subsidiary under any of the
terms, conditions or provisions of any note, bond, mortgage,
indenture, deed of trust, license, lease, agreement or other investment or obligation to which any
of them is a party, or by which they or any of their respective properties or assets may be bound
or affected, except for such violations, conflicts, breaches or defaults under clause (ii) or (iii)
hereof which, either individually or in the aggregate, will not have a Material Adverse Effect on
FNFG.
5.5.
Consents.
Except for (a) filings with Bank Regulators, the receipt of the Regulatory Approvals,
and compliance with any conditions contained therein, (b) the filing of the Certificate of
Merger with the Secretary of State of the State of Delaware, (c) the filing with the SEC
of (i) the Merger Registration Statement and (ii) such reports under Sections 13(a),
13(d), 13(g) and 16(a) of the Exchange Act as may be required in connection with this
Agreement and the transactions contemplated hereby and the obtaining from the SEC of such
orders as may be required in connection therewith, (d) approval of the listing of FNFG
Common Stock to be issued in the Merger on the Nasdaq, (e) such filings and approvals as
are required to be made or obtained under the securities or Blue Sky laws of various
states in connection with the issuance of the shares of FNFG Common Stock pursuant to this
Agreement, and (f) the approval of this Agreement by the requisite vote of the
shareholders of HNC, no consents, waivers or approvals of, or filings or registrations
with, any Governmental Entity are necessary, and, to FNFGs Knowledge, no consents,
waivers or approvals of, or filings or registrations with, any other third parties are
necessary, in connection with (x) the execution and delivery of this Agreement by FNFG,
and (y) the completion of the Merger and the Bank Merger. FNFG has no reason to believe
that any Regulatory Approvals or other required consents or approvals will not be
received.
5.6.
Financial Statements.
5.6.1. FNFG has previously made available to HNC the FNFG Financial
Statements. The FNFG Financial Statements have been prepared in accordance with
GAAP, and (including the related notes where applicable) fairly present in each
case in all material respects (subject in the case of the unaudited interim
statements to normal year-end adjustments) the consolidated financial position,
results of operations and cash flows of FNFG and the FNFG Subsidiaries on a
consolidated basis as of and for the respective periods ending on the dates
thereof, in accordance with GAAP during the periods involved, except as indicated
in the notes thereto, or in the case of unaudited statements, as permitted by Form
10-Q.
5.6.2. At the date of each balance sheet included in the FNFG Financial
Statements, FNFG did not have any liabilities, obligations or loss contingencies of
any nature (whether absolute, accrued, contingent or otherwise) of a type required
to be reflected in such FNFG Financial Statements or in the footnotes thereto which
are not fully reflected or reserved against therein or fully disclosed in a
footnote
thereto, except for liabilities, obligations and loss
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contingencies which are not material individually or in the aggregate or which are incurred in the
ordinary course of business, consistent with past practice, and except for liabilities, obligations
and loss contingencies which are within the subject matter of a specific representation and
warranty herein and subject, in the case of any unaudited statements, to normal, recurring audit
adjustments and the absence of footnotes.
5.6.3. The records, systems, controls, data and information of FNFG and its
Subsidiaries are recorded, stored, maintained and operated under means (including
any electronic, mechanical or photographic process, whether computerized or not)
that are under the exclusive ownership and direct control of FNFG or its
Subsidiaries or accountants (including all means of access thereto and therefrom),
except for any non-exclusive ownership and non-direct control that would not
reasonably be expected to have a material adverse effect on the system of internal
accounting controls described below in this Section 5.6.3. FNFG (x) has
implemented and maintains a system of internal control over financial reporting (as
required by Rule 13a-15(a) of the Exchange Act) that is designed to provide
reasonable assurances regarding the reliability of financial reporting and the
preparation of its financial statements for external purposes in accordance with
GAAP, (y) has implemented and maintains disclosure controls and procedures (as
defined in Rule 13a-15(e) of the Exchange Act) to ensure that material information
relating to FNFG, including its consolidated Subsidiaries, is made known to the
chief executive officer and the chief financial officer of FNFG by others within
those entities, and (z) has disclosed, based on its most recent evaluation prior to
the date hereof, to FNFGs outside auditors and the audit committee of FNFGs Board
of Directors (i) any significant deficiencies and material weaknesses in the design
or operation of internal control over financial reporting (as defined in Rule
13a-15(f) of the Exchange Act) which are reasonably likely to adversely affect
FNFGs ability to record, process, summarize and report financial information and
(ii) any fraud, whether or not material, that involves management or other
employees who have a significant role in FNFGs internal control over financial
reporting. As of the date hereof, to the knowledge of FNFG, its chief executive
officer and chief financial officer will be able to give the certifications
required pursuant to the rules and regulations adopted pursuant to Section 302 of
the Sarbanes-Oxley Act, without qualification, when next due.
5.6.4. The allowance for credit losses reflected in FNFGs audited statement
of condition at December 31, 2008 was, and the allowance for credit losses shown on
the balance sheets in FNFGs Securities Documents for periods ending after December
31, 2008 will be, adequate, as of the dates thereof, under GAAP.
5.7.
Taxes.
FNFG and the FNFG Subsidiaries are members of the same affiliated group within the
meaning of Code Section 1504(a). FNFG and each FNFG Subsidiary has duly filed all
federal, state and material local tax returns required to be filed by or with respect to
FNFG and each FNFG Subsidiary on or prior to the Closing Date, taking into account any
extensions (all such returns, to the Knowledge of FNFG, being accurate and correct in all
material respects) and has duly paid or made provisions for the payment of all material
federal, state and local taxes which have been incurred by or are due or claimed to be due
from FNFG and any FNFG Subsidiary by any taxing authority or pursuant to any written tax
sharing agreement on or prior to the Closing Date other than taxes or other charges which
(i) are not delinquent, (ii) are being contested in
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good faith, or (iii) have not yet been fully determined. As of the date of this Agreement, FNFG
has received no written notice of, and to FNFGs Knowledge there is no audit examination,
deficiency assessment, tax investigation or refund litigation with respect to any taxes of FNFG or
any FNFG Subsidiary, and no written claim has been made by any authority in a jurisdiction where
FNFG or any FNFG Subsidiary does not file tax returns that FNFG or any FNFG Subsidiary is subject
to taxation in that jurisdiction. FNFG and the FNFG Subsidiaries have not executed an extension or
waiver of any statute of limitations on the assessment or collection of any material tax due that
is currently in effect. FNFG and each FNFG Subsidiary has withheld and paid all taxes required to
have been withheld and paid in connection with amounts paid or owing to any employee, independent
contractor, creditor, shareholder or other third party, and FNFG and each FNFG Subsidiary, to the
Knowledge of FNFG, has timely complied with all applicable information reporting requirements under
Part III, Subchapter A of Chapter 61 of the Code and similar applicable state and local information
reporting requirements.
5.8.
No Material Adverse Effect.
FNFG has not suffered any Material Adverse Effect since March 31, 2009 and no event
has occurred or circumstance arisen since that date which, in the aggregate, has had or is
reasonably likely to have a Material Adverse Effect on FNFG.
5.9.
Ownership of Property; Insurance Coverage.
5.9.1. FNFG and each FNFG Subsidiary has good and, as to real property,
marketable title to all material assets and properties owned by FNFG or each FNFG
Subsidiary in the conduct of their businesses, whether such assets and properties
are real or personal, tangible or intangible, including assets and property
reflected in the balance sheets contained in the FNFG Financial Statements or
acquired subsequent thereto (except to the extent that such assets and properties
have been disposed of in the ordinary course of business, since the date of such
balance sheets), subject to no material encumbrances, liens, mortgages, security
interests or pledges, except (i) those items which secure liabilities for public or
statutory obligations or any discount with, borrowing from or other obligations to
FHLB, inter-bank credit facilities,
or any transaction by a FNFG Subsidiary acting in a fiduciary capacity, (ii)
statutory liens for amounts not yet delinquent or which are being contested in good
faith, (iii) non-monetary liens affecting real property which do not adversely
affect the value or use of such real property, and (iv) those described and
reflected in the FNFG Financial Statements. FNFG and the FNFG Subsidiaries, as
lessee, have the right under valid and enforceable leases of real and personal
properties used by FNFG and its Subsidiaries in the conduct of their businesses to
occupy or use all such properties as presently occupied and used by each of them.
To FNFGs knowledge, neither FNFG or any FNFG Subsidiary is in default in any
material respect under any lease for any real or personal property to which either
FNFG or any FNFG Subsidiary is a party, and there has not occurred any event that,
with lapse of time or the giving of notice or both, would constitute such default,
except for such defaults which, either individually or in the aggregate, will not
have a Material Adverse Effect on FNFG.
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5.10.
Legal Proceedings.
Except as disclosed in FNFG Disclosure Schedule 5.10, neither FNFG nor any FNFG
Subsidiary is a party to any, and there are no pending or, to the Knowledge of FNFG,
threatened legal, administrative, arbitration or other proceedings, claims (whether
asserted or unasserted), actions or governmental investigations or inquiries of any nature
(i) against FNFG or any FNFG Subsidiary, (ii) to which FNFG or any FNFG Subsidiarys
assets are or may be subject, (iii) challenging the validity or propriety of any of the
transactions contemplated by this Agreement, or (iv) which would reasonably be expected to
adversely affect the ability of FNFG to perform under this Agreement, except for any
proceeding, claim, action, investigation or inquiry which, if adversely determined,
individually or in the aggregate, would not be reasonably expected to have a Material
Adverse Effect.
5.11.
Compliance With Applicable Law.
5.11.1. To the Knowledge of FNFG, each of FNFG and each FNFG Subsidiary is in
compliance in all material respects with all applicable federal, state, local and
foreign statutes, laws, regulations, ordinances, rules, judgments, orders or
decrees applicable to it, its properties, assets and deposits, its business, and
its conduct of business and its relationship with its employees, including, without
limitation, the USA PATRIOT Act, the Equal Credit Opportunity Act, the Fair Housing
Act, the Community Reinvestment Act of 1977, the Home Mortgage Disclosure Act, and
all other applicable fair lending laws and other laws relating to discriminatory
business practices, and neither FNFG nor any FNFG Subsidiary has received any
written notice to the contrary. The Board of Directors of First Niagara Bank has
adopted and First Niagara Bank has implemented an anti-money laundering program
that contains adequate and appropriate customer identification verification
procedures
that has not been deemed ineffective by any Governmental Entity and that meets
the requirements of Sections 352 and 326 of the USA PATRIOT Act and the regulations
thereunder.
5.11.2. Each of FNFG and each FNFG Subsidiary has all material permits,
licenses, authorizations, orders and approvals of, and has made all filings,
applications and registrations with, all Bank Regulators that are required in order
to permit it to own or lease its properties and to conduct its business as
presently conducted; all such permits, licenses, certificates of authority, orders
and approvals are in full force and effect and, to the Knowledge of FNFG, no
suspension or cancellation of any such permit, license, certificate, order or
approval is threatened or will result from the consummation of the transactions
contemplated by this Agreement, subject to obtaining the Regulatory Approvals.
5.11.3. For the period beginning January 1, 2008, neither FNFG nor any FNFG
Subsidiary has received any written notification or, to the Knowledge of FNFG, any
other communication from any Bank Regulator (i) asserting that FNFG or any FNFG
Subsidiary is not in material compliance with any of the statutes, regulations or
ordinances which such Bank Regulator enforces; (ii) threatening to revoke any
license, franchise, permit or governmental authorization which is material to FNFG
or First Niagara Bank or First Niagara Commercial Bank; (iii) requiring or
threatening to require FNFG or any FNFG Subsidiary, or indicating that FNFG or any
FNFG Subsidiary may be required, to enter into a cease and desist order, agreement
or memorandum of understanding or any other agreement with any federal or state
governmental
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agency or authority which is charged with the supervision or regulation of banks or engages in the
insurance of bank deposits restricting or limiting, or purporting to restrict or limit, in any
material respect the operations of FNFG or any FNFG Subsidiary, including without limitation any
restriction on the payment of dividends; or (iv) directing, restricting or limiting, or purporting
to direct, restrict or limit, in any manner the operations of FNFG or any FNFG Subsidiary,
including without limitation any restriction on the payment of dividends (any such notice,
communication, memorandum, agreement or order described in this sentence is hereinafter referred to
as an FNFG Regulatory Agreement). Neither FNFG nor any FNFG Subsidiary has consented to or
entered into any currently effective FNFG Regulatory Agreement. The most recent regulatory rating
given to First Niagara Bank as to compliance with the CRA is satisfactory or better.
5.11.4. Since the enactment of the Sarbanes-Oxley Act, FNFG has been and is in
compliance in all material respects with (i) the applicable provisions of the
Sarbanes-Oxley Act and (ii) the applicable listing and corporate governance rules
and regulations of the Nasdaq.
5.12.
Employee Benefit Plans.
5.12.1. FNFG Disclosure Schedule 5.12.1 includes a list of all existing bonus,
incentive, deferred compensation, pension, retirement, profit-sharing, employee
stock ownership, restricted stock, stock option, stock appreciation, phantom stock,
severance, welfare benefit, and fringe benefit plans and all other benefit
practices, policies and arrangements maintained by FNFG or any FNFG Subsidiary and
in which employees in general may participate (the FNFG Compensation and Benefit
Plans).
5.12.2. To the Knowledge of FNFG, each FNFG Compensation and Benefit Plan has
been operated and administered in all material respects in accordance with its
terms and with applicable law, including, but not limited to, ERISA, the Code, the
Securities Act, the Exchange Act, the Age Discrimination in Employment Act, COBRA,
HIPAA, and any regulations or rules promulgated thereunder, and all material
filings, disclosures and notices required by ERISA, the Code, the Securities Act,
the Exchange Act, the Age Discrimination in Employment Act, COBRA, and HIPAA and
any other applicable law have been timely made or any interest, fines, penalties or
other impositions for late filings have been paid in full. Each FNFG Compensation
and Benefit Plan which is a Pension Plan and which is intended to be qualified
under Section 401(a) of the Code has received a favorable determination letter from
the IRS, and FNFG is not aware of any circumstances which are reasonably likely to
result in revocation of any such favorable determination letter. There is no
material pending or, to the Knowledge of FNFG, threatened action, suit or claim
relating to any of the FNFG Compensation and Benefit Plans (other than routine
claims for benefits). Neither FNFG nor any FNFG Subsidiary has engaged in a
transaction, or omitted to take any action, with respect to any FNFG Compensation
and Benefit Plan that would reasonably be expected to subject FNFG or any FNFG
Subsidiary to a material unpaid tax or penalty imposed by either Section 4975 of the Code
or Section 502 of ERISA.
5.12.3. No liability to any Governmental Entity, other than PBGC premiums
arising in the ordinary course of business, has been or is expected by FNFG or any
FNFG Subsidiary with respect to any FNFG Compensation and Benefit Plan which is
subject to Title IV of ERISA (FNFG Pension Plan) currently or formerly maintained
by FNFG or any entity which is considered one employer with FNFG under Section
4001(b)(1) of ERISA or Section 414 of the
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Code (an FNFG ERISA Affiliate). No FNFG Defined Benefit Plan had an accumulated funding
deficiency (as defined in Section 431 of the Code), whether or not waived, as of the last day of
the end of the most recent plan year ending prior to the date hereof. The fair market value of the
assets of each FNFG Defined Benefit Plan exceeds the present value of the benefits guaranteed under
Section 4022 of ERISA under such FNFG Defined Benefit Plan as of the end of the most recent plan
year with respect to the respective FNFG Defined Benefit Plan ending prior to the date hereof,
calculated on the basis of the actuarial assumptions used in the most recent actuarial valuation
for such FNFG Defined Benefit Plan as of the date hereof; and no notice of a reportable event (as
defined in Section 4043 of ERISA) for which the 30-day reporting requirement has not been waived
has been required to be filed for any FNFG Defined Benefit Plan within the 12-month period ending
on the date hereof. Neither FNFG nor any of its Subsidiaries has provided, or is required to
provide, security to any FNFG Defined Benefit Plan or has taken any action, or omitted to take any
action, that has resulted, or would reasonably be expected to result in the imposition of a lien
under Section 412(n) of the Code or pursuant to ERISA. Neither FNFG nor any FNFG Subsidiary nor
any FNFG ERISA Affiliate has contributed to any multiemployer plan, as defined in Section 3(37)
of ERISA, on or after January 1, 1998.
5.12.4. All material contributions required to be made under the terms of any
FNFG Compensation and Benefit Plan have been timely made, and all anticipated
contributions and funding obligations are accrued on FNFGs consolidated financial
statements to the extent required by GAAP. FNFG and its Subsidiaries have expensed
and accrued as a liability the present value of future benefits under each
applicable FNFG Compensation and Benefit Plan for financial reporting purposes as
required by GAAP.
5.13.
Environmental Matters.
5.13.1. To the Knowledge of FNFG, neither the conduct nor operation of its
business nor any condition of any property currently or previously owned or
operated by it (including, without limitation, in a fiduciary or agency capacity),
or on which it holds a lien, results or resulted in a violation of any
Environmental Laws that is reasonably likely to impose a material liability
(including a material remediation obligation) upon FNFG or any FNFG Subsidiary. To
the Knowledge of FNFG, no condition has existed or event has occurred with respect
to any of them or any such property that, with notice or the passage of time, or
both, is reasonably likely to result in any material liability to FNFG or any FNFG
Subsidiary by reason of any Environmental Laws. Neither FNFG nor any FNFG
Subsidiary during the past five years has received any written notice from any
Person or Governmental Entity that FNFG or any FNFG Subsidiary or the operation or
condition of any property ever owned, operated, or held as collateral or in a
fiduciary capacity by any of them are currently in violation of or otherwise are
alleged to have liability under any Environmental Laws or relating to Materials of
Environmental Concern (including, but not limited to, responsibility (or potential
responsibility) for the cleanup or other remediation of any Materials of
Environmental Concern at, on, beneath, or originating from any such property) for
which a material liability is reasonably likely to be imposed upon FNFG or any FNFG
Subsidiary.
5.13.2. There is no suit, claim, action, demand, executive or administrative
order, directive, investigation or proceeding pending or, to the FNFG s Knowledge,
threatened, before
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any court, governmental agency or other forum against FNFG or any FNFG Subsidiary (x) for alleged
noncompliance (including by any predecessor) with, or liability under, any Environmental Law or (y)
relating to the presence of or release (defined herein) into the environment of any Materials of
Environmental Concern (as defined herein), whether or not occurring at or on a site owned, leased
or operated by FNFG or any FNFG Subsidiary.
5.14.
Securities Documents
5.14.1 FNFG has made available to HNC copies of its (i) annual reports on Form
10-K for the years ended December 31, 2008, 2007 and 2006, (ii) quarterly reports on Form 10-Q for
the quarters ended March 31 and June 30, 2008, and (iii) proxy materials used or for use in
connection with its meetings of shareholders held in 2009, 2008 and 2007. Such reports and such
proxy materials complied, at the time filed with the SEC, in all material respects, with the
Securities Laws.
5.14.2 In FNFGs reasonable judgment, the allowance for loan losses reflected in
FNFGs audited consolidated balance sheet at December 31, 2008 was, and the allowance for
loan losses shown on the balance sheet in FNFGs Securities Documents at March 31, 2009
was adequate in all material respects, as of the date thereof, under GAAP.
5.15.
Brokers, Finders and Financial Advisors
Neither FNFG nor any FNFG Subsidiary, nor any of their respective officers,
directors, employees or agents, has employed any broker, finder or financial advisor in
connection with the transactions contemplated by this Agreement, or incurred any liability
or commitment for any fees or commissions to any such person in connection with the
transactions contemplated by this Agreement except for the retention of Keefe Bruyette &
Woods and Sandler ONeill & Partners, L.P. and the fee payable pursuant thereto.
5.16.
FNFG Common Stock
The shares of FNFG Common Stock to be issued pursuant to this Agreement, when issued
in accordance with the terms of this Agreement, will be duly authorized, validly issued,
fully paid and non-assessable and subject to no preemptive rights.
5.17.
FNFG Information Supplied
The information relating to FNFG and any FNFG Subsidiary to be contained in the
Merger Registration Statement, or in any other document filed with any Bank Regulator or
other Governmental Entity in connection herewith, will not contain any untrue statement of
a material fact or omit to state a material fact necessary to make the statements therein,
in light of the circumstances in which they are made, not misleading. The Merger
Registration Statement will comply with the provisions of the Exchange Act and the rules
and regulations thereunder and the provisions of the Securities Act and the rules and
regulations thereunder, except that no representation or warranty is made by FNFG with respect to
statements made or incorporated by reference therein based on information supplied by HNC
specifically for inclusion or incorporation by reference in the Merger Registration
Statement.
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5.18.
PBCL Sections 2538 and 2553
Other than by reason of this Agreement or the transactions contemplated hereby, FNFG
is not an interested shareholder (as defined in Sections 2538 or 2553 of the PBCL) of
HNC.
ARTICLE VI
COVENANTS OF HNC
6.1.
Conduct of Business.
6.1.1.
Affirmative Covenants
. During the period from the date of this
Agreement to the Effective Time, except with the written consent of FNFG, which
consent will not be unreasonably withheld, conditioned or delayed, HNC will, and it
will cause each HNC Subsidiary to: operate its business, only in the usual, regular
and ordinary course of business; use reasonable efforts to preserve intact its
business organization and assets and maintain its rights and franchises; and
voluntarily take no action which would, or would be reasonably likely to, (i)
materially adversely affect the ability of the parties to obtain any Regulatory
Approvals or other approvals of Governmental Entities required for the transactions
contemplated hereby or materially increase the period of time necessary to obtain
such approvals, or (ii) materially adversely affect its ability to perform its
covenants and agreements under this Agreement.
6.1.2.
Negative Covenants
. HNC agrees that from the date of this Agreement to
the Effective Time, except as otherwise specifically permitted or required by this
Agreement, set forth in HNC Disclosure Schedule 6.1.2, or consented to by FNFG in
writing (which consent shall not be unreasonably withheld, conditioned or delayed),
it will not, and it will cause each HNC Subsidiary not to:
(A) change or waive any provision of its Certificate of
Incorporation, Charter or Bylaws, except as required by law, appoint a new
director to the board of directors, or allow dissenters rights to its
stockholders as authorized by Pennsylvania law;
(B) change the number of authorized or issued shares of its capital
stock, issue any shares of HNC Common Stock, including any shares that are
held as treasury shares as of the date of this Agreement, or issue or
grant any Right or agreement of any character relating to its authorized
or issued capital stock or any securities convertible into shares of such
stock, make any grant or award under the HNC Option Plans, or split,
combine or reclassify any shares of capital stock, or declare, set aside
or pay any dividend or other distribution in respect of capital stock, or
redeem or otherwise acquire any shares of capital stock, except that (i) HNC may issue shares of HNC Common
Stock upon the valid exercise, in accordance with the information set
forth in HNC Disclosure Schedule 4.3.1, of presently outstanding HNC
Options issued under the HNC Option Plan, and (ii) any HNC Subsidiary may
pay dividends to its parent company (as permitted under applicable law or
regulations) consistent with past practice, and (iii) HNC may pay its
normal quarterly dividend in the amount of $0.01 per share with respect to shares of outstanding HNC common stock, with record and payment dates
consistent with past practice (provided the declaration of the last
quarterly dividend by HNC prior to the Effective Time and the payment
thereof shall be coordinated with FNFG so that the holders of HNC Common
Stock do not receive dividends on both HNC Common Stock
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and FNFG Common Stock or fail to receive a dividend on at least one of the HNC Common Stock or FNFG
Common Stock received in the Merger in respect of such quarter).
(C) enter into, amend in any material respect or terminate any
contract or agreement (including without limitation any settlement
agreement with respect to litigation) except in the ordinary course of
business;
(D) other than as set forth in HNC Disclosure Schedule 6.1.2(D), make
application for the opening or closing of any, or open or close any,
branch or automated banking facility;
(E) grant or agree to pay any bonus, severance or termination to, or
enter into, renew or amend any employment agreement, severance agreement
and/or supplemental executive agreement with, or increase in any manner
the compensation or fringe benefits of, any of its directors, officers or
employees, except (i) as may be required pursuant to commitments existing
on the date hereof and set forth on HNC Disclosure Schedule 4.9.1 and
4.13.1, and (ii) pay increases in the ordinary course of business
consistent with past practice to non-officer employees. Neither HNC nor
any HNC Subsidiary shall hire or promote any employee to a rank having a
title of vice president or other more senior rank or hire any new employee
at an annual rate of compensation in excess of $50,000, provided that HNC
or an HNC Subsidiary may hire at-will, non-officer employees to fill
vacancies that may from time to time arise in the ordinary course of
business. Any bonus or incentive plan adopted, continued or implemented
for services performed on or after January 1, 2010 shall be in such form
and with such terms as mutually agreed to by HNC (or an HNC Subsidiary)
and FNFG (provided that all such plans in place for 2009 shall operate in
accordance with their current terms for the performance period ending
December 31, 2009);
(F) enter into or, except as may be required by law, materially
modify any pension, retirement, stock option, stock purchase, stock
appreciation right, stock grant, savings, profit sharing, deferred
compensation, supplemental retirement, consulting, bonus, group insurance
or other employee benefit, incentive or welfare contract, plan or
arrangement, or any trust agreement related thereto, in respect of any of
its directors, officers or employees; or make any contributions to any
defined contribution plan not in the ordinary course of business
consistent with past practice;
(G) merge or consolidate HNC or any HNC Subsidiary with any other
corporation; sell or lease all or any substantial portion of the assets or
business of HNC or any HNC Subsidiary; make any acquisition of all or any
substantial portion of the business or assets of any other person, firm,
association, corporation or business organization other than in connection
with foreclosures, settlements in lieu of foreclosure, troubled loan or
debt restructuring, or the collection of any loan or credit arrangement
between HNC, or any HNC Subsidiary, and any other person; enter into a
purchase and assumption transaction with respect to deposits and
liabilities; voluntarily revoke or surrender by any HNC Subsidiary of its
certificate of authority to maintain, or file an application for the
relocation of, any existing branch office, or file an application for a
certificate of authority to establish a new branch office;
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(H) sell or otherwise dispose of the capital stock of HNC or sell or
otherwise dispose of any asset of HNC or of any HNC Subsidiary other than
in the ordinary course of business consistent with past practice; except
for transactions with the FHLB, subject any asset of HNC or of any HNC
Subsidiary to a lien, pledge, security interest or other encumbrance
(other than in connection with deposits, repurchase agreements, bankers
acceptances, treasury tax and loan accounts established in the ordinary
course of business and transactions in federal funds and the
satisfaction of legal requirements in the exercise of trust powers) other
than in the ordinary course of business consistent with past practice;
incur any indebtedness for borrowed money (or guarantee any indebtedness
for borrowed money), except in the ordinary course of business consistent
with past practice;
(I) voluntarily take any action which would result in any of the
representations and warranties of HNC or HNB set forth in this Agreement
becoming untrue as of any date after the date hereof or in any of the
conditions set forth in Article IX hereof not being satisfied, except in
each case as may be required by applicable law;
(J) change any method, practice or principle of accounting, except as
may be required from time to time by GAAP (without regard to any optional
early adoption date) or any Bank Regulator responsible for regulating HNC
or HNB;
(K) waive, release, grant or transfer any material rights of value or
modify or change in any material respect any existing material agreement
or indebtedness to which HNC or any HNC Subsidiary is a party, other than
in the ordinary course of business, consistent with past practice;
(L) purchase any equity securities, or purchase any securities other
than securities (i) rated AAA by either Standard & Poors Ratings
Services or Moodys Investors Service, (ii) having a face amount of not
more than $5,000,000, (iii) with a weighted average life of not more than
two years and (iv) otherwise in the ordinary course of business consistent
with past practice;
(M) except for commitments issued prior to the date of this Agreement
which have not yet expired and which have been disclosed on the HNC
Disclosure Schedule 6.12(M), and the renewal of existing lines of credit,
make any new loan or other credit facility commitment (including without
limitation, lines of credit and letters of credit) in an amount in excess
of $1.0 million for a commercial real estate loan or $3.5 million for a
commercial business loan, or in excess of $500,000 for a residential
loan. In addition, the prior approval of FNFG is required with respect to
the foregoing: (i) any new loan or credit facility commitment in an
amount of $1.5 million or greater to any borrower or group of affiliated
borrowers whose credit exposure with HNB, HNC or any HNC Subsidiary, in
the aggregate, exceeds $7.5 million prior thereto or as a result thereof;
and (ii) any new loan or credit facility commitment in excess of $100,000
to any person residing, or any property located, outside of the
Commonwealth of Pennsylvania;
(N) except as set forth on the HNC Disclosure Schedule 6.12(N), enter
into, renew, extend or modify any other transaction (other than a deposit
transaction) with any Affiliate;
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(O) enter into any futures contract, option, interest rate caps,
interest rate floors, interest rate exchange agreement or other agreement
or take any other action for purposes of hedging the exposure of its
interest-earning assets and interest-bearing liabilities to changes in
market rates of interest;
(P) except for the execution of this Agreement, and actions taken or
which will be taken in accordance with this Agreement and performance
thereunder, take any action that would give rise to a right of payment to
any individual under any employment agreement;
(Q) make any material change in policies in existence on the date of
this Agreement with regard to: the extension of credit, or the
establishment of reserves with respect to the possible loss thereon or the
charge off of losses incurred thereon; investments; asset/liability
management; deposit pricing or gathering; or other material banking
policies except as may be required by changes in applicable law or
regulations or by a Bank Regulator;
(R) except for the execution of this Agreement, and the transactions
contemplated therein, take any action that would give rise to an
acceleration of the right to payment to any individual under any HNC
Employee Plan;
(S) except as set forth in HNC Disclosure Schedule 6.12(S), make any
capital expenditures in excess of $25,000 individually or $50,000 in the
aggregate, other than pursuant to binding commitments existing on the date
hereof and other than expenditures necessary to maintain existing assets
in good repair;
(T) except as set forth in HNC Disclosure Schedule 6.12(T), purchase
or otherwise acquire, or sell or otherwise dispose of, any assets or incur
any liabilities other than in the ordinary course of business consistent
with past practices and policies;
(U) Reserved.
(V) undertake or enter into any lease, contract or other commitment
for its account, other than in the normal course of providing credit to
customers as part of its banking business, involving a payment by HNC or
HNB of more than $25,000 annually, or containing any financial commitment
extending beyond 24 months from the date hereof;
(W) pay, discharge, settle or compromise any claim, action, litigation, arbitration or proceeding, other than
any such payment, discharge, settlement or compromise in the ordinary
course of business consistent with past practice that involves solely
money damages in the amount not in excess of $25,000 individually or
$50,000 in the aggregate, and that does not create negative precedent for
other pending or potential claims, actions, litigation, arbitration or
proceedings, provided that HNC may charge-off through settlement,
compromise or discharge up to 7% of the outstanding principle balance of
any HNC Delinquent Loan;
(X) foreclose upon or take a deed or title to any commercial real
estate without first conducting a Phase I environmental assessment of the
property or foreclose upon any commercial real estate if such
environmental assessment indicates the presence of a Materials of
Environmental Concern;
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(Y) purchase or sell any mortgage loan servicing rights other than in
the ordinary course of business consistent with past practice;
(Z) issue any broadly distributed communication of a general nature
to employees (including general communications relating to benefits and
compensation) without prior consultation with FNFG and, to the extent
relating to post-Closing employment, benefit or compensation information
without the prior consent of FNFG (which shall not be unreasonably
withheld) or issue any broadly distributed communication of a general
nature to customers without the prior approval of FNFG (which shall not be
unreasonably withheld), except as required by law or for communications in
the ordinary course of business consistent with past practice that do not
relate to the Merger or other transactions contemplated hereby; or
(AA) agree to do any of the foregoing.
6.1.3.
Stock Purchase Plan
.
HNC agrees to continue the suspension of the HNC Dividend Reinvestment and Stock
Purchase Plan (Stock Purchase Plan). HNC further agrees that as soon as practicable
following the date of this Agreement, but in no event later than the Effective Time, HNC
shall terminate the Stock Purchase Plan.
6.2.
Current Information.
6.2.1. During the period from the date of this Agreement to the Effective
Time, HNC will cause one or more of its representatives to confer with
representatives of FNFG and report the general status of its ongoing operations at
such times as FNFG may reasonably request. HNC will promptly notify FNFG of any
material change in the normal course of its business or in the operation of its
properties and, to the extent permitted by applicable law, of any governmental
complaints, investigations or hearings (or communications indicating that the same
may be contemplated), or the institution or the threat of material litigation
involving HNC or any HNC Subsidiary. Without limiting the foregoing, senior
officers of FNFG and HNC shall meet on a reasonably regular basis (expected to be
at least monthly) to review the financial and operational affairs of HNC and its
Subsidiaries, in accordance with applicable law, and HNC shall give due
consideration to FNFGs input on such matters, with the understanding that,
notwithstanding any other provision contained in this Agreement, neither FNFG nor
any FNFG Subsidiary shall under any circumstance be permitted to exercise control
of HNC or any HNC Subsidiary prior to the Effective Time.
6.2.2. HNB and First Niagara Bank shall meet on a regular basis to discuss and plan for the conversion of HNBs data processing and
related electronic informational systems to those used by First Niagara Bank, which
planning shall include, but not be limited to, discussion of the possible
termination by HNB of third-party service provider arrangements effective at the
Effective Time or at a date thereafter, non-renewal of personal property leases and
software licenses used by HNB in connection with its systems operations, retention
of outside consultants and additional employees to assist with the conversion, and
outsourcing, as appropriate, of proprietary or self-provided system services, it
being understood that HNB shall not be obligated to take any such action prior to
the Effective Time and, unless HNB otherwise agrees, no
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conversion shall take place prior to the Effective Time. In the event that HNB takes, at the
request of First Niagara Bank, any action relative to third parties to facilitate the conversion
that results in the imposition of any termination fees or charges, First Niagara Bank shall
indemnify HNB for any such fees and charges, and the costs of reversing the conversion process, if
for any reason the Merger is not consummated for any reason other than a breach of this Agreement
by HNC, or a termination of this Agreement under Section 11.1.8 or 11.1.9.
6.2.3. HNB shall provide First Niagara Bank, within fifteen (15) business days
of the end of each calendar month, a written list of nonperforming assets (the term
nonperforming assets, for purposes of this subsection, means (i) loans that are
troubled debt restructuring as defined in Statement of Financial Accounting
Standards No. 15, Accounting by Debtors and Creditors for Troubled Debt
Restructuring, (ii) loans on nonaccrual, (iii) real estate owned, (iv) all loans
ninety (90) days or more past due) as of the end of such month and (iv) and
impaired loans. On a monthly basis, HNC shall provide First Niagara Bank with a
schedule of all loan approvals, which schedule shall indicate the loan amount, loan
type and other material features of the loan.
6.2.4. HNC shall promptly inform FNFG upon receiving notice of any legal,
administrative, arbitration or other proceedings, demands, notices, audits or
investigations (by any federal, state or local commission, agency or board)
relating to the alleged liability of HNC or any HNC Subsidiary under any labor or
employment law.
6.3.
Access to Properties and Records.
Subject to Section 12.1 hereof, HNC shall permit FNFG reasonable access during normal business
hours upon reasonable notice to its properties and those of the HNC Subsidiaries, and shall
disclose and make available to FNFG during normal business hours all of its books, papers and
records relating to the assets, properties, operations, obligations and liabilities, including, but
not limited to, all books of account (including the general ledger), tax records, minute books of
directors (other than minutes that discuss any of the transactions contemplated by this Agreement
or any other subject matter HNC reasonably determines should be treated as confidential) and
shareholders meetings, organizational documents, Bylaws, material contracts and agreements,
filings with any regulatory authority, litigation files, plans affecting employees, and any other
business activities or prospects in which FNFG may have a reasonable interest; provided, however,
that HNC shall not be required to take any action that would provide access to or to disclose
information where such access or disclosure would violate or prejudice the rights or business
interests or confidences of any customer or other person or would result in the waiver by it of the
privilege protecting communications between it and any of its counsel. HNC shall provide and shall
request its auditors to provide FNFG with such historical financial information regarding it (and
related audit reports and consents) as FNFG may reasonably request for securities disclosure
purposes. FNFG shall use commercially reasonable efforts to minimize any interference with HNCs
regular business operations during any such access to HNCs property, books and
records. HNC shall permit FNFG, at its expense, to cause a phase I environmental audit and a
phase II environmental audit to be performed at each Branch at any time prior to the Closing
Date;
provided
,
however
, that FNFG shall have the right to conduct a phase II environmental audit
prior to the Closing only to the extent that a phase II environmental audit is within the scope
of additional testing recommended by the phase I
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environmental audit to be performed as a result of a Recognized Environmental Condition (as such
term is defined by The American Society for Testing Materials) that was discovered in the phase I
environmental audit and provided that as to any phase II environmental audits performed at a
Branch which HNB leases, the landlord pursuant to the applicable lease has consented to such phase
II environmental audit if such consent is necessary pursuant to the lease. HNB will use its
commercially reasonable efforts (at no cost to HNB) to obtain such landlord consent. Prior to
performing any phase II environmental audits, FNFG will provide HNC with a copy of its proposed
work plan and FNFG will cooperate in good faith with HNC to address any comments or suggestions
made by HNC regarding the work plan. FNFG and its environmental consultant shall conduct all
environmental assessments pursuant to this Section at mutually agreeable times and so as to
eliminate or minimize to the greatest extent possible interference with HNCs operation of its
business, and FNFG shall maintain or cause to be maintained reasonably adequate insurance with
respect to any assessment conducted hereunder. FNFG shall be required to restore each Owned Real
Property to substantially its pre-assessment condition. All costs and expenses incurred in
connection with any phase I environmental audit and any phase II environmental audit, and any
restoration and clean up, shall be borne solely by FNFG.
6.4.
Financial and Other Statements.
6.4.1. Promptly upon receipt thereof, HNC will furnish to FNFG copies of each
annual, interim or special audit of the books of HNC and the HNC Subsidiaries made
by its independent auditors and copies of all internal control reports submitted to
HNC by such auditors in connection with each annual, interim or special audit of
the books of HNC and the HNC Subsidiaries made by such auditors.
6.4.2. As soon as reasonably available, but in no event later than the date
such documents are filed with the SEC, HNC will deliver to FNFG the Securities
Documents filed by it with the SEC under the Securities Laws. HNC will furnish to
FNFG copies of all documents, statements and reports as it or any HNC Subsidiary
shall send to its shareholders, the FDIC, the FRB, the Department or any other
regulatory authority, except as legally prohibited thereby. Within 25 days after
the end of each month, HNC will deliver to FNFG a consolidated balance sheet and a
consolidated statement of income, without related notes, for such month prepared in
accordance with current financial reporting practices.
6.4.3. HNC will advise FNFG promptly of the receipt of any examination report
of any Bank Regulator with respect to the condition or activities of HNC or any of
the HNC Subsidiaries.
6.4.4. With reasonable promptness, HNC will furnish to FNFG such additional
financial data that HNC possesses and as FNFG may reasonably request, including
without limitation, detailed monthly financial statements and loan reports.
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6.5.
Maintenance of Insurance.
HNC shall maintain, and cause each HNC Subsidiary to maintain, insurance in such
amounts as are reasonable to cover such risks as are customary in relation to the character
and location of their properties and the nature of their business.
6.6.
Disclosure Supplements.
From time to time prior to the Effective Time, HNC will promptly supplement or amend
the HNC Disclosure Schedule delivered in connection herewith with respect to any matter
hereafter arising which, if existing, occurring or known at the date of this Agreement,
would have been required to be set forth or described in such HNC Disclosure Schedule or
which is necessary to correct any information in such HNC Disclosure Schedule which has
been rendered materially inaccurate thereby. No supplement or amendment to such HNC
Disclosure Schedule shall have any effect for the purpose of determining satisfaction of
the conditions set forth in Article IX.
6.7.
Consents and Approvals of Third Parties.
HNC shall use all commercially reasonable efforts to obtain as soon as practicable all
consents and approvals necessary or desirable for the consummation of the transactions
contemplated by this Agreement.
6.8.
Reasonable Best Efforts.
Subject to the terms and conditions herein provided, HNC agrees to use reasonable best
efforts to take, or cause to be taken, all action and to do, or cause to be done, all
things necessary, proper or advisable under applicable laws and regulations to consummate
and make effective the transactions contemplated by this Agreement.
6.9.
Failure to Fulfill Conditions.
In the event that HNC determines that a condition to its obligation to complete the
Merger cannot be fulfilled and that it will not waive that condition, it will promptly
notify FNFG.
6.10.
No Solicitation.
(a) HNC shall not, and shall cause its Subsidiaries and the respective officers, directors,
employees, investment bankers, financial advisors, attorneys, accountants, consultants, affiliates
and other agents (collectively, the Representatives) not to, directly or indirectly, (i)
initiate, solicit, induce or knowingly encourage, or take any action to facilitate the making of,
any inquiry, offer or proposal which constitutes, or could reasonably be expected to lead to, an
Acquisition Proposal; (ii) participate in any discussions or negotiations regarding any Acquisition
Proposal or furnish, or otherwise afford access, to any Person (other than FNFG) any information or
data with respect to
HNC or any of its Subsidiaries or otherwise relating to an Acquisition Proposal; (iii) release any
Person from, waive any provisions of, or fail to enforce any confidentiality agreement or
standstill agreement to which HNC is a party; or (iv) enter into any agreement, agreement in
principle or letter of intent with respect to any Acquisition Proposal
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or approve or resolve to approve any Acquisition Proposal or any agreement, agreement in principle
or letter of intent relating to an Acquisition Proposal. Any violation of the foregoing
restrictions by HNC or any Representative, whether or not such Representative is so authorized and
whether or not such Representative is purporting to act on behalf of HNC or otherwise, shall be
deemed to be a breach of this Agreement by HNC. HNC and its Subsidiaries shall, and shall cause
each of HNC Representatives to, immediately cease and cause to be terminated any and all existing
discussions, negotiations, and communications with any Persons with respect to any existing or
potential Acquisition Proposal.
For purposes of this Agreement, Acquisition Proposal shall mean any inquiry, offer
or proposal (other than an inquiry, offer or proposal from FNFG), whether or not in
writing, contemplating, relating to, or that could reasonably be expected to lead to, an
Acquisition Transaction. For purposes of this Agreement, Acquisition Transaction shall
mean (A) any transaction or series of transactions involving any merger, consolidation,
recapitalization, share exchange, liquidation, dissolution or similar transaction involving
HNC or any of its Subsidiaries; (B) any transaction pursuant to which any third party or
group acquires or would acquire (whether through sale, lease or other disposition),
directly or indirectly, any assets of HNC or any of its Subsidiaries representing, in the
aggregate, twenty-five percent (25%) or more of the assets of HNC and its Subsidiaries on a
consolidated basis; (C) any issuance, sale or other disposition of (including by way of
merger, consolidation, share exchange or any similar transaction) securities (or options,
rights or warrants to purchase or securities convertible into, such securities)
representing twenty-five percent (25%) or more of the votes attached to the outstanding
securities of HNC or any of its Subsidiaries; (D) any tender offer or exchange offer that,
if consummated, would result in any third party or group beneficially owning twenty-five
percent (25%) or more of any class of equity securities of HNC or any of its Subsidiaries;
or (E) any transaction which is similar in form, substance or purpose to any of the
foregoing transactions, or any combination of the foregoing.
(b) Notwithstanding Section 6.10(a), HNC may take any of the actions described in
clause (ii) of Section 6.10(a) if, but only if, (i) HNC has received a bona fide
unsolicited written Acquisition Proposal that did not result from a breach of this Section
6.10; (ii) the HNC Board determines in good faith, after consultation with and having
considered the advice of its outside legal counsel and its independent financial advisor,
that such Acquisition Proposal constitutes or is reasonably likely to lead to a Superior
Proposal; (iii) HNC has provided FNFG with at least one (1) Business Days prior notice of
such determination;
and (iv) prior to furnishing or affording access to any information or data with
respect to HNC or any of its Subsidiaries or otherwise relating to an Acquisition Proposal,
HNC receives from such Person a confidentiality agreement with terms no less favorable to
HNC than those contained in the Confidentiality Agreement. HNC shall promptly provide to
FNFG any non-public information regarding HNC or its Subsidiaries provided to any other
Person that was not previously provided to FNFG, such additional information to be provided
no later than the date of provision of such information to such other party.
For purposes of this Agreement, Superior Proposal shall mean any bona fide written
proposal (on its most recently amended or modified terms, if amended or modified) made by a
third party to enter into an Acquisition Transaction on terms that the HNC Board determines
in
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its good faith judgment, after consultation with and having considered the advice of outside legal
counsel and a financial advisor (i) would, if consummated, result in the acquisition of all, but
not less than all, of the issued and outstanding shares of HNC Common Stock or all, or
substantially all, of the assets of HNC and its Subsidiaries on a consolidated basis; (ii) would
result in a transaction that (A) involves consideration to the holders of the shares of HNC Common
Stock that is more favorable, from a financial point of view, than the consideration to be paid to
HNCs shareholders pursuant to this Agreement, considering, among other things, the nature of the
consideration being offered and any material regulatory approvals or other risks associated with
the timing of the proposed transaction beyond or in addition to those specifically contemplated
hereby, and which proposal is not conditioned upon obtaining additional financing and (B) is, in
light of the other terms of such proposal, more favorable to HNCs shareholders than the Merger and
the transactions contemplated by this Agreement; and (iii) is reasonably likely to be completed on
the terms proposed, in each case taking into account all legal, financial, regulatory and other
aspects of the proposal.
(c) HNC shall promptly (and in any event within twenty-four (24) hours) notify FNFG in
writing if any proposals or offers are received by, any information is requested from, or
any negotiations or discussions are sought to be initiated or continued with, HNC or any
HNC Representatives, in each case in connection with any Acquisition Proposal, and such
notice shall indicate the name of the Person initiating such discussions or negotiations or
making such proposal, offer or information request and the material terms and conditions of
any proposals or offers (and, in the case of written materials relating to such proposal,
offer, information request, negotiations or discussion, providing copies of such materials
(including e-mails or other electronic communications) unless (i) such materials constitute
confidential information of the party making such offer or proposal under an effective
confidentiality agreement, (ii) disclosure of such materials jeopardizes the
attorney-client privilege or (iii) disclosure of such materials contravenes any law, rule,
regulation, order, judgment or decree. HNC agrees that it shall keep FNFG informed, on a
current basis, of the status and terms of any such proposal, offer, information request,
negotiations or discussions (including any amendments or modifications to such proposal,
offer or request).
(d) Neither the HNC Board nor any committee thereof shall (i) withdraw, qualify or
modify, or propose to withdraw, qualify or modify, in a manner adverse to FNFG in
connection with the transactions contemplated by this Agreement (including the Merger), the
HNC Recommendation (as defined in Section 8.1), or make any statement, filing or release,
in connection with HNC Shareholders Meeting or otherwise, inconsistent with the HNC
Recommendation (it being understood that taking a neutral position or no position with
respect to an Acquisition Proposal shall be considered an adverse modification of the HNC
Recommendation); (ii) approve or recommend, or publicly propose to approve or recommend,
any Acquisition Proposal; or (iii) enter into (or cause HNC or any of its Subsidiaries to
enter into) any letter of intent, agreement in principle, acquisition agreement or other
agreement (A) related to any Acquisition Transaction (other than a confidentiality
agreement entered into in accordance with the provisions of Section 6.10(b)) or (B)
requiring HNC to abandon, terminate or fail to consummate the Merger or any other
transaction contemplated by this Agreement.
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(e) Notwithstanding Section 6.10(d), prior to the date of HNC Shareholders Meeting,
the HNC Board may approve or recommend to the shareholders of HNC a Superior Proposal and
withdraw, qualify or modify the HNC Recommendation in connection therewith (a HNC
Subsequent Determination) after the third (3rd) Business Day following FNFGs receipt of a
notice (the Notice of Superior Proposal) from HNC advising FNFG that the HNC Board has
decided that a bona fide unsolicited written Acquisition Proposal that it received (that
did not result from a breach of this Section 6.10) constitutes a Superior Proposal (it
being understood that HNC shall be required to deliver a new Notice of Superior Proposal in
respect of any revised Superior Proposal from such third party or its affiliates that HNC
proposes to accept and the subsequent notice period shall be two (2) business days) if, but
only if, (i) the HNC Board has reasonably determined in good faith, after consultation with
and having considered the advice of outside legal counsel and a financial advisor, that the
failure to take such actions would be reasonably likely to be inconsistent with its
fiduciary duties to HNCs shareholders under applicable law, and (ii) at the end of such
three (3) Business Day period or the two (2) Business Day Period (as the case may be),
after taking into account any such adjusted, modified or amended terms as may have been
committed to in writing by FNFG since its receipt of such Notice of Superior Proposal
(
provided
,
however
, that FNFG shall not have any obligation to propose any adjustments,
modifications or amendments to the terms and conditions of this Agreement), HNC Board has
again in good faith made the determination (A) in clause (i) of this Section 6.10(e) and
(B) that such Acquisition Proposal constitutes a Superior Proposal. Notwithstanding the
foregoing, the changing, qualifying or modifying of the HNC Recommendation or the making of
a HNC Subsequent Determination by the HNC Board shall not change the approval of the HNC
Board for purposes of causing any Takeover Laws to be inapplicable to this Agreement and
the HNC Voting Agreements and the transactions contemplated hereby and thereby, including
the Merger.
(f) Nothing contained in this Section 6.10 shall prohibit HNC or the HNC Board from
complying with HNCs obligations required under Rules 14d-9 and 14e-2(a) promulgated under
the Exchange Act;
provided
,
however
, that any such disclosure relating to an Acquisition
Proposal shall be deemed a change in HNC Recommendation unless HNC Board reaffirms HNC
Recommendation in such disclosure.
6.11.
Reserves and Merger-Related Costs.
HNC agrees to consult with FNFG with respect to its loan, litigation and real estate
valuation policies and practices (including loan classifications and levels of reserves).
FNFG and HNC shall also consult with respect to the character, amount and timing of
restructuring charges to be taken by each of them in connection with the transactions
contemplated hereby and shall take such charges as FNFG shall reasonably request and which
are not inconsistent with GAAP, provided that (i) no such actions need be effected until
FNFG shall have irrevocably certified to HNC that all conditions set forth in Article IX to
the obligation of FNFG to consummate the transactions contemplated hereby (other than the
delivery of certificates or opinions) have been satisfied or, where legally permissible,
waive, and (ii) the effect of any such actions shall not be included in calculating HNC
Delinquent Loans.
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6.12.
Board of Directors and Committee Meetings.
HNC and HNB shall permit representatives of FNFG (no more than two) to attend any
meeting of the Board of Directors of HNC and/or HNB or the Executive and Loan Committees
thereof as an observer, provided that neither HNC nor HNB shall be required to permit the
FNFG representative to remain present during any confidential discussion of this Agreement
and the transactions contemplated hereby or any third party proposal to acquire control of
HNC or HNB or during any other matter that the respective Board of Directors has reasonably
determined to be confidential with respect to FNFGs participation. FNFG shall bear all
legal and financial responsibility for ensuring that observer rights shall not constitute
control of HNC or HNB under applicable laws.
ARTICLE VII
COVENANTS OF FNFG
7.1.
Conduct of Business.
During the period from the date of this Agreement to the Effective Time, except with
the written consent of HNC, which consent will not be unreasonably withheld, FNFG will, and
it will cause each FNFG Subsidiary to use reasonable efforts to preserve intact its
business organization and assets and maintain its rights and franchises; and voluntarily
take no action that would, or would be reasonably likely to: (i) adversely affect the
ability of the parties to obtain the Regulatory Approvals or other approvals of
Governmental Entities required for the transaction contemplated hereby, or materially
increase the period of time necessary to obtain such approvals; (ii) adversely affect its
ability to perform its
covenants and agreements under this Agreement; or (iii) result in the representations
and warranties contained in Article V of this Agreement not being true and correct on the
date of this Agreement or at any future date on or prior to the Closing Date or in any of
the conditions set forth in Article IX hereof not being satisfied.
7.2.
Current Information.
During the period from the date of this Agreement to the Effective Time, FNFG will
cause one or more of its representatives to confer with representatives of HNC and report
the general status of its financial condition, operations and business and matters relating
to the completion of the transactions contemplated hereby, at such times as HNC may
reasonably request. FNFG will promptly notify HNC, to the extent permitted by applicable
law, of any governmental complaints, investigations or hearings (or communications
indicating that the same may be contemplated), which might adversely affect the ability of
the parties to obtain the Regulatory Approvals or materially increase the period of time
necessary to obtain such approvals; or the institution of material litigation involving
FNFG and any FNFG Subsidiary. FNFG shall be reasonably responsive to requests by HNC for
access to such information and personnel regarding FNFG and its Subsidiaries as may be
reasonably necessary for HNC to confirm that the representations and warranties of FNFG
contained herein are true and correct and that the covenants of FNFG contained herein have
been performed in all material respects; provided, however, that FNFG shall not be required
to take any action that would provide access to or to disclose information where such
access or disclosure, in FNFGs reasonable judgment,
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would interfere with the normal conduct of FNFGs business or would violate or prejudice the rights
or business interests or confidences of any customer or other person or would result in the waiver
by it of the privilege protecting communications between it and any of its counsel.
7.3.
Financial and Other Statements.
FNFG will make available to HNC the Securities Documents filed by it with the SEC
under the Securities Laws. FNFG will furnish to HNC copies of all documents, statements
and reports as it or FNFG file with the OTS or any other Bank Regulator authority with
respect to the Merger. FNFG will furnish to HNC copies of all documents, statements and
reports as it or any FNFG Subsidiary sends to the shareholders of FNFG.
7.4.
Disclosure Supplements.
From time to time prior to the Effective Time, FNFG will promptly supplement or amend
the FNFG Disclosure Schedule delivered in connection herewith with respect to any material
matter hereafter arising which, if existing, occurring or known at the date of this
Agreement, would have been required to be set forth or described in such FNFG Disclosure
Schedule or which is necessary to correct any information in such FNFG Disclosure Schedule
which
has been rendered inaccurate thereby. No supplement or amendment to such FNFG
Disclosure Schedule shall have any effect for the purpose of determining satisfaction of
the conditions set forth in Article IX.
7.5.
Consents and Approvals of Third Parties.
FNFG shall use all commercially reasonable efforts to obtain as soon as practicable
all consents and approvals, necessary or desirable for the consummation of the
transactions contemplated by this Agreement.
7.6.
All Reasonable Efforts.
Subject to the terms and conditions herein provided, FNFG agrees to use all
commercially reasonable efforts to take, or cause to be taken, all action and to do, or
cause to be done, all things necessary, proper or advisable under applicable laws and
regulations to consummate and make effective the transactions contemplated by this
Agreement.
7.7.
Failure to Fulfill Conditions.
In the event that FNFG determines that a condition to its obligation to complete the
Merger cannot be fulfilled and that it will not waive that condition, it will promptly
notify HNC.
7.8.
Employee Benefits.
7.8.1. FNFG will review all HNC Compensation and Benefit Plans to determine
whether to maintain, terminate or continue such plans. In the event employee
compensation and/or benefits as currently provided by HNC or any HNC Subsidiary are
changed or terminated by FNFG, in whole or in part, FNFG shall provide Continuing
Employees (as defined below) with compensation and benefits that are, in the
aggregate, substantially similar to the
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compensation and benefits provided to similarly situated employees of FNFG or applicable FNFG
Subsidiary (as of the date any such compensation or benefit is provided). Employees of HNC or any
HNC Subsidiary who become participants in an FNFG Compensation and Benefit Plan shall, for purposes
of determining eligibility for and for any applicable vesting periods of such employee benefits
only (and not for benefit accrual purposes unless specifically set forth herein) be given credit
for meeting eligibility and vesting requirements in such plans for service as an employee of HNC or
HNB or any predecessor thereto prior to the Effective Time, provided, however, that credit for
prior service shall not be given for any purpose under the FNFG ESOP, and provided further, that
credit for benefit accrual purposes will be given only for purposes of FNFG vacation policies or
programs and for purposes of the calculation of severance benefits under any severance compensation
plan of FNFG. This Agreement shall not be construed to limit the ability of FNFG or First Niagara
Bank to terminate the employment of any employee or to review employee benefits programs from time
to time and to make such changes (including terminating any program) as they deem appropriate.
7.8.2. FNFG shall honor the terms of all employment, consulting and change in
control agreements set forth on HNC Disclosure Schedule 4.13.1.
7.8.3. Any employee of HNC or any HNC Subsidiary who is not a party to an
employment, consulting, change in control or severance agreement or contract
providing severance payments and whose employment is terminated at or before the
Effective Time or within six (6) months after the Effective Time, shall receive
severance benefits in accordance with HNCs severance practice, as set forth in HNC
Disclosure Schedule 7.8.3. Any employees of HNC or any HNC Subsidiary who continue
employment with FNFG or an FNFG Subsidiary for more than six (6) months after the
Effective Time shall, upon any subsequent termination of employment, be covered by
and eligible to receive severance benefits under the FNFG severance plan, as set
forth in FNFG Disclosure Schedule 7.8.3, in accordance with the terms of such plan
or policy.
7.8.4. In the event of any termination or consolidation of any HNC health plan
with any FNFG health plan, FNFG shall make available to employees of HNC or any HNC
Subsidiary who continue employment with FNFG or an FNFG Subsidiary (Continuing
Employees) and their dependents employer-provided health coverage on the same
basis as it provides such coverage to FNFG employees. Unless a Continuing Employee
affirmatively terminates coverage under an HNC health plan prior to the time that
such Continuing Employee becomes eligible to participate in the FNFG health plan,
no coverage of any of the Continuing Employees or their dependents shall terminate
under any of the HNC health plans prior to the time such Continuing Employees and
their dependents become eligible to participate in the health plans, programs and
benefits common to all employees of FNFG and their dependents. In the event of a
termination or consolidation of any HNC health plan, terminated HNC employees and
qualified beneficiaries will have the right to continued coverage under group
health plans of FNFG in accordance with COBRA, consistent with the provisions
below. All HNC Employees who cease participating in an HNC health plan and become
participants in a comparable FNFG health plan (each a Former HNC Health Plan
Participant) shall receive credit for any co-payment and deductibles paid under
HNCs health plan for purposes of satisfying any applicable deductible or
out-of-pocket requirements under the FNFG health plan, upon substantiation, in a
form satisfactory to FNFG that such co-payment and/or deductible has been
satisfied. With
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respect to any Former HNC Health Plan Participant, any coverage limitation under the FNFG health
plan due to any pre-existing condition shall be waived by the FNFG health plan to the degree that
such condition was covered by the HNC health plan and such condition would otherwise have been
covered by the FNFG health plan in the absence of
such coverage limitation.
7.9.
Directors and Officers Indemnification and Insurance.
7.9.1. For a period of six years after the Effective Time, FNFG shall
indemnify, defend and hold harmless each person who is now, or who has been at any
time before the date hereof or who becomes before the Effective Time, an officer,
director or employee of HNC or an HNC Subsidiary (the Indemnified Parties)
against all losses, claims, damages, costs, expenses (including attorneys fees),
liabilities or judgments or amounts that are paid in settlement (which settlement
shall require the prior written consent of FNFG, which consent shall not be
unreasonably withheld) of or in connection with any claim, action, suit, proceeding
or investigation, whether civil, criminal, or administrative (each a Claim), in
which an Indemnified Party is, or is threatened to be made, a party or witness in
whole or in part or arising in whole or in part out of the fact that such person is
or was a director, officer or employee of HNC or an HNC Subsidiary if such Claim
pertains to any matter of fact arising, existing or occurring at or before the
Effective Time (including, without limitation, the Merger and the other
transactions contemplated hereby), regardless of whether such Claim is asserted or
claimed before, or after, the Effective Time, to the fullest extent as would have
been permitted by HNC under the PCBL and under HNCs Certificate of Incorporation
and Bylaws. FNFG shall pay expenses in advance of the final disposition of any such
action or proceeding to each Indemnified Party to the fullest extent as would have
been permitted by HNC under the PCBL and under HNCs Certificate of Incorporation
and Bylaws, upon receipt of an undertaking to repay such advance payments if he
shall be adjudicated or determined to be not entitled to indemnification in the
manner set forth below. Any Indemnified Party wishing to claim indemnification
under this Section 7.9.1 upon learning of any Claim, shall notify FNFG (but the
failure so to notify FNFG shall not relieve it from any liability which it may have
under this Section 7.9.1, except to the extent such failure materially prejudices
FNFG) and shall deliver to FNFG the undertaking referred to in the previous
section.
7.9.2. In the event that either FNFG or any of its successors or assigns (i)
consolidates with or merges into any other person and shall not be the continuing
or surviving bank or entity of such consolidation or merger or (ii) transfers all
or substantially all of its properties and assets to any person, then, and in each
such case, proper provision shall be made so that the successors and assigns of
FNFG shall assume the obligations set forth in this Section 7.9.
7.9.3. FNFG shall maintain, or shall cause First Niagara Bank to maintain, in
effect for six years following the Effective Time, the current directors and
officers liability insurance policies covering the officers and directors of HNC
(provided, that FNFG may substitute
therefore policies of at least the same coverage containing terms and
conditions which are not materially less favorable) with respect to matters
occurring at or prior to the Effective Time; provided, however, that in no event
shall FNFG be required to expend pursuant to this Section 7.9.3 more than 200% of
the annual cost currently expended by HNC with respect to such insurance (the
Maximum Amount);
provided, further,
that if the amount of the annual premium
necessary to maintain or procure such insurance coverage exceeds the Maximum
Amount, FNFG
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shall maintain the most advantageous policies of directors and officers insurance obtainable for
a premium equal to the Maximum Amount. In connection with the foregoing, HNC agrees in order for
FNFG to fulfill its agreement to provide directors and officers liability insurance policies for
six years to provide such insurer or substitute insurer with such reasonable and customary
representations as such insurer may request with respect to the reporting of any prior claims.
7.9.4. The obligations of FNFG provided under this Section 7.9 are intended to
be enforceable against FNFG directly by the Indemnified Parties and shall be
binding on all respective successors and permitted assigns of FNFG.
7.10.
Stock Listing.
FNFG agrees to list on the Nasdaq (or such other national securities exchange on
which the shares of the FNFG Common Stock shall be listed as of the date of consummation
of the Merger), subject to official notice of issuance, the shares of FNFG Common Stock to
be issued in the Merger.
7.11.
Stock and Cash Reserve.
FNFG agrees at all times from the date of this Agreement until the Merger
Consideration has been paid in full to reserve a sufficient number of shares of its common
stock and to maintain sufficient liquid accounts or borrowing capacity to fulfill its
obligations under this Agreement.
ARTICLE VIII
REGULATORY AND OTHER MATTERS
8.1.
HNC Shareholder Meeting.
HNC will (i) as promptly as practicable after the Merger Registration Statement is declared
effective by the SEC, take all steps necessary to duly call, give notice of, convene and hold a
meeting of its shareholders (the HNC Shareholders Meeting), for the purpose of considering this
Agreement and the Merger, and for such other purposes as may be, in HNCs reasonable judgment,
necessary or desirable, (ii) subject to Section 6.10, have its Board of Directors recommend
approval of this Agreement to the HNC shareholders (the HNC Recommendation).
8.2.
Proxy Statement-Prospectus.
8.2.1. For the purposes (x) of registering FNFG Common Stock to be offered to
holders of HNC Common Stock in connection with the Merger with the SEC under the
Securities Act and (y) of holding the HNC Shareholders Meeting, FNFG shall draft
and prepare, and HNC shall cooperate in the preparation of, the Merger Registration
Statement, including a combined proxy statement and prospectus satisfying all
applicable requirements of applicable state securities and banking laws, and of the
Securities Act and the Exchange Act, and the rules and regulations thereunder (such
proxy statement/prospectus in the form
mailed to the HNC shareholders, together with any and all amendments or
supplements thereto, being herein referred to as the Proxy Statement-Prospectus).
FNFG shall file the Merger Registration Statement,
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including the Proxy Statement-Prospectus, with the SEC. Each of FNFG and HNC shall use their best
efforts to have the Merger Registration Statement declared effective under the Securities Act as
promptly as practicable after such filing, and each of HNC and FNFG shall thereafter promptly mail
the Proxy Statement-Prospectus to the HNC shareholders. FNFG shall also use its best efforts to
obtain all necessary state securities law or Blue Sky permits and approvals required to carry out
the transactions contemplated by this Agreement, and HNC shall furnish all information concerning
HNC and the holders of HNC Common Stock as may be reasonably requested in connection with any such
action.
8.2.2. HNC shall provide FNFG with any information concerning itself that FNFG
may reasonably request in connection with the drafting and preparation of the Proxy
Statement-Prospectus, and FNFG shall notify HNC promptly of the receipt of any
comments of the SEC with respect to the Proxy Statement-Prospectus and of any
requests by the SEC for any amendment or supplement thereto or for additional
information and shall provide to HNC promptly copies of all correspondence between
FNFG or any of their representatives and the SEC. FNFG shall give HNC and its
counsel the opportunity to review and comment on the Proxy Statement-Prospectus
prior to its being filed with the SEC and shall give HNC and its counsel the
opportunity to review and comment on all amendments and supplements to the Proxy
Statement-Prospectus and all responses to requests for additional information and
replies to comments prior to their being filed with, or sent to, the SEC. Each of
FNFG and HNC agrees to use all reasonable efforts, after consultation with the
other party hereto, to respond promptly to all such comments of and requests by the
SEC and to cause the Proxy Statement-Prospectus and all required amendments and
supplements thereto to be mailed to the holders of HNC Common Stock entitled to
vote at the HNC Shareholders Meeting hereof at the earliest practicable time.
8.2.3. HNC and FNFG shall promptly notify the other party if at any time it
becomes aware that the Proxy Statement-Prospectus or the Merger Registration
Statement contains any untrue statement of a material fact or omits to state a
material fact required to be stated therein or necessary to make the statements
contained therein, in light of the circumstances under which they were made, not
misleading. In such event, HNC shall cooperate with FNFG in the preparation of a
supplement or amendment to such Proxy Statement-Prospectus that corrects such
misstatement or omission, and FNFG shall file an amended Merger Registration
Statement with the SEC, and HNC shall mail an amended Proxy Statement-Prospectus to
the HNC shareholders. If requested by FNFG, HNC shall obtain a comfort letter
from its independent certified
public accountant, dated as of the date of the Proxy Statement-Prospectus and
updated as of the date of consummation of the Merger, with respect to certain
financial information regarding HNC, in form and substance that is customary in
transactions such as the Merger.
8.3.
Regulatory Approvals.
Each of HNC and FNFG will cooperate with the other and use all reasonable efforts to
promptly prepare all necessary documentation, to effect all necessary filings and to
obtain all necessary permits, consents, waivers, approvals and authorizations of the SEC,
the Bank Regulators and any other third parties and governmental bodies necessary to
consummate the transactions contemplated by this Agreement. HNC and FNFG will furnish each
other and each others counsel with all information concerning themselves, their
subsidiaries, directors, officers and shareholders and such other matters as may be
necessary or advisable in connection with the
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Proxy Statement-Prospectus and any application, petition or any other statement or application made
by or on behalf of HNC, FNFG to any Bank Regulatory or governmental body in connection with the
Merger, and the other transactions contemplated by this Agreement. HNC shall have the right to
review and approve in advance all characterizations of the information relating to HNC and any of
its Subsidiaries, which appear in any filing made in connection with the transactions contemplated
by this Agreement with any governmental body. FNFG shall give HNC and its counsel the opportunity
to review and comment on each filing prior to its being filed with a Bank Regulator and shall give
HNC and its counsel the opportunity to review and comment on all regulatory filings, amendments and
supplements to such filings and all responses to requests for additional information and replies to
comments prior to their being filed with, or sent to, a Bank Regulator.
ARTICLE IX
CLOSING CONDITIONS
9.1.
Conditions to Each Partys Obligations under this Agreement.
The respective obligations of each party under this Agreement shall be subject to the
fulfillment at or prior to the Closing Date of the following conditions, none of which may
be waived:
9.1.1.
Shareholder Approval
. This Agreement and the transactions contemplated
hereby shall have been approved by the requisite vote of the shareholders of HNC.
9.1.2.
Injunctions
. None of the parties hereto shall be subject to any order,
decree or injunction of a court or agency of competent jurisdiction that enjoins or
prohibits the consummation of the transactions contemplated by this Agreement and
no statute, rule or regulation shall have been enacted, entered, promulgated,
interpreted,
applied or enforced by any Governmental Entity or Bank Regulator, that enjoins
or prohibits the consummation of the transactions contemplated by this Agreement.
9.1.3.
Regulatory Approvals
. All Regulatory Approvals, and other necessary
approvals, authorizations and consents of any Governmental Entities required to
consummate the transactions contemplated by this Agreement, the failure of which to
obtain would reasonably be expected to have a Material Adverse Effect, shall have
been obtained and shall remain in full force and effect and all waiting periods
relating to such approvals, authorizations or consents shall have expired; and no
such approval, authorization or consent shall include any condition or requirement,
excluding standard conditions that are normally imposed by the regulatory
authorities in bank merger transactions, that would, in the good faith reasonable
judgment of the Board of Directors of FNFG, materially and adversely affect the
business, operations, financial condition, property or assets of the combined
enterprise of HNC, HNB and FNFG or materially impair the value of HNC or HNB to
FNFG.
9.1.4.
Effectiveness of Merger Registration Statement
. The Merger
Registration Statement shall have become effective under the Securities Act and no
stop order suspending the effectiveness of the Merger Registration Statement shall
have been issued, and no proceedings for that purpose shall have been initiated or
threatened by the SEC and, if the offer and sale of FNFG
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Common Stock in the Merger is subject to the blue sky laws of any state, shall not be subject to a
stop order of any state securities commissioner.
9.1.5.
Nasdaq Listing
. The shares of FNFG Common Stock to be issued in the
Merger shall have been authorized for listing on the Nasdaq, subject to official
notice of issuance.
9.1.6.
Tax Opinion
. On the basis of facts, representations and assumptions
which shall be consistent with the state of facts existing at the Closing Date,
FNFG shall have received an opinion of Luse Gorman Pomerenk & Schick, P.C., and HNC
shall have received an opinion of Dechert LLP, each reasonably acceptable in form
and substance to FNFG and HNC, dated as of the Closing Date, substantially to the
effect that for federal income tax purposes, the Merger will qualify as a
reorganization within the meaning of Section 368(a) of the Code. In rendering the
tax opinion described in this Section 9.1.6, the law firms may require and rely
upon customary representations contained in certificates of officers of FNFG and
HNC and their respective subsidiaries.
9.2.
Conditions to the Obligations of FNFG under this Agreement.
The obligations of FNFG under this Agreement shall be further subject to the
satisfaction of the conditions set forth in Sections 9.2.1 through 9.2.4 at or prior to
the Closing Date:
9.2.1.
Representations and Warranties
. Each of the representations and
warranties of HNC set forth in this Agreement shall be true and correct as of the
date of this Agreement and upon the Effective Time with the same effect as though
all such representations and warranties had been made on the Effective Time (except
to the extent such representations and warranties speak as of an earlier date), in
any case subject to the standard set forth in Section 4.1; and HNC shall have
delivered to FNFG a certificate to such effect signed by the Chief Executive
Officer and the Chief Financial Officer of HNC as of the Effective Time. For
purposes of this condition to Closing, no representation or warranty of HNC
contained in this Article IV shall be deemed untrue or incorrect, and HNC shall not
be deemed to have breached a representation or warranty, as a consequence of the
existence of any fact, circumstance or event unless such fact, circumstance or
event, individually or taken together with all other facts, circumstances or events
inconsistent with any paragraph of Article IV, has had or is reasonably expected to
have a Material Adverse Effect, disregarding for these purposes, solely with
respect to any representation or warranty breached when considering references to
materiality or material adverse effect and other than with respect to the
representations and warranties in Sections 4.6.1, 4.6.2, 4.9.1, 4.9.4, 4.12, 4.13.1
and 4.13.2, (x) any qualification or exception for, or reference to, materiality in
any such representation or warranty and (y) any use of the terms material,
materially, in all material respects, Material Adverse Effect or similar
terms or phrases in any such representation or warranty. The foregoing standard
shall not apply to representations and warranties contained in Sections 4.2.1,
4.2.2 and 4.2.3 (other than the last sentence of Sections 4.2.1 and 4.2.2), and
Sections 4.3, 4.4 and 4.8, which shall be deemed untrue, incorrect and breached if
they are not true and correct in all material respects based on the qualifications
and standards therein contained; and provided that with respect to Sections 4.13.5,
4.13.8 and 4.13.11, if there is a representation or warranty that is breached based
on such representation or warranty not being true and correct in all material
respects (without regard to the standard of the preceding sentence), and any or all
breaches relate to an undisclosed payment,
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expense accrual or cost in excess of $1,500,000, then any amounts in excess of $1,500,000 shall be
considered and added to HNC Delinquent Loans.
9.2.2.
Agreements and Covenants
. HNC shall have performed in all material
respects all obligations and complied in all material respects with all agreements
or covenants to be performed or complied with by it at or prior to the Effective
Time, and FNFG shall have received a certificate signed on behalf of HNC by the
Chief Executive Officer and Chief Financial Officer of HNC to such effect dated as
of the Effective Time.
9.2.3.
Permits, Authorizations, Etc
. HNC shall have obtained any and all
material permits, authorizations, consents, waivers, clearances or approvals
required for the lawful consummation of the Merger and the Bank Merger.
HNC will furnish FNFG with such certificates of its officers or others and such other
documents to evidence fulfillment of the conditions set forth in this Section 9.2 as FNFG
may reasonably request.
9.3.
Conditions to the Obligations of HNC under this Agreement.
The obligations of HNC under this Agreement shall be further subject to the
satisfaction of the conditions set forth in Sections 9.3.1 through 9.3.5 at or prior to
the Closing Date:
9.3.1.
Representations and Warranties
. Each of the representations and
warranties of FNFG set forth in this Agreement shall be true and correct as of the
date of this Agreement and upon the Effective Time with the same effect as though
all such representations and warranties had been made on the Effective Time (except
to the extent such representations and warranties speak as of an earlier date), in
any case subject to the standard set forth in Section 5.1; and FNFG shall have
delivered to HNC a certificate to such effect signed by the Chief Executive Officer
and the Chief Financial Officer of FNFG as of the Effective Time. For the purposes
of this condition to Closing, no representation or
warranty of FNFG contained in this Article V shall be deemed untrue or
incorrect, and FNFG shall not be deemed to have breached a representation or
warranty, as a consequence of the existence of any fact, circumstance or event
unless such fact, circumstance or event, individually or taken together with all
other facts, circumstances or events inconsistent with any paragraph of Article V,
has had or is reasonably expected to have a Material Adverse Effect, disregarding
for these purposes (x) any qualification or exception for, or reference to,
materiality in any such representation or warranty and (y) any use of the terms
material, materially, in all material respects, Material Adverse Effect or
similar terms or phrases in any such representation or warranty. The foregoing
standard shall not apply to representations and warranties contained in Sections
5.2 (other than the last sentence of Sections 5.2.1 and 5.2.2), 5.3, 5.4 and 5.8,
which shall be deemed untrue, incorrect and breached if they are not true and
correct in all material respects based on the qualifications and standards therein
contained.
9.3.2.
Agreements and Covenants
. FNFG shall have performed in all material
respects all obligations and complied in all material respects with all agreements
or covenants to be performed or complied with by it at or prior to the Effective
Time, and HNC shall have
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received a certificate signed on behalf of FNFG by the Chief Executive Officer and Chief Financial
Officer to such effect dated as of the Effective Time.
9.3.3.
Permits, Authorizations, Etc
. FNFG shall have obtained any and all
material permits, authorizations, consents, waivers, clearances or approvals
required for the lawful consummation of the Merger and the Bank Merger.
9.3.4.
Payment of Merger Consideration
. FNFG shall have delivered the
Exchange Fund to the Exchange Agent on or before the Closing Date and the Exchange
Agent shall provide HNC with a certificate evidencing such delivery.
FNFG will furnish HNC with such certificates of their officers or others and such
other documents to evidence fulfillment of the conditions set forth in this Section 9.3 as
HNC may reasonably request.
ARTICLE X
THE CLOSING
10.1.
Time and Place.
Subject to the provisions of Articles IX and XI hereof, the Closing of the
transactions contemplated hereby shall take place at the offices of Luse Gorman Pomerenk &
Schick, 5335 Wisconsin Avenue, Suite 780, Washington, D.C. at 10:00 a.m., or at such other
place or time upon which FNFG and HNC mutually
agree. A pre-closing of the transactions contemplated hereby (the Pre-Closing)
shall take place at the offices of Luse Gorman Pomerenk & Schick, 5335 Wisconsin Avenue,
Suite 780, Washington, D.C. at 10:00 a.m. on the day prior to the Closing Date.
10.2.
Deliveries at the Pre-Closing and the Closing.
At the Pre-Closing there shall be delivered to FNFG and HNC the opinions,
certificates, and other documents and instruments required to be delivered at the
Pre-Closing under Article IX hereof. At or prior to the Closing, FNFG shall have delivered
the Merger Consideration as set forth under Section 9.3.4 hereof.
ARTICLE XI
TERMINATION, AMENDMENT AND WAIVER
11.1.
Termination.
This Agreement may be terminated at any time prior to the Closing Date, whether
before or after approval of the Merger by the shareholders of HNC:
11.1.1. At any time by the mutual written agreement of FNFG and HNC;
11.1.2. By the Board of Directors of either party (provided, that the
terminating party is not then in material breach of any representation, warranty,
covenant or other agreement contained herein) if there shall have been a material
breach of any of the representations or
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warranties set forth in this Agreement on the part of the other party, which breach by its nature
cannot be cured prior to the Termination Date or shall not have been cured within 30 days after
written notice of such breach by the terminating party to the other party provided, however, that
neither party shall have the right to terminate this Agreement pursuant to this Section 11.1.2
unless the breach of representation or warranty, together with all other such breaches, would
entitle the terminating party not to consummate the transactions contemplated hereby under Section
9.2.1 (in the case of a breach of a representation or warranty by HNC) or Section 9.3.1 (in the
case of a breach of a representation or warranty by FNFG);
11.1.3. By the Board of Directors of either party (provided, that the
terminating party is not then in material breach of any representation, warranty,
covenant or other agreement contained herein) if there shall have been a material
failure to perform or comply with any of the covenants or agreements set forth in
this Agreement on the part of the other party, which failure by its nature cannot
be cured prior to the Termination Date or shall not have been cured within 30 days
after written notice of such failure by the terminating party to the other party
provided, however, that neither party shall have the right to terminate this
Agreement pursuant to this Section 11.1.3 unless the breach of covenant or
agreement, together with all other such breaches, would entitle the
terminating party not to consummate the transactions contemplated hereby under
Section 9.2.2 (in the case of a breach of covenant by HNC) or Section 9.3.2 (in the
case of a breach of covenant by FNFG);
11.1.4. At the election of the Board of Directors of either party if the
Closing shall not have occurred by the Termination Date, or such later date as
shall have been agreed to in writing by FNFG and HNC; provided, that no party may
terminate this Agreement pursuant to this Section 11.1.4 if the failure of the
Closing to have occurred on or before said date was due to such partys material
breach of any representation, warranty, covenant or other agreement contained in
this Agreement;
11.1.5. By the Board of Directors of either party if the shareholders of HNC
shall have voted at the HNC Shareholders Meeting on the transactions contemplated
by this Agreement and such vote shall not have been sufficient to approve such
transactions;
11.1.6. By the Board of Directors of either party if (i) final action has been
taken by a Bank Regulator whose approval is required in connection with this
Agreement and the transactions contemplated hereby, which final action (x) has
become unappealable and (y) does not approve this Agreement or the transactions
contemplated hereby, or (ii) any court of competent jurisdiction or other
governmental authority shall have issued an order, decree, ruling or taken any
other action restraining, enjoining or otherwise prohibiting the Merger and such
order, decree, ruling or other action shall have become final and nonappealable;
11.1.7. Reserved.
11.1.8. By the Board of Directors of FNFG if HNC has received a Superior
Proposal, and in accordance with Section 6.10 of this Agreement, the Board of
Directors of HNC has entered into an acquisition agreement with respect to the
Superior Proposal, terminated this Agreement, or withdraws its recommendation of
this Agreement, fails to make such recommendation or modifies or qualifies its
recommendation in a manner adverse to FNFG;
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11.1.9. By the Board of Directors of HNC if HNC has received a Superior
Proposal, and in accordance with Section 6.10 of this Agreement, the Board of
Directors of HNC has made a determination to accept such Superior Proposal;
11.1.10. By HNC, if its Board of Directors so determines by a majority vote of
the members of its entire Board, at any time during the five-day period commencing
on the Determination Date, such termination to be effective on the 10th day
following such Determination Date (Effective Termination Date), if both of the
following conditions are satisfied:
(i) The FNFG Market Value on the Determination Date is less than $9.28; and
(ii) (a) the number obtained by dividing the FNFG Market Value on the
Determination Date by the Initial FNFG Market Value (FNFG Ratio) shall be less
than (b) the quotient obtained by dividing the Final Index Price by the Initial
Index Price minus 0.20;
subject, however, to the following three sentences. If HNC elects to exercise its termination
right pursuant to this Section 11.1.10, it shall give prompt written notice thereof to FNFG.
During the five business day period commencing with its receipt of such notice, FNFG shall have the
option to increase the consideration to be received by the holders of HNC Common Stock hereunder by
adjusting the Exchange Ratio to one of the following quotients at its sole discretion: (i) a
quotient, the numerator of which is equal to the product of the Initial FNFG Market Value, the
Exchange Ratio (as then in effect), and the Index Ratio minus 0.20, and the denominator of which is
equal to FNFG Market Value on the Determination Date; or (ii) the quotient determined by dividing
the Initial FNFG Market Value by the FNFG Market Value on the Determination Date, and multiplying
the quotient by the product of the Exchange Ratio (as then in effect) and 0.80. If FNFG so elects,
it shall give, within such five business-day period, written notice to HNC of such election and the
revised Exchange Ratio, whereupon no termination shall be deemed to have occurred pursuant to this
Section 11.1.10 and this Agreement shall remain in full force and effect in accordance with its
terms (except as the Exchange Ratio shall have been so modified).
For purposes of this Section 11.1.10, the following terms shall have the meanings
indicated below:
Determination Date shall mean the first date on which all Regulatory Approvals (and
waivers, if applicable) necessary for consummation of the Merger and the Bank Merger have
been received (disregarding any waiting period).
Final Index Price means the average of the daily closing value of the Index for the
five consecutive trading days immediately preceding the Determination Date.
Initial Index Price means the closing value of the Index on the trading day ended
two days preceding the execution of this Agreement.
Index Group means the Nasdaq Bank Index.
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Index Ratio shall be the Final Index Price divided by the Initial Index Price.
Initial FNFG Market Value means $11.60, adjusted if applicable as indicated in the
last sentence of Section 11.1.10.
FNFG Market Value shall be the average of the daily closing sales prices of a share
of FNFG Common Stock as reported on the Nasdaq for the five consecutive trading days
immediately preceding the Determination Date.
If FNFG declares or effects a stock dividend, reclassification, recapitalization,
split-up, combination, exchange of shares or similar transaction between the date of this
Agreement and the Determination Date, the prices of FNFG Common Stock shall be
appropriately adjusted for the purposes of applying this Section 11.1.10.
11.2.
Effect of Termination.
11.2.1. In the event of termination of this Agreement pursuant to any
provision of Section 11.1, this Agreement shall forthwith become void and have no
further force, except that (i) the provisions of Sections 11.2, 12.1, 12.2, 12.6,
12.9, 12.10, and any other Section which, by its terms, relates to post-termination
rights or obligations, shall survive such termination of this Agreement and remain
in full force and effect.
11.2.2. If this Agreement is terminated, expenses and damages of the parties
hereto shall be determined as follows:
(A) Except as provided below, whether or not the Merger is
consummated, all costs and expenses incurred in connection with this
Agreement and the transactions contemplated by this Agreement shall be
paid by the party incurring such expenses.
(B) In the event of a termination of this Agreement because of a
willful breach of any representation, warranty, covenant or agreement
contained in this Agreement, the breaching party shall remain liable for
any and all damages, costs and expenses, including all reasonable
attorneys fees, sustained or incurred by the non-breaching party as a
result thereof or in connection therewith or with respect to the
enforcement of its rights hereunder.
(C) As a condition of FNFGs willingness, and in order to induce
FNFG, to enter into this Agreement, and to reimburse FNFG for incurring
the costs and expenses related to entering into this Agreement and
consummating the transactions contemplated by this Agreement, HNC hereby
agrees to pay FNFG, and FNFG shall be entitled to payment of a fee of
$10.0 million (the FNFG Fee). The FNFG Fee shall be paid within three business days after
written demand for payment is made by FNFG, following the occurrence of any of the events set forth
below:
(i) HNC terminates this Agreement pursuant to Section 11.1.9 or FNFG
terminates this Agreement pursuant to Section 11.1.8; or
(ii) The entering into a definitive agreement by HNC relating to an
Acquisition Proposal or the consummation of an Acquisition Proposal involving HNC
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within twelve months after the occurrence of any of the following: (i) the termination of
the Agreement by FNFG pursuant to Section 11.1.2 or 11.1.3 because of, in either case, a
willful breach by HNC; or (ii) the failure of the shareholders of HNC to approve this
Agreement after the public disclosure or public awareness of an Acquisition Proposal.
(D) The right to receive payment of the FNFG Fee under Section
11.2.2(C) will constitute the sole and exclusive remedy of FNFG against
HNC and its Subsidiaries and their respective officers and directors with
respect to a termination under (i) or (ii) above.
11.3.
Amendment, Extension and Waiver.
Subject to applicable law, at any time prior to the Effective Time (whether before or
after approval thereof by the shareholders of HNC), the parties hereto by action of their
respective Boards of Directors, may (a) amend this Agreement, (b) extend the time for the
performance of any of the obligations or other acts of any other party hereto, (c) waive
any inaccuracies in the representations and warranties contained herein or in any document
delivered pursuant hereto, or (d) waive compliance with any of the agreements or conditions
contained herein; provided, however, that after any approval of this Agreement and the
transactions contemplated hereby by the shareholders of HNC, there may not be, without
further approval of such shareholders, any amendment of this Agreement which reduces the
amount, value or changes the form of consideration to be delivered to HNCs shareholders
pursuant to this Agreement. This Agreement may not be amended except by an instrument in
writing signed on behalf of each of the parties hereto. Any agreement on the part of a
party hereto to any extension or waiver shall be valid only if set forth in an instrument
in writing signed on behalf of such party, but such waiver or failure to insist on strict
compliance with such obligation, covenant, agreement or condition shall not operate as a
waiver of, or estoppel with respect to, any subsequent or other failure.
ARTICLE XII
MISCELLANEOUS
12.1.
Confidentiality.
Except as specifically set forth herein, FNFG and HNC mutually agree to be bound by
the terms of the confidentiality agreement dated July 7, 2009 (the Confidentiality
Agreement) previously executed by the parties hereto, which Confidentiality Agreement is
hereby incorporated herein by reference. The parties hereto agree that such Confidentiality
Agreement shall continue in accordance with their respective terms, notwithstanding the
termination of this Agreement.
12.2.
Public
Announcements.
HNC and FNFG shall cooperate with each other in the development and distribution of
all news releases and other public disclosures with respect to this Agreement, and except
as may be otherwise required by law, neither HNC nor FNFG shall issue any news release, or
other public announcement or communication with respect to this Agreement unless such news
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release, public announcement or communication has been mutually agreed upon by the parties hereto.
12.3.
Survival.
All representations, warranties and covenants in this Agreement or in any instrument
delivered pursuant hereto or thereto shall expire on and be terminated and extinguished at
the Effective Time, except for those covenants and agreements contained herein which by
their terms apply in whole or in part after the Effective Time.
12.4.
Notices.
All notices or other communications hereunder shall be in writing and shall be deemed
given if delivered by receipted hand delivery or mailed by prepaid registered or certified
mail (return receipt requested) or by recognized overnight courier addressed as follows:
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If to HNC, to:
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Paul D. Geraghty
President and Chief Executive Officer
Harleysville National Corporation
483
Main Street
Harleysville, Pennsylvania
19438
Fax: (215) 256-3065
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With required copies (which shall not constitute
notice) to:
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G. Daniel ODonnell, Esq.
Ian A. Hartman, Esq.
Dechert LLP
Cira
Centre
2929 Arch
Street
Philadelphia, PA 19104-2808
Fax:
(215) 994-2222
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and
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Nicholas Bybel, Jr., Esq.
G. Philip Rutledge, Esq.
Bybel Rutledge LLP
1017 Mumma Road
Suite
302
Lemoyne, Pennsylvania 17043
Fax:
(717) 731-1700
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If to FNFG, to:
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John R. Koelmel
President and Chief Executive Officer
First Niagara Financial Group, Inc.
6950 South Transit Road
P.O. Box 514
Lockport, New York 14095-0514
Fax: (716) 625-8673
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With required copies (which shall not
constitute notice) to:
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John Mineo, Esq.
Senior Vice President, General Counsel
First Niagara Financial Group, Inc.
6950 South Transit Road
P.O. Box 514
Lockport, New York 14095-0514
Fax: (716) 625-7503
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and
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John J. Gorman, Esq.
Marc P. Levy, Esq.
Luse Gorman Pomerenk & Schick, P.C.
5335 Wisconsin Avenue, N.W., Suite 780
Washington, D.C. 20015
Fax: (202) 362-2902
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or such other address as shall be furnished in writing by any party, and any such notice or
communication shall be deemed to have been given: (a) as of the date delivered by hand; (b) three
(3) business days after being delivered to the U.S. mail, postage prepaid; or (c) one (1) business
day after being delivered to the overnight courier.
12.5.
Parties in Interest.
This Agreement shall be binding upon and shall inure to the benefit of the parties
hereto and their respective successors and assigns; provided, however, that neither this
Agreement nor any of the rights, interests or obligations hereunder shall be assigned by
any party hereto without the prior written consent of the other party. Except for the
provisions of Article III and Sections 7.8.2 and 7.9, following the Effective Time, nothing
in this Agreement, express or implied, is intended to confer upon any person, other than
the parties hereto and their respective successors, any rights, remedies, obligations or
liabilities under or by reason of this Agreement.
12.6.
Complete Agreement.
This Agreement, including the Exhibits and Disclosure Schedules hereto and the
documents and other writings referred to herein or therein or delivered pursuant hereto,
and the Confidentiality Agreement, referred to in Section 12.1, contains the entire
agreement and understanding of the parties with respect to its subject matter. There are no
restrictions,
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agreements, promises, warranties, covenants or undertakings between the parties other than those
expressly set forth herein or therein. This Agreement supersedes all prior agreements and
understandings (other than the Confidentiality Agreements referred to in Section 12.1 hereof)
between the parties, both written and oral, with respect to its subject matter.
12.7.
Counterparts.
This Agreement may be executed in one or more counterparts all of which shall be
considered one and the same agreement and each of which shall be deemed an original. A
facsimile copy or electronic transmission of a signature page shall be deemed to be an
original signature page.
12.8.
Severability.
In the event that any one or more provisions of this Agreement shall for any reason be
held invalid, illegal or unenforceable in any respect, by any court of competent
jurisdiction, such invalidity, illegality or unenforceability shall not affect any other
provisions of this Agreement and the parties shall use their reasonable efforts to
substitute a valid, legal and enforceable provision which, insofar as practical, implements
the purposes and intents of this Agreement.
12.9.
Governing Law.
This Agreement shall be governed by the laws of Delaware, without giving effect to its
principles of conflicts of laws.
12.10.
Interpretation.
When a reference is made in this Agreement to Sections or Exhibits, such reference
shall be to a Section of or Exhibit to this Agreement unless otherwise indicated. The
recitals hereto constitute an integral part of this Agreement. References to Sections
include subsections, which are part of the related Section (e.g., a section numbered
Section 5.5.1 would be part of Section 5.5 and references to Section 5.5 would also
refer to material contained in the subsection described as Section 5.5.1). The table of
contents, index and headings contained in this Agreement are for reference purposes 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 phrases the date of this
Agreement, the date hereof and terms of similar import, unless the context otherwise
requires, shall be deemed to refer to the date set forth in the Recitals to this Agreement.
The parties have participated jointly in the negotiation and drafting of this Agreement.
In the event an ambiguity or question of intent or interpretation arises, this Agreement
shall be construed as if drafted jointly by the parties and no presumption or burden of
proof shall arise favoring or disfavoring any party by virtue of the authorship of any of
the provisions of this Agreement.
12.11.
Specific Performance; Jurisdiction.
The parties hereto agree that irreparable damage would occur in the event that the
provisions contained in this Agreement were not performed in accordance with its specific
terms
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or was otherwise breached. It is accordingly agreed that the parties shall be entitled to an
injunction or injunctions to prevent breaches of this Agreement and to enforce specifically the
terms and provisions thereof in the United States District Court for the District of Delaware or in
any state court in the State of Delaware, this being in addition to any other remedy to which they
are entitled at law or in equity. In addition, each of the parties hereto (a) consents to submit
itself to the personal jurisdiction of the United States District Court for the District of
Delaware or of any state court located in the State of Delaware in the event any dispute arises out
of this Agreement or the transactions contemplated by this Agreement, (b) agrees that it will not
attempt to deny or defeat such personal jurisdiction by motion or other request for leave from any
such court and (c) agrees that it will not bring any action relating to this Agreement or the
transactions contemplated by this Agreement in any court other United States District Court for the
District of Delaware or a state court located in the State of Delaware.
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IN WITNESS WHEREOF, FNFG and HNC have caused this Agreement to be executed under seal
by their duly authorized officers as of the date first set forth above.
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First Niagara Financial Group, Inc.
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Dated: July 26, 2009
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By:
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/s/ John R. Koelmel
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Name:
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John R. Koelmel
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Title:
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President
and
Chief Executive Officer
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Harleysville National Corporation
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Dated: July 26, 2009
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By:
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/s/ Paul D. Geharty
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Name:
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Paul D. Geraghty
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Title:
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President
and
Chief Executive Officer
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APPENDIX B
July 26, 2009
The Board of Directors
Harleysville National Corporation
483 Main Street
Harleysville, PA 19438
Members of the Board of Directors:
You have requested our opinion as to the fairness, from a financial point of view, to the holders
of common stock, par value $1.00 per share (the Company Common Stock), of Harleysville National
Corporation (the Company) of the Exchange Ratio (as defined below) in the proposed merger (the
Transaction) of the Company with First Niagara Financial Group, Inc. (the Acquiror). Pursuant
to the Agreement and Plan of Merger, dated as of July 26, 2009 (the Agreement), by and between
the Company and the Acquiror, the Company will be merged with and into the Acquiror, and each
outstanding share of Company Common Stock, other than shares of Company Common Stock held in
treasury or owned by the Acquiror and its affiliates, will be converted into the right to receive
0.474 shares of the Acquirors common stock, par value $0.01 per share (the Acquiror Common
Stock), subject to adjustment based on the level of HNC Delinquent Loans (as defined in the
Agreement) as of the month end preceding consummation of the Transaction, all as set forth in the
Agreement (the Exchange Ratio).
In arriving at our opinion, we have (i) reviewed the Agreement; (ii) reviewed and discussed with
the Company and the Acquiror certain publicly available business and financial information
concerning the Company and the Acquiror and the industries in which they operate; (iii) reviewed
and discussed with the Company and the Acquiror matters relating to their respective liquidity,
leverage and capital adequacy; (iv) compared the proposed financial terms of the Transaction with
the publicly available financial terms of certain transactions involving companies we deemed
relevant; (v) compared the financial and operating performance of the Company and the Acquiror
with publicly available information concerning certain other companies we deemed relevant and
reviewed the current and historical market prices of the Company Common Stock and the Acquiror
Common Stock and certain publicly traded securities of such other companies; (vi) reviewed and
discussed with the Company certain internal financial analyses and forecasts
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prepared by the management of the Company relating to its business; (vii) reviewed and discussed
with the Acquiror the estimated amount and timing of the cost savings and related expenses expected
to result from the Transaction (the Synergies); (viii) reviewed certain publicly available
research analyst reports for the Acquiror; and (ix) performed such other financial studies and
analyses and considered such other information as we deemed appropriate for the purposes of this
opinion.
In addition, we have held discussions with certain members of the management of the Company and
the Acquiror with respect to certain aspects of the Transaction, and the past and current business
operations of the Company and the Acquiror, the financial condition and future prospects and
operations of the Company and the Acquiror, the effects of the Transaction (including the
Synergies) on the financial condition and future prospects of the Company and the Acquiror, and
certain other matters we believed necessary or appropriate to our inquiry. In the course of such
discussions, we have been advised by members of the management of the Company that the Company has
been negatively affected in a significant manner by, and continues to have considerable exposure
to, risks related to its recent financial performance and credit issues, including the impact
thereof on capital and liquidity. Management has informed us that these developments have resulted
in, among others, the previously announced action by the Office of the Comptroller of the Currency
(the OCC) requiring the Companys bank subsidiary to meet certain enhanced individual minimum
capital ratios by June 30, 2009. We have been further advised by management that the Company has
not been able to, and does not have significant prospects to successfully complete, in the near
term, its previously announced strategic initiatives to raise capital to protect against future
losses. Management has further advised us that it has experienced significant liquidity pressures
in recent months, including requirements by certain business counterparties and liquidity
providers to provide collateral or additional collateral to support its obligations to such
counterparties and liquidity providers. Members of the Companys management have also advised us
of their belief that the failure to take action soon to resolve the Companys capital and
liquidity pressures could substantially impair the ability of the Company to operate in the normal
course and could also lead to further and more severe regulatory actions that could materially
adversely impact the Company.
In giving our opinion, we have relied upon and assumed the accuracy and completeness of all
information that was publicly available or was furnished to or discussed with us by the Company
and the Acquiror or otherwise reviewed by or for us, and we have not independently verified (nor
have we assumed responsibility or liability for independently verifying) any such information or
its accuracy or completeness. We have not reviewed individual credit files of the Company or the
Acquiror, nor have we conducted or been provided with any valuation or appraisal of any assets or
liabilities (including any derivative or off-
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balance sheet liabilities) of the Company or the Acquiror, nor have we evaluated the solvency of
the Company or the Acquiror under any state or federal laws relating to bankruptcy, insolvency or
similar matters. We are not experts in the evaluation of loan and lease portfolios for assessing
the adequacy of the allowances for losses with respect thereto and, accordingly, we did not make an
independent evaluation of the adequacy of the allowance for loan losses of the Company or the
Acquiror and we have assumed, with your consent, that the respective allowances for loan losses for
both the Company and the Acquiror, respectively, are adequate to cover such losses and will be
adequate on a pro forma basis for the combined entity. In relying on financial analyses and
forecasts provided to us by the Company or derived therefrom, we have assumed that they have been
reasonably prepared based on assumptions reflecting the best currently available estimates and
judgments by management as to the expected future results of operations and financial condition of
the Company to which such analyses or forecasts relate. As you are aware, the management of the
Acquiror did not make available to us its forecasts of the future financial performance of the
Acquiror. With your consent, our review of the Acquiror was limited to publicly-available
information and a discussion with the management of the Acquiror regarding the past and current
business operations, financial condition and future prospects of the Acquiror, which included a
discussion of publicly available estimates issued by certain research analysts with respect to the
Acquiror. We have also assumed, at your direction and with your consent, that the Synergies and the
Acquiror consensus earnings estimates used in our analyses will be realized in the amounts and at
the times contemplated thereby. We express no view as to any analyses, forecasts, estimates or
Synergies referred to above, or the assumptions on which they were based. We have also assumed that
the Transaction and the other transactions contemplated by the Agreement will qualify as a tax-free
reorganization for United States federal income tax purposes, and will be consummated as described
in the Agreement. We have also assumed that the representations and warranties made by the Company
and the Acquiror in the Agreement and the related agreements are and will be true and correct in
all respects material to our analysis and that the covenants and agreements contained therein will
be performed in all respects material to our analysis. We are not legal, regulatory or tax experts
and have relied on the assessments made by advisors to the Company with respect to such issues. We
have further assumed that all material governmental, regulatory or other consents and approvals
necessary for the consummation of the Transaction will be obtained without any adverse effect on
the Company or the Acquiror or on the contemplated benefits of the Transaction. Our opinion
assumes, with your consent, that the Exchange Ratio will be 0.474, and that the level of HNC
Delinquent Loans will not result in any adjustment thereto.
Our opinion is necessarily based on economic, market and other conditions as in effect on, and the
information made available to us as of, the date hereof. It should be understood that subsequent
developments may affect this opinion and that we
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do not have any obligation to update, revise, or reaffirm this opinion. Our opinion is limited to
the fairness, from a financial point of view, to the holders of the Company Common Stock of the
Exchange Ratio in the proposed Transaction and we express no opinion as to the fairness of the
Transaction to, or any consideration to be paid to, the holders of any other class of securities,
creditors or other constituencies of the Company or as to the underlying decision by the Company to
engage in the Transaction. Furthermore, we express no opinion with respect to the amount or nature
of any compensation to any officers, directors, or employees of any party to the Transaction, or
any class of such persons relative to the Exchange Ratio applicable to the holders of the Company
Common Stock in the Transaction or with respect to the fairness of any such compensation. We are
expressing no opinion herein as to the price at which the Company Common Stock or the Acquiror
Common Stock will trade at any future time.
We have acted as financial advisor to the Company with respect to the proposed Transaction and
will receive a fee from the Company for our services, a substantial portion of which will become
payable only if the proposed Transaction is consummated. In addition, the Company has agreed to
indemnify us for certain liabilities arising out of our engagement. During the two years preceding
the date of this letter, we and our affiliates have had commercial or investment banking
relationships with the Company and the Acquiror, respectively, for which we and such affiliates
have received customary compensation. Such services during such period have included acting as
financial advisor for the Company beginning in January, 2009 and continuing through the date
hereof; providing securities, trading and foreign exchange services (primarily providing interest
rate swaps), credit services, treasury and security services, and other miscellaneous financial
services to the Company; and providing securities, trading and foreign exchange services
(primarily providing interest rate swaps) and treasury and security services to the Acquiror. In
the ordinary course of our businesses, we and our affiliates may actively trade the debt and
equity securities of the Company or the Acquiror for our own account or for the accounts of
customers and, accordingly, we may at any time hold long or short positions in such securities.
On the basis of and subject to the foregoing, it is our opinion that, as of the date hereof, the
Exchange Ratio in the proposed Transaction is fair, from a financial point of view, to the holders
of the Company Common Stock.
The issuance of this opinion has been approved by a fairness opinion committee of J.P. Morgan
Securities Inc. This letter is provided to the Board of Directors of the Company in connection
with and for the purposes of its evaluation of the Transaction. This opinion does not constitute a
recommendation to any shareholder of the Company as to how such shareholder should vote with
respect to the Transaction or any other matter. This opinion may not be disclosed, referred to, or
communicated (in whole or in part) to any third party for any purpose
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whatsoever except with our prior written approval. This opinion may, however, be reproduced in any
proxy statement mailed to shareholders of the Company provided that the opinion is reproduced in
such document in its entirety, and such document includes a summary of the opinion and related
analysis in a form prepared or approved by us (such approval not to be unreasonably withheld), but
may not otherwise be disclosed publicly in any manner without our prior written approval.
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Very truly yours,
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/s/ J.P. MORGAN SECURITIES, INC.
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J.P. MORGAN SECURITIES INC.
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SPECIAL MEETING OF SHAREHOLDERS OF HARLEYSVILLE NATIONAL CORPORATION January 22, 2010 NOTICE OF
INTERNET AVAILABILITY OF PROXY MATERIAL: The Notice of Meeting, Proxy Statement, Proxy Card are
available at http://www.amstock.com/proxyservices/viewmaterial.asp?CoNumber=02827 Please sign, date
and mail your proxy card in the envelope provided as soon as possible. Please detach along
perforated line and mail in the envelope provided 00030030000000000000 1 012210 THE BOARD OF
DIRECTORS RECOMMENDS A VOTE FOR PROPOSALS 1 AND 2. PLEASE SIGN, DATE AND RETURN PROMPTLY IN THE
ENCLOSED ENVELOPE. PLEASE MARK YOUR VOTE IN BLUE OR BLACK INK AS SHOWN HERE x FOR AGAINST ABSTAIN
1. ELECTION OF DIRECTORS: 1. To adopt the Agreement and Plan of Merger by and between First Niagara
Financial Group, Inc., and Harleysville National NOMINEES: Corporation, dated as of July 26, 2009,
and the transactions FOR ALL NOMINEES O E. James Harris Class II director contemplated by the
merger agreement, as discussed in the O John W. Burton Class II director attached proxy
statement-prospectus. WITHHOLD AUTHORITY O Aubrey B. Smith, Jr. Class II director FOR ALL NOMINEES
O David E. Browne Class II director 2. To transact any other business that properly comes before
the FOR ALL EXCEPT special meeting of shareholders, or any adjournments of (See instructions below)
postponements of the special meeting, including, without limitation, a motion to adjourn the
special meeting to another time or place for the purpose of soliciting additional proxies in order
to adopt the merger agreement and the merger or otherwise. In their discretion, the proxies are
authorized to vote upon such other business as may properly come before the Special Meeting. This
proxy when properly executed will be voted as directed herein by the undersigned shareholder. If no
direction is INSTRUCTIONS: To withhold authority to vote for any individual nominee(s), mark FOR
ALL EXCEPT made, this proxy will be voted FOR Proposal 1 and FOR Proposal 2. and fill in the
circle next to each nominee you wish to withhold, as shown here: To change the address on your
account, please check the box at right and indicate your new address in the address space above.
Please note that changes to the registered name(s) on the account may not be submitted via this
method. Signature of Shareholder Date: Signature of Shareholder Date: Note: Please sign exactly as
your name or names appear on this Proxy. When shares are held jointly, each holder should sign.
When signing as executor, administrator, attorney, trustee or guardian, please give full title as
such. If the signer is a corporation, please sign full corporate name by duly authorized officer,
giving full title as such. If signer is a partnership, please sign in partnership name by
authorized person.
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SPECIAL MEETING OF SHAREHOLDERS OF HARLEYSVILLE NATIONAL CORPORATION January 22, 2010 PROXY VOTING
INSTRUCTIONS INTERNET Access www.voteproxy.com and follow the on-screen instructions. Have
your proxy card available when you access the web page, and use the Company Number and Account
Number shown on your proxy card. TELEPHONE Call toll-free 1-800-PROXIES (1-800-776-9437) in the
United States or 1-718-921-8500 from foreign countries from any COMPANY NUMBER touch-tone telephone
and follow the instructions. Have your proxy card available when you call and use the Company
Number and Account Number shown on your proxy card. ACCOUNT NUMBER Vote online/phone until 11:59 PM
EST the day before the meeting. MAIL Sign, date and mail your proxy card in the envelope provided
as soon as possible. IN PERSON You may vote your shares in person by attending the Special
Meeting. NOTICE OF INTERNET AVAILABILITY OF PROXY MATERIAL: The Notice of meeting, proxy statement
and proxy card are available at
http://www.amstock.com/proxyservices/viewmaterial.asp?CoNumber=02827 Please detach along perforated
line and mail in the envelope provided IF you are not voting via telephone or the Internet.
00030030000000000000 1 012210 THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSALS 1 AND 2.
PLEASE SIGN, DATE AND RETURN PROMPTLY IN THE ENCLOSED ENVELOPE. PLEASE MARK YOUR VOTE IN BLUE OR
BLACK INK AS SHOWN HERE x FOR AGAINST ABSTAIN 1. ELECTION OF DIRECTORS: 1. To adopt the Agreement
and Plan of Merger by and between First Niagara Financial Group, Inc., and Harleysville National
NOMINEES: Corporation, dated as of July 26, 2009, and the transactions FOR ALL NOMINEES O E. James
Harris Class II director contemplated by the merger agreement, as discussed in the O John W.
Burton Class II director attached proxy statement-prospectus. WITHHOLD AUTHORITY O Aubrey B. Smith,
Jr. Class II director FOR ALL NOMINEES O David E. Browne Class II director 2. To transact any other
business that properly comes before the FOR ALL EXCEPT special meeting of shareholders, or any
adjournments of (See instructions below) postponements of the special meeting, including, without
limitation, a motion to adjourn the special meeting to another time or place for the purpose of
soliciting additional proxies in order to adopt the merger agreement and the merger or otherwise.
In their discretion, the proxies are authorized to vote upon such other business as may properly
come before the Special Meeting. This proxy when properly executed will be voted as directed herein
by the undersigned shareholder. If no direction is INSTRUCTIONS: To withhold authority to vote for
any individual nominee(s), mark FOR ALL EXCEPT made, this proxy will be voted FOR Proposal 1 and
FOR Proposal 2. and fill in the circle next to each nominee you wish to withhold, as shown here:
JOHN SMITH 1234 MAIN STREET APT. 203 NEW YORK, NY 10038 To change the address on your account,
please check the box at right and indicate your new address in the address space above. Please note
that changes to the registered name(s) on the account may not be submitted via this method.
Signature of Shareholder Date: Signature of Shareholder Date: Note: Please sign exactly as your
name or names appear on this Proxy. When shares are held jointly, each holder should sign. When
signing as executor, administrator, attorney, trustee or guardian, please give full title as such.
If the signer is a corporation, please sign full corporate name by duly authorized officer, giving
full title as such. If signer is a partnership, please sign in partnership name by authorized
person.
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HARLEYSVILLE NATIONAL CORPORATION SPECIAL MEETING OF SHAREHOLDERS TO BE HELD ON JANUARY 22, 2010
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS As an alternative to completing this
form, you may enter your vote instruction by telephone at 1-800-PROXIES, or via the Internet at
WWW.VOTEPROXY.COM and follow the simple instructions. Use the Company Number and Account Number
shown on your proxy card. The undersigned hereby constitutes and appoints Louis P. Spinelli,
Executive Vice President, and Tracie A. Young, Senior Vice President and each or any of them,
proxies of the undersigned, with full power of substitution, to vote all of the shares of
Harleysville National Corporation (the Corporation) which the undersigned may be entitled to vote
at the Special Meeting of Shareholders of the Corporation to be held at The Inn at Towamencin, 1750
Sumneytown Pike, Kulpsville, PA 19443, on Friday, January 22, 2010, at 10:30 a.m., prevailing time,
and at any adjournment or postponement thereof, as follows: (Continued and to be signed on the
reverse side.)
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