Plan of Distribution and Marketing Arrangements
Offering materials have been initially distributed to certain persons by mail,
with additional copies made available through our conversion center and Sandler
O'Neill. All prospective purchasers are to send payment directly to SBU Bank,
where such funds will be held in a segregated savings account and not released
until the offering is completed or terminated.
We have engaged Sandler O'Neill, a broker-dealer registered with the NASD, as a
financial and marketing advisor in connection with the offering of our common
stock. In its role as financial and marketing advisor, Sandler O'Neill will
assist us in the offering as follows: (i) consulting as to the securities
marketing implications of any aspect of the plan of conversion or related
corporate documents; (ii) reviewing with our board of directors the financial
and securities marketing implications of the independent appraiser's appraisal
of the common stock; (iii) reviewing all offering documents, including the
prospectus, stock order forms and related offering materials (we are responsible
for the preparation and filing of such documents); (iv) assisting in the design
and implementation of a marketing strategy for the offering; (v) assisting us in
preparing for meetings with potential investors and broker-dealers; and (vi)
providing such other general advice and assistance regarding financial and
marketing aspects of the conversion. For these services, Sandler O'Neill will
receive a fee of 1.00% of the aggregate dollar amount of the common stock sold
in the offering, excluding shares sold to the Partners Trust Financial Group
employee stock ownership plan, and to Partners Trust Financial Group's officers,
employees and directors, and their immediate families. We have made an advance
payment of $25,000 to Sandler O'Neill in this regard. If there is a syndicated
community offering, Sandler O'Neill will receive a management fee of 1.00% of
the aggregate dollar amount of the common stock sold in the syndicated community
offering. The total fees payable to Sandler O'Neill and other NASD member firms
in the syndicated community offering will not exceed 5.5% of the aggregate
dollar amount of the common stock sold in the syndicated community offering.
Partners Trust Financial Group and SBU Bank also will reimburse Sandler O'Neill
for its legal fees and expenses associated with its marketing effort, up to a
maximum of $80,000. If the plan of conversion is terminated or if Sandler
O'Neill terminates its agreement with us in accordance with the provisions of
the agreement, Sandler O'Neill will only receive reimbursement of its reasonable
out-of-pocket expenses. We will indemnify Sandler O'Neill against liabilities
and expenses (including legal fees) incurred in connection with certain claims
or litigation arising out of or based upon untrue statements or omissions
contained in the offering material for the common stock, including liabilities
under the Securities Act of 1933.
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We also have engaged Sandler O'Neill to act as conversion agent in connection
with the offering. In its role as conversion agent, Sandler O'Neill will assist
us in the offering as follows: (i) consolidation of accounts and development of
a central file; (ii) preparation of proxy, order and request forms; (iii)
organization and supervision of the conversion center; (iv) proxy solicitation
and special meeting services; and (v) subscription services. For these services,
Sandler O'Neill will receive a fee of $65,000 and reimbursement for its
reasonable out-of-pocket expenses, up to a maximum of $30,000. We have made an
advance payment of $5,000 to Sandler O'Neill in this regard.
In addition, Partners Trust Financial Group engaged Sandler O'Neill as its
financial advisor in connection with the merger. Under the terms of the
engagement, Partners Trust Financial Group has agreed to pay Sandler O'Neill a
cash fee equal to 0.80% of the aggregate purchase price. Twenty-five percent of
such fee became payable upon the signing of the merger agreement, with remainder
due upon completion of the merger. We also will reimburse Sandler O'Neill for
its reasonable out-of-pocket expenses incurred in connection with its engagement
and will indemnify Sandler O'Neill against certain liabilities arising out of
such engagement, including liabilities under federal securities laws.
Our directors and executive officers may participate in the solicitation of
offers to purchase common stock. Other trained employees may participate in the
offering in ministerial capacities, providing clerical work in effecting a sales
transaction or answering questions of a ministerial nature. Other questions of
prospective purchasers will be directed to executive officers or registered
representatives. We will rely on Rule 3a4-1 of the Exchange Act, so as to permit
officers, directors, and employees to participate in the sale of the common
stock. No officer, director, or employee will be compensated for his
participation by the payment of commissions or other remuneration based either
directly or indirectly on the transactions in the common stock.
Procedure For Purchasing Shares
Expiration Date. The community offering will begin concurrently with the
subscription offering and is expected to terminate at the same time as the
subscription offering, and must terminate no more than 45 days following the
subscription offering. Partners Trust Financial Group may decide to extend the
community offering for any reason and is not required to give purchasers notice
of any such extension unless such period extends beyond [ ]. If
14,875,000 shares have not been issued by [ ], unless this period is
further extended with the consent of the Office of Thrift Supervision, we will
provide each person who subscribed for common stock with an amendment to this
prospectus indicating that each person who subscribed for common stock may
increase, decrease, or rescind their subscription within the time remaining in
the extension period. These extensions may not go beyond [ ], which
is two years after the special meeting of members of Partners Trust, MHC to vote
on the conversion.
If we have not sold the minimum number of shares offered in the offering by the
expiration date or any extension thereof, we may terminate the offering and
promptly refund all orders for shares of common stock. If the number of shares
offered is reduced below the minimum of the offering range, or increased above
the adjusted maximum of the offering range, all funds delivered to us to
purchase shares of common stock in the offering will be returned promptly to the
subscribers with interest at SBU Bank's passbook savings rate and all deposit
account withdrawal authorizations will be canceled. Purchasers will be given an
opportunity to resubmit their orders.
In the event that the maximum purchase limitation is increased to 5% of the
shares issued in the offering, such limitation may be further increased to
9.99%, provided that orders for new Partners Trust Financial Group common stock
exceeding 5% of the shares of new Partners Trust Financial Group common stock
issued in the offering may not exceed in the aggregate 10% of the total shares
issued. Requests to purchase additional shares in the event that the purchase
limitation is so increased will be determined by the board of directors of
Partners Trust Financial Group in its sole discretion.
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To ensure that each purchaser receives a prospectus at least 48 hours before the
expiration date of the offering in accordance with Rule 15c2-8 of the Securities
Exchange Act of 1934, no prospectus will be mailed any later than five days
prior to this date or hand delivered any later than two days prior to this date.
Execution of an order form will confirm receipt of delivery in accordance with
Rule 15c2-8. Order forms will be distributed only with a prospectus.
Subscription funds will be maintained in a segregated account at SBU Bank and
will earn interest at our passbook savings rate from the date of receipt.
We reserve the right in our sole discretion to terminate the offering at any
time and for any reason, in which case we will cancel any deposit account
withdrawal orders and promptly return all funds submitted, with interest at SBU
Bank's passbook savings rate from the date of receipt.
Liquidation Rights
In the unlikely event of a complete liquidation of Partners Trust Financial
Group prior to the conversion, all claims of creditors of Partners Trust
Financial Group, including those of depositors of SBU Bank (to the extent of
their deposit balances), would be paid first. Thereafter, if there were any
assets of Partners Trust Financial Group remaining, these assets would be
distributed to stockholders, including Partners Trust, MHC. In the unlikely
event that Partners Trust, MHC and Partners Trust Financial Group liquidated
prior to the conversion, all claims of creditors would be paid first. Then, if
there were any assets of Partners Trust, MHC remaining, members of Partners
Trust, MHC would receive those remaining assets, pro rata, based upon the
deposit balances in their deposit account in SBU Bank immediately prior to
liquidation. In the unlikely event that SBU Bank were to liquidate after the
conversion, all claims of creditors, including those of depositors, would be
paid first, followed by distribution of the "liquidation account" to certain
depositors, with any assets remaining thereafter distributed to Partners Trust
Financial Group as the holder of SBU Bank capital stock. Pursuant to the rules
and regulations of the Office of Thrift Supervision, a post-conversion merger,
consolidation, sale of bulk assets or similar combination or transaction with
another insured savings institution would not be considered a liquidation and,
in these types of transactions, the liquidation account would be assumed by the
surviving institution.
The plan of conversion and reorganization provides for the establishment, at the
time of the conversion, of a special "liquidation account" for the benefit of
Eligible Account Holders and Supplemental Eligible Account Holders in an amount
equal to the greater of:
(1) Partners Trust, MHC's ownership interest in the stockholders'
equity of Partners Trust Financial Group as of the date of
its latest balance sheet contained in this prospectus; or
(2) the stockholders' equity of SBU Bank as of the latest
financial statements set forth in the prospectus used at the
time that SBU Bank reorganized into Partners Trust, MHC in
April, 2002.
The purpose of the liquidation account is to provide Eligible Account Holders
and Supplemental Eligible Account Holders who maintain their deposit accounts
with SBU Bank after the conversion with a liquidation interest in the unlikely
event of the complete liquidation of SBU Bank after the conversion. Each
Eligible Account Holder and Supplemental Eligible Account Holder that continues
to maintain his or her deposit account at SBU Bank, would be entitled, on a
complete liquidation of SBU Bank after the conversion, to an interest in the
liquidation account prior to any payment to the stockholders of Partners Trust
Financial Group. Each Eligible Account Holder and Supplemental Eligible Account
Holder would have an initial interest in the liquidation account for each
deposit account, including savings accounts, transaction accounts such as
negotiable order of withdrawal accounts, money market deposit accounts, and
certificates of deposit, with a balance of $50 or more held in SBU Bank on
December 15, 2002, or March 31, 2004. Each Eligible Account Holder and
Supplemental Eligible Account Holder would have a pro rata interest in the total
liquidation account for each such deposit account, based on the proportion that
the balance of each such deposit account on December 15, 2002, or March 31,
2004, bears to the balance of all deposit accounts in SBU Bank on such dates.
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If, however, on any December 31 annual closing date commencing after the
effective date of the conversion, the amount in any such deposit account is less
than the amount in the deposit account on December 15, 2002 or March 31, 2004,
or any other annual closing date, then the interest in the liquidation account
relating to such deposit account would be reduced from time to time by the
proportion of any such reduction, and such interest will cease to exist if such
deposit account is closed. In addition, no interest in the liquidation account
would ever be increased despite any subsequent increase in the related deposit
account. Payment pursuant to liquidation rights of Eligible Account Holders and
Supplemental Eligible Account Holders would be separate and apart from the
payment of any insured deposit accounts to such depositor. Any assets remaining
after the above liquidation rights of Eligible Account Holders and Supplemental
Eligible Account Holders are satisfied would be distributed to Partners Trust
Financial Group as the sole stockholder of SBU Bank.
Tax Aspects
Consummation of the conversion is conditioned upon the prior receipt by Partners
Trust, MHC, Partners Trust Financial Group and SBU Bank of an opinion of counsel
with respect to federal and New York State income tax laws, to the effect that
consummation of the transactions contemplated by the conversion will qualify as
a tax-free reorganization under the provisions of the applicable codes and will
not otherwise result in any material adverse tax consequences to Partners Trust,
MHC, Partners Trust Financial Group, the Holding Company (as defined herein) or
SBU Bank, or the account holders receiving subscription rights before or after
the conversion, except in each case to the extent, if any, that subscription
rights or interests in the Liquidation Account are deemed to have value on the
date such rights are issued.
In the view of RP Financial, LC, the subscription rights do not have any
ascertainable value, based on the fact that these rights are acquired by the
recipients without cost, are nontransferable and of short duration, and afford
the recipients the right only to purchase the common stock at the same price as
will be paid by members of the general public in the community offering.
Eligible Account Holders and Supplemental Eligible Account Holders are
encouraged to consult with their own tax advisors as to the tax consequences in
the event that subscription rights are deemed to have an ascertainable value.
Unlike private rulings, an opinion of RP Financial is not binding on the
Internal Revenue Service and the Internal Revenue Service could disagree with
the conclusions reached therein.
Based on the Supreme Court's analysis in Paulsen v. Commissioner, the interests
in the Liquidation Account in SBU Bank should have nominal, if any, fair market
value. This conclusion is due in part to the fact that such interests may only
be realized in the event of a complete liquidation of SBU Bank, which according
to the rules and regulations of the Office of Thrift Supervision does not
include a merger, consolidation or sale of assets or similar transaction of SBU
Bank.
A private letter ruling will not be requested in connection with the conversion.
Unlike private letter rulings, opinions of counsel are not binding on the
Internal Revenue Service or any state tax authority, and such authorities may
disagree with such opinions. In the event of such disagreement, there can be no
assurance that the Holding Company, which term we use in this discussion to
specifically refer to the new Delaware corporation named "Partners Trust
Financial Group, Inc.," or SBU Bank would prevail in a judicial proceeding.
Partners Trust, MHC, Partners Trust Financial Group, and SBU Bank have received
an opinion of counsel, Hogan & Hartson L.L.P., regarding the material federal
income tax consequences of the conversion, which includes the following:
1. The conversion of Partners Trust Financial Group to an interim federal stock
savings bank, still referred to as Partners Trust Financial Group, will
constitute a mere change in identity, form or place of organization within the
meaning of Section 368(a)(1)(F) of the Code.
2. The merger of Partners Trust Financial Group with and into SBU Bank (the
"Mid-Tier Merger") will qualify as a reorganization within the meaning of
Section 368(a)(1)(A) of the Code.
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3. Partners Trust Financial Group will not recognize any gain or loss in the
Mid-Tier Merger.
4. SBU Bank will not recognize any gain or loss in the Mid-Tier Merger.
5. The basis of the assets of Partners Trust Financial Group to be received by
SBU Bank in the Mid-Tier Merger will be the same as the basis of such assets in
the hands of Partners Trust Financial Group immediately prior to the Mid-Tier
Merger.
6. The holding period of the assets of Partners Trust Financial Group to be
received by SBU Bank in the Mid-Tier Merger will include the holding period of
such assets in the hands of Partners Trust Financial Group immediately prior to
the Mid-Tier Merger.
7. Partners Trust Financial Group stockholders will not recognize any gain or
loss upon their constructive exchange of Partners Trust Financial Group common
stock in the Mid-Tier Merger.
8. The conversion of Partners Trust, MHC to an interim federal stock savings
bank, still referred to as Partners Trust, MHC, will constitute a mere change in
identity, form or place of organization within the meaning of Section
368(a)(1)(F) of the Code.
9. The merger of Partners Trust, MHC with and into SBU Bank (the "MHC Merger")
will qualify as a reorganization within the meaning of Section 368(a)(1)(A) of
the Code.
10. The exchange in the MHC Merger of Eligible Account Holders' and
Supplemental Account Holders' interests in Partners Trust, MHC for interests in
a Liquidation Account established in SBU Bank will satisfy the continuity of
interest requirement of Section 1.368-1(e) of the Treasury Regulations.
11. In the MHC Merger, Partners Trust, MHC will not recognize any gain or loss
on the transfer of its assets to SBU Bank, SBU Bank's assumption of its
liabilities, and the cancellation of shares of common stock of SBU Bank that
Partners Trust, MHC received in the Mid-Tier Merger, except to the extent the
fair market value of the interests in the Liquidation Account, if any, plus the
amount of liabilities assumed exceeds Partners Trust, MHC's basis in the assets
transferred.
12. SBU Bank will not recognize any gain or loss in the MHC Merger.
13. The basis of the assets of Partners Trust, MHC to be received by SBU Bank
in the MHC Merger will be the same as the basis of such assets in the hands of
Partners Trust, MHC immediately prior to the MHC Merger.
14. The holding period of the assets of Partners Trust, MHC to be received by
SBU Bank in the MHC Merger will include the holding period of such assets in the
hands of Partners Trust, MHC immediately prior to the MHC Merger.
15. Eligible Account Holders and Supplemental Account Holders will recognize
gain, if any, upon the issuance to them of an interest in the Liquidation
Account in SBU Bank and the non-transferable subscription rights to purchase
Holding Company common stock, but only to the extent of the fair market value,
if any, of the non-transferable subscription rights and the interest in the
Liquidation Account.
16. The merger of SBU Interim Savings Bank, an interim federal savings bank
subsidiary of the Holding Company ("Interim") into SBU Bank, with SBU Bank
surviving the merger (the "SBU Bank Merger"), will qualify as a reorganization
within the meaning of Section 368(a)(1)(A) of the Code pursuant to Section
368(a)(2)(E) of the Code.
17. In the SBU Bank Merger, Interim will not recognize any gain or loss on the
transfer of its assets to SBU Bank in exchange for SBU Bank common stock and the
assumption by SBU Bank of the liabilities, if any, of Interim.
18. SBU Bank will not recognize any gain or loss upon the receipt of the assets
of Interim in the SBU Bank Merger.
19. The Holding Company will not recognize any gain or loss upon its receipt of
SBU Bank common stock in exchange for Interim common stock in the SBU Bank
Merger.
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20. Partners Trust Financial Group stockholders other than Partners Trust, MHC
(who by virtue of the Mid-Tier Merger will be considered SBU Bank stockholders)
(the "Minority Stockholders") will not recognize any gain or loss upon the
exchange of their common stock solely for shares of Holding Company common stock
in the Bank Merger.
21. The payment of cash in lieu of fractional shares of the Holding Company to
Minority Stockholders will be treated as though the fractional shares were
distributed as part of the SBU Bank Merger and then redeemed by the Holding
Company. The cash payments will be treated as distributions in full payment for
the fractional shares deemed redeemed under Section 302(a) of the Code, with the
result that such stockholders will have short-term or long-term capital gain or
loss to the extent that the cash they receive differs from the basis allocable
to such fractional shares.
22. Each Minority Stockholder's aggregate basis in his or her Holding Company
common stock received in the SBU Bank Merger will be the same as the aggregate
basis of the common stock surrendered in exchange therefor. It is more likely
than not that the basis of the Holding Company common stock purchased in the
Offering by the exercise of the nontransferable subscription rights will be the
purchase price thereof.
23. Each Minority Stockholder's holding period in his or her Holding Company
common stock received in the SBU Bank Merger will include the period during
which the common stock surrendered was held (which would include the holding
period of such stockholder's Partners Trust Financial Group common stock prior
to the Mid-Tier Merger), provided that the common stock surrendered (or the
Mid-Tier Holding Company common stock surrendered in the Mid-Tier Merger) was a
capital asset in the hands of the stockholder on the date of the exchange. The
holding period of the Holding Company common stock purchased pursuant to the
exercise of a subscription right shall commence on the date on which the right
was exercised.
24. No gain or loss will be recognized by the Holding Company on the receipt of
money in exchange for Holding Company common stock sold in the offering.
The federal tax opinion of Hogan & Hartson L.L.P. has been filed with the
Securities and Exchange Commission as an exhibit to the registration statement.
An opinion regarding New York state income tax consequences consistent with the
federal tax opinion is being issued by Hogan & Hartson L.L.P., counsel to
Partners Trust, MHC, Partners Trust Financial Group and SBU Bank.
Certain Restrictions on Purchase or Transfer of Our Shares After Conversion
All shares of common stock purchased in the offering by our directors or
executive officers generally may not be sold for a period of one year following
the closing of the conversion, except in the event of the death of the director
or executive officer. Shares purchased by these persons after the conversion
will be free of this restriction. Each certificate for restricted shares will
bear a legend giving notice of this restriction on transfer, and instructions
will be issued to the effect that any transfer within this time period of any
certificate or record ownership of the shares other than as provided above is a
violation of the restriction. Any shares of common stock issued at a later date
as a stock dividend, stock split, or otherwise, with respect to the restricted
stock will be similarly restricted. Our directors and executive officers also
will be restricted by the insider trading rules promulgated pursuant to the
Securities Exchange Act of 1934.
Purchases of shares of our common stock by any of our directors, executive
officers and their associates, during the three-year period following the
closing of the conversion may be made only through a broker or dealer registered
with the Securities and Exchange Commission, except with the prior written
approval of the Office of Thrift Supervision. This restriction does not apply,
however, to negotiated transactions involving more than 1% of our outstanding
common stock or to purchases of our common stock by our stock option plan or any
of our tax-qualified employee stock benefit plans or nontax-qualified employee
stock benefit plans, including any recognition and retention plans or restricted
stock plans.
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We have filed with the Securities and Exchange Commission a registration
statement under the Securities Act of 1933 for the registration of the common
stock to be issued in the conversion. This registration does not cover the
resale of the shares. Shares of common stock purchased by persons who are not
affiliates of Partners Trust Financial Group may be resold without registration.
Shares purchased by an affiliate of Partners Trust Financial Group will have
resale restrictions under Rule 144 of the Securities Act. If we meet the current
public information requirements of Rule 144, each of our affiliates who complies
with the other conditions of Rule 144, including those that require the
affiliate's sale to be aggregated with those of certain other persons, would be
able to sell in the public market, without registration, a number of shares not
to exceed, in any three-month period, the greater of 1% of our outstanding
shares or the average weekly volume of trading in the shares during the
preceding four calendar weeks. Provision may be made in the future to permit our
affiliates to have their shares registered for sale under the Securities Act
under certain circumstances.
Office of Thrift Supervision regulations prohibits us from repurchasing our
common stock during the first year following conversion unless compelling
business reasons exist for such repurchases. After one year, the Office of
Thrift Supervision does not impose any repurchase restrictions.
Interpretation, Amendment and Termination
To the extent permitted by law, all interpretations by us of the plan of
conversion will be final; however, such interpretations have no binding effect
on the Office of Thrift Supervision. The plan of conversion provides that, if
deemed necessary or desirable, we may substantively amend the plan of conversion
as a result of comments from regulatory authorities or otherwise, without the
further approval of Partners Trust, MHC's members or Partners Trust Financial
Group's stockholders.
Completion of the conversion requires the sale of all shares of the common stock
within 24 months following approval of the plan of conversion by Partners Trust,
MHC's members and Partners Trust Financial Group's stockholders. If this
condition is not satisfied, the plan of conversion will be terminated and
Partners Trust Financial Group will continue its business in the mutual holding
company form of organization. We may terminate the plan of conversion at any
time.
Comparison of Stockholders' Rights for Existing Stockholders of Partners Trust
Financial Group
As a result of the conversion and reorganization, existing stockholders of
Partners Trust Financial Group will become stockholders of new Partners Trust
Financial Group. There are differences in the rights of stockholders of Partners
Trust Financial Group and stockholders of new Partners Trust Financial Group
caused by differences between federal and Delaware law and regulations and
differences in Partners Trust Financial Group's federal stock charter and bylaws
and new Partners Trust Financial Group's Delaware certificate of incorporation
and bylaws.
Set forth below is a general summary of the material differences between the
rights of existing holders of common stock of Partners Trust Financial Group,
and their prospective rights as holders of common stock of new Partners Trust
Financial Group. This discussion is not intended to be a complete statement of
the differences affecting the rights of stockholders, but rather summarizes the
material differences affecting the rights of stockholders. This discussion is
qualified in its entirety by reference to the federal and Delaware certificates
of incorporation and bylaws of Partners Trust Financial Group and federal law
and the Delaware General Corporation Law. See "Where You Can Find Additional
Information" for procedures for obtaining a copy of the certificates of
incorporation and bylaws of Partners Trust Financial Group, Inc., a federal
corporation, and Partners Trust Financial Group, Inc., a Delaware corporation.
Authorized Capital Stock. Our authorized capital stock currently consists of
35,000,000 shares of common stock, par value $0.10 per share, and 5,000,000
shares of preferred stock. After the conversion, our authorized capital stock as
a Delaware corporation will consist of 190,000,000 shares of common stock,
$0.0001 par value
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per share, and 10,000,000 shares of preferred stock, par value $0.0001 per
share. We authorized more capital stock than will be issued in the conversion
and acquisition of BSB Bancorp, Inc. in order to provide our board of directors
with flexibility to effect, among other transactions, financings, acquisitions,
stock dividends, stock splits and stock option grants. These additional
authorized shares may also be used by our board of directors, however,
consistent with its fiduciary duty, to deter future attempts to gain control of
new Partners Trust Financial Group.
Issuance of Capital Stock. Under applicable laws and regulations, Partners
Trust, MHC is required to own not less than a majority of the outstanding
Partners Trust Financial Group Financial Group common stock. Partners Trust, MHC
will no longer exist following completion of the conversion.
New Partners Trust Financial Group's Delaware certificate of incorporation does
not contain restrictions on the issuance of shares of capital stock to
directors, officers or controlling persons. By comparison, Partners Trust
Financial Group's federal stock charter restricts such issuances to general
public offerings, or to directors for qualifying shares, unless the share
issuance or the plan under which they would be issued has been approved by a
majority of the total votes eligible to be cast at a legal stockholders'
meeting. Thus, stock-related compensation plans, such as stock option plans and
recognition and retention plans, may be adopted by new Partners Trust Financial
Group without stockholder approval and shares of new Partners Trust Financial
Group capital stock may be issued directly to directors or officers without
stockholder approval. The rules of the Nasdaq National Market System, however,
generally require corporations with securities that are quoted on the Nasdaq
National Market System to obtain stockholder approval of most stock compensation
plans for directors, officers and key employees of the corporation. Although
generally not required, stockholder approval of stock-related compensation plans
also may be sought in certain instances in order to qualify such plans for
favorable federal income tax and securities law treatment under current laws and
regulations.
Our board of directors also has sole authority to determine the terms of any one
or more series of preferred stock, including voting rights, conversion rates and
dividend and liquidation preferences. As a result of the ability to fix voting
rights for a series of preferred stock, our board of directors has the power, to
the extent consistent with its fiduciary duty, to issue a series of preferred
stock to persons friendly to management in order to attempt to block a hostile
tender offer, merger or other transaction by which a third party seeks control,
and thereby assist management to retain its position. We currently have no plans
for the issuance of shares of preferred stock.
Payment of Dividends. The ability of Partners Trust Financial Group to pay
dividends on its capital stock is restricted by Office of Thrift Supervision
regulations and by federal income tax considerations related to savings
associations such as SBU Bank. See "Regulation - Federal Banking Regulation -
Capital Distributons"and "Taxation-Taxable Distributions and Recapture."
Although new Partners Trust Financial Group is not subject to these restrictions
as a Delaware corporation, these restrictions will indirectly affect new
Partners Trust Financial Group because dividends from SBU Bank will be the
primary source of funds of new Partners Trust Financial Group for the payment of
dividends to its stockholders.
Delaware law also generally provides that new Partners Trust Financial Group is
limited to paying dividends in an amount equal to the excess of its net assets
(total assets minus total liabilities) over its statutory capital or, if no such
excess exists, equal to its net profits for the current year and/or the
immediately preceding fiscal year.
Filling of Board Vacancies; Removal of Directors. Under Partners Trust Financial
Group's federal bylaws, any vacancies on the board of directors may be filled by
the affirmative vote of a majority of the remaining directors. Persons elected
by the board of directors of Partners Trust Financial Group to fill vacancies
may only serve until the next annual meeting of stockholders. Under new Partners
Trust Financial Group's Delaware certificate of incorporation, any vacancy
occurring on the board of directors, including any vacancy created by reason of
an increase in the number of directors, may be filled by the remaining
directors, and any director so chosen shall hold office for the remainder of the
term of the class to which the director has been elected and until his or her
successor is elected and qualified.
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Under Partners Trust Financial Group's federal bylaws, any director may be
removed only for cause by a vote of the holders of a majority of the shares then
entitled to vote at an election of directors. New Partners Trust Financial
Group's Delaware certificate of incorporation provides that any director may be
removed only for cause by the holders of at least two-thirds of the outstanding
voting shares entitled to vote generally in the election of directors.
Limitations on Liability. The federal stock charter and bylaws of Partners Trust
Financial Group do not limit the personal liability of directors.
New Partners Trust Financial Group's Delaware certificate of incorporation
provides that no director will be personally liable to the corporation or its
stockholders for monetary damages for breach of fiduciary duty as a director
other than liability (a) for any breach of the director's duty of loyalty to the
corporation or its stockholders, (b) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (c) for any
payment of a dividend or approval of a stock repurchase that is illegal under
Section 174 of the Delaware corporation law, or (d) for any transaction from
which a director derived an improper personal benefit.
Special Meetings of Stockholders. Partners Trust Financial Group's federal
bylaws provide that special meetings of stockholders may be called by the
chairman, the president, a majority of the board of directors or the holders of
not less than one-tenth of the outstanding capital stock entitled to vote at the
meeting. Partners Trust Financial Group's federal stock charter also provides
that for a period of five years from April 3, 2002 special meetings of
stockholders relating to changes in control or amendments to its charter may be
called only by the board of directors.
New Partners Trust Financial Group's Delaware certificate of incorporation
provides that special meetings of the stockholders may be called only by
majority of the directors or by the holders of not less than two-thirds of the
then outstanding shares of capital stock entitled to vote generally in the
election of directors.
Stockholder Nominations and Proposals. Partners Trust Financial Group's federal
bylaws generally provide that stockholders may submit nominations for election
of directors at an annual meeting of stockholders and may propose any new
business to be taken up at such a meeting by filing the proposal in writing with
Partners Trust Financial Group at least five days before the date of any such
meeting.
New Partners Trust Financial Group's Delaware bylaws generally provide that any
stockholder desiring to make a nomination for the election of directors or a
proposal for new business must submit timely written notice to the secretary of
new Partners Trust Financial Group. To be timely, a stockholder's notice must be
received at the principal executive offices of new Partners Trust Financial
Group no later than the date designated for receipt of stockholders' proposals
in a prior public disclosure made by new Partners Trust Financial Group. If
there has been no such prior public disclosure, then to be timely, a
stockholder's notice must be delivered to or mailed and received at the
principal executive offices of new Partners Trust Financial Group not less than
60 days nor more than 90 days prior to the annual meeting. If less than 70 days'
notice of the date of the annual meeting is given to stockholders or prior
public disclosure of the date of the meeting is made, notice by the stockholder
to be timely must be so received not later than the close of business on the
10th day following the day on which such notice of the date of the annual
meeting was mailed or such public disclosure was made. The stockholder must also
satisfy specified informational requirements.
Management believes that it is in the best interests of new Partners Trust
Financial Group and its stockholders to provide sufficient time to enable
management to disclose to stockholders information about a dissident slate of
nominations for directors. This advance notice requirement may also give
management time to solicit its own proxies in an attempt to defeat any dissident
slate of nominations, should management determine that doing so is in the best
interests of stockholders generally. Similarly, adequate advance notice of
stockholder proposals will give management time to study such proposals and to
determine whether to recommend to the
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stockholders that such proposals be adopted. In certain instances, such
provisions could make it more difficult to oppose management's nominees or
proposals, even if stockholders believe such nominees or proposals are in their
best interests.
Limitations on Voting Rights of Greater-Than-10% Stockholders. Partners Trust
Financial Group's federal charter provides that, for a period of five years from
April 3, 2002, no person other than Partners Trust, MHC may directly or
indirectly offer to acquire or acquire the beneficial ownership of more than 10%
of any class of any equity security of Partners Trust Financial Group. This
limitation does not apply to the purchase of shares by underwriters in
connection with a public offering, or the purchase of shares by a tax-qualified
employee stock benefit plan which is exempt from the approval requirements of
the Office of Thrift Supervision's regulations. If shares are acquired in
violation of this provision, all shares beneficially owned by any person in
excess of 10% are considered "excess shares" and may not be counted as shares
entitled to vote and may not be voted by any person or counted as voting shares
in connection with any matters submitted to the stockholders for a vote.
New Partners Trust Financial Group's Delaware certificate of incorporation
provides that no record owner of any outstanding common stock which is
beneficially owned, directly or indirectly, by a person who, as of any record
date for the determination of stockholders entitled to vote on any matter,
beneficially owns in excess of 10% of the then-outstanding shares of common
stock is entitled or permitted to vote the shares held in excess of the 10%
limit. Under this provision, neither any employee stock ownership or similar
plan of new Partners Trust Financial Group or any subsidiary of new Partners
Trust Financial Group, nor any plan trustee or any affiliate of such trustee
(solely by reason of such capacity of such trustee), will be deemed to
beneficially own any common stock held under any such plan. The number of votes
which may be cast by any record owner by virtue of this provision is a number
equal to the total number of votes which a single record owner of all common
stock beneficially owned by the person would be entitled to cast, multiplied by
a fraction, the numerator of which is the number of shares of such class which
are both beneficially owned by such person and owned of record by such record
owner and the denominator of which is the total number of shares of common stock
beneficially owned by such person. This limitation is perpetual.
Approvals for Acquisitions of Control and Offers to Acquire Control. New
Partners Trust Financial Group's Delaware certificate of incorporation prohibits
any person, whether an individual, company or group acting in concert, from
acquiring beneficial ownership of 25% or more of the then outstanding shares of
new Partners Trust Financial Group's stock entitled to vote generally in the
election of directors, unless the acquisition has been approved by holders of at
least two-thirds of the outstanding shares of new Partners Trust Financial
Group's stock entitled to vote generally in the election of directors and of all
required federal and state regulatory authorities. This provision does not apply
to the purchase of shares by underwriters in connection with a public offering
or employee stock ownership plan or other employee benefit plan of new Partners
Trust Financial Group or any of its subsidiaries.
Shares acquired in excess of the 25% limitation are not entitled to vote or take
other shareholder action or be counted in determining the total number of
outstanding shares in connection with any matter involving shareholder action.
These excess shares are also subject to transfer to a trustee, selected by
Partners Trust Financial Group, for sale on the open market or otherwise. The
proceeds from the sale by the trustee of such excess shares will be paid (a)
first, to the trustee in the amount equal to the trustee's reasonable fees and
expenses, (b) second, to the beneficial owner of such excess shares in an amount
up to such owner's federal income tax basis in such excess shares, and (c)
third, to the Partners Trust Financial Group as to any remaining balance.
The federal stock charter of Partners Trust Financial Group, a federal
corporation, does not contain a comparable provision.
Control Share Acquisitions. Under new Partners Trust Financial Group's Delaware
certificate of incorporation, any acquisition of "control shares" must be
approved by holders of a majority of the then outstanding shares of stock of new
Partners Trust Financial Group entitled to vote generally in the election of
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directors (other than shares held by the acquiring person or member of a group
proposing to make the control share acquisition and shares held by officers or
employee directors of new Partners Trust Financial Group) in order for the
control shares to be voted. "Control shares" are those shares that would have
voting power that, when added to all the other shares of new Partners Trust
Financial Group owned by a person or which that person may exercise or direct
the exercise of voting power, would entitle that person, immediately after
acquisition of the shares, directly or indirectly, alone or as part of a group,
to exercise or direct the exercise of the voting power of new Partners Trust
Financial Group in the election of directors within any of the following ranges
of voting power: (a) one-fifth or more but less than a third of all voting
power; (b) one-third or more but less than a majority of all voting power; or
(c) a majority or more of all voting power.
If the control shares acquired in a control share acquisition are accorded full
voting rights and the acquiring person has acquired the control shares with a
majority or more of all voting power, all stockholders of new Partners Trust
Financial Group, other than the acquiring person, have the right under new
Partner Trust Financial Group's Delaware certificate of incorporation to dissent
from the granting of voting rights and to demand payment of the fair value of
their shares. For purposes of this provision, the fair value of the shares may
not be less than the highest price per share paid in the control share
acquisition.
If an acquiring person acquires control shares in violation of the provisions of
new Partner Trust Financial Group's Delaware certificate of incorporation, new
Partners Trust Financial Group may redeem the control shares at a redemption
price per share equal to the average per share price paid by the acquiring
person for such shares.
The acquisition of shares will not constitute a control share acquisition if the
acquisition is consummated: (a) pursuant to the laws of descent and
distribution; (b) pursuant to the satisfaction of a pledge or other security
interest created in good faith and not for the purpose of circumventing this
control share acquisition provisions; (c) pursuant to a merger or plan of
consolidation if new Partners Trust Financial Group is a party to the agreement
of merger or consolidation; or (d) pursuant to a tender or exchange offer that
is made pursuant to an agreement to which new Partners Trust Financial Group is
a party, or directly from new Partners Trust Financial Group, or from any of its
wholly owned subsidiaries.
The federal stock charter of Partners Trust Financial Group, a federal
corporation, does not contain a comparable provision.
Mergers, Consolidations and Sales of Assets.Federal regulations do not expressly
address the votes required for mergers, consolidations or sales of all or
substantially all of Partners Trust Financial Group's assets.
New Partners Trust Financial Group's Delaware certificate of incorporation
requires the approval of the holders of at least (a) 80% of the outstanding
shares of stock entitled to vote generally in the election of directors and (b)
two-thirds of the voting power of the outstanding shares entitled to vote
generally in the election of directors excluding shares held by the "interested
stockholder" and any associates or affiliates of the interested stockholder to
approve certain "business combinations" involving an "interested stockholder"
except where:
the proposed transaction has been approved by two-thirds of the
members of the board of directors who are unaffiliated with the
interested stockholder and who were directors prior to the time when
the interested stockholder became an interested stockholder; or
certain "fair price" provisions are complied with.
The term "interested stockholder" includes any individual, corporation,
partnership or other entity, other than new Partners Trust Financial Group, any
subsidiary of new Partners Trust Financial Group or any employee stock purchase
plan, pension plan, profit sharing plan or other employee benefit plan of new
Partners Trust Financial Group or any subsidiary, which owns beneficially or
controls, directly or indirectly, 5% or more of the outstanding shares of stock
entitled to vote generally in the election of directors of new Partners Trust
Financial
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Group, or an affiliate of such person or entity. This provision applies to any
"business combination," which is defined to include, among other transactions:
any merger or consolidation of new Partners Trust Financial Group or
any subsidiary with or into any interested stockholder;
any sale, lease, exchange, mortgage, pledge, transfer, or other
disposition of assets other than in the ordinary course of business
to an interested stockholder having a book value of 10% or more of
the fair market value of the outstanding shares of new Partners
Trust Financial Group or of its net worth as of the most recent
fiscal quarter;
the issuance or transfer of equity securities of new Partners Trust
Financial Group or a subsidiary to an interested stockholder having a
value of 5% or more of the fair market value of the outstanding
shares of new Partners Trust Financial Group or such subsidiary, but
excluding issuances of equity securities pro rata to all
stockholders;
the adoption of any plan or proposal for the liquidation or
dissolution of new Partners Trust Financial Group or any subsidiary
of new Partners Trust Financial Group proposed by an interested
stockholder; or
any reclassification of securities, any recapitalization, or any merger
with a subsidiary or other transaction that has the effect of
increasing an interested stockholder's proportionate share of any class
of equity or convertible securities of new Partners Trust Financial
Group or any subsidiary.
Under the Delaware General Corporation Law, absent this provision, business
combinations, including mergers, consolidations and sales of substantially all
of the assets of a corporation must, subject to certain exceptions, be approved
by the vote of the holders of a majority of the outstanding shares of new
Partners Trust Financial Group entitled to vote thereon.
In addition, under the Delaware General Corporation Law, a corporation is
prohibited from engaging in any business combination with a stockholder who,
together with its affiliates or associates, owns, or who is an affiliate or
associate of the corporation and within the previous three years did own, 15% or
more of the corporation's voting stock, for a three-year period following the
time the stockholder became an interested stockholder, unless:
prior to the time the stockholder became an interested stockholder,
the board of directors of the corporation approved either the
business combination or the transaction which resulted in the
stockholder becoming an interested stockholder;
the interested stockholder owned at least 85% of the voting stock of
the corporation, excluding specified shares, upon consummation of
the transaction which resulted in the stockholder becoming an
interested stockholder; or
at or subsequent to the time the stockholder became an interested
stockholder, the business combination is approved by the board of
directors of the corporation and authorized by the affirmative vote,
at an annual or special meeting and not by written consent, of at
least 66 2/3% of the outstanding voting shares of the corporation,
excluding shares held by that interested stockholder.
A business combination generally includes:
mergers, consolidations and sales or other dispositions of 10% or more
of the assets of a corporation to or with an interested stockholder;
specified transactions resulting in the issuance or transfer to an
interested stockholder of any capital stock of the corporation or its
subsidiaries; and
other transactions resulting in a disproportionate financial benefit to
an interested stockholder.
A Delaware corporation may exempt itself from the requirements of the Delaware
statute by, among other things, adopting an amendment to its certificate of
incorporation. New Partners Trust Financial Group has not taken any action to
exempt itself from the application of this provision and therefore is governed
by this provision.
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The increased stockholder vote required to approve a business combination may
have the effect of preventing mergers and other business combinations which a
majority of stockholders deem desirable and placing the power to prevent such a
merger or combination in the hands of a minority of stockholders.
Under the Delaware General Corporation Law, no stockholder vote is required for
a merger not involving an interested stockholder in which Partners Trust
Financial Group is the surviving corporation if (a) the agreement of merger does
not amend new Partners Trust Financial Group's certificate of incorporation, (b)
each share of stock of new Partners Trust Financial Group outstanding
immediately before the merger is an identical share of new Partners Trust
Financial Group after the merger and (c) the shares of common stock of new
Partners Trust Financial Group to be issued or delivered under the plan of
merger, plus those initially issuable upon conversion of any securities or
obligations to be issued or delivered under such plan, do not exceed 20% of the
shares of common stock of new Partners Trust Financial Group outstanding
immediately before the merger.
Criteria for Evaluating Offers. New Partners Trust Financial Group's Delaware
certificate of incorporation provides that the board of directors, when
evaluating any offer of another party to (a) make a tender or exchange offer for
any equity security of new Partners Trust Financial Group, (b) merge or
consolidate new Partners Trust Financial Group with another institution, or (c)
purchase or otherwise acquire all or substantially all of the properties and
assets of new Partners Trust Financial Group, will, in connection with the
exercise of its judgment in determining what is in the best interests of new
Partners Trust Financial Group and its stockholders, be authorized to give due
consideration to any such factors as the board of directors determines to be
relevant, including, without limitation, the economic effects of acceptance of
the offer on depositors, borrowers and employees of its insured institution
subsidiaries and on the communities in which its subsidiaries operate or are
located, as well as on the ability of its subsidiaries to fulfill the objectives
of insured institutions under applicable federal statutes and regulations.
The federal stock charter of Partners Trust Financial Group does not contain a
comparable provision.
Dissenters' Rights of Appraisal. Office of Thrift Supervision regulations
generally provide that a stockholder of a federally chartered corporation that
engages in a merger, consolidation or sale of all or substantially all of its
assets shall have the right to demand from such institution payment of the fair
or appraised value of his or her stock in the corporation, subject to specified
procedural requirements. However, if the federally chartered corporation's stock
is listed on a national securities exchange or quoted on the Nasdaq Stock
Market, stockholders are not entitled to dissenters' rights in connection with a
merger if the stockholders are required to accept cash or shares of stock which
will be listed on a national securities exchange or quoted on the Nasdaq Stock
Market, or any combination thereof.
Under Delaware law, except for cash merger transactions, stockholders of new
Partners Trust Financial Group generally will not have dissenters' appraisal
rights in connection with a plan of merger or consolidation to which new
Partners Trust Financial Group is a party because the common stock is expected
to be listed on the Nasdaq National Market.
As described above under "- Control Share Acquisitions," if control shares
acquired in a control share acquisition are accorded full voting rights and the
acquiring person has acquired the control shares with a majority or more of all
voting power, all stockholders of new Partners Trust Financial Group, other than
the acquiring person, have the right under new Partner Trust Financial Group's
Delaware certificate of incorporation to dissent from the granting of voting
rights and to demand payment of the fair value of their shares.
Amendment of Governing Instruments. No amendment of Partners Trust Financial
Group's federal stock charter may be made unless it is first proposed by the
board of directors, then preliminarily approved by the Office of Thrift
Supervision and thereafter approved by the holders of a majority of the total
votes eligible to be cast, unless a higher vote is otherwise required and
approved or preapproved by the Office of Thrift Supervision.
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Amendments to new Partners Trust Financial Group's certificate of incorporation
must first be proposed by at least two-thirds of the directors and thereafter
must be approved by the vote of the holders of a majority of the outstanding
shares stock entitled to vote generally in the election of directors, except
that:
the provisions governing the number and staggered three-year terms of
directors, vacancies on the board of directors and removal of
directors, limitation of director liability, the calling of special
meetings of stockholders, action by unanimous written consent of
stockholders, approval for acquisitions of control and offers to
acquire control, control share acquisitions, criteria for evaluating
offers, indemnification of officers and directors and the manner of
amending the certificate of incorporation may not be repealed,
altered, amended or rescinded except if proposed by a vote of
two-thirds of the directors and thereafter approved by the holders of
at least two-thirds of the outstanding shares of stock entitled to
vote thereon; and
the provisions governing the approval of specified business
combinations involving interested stockholders may not be repealed,
altered, amended or rescinded except if proposed by a vote of
two-thirds of the directors and thereafter approved by the holders
of at least 80% of the outstanding shares of stock entitled to vote
thereon.
The federal bylaws of Partners Trust Financial Group may be amended by a
majority vote of the board of directors or by a majority vote of the votes cast
by the stockholders and receipt of any applicable regulatory approval.
New Partners Trust Financial Group's Delaware bylaws may only be amended by a
majority vote of the board of directors or by the holders of at least 80% of the
outstanding stock entitled to vote generally in the election of directors.
Purpose and Anti-Takeover Effects of Partners Trust Financial Group's Delaware
Certificate of Incorporation and Bylaws. New Partners Trust Financial Group's
Delaware certificate of incorporation and bylaws and Delaware law contain a
number of provisions that may have the effect of discouraging future takeover
attempts. These provisions include the above-described provisions of its
certificate of incorporation and bylaws governing the removal of directors, the
calling of special meetings of stockholders, limitations on voting rights of
greater-than-10% stockholders, approval for acquisitions of control and offers
to acquire control, control share acquisitions, approval of business
combinations with 5% or greater stockholders, criteria for evaluating offers and
the manner of amending the certificate of incorporation and bylaws, as well as
the provisions of Delaware law relating to approval of certain business
combinations with stockholders owning 15% or more of the stock entitled to vote
generally in the election of directors. In addition, under its certificate of
incorporation:
The board of directors is divided into three classes. The members
of each class are elected for a term of three years, with one
class elected annually. Thus, it would take at least two annual
elections to replace a majority of Partners Trust Financial
Group's board of directors;
The number of directors constituting the board of directors may not
be fewer than five nor more than fifteen, with the number of
directors within the range fixed by a majority vote of the board of
directors
Cumulative voting is not permitted in the election of directors;
Vacancies in the board of directors, including those resulting
from an increase in the size of the board, may be filled for the
remaining term of the class in which the vacancy occurred;
Action by stockholders in lieu of a meeting must be by unanimous
written consent; and
The board of directors is authorized to issue preferred stock
having a preference as to dividends or liquidation over the common
stock without stockholder approval. The issuance of preferred stock
could adversely affect the voting power of the holders of the
common stock and could be used to discourage, delay or prevent a
change in control of Partners Trust Financial Group.
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The Partners Trust Financial Group board of directors believes that these
provisions are prudent and in the best interests of new Partners Trust Financial
Group and its stockholders and will reduce the new Partners Trust Financial
Group's vulnerability to takeover attempts and certain other transactions that
have not been negotiated with and approved by the Partners Trust Financial Group
board of directors. These provisions also will assist the new Partners Trust
Financial Group in the orderly deployment of the conversion proceeds into
productive assets during the initial period after the conversion. The Partners
Trust Financial Group board of directors believes that it will be in the best
position to determine the true value of new Partners Trust Financial Group and
to negotiate more effectively for what may be in the best interests of its
stockholders. Accordingly, the Partners Trust Financial Group board of directors
believes that it is in the best interests of new Partners Trust Financial Group
and its stockholders to encourage potential acquirers to negotiate directly with
the board of directors of new Partners Trust Financial Group and that these
provisions will encourage such negotiations and discourage hostile takeover
attempts. It is also the view of the Partners Trust Financial Group board of
directors that these provisions should not discourage persons from proposing a
merger or other transaction at a price reflective of the true value of new
Partners Trust Financial Group and that is in the best interests of all
stockholders.
Takeover attempts that have not been negotiated with and approved by the
Partners Trust Financial Group board of directors present the risk of a takeover
on terms that may be less favorable than might otherwise be available. A
transaction that is negotiated and approved by the new Partners Trust Financial
Group board of directors, on the other hand, can be carefully planned and
undertaken at an opportune time in order to obtain maximum value of new Partners
Trust Financial Group for its stockholders, with due consideration given to
matters such as the management and business of the acquiring corporation and
maximum strategic development of new Partners Trust Financial Group's assets.
Although a tender offer or other takeover attempt may be made at a price
substantially above the current market price, such offers are sometimes made for
less than all of the outstanding shares of a target company. As a result,
stockholders may be presented with the alternative of partially liquidating
their investment at a time that may be disadvantageous, or retaining their
investment in an enterprise that is under different management and whose
objectives may not be similar to those of the remaining stockholders.
Despite the Partners Trust Financial Group board of directors' belief as to the
benefits to stockholders of these provisions of new Partners Trust Financial
Group's Delaware certificate of incorporation and bylaws, these provisions may
also have the effect of discouraging a future takeover attempt that would not be
approved by the new Partners Trust Financial Group board of directors, but
pursuant to which stockholders would otherwise receive a substantial premium for
their shares over then current market prices. As a result, stockholders who
might desire to participate in such a transaction may not have any opportunity
to do so. Such provisions will also make it more difficult to remove the new
Partners Trust Financial Group board of directors and management. The Partners
Trust Financial Group board of directors, however, has concluded that the
potential benefits outweigh the possible disadvantages.
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PARTNERS TRUST FINANCIAL GROUP'S PROPOSAL II AND