As filed with the Securities and Exchange Commission on December 8, 1995
Registration No. 33-64119
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 1
to
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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UJB FINANCIAL CORP.
(Exact name of registrant as specified in its charter)
New Jersey 6712 22-1903313
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
301 Carnegie Center
P.O. Box 2066
Princeton, New Jersey 08543-2066
(609) 987-3200
(Address, including ZIP code, and telephone number, including area code,
of registrant's principal executive offices)
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RICHARD F. OBER, JR., ESQ.
UJB Financial Corp.
Executive Vice President, General Counsel and Secretary
301 Carnegie Center, P.O. Box 2066
Princeton, New Jersey 08543-2066
(609) 987-3442
(Name, address, including ZIP code, and telephone number, including area
code, of agent for service)
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Copy to:
HENRY S. BRYANS, ESQ.
Drinker Biddle & Reath
Philadelphia National Bank Building
Broad & Chestnut Streets
Philadelphia, PA 19107
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Approximate date of commencement of proposed sale to the public: As soon as
practicable after the effective date of this Registration Statement and upon
consummation of the acquisition of The Flemington National Bank and Trust
Company by Registrant as described herein.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
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The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
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<PAGE>
UJB FINANCIAL CORP.
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Cross-Reference Sheet
for
Registration Statement on Form S-4 and Prospectus
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<TABLE>
<CAPTION>
Item
Number Caption in Form S-4 Caption in Proxy Statement-Prospectus
------ ------------------- -------------------------------------
<S> <C>
A. INFORMATION ABOUT THE TRANSACTION
1. Forepart of Registration Statement
and Outside Front Cover Page of
Prospectus .................................... Facing Page of Registration Statement; Cross Reference Sheet;
Outside Front Cover Page of Prospectus
2. Inside Front and Outside Back Cover
Pages of Prospectus ........................... Incorporation of Certain Documents by Reference; Available
Information; Table of Contents
3. Risk Factors, Ratio of Earnings to Fixed
Charges and Other Information ................. Incorporation of Certain Documents by Reference; Summary;
Introduction; Selected Financial Data; Pro Forma Financial Information
4. Terms of the Transaction ........................ Summary; Introduction; The Merger; The Merger Agreement;
Description of UJB Capital Stock; Description of Flemington Capital Stock
5. Pro Forma Financial Information ................. Selected Financial Data; Pro Forma Financial Information
6. Material Contacts with the Company
Being Acquired ................................ The Merger; The Merger Agreement
7. Additional Information Required for
Re-offering by Persons and Parties
Deemed to be Underwriters ..................... Not Applicable
8. Interests of Named Experts and Counsel .......... Legal Matters
9. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities ................................... Not Applicable
B. INFORMATION ABOUT THE REGISTRANT
10. Information with Respect to S-3
Registrants .................................. Incorporation of Certain Documents by Reference; UJB Financial Corp.;
Description of UJB Capital Stock
11. Incorporation of Certain Information by
Reference .................................... Incorporation of Certain Documents by Reference
12. Information with Respect to S-2 or S-3
Registrants ................................. Not Applicable
13. Incorporation of Certain Information
by Reference ................................ Not Applicable
14. Information with Respect to Registrants
Other Than S-2 or S-3 Registrants ............ Not Applicable
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Item
Number Caption in Form S-4 Caption in Proxy Statement-Prospectus
------ ------------------- -------------------------------------
<S> <C>
C. INFORMATION ABOUT THE COMPANY BEING ACQUIRED
15. Information with Respect to S-3
Companies ................................... Not Applicable
16. Information with Respect to S-2 or S-3
Companies ................................... Not Applicable
17. Information with Respect to Companies
Other Than S-2 or S-3 Companies ............. Selected Financial Data; Market Price and Dividend Matters;
Flemington Management's Discussion and Analysis of
Financial Condition and Results of Operations;
The Flemington National Bank and Trust Company;
Description of Flemington Capital Stock; Index to
Financial Statments of Flemington; Financial Statements
of Flemington
D. VOTING & MANAGEMENT INFORMATION
18. Information if Proxies, Consents or
Authorizations are to be Solicited ........... Incorporation of Certain Documents by Reference; Summary;
Introduction; The Merger; Interests of Certain Persons in the
Merger; UJB Financial Corp.; The Flemington National
Bank and Trust Company
19. Information if Proxies, Consents or
Authorizations are not to be Solicited
or in an Exchange Offer ...................... Not Applicable
</TABLE>
<PAGE>
The Flemington National Bank and Trust Company
56 Main Street
Flemington, New Jersey 08822
(908) 284-4700
December 13, 1995
Dear Shareholder:
You are cordially invited to attend a Special Meeting of the shareholders
of The Flemington National Bank and Trust Company ("Flemington") which will be
held on Friday, January 26, 1996, at 9:30 a.m., local time, at the principal
office of Flemington, 56 Main Street, Flemington, New Jersey.
The purpose of the Special Meeting is to consider and vote upon the
Agreement and Plan of Merger dated as of August 1, 1995 (the "Merger
Agreement"), among Flemington, UJB Financial Corp. ("UJB"), and UJB's wholly
owned subsidiary, United Jersey Bank ("UJBank"). The Merger Agreement provides
for the merger of Flemington with and into UJBank (the "Merger"). UJB is a bank
holding company headquartered in Princeton, New Jersey. Through its wholly owned
banking subsidiaries, UJB currently maintains over 290 banking offices in New
Jersey and eastern Pennsylvania.
If the Merger is approved and completed, each Flemington shareholder will
receive that number of shares of UJB Common Stock for each share of Flemington
Common Stock as is obtained by multiplying that number of shares which such
shareholder owns of record by the Exchange Ratio. The Merger Agreement provides
that the Exchange Ratio will be determined following the Special Meeting in the
manner set forth in the attached Proxy Statement-Prospectus. As of December 6,
1995, the last sale price for Flemington Common Stock, as reported on the NASDAQ
SmallCap Market was $48.50 per share.
The attached Proxy Statement-Prospectus contains important information
concerning the Merger. We urge you to give it your careful attention.
The Board of Directors of Flemington has carefully considered and approved
the Merger Agreement and believes that the Merger is in the best interests of
Flemington and its shareholders. ACCORDINGLY, YOUR BOARD OF DIRECTORS
UNANIMOUSLY RECOMMENDS THAT YOU VOTE FOR APPROVAL OF THE MERGER AGREEMENT.
YOUR VOTE IS EXTREMELY IMPORTANT. You are urged to sign, date and mail the
enclosed proxy card promptly in the postage-prepaid envelope provided. If you
attend the Special Meeting, you may vote in person even if you have already
mailed your proxy card.
On behalf of the Board of Directors, we wish to thank you for your support.
Sincerely yours,
GEORGE D. MULLER,
Chairman of the Board
NATHAN C. COLLINS,
President and Chief Executive Officer
<PAGE>
The Flemington National Bank and Trust Company
56 Main Street
Flemington, New Jersey 08822
(908) 284-4700
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NOTICE
SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON JANUARY 26, 1996
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NOTICE IS HEREBY GIVEN that a Special Meeting of Shareholders of The
Flemington National Bank and Trust Company ("Flemington" or "FNB") will be held
at 56 Main Street, Flemington, New Jersey, on Friday, January 26, 1996 at 9:30
a.m. (local time), for the purpose of considering and voting on the following
matter:
A proposal to approve the Agreement and Plan of Merger dated as of
August 1, 1995 (the "Merger Agreement") among Flemington, UJB Financial
Corp. and United Jersey Bank, which agreement provides for the merger of
Flemington with and into United Jersey Bank, a wholly owned bank subsidiary
of UJB Financial Corp., and for the conversion of outstanding shares of the
common stock, par value $2.50 per share, of Flemington into whole shares of
the common stock, par value $1.20 per share, of UJB Financial Corp. and
cash in lieu of fractional shares of UJB Financial Corp. common stock,
based on an exchange ratio to be determined subsequent to the date of the
Special Meeting (subject to certain anti-dilution adjustments), all as more
fully described in the accompanying Proxy Statement-Prospectus.
A description of the Merger Agreement and related matters is contained in
the Proxy Statement-Prospectus that accompanies this Notice.
Pursuant to the Bylaws of Flemington, the Board of Directors has fixed
December 6, 1995 as the record date for the determination of shareholders
entitled to notice of and to vote at the Special Meeting and any adjournments
thereof. Only record holders of outstanding Flemington common stock as of the
close of business on that date will be entitled to notice of and to vote at the
Special Meeting or any adjournments thereof.
By order of the Board of Directors
[Signature Cut]
VICTORIA A. ARCELLA
Secretary
Flemington, New Jersey
December 13, 1995
IT IS IMPORTANT THAT PROXIES BE RETURNED PROMPTLY. THEREFORE, WHETHER YOU PLAN
TO BE PRESENT IN PERSON AT THE SPECIAL MEETING OR NOT, PLEASE COMPLETE, SIGN
AND DATE THE ENCLOSED PROXY AND RETURN IT IN THE SELF-ADDRESSED POSTAGE-PAID
ENVELOPE.
THE BOARD OF DIRECTORS OF FLEMINGTON UNANIMOUSLY RECOMMENDS THAT ITS
SHAREHOLDERS VOTE TO APPROVE THE AGREEMENT AND PLAN OF MERGER.
<PAGE>
[FLEMINGTON LOGO] [UJB LOGO]
PROXY STATEMENT PROSPECTUS
THE FLEMINGTON NATIONAL BANK UJB FINANCIAL CORP.
AND TRUST COMPANY 301 CARNEGIE CENTER
56 MAIN STREET PRINCETON, NEW JERSEY 08543-2066
FLEMINGTON, NEW JERSEY 08822 (609) 987-3200
(908) 284-4700
1,652,508 SHARES OF
COMMON STOCK (PAR VALUE $1.20 PER SHARE)
This Proxy Statement-Prospectus is being furnished to the holders of common
stock, par value $2.50 per share, of The Flemington National Bank and Trust
Company, a national banking association ("Flemington"), in connection with the
solicitation of proxies by the Board of Directors of Flemington ("Flemington
Board") for use at the Special Meeting of Flemington's shareholders to be held
at Flemington's principal office, 56 Main Street, Flemington, New Jersey, at
9:30 a.m. (local time) on Friday, January 26, 1996, and at any adjournments
thereof ("Special Meeting").
This Proxy Statement-Prospectus relates to up to 1,652,508 shares of common
stock, par value $1.20 per share ("UJB Stock"), of UJB Financial Corp, a New
Jersey corporation and registered bank holding company ("UJB"), to be issued
upon the merger ("Merger") of Flemington with and into United Jersey Bank, a
New Jersey chartered banking corporation ("UJBank"), pursuant to an Agreement
and Plan of Merger dated as of August 1, 1995 ("Merger Agreement"). In the
Merger, each outstanding share of Flemington's common stock, par value $2.50 per
share ("Flemington Stock"), outstanding at the Effective Time (as defined
herein) will be converted into the right to receive whole shares of UJB Stock
and cash in lieu of any fractional shares of UJB Stock ("Cash In Lieu
Amount"), based on an exchange ratio to be determined subsequent to the date of
the Special Meeting ("Exchange Ratio"), adjusted, if necessary, in accordance
with certain anti-dilution provisions (such whole shares of UJB Stock and such
Cash In Lieu Amount determined in accordance with the Exchange Ratio and any
necessary anti-dilution adjustments are referred to collectively herein as the
"Merger Consideration"). As set forth in the Merger Agreement, the Exchange
Ratio will be fixed based on the "Average Price" of UJB Stock over a period
ending on the "Determination Date" (as both terms are defined herein). The
Exchange Ratio will not be lower than 1.3514 and will not be higher than 1.7241
except in certain circumstances more fully described herein. See "THE MERGER
AGREEMENT--Determination of Exchange Ratio" for further discussion of the
Exchange Ratio.
This Proxy Statement-Prospectus constitutes (1) the Proxy Statement of
Flemington relating to the solicitation of proxies by the Flemington Board for
use at the Special Meeting to be held for the purpose of considering and voting
upon a proposal to approve the Merger Agreement and the transactions
contemplated thereby, and (2) the Prospectus of UJB with respect to the UJB
Stock to be issued in the Merger. Consummation of the Merger is subject to
various conditions, including the approvals of the shareholders of Flemington,
the Board of Governors of the Federal Reserve System ("Federal Reserve Board")
and the Commissioner of Banking of the State of New Jersey ("New Jersey
Commissioner of Banking").
UJB Stock is traded on the New York Stock Exchange, and Flemington Stock is
traded on the NASDAQ Stock Market--Small Cap Market. The closing sale prices of
UJB Stock and Flemington Stock were $34.875 and $41.25, respectively, on August
1, 1995 (the last day prior to the public announcement of the Merger), and were
$33.50 and $48.50, respectively, as of December 6, 1995.
Subsequent to the execution of the Merger Agreement, on September 10, 1995,
UJB entered into a merger agreement with The Summit Bancorporation, providing
for the merger of The Summit Bancorporation with and into UJB under the
name "Summit Bancorp." Additional information regarding that merger is
contained in this Proxy Statement-Prospectus.
All information contained in this Proxy Statement-Prospectus with respect
to UJB has been supplied by UJB, and all information with respect to Flemington
has been supplied by Flemington and all information contained in this Proxy
Statement-Prospectus with respect to The Summit Bancorporation has been supplied
by The Summit Bancorporation.
The Proxy Statement-Prospectus is first being mailed to Flemington
shareholders on or about December 13, 1995.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROXY STATEMENT-PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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THE SECURITIES OFFERED HEREBY ARE NOT SAVINGS ACCOUNTS, DEPOSITS OR OTHER
OBLIGATIONS OF A BANK OR SAVINGS ASSOCIATION AND ARE NOT INSURED BY THE FEDERAL
DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENTAL AGENCY.
--------------------
No person is authorized to give any information or to make any
representation not contained in this Proxy Statement-Prospectus and, if given or
made, such information or representation should not be relied upon as having
been authorized. This Proxy Statement-Prospectus does not constitute an offer to
sell, or a solicitation of an offer to purchase, the securities offered by this
Proxy Statement-Prospectus or the solicitation of a proxy in any jurisdiction in
which, or to any person to whom, it would be unlawful to make such offer or
solicitation of an offer or proxy solicitation. Neither the delivery of this
Proxy Statement-Prospectus nor any distribution of the securities to which this
Proxy Statement-Prospectus relates shall, under any circumstances, create an
implication that there has been no change in the affairs of UJB or Flemington or
in the information set forth herein since the date of this Proxy
Statement-Prospectus.
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The date of this Proxy Statement-Prospectus is December 13, 1995.
<PAGE>
TABLE OF CONTENTS
Page
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AVAILABLE INFORMATION ................................................ 1
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE ...................... 2
SUMMARY .............................................................. 3
The Companies ................................................... 3
Flemington Special Meeting ...................................... 3
Stock Held By Affiliates ........................................ 4
The Merger ...................................................... 4
Market Prices and Dividends ..................................... 6
Recent Acquisitions ............................................. 8
Summary of Comparative Per Share Data ........................... 9
INTRODUCTION ......................................................... 11
SPECIAL MEETING ...................................................... 11
Record Date; Vote Required ...................................... 11
Holders of Flemington Voting Securities ......................... 12
Proxies; Revocation; Solicitation ............................... 13
SELECTED FINANCIAL DATA .............................................. 14
FLEMINGTON MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS ................................ 17
PRO FORMA FINANCIAL INFORMATION ...................................... 35
Pro Forma Condensed Combined Balance Sheet ...................... 36
Pro Forma Condensed Combined Statements of Income ............... 37
Notes to Pro Forma Financial Information ........................ 42
MARKET PRICE AND DIVIDEND MATTERS .................................... 43
Market Price and Dividend History ............................... 43
Flemington Dividends Under Merger Agreement ..................... 44
Dividend Limitations ............................................ 44
THE MERGER ........................................................... 44
Recommendation of the Flemington Board and Reasons
for the Merger ................................................ 44
Background ...................................................... 45
Opinion of Flemington's Financial Advisor ....................... 48
Charter and By-Laws of Surviving Corporation .................... 51
Board of Directors and Officers of Surviving Corporation ........ 51
Dissenters' Rights .............................................. 51
New York Stock Exchange Listing ................................. 52
Accounting Treatment ............................................ 52
Certain Federal Income Tax Consequences of the Merger ........... 52
Resale of UJB Stock ............................................. 54
Differences in Shareholders' Rights ............................. 55
THE MERGER AGREEMENT ................................................. 61
Effective Time .................................................. 61
Closing of the Merger ........................................... 61
Determination of Exchange Ratio ................................. 61
Exchange of Flemington Certificates ............................. 62
Termination Fee ................................................. 62
Amendment ....................................................... 63
Covenants ....................................................... 63
Regulatory Approvals ............................................ 64
Conditions to the Merger; Termination ........................... 65
Expenses ........................................................ 65
(i)
<PAGE>
Page
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INTERESTS OF CERTAIN PERSONS IN THE MERGER ........................... 65
Indemnification.................................................. 66
The Flemington National Bank and Trust Company Defined
Contribution Plan and Other Arrangements....................... 66
Employment and Severance Arrangements........................... 66
Affiliate Transaction........................................... 66
UJB FINANCIAL CORP. .................................................. 67
Description of Business ......................................... 67
Recent Developments ............................................. 67
DESCRIPTION OF UJB CAPITAL STOCK ..................................... 70
Common Stock .................................................... 70
Preferred Stock ................................................. 70
Shareholder Rights Plan ......................................... 71
THE FLEMINGTON NATIONAL BANK AND TRUST COMPANY ....................... 72
Description of Business ......................................... 72
Description of Properties ....................................... 87
Legal Proceedings ............................................... 87
DESCRIPTION OF FLEMINGTON CAPITAL STOCK .............................. 88
Common Stock .................................................... 88
OTHER MATTERS THAT MAY PROPERLY COME BEFORE THE
SPECIAL MEETING .................................................... 88
SHAREHOLDER PROPOSALS FOR 1996 ANNUAL MEETINGS........................ 88
LEGAL MATTERS ........................................................ 89
EXPERTS .............................................................. 89
INDEX TO FINANCIAL STATEMENTS OF FLEMINGTON .......................... F-1
FINANCIAL STATEMENTS OF FLEMINGTON ................................... F-2
AGREEMENT AND PLAN OF MERGER (without exhibits) .................. Appendix A
OPINION OF ADVEST, INC. .......................................... Appendix B
SECTION 214a OF THE NATIONAL BANK ACT ............................ Appendix C
(ii)
<PAGE>
AVAILABLE INFORMATION
Each of UJB and Flemington is subject to the informational requirements of
the Securities Exchange Act of 1934, as amended ("Exchange Act"), and, in
accordance therewith, files reports, proxy statements and other information with
the Securites and Exchange Commission ("Commission"), in the case of UJB, and
the Office of the Comptroller of the Currency ("OCC"), in the case of
Flemington, relating to its businesses, financial statements and other matters.
The Registration Statement discussed below and the exhibits thereto as well as
such reports, proxy statements and other information filed by UJB may be
inspected and copied at the public reference facilities maintained by the
Commission at 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549, and at
the following regional offices of the Commission: Chicago Regional Office, 500
West Madison Street, Suite 1400, Chicago, Illinois 60661-2511 and New York
Regional Office, 7 World Trade Center, Suite 1300, New York, New York 10048.
Copies of such materials may be obtained from the Public Reference Section of
the Commission, 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed
rates. In addition, UJB Stock is listed on the New York Stock Exchange
("NYSE") and reports, proxy statements and other information concerning UJB
are available for inspection at the offices of the NYSE, 20 Broad Street, New
York, New York 10005. Reports, proxy statements and other information filed by
Flemington pursuant to the information requirements of the Exchange Act can be
inspected at the offices of the OCC, Securities, Investments, and Fiduciary
Practices Division, Washington, D.C. 20219. Further, Flemington Stock is
authorized for inclusion in The NASDAQ SmallCap Market tier of The NASDAQ Stock
Market ("NASDAQ/SmallCap") and reports, proxy statements and other information
concerning Flemington are available for inspection at the offices of the
National Association of Securities Dealers, Inc., 1735 K Street, N.W.,
Washington, D.C. 20006.
UJB has filed with the Commission a registration statement on Form S-4
under the Securities Act of 1933, as amended ("Securities Act"), in respect of
the UJB Stock to be issued in the Merger ("Registration Statement"). As
permitted by the rules and regulations of the Commission, this Proxy
Statement-Prospectus omits certain information, exhibits and undertakings
contained in the Registration Statement. For such information, reference is made
to the Registration Statement and the exhibits filed as a part thereof or
incorporated by reference therein.
1
<PAGE>
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
There are hereby incorporated by reference into and made a part of this
Proxy Statement-Prospectus the following documents filed by UJB (File No.
1-6451) with the Commission: (1) the Annual Report on Form 10-K for the fiscal
year ended December 31, 1994; (2) the Quarterly Reports on Form 10-Q for the
fiscal quarters ended March 31, 1995, June 30, 1995 and September 30, 1995;
(3) the Current Reports on Form 8-K dated January 19, 1995, August 1, 1995,
September 10, 1995 (two at such date), and October 27, 1995; and (4) the
description of UJB Stock contained in UJB's Registration Statement on Form 10
filed pursuant to Section 12(b) of the Exchange Act, dated August 31, 1970, and
the description of the preferred stock purchase rights appurtenant to the UJB
Stock contained in UJB's Registration Statement on Form 8-A filed pursuant to
Section 12(b) of the Exchange Act, dated August 28, 1989, including all
amendments thereto and reports filed under the Exchange Act for the purpose of
updating either description. Such incorporation by reference will not be deemed
to specifically incorporate by reference the information referred to in Item
402(a)(8) of Regulation S-K. There are hereby incorporated by reference into and
made a part of this Proxy Statement-Prospectus the following documents filed by
The Summit Bancorporation (File No. 0-8026) with the Commission: (1) Item 8 of
the Annual Report of Form 10-K for the fiscal year ended December 31, 1994 and
(2) Item 1 of the Quarterly Report on Form 10-Q for the fiscal quarter ended
September 30, 1995. All documents filed by UJB pursuant to Section 13(a), 13(c),
14 or 15(d) of the Exchange Act after the date of this Proxy
Statement-Prospectus and prior to the date of the Special Meeting shall be
deemed to be incorporated by reference into this Proxy Statement-Prospectus and
to be a part hereof from the respective dates of filing of such documents.
Any statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Proxy Statement-Prospectus to the extent that a statement
contained herein, or in any other subsequently filed document that is also
incorporated or deemed incorporated by reference herein, modifies or supersedes
such statement. Any such statement so modified or superseded shall not be
deemed, except as so modified or superseded, to constitute a part of this Proxy
Statement-Prospectus.
This Proxy Statement-Prospectus incorporates documents by reference which
are not presented herein or delivered herewith. UJB hereby undertakes, with
respect to the documents listed above filed with the Commission, to provide
without charge to each person, including any beneficial owner, to whom this
Proxy Statement-Prospectus has been delivered, upon the written or oral request
of such person, a copy of any or all of the documents referred to above that
have been or may be incorporated into this Proxy Statement-Prospectus and deemed
to be part hereof, other than exhibits to such documents, unless such exhibits
are specifically incorporated by reference in such documents. Requests for
documents filed by UJB or The Summit Bancorporation should be directed to
Richard F. Ober, Jr., Secretary, UJB Financial Corp., 301 Carnegie Center, P.O.
Box 2066, Princeton, New Jersey 08543-2066 (telephone (609) 987-3442). In order
to ensure timely delivery of documents prior to the Special Meeting, any request
should be made by January 16, 1996.
2
<PAGE>
SUMMARY
The following constitutes a brief summary, for the convenience of the
shareholders of Flemington, of the information contained in this Proxy
Statement-Prospectus, including Appendices A, B and C hereto, relating to the
proposal to approve the Merger Agreement. The summary is necessarily selective
and is qualified in its entirety by the more extensive discussion contained
elsewhere in this Proxy Statement-Prospectus, relating to the proposal to
approve the Merger Agreement, by Appendices A, B and C hereto and by the
documents incorporated by reference herein. Flemington shareholders are
encouraged to read carefully this Proxy Statement-Prospectus, including
Appendices A, B and C.
The Companies
UJB
UJB Financial Corp., a New Jersey corporation and registered bank holding
company with its principal executive offices at 301 Carnegie Center, Princeton,
New Jersey, through its wholly owned subsidiary banks, United Jersey Bank and
First Valley Bank, operated 290 banking offices located in New Jersey and
eastern Pennsylvania at September 30, 1995. The subsidiary banks of UJB are
engaged in a general banking business. They offer demand and interest bearing
deposit accounts, make business, real estate, personal and instalment loans, and
provide lease financing and trust and fiduciary services. In addition, UJB owns
eight active nonbank subsidiaries that are engaged primarily in discount
brokerage, venture capital investment, commercial finance lending, lease
financing and reinsuring credit life and disability insurance policies related
to consumer loans made by the bank subsidiaries.
Flemington
The Flemington National Bank and Trust Company, a national banking
association, with its principal executive offices at 56 Main Street, Flemington,
New Jersey, operated, as of September 30, 1995, eight banking offices located in
Clinton Township, Delaware Township, East Amwell Township, Flemington (2),
Lambertville, Raritan Township and Three Bridges, New Jersey. Flemington's
primary business consists of attracting deposits from the general public and
originating loans that are secured by residential properties, as well as
originating commercial and consumer loans.
Flemington Special Meeting
Time, Date, Place and Purpose
The Special Meeting will be held on January 26, 1996 at 9:30 a.m. (local
time), at the principal offices of Flemington, 56 Main Street, Flemington, New
Jersey, to consider and vote upon a proposal to approve the Merger Agreement
and the transactions contemplated thereby. A copy of the Merger Agreement is
attached hereto as Appendix A.
Record Date; Vote Required
The record date for determining the Flemington shareholders entitled to
notice of and to vote at the Special Meeting is December 6, 1995 ("Record
Date"). The presence, in person or by proxy, of at least a majority of the total
number of outstanding shares of Flemington Stock is necessary to constitute a
quorum at the Special Meeting. An affirmative vote of the holders of two-thirds
of the shares of Flemington Stock outstanding and entitled to vote at the
Special Meeting is necessary to approve the Merger Agreement. Notwithstanding
receipt of the requisite vote of Flemington shareholders to approve the Merger
Agreement, should such be received, both Flemington and UJB have the right to
refuse to close the Merger in the event the number of Dissenting Shares (as
defined herein) exceeds five percent (5%) of the Flemington Stock outstanding on
the Record Date. In the event that there are not sufficient votes to approve the
proposal or the number of Dissenting Shares exceeds five percent (5%) of the
Flemington Stock outstanding on the Record Date, the Special Meeting may be
adjourned from time to time by a majority of those present in person or by proxy
in order to permit, as appropriate, further solicitation of proxies by
Flemington or discussions with Dissenting Shareholders (as defined herein);
provided however, proxies voting against the Merger Agreement will not be used
by the proxy holders to vote in favor of the adjournment pursuant to such proxy
holders' discretionary voting authority.
3
<PAGE>
Stock Held by Affiliates
The directors and executive officers of Flemington and their affiliates
beneficially owned as of the Record Date 60,419 shares entitled to vote on the
Merger Agreement, representing 6.30% of the issued and outstanding shares of
Flemington Stock. Approval of the Merger Agreement by Flemington Shareholders
(as defined herein) will require the affirmative vote of 638,984 of the issued
and outstanding shares of Flemington Stock. The directors and executive officers
of Flemington have all indicated that they will vote their shares of Flemington
Stock in favor of the approval of Merger Agreement.
The Merger
Determination of Exchange Ratio
The shares of each holder of Flemington Stock will be converted in the
Merger into the right to receive the Merger Consideration. However, the number
of whole shares of UJB Stock and the Cash In Lieu Amount constituting the Merger
Consideration, and the Exchange Ratio upon which the determination of the Merger
Consideration will be based, have not been fixed and will not be fixed until a
date subsequent to the Special Meeting. The Merger Agreement provides that the
Exchange Ratio (and thereby the shares of UJB Stock and Cash In Lieu Amount
constituting the Merger Consideration) will be fixed as of the "Determination
Date," a date which may be any date selected by UJB between, and including, the
closing date of the Merger (the "Closing Date") and the date which is ten
business days prior to the Closing Date. The Exchange Ratio will be set by
reference to the "Average Price" of UJB Stock, which will be the price
representing the average of the closing prices of UJB Stock on the
NYSE--Composite Transactions Tape over a ten consecutive trading-day period
ending on the Determination Date, and will be based upon the following criteria:
<TABLE>
<CAPTION>
"Average Price" of UJB Stock as of
the "Determination Date" Exchange Ratio
---------------------------------- --------------
<S> <C>
Greater than $37.00 ...................................................... 1.3514
Equal to or greater than $29.00 and equal to or less than $37.00 ......... $50.00 (div. by) Average Price
Less than $29.00 and greater than or equal to $26.10 ..................... 1.7241
Less than $26.10 ......................................................... Flemington may terminate the
Merger Agreement unless UJB
agrees to an Exchange Ratio
equal to $45.00 (div. by) Average Price
</TABLE>
Flemington shareholders will be required to vote on the proposal to approve
the Merger Agreement prior to knowing the Exchange Ratio.
The Exchange Ratio is also subject to certain anti-dilution adjustments.
See "THE MERGER AGREEMENT--Determination of Exchange Ratio."
For illustrative purposes, if, hypothetically, the Average Price of UJB
Stock were $33.50, the Exchange Ratio would be 1.4925 ($50 (div. by) 33.50) and
the holder of 100 shares of Flemington Stock would receive 149 whole shares of
UJB Stock and $8.38 (.25 x 33.50) in respect of the fractional share.
Conversion of Outstanding Flemington Stock
At 12:01 a.m. on the day after the Merger Agreement and necessary
certifications pursuant to the New Jersey Banking Act have been filed with the
New Jersey Commissioner of Banking ("Effective Time"), Flemington will be merged
with and into UJBank. If the Merger is approved by the Flemington shareholders
and subject to the satisfaction or waiver of certain conditions in the Merger
Agreement, it is presently contemplated that the Effective Time will occur in
the first quarter of 1996. At the Effective Time, each outstanding share of
Flemington Stock, other than (i) shares of Flemington Stock beneficially owned
by UJB or a subsidiary of UJB, if any, (ii) shares held in the treasury of
Flemington, if any, and (iii) shares in respect of which dissenters' rights are
exercised (see "THE MERGER--Dissenters' Rights"), if any, will be converted into
and represent the right to receive the Merger
4
<PAGE>
Consideration. As soon as practicable following the Effective Time, each holder
of Flemington Stock will receive from the Exchange Agent, a letter of
transmittal and instructions for exchanging certificates representing their
Flemington Stock ("Flemington Certificates") for a certificate representing
whole shares of UJB Stock and, if entitled thereto, a check representing a Cash
In Lieu Amount.
Recommendation of Flemington Board
The Flemington Board unanimously recommends that Flemington shareholders
vote to approve the Merger Agreement.
Opinion of Flemington's Financial Advisor
Flemington engaged Advest, Inc., Financial Institutions Group ("Advest") to
render financial advisory and investment banking services in connection with
Flemington management's decision to explore various methods to enhance
Flemington shareholder value. Pursuant to such engagement, Advest has evaluated
the financial terms of the Merger. Advest has delivered to Flemington an opinion
dated December 5, 1995 stating that, as of such date, based on the review and
assumptions and subject to the limitations described therein, the Exchange
Ratio was fair, from a financial point of view, to Flemington's shareholders. A
copy of Advest's opinion is attached as Appendix B to this Proxy
Statement-Prospectus and should be read in its entirety. See "THE
MERGER--Opinion of Flemington's Financial Advisor."
Dissenters' Rights
By complying with the specific procedures set forth in Section 214a of The
National Bank Act, provided as Appendix C hereto, and described herein, a
Flemington shareholder has the right to receive in cash the value of the
Flemington Stock held by such Flemington shareholder determined as of the date
the Merger Agreement is approved by Flemington shareholders by a committee of
three appraisers, or upon appeal by the Flemington shareholder, by the U.S.
Comptroller of the Currency. The exchange materials to be sent to all
Flemington shareholders, including the dissenting shareholders, will include
notice of the Effective Time. See "THE MERGER--Dissenters' Rights."
Accounting Treatment
It is anticipated that the Merger, when consummated, will be accounted for
as a pooling-of-interests. See "THE MERGER--Accounting Treatment."
Federal Income Tax Consequences
Thompson & Mitchell, UJB's legal counsel, has delivered its opinion to the
effect that, assuming the Merger occurs in accordance with the Merger Agreement
and conditioned on the accuracy of certain repesentations made by UJB and
Flemington and certain shareholders of Flemington, the Merger will constitute a
"reorganization" for federal income tax purposes and that, accordingly, no gain
or loss will be recognized by Flemington shareholders who exchange their shares
of Flemington Stock solely for shares of UJB Stock in the Merger. However,
cash received in lieu of fractional shares may give rise to taxable income. Each
Flemington shareholder is urged to consult his or her tax advisor to determine
the specific tax consequences of the Merger to such shareholder, including the
applicability of various state, local, and foreign tax laws. See "CERTAIN
FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER."
Regulatory Approvals
Consummation of the Merger requires, and is conditioned upon receipt of,
the approval of the Merger by the Federal Reserve Board and the New Jersey
Commissioner of Banking. The New Jersey Commissioner of Banking's approval of
the Merger was received on November 8, 1995. However, the Merger may not be
consummated until after the expiration of a 15-to-30-day statutory waiting
period following receipt of Federal Reserve Board approval without objection to
the Merger by the United States Department of Justice ("Justice Department").
See "THE MERGER AGREEMENT--Regulatory Approvals."
5
<PAGE>
Conditions of the Merger
Consummation of the Merger is subject to the satisfaction of certain
conditions including, among other things, the approval of the Merger Agreement
by the requisite vote of Flemington's shareholders, the number of Dissenting
Shares not exceeding five percent (5%) of Flemington Stock outstanding on the
Record Date and the receipt of all requisite regulatory approvals and the
expiration of any required waiting periods in connection therewith. See "THE
MERGER AGREEMENT--Conditions to the Merger; Termination."
Exchange of Certificates
After the Effective Time, Flemington's shareholders will receive in the
mail from the Exchange Agent letters of transmittal and instructions for
exchanging Flemington Certificates for the Merger Consideration to which they
become entitled. Flemington's shareholders should not surrender their Flemington
Certificates until they receive these instructions. See "THE MERGER
AGREEMENT--Exchange of Flemington Certificates."
In the event a Flemington Certificate has been, lost, stolen, destroyed or
is not properly registered, the holder of the Flemington Stock represented
thereby is urged, in order to avoid delays and additional expense, to notify
Flemington's registrar and transfer agent, United Missouri Trust Company of New
York, One Battery Park Plaza, New York, NY 10004, telephone number (212) 968-
1990 of such fact and begin the process of having replacement certificates
issued.
Interests of Certain Persons in the Merger
Directors and executive officers of Flemington have interests in the Merger
that are in addition to their interests as shareholders of Flemington. These
interests include: (1) indemnification of directors and officers of Flemington
against certain claims that may arise after the Effective Time based on services
provided to Flemington or any subsidiary of Flemington prior to the Effective
Time; (2) UJB's covenant to use its best efforts to purchase insurance for six
years after the Effective Time, subject to a maximum premium limitation,
protecting Flemington directors and officers against such claims; (3) the
assumption by UJB of Flemington's obligations under an employment agreement with
Nathan C. Collins, President and Chief Executive Officer of Flemington,
providing for Mr. Collins to receive salary at his base annual rate of $190,000
and customary perquisites through at least February of 1997; (4) the assumption
by UJB of Flemington's obligations under a stock appreciation rights agreement
with Mr. Collins which granted Mr. Collins cash-settlement stock appreciation
rights with respect to 10,000 shares of Flemington Stock, 5,000 of which became
exercisable upon grant and 5,000 of which become exercisable upon the earlier to
occur of March 1, 1996 or the Effective Time with an aggregate value of $224,920
(based on the price for UJB Stock on December 6, 1995 of $33.50 and a
hypothetical Exchange Ratio of 1.4925 based on such price); (5) the assumption
by UJB of Flemington's obligations under a stock appreciation rights agreement
with J. Kirby Fowler, Director and former President and Chief Executive Officer
of Flemington, which granted Mr. Fowler cash-settlement stock appreciation
rights with respect to 2,500 shares of Flemington Stock, all of which became
exercisable upon grant with an aggregate value of $56,230 (based on the price
for UJB Stock on December 6, 1995 of $33.50 and a hypothetical Exchange Ratio of
1.4925 based on such price); and (6) for Garrett P. Bromley, Thomas C. Pickel
and Victoria Ann Arcella, each an executive officer, (i) payments under their
change in control agreements with Flemington of an amount equal to one year's
salary in the amount of $92,000, $82,787 and $84,800, respectively, in the event
their employment with UJB is terminated within one year following the Effective
Time other than for cause, and (ii) a payment of $72,000 each in the event they
continue their employment with Flemington until the Effective Time. These
interests and the underlying assumptions are described in more detail below
under "INTERESTS OF CERTAIN PERSONS IN THE MERGER."
Difference in Shareholders' Rights
The rights of Flemington shareholders, which are determined by the National
Bank Act and the Articles of Association and Bylaws of Flemington, differ from
the rights accorded UJB shareholders, which are determined by New Jersey
Corporation law and the Restated Certificate of Incorporation and By-Laws of
UJB. At the Effective Time, holders of Flemington Stock will become shareholders
of UJB, and their rights as shareholders of UJB will be determined by New Jersey
corporation law and by UJB's Restated Certificate of Incorporation and By-Laws.
See "THE MERGER--Differences in Shareholders' Rights."
6
<PAGE>
Market Prices and Dividends
UJB Stock is listed and traded on the NYSE. Flemington Stock is listed and
traded on the NASDAQ/SmallCap. Flemington stock commenced trading on
NASDAQ/SmallCap in October, 1994. The following table presents for the periods
indicated (rounded to the nearest cent and adjusted for all stock splits and
stock dividends) the high and low sale prices of a share of UJB Stock and the
high and low bid prices of a share of Flemington Stock and dividends declared
per share on UJB Stock and Flemington Stock.
<TABLE>
<CAPTION>
UJB Stock Flemington Stock
----------------------------- ----------------------------
Sale Prices Bid Prices*
---------------- Dividends ---------------- Dividends
Year High Low Per Share High Low Per Share
- ---- ------ ------ --------- ------ ------ ---------
<S> <C> <C> <C> <C> <C> <C>
1993 ............................. $33.25 $21.63 $0.69 $22.00 $19.00 $0.10
1994 ............................. 29.25 22.50 0.94 24.75 20.25 0.45
1995 (through December 6, 1995)... 37.25 24.13 0.87 48.75 24.25 0.59
</TABLE>
- ---------
* Based on data furnished by the National Quotation Bureau, Incorporated. The
quoted bids represent prices between buyers and sellers and do not include any
retail markup, markdown or commission. They may not necessarily represent
actual transactions. These quoted bids have been restated to reflect the 5%
stock dividends that became effective during 1994 and 1995 and rounded to the
nearest $0.25.
The following table presents (rounded to the nearest cent) for August 1,
1995, the last full trading day prior to the public announcement of the
execution of the Merger Agreement, and as of December 6, 1995, the last sale
price of a share of UJB Stock, the last sale price of a share of Flemington
Stock and the pro forma equivalent in UJB Stock of a share of Flemington Stock
computed by multiplying the last sale price of UJB Stock on each of the dates
specified in the table by a hypothetical Exchange Ratio that was fixed by
assuming, for purposes of the Exchange Ratio criteria set forth in the Merger
Agreement (see "THE MERGER AGREEMENT--Determination of Exchange Ratio"), that
the date set forth in the first column of the table was the "Determination Date"
and that the Average Price was the last sale price of UJB Stock on the assumed
Determination Date. The pro forma equivalents set forth below are provided for
illustration purposes only. Neither pro forma equivalent is intended to
represent the actual pro forma equivalent that will be applicable to the Merger;
such amount will not be calculable until a date subsequent to the Special
Meeting.
Pro Forma
Flemington Exchange
UJB Flemington Equivalent Ratio(1)
------ ---------- ---------- --------
August 1, 1995 ............. $34.88 $41.25 $50.00 1.4335
December 6, 1995............ 33.50 48.50 50.00 1.4925
On the date the Exchange Ratio is fixed and on the date UJB Certificates
are received by Flemington shareholders entitled thereto, the price of a share
of UJB Stock, the Pro Forma Flemington Equivalent and the actual Exchange Ratio
applicable to the Merger may differ from those set forth above. Flemington
shareholders should obtain current price quotations. In addition, past dividends
paid in respect of UJB Stock and Flemington Stock are not necessarily indicative
of future dividends, which may be declared and paid. No assurance can be given
concerning dividends to be declared and paid in respect of UJB Stock and
Flemington Stock before or after the Effective Time. See "MARKET PRICE AND
DIVIDEND MATTERS."
The following table presents, as of December 6, 1995, the current
annualized dividend rate for a share of UJB Stock, for a share of Flemington
Stock, and (rounded to the nearest cent) for the pro forma equivalent in UJB
Stock of a share of Flemington Stock computed by multiplying the annualized
dividend rate of a share of UJB Stock by certain hypothetical Exchange Ratios
set forth and described below.
Pro Forma
Flemington Exchange
UJB Flemington Equivalent Ratio(1)
------ ---------- ---------- --------
December 6, 1995 ........... $1.16 $.40 $1.57 1.3514
$1.76 1.5152
$2.00 1.7241
- ----------
(1) The listed Exchange Ratios have been furnished for illustration purposes
only. The Exchange Ratio has not been fixed, will not be fixed until a date
subsequent to the scheduled date of the Special Meeting, and may, when
fixed as provided for in the
7
<PAGE>
Merger Agreement, differ from the Exchange
Ratios set forth above. The Exchange Ratios listed above would be
applicable in the following situations:
Average Price of
UJB Stock as of
Exchange Ratio Determination Date
-------------- -------------------
1.3514 Greater than $37.00
1.5152 $33.00
1.7241 less than $29.00 but greater
than or equal to $26.10
The Merger Agreement provides that, for Average Prices of UJB Stock on the
Determination Date of between $29.00 and $37.00, the Exchange Ratio would vary
from 1.3514 to 1.7241 (based on the formula of $50.00 (div. by) Average Price).
The Exchange Ratio of 1.5152 applies only if the Average Price of UJB Stock as
of Determination Date is exactly $33.00, the mid-point between $29.00 and
$37.00.
The Exchange Ratio would differ from the hypothetical Exchange Ratios
presented in the table if the Average Price of UJB Stock on the Determination
Date were less than $26.10. In such case, Flemington could terminate the Merger
Agreement unless UJB agreed to the Exchange Ratio determined by dividing $45.00
by the Average Price. See "THE MERGER AGREEMENT--Determination of Exchange
Ratio."
Recent Acquisitions
On September 10, 1995, UJB entered into an Agreement and Plan of Merger
(the ``Summit Agreement'') with The Summit Bancorporation ("Summit"), a New
Jersey-headquartered bank holding company, pursuant to which Summit will merge
with and into UJB under the name "Summit Bancorp." (the "Summit Acquisition").
Although T. Joseph Semrod, Chairman, President and Chief Executive Officer of
UJB, John G. Collins, Vice Chairman of UJB, and Robert G. Cox, President and
Chief Executive Officer of Summit had had general discussions about the possible
merger of UJB and Summit over the years, Mr. Cox first expressed a specific
interest in exploring the feasibility of a merger at a breakfast meeting with
Mr. Collins on July 21, 1995. Mr. Collins, who had succeeded Mr. Cox as Chairman
of the New Jersey Bankers Association, and Mr. Cox met regularly for breakfast
every three or four months. The July 21, 1995 breakfast was scheduled prior to,
but took place subsequent to a July 18, 1995 meeting of Summit's Executive
Committee at which strategic alternatives for Summit were explored. The next
contact between UJB and Summit regarding a merger took place on August 8, 1995.
Several meetings were held among Messrs. Semrod, Collins and Cox between August
17, 1995 and September 10, 1995, the date both the Summit Board and UJB Board
approved the merger agreement between Summit and UJB. In addition to the merger
of Summit into UJB, the merger agreement further provides for the merger of
UJBank and Summit Bank, Summit's banking subsidiary, under the name "Summit
Bank." Upon consummation of the Summit Acquisition, each share of Summit common
stock will be converted into a right to receive 0.90 shares of UJB Stock and
cash in lieu of fractional shares. Further, each share of Summit adjustable rate
cumulative preferred stock ($25 stated value) ("Summit Preferred") will be
converted into a right to receive a like number of shares of a newly created
class of UJB preferred stock ("UJB Series C Preferred") having the same relative
rights, preferences and limitations as the Summit Preferred and having relative
rights, preferences and limitations substantially similar to those of the UJB
Series B Preferred Stock except for dividend payment dates, dividend interest
rates and the voting rights that apply in the event of nonpayment of dividends.
The Summit Acquisition is expected to be accounted for as a
pooling-of-interests. At September 30, 1995, Summit had total consolidated
assets, deposits and shareholders' equity of $5.6 billion, $4.6 billion and
$484.6 million, respectively. Subject to the satisfaction of certain conditions,
including the approval of the Summit Acquisition by the shareholders of UJB and
Summit, the Summit Acquisition is expected to close late in the first quarter of
1996. For a further description of the Summit Acquisition, see "UJB FINANCIAL
CORP.--Recent Developments."
On July 11, 1995, UJB completed the acquisition of Bancorp New Jersey, Inc.
("Bancorp"), a New Jersey-headquartered bank holding company, which has been
accounted for on a purchase accounting basis (the "Bancorp Acquisition"). At
July 11, 1995, Bancorp had assets of $506 million and deposits of $451 million.
In the transaction, 60 percent of the outstanding Bancorp common stock was
exchanged for UJB Stock at the exchange ratio of 1.5441 shares of UJB Stock for
each share of Bancorp common stock, resulting in a total of 1,948,153 shares of
8
<PAGE>
UJB Stock being issued, and the remaining 40 percent of outstanding Bancorp
common stock was exchanged for cash at the rate of $43.10 per share, for an
aggregate cash payment of $36,273,463.
On June 13, 1995, Summit entered into an Agreement and Plan of Merger with
Garden State Bancshares, Inc. ("Garden State"), a New Jersey-headquartered bank
holding company, pursuant to which Garden State will merge with and into Summit
and for the exchange of Garden State common stock at the exchange ratio of 1.08
shares of Summit common stock (and cash in lieu of fractional shares) for each
share of Garden State common stock ("Garden State Acquisition", and, together
with the Summit Acquisition, the "Pooling Acquisitions"). The Garden State
Acquisition is expected to be accounted for as a pooling-of-interests. On
September 30, 1995, Garden State had total consolidated assets, deposits and
shareholders' equity of $314 million, $284 million and $29 million,
respectively.
UJB continually evaluates acquisition opportunities and in the past two
years has accepted numerous invitations to conduct due diligence on an anonymous
basis in connection with acquisition opportunities. Following certain of its due
diligence activities, UJB has submitted bids to investment bankers observing
confidential bidding procedures in connection with those acquisition
opportunities consistent with UJB's long-term strategic plans. The anonymous due
diligence and confidential bidding procedures preclude UJB from knowing the
identity of other bidders and assumes the confidentiality of its participation
in acquisition opportunities is also preserved. Acquisitions, where they are
successfully negotiated, typically involve the payment of a premium over book
and market values, and therefore some dilution of UJB's book value and net
income per common share may occur in connection with such acquisition
transactions, including the Pooling Acquisitions. The Summit Agreement does not
restrict UJB's ability to engage in acquisition transactions but, during the
effectiveness of the merger agreement between Summit and UJB, UJB has agreed to
limit its acquisition transactions to certain de minimis amounts.
The Pooling Acquisitions are reflected in the pro forma information set
forth herein, unless otherwise indicated. See "SUMMARY--Summary of Comparative
Per Share Data," "SELECTED FINANCIAL DATA," and "PRO FORMA FINANCIAL
INFORMATION."
Summary of Comparative Per Share Data
The following summary presents, for the periods indicated, selected
comparative per share data: (i) on a historical basis for both UJB and
Flemington; (ii) on a pro forma combined basis for UJB, giving effect to the
Merger, assuming that the Merger had been effective at the beginning of all
periods presented; (iii) on a pro forma combined basis for UJB, assuming the
Merger and the Pooling Acquisitions had been effective at the beginning of all
periods presented; and (iv) on a pro forma equivalent basis per common share for
Flemington, assuming that the Merger, and the Merger and the Pooling
Acquisitions had been effective at the beginning of all periods presented. Such
data are computed on a pro forma equivalent basis with respect to a share of
Flemington Stock by multiplying the pro forma combined amount (giving effect to
both the Merger and the Merger and the Pooling Acquisitions) by certain Exchange
Ratios provided for in the Merger Agreement. As previously described, the
Exchange Ratio has not yet been fixed and will not be fixed until a date
subsequent to the Special Meeting. When so fixed, the Exchange Ratio may differ
from any of the exchange ratios set forth below for illustration purposes. See
"THE MERGER AGREEMENT--Determination of Exchange Ratio." The pro forma
consolidated statements of income do not give effect to anticipated expenses and
nonrecurring charges related of the Merger and the estimated effect of revenue
enhancements and expense savings associated with consolidation of operations of
UJB and Flemington. See "SUMMARY--Recent Acquisitions," "SELECTED FINANCIAL
DATA," "PRO FORMA FINANCIAL INFORMATION" and "FINANCIAL STATEMENTS OF
FLEMINGTON."
9
<PAGE>
<TABLE>
<CAPTION>
Nine Months
Ended Year Ended
September 30, December 31,
-------------- -------------------
1995 1994 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net Income Per Share (1)(2)
Historical:
UJB ................................................................ $2.20 $1.73 $2.35 $1.50 $1.09
Flemington ......................................................... 1.65 1.68 2.28 0.95 1.28
Pro Forma Combined at Exchange Ratio of (3):
1.3514 ............................................................. 2.18 1.72 2.33 1.48 1.09
1.5152 ............................................................. 2.17 1.71 2.32 1.47 1.08
1.7241 ............................................................. 2.16 1.71 2.32 1.47 1.08
All transactions Pro Forma Combined at Exchange Ratio of (3):
1.3514 ............................................................. 1.99 1.19 1.77 1.52 1.08
1.5152 ............................................................. 1.99 1.19 1.77 1.52 1.08
1.7241 ............................................................. 1.98 1.19 1.77 1.52 1.08
Pro Forma Combined Flemington equivalent at Exchange Ratio (3):
1.3514 ............................................................. 2.95 2.32 3.15 2.00 1.47
1.5152 ............................................................. 3.29 2.59 3.52 2.23 1.64
1.7241 ............................................................. 3.72 2.95 4.00 2.53 1.86
All transactions Pro Forma Combined Flemington equivalent at
Exchange Ratio of (3):
1.3514 ............................................................. 2.69 1.61 2.39 2.05 1.46
1.5152 ............................................................. 3.02 1.80 2.68 2.30 1.64
1.7241 ............................................................. 3.41 2.05 3.05 2.62 1.86
Dividends per Share (1)(4)
Historical:
UJB ................................................................ 0.87 0.68 0.94 0.69 0.60
Flemington ......................................................... 0.59 0.30 0.45 0.10 --
Pro Forma Combined .................................................... 0.87 0.68 0.94 0.69 0.60
All transactions Pro Forma Combined ................................... 0.87 0.68 0.94 0.69 0.60
Pro Forma Combined Flemington equivalent at Exchange Ratio of (3):
1.3514 ............................................................. 1.18 0.92 1.27 0.93 0.81
1.5152 ............................................................. 1.32 1.03 1.42 1.05 0.91
1.7241 ............................................................. 1.50 1.17 1.62 1.19 1.03
All transactions Pro Forma Combined Flemington equivalent at
Exchange Ratio of (3):
1.3514 ........................................................... 1.18 0.92 1.27 0.93 0.81
1.5152 ........................................................... 1.32 1.03 1.42 1.05 0.91
1.7241 ........................................................... 1.50 1.17 1.62 1.19 1.03
<CAPTION>
September 30, 1995 December 31, 1994
------------------ -----------------
<S> <C> <C>
Book Value per Share (1)
Historical:
UJB ................................................................ $21.43 $19.53
Flemington ......................................................... 20.00 18.30
Pro Forma Combined at Exchange Ratio of (3)(5):
1.3514 ............................................................. 21.24 19.39
1.5152 ............................................................. 21.19 19.34
1.7241 ............................................................. 21.12 19.27
All transactions Pro Forma Combined at Exchange Ratio of (3)(5)(6):
1.3514 ............................................................. 18.31 17.11
1.5152 ............................................................. 18.28 17.08
1.7241 ............................................................. 18.24 17.04
Pro Forma Combined Flemington equivalent at Exchange Ratio of (3)(5):
1.3514 ............................................................. 28.70 26.20
1.5152 ............................................................. 32.11 29.30
1.7241 ............................................................. 36.41 33.22
All transactions Pro Forma Combined Flemington equivalent at
Exchange Ratio of (3)(5)(6):
1.3514 ............................................................. 24.74 23.12
1.5152 ............................................................. 27.70 25.88
1.7241 ............................................................. 31.45 29.38
- -------------
<FN>
(1) The financial information for Flemington and All Transactions Pro Forma
Combined has been restated to reflect all stock dividends and all stock
splits. All Transactions Pro Forma Combined reflects the elimination of UJB
Stock and Flemington Stock owned by Summit.
(2) Pro forma combined net income per common share was computed based on pro
forma combined net income less preferred dividends divided by the weighted
average number of shares outstanding during the periods presented.
(3) Flemington pro forma equivalent per share data is computed by multiplying
UJB's pro forma per share data (giving effect to the Merger) by the
Exchange Ratios.
(4) Pro forma amounts assume that UJB would have declared cash dividends per
share equal to its historical cash dividend per share declared.
(5) Gives effect to the Merger as if it had occurred at the end of the period.
The September 30, 1995 pro forma book value per share also includes the
anticipated $3.9 million of merger-related charges ($2.3 million after the
related tax effect).
(6) Gives effect to the mergers of Summit into UJB and Garden State into Summit
as if they had occurred at the end of the period. The September 30, 1995
pro forma book value per share also includes the anticipated $85 million of
merger-related charges ($54 million after tax) related to the merger of
Summit into UJB and the anticipated $7.4 million ($4.4 million after tax)
related to the merger of Garden State into Summit. Pro forma book value per
share at September 30, 1995 does not reflect the estimated expense savings
and revenue enhancements anticipated to result from the mergers.
</FN>
</TABLE>
10
<PAGE>
INTRODUCTION
This Proxy Statement-Prospectus is being furnished to shareholders of
Flemington who are holders of Flemington Stock as of the Record Date
("Flemington Shareholders") in connection with the solicitation of proxies by
the Flemington Board for use at the Special Meeting to be held on Friday,
January 26, 1996 or any adjournments thereof, at Flemington's principal banking
offices, 56 Main Street, Flemington, New Jersey, at 9:30 a.m. (local time). The
purpose of the Special Meeting is to consider and vote upon a proposal to
approve the Merger Agreement and the transactions contemplated thereby.
The Board of Directors of Flemington has approved the Merger Agreement and
unanimously recommends that Flemington Shareholders vote FOR its approval.
The information contained herein with respect to UJB has been supplied by
UJB and the information contained herein with respect to Flemington has been
supplied by Flemington.
SPECIAL MEETING
Record Date; Vote Required
The securities to be voted at the Special Meeting consist of shares of
Flemington Stock, with each share entitling its owner to one vote on the
proposal brought before the Special Meeting. Flemington had no other class of
voting securities outstanding at the close of business on the Record Date,
December 6, 1995. There were 464 record holders of Flemington Stock and
958,476 shares of Flemington Stock outstanding and eligible to be voted at the
Special Meeting as of the Record Date. It is anticipated that this Proxy
Statement-Prospectus, together with the enclosed proxy card, will be mailed to
shareholders on or about December 13, 1995.
The presence at the Special Meeting, in person or by proxy, of the holders
of a majority of the outstanding shares of Flemington Stock will constitute a
quorum for the transaction of business. Under The National Bank Act, the
approval of the Merger Agreement requires the affirmative vote of the holders of
two-thirds of the shares of Flemington Stock outstanding and entitled to vote at
the Special Meeting. Notwithstanding receipt of the requisite vote of Flemington
Shareholders to approve the Merger Agreement, should such vote be received, both
Flemington and UJB have the right to refuse to close the Merger in the event the
number of Dissenting Shares exceeds five percent (5%) of the Flemington Stock
outstanding on the Record Date. The Special Meeting may be adjourned from time
to time by a majority of those present in person or by proxy if necessary to
obtain the votes necessary to approve the Merger Agreement through further
solicitation of proxies or otherwise, or, if the number of Dissenting Shares
exceeds five percent (5%) of the Flemington Stock outstanding on the Record
Date, to conduct discussions with Dissenting Shareholders. In the event the
matter of adjournment is put to the vote of those present at the Special Meeting
either in person or by proxy, proxies voting against the Merger Agreement will
not be used by the proxy holders to vote in favor of the adjournment pursuant to
such proxy holders' discretionary voting authority. The approval of the Merger
Agreement by Flemington Shareholders is a condition to the consummation of the
Merger. See "THE MERGER AGREEMENT--Conditions to the Merger; Termination."
Votes cast "for" and "against" on the proposal will be tallied as
indicated. Abstentions will be treated as shares that are present and entitled
to vote for purposes of determining the presence of a quorum and will have the
same effect as a vote "against" the Merger Agreement. There will be no "broker
non-votes" submitted by brokers or nominees in connection with the Special
Meeting (i.e., shares held by brokers or nominees as to which instructions have
not been received from the beneficial owners or the persons entitled to vote
such shares and the broker or nominee does not have discretionary voting power
under the applicable NYSE rules) because, even though the proposal to approve
the Merger Agreement is a nondiscretionary matter under rules of the NYSE, it is
the only proposal. Broker non-votes appear on proxies submitted by brokers and
nominees only when at least one discretionary matter, in addition to a
nondiscretionary matter, is presented for vote at a shareholder meeting.
11
<PAGE>
Holders of Flemington Voting Securities
The following table sets forth, as of September 30, 1995, the name and
address of each person who owns of record or who is known by the Flemington
Board to be the beneficial owner of more than five percent (5%) of the
outstanding Flemington Stock, the number of shares beneficially owned by such
person and the percentage of the outstanding Flemington Stock so owned.
Percent of
Outstanding
Shares Beneficially Flemington Stock
Name and Address Owned(1) Beneficially Owned
- ---------------- ------------------- ------------------
Charles R. Fisher ..................... 169,686(2) 17.70%
147 Main Street
Flemington, New Jersey 08822
C. Ryman Herr, Jr., Esquire ........... 64,088(3) 6.90%
149 Stanton Mountain Road
Lebanon, New Jersey 08833
- ----------------
(1) The securities "beneficially owned" by an individual are determined in
accordance with the definitions of "beneficial ownership" set forth in the
General Rules and Regulations of the Commission, as adopted by the OCC, and
may include securities owned by or for the individual's spouse and minor
children and any other relative who has the same home, as well as
securities to which the individual has or shares voting or investment power
or has the right to acquire beneficial ownership within 60 days after
September 30, 1995. Beneficial ownership may be disclaimed as to certain of
the securities.
(2) Of the 169,686 shares beneficially owned by Charles R. Fisher, 149,577
shares are owned by him individually and 20,109 shares are owned by his
spouse individually.
(3) Of the 64,088 shares beneficially owned by C. Ryman Herr, Jr., 37,141
shares are owned by him individually and 26,947 shares are held by a
general partnership in which Mr. Herr is a general partner and shares
equally in the voting and dispositive powers over those shares held by such
partnership.
Flemington is not aware of any other person or entity, that is a beneficial
owner of more than five percent (5%) of Flemington Stock.
The following table represents information as to the shares of Flemington
Stock beneficially owned by directors of Flemington, certain executive officers
of Flemington and all directors and executive officers as a group, as of the
Record Date.
Amount and
Nature of
Name of Individual Beneficial Percent of
or Identity of Group Ownership (1)(2) Class(3)
- -------------------- ----------------- ---------
Nathan C. Collins (4) ...................... 420 --
Charles H. Fisher .......................... 3,761 --
Henry H. Fisher ............................ 5,723 --
J. Kirby Fowler (5) ........................ 11,099 1.16%
C. Edward Herder (6) ....................... 8,004 --
Lorraine M. Herr ........................... 5,103 --
Cynthia M. Jacob (7) ....................... 683 --
Patricia A. McKiernan ...................... 479 --
George D. Muller (8) ....................... 5,588 --
Bernard L. Schapiro (9) .................... 17,809 1.86%
All Executive Officers and Directors
as a Group (10 directors, 3 executive
officers, 13 persons in total) ........... 60,419 6.30%
- -----------
(1) See footnote (1) above for the definition of "beneficial ownership".
(2) Information furnished by the directors and Flemington.
(3) Less than one percent (1%) unless otherwise indicated.
(4) Of the 420 shares beneficially owned by Mr. Collins, 400 shares are owned
by him individually and 20 shares with his spouse.
(5) Of the 11,099 shares beneficially owned by Mr. Fowler, 6,226 shares are
owned by him individually; 782 shares are owned by his spouse individually;
and 4,091 shares are held for his benefit in Flemington's profit-sharing
plan.
12
<PAGE>
(6) Of the 8,004 shares beneficially owned by Mr. Herder, 1,565 shares are
owned by him individually; 1,207 shares are owned in joint tenancy with his
spouse; and 5,232 shares are held by the Chester H. Herder & Son, Inc. IRA
for benefit of Mr. Herder.
(7) These 683 shares are held by the Collier Jacob & Mills profit-sharing plan
for the benefit of Ms. Jacob.
(8) Of the 5,588 shares beneficially owned by Mr. Muller, 2,415 shares are
owned by him individually; 2,621 shares are owned by his spouse
individually; and 552 shares are held by a child who shares the same
household.
(9) Of the 17,809 shares beneficially owned by Dr. Schapiro, 1,935 shares are
owned by him individually; 7,709 shares are owned by his spouse
individually; 693 shares are held by B.L. Schapiro, M.D., P.A.; and 7,472
shares are held by B.L. Schapiro M.D., P.A. employee pension trust.
Proxies; Revocation; Solicitation
If the enclosed form of proxy is properly executed and returned to
Flemington in time to be voted at the Special Meeting, the shares represented
thereby will be voted in accordance with the instructions marked thereon.
Proxies that are executed, but as to which no instructions have been marked,
will be voted FOR the approval of the Merger Agreement. Should any other matter
properly come before the Special Meeting, the persons named as proxies in the
accompanying proxy, acting by a majority of those proxies present, will have
discretionary authority to vote on such matters in accordance with their
judgment. Although the Special Meeting may be adjourned by a vote of Flemington
Shareholders present in person or by proxy at the Special Meeting, proxies
voting against the Merger Agreement will not be used by the proxy holders to
vote in favor of the adjournment pursuant to such proxy holders' discretionary
voting authority. As of the time of the preparation of this Proxy
Statement-Prospectus, the Flemington Board does not know of any matter, other
than that referred to in the Notice of Special Meeting of Shareholders, to be
presented for action at the Special Meeting.
The cost of soliciting proxies will be borne by Flemington. In addition to
use of the mails, proxies may be solicited personally or by telephone,
telecopier or telegraph by officers, directors or employees of Flemington, who
will not be specially compensated for such solicitation activities. Arrangements
will also be made by Flemington to reimburse brokerage houses and other
custodians, nominees and fiduciaries for their reasonable expenses incurred in
forwarding solicitation materials to the beneficial owners of shares held of
record by such persons. Flemington has retained Morrow & Co., Inc., a proxy
soliciting firm, to assist in the solicitation of proxies, at a fee of $5,000.00
plus fees for direct telephone solicitations, if authorized, and reimbursement
of certain out-of-pocket costs.
A Flemington Shareholder may revoke a proxy at any time prior to its being
voted by (1) delivering written notice of revocation to Victoria A. Arcella,
Executive Vice President and Corporate Secretary, The Flemington National Bank
and Trust Company, 56 Main Street, Box 231, Flemington, New Jersey 08822,
telephone: (908) 284-4700; (2) executing a later-dated proxy and giving written
notice thereof to the Corporate Secretary of Flemington; or (3) voting in person
after giving written notice to the Corporate Secretary of Flemington. Unless
previously revoked or otherwise instructed thereon, proxies will be voted at the
Special Meeting on the matter described above. If a Flemington Shareholder
holding Flemington Stock in street name wishes to vote such Flemington Stock at
the Special Meeting, the Flemington Shareholder must obtain from the nominee
holding the Flemington Stock in street name a properly executed proxy
identifying the individual as a Flemington Shareholder, authorizing the
Flemington Shareholder to act on behalf of the nominee at the Special Meeting
and identifying the number of shares with respect to which the authorization is
granted.
13
<PAGE>
SELECTED FINANCIAL DATA
The tables below set forth selected historical financial information for
UJB and Flemington for each of the five years in the period ended December 31,
1994 and the nine month periods ended September 30, 1995 and 1994. Such
information has been derived from and should be read in conjunction with the
consolidated financial statements of UJB and Flemington, including the
respective notes thereto and management's discussions and analysis of financial
condition and results of operations, which in the case of UJB are incorporated
by reference in this Proxy Statement-Prospectus, and in the case of Flemington
are included in this Proxy Statement-Prospectus. See "INCORPORATION OF CERTAIN
DOCUMENTS BY REFERENCE," "FLEMINGTON MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS" and "FINANCIAL STATEMENTS OF
FLEMINGTON." The selected historical financial information for UJB and
Flemington for the nine month periods ended September 30, 1995 and 1994 reflect,
in the opinion of the managements of UJB and Flemington, respectively, all
adjustments (comprising only normal recurring accruals) necessary for a fair
presentation of the consolidated operating results and financial position of UJB
and Flemington for such interim periods. Results for the interim periods are not
necessarily indicative of results for the full year or any other period.
The tables setting forth selected unaudited pro forma combined financial
information give effect to the Merger and the Merger and the Pooling
Acquisitions under the pooling-of-interests method of accounting. For a
description of the pooling-of-interests method of accounting with respect to the
Merger, see "THE MERGER--Accounting Treatment." This information is derived from
the unaudited pro forma condensed combined financial statements appearing
elsewhere herein and should be read in conjunction with those statements. See
"PRO FORMA FINANCIAL INFORMATION." The unaudited pro forma financial information
is prepared based on (i) the Exchange Ratio in the Merger of 1.7241 shares of
UJB Stock for each share of Flemington Stock, (ii) an exchange ratio for the
Summit Acquisition of 0.90 shares of UJB Stock for each share of Summit common
stock, and (iii) an effective exchange ratio for the Garden State Acquisition of
0.972 shares of UJB Common for each share of Garden State common stock. The
assumed Exchange Ratio of 1.7241 is the highest and most dilutive of the fixed
exchange ratios specifically provided in the Merger Agreement. (The Exchange
Ratio would only be higher if: (i) the Average Price of UJB Stock or the
Determination Date is less than $26.10; (ii) Flemington sends notice terminating
the Merger Agreement; and (iii) UJB nullifies such notice by agreeing to an
Exchange Ratio equal to $45.00 divided by the Average Price.) The pro forma
condensed combined financial statements do not purport to be indicative of the
combined financial position or results of operations for future periods or
indicative of the results that actually would have been realized had the
entities been a single entity during the periods reflected in the tables.
Selected Historical Financial Information of UJB
<TABLE>
<CAPTION>
At or For the
Nine Months Ended
September 30, At or For the Year Ended December 31,
------------------------- -------------------------------------------------------------------
1995 1994 1994 1993 1992 1991 1990
----------- ----------- ----------- ----------- ----------- ----------- -----------
(Unaudited)
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
Income Statement Data:
Interest income ............... $ 817,999 $ 700,202 $ 960,973 $ 907,628 $ 979,008 $ 1,134,624 $ 1,217,082
Interest expense .............. 333,725 244,898 344,869 331,720 429,725 634,432 723,064
Net interest income ........... 484,274 455,304 616,104 575,908 549,283 500,192 494,018
Provision for loan losses ..... 48,750 55,500 84,000 95,685 139,555 167,650 251,888
Investment securities gains
(losses) .................... 5,205 1,846 1,888 8,877 18,485 13,919 (596)
Net income (loss) ............. 124,362 95,827 130,150 82,418 56,788 24,252 (11,416)
Net income (loss) per share ... 2.20 1.73 2.35 1.50 1.09 0.46 (0.29)
Cash dividends declared per
share ....................... 0.87 0.68 0.94 0.69 0.60 0.60 1.02
Average common shares
outstanding ................. 55,946 54,604 54,697 53,917 50,398 48,279 47,230
Balance Sheet Data:
Total assets .................. $15,533,070 $15,517,860 $15,429,472 $13,789,641 $14,114,550 $13,727,539 $13,156,273
Investment securities ......... 4,027,611 4,475,756 4,327,716 3,877,473 3,713,506 3,538,905 3,077,065
Loans ......................... 10,226,745 9,599,558 9,656,574 8,743,708 8,928,580 8,937,873 8,860,622
Total deposits ................ 12,871,632 12,167,335 12,567,791 11,751,499 12,087,328 11,620,247 10,912,739
Long-term debt ................ 204,338 206,252 204,754 208,654 216,945 65,152 72,960
Shareholders' equity .......... 1,263,997 1,084,991 1,104,260 1,019,252 959,492 850,873 845,551
Book value per common share ... 21.43 19.21 19.53 18.23 17.38 16.92 17.09
</TABLE>
14
<PAGE>
Selected Historical Financial Information of Flemington
<TABLE>
<CAPTION>
At or For the
Nine Months Ended
September 30, At or For the Year Ended December 31,
------------------------- -------------------------------------------------------------------
1995 1994 1994 1993 1992 1991 1990
----------- ----------- ----------- ----------- ----------- ----------- -----------
(Unaudited)
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
Income Statement Data(1):
Interest income ............... $ 15,165 $ 13,438 $ 18,418 $ 17,376 $ 18,733 $ 20,376 $ 20,516
Interest expense .............. 5,937 4,279 5,967 6,078 8,286 11,658 11,628
Net interest income ........... 9,228 9,159 12,451 11,298 10,447 8,718 8,888
Provision for loan losses ..... -- -- (622) 440 770 3,778 3,274
Investment securities gains
(losses) .................... -- 50 (328) 1,512 208 347 130
Net income (loss) ............. 1,583 1,610 2,180 909 1,231 (1,493) 215
Net income (loss) per share ... 1.65 1.68 2.28 0.95 1.28 (1.56) 0.22
Cash dividends declared per
share ....................... 0.59 0.30 0.45 0.10 -- 0.75 1.00
Average common shares
outstanding ................. 958 958 958 958 958 958 958
Balance Sheet Data(1):
Total assets .................. $ 289,573 $ 280,850 $ 268,307 $ 260,712 $ 257,696 $ 246,703 $ 226,913
Investment securities ......... 82,140 97,326 81,742 98,196 104,014 80,140 59,429
Loans ......................... 190,386 169,119 172,282 146,376 130,648 138,566 138,709
Total deposits ................ 257,725 244,116 241,280 240,825 232,124 227,332 205,604
Long-term debt ................ -- -- -- -- -- -- --
Shareholders' equity .......... 19,174 17,212 17,528 17,121 16,280 15,013 16,871
Book value per common share ... 20.00 17.97 18.30 17.87 16.99 15.67 17.61
</TABLE>
Selected UJB and Flemington Pro Forma Combined Financial Information
(Unaudited)
<TABLE>
<CAPTION>
At or For the
Nine Months Ended
September 30, At or For the Year Ended December 31,
------------------------- -------------------------------------------------------------------
1995 1994 1994 1993 1992 1991 1990
----------- ----------- ----------- ----------- ----------- ----------- -----------
(Unaudited)
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
Income Statement Data:
Interest income ............... $ 833,164 $ 713,640 $ 979,391 $ 925,004 $ 997,741 $ 1,155,000 $ 1,237,598
Interest expense .............. 339,662 249,177 350,836 337,798 438,011 646,090 734,692
Net interest income ........... 493,502 464,463 628,555 587,206 559,730 508,910 502,906
Provision for loan losses ..... 48,750 55,500 83,378 96,125 140,325 171,428 255,162
Investment securities gains
losses) ...................... 5,205 1,896 1,560 10,389 18,693 14,266 (466)
Net income (loss) ............. 125,945 97,437 132,330 83,327 58,019 22,759 (11,201)
Net income (loss) per
share (2) ................... 2.16 1.71 2.32 1.47 1.08 0.41 (0.27)
Cash dividends declared per
share ....................... 0.87 0.68 0.94 0.69 0.60 0.60 1.02
Average common shares
outstanding ................. 57,598 56,256 56,349 55,569 52,050 49,931 48,882
Balance Sheet Data(3):
Total assets .................. $15,824,203 $15,798,710 $15,697,779 $14,050,353 $14,372,246 $13,974,242 $13,383,186
Investment securities ......... 4,109,751 4,573,082 4,409,458 3,975,669 3,817,520 3,619,045 3,136,494
Loans ......................... 10,417,131 9,768,677 9,828,856 8,890,084 9,059,228 9,076,439 8,999,331
Total deposits ................ 13,129,357 12,411,451 12,809,071 11,992,324 12,319,452 11,847,579 11,118,343
Long-term debt ................ 204,338 206,252 204,754 208,654 216,945 65,152 72,960
Shareholders' equity .......... 1,280,831 1,102,203 1,121,788 1,036,373 975,772 865,886 862,422
Book value per common share ... 21.12 18.95 19.27 18.00 17.15 16.66 16.86
</TABLE>
See Notes to Selected Financial Data on Page 16.
15
<PAGE>
Selected All Transactions Pro Forma Combined Financial Information
(Unaudited)
<TABLE>
<CAPTION>
At or For the
Nine Months Ended
September 30, At or For the Year Ended December 31,
----------------------- ----------------------------------------------------------
1995 1994 1994 1993 1992 1991 1990
----------- ----------- ---------- ----------- ----------- ----------- -----------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
Income Statement Data:
Interest income ...................... $ 1,148,238 $ 979,636 $ 1,342,303 $ 1,274,846 $ 1,383,798 $ 1,609,195 $ 1,752,692
Interest expense ..................... 481,043 348,421 489,273 470,817 613,998 909,492 1,063,433
Net interest income .................. 667,195 631,215 853,030 804,029 769,800 699,703 689,259
Provision for loan losses ............ 52,437 62,762 92,348 114,442 171,824 197,595 344,200
Investment securities gains (losses) . 6,815 2,201 2,025 11,349 20,318 13,713 (3,284)
Net income (loss) .................... 181,793 106,587 158,787 133,514 90,121 45,682 (24,925)
Net income (loss) per share (2)(4) ... 1.98 1.19 1.77 1.52 1.08 0.56 (0.38)
Cash dividends declared per share .... 0.87 0.68 0.94 0.69 0.60 0.60 1.02
Average common shares outstanding (2) 90,720 87,961 88,238 86,005 80,792 75,775 74,561
Balance Sheet Data (5):
Total assets ......................... $21,787,946 $21,562,122 $21,469,008 $19,701,150 $19,788,121 $19,188,578 $18,674,645
Investment securities (4) ............ 5,864,021 6,313,320 6,108,010 5,676,222 5,397,584 4,836,393 4,293,129
Loans ................................ 14,131,444 13,316,969 13,487,735 12,212,782 12,311,917 12,497,197 12,619,884
Total deposits ....................... 18,054,705 17,151,093 17,488,564 16,688,145 17,001,373 16,302,678 15,466,449
Long-term debt ....................... 474,740 461,994 543,517 460,454 357,931 259,471 384,301
Shareholders' equity (4) ............. 1,732,188 1,550,366 1,576,421 1,490,399 1,390,101 1,206,635 1,184,559
Book value per common share (4) ...... 18.24 16.92 17.04 16.64 15.70 15.12 15.11
</TABLE>
- ----------
(1) Certain reclassifications have been made to historical amounts to conform
to UJB's method of presentation. Per share data for Flemington has been
restated to reflect the stock dividends declared.
(2) Pro forma combined net income per common share was computed based on pro
forma combined net income less preferred dividends divided by the weighted
average number of shares outstanding during the period. Common stock
equivalents are not included in the pro forma calculation as they are not
material.
(3) Balance sheet data as of September 30, 1995 give effect to anticipated
expenses and non-recurring charges related to the Merger. The balance sheet
data as of September 30, 1995 does not reflect any estimated savings and
revenue enhancements anticipated from the Merger.
(4) Includes the elimination of shares of UJB Stock and Flemington Stock owned
by Summit.
(5) Balance sheet data as of September 30, 1995 give effect to anticipated
expenses and non-recurring charges relating to the mergers of Garden State
into Summit and Summit into UJB. The balance sheet data as of September 30,
1995 does not reflect any estimated expense savings and revenue
enhancements anticipated from the mergers.
16
<PAGE>
FLEMINGTON MANAGEMENT'S DISCUSSION AND ANALYSIS
OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations
Three and Nine month Periods Ended September 30, 1995 and 1994
For the third quarter ended September 30, 1995, Flemington reported net
income of $525,000, or $0.55 per share, compared to net income of $591,000, or
$0.62 per share, for the third quarter of 1994. For the nine months ended
September 30, 1995, net income amounted to $1.58 million, or $1.65 per share,
compared to $1.61 million, or $1.68 per share for the comparable period in 1994.
Flemington's slightly decreased earnings for the nine month period ended
September 30, 1995 over 1994 were primarily the result of an increased level of
net interest income and reductions in its income tax provision and other
noninterest expenses, offset by increases experienced in salaries and employee
benefits expense.
Flemington's return on average stockholders' equity ("ROE") and return on
average assets ("ROA") for the nine months ended September 30, 1995 were 11.43%
and 0.75%, respectively. Both of these performance measures were below the ROE
of 12.60% and the ROA of 0.80% for the nine months ended September 30, 1994. For
the third quarter ended September 30, 1995, ROE was 10.86% and ROA was 0.73%.
Both of these results were also below the ROE of 13.82% and the ROA of 0.85% for
the third quarter of 1994.
Net Interest Income. Net interest income amounted to $9.2 million for the
nine month period ended September 30, 1995, an increase of $69,000, or 0.8%,
over the same period in 1994. On a tax equivalent basis, net interest income
increased $82,000, or 0.9%, to $9.4 million as compared to 1994. Net interest
spread decreased 36 basis points to 4.08% at September 30, 1995 from 4.44% at
September 30, 1994 and net interest margin (tax equivalent net interest income
as a percentage of average interest earning assets) decreased 19 basis points to
4.68% at September 30, 1995. For the third quarter ended September 30, 1995, net
interest income amounted to $3.1 million, a decrease of $55,000, or 1.72%,
compared to the same period in 1994. The slightly improved level of net interest
income for the first nine months is primarily a result of increased loan volume
coupled with the effects of Flemington's assets and liabilities repricing in a
rising interest rate environment. Approximately $30.0 million of Flemington's
loan portfolio reprices with changes in the prime rate. While Flemington has
been able to maintain, for the most part, its cost on interest bearing demand
and savings deposits, its cost for time deposits and other borrowed funds
experienced significant increases during the first nine months of 1995. Shifts
experienced in the composition of the balance sheet positively impacted net
interest income and margin: average loans outstanding, as a percentage of
interest earning assets, increased from 60.6% at September 30, 1994 to 68.4% at
September 30, 1995, and interest bearing liabilities as a percentage of average
interest earning assets decreased from 83.9% to 83.2% over the same period.
While the rising rate environment positively impacted net interest income and
margin, the decrease experienced in Flemington's net interest spread and margin
reflects the use of higher costing funds resulting from the shift in
Flemington's interest bearing liability structure. As a percentage of total
interest bearing liabilities, time deposits and other borrowed funds averaged
39.7% and 4.4%, respectively, for the nine months ended September 30, 1995,
compared to 30.4% and 3.2%, respectively, for the comparable period in 1994.
These increases, along with the corresponding increase in rates paid to obtain
them, accounted for $1.8 million in additional interest expense during the first
nine months of 1995.
Interest income on a tax-equivalent basis for the three month period ended
September 30, 1995 was $5.3 million, an increase of $503,000, or 10.5%, compared
to the same period in 1994. The increase in interest income was primarily due to
the higher interest rate environment, with increased rates resulting in a
$350,000 increase in interest income. Substantially every category of earning
assets experienced an increase in the average yield earned, with the yield on
total interest earning assets increasing 47 basis points from 7.25% for the
third quarter 1994 to 7.72% for the third quarter 1995. Growth in loan volume
also positively effected interest income in the three month period ended
September 30, 1995, resulting in an additional $545,000 of interest income, with
the effects of this growth outpacing the effects of volume reductions in
Flemington's security portfolios, as Flemington funded loan demand, in part,
with proceeds from sales and maturities from this category of interest earning
assets.
Interest expense increased $565,000, or 36.8%, and amounted to $2.1 million
for the three month period ended September 30, 1995. The increase in interest
expense was primarily attributable to the higher interest rate environment
experienced during the quarter as compared to the same period in 1994 and the
use of costlier borrowed funds to
17
<PAGE>
fund loan demand. The cost of all interest bearing liabilities increased from
2.77% at September 30, 1994 to 3.70% at September 30, 1995. This 93 basis point
increase resulted in an increase of $700,000 in interest expense. Flemington
continuously reviews its pricing of deposits and has responded to increases in
rates from competitive forces in its market place on the pricing of certificates
of deposit. With the exception of certain new products introduced, rates on
interest bearing demand and savings deposits have either decreased or remained
stable since the third quarter of 1993.
Noninterest Income. Total noninterest income amounted to $1.17 million for
the nine months ended September 30, 1995, compared to $1.2 million at September
30, 1994, a decrease of $34,000. Excluding security gains, noninterest income
increased $16,000, or 2.9%. For the third quarter 1995, total noninterest income
decreased $28,000, or 7.4%, over the comparable period in 1994.
For the nine month period ended September 30, 1995, service fees on deposit
accounts increased $100,000, or 15.8%, primarily as a result of increases in
Flemington's fee schedule in the first quarter of 1995 and increases experienced
as a result of changes in Flemington's program with its vendor for customer
check ordering, including participation in a rebate program. Other service fees
decreased $69,000, or 21.4%, primarily in the area of other loan fees.
Commissions on mortgage originations declined $56,000 primarily as a result of
Flemington's decision to retain its mortgage originations. Trust income
increased $16,000, or 13.6%. Flemington implemented a marketing strategy during
1994 aimed at growing this area of its business and increased its trust assets
$12.8 million from September 30, 1994 to September 30, 1995. Other noninterest
income increased $24,000 from the prior period, with $34,000 of the increase
attributable to mortgage servicing fees. In December 1994, Flemington sold $15.9
million of three year adjustable rate mortgages to an unrelated third party,
retaining servicing rights to the loans.
Securities gains decreased $50,000 from the nine month period in 1994 to
the same period in 1995. In 1994, Flemington sold $2.0 million of U.S. Treasury
securities from its available for sale portfolio, recognizing a gain of $50,000.
Noninterest Expense. Noninterest expenses totaled $8.0 million for the nine
months ended September 30, 1995, compared to $7.8 million at September 30, 1994,
an increase of $182,000, or 2.3%. For the three month period ended September 30,
1995, noninterest expense totaled $2.6 million, an decrease of $81,000, or 3.1%,
over the same period in 1994.
Salaries and employee benefits for the nine months ended September 30, 1995
amounted to $4.5 million, an increase of $285,000, or 6.8%, compared to 1994.
For the third quarter 1995, salaries and employee benefits increased $145,000,
or 10.3%, when compared to the same period in 1994. The increase for the nine
month period was primarily due to merit increases granted in January, 1995,
$281,000 provided for stock appreciation rights and $110,000 provided as other
employee compensation.
Occupancy and equipment expenses totaled $1.4 million for the nine months
ended September 30, 1995, and $1.5 million for the same period in 1994, a
decrease of $28,000, or 1.9%.
Professional and other fees totaled $737,000 for the nine months ended
September 30, 1995, and $463,000 for the same period in 1994, an increase of
$274,000, or 59.2%. All of this increase relates to consultant fees and costs
incurred with Flemington's proposed merger with United Jersey Bank announced on
August 2, 1995.
FDIC insurance expense totaled $255,000 for the nine months ended September
30, 1995, a decrease of $182,000, or 41.6%, compared to the same period in 1994,
as a refund of $154,000 was received in the third quarter relating to a
reduction in the FDIC insurance premium charge, effective June 1, 1995.
Other noninterest expenses amounted to $1.1 million for the nine month
period ended September 30, 1995, a decrease of $167,000, or 13.4%, compared to
the same period in 1994. The decrease was primarily a result of the $160,000
decrease in other real estate costs. During the first quarter of 1995,
Flemington sold two properties recognizing gains totaling $123,000.
Financial Condition. Total assets were $289.6 million at September 30,
1995, an increase of $21.3 million, or 7.9%, compared to December 31, 1994. The
increase was primarily a result of a $18.1 million increase in loans, with $14.7
million of the growth in residential real estate.
Total loans amounted to $190.4 million at September 30, 1995, an increase
of $18.1 million, or 10.5%, compared to December 31, 1994. During the first nine
months of 1995, the Bank's residential real estate portfolio continued to
18
<PAGE>
provide the largest volume increases. Flemington funded $17.9 million of 1-4
family residential mortgages during the first nine months of 1995, primarily in
adjustable rate instruments. Additional volume increases experienced in
residential real estate were primarily funding of home equity loans/lines, which
amounted to approximately $2.2 million for the nine month period ended September
30, 1995.
Total deposits averaged $249.9 million during the first nine months of
1995, an increase of $8.1 million, or 3.3%, compared to 1994. At September 30,
1995, these deposits amounted to $257.7 million, an increase of $16.4 million
from December 31, 1994. Flemington's deposit base experienced a realignment as
consumers opted for higher rate certificates of deposit accounts in the current
interest rate environment, with the average rate paid increasing 140 basis
points from 3.76% during the first nine months of 1994 to 5.16% during the same
period in 1995. Time deposits represented, on average, 41.5% of total interest
bearing deposits at September 30, 1995 as compared to 31.4% at September 30,
1994. Other borrowed funds at September 30, 1995 amounted to $8.6 million, an
increase of $1.3 million as compared to December 31, 1994.
Allowance for Loan Losses and Related Provision. The allowance for loan
losses reflects the results of management's ongoing assessment of the losses
that will be experienced in the lending function. Flemington has a standardized
process to assess the adequacy of the allowance for loan losses, which includes
a periodic review to assess the risks inherent in the loan portfolio and credit
reviews to identify specific allocations. It incorporates a credit review and
gives consideration to areas of exposure such as concentration of credit,
economic and industry conditions, and negative trends in delinquencies and
collections. Consideration is also given to collateral coverage and the
composition of the loan portfolio. Specific allocations are identified by loan
category and allocated according to various categories of loans. Loans
classified by regulators are incorporated in the standardized process of
assessing the adequacy of the allowance for loan losses. The allowance is
maintained at a level determined adequate to provide for potential losses on
loans.
The allowance for loan losses at September 30, 1995 was $2.4 million,
compared to $2.1 million at December 31, 1994, an increase $295,000, or 13.8%.
As a percent of total loans, the allowance was 1.28% at September 30, 1995
compared to 1.24% at year end 1994. The ratio of the allowance for loan losses
to nonperforming loans decreased to 85.17% at September 30, 1995 compared to
90.54% at December 31, 1994. Net recoveries for the nine months ended September
30, 1995 totalled $295,000 compared with net recoveries of $512,000 in 1994.
The relationship among loans, loans charged-off and loan recoveries, the
provision for loan losses and the allowance for loan losses is shown below:
Nine months
ended Year ended
September 30, December 31,
1995 1994
------------ ------------
(dollars in thousands)
Loans:
Average for the period ........................ $182,894 $159,700
======== ========
Allowance:
Balance, beginning of period .................. $ 2,134 $ 2,244
Provisions charged (credited) to operations ... 0 (622)
Loans charged-off:
Commercial and financial ...................... 53 103
Real estate mortgage .......................... 14 112
Consumer ...................................... 11 86
-------- --------
78 301
-------- --------
Recoveries of previously charged-off loans:
Commercial and financial ...................... 218 481
Real estate mortgage .......................... 123 312
Consumer ...................................... 32 20
-------- --------
373 813
-------- --------
Balance, end of period .......................... $ 2,429 $ 2,134
======== ========
Ratio of:
Net recoveries to average loans outstanding ... (0.16%) (0.32%)
Allowance to period-end loans ................. 1.28% 1.24%
19
<PAGE>
Interest Rate Sensitivity and Liquidity. An objective of Flemington's
asset/liability management policy is to maximize current and future net interest
income within acceptable levels of interest rate risk while satisfying liquidity
and capital requirements. Flemington's senior management and the Board of
Directors is responsible for managing interest rate risk within tolerable
variances as established in Flemington's policy.
At September 30, 1995, Flemington continues to be liability sensitive
within one year and asset sensitive beyond that horizon. While these static
measurements may be used as early indicators of potential interest rate
exposure, they do not reflect the results of any projected activity and are not
indicative of the impact of fluctuating interest rates on net interest income.
Rather, interest rate sensitivity is measured and managed based on information
provided by an earnings simulation model that is used to evaluate the effect of
prospective upward and downward changes in interest rates on net interest income
and net income. The model includes maturity and repricing information as well as
additional assumptions which affect balances under various interest rate
scenarios, such as the susceptibility of mortgages and mortgage-related
securities to prepayment variations and the susceptibility of Flemington's
deposit mix to reconfiguration.
Flemington's consolidated liquidity position increased during the first
nine months of 1995, with an increase of $2.9 million in Flemington's securities
available for sale portfolio. As of September 30, 1995, Flemington held $37.0
million, or 12.8% of total assets, in cash and cash equivalents, overnight
federal funds sold, money market investments and securities available for sale
representing Flemington's primary sources of liquidity, as compared to $32.7
million, or 12.2%, of assets at December 31, 1994.
As a source of liquidity, the investment portfolio provides cash flows
through sales, maturities and periodic repayments of principal. During the first
nine months of 1995, proceeds from maturities and other investment portfolio
cash flows from both security portfolios totaled $10.5 million. These cash flows
were principally reinvested in United States Government agency securities or
used to fund loan demand.
Additionally, Flemington has demonstrated the ability to secure funds from
certificates of deposit over $100,000, primarily from local government agencies.
These funds are generally obtained through a competitive bidding process and are
generally shorter in terms of maturity. At September 30, 1995, Flemington's
outstanding time deposits of $100,000 and over were comprised primarily of $12.9
million from government agencies and $5.4 million from individuals. While the
amounts on deposit from individuals have historically been stable in dollar
amount and are generally longer in terms of maturity, Flemington began offering,
in 1994, competitive bidding for these deposits.
Liquidity is also available through Flemington's ability to secure funds
from securities sold under agreements to repurchase and Federal Home Loan Bank
lending programs, which provide Flemington with access to funds at rates equal
to or less than the cost of many traditional funding sources and enhance
Flemington's ability to match funding of securities and loans. In the fourth
quarter of 1994, Flemington was accepted into membership in the Federal Home
Loan Bank of New York ("FHLB"). Flemington's borrowing capacity with the FHLB is
based in part on the amount of qualifying collateral available, specifically
United States Treasury and government agency securities, mortgage backed
securities and residential real estate loans. Unused borrowing capacity, on both
a collateralized and uncollateralized basis, with the FHLB totaled approximately
$80.9 million at September 30, 1995. Collateral totaling $53.6 million was
available for repurchase agreements and $14.5 million in Federal funds lines was
available to Flemington at September 30, 1995. Flemington may increase its use
of these funding sources, as necessary, for additional leverage and as a means
to achieve its asset/liability strategy.
Capital Resources. At September 30, 1995, stockholders' equity totaled
$19.2 million, an increase of $1.6 million, or 9.4%, compared with December 31,
1994. Net income of $1.6 million and a $629,000 decrease in unrealized losses in
excess of unrealized gains on securities available for sale, net of deferred
taxes, was offset by the payment of cash dividends totaling $566,000. Book value
per common share increased to $20.00 at September 30, 1995 from $18.30 at
December 31, 1994.
20
<PAGE>
Flemington's risk-based capital ratios decreased slightly during the first
nine months of 1995 primarily as a result of the growth in Flemington's loan and
loan commitment obligations. Tier 1 and total risk-based capital ratios amounted
to 12.07% and 13.32%, respectively, at September 30, 1995, compared to 12.47%
and 13.88%, respectively, at December 31, 1994. An institution must generally
have a ratio of Tier 1 Capital to total risk-weighted assets of 4% and a ratio
of Total Capital to total risk-weighted assets of 8%. The Tier 1 leverage ratio,
a measure of Tier 1 Capital to adjusted average assets, was 6.94% at September
30, 1995, compared to 6.68% at December 31, 1994. In the absence of a formal
order from banking regulatory agencies, most sound, well-run institutions
engaged in the least risky operations must maintain minimum Tier 1 leverage
ratios of at least 3%, with all others required to maintain higher levels of
capital depending on their conditions.
Years ended December 31, 1994 and 1993
Flemington reported net income of $2.2 million for the year ended
December 31, 1994, its highest level in five years. Compared to net income of
$909, 000 in 1993, this represented an increase of $1.3 million or 139.8%. On a
per share basis, the earnings were $2.39 for the year, compared to $1.00
reported in 1993.
Flemington's increased earnings were primarily a result of the increase in
net interest income attributable to the increased volume of loans, the reduction
in its provision for loan losses, the $2.2 million loss on the sale of troubled
real estate assets recognized in 1993, and decreases in the costs associated
with carrying non-performing assets, offset by market losses on the sale of
securities in 1994 as compared to gains recognized in 1993.
Flemington's return on average stockholders' equity ("ROE") and return on
average assets ("ROA") for 1994 were 12.71% and 0.80%, respectively. Both of
these performance measures reflected improvement from the ROE of 5.43% and the
ROA of 0.36% for 1993.
During 1994, the Federal Reserve Bank raised the rate on Federal funds a
total of seven times, from 3.0% at year end 1993 to 5.50% at year end 1994, as a
precautionary measure against inflation. Consequently, Flemington raised its
prime lending rate from 6.0% to 8.50% over the same period. Additionally, the
increases by the Federal Reserve Bank caused reaction in the bond market, with
the long-term bond yield, a traditional benchmark, rising to 7.88% as of
December 31, 1994 from 6.35% as of December 31, 1993. While Flemington did not
suffer upward pressure on the rates it paid for "core" type deposits, it was
subject to competitive forces in the market area driving up rates on
certificates of deposit.
Net recoveries on previously charged-off loans amounted to $512,000 during
1994, compared to net charge-offs of $1.3 million in 1993. Collections on five
unrelated loans comprised $622,000 of the $813,000 of gross recoveries. With the
improvement in the overall ratio of loan charge-offs to recoveries, primarily as
a result of the five significant recoveries, Flemington recognized a negative
provision of $622,000. With this transfer, the allowance for loan losses as a
percentage of total loans was 1.24% at December 31, 1994, a level considered
adequate by management.
In spite of rising interest rates, Flemington experienced strong loan
growth in its real estate portfolio throughout 1994. On a year to year basis,
total loans grew $25.9 million, or 17.7%. To fund this demand, Flemington relied
principally on purchased funds. In the fourth quarter of 1994, Flemington was
accepted for membership in the Federal Home Loan Bank of New York, providing
Flemington with additional sources with which to meet its funding demands. In
December 1994, Flemington sold a $15.9 million package of performing residential
real estate loans, recognizing a $152,000 loss on the transaction. In the same
month, $14.1 million of securities were either called or sold, with a loss of
$378,000 recognized on the dispositions. Substantially all of the proceeds from
these transactions were used to paydown borrowed funds.
Earning Assets. Average earning assets totaled $258.2 million at December
31, 1994, an increase of $18.9 million, or 7.9%, compared to December 31, 1993.
The increase in average assets was primarily attributable to strong loan demand,
with an increase on average of $25.9 million, or 19.4%, in Flemington's
portfolio. Funding for the loan portfolio was obtained through the liquidation
of overnight investments, growth in Flemington's deposit base, and overnight
borrowings. Average Federal funds sold and money market investments decreased
$4.0 million, or 76.4%, from their respective 1993 amounts. Flemington's deposit
base increased on average $9.2 million from 1993 to 1994, and borrowed funds
increased $6.7 million on average over the same period. Proceeds from certain
investment cash flows were used to paydown the outstanding balances of borrowed
funds, resulting in a decrease on average of $3.0 million, or 3.0%, in average
total investment securities.
21
<PAGE>
Securities Available for Sale. Securities available for sale amounted to
$22.7 million at December 31, 1994, as compared to $60,000 at December 31, 1993.
Securities classified as available for sale are those securities which may be
sold in response to changing market and interest rate conditions or as part of
Flemington's asset/liability strategy. This portfolio is carried at market value
and, at December 31, 1994, the amortized cost of these securities exceeded their
market value by $735,000.
Effective January 1, 1994, Flemington adopted the provisions of the
Financial Accounting Standards Board Statement No. 115, "Accounting for Certain
Investments in Debt and Equity Securities" (FAS 115) and placed securities with
a fair market value of $69.1 million in its available for sale portfolio. In
July, Flemington reevaluated its available for sale portfolio and, after giving
consideration to its ability and positive intent to hold certain investments to
maturity, transferred securities with a then current market value of $29.5
million to the held to maturity portfolio of investments. The unrealized loss on
those securities transferred totaled $1.5 million on the date of transfer and
will be accreted back to book value from equity over the remaining life for the
United States government agency securities and the average life for the United
States Government agency collateralized mortgage obligations ("CMOs") and
mortgage-backed securities ("MBS") transferred. As of December 31, 1994, the
remaining unaccreted loss amounted to $1.4 million. For a further discussion
regarding the effect of FAS 115 on Flemington's capital position, see
"FLEMINGTON MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS--Capital Resources."
During 1994, Flemington sold $13.1 million of securities from its available
for sale portfolio, recognizing a net loss of $328,000. Proceeds totaling $10.9
million from the sales in December were used to paydown Flemington's overnight
borrowings. Flemington reinvested the $12.7 million of maturities and other cash
flows from the available for sale portfolio into United States Treasury and
Government agency securities, which currently provide a higher yielding
investment vehicle for the cash flows from Flemington's portfolio.
Investment Securities. The $39.0 million decrease was a result of
securities with a book value of $68.2 million being transferred to the available
for sale portfolio effective January 1, 1994, offset by securities totaling
$29.5 million being transferred to the held to maturity portfolio in the third
quarter of 1994. During 1994, Flemington reinvested the $5.2 million of
maturities and other cash flows from the held to maturity portfolio into $2.9
million of obligations of state and political subdivisions and $2.0 million of
United States Government agency securities. Flemington's investments in
municipal securities were made in support of its community and surrounding
areas.
Loans. Total loans averaged $159.7 million during 1994, an increase of
$25.9 million, or 19.4%, compared to year end 1993. Actual loans outstanding
increased from $146.4 million at December 31, 1993 to $172.3 million at December
31, 1994. Substantially all of Flemington's lending activity was to customers
located within Hunterdon County, New Jersey, and secured by property in that
area. While this market experienced weaknesses in real estate during the early
1990s, the residential real estate market showed increases in activity during
1993 and 1994. During 1994, Flemington concentrated its resources on mortgage
lending in the residential market. Of the loan portfolio as a whole, 89.3% of
Flemington's loans were secured by real estate.
Flemington's concentrated effort and the interest rate environment resulted
in an increase of $19.5 million, or 15.9%, in its real estate mortgage
portfolio. At December 31, 1994, its real estate mortgage portfolio totaled
$142.7 million. The accompanying table illustrates the composition of the real
estate mortgage portfolio.
December 31,
-----------------------------------
1994 1993 1992
-------- -------- --------
(dollars in thousands)
Residential mortgages .................... $ 89,370 $ 71,840 $ 56,441
Home equity loans and lines of credit .... 14,624 14,029 14,520
Commercial mortgages ..................... 38,692 37,294 37,164
-------- -------- --------
$142,686 $123,163 $108,125
======== ======== ========
Flemington benefited from the widening spread between short-term and
long-term interest rates as home buyers increasingly chose adjustable rate
mortgages over fixed rate mortgages to finance purchases during 1993 and 1994.
As a means of achieving Flemington's asset/liability strategy, Flemington
generally retains adjustable rate mortgages for its own portfolio and sells
fixed rate loans upon origination. During 1993, Flemington did, however, begin a
program of retaining ownership of fifteen year fixed rate mortgages, committing
approximately $18.0 million of funding to origination of these loans.
22
<PAGE>
Flemington experienced growth of approximately $33.4 million in its
residential mortgage portfolio during 1994; fifteen year fixed rated mortgages
contributed $5.0 million to the increase experienced, with the remainder
primarily attributable to funding of three year adjustable rate mortgages.
Flemington's home equity portfolio experienced an increase of $595,000.
Flemington's portfolio of home equity credit lines and residential mortgages
represent the core business of Flemington. These portions of Flemington's total
portfolio maintained adequate loan-to-value ratios throughout the downturn in
the market, with nominal levels of delinquencies and losses.
As loan funding requirements outpaced the growth in deposits, Flemington
borrowed funds on an overnight basis until borrowed funds reached a high of
$23.5 million in December 1994. Because of the significant use of alternate
funding, Flemington sold $15.9 million of three year adjustable rate mortgages
to an unrelated third party, using the proceeds to paydown its borrowings. The
sales price, which represented 99.0% of the net book value of the loans and was
determined based upon competitive bidding, resulted in a loss of $152,000.
Flemington retained servicing rights to the loans.
Flemington's commercial mortgage portfolio at December 31, 1994 increased
$1.4 million, or 3.7%, compared to December 31, 1993. While Flemington
experienced prepayments in this portfolio as a result of the interest rate
environment, Flemington was able to successfully reinvest the funds in part by
participating in multi-lender residential and commercial real estate development
opportunities. Flemington's commercial mortgages, which consist of both
owner-occupied and investor-type properties, were generally originated based on
real estate values that have since declined. However, Flemington has either
written down or adequately reserved for those loans where the decline in
collateral value potentially impairs collectibility. Flemington's lending policy
generally requires a 70% loan-to-value ratio for commercial real estate
mortgages with higher standards used for non-user or investor-type properties.
Value is based upon independently prepared, conforming appraisals. Additionally,
irrespective of the collateral value, the granting of commercial mortgage loans
is based upon the cash flow ability of the borrower to repay the obligation as
agreed.
Also experiencing growth was Flemington's $11.1 million real estate
construction portfolio, which increased $5.2 million. The growth experienced
during 1994 is primarily attributable to funding $2.7 million for two commercial
properties and $1.8 million for two residential development projects.
Construction loans are monitored with advances made only after work is
completed, independently inspected and verified by qualified professionals.
The commercial loan portfolio increased $1.0 million, or 7.6%, from year
end 1993 to 1994. The increase was primarily related to the introduction of a
new product, Business Manager, in the latter half of the year. These loans are
to customers who are located primarily within Flemington's market area and are
generally for working capital purposes, secured by their accounts receivable.
Introduced in September of 1994, the product provided $1.2 million in new
business by year end. Business development efforts were directed toward building
relationships with lower middle market companies and development of products
designed to specifically meet the needs of this customer group. Flemington's
commercial portfolio continued to mirror the diversification of the region with
no concentration of loans to any one particular industry.
Flemington's consumer loan portfolio increased $234,000, or 5.8%, from
December 31, 1993 to December 31, 1994. This portfolio consists mainly of
automobile and boat loans, and remained relatively stable over the past
couple of years as Flemington concentrated its lending efforts on mortgage
products.
Nonperforming Assets. Nonperforming assets increased 6.5%, or $184,000,
from December 31, 1993. Included in nonperforming assets are nonperforming
loans, restructured loans and other real estate owned. Substantially all of
Flemington's nonperforming assets are secured by real estate.
Nonperforming loans, which include nonaccrual loans and loans past due 90
days or greater and still accruing interest, amounted to $2.4 million at
December 31, 1994, an increase of $412,000, or 21.2%, compared to December 31,
1993. The increase was primarily a result of placing nine residential loans
totaling $944,000 on nonaccrual, offset by the repayment of a $427,000 land
development loan and the charge-off of two loans totaling $105,000. Included in
nonperforming loans at year end 1994 was $307,000 relating to three residential
land development loans to one borrower, $1.8 million secured by residential real
estate and $486,000 secured by commercial real estate.
Restructured loans, loans for which the terms have been restructured to
provide for a reduction or deferral of interest or a deferral of principal due
to deterioration in the financial position of the borrower, declined $36,000, or
8.1%, from December 31, 1993 and included five loans to unrelated parties.
23
<PAGE>
Other real estate, which consists of properties acquired through
foreclosure, amounted to $269,000 at December 31, 1994, a decline of $192,000,
or 41.6%, compared to December 31, 1993. Other real estate owned is accounted
for at the lower of cost or fair value less estimated costs to sell. During
1994, Flemington sold one property recognizing a gain of $3,000. As of December
31, 1994, Flemington had five properties remaining in other real estate. The
accompanying table illustrates the activity in other real estate for the two
years ended December 31, 1994.
1994 1993
----- ------
(dollars in thousands)
Balance, beginning of year ........................... $ 461 $4,302
Additions from loan portfolio ........................ -- 776
Sales and other reductions ........................... (192) (4,138)
Charge offs .......................................... -- (479)
----- ------
Balance, end of year ................................. $ 269 $ 461
===== ======
Allowance for Loan Losses and Related Provision. The allowance for loan
losses at December 31, 1994 was $2.1 million, compared to $2.2 million at
December 31, 1993, a decrease of $110,000 or 4.9%. As a percent of total loans,
the allowance was 1.24% at December 31, 1994 compared to 1.53% at year end 1993.
The ratio of the allowance for loan losses to nonperforming loans decreased to
90.54% at December 31, 1994, compared with 115.37% at December 31, 1993. Net
recoveries for 1994 totaled $512,000, compared to net charge-offs of $1.3
million in 1993.
The allowance for loan losses reflects the results of management's ongoing
assessment of the losses that will be experienced in the lending function.
Flemington has a standardized process to assess the adequacy of the allowance
for loan losses, which includes a periodic review to assess the risks inherent
in the loan portfolio and credit reviews to identify specific allocations. It
incorporates a credit review and gives consideration to areas of exposure such
as concentration of credit, economic and industry conditions, and negative
trends in delinquencies and collections. Consideration is also given to
collateral coverage and the composition of the loan portfolio. Specific
allocations are identified by loan category and allocated according to various
categories of loans. Loans classified by regulators are incorporated in the
standardized process of assessing the adequacy of the allowance for loan losses.
The allowance is maintained at a level determined adequate to provide for
potential losses on loans.
The provision for loan losses was a negative $622,000 for the year ended
December 31, 1994, a decrease of $1.1 million, or 241.4%, as compared to the
$440,000 provision recorded in 1993. The decline in amounts provided to the
allowance by means of the provision for loan losses reflects the effect on the
adequacy of the allowance of five specific and significantly large recoveries,
totaling $622,000, received in 1994 on unrelated loans.
Deposits. Total deposits amounted to $241.3 million at December 31, 1994,
an increase of $455,000, or 0.2%, over 1993. On average, deposits increased $9.2
million from 1993 to 1994. Flemington experienced on average $4.6 million, or
14.5%, of growth in noninterest bearing demand deposits and $5.7 million, or
9.7%, in savings deposits. Interest bearing demand deposits decreased on average
$1.1 million, or 1.4%, while the average balance of time deposits remained
relatively stable over the two year period.
During 1994, Flemington experienced disintermediation primarily in its
interest bearing core deposits as it maintained its interest rates in the rising
rate environment. However, the $8.6 million decrease in interest bearing demand
deposits was partially offset by a $4.7 million increase in noninterest bearing
deposits. Additionally, in the second quarter of 1994, Flemington began a
program of competitive bidding for individual and government agency certificates
of deposit over $100,000, and experienced growth of $4.6 million in these time
deposits. The growth experienced in time deposits in excess of $100,000 was used
to provide incremental net interest income through matched funding in the
short-term and, ultimately, to fund loan demand. In conjunction with
Flemington's ability to maintain its interest rate level on interest bearing
core deposits in a rising rate environment, Flemington's deposit configuration
had a positive effect on earnings. However, Flemington anticipated this trend to
level off in 1995 as deposit rates, particularly on time deposits, were
anticipated to rise in response to anticipated Federal Reserve Bank interest
rate policies. The average rates paid on deposit balances decreased 31 basis
points to 2.66% during 1994, compared to 2.97% during 1993.
Borrowed Funds. Borrowed funds can be used to satisfy daily funding needs
and, when advantageous, for arbitrage. Flemington has traditionally used
overnight funding sources, which consist primarily of Federal funds and
repurchase agreements as a means of achieving its asset/liability strategies
through prefunding of maturities in its
24
<PAGE>
investment portfolios, a strategy which was implemented to protect Flemington's
earnings stream from reinvestment risk ssociated with its mortgage backed
securities. However, during 1994, Flemington's purchased funds position was
necessitated to meet particularly strong residential real estate loan demand. To
meet its funding requirements and outstanding commitments, Flemington primarily
used funding from securities sold under agreements to repurchase, which
increased on average $5.2 million from 1993 to 1994 and reached a high of $23.5
million in December 1994. As discussed above, Flemington used substantially all
of the proceeds from the sale of three year adjustable rate mortgages and
securities sold from its available for sale portfolio to paydown its overnight
borrowings in December 1994. Borrowed funds in total increased $6.5 million from
December 31, 1993 to year end 1994 and, on average, they increased $6.7 million
in the same period.
Net Interest Income. Net interest income amounted to $12.5 million for
1994, an increase of $1.2 million, or 10.2%, over the same period in 1993. On a
tax equivalent basis, net interest income increased $1.2 million, or 10.6%, to
$12.6 million, as compared to 1993. Net interest spread increased 9 basis points
to 4.43% at December 31, 1994 from 4.34% at year end 1993 and net interest
margin, tax equivalent net interest income as a percentage of average interest
earning assets, increased 12 basis points to 4.88% in 1994 from 4.76% in 1993.
The improved level of net interest income, spread and margin was a result of
increased loan volume coupled with the effects of the rising interest rate
environment. Approximately $29.7 million of Flemington's loan portfolio repriced
with the increases in prime rate, while Flemington was able to maintain its cost
on core type deposits. Additionally, shifts experienced in the composition of
the balance sheet positively impacted net interest spread and margin: average
loans outstanding as a percentage of interest earning assets increased from
55.9% at December 31, 1993 to 61.8% at December 31, 1994 and interest bearing
liabilities as percentage of average interest earning assets decreased from
85.6% to 83.7% over the same period.
Interest income on a tax equivalent basis was $18.6 million, an increase of
$1.1 million, or 6.3%, compared to 1993. The increase in interest income was
primarily due to the volume increases in Flemington's loan portfolio. Growth in
loan volume resulted in a $1.8 million increase in interest income, outpacing
the $700,000 decrease in income as a result of Flemington's investment
portfolios and adjustable rate residential mortgages repricing into a lower rate
environment. The 21 basis point decrease, from 8.20% at December 31, 1993 to
7.99% at December 31, 1994, in the yield earned on the loan portfolio resulted
in a $287,000 decrease in income. While loan volume increased interest income,
approximately 75.4% of the volume increases were in historically lower rate
residential loans rather than higher yielding commercial loans. As a percentage
of average total loans outstanding, residential real estate loans increased from
59.7% at December 31, 1993 to 60.5% at December 31, 1994, and commercial loans
decreased from 8.7% in 1993 to 8.1% in 1994. The lower yields earned by
Flemington on its investment portfolios were primarily a result of the 1993
security sales and subsequent reinvestment of those proceeds into the lower rate
environment. The yield earned on the investment portfolio declined 40 basis
points, from 6.34% at year end 1993 to 5.94% at year end 1994, resulting in a
$413,000 decrease in interest income. The yield on interest earning assets
declined from 7.30% at December 31, 1993 to 7.19% at December 31, 1994. While
the effects of Flemington's assets repricing in a low rate environment is
evident, the increases in prime rate, experienced primarily in the second and
third quarters of 1994, are mitigating the negative impact.
Interest expense decreased $111,000, or 1.8%, and amounted to $6.0 million
in 1994. The decrease in interest expense was primarily attributable to the low
interest rate environment experienced through the first half of 1994 and
Flemington's ability to maintain its cost of funds on core type deposits during
the rising rate environment experienced in the second half of the year. The cost
of all interest bearing liabilities declined from 2.97% during 1993 to 2.76%
during 1994. This 21 basis point decline resulted in a $534,000 reduction in
interest expense, which was offset by a $423,000 increase attributable to
increased levels of low cost funds, primarily savings deposits, and the
increased volume of funds secured from repurchase agreements. Volume increases
experienced in savings deposits and borrowed funds increased interest expense
$150,000 and $298,000, respectively. In the absence of sufficient deposit growth
to fund loan volume increases experienced during 1994, Flemington began funding
loan demand, in part, with the use of funds secured from repurchase agreements
which increased on average $6.7 million from 1993 to 1994. Flemington continued
to aggressively price its deposits but responded to increases in rates from
competitive forces in its market place on the pricing of certificates of
deposit. Rates on interest bearing demand and savings deposits did not change in
1994. Additionally, Flemington anticipated having to continue the use of higher
costing funds secured from repurchase agreements in 1995 to augment deposit
growth in funding loan demand.
25
<PAGE>
Noninterest Income. Total noninterest income amounted to $1.2 million for
the year ended December 31, 1994, compared to $3.0 million at December 31, 1993,
a decrease of $1.8 million, or 60.2%. Excluding security gains and losses,
noninterest income increased 4.3%, or $62,000, during 1994, as compared to 1993.
Noninterest income categories for the current year compared to 1993 are shown in
the accompanying table.
1994 1993
------ ------
(dollars in thousands)
Service fees on deposit accounts ..................... $ 854 $ 800
Other service fees ................................... 408 355
Brokered mortgage commissions ........................ 60 150
Trust income ......................................... 155 125
Securities gains (losses) ............................ (328) 1,512
Other ................................................ 25 10
------ ------
$1,174 $2,952
====== ======
Service fees on deposit accounts and other service fees increased $107,000,
or 9.3%, in 1994 primarily as a result of increases in Flemington's fee schedule
in the second quarter of 1993, the opening of a new branch in the fourth quarter
of 1993 and an increase in 1994 of $35,000 in interest income collected on
previously charged-off loans. Commissions on mortgage originations declined
$90,000, or 60.0%, to $60,000 for the year ended December 31, 1994, as compared
to 1993. With the rising rate environment experienced in 1994, refinancing
activity slowed significantly. Additionally, during 1994 Flemington originated
and retained in its own loan portfolio $5.0 million of fixed rate residential
loans that would have historically been originated for commissions. Trust income
increased 24.0% to $155,000 for the year ended December 31, 1994, compared to
$125,000 for 1993. During 1994, Flemington implemented a marketing strategy
aimed at growing this area of its business and increased its assets $5.5
million, including $2.0 million in managed accounts and $3.5 million in
custodial accounts.
Investment security transactions resulted in a net loss of $328,000 for the
year ended December 31, 1994, as compared to a net gain of $1.5 million during
1993. As discussed above, Flemington sold $13.1 million of securities from its
available for sale portfolio, applying the proceeds to paydown Flemington's
overnight borrowings. During 1993, Flemington sold $22.2 million of its
securities available for sale, recognizing a gain of $844,000. These securities
were sold to mitigate the adverse effect of the troubled real estate asset sale.
Additionally, as a means of achieving Flemington's asset/liability strategy, an
additional $21.7 million of investment securities were sold in September 1993.
In addition to recognizing a gain of $668,000, Flemington increased its level of
cash flow over four years, reduced the average life of its investment portfolio,
and increased its total return by $283,000.
Noninterest Expense. Noninterest expense totaled $10.8 million for the year
ended December 31, 1994, compared to $12.5 million at December 31, 1993, a
decrease of $1.7 million, or 13.4%. Noninterest expense categories, for the
periods indicated, are shown in the following table:
1994 1993
------- -------
(dollars in thousands)
Salaries and employee benefits ....................... $ 5,745 $ 5,023
Net occupancy expense ................................ 1,197 992
Equipment expense .................................... 759 692
Loss on sale of loans ................................ 152 1,486
Communications and supplies .......................... 583 560
Professional and other fees .......................... 620 763
Promotion ............................................ 252 227
Appraisal costs and other loan fees .................. 105 114
FDIC Insurance ....................................... 572 581
Other insurance expense .............................. 90 116
Other real estate costs .............................. 158 1,387
Other ................................................ 546 510
------- -------
$10,779 $12,451
======= =======
26
<PAGE>
Salaries and employee benefits for the year ended December 31, 1994
amounted to $5.7 million, an increase of $722,000, or 14.4%, compared to 1993.
The increase was primarily due to severance arrangements with Flemington's
former president and expense related to Flemington's contribution to its
employee profit sharing and 401(k) plans.
Occupancy expenses of $1.2 million for the year ended December 31, 1994,
increased $205,000, or 20.6%, compared to the same period in 1993, and primarily
reflects the opening of a new branch in December 1993 and improvements made
thereto. Equipment expense increased $67,000, or 9.7% from $692,000 in 1993 to
$759,000 recorded in 1994. This increase was principally due to
acceleration of depreciation on certain assets.
The sale of loans in 1994 resulted in a loss of $152,000 as compared to the
loss of $1.5 million recognized in 1993. As discussed above, Flemington sold a
package of three year adjustable rate mortgages totaling $15.9 million to an
unrelated third party, using the proceeds to paydown its outstanding borrowings.
In 1993, Flemington sold a $5.0 million package of troubled real estate assets
to an unrelated third party. Included in the package were performing loans with
a net book value of $2.1 million and nonperforming loans with a net book value
of $1.3 million. The sales price, which represented 56.6% of the net book value
of the assets and was determined based upon competitive bidding, resulted in a
loss of $1.5 million.
Other noninterest expenses amounted to $2.9 million for the year ended
December 31, 1994, a decrease of $1.3 million, or 31.3%, compared to 1993. Costs
associated with other real estate owned declined $1.2 million; excluding legal
costs and the $698,000 loss recorded on the properties sold in the package sale
of assets in September 1993, costs decreased $531,000 for the year ended
December 31, 1994, as compared to 1993. The decrease was primarily a result of
$456,000 of write-downs to fair value on certain properties during 1993 and
$127,000 of real estate taxes paid during 1993 to acquire clear title to two
properties. With twenty-two properties sold in 1993 and the significant
reduction in the level of troubled real estate assets from year end 1992 to year
end 1994, Flemington was able to reduce the costs to carry these assets and the
resources expended to manage them: professional and other fees decreased
$143,000, or 18.7%, for the year ended December 31, 1994, as compared to 1993,
and other insurance expense decreased $26,000. All other categories showed
relatively modest changes from the prior year.
The following table demonstrates the impact on Flemington's net interest
income of changes in the volume of interest earning assets and interest bearing
liabilities and changes in interest rates earned and paid for the years ended
December 31, 1994 and 1993.
27
<PAGE>
THE FLEMINGTON NATIONAL BANK AND TRUST COMPANY AND SUBSIDIARY
RATE/VOLUME VARIANCE ANALYSIS OF CHANGES IN NET INTEREST INCOME
<TABLE>
<CAPTION>
December 31, December 31,
1994 vs. 1993 1993 vs. 1992
-------------------------- -----------------------------
Change Change
in in
income/ Rate Volume income/ Rate Volume
expense effect effect expense effect effect
------- ------ ------ ------- ------ ------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest earning assets:
Federal funds sold ...................... $ (89) $ 24 $ (113) $ (8) $ (26) $ 18
Money market investments ................ (23) 2 (25) (52) (14) (38)
Investment securities (1):
Taxable ............................... (715) (397) (318) (332) (1,032) 700
------ ----- ------ ------- ------- -----
Tax exempt ............................ 132 (16) 148 112 4 108
------ ----- ------ ------- ------- -----
Total investment securities ........... (583) (413) (170) (220) (1,028) 808
------ ----- ------ ------- ------- -----
Loans(2) .............................. 1,794 (287) 2,081 (1,035) (1,000) (35)
------ ----- ------ ------- ------- -----
Total interest earning assets ....... 1,099 (674) 1,773 (1,315) (2,068) 753
------ ----- ------ ------- ------- -----
Interest bearing liabilities:
Demand deposits ........................ (340) (316) (24) (837) (935) 98
Savings deposits ....................... (12) (162) 150 (109) (457) 348
Other time deposits .................... (137) (136) (1) (1,248) (863) (385)
------ ----- ------ ------- ------- -----
Total interest bearing deposits ...... (489) (614) 125 (2,194) (2,255) 61
Other borrowed funds ................... 378 80 298 (14) (3) (11)
------ ----- ------ ------- ------- -----
Total interest bearing liabilities ... (111) (534) 423 (2,208) (2,258) 50
------ ----- ------ ------- ------- -----
Net interest income .................... $1,210 $(140) $1,350 $ 893 $ 190 $ 703
------ ----- ------ ------- ------- -----
</TABLE>
- ----------
Note: Interest income on tax exempt loans and securities was computed by
dividing the tax exempt income by one minus the federal corporate income
tax rate to reflect the tax equivalent income. Variances which were not
specifically attributable to volume or rate were allocated proportionately
between each, based on the overall effect on interest expense.
(1) Includes investment securities available for sale.
(2) Includes nonaccruing and renegotiated loans.
Capital Resources
The capital adequacy of Flemington is reviewed on an ongoing basis by
management and the Board of Directors with respect to asset size, balance sheet
composition and risk profile characteristics which include asset quality,
interest rate risk and liquidity.
At December 31, 1994, stockholders' equity totaled $17.5 million, an
increase of $407,000, or 2.4%, over December 31, 1993. Net income of $2.2
million was offset by the payment of $407,000 in dividends to stockholders, and
$1.4 million of unrealized losses in excess of unrealized gains on securities
available for sale, net of deferred taxes totaling $716,000. Book value per
common share increased to $19.20 at December 31, 1994 from $18.75 at December
31, 1993.
With the adoption of FAS 115 on January 1, 1994, Flemington is required to
carry its portfolio of securities available for sale at market value, with
unrealized gains and losses, net of the related tax effect, included as a
component of stockholders' equity. Adoption of the provisions of FAS 115
resulted in an immediate increase of $608,000 in retained earnings on January 1,
1994. As a result of the reevaluation of the available for sale portfolio in
July, Flemington transferred securities with a market value of $29.5 million to
the held to maturity portfolio. The unrealized loss on those securities
transferred totaled $1.5 million on the date of transfer and will be accreted
back to book value from equity over the remaining life for the United States
government agency securities and the average life for the United
28
<PAGE>
States government agency CMOs and MBS transferred. As of December 31, 1994, the
remaining unaccreted loss amounted to $1.4 million. The unrealized loss on the
securities available for sale portfolio as of December 31, 1994 amounted to
$735,000. Net of the tax effect, the total unrealized losses on securities
available for sale and those securities transferred to held to maturity, reduced
stockholders' equity by $1.4 million.
The $1.1 million depreciation in the unrealized gains on securities
available for sale, net of the related tax effect, was a result of the bond
market's reaction to Federal Reserve Bank interest rate policies. As a
precautionary measure against inflation, the Federal Reserve Bank raised the
rate on Federal funds a total of seven times during 1994. The long-term bond
yield, a traditional benchmark, rose to 7.88% as of year end 1994, as compared
to 6.35% at December 31, 1993. As expected, the upward pressure on yields
resulted in lower bond prices.
Flemington's risk-based capital ratios improved during 1994 primarily as a
result of increased capital levels from $2.2 million of net income offset by
$407,000 of dividends paid. Risk-based capital ratios are expressed as a
percentage of risk-adjusted assets whereby various prescribed risk percentages
are applied to assets on the balance sheet as well as off-balance sheet
instruments. Tier 1 and total risk-based capital ratios amounted to 12.47% and
13.88%, respectively, at December 31, 1994, compared to 12.32% and 13.57%,
respectively, at December 31, 1993. The current minimum regulatory guidelines
for Tier 1 and total risk-based capital ratios are 4.0% and 8.0%, respectively.
Flemington's leverage ratio, a measure of capital to adjusted average assets,
was 6.68% at December 31, 1994, compared to 6.71% at December 31, 1993. While
actual asset growth amounted to $7.6 million, on average the increase was $16.7
million. This growth in average assets resulted in a slight decrease in
Flemington's leverage ratio. In the absence of a formal order from banking
regulatory agencies, most sound, well run institutions engaged in the least
risky operations must maintain minimum leverage ratios of at least 3%, with all
others required to maintain higher levels of capital depending on their
conditions.
Interest Rate Sensitivity and Liquidity
An objective of Flemington's asset/liability management policy is to
maximize current and future net interest income within acceptable levels of
interest rate risk while satisfying liquidity and capital requirements.
Flemington's Asset/Liability Committee ("ALCO") is responsible for managing
interest rate risk within tolerable variances as established in Flemington's
policy.
At December 31, 1994, Flemington continued to be liability sensitive within
one year and asset sensitive beyond one year. While these static measurements
may be used as early indicators of potential interest rate exposure, they do not
reflect the results of any projected activity and are not indicative of the
impact of fluctuating interest rates on net interest income. Rather, interest
rate sensitivity is measured and managed based on information provided by an
earnings simulation model that is used to evaluate the effect of prospective
upward and downward changes in interest rates on net interest income and net
income. The model includes maturity and repricing information as well as
additional assumptions which affect balances under various interest rate
scenarios, such as the susceptibility of mortgages and mortgage-related
securities to prepayment variations and the susceptibility of Flemington's
deposit mix to reconfiguration.
At December 31, 1994, a two hundred basis point increase and decrease in
interest rates over the following twelve months would reduce net interest income
by 1.40% and 1.32%, respectively. In the rising rate scenario, the decrease in
net interest income is primarily a result of the assumed deposit rate increases
and the risk Flemington faces in the expected reconfiguration of its deposit
base, with interest rate sensitive core deposits shifting to more costly time
deposits. With a falling rate environment, it is expected that the effect of
repricing of Flemington's interest sensitive assets will outpace Flemington's
ability to reduce core deposit rates below their current level. With the rising
rate environment during 1994, Flemington's margin benefited from the repricing
of its $20.1 million portfolio of prime rate based commercial loans and $9.6
million of prime rate based consumer real estate loans and was further enhanced
by Flemington's ability to maintain its current level of deposit rates, which
were not increased during the market rate increases experienced in 1994. Further
augmenting the growth in net interest income were repricings in Flemington's
portfolio of adjustable rate mortgages.
Management anticipated that short-term market rates would increase during
the first half of 1995 and level off thereafter, causing a flattening of the
yield curve. With consideration to interest rate forecasts and analysis of
Flemington's interest rate sensitivity position, management developed a strategy
for mitigating the potential risk to earnings posed by a flattening of the yield
curve and implemented, in February 1995, the use of interest rate floors to
protect its earnings stream.
29
<PAGE>
The accompanying table reflects Flemington's interest rate sensitivity or
gap position, which is the estimated aggregate maturity and repricing of
interest earning assets and interest bearing liabilities, at December 31, 1994.
<TABLE>
<CAPTION>
Six Six months Over one
months through through Over No
or less one year five years five years maturity Total
-------- -------- ---------- ---------- -------- --------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Federal funds sold ................ $ 585 $ -- $ -- $ -- $ -- $ 585
Money market investments .......... 50 -- -- -- -- 50
Investment securities:
Available for sale .............. 4,396 2,970 14,031 1,261 -- 22,658
Held to maturity ................ 7,482 3,553 41,318 6,731 -- 59,084
Loans ............................. 47,336 21,571 84,858 18,517 172,282
-------- ------- -------- -------- -------- --------
Rate sensitive assets ............. $ 59,849 $28,094 $140,207 $ 26,509 $ -- $254,659
-------- ------- -------- -------- -------- --------
Deposits:
Interest bearing demand ......... 20,564 -- -- -- 48,829 69,393
Savings deposits ................ 13,983 239 -- -- 46,512 60,734
Other time deposits ............. 38,016 14,674 18,390 -- -- 71,080
Borrowed funds .................... 7,315 -- -- -- -- 7,315
-------- ------- -------- -------- -------- --------
Rate sensitive liabilities ........ $ 79,878 $14,913 $ 18,390 $ -- $ 95,341 $208,522
-------- ------- -------- -------- -------- --------
Interest sensitivity GAP .......... $(20,029) $13,181 $121,817 $ 26,509 $(95,341) $ 46,137
Cumulative GAP .................... $(20,029) $(6,848) $114,969 $141,478 $ 46,137 $ 46,137
======== ======= ======== ======== ======== ========
</TABLE>
In addition to monitoring interest rate sensitivity, ALCO monitors and
coordinates all activities relating to maintenance of liquidity to ensure that
Flemington has the ability to meet present and future funding obligations and
commitments. In conjunction with income from operations, deposit growth, and
cash flows from the investment portfolio, Flemington uses short-term financing
activities to meet its routine, operational cash needs.
Flemington's consolidated liquidity position increased during 1994, with an
increase of $22.6 million in Flemington's securities available for sale
portfolio. With the adoption of FAS 115, Flemington transferred securities with
a book value of $68.2 million and market value of $69.1 million to securities
available for sale. In July 1994, Flemington transferred securities available
for sale with a then current market value of $29.5 million to its portfolio of
held to maturity investments. As of December 31, 1994, Flemington held $32.7
million, or 12.2% of total assets, in cash and cash equivalents, overnight
federal funds sold, money market investments and securities available for sale
representing Flemington's primary sources of liquidity, as compared to $11.1
million, or 4.3%, of assets at December 31, 1993.
As a source of liquidity, the investment portfolio provides cash flows
through sales, maturities and periodic repayments of principal. During 1994,
proceeds from the sale of securities available for sale were $12.8 million, and
proceeds from maturities and other cash flows from both security portfolios
totaled $17.8 million. These cash flows were principally reinvested in United
States government agency securities and, in December 1994, used to reduce
Flemington's purchased funds position. As a result of Flemington's investment
strategies, scheduled maturities and anticipated principal payments of
Flemington's portfolios will be approximately $12.3 million during 1995. The
weighted average life of the portfolios, adjusted for historical prepayment
patterns on MBS, was estimated to be approximately 2.7 years at December 31,
1994.
Additionally, Flemington has the demonstrated ability to secure funds from
certificates of deposit over $100,000, primarily from local government agencies.
These funds are generally obtained through a competitive bidding process and are
generally shorter in terms of maturity than like funds obtained from
individuals. At December 31, 1994, Flemington's outstanding time deposits of
$100,000 were comprised primarily of $6.7 million from government agencies and
$4.1 million from individuals. While the amounts on deposit from individuals
have historically been stable in dollar amount and are generally longer in terms
of maturity, Flemington began offering, in the second quarter of 1994,
competitive bidding for these deposits.
Liquidity is also available through Flemington's ability to secure funds
from securities sold under agreements to repurchase and Federal Home Loan Bank
lending programs, which provide Flemington with access to funds at rates equal
to or less than the cost of many traditional funding sources and enhance
Flemington's ability to match funding of
30
<PAGE>
securities and loans. In the fourth quarter of 1994, Flemington was accepted
into membership in the Federal Home Loan Bank of New York ("FHLB"). Flemington's
borrowing capacity with the FHLB is based in part on the amount of qualifying
collateral available, specifically United States Treasury and Government agency
securities, mortgage backed securities and residential real estate loans. Unused
borrowing capacity with the FHLB was approximately $67.0 million at December 31,
1994. Collateral totaling $48.2 million was available for repurchase agreements
and $67.0 million in Federal funds lines was available to Flemington at December
31, 1994. During 1994, Flemington funded the $25.9 million growth in its loan
portfolio primarily with funds from repurchase agreements. Flemington may
increase its use of this funding source, as necessary, for additional leverage
and as a means to achieve its asset/liability strategy.
Liquidity is managed on a daily basis by Flemington, enabling senior
management to effectively monitor changes in liquidity and to react accordingly
to market conditions. Management believes that liquidity is sufficient to meet
present and future financial obligations and commitments on a timely basis.
Inflation
The impact of inflation on banks is different from the inflationary impact
on nonfinancial institutions. Banks have assets and liabilities which are
primarily monetary in nature and which tend to reflect changes in inflation.
This is especially true for banks with a high percentage of rate sensitive
interest earning assets and interest bearing liabilities. A bank can further
reduce the impact of inflation by managing its interest rate sensitivity.
Flemington's management monitors and seeks to mitigate the impact of interest
rate changes by attempting to match the maturities of interest earning assets
and interest bearing liabilities. Inflation also can have an impact on operating
costs of labor and outside services. However, these tend to be partially
mitigated by fee income which would rise with inflation. Management foresees no
material adverse affect on income and the financial condition of Flemington
based upon the current rate of inflation.
Years ended December 31, 1993 and 1992
Flemington reported net income of $909,000 for the year ended December 31,
1993, as compared to net income of $1.2 million in 1992, a decrease of $322,000,
or 26.2%. On a per share basis, the earnings were $1.05 for the year, compared
to $1.42 reported in 1992.
The decline in net income was a result of strategies implemented by
Flemington to improve its asset quality and core earnings. During the first
quarter of 1993, Flemington implemented a strategy for maximizing the
appreciation in its portfolio of securities available for sale, while reducing
the level of nonperforming assets. Flemington's strategy included packaging and
selling those nonperforming assets that were not currently under contract for
sale, with any discount in the purchase price being partially offset by
realizing gains in the available for sale portfolio. Additionally, Flemington
marketed and sold another twenty-one properties on an individual basis.
During the third quarter of 1993, Flemington sold a $5.0 million package of
troubled real estate assets to an unrelated third party for $2.8 million in
cash, net of commissions and closing costs, recognizing a $2.2 million loss.
Included in the package were performing loans with a net book value of $2.1
million, nonperforming loans with a net book value of $1.3 million and other
real estate owned with a book value of $1.6 million. Additionally, Flemington
sold to the same party three notes for which the receivable had previously been
charged-off Flemington's records for $61,000 in cash.
The sale price, which represented 56.6% of the net book value of the assets
and 16.7% of the notes previously charged-off, was determined based upon
competitive bidding resulting from due diligence performed by the purchaser and
other potential purchasers. The Flemington Board accepted the competitive bid,
which represented a discount of 43.4% on net book value, or a loss of $2.2
million, after giving consideration to a number of factors, including the cost
of continuing to carry these troubled real estate assets, including maintenance,
taxes, insurance and lost income opportunity; and the level of human resources
that have been devoted to managing and selling these assets and the costs
thereof. With a significant decrease in the level of troubled real estate
assets, Flemington was able to reduce substantially the costs to carry these
assets and the resources expended to manage them.
To mitigate the adverse impact of the sale of troubled assets on the
consolidated statement of operations, Flemington began selling, in the first
quarter, its portfolio of investment securities held as available for sale,
recognizing the appreciation in market value of that portfolio. Moreover,
Flemington instituted certain cost containment and
31
<PAGE>
reduction measures, most notably in employee benefit expense. During the second
quarter, Flemington changed healthcare insurance carriers, realizing savings
with no loss of benefits to its employees. Flemington also experienced a
reduction in its level of contribution to Flemington's profit sharing plan for
1993.
Flemington began to realize the benefit of its actions, during the fourth
quarter of 1993 when Flemington posted earnings of $547,000, the most profitable
quarter Flemington has experienced since the third quarter of 1991. Expenses
related to other real estate owned, excluding the loss on the package sale,
totaled $810,000 for the first three quarters of 1993 and $73,000 for the fourth
quarter. Additionally, as a result of the reduction in nonperforming loans,
Flemington was able to reduce its provision for loan losses to $50,000 in the
fourth quarter of 1993.
Net Interest Income. Net interest income amounted to $11.3 million for
1993, an increase of $851,000, or 8.1%, over the same period in 1992. On a tax
equivalent basis, net interest income increased $893,000, or 8.5%, to $11.4
million, as compared to 1992. The improved level of net interest income was a
result of increases in Flemington's net interest spread; Flemington's tax
equivalent net interest income increased 29 basis points to 4.34% at December
31, 1993 from 4.05% at year end 1992. Net interest margin, tax equivalent net
interest income as a percentage of average interest earning assets, increased to
4.76% during 1993 compared to 4.59% in 1992. The increase in the net interest
spread and margin was a result of Flemington's interest bearing liabilities
repricing in a declining rate environment coupled with growth in noninterest
bearing demand and low cost deposits while maintaining a relatively stable
earning assets base. As a percentage of average interest earning assets, average
interest bearing liabilities approximated 85.6% as of December 31, 1993 and
86.9% as of December 31, 1992.
Interest income on a tax equivalent basis was $17.5 million, a decrease of
$1.3 million, or 6.9%, compared to 1992. The decline in interest income was
primarily due to the lower interest rate environment and the sluggish commercial
loan demand experienced in Flemington's market. Proceeds from loan principal
repayments, investment maturities and sales and deposit growth were reinvested
in lower yielding securities during this period of declining interest rates.
Average total investment securities increased $11.6 million to $100.3 million at
December 31, 1993, compared to $88.7 million at December 31, 1992, while
Flemington's average total loans outstanding decreased slightly during the same
period. As a percentage of average earning assets, investments increased from
38.8% during 1992 to 41.9% during 1993 as the loan portfolio decreased from
58.6% to 55.9%. While the volume increases in the investment portfolio had a
$808,000 positive effect on interest income, the 186 basis point difference in
the average yield on Flemington's loan portfolio over the average yield on the
investment portfolio has caused downward pressure on interest income. The yield
on interest earning assets declined 91 basis points to 7.30% in 1993 from 8.21%
in 1992.
Interest expense decreased $2.2 million, or 26.5%, and amounted to $6.1
million for 1993. The lower interest rate environment was the primary cause of
the decline in interest expense; the 119 basis point decline in the average rate
paid for funds resulted in a $2.3 million reduction in interest expense.
Customers continued to shift deposits into lower costing funds during 1993. The
average balance of higher costing certificates of deposit amounted to $66.0
million, or 28.3% of Flemington's deposit base, at December 31, 1993, compared
to $73.8 million, or 33.1% of average total deposits, in 1992. Flemington
continued to aggressively price its deposits and, effective July and September
1993, further reduced rates paid on interest bearing demand and savings
deposits. The cost of all interest bearing liabilities declined from 4.16%
during 1992 to 2.97% during the same period in 1993.
Provision for Loan Losses. The provision for loan losses was $440,000 for
the year ended December 31, 1993, a decrease of $330,000, or 42.9%, as compared
to the $770,000 recorded in 1992. The decline in amounts provided to the
allowance by means of the provision for loan losses reflects the significant
decrease in the level of nonperforming loans and loans charged-off experienced
by Flemington. Nonperforming assets declined 64.7%, or $5.2 million, from
December 31, 1992 to year end 1993; net of charged-off loans, the decline
amounted to $3.3 million, or 40.8%. Additionally, Flemington experienced a
reduction in loans charged-off with net charge-offs for 1993 totaling $1.3
million, or 0.96% of average loans, compared to $1.9 million, or 1.40% of
average loans, in 1992. Included in net charged-off loans in 1993 is $874,000,
related to the performing and nonperforming loans included in the troubled real
estate asset sale.
Noninterest Income. Total noninterest income amounted to $3.0 million for
the year ended December 31, 1993, compared to $1.6 million at December 31, 1992,
an increase of $1.4 million, or 85.5%. Excluding security gains, noninterest
income decreased 4.1% during 1993, as compared to 1992.
32
<PAGE>
Noninterest income categories compared to the same period in 1992 are shown
in the accompanying table.
1993 1992
------ ------
(dollars in thousands)
Service fees on deposit accounts ............. $ 800 $ 757
Other service fees ........................... 355 238
Brokered mortgage commissions ................ 150 215
Trust income ................................. 125 87
Securities gains ............................. 1,512 208
Other ........................................ 10 86
------ ------
$2,952 $1,591
====== ======
Service charges, including those on deposit accounts, increased $160,000,
or 16.1%, in 1993 as a result of increases, made in the second quarter of 1993,
in Flemington's fee schedules and additional revenue from the restructured
merchant credit card processing program. Commissions on mortgage originations
declined $65,000, or 30.2%, to $150,000 for the year ended December 31, 1993, as
compared to the same period in 1992. During 1993, Flemington experienced a more
stabilized interest rate environment, with rates no longer in a rapidly
declining mode as had been experienced in 1992 and thus, there was significantly
less refinancing activity. During the second quarter of 1993, Flemington also
began retaining a substantial number of fifteen year fixed rate mortgages that
would have traditionally been sold in the secondary market. Trust income
increased 43.7% in 1993, from $87,000 at December 31, 1992 to $125,000 at year
end 1993. The increase was primarily due to two new customer relationships.
At December 31, 1992, Flemington established a portfolio of investment
securities which may be sold in response to changing market and interest rate
conditions or as part of the asset/liability strategy of Flemington and
transferred $29.9 million of its CMOs and MBS to this category. During 1993,
Flemington sold $22.2 million of its securities held as available for sale,
recognizing a gain of $844,000. These securities were sold to reduce prepayment
risk and to take advantage of current market conditions, mitigating the adverse
effect of the troubled real estate asset sale. Additionally, as a means of
achieving Flemington's asset/liability strategy, an additional $21.7 million of
United States Treasury securities were sold in the third quarter. In addition to
recognizing a gain of $668,000, Flemington increased its level of cash flow over
four years, reduced the average life of its investment portfolio, and increased
its total return by $283,000.
Noninterest Expense. Noninterest expense totaled $12.5 million for the year
ended December 31, 1993, compared to $9.4 million at December 31, 1992, an
increase of $3.1 million, or 32.7%. Noninterest expense categories, for the
periods indicated, are shown in the following table:
1993 1992
------- ------
(dollars in thousands)
Salaries and employee benefits ............... $ 5,023 $4,622
Net occupancy expense ........................ 992 952
Equipment expense ............................ 692 698
Loss on sale of loans ........................ 1,486 0
Communications and supplies .................. 560 526
Professional and other fees .................. 763 698
Promotion .................................... 227 106
Appraisal costs and other loan fees .......... 114 282
FDIC Insurance ............................... 581 505
Other insurance expense ...................... 116 116
Other real estate costs ...................... 1,387 496
Other ........................................ 510 381
------- ------
$12,451 $9,382
======= ======
Salaries and employee benefits for the year ended December 31, 1993
amounted to $5.0 million, an increase of $401,000, or 8.7%, compared to 1992.
The increase was primarily due to annual merit increases which occurred in the
first quarter of 1993; increased costs of providing education reimbursement; and
expense related to Flemington's 401(k) program which began in April 1993. These
increases were offset by decreases in the cost of providing health-care
insurance coverage and a decreased level of expense provided for Flemington's
contribution to its profit sharing
33
<PAGE>
plan. The expense related to the profit sharing plan was reduced in the third
quarter of 1993 as a result of the adverse effect the sale of certain of
Flemington's troubled real estate assets had on the consolidated statement of
operations.
Occupancy expenses of $992,000 for the year ended December 31, 1993, rose
$40,000, or 4.2%, compared to the same period in 1992, primarily reflecting the
increased level of amortization expense for leasehold improvements. Equipment
expense remained virtually unchanged from $698,000 at December 31, 1992 to the
$692,000 recorded for 1993.
As discussed above, Flemington sold a $5.0 million package of troubled real
estate assets to an unrelated third party in the third quarter of 1993. Included
in the package were performing loans with a net book value of $2.1 million and
nonperforming loans with a net book value of $1.3 million. The sales price,
which represented 56.6% of the net book value of the loans sold and was
determined based upon competitive bidding, resulted in a loss of $1.5 million.
Other noninterest expenses for the year ended December 31, 1993 amounted to
$4.3 million, an increase of $1.2 million, or 38.7%, compared to 1992.
Professional and other fees increased $65,000, with legal costs for
nonperforming assets accounting for the majority of the increase. Promotion
expense increased $121,000, or 114.2%, with the promotion of Flemington's new
location in Lambertville, New Jersey and as Flemington focused more effort on
product enhancement and development. The FDIC assessment increased $76,000, or
15.0% as a result of an increased level of deposits. Other operating expenses
increased $129,000, primarily as a result of increases in correspondent bank
charges and travel, conferences and seminars. These increases were partially
offset by decreases in appraisal costs and other loan fees of $168,000; during
1992, Flemington completed its reappraisal of substantially all real estate that
collateralized loans.
Costs associated with other real estate owned, excluding the $680,000 loss
recorded on the properties sold in the package sale of assets in the third
quarter, increased $211,000, or 42.5%, for the year ended December 31, 1993, as
compared to 1992. The increase was primarily a result of write-downs to fair
value on certain properties and expenses relating to two specific properties.
Real estate taxes of $127,000 were paid to acquire clear title of these
properties and an additional $65,000 of costs associated with the sale of one of
the properties were incurred. The declines in fair value that were experienced
in 1993 were a result of continued weakening in market value of approved and
improved bare land and, generally, resulted from Flemington's reappraisal
process.
Governmental Monetary Policies
The earnings of Flemington are affected by domestic and foreign economic
conditions, particularly by the monetary and fiscal policies of the United
States government and its agencies.
The monetary policies of the Federal Reserve Board have had, and will
continue to have, an important impact on the operating results of commercial
banks through the Federal Reserve Board's power to implement national monetary
policy in order, among other things, to mitigate recessionary and inflationary
pressures by regulating the national money supply. The techniques used by the
Federal Reserve Board include setting the reserve requirements of member banks
and establishing the discount rate on member bank borrowings. The Federal
Reserve Board also conducts open market transactions in United States government
securities.
From time to time various proposals are made in the United States Congress
and the New Jersey legislature and before various regulatory authorities which
would alter the powers of, and restrictions on, different types of banking
organizations and which would restructure part or all of the existing regulatory
framework for financial institutions. It is impossible to predict whether any of
the proposals will be adopted and the impact, if any, of such adoption on the
business of Flemington.
34
<PAGE>
PRO FORMA FINANCIAL INFORMATION
(Unaudited)
The following unaudited pro forma condensed combined financial statements
reflect the Merger and the Pooling Acquisitions under the application of the
pooling-of-interests method of accounting. For a description of the
pooling-of-interests method of accounting, see "THE MERGER--Accounting
Treatment." This pro forma financial information is based on the estimates and
assumptions set forth in the notes to such statements. The pro forma adjustments
made in connection with the development of the pro forma information are
preliminary and have been made solely for purposes of developing such pro forma
information as necessary to comply with the disclosure requirements of the
Commission. The pro forma financial information has been prepared using the
historical consolidated financial statements and notes thereto appearing in
UJB's Form 10-K, Summit's Form 10-K, Flemington's Form 10-KSB and Garden State's
Form 10-K each for the fiscal year ended December 31, 1994. The unaudited pro
forma condensed combined financial statements do not purport to be indicative of
the combined financial position or results of operations of future periods or
indicative of the results that actually would have been realized had the
entities been a single entity during these periods.
The Pro Forma Condensed Combined Statements of Income give effect to the
proposed Merger and the Pooling Acquisitions by combining the respective
statements of income of UJB, Summit, Garden State and Flemington for the nine
months ended September 30, 1995 and 1994 and for each of the three years in the
period ended December 31, 1994. The Pro Forma Condensed Combined Statements of
Income do not give effect to anticipated expenses and nonrecurring charges
related to the Merger and the Pooling Acquisitions and the estimated effect of
revenue enhancements and expense savings associated with the aforementioned
consolidation of the operations of UJB and Summit. Had these expenses and
nonrecurring charges been reflected in the Pro Forma Condensed Combined
Statements of Income for the nine months ended September 30, 1995, All
Transactions Pro Forma net income would decrease by $58 million or $.64 per
share.
Earnings per common share amounts for UJB, Summit, Garden State and
Flemington are based on the historical weighted average number of common shares
outstanding for each company during the period. With respect to the pro forma
earnings per share computation, shares of Summit, Garden State and Flemington
have been adjusted to the equivalent shares of UJB for each period.
The pro forma financial information uses the Exchange Ratio of 0.90 shares
of UJB Stock for each share of Summit common stock, the exchange ratio of 1.7241
shares of UJB Stock for each share of Flemington Stock (the highest and
most dilutive of the fixed exchange ratios, see "THE MERGER
AGREEMENT--Determination of Exchange Ratio"), and the effective exchange ratio
of 0.972 shares of UJB Stock for each share of Garden State common stock.
35
<PAGE>
PRO FORMA CONDENSED COMBINED BALANCE SHEET
SEPTEMBER 30, 1995
(Unaudited, in thousands)
<TABLE>
<CAPTION>
Pro Forma Pro Forma
Adjustment UJB and Adjustment All
Increase Flemington Garden Increase Transactions
UJB Flemington (Decrease) Pro Forma Summit State (Decrease) Pro Forma
----------- -------- ------- ----------- ---------- -------- ------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Assets
Cash and due from banks ........... $ 807,173 $ 10,591 $ 817,764 $ 259,414 $ 8,630 $ 1,085,808
Interest bearing deposits with
banks ............................ 15,938 -- 15,938 13 77 16,028
Short-term investment securities .. 2,000 850 2,850 68,870 14,500 86,220
Investment securities ............. 4,027,611 82,140 4,109,751 1,690,028 68,450 $(4,208)(3) 5,864,021
Loans ............................. 10,226,745 190,386 10,417,131 3,503,775 210,538 14,131,444
Less: Allowance for
loan losses ..................... 200,337 2,429 202,766 90,819 4,110 297,695
----------- -------- ----------- ---------- -------- -----------
Net loans ...................... 10,026,408 187,957 10,214,365 3,412,956 206,428 13,833,749
Premises and equipment ............ 163,774 3,657 167,431 43,667 8,071 219,169
Other real estate owned, net ...... 27,082 342 27,424 13,401 3,347 44,172
Other assets ...................... 463,084 4,036 $1,560(1) 468,680 130,951 4,401 34,747(3)(5) 638,779
----------- -------- ------- ----------- ---------- -------- ------- -----------
Total Assets ...................... $15,533,070 $289,573 $1,560 $15,824,203 $5,619,300 $313,904 $30,539 $21,787,946
=========== ======== ======= =========== ========== ======== ======= ===========
Liabilities and Shareholders'
Equity
Deposits .......................... $12,871,632 $257,725 $13,129,357 $4,641,492 $283,856 $18,054,705
Other borrowed funds .............. 936,043 8,640 944,683 157,367 -- 1,102,050
Other liabilities ................. 257,060 4,034 $3,900(1) 264,994 65,456 1,422 $92,391(5) 424,263
Long-term debt .................... 204,338 -- 204,338 270,402 -- 474,740
----------- -------- ------- ----------- ---------- -------- ------- -----------
Total Liabilities ................. 14,269,073 270,399 3,900 14,543,372 5,134,717 285,278 92,391 20,055,758
Shareholders' equity
Preferred stock .................. 30,008 -- 30,008 12,612 -- 42,620
Common Stock ..................... 69,098 2,396 (413)(2) 71,081 50,172 12,302 (22,395)(4) 111,160
Surplus ........................... 490,781 10,237 413 (2) 501,431 314,068 9,900 20,237 (3)(4) 845,636
Retained earnings ................. 677,631 7,301 (2,340)(1) 682,592 105,088 6,380 (58,392)(5) 735,668
Net unrealized (loss) gain on
investment securities,
net of tax ....................... (3,521) (760) (4,281) 2,643 44 (1,302)(3) (2,896)
----------- -------- ------- ----------- ---------- -------- ------- -----------
Total Shareholders' equity ........ 1,263,997 19,174 (2,340) 1,280,831 484,583 28,626 (61,852) 1,732,188
----------- -------- ------- ----------- ---------- -------- ------- -----------
Total Liabilities and Shareholders'
Equity ........................... $15,533,070 $289,573 $1,560 $15,824,203 $5,619,300 $313,904 $30,539 $21,787,946
=========== ======== ======= =========== ========== ======== ======= ===========
</TABLE>
See Notes to Pro Forma Financial Information on page 42.
36
<PAGE>
PRO FORMA CONDENSED COMBINED STATEMENTS OF INCOME
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995
(Unaudited, in thousands except per share data)
<TABLE>
<CAPTION>
UJB and All
Flemington Garden Transactions
UJB Flemington Pro Forma Summit State Pro Forma
-------- ---------- ---------- -------- ------- ------------
<S> <C> <C> <C> <C> <C> <C>
Interest Income
Interest and fees on loans ................... $623,270 $11,387 $634,657 $216,902 $15,076 $ 866,635
Interest on investment securities ............ 190,296 3,756 194,052 76,253 2,984 273,289
Interest on Federal funds sold and
securities purchased under agreements
to resell .................................. 2,603 22 2,625 3,125 441 6,191
Interest on trading account securities ....... 1,320 -- 1,320 37 -- 1,357
Interest on bank balances .................... 510 -- 510 248 8 766
-------- ------- -------- -------- ------- ----------
Total interest income ...................... 817,999 15,165 833,164 296,565 18,509 1,148,238
Interest Expense
Interest on savings and time deposits ........ 239,057 4,787 243,844 98,379 6,246 348,469
Interest on commercial certificates of
deposits $100,000 and over ................. 18,860 703 19,563 11,900 902 32,365
Interest on borrowed funds ................... 75,808 447 76,255 23,880 74 100,209
-------- ------- -------- -------- ------- ----------
Total interest expense ..................... 333,725 5,937 339,662 134,159 7,222 481,043
-------- ------- -------- -------- ------- ----------
Net interest income ........................ 484,274 9,228 493,502 162,406 11,287 667,195
Provision for loan losses .................... 48,750 -- 48,750 3,600 87 52,437
-------- ------- -------- -------- ------- ----------
Net interest income after provision
for loan losses .......................... 435,524 9,228 444,752 158,806 11,200 614,758
Non-Interest Income
Service charges on deposit accounts .......... 49,665 731 50,396 15,112 1,137 66,645
Service and loan fee income .................. 20,707 213 20,920 6,601 411 27,932
Trust income ................................. 16,421 134 16,555 8,740 462 25,757
Investment securities gains .................. 5,205 -- 5,205 1,610 -- 6,815
Trading account gains ........................ 777 -- 777 175 -- 952
Other ........................................ 37,399 89 37,488 5,611 228 43,327
-------- ------- -------- -------- ------- ----------
Total non-interest income .................. 130,174 1,167 131,341 37,849 2,238 171,428
Non-Interest Expenses
Salaries ..................................... 146,639 3,413 150,052 45,670 4,082 199,804
Pension and other employee benefits .......... 47,072 1,057 48,129 14,955 1,146 64,230
Occupancy, net ............................... 39,329 862 40,191 12,995 923 54,109
Furniture and equipment ...................... 37,965 575 38,540 7,032 582 46,154
Other real estate owned expenses ............. 5,779 (84) 5,695 1,998 439 8,132
FDIC insurance assessment .................... 13,710 255 13,965 5,176 332 19,473
Advertising and public relations ............. 8,585 161 8,746 4,199 362 13,307
Other ........................................ 72,139 1,742 73,881 21,754 1,893 97,528
-------- ------- -------- -------- ------- ----------
Total non-interest expenses ................ 371,218 7,981 379,199 113,779 9,759 502,737
-------- ------- -------- -------- ------- ----------
Income before income taxes ..................... 194,480 2,414 196,894 82,876 3,679 283,449
Federal and state income taxes ............... 70,118 831 70,949 29,524 1,183 101,656
-------- ------- -------- -------- ------- ----------
Net Income ..................................... $124,362 $ 1,583 $125,945 $ 53,352 $ 2,496 $ 181,793
======== ======= ======== ======== ======= ==========
Net Income Per Common Share .................... $ 2.20 $ 1.65 $ 2.16 $ 1.56 $ 0.82 $ 1.98
======== ======= ======== ======== ======= ==========
Average Common Shares Outstanding .............. 55,946 958 57,598 33,658 3,054 90,720(3)
======== ======= ======== ======== ======= ==========
</TABLE>
See Notes to Pro Forma Financial Information on page 42.
37
<PAGE>
PRO FORMA CONDENSED COMBINED STATEMENTS OF INCOME
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1994
(Unaudited, in thousands except per share data)
<TABLE>
<CAPTION>
UJB and All
Flemington Garden Transactions
UJB Flemington Pro Forma Summit State Pro Forma
-------- ---------- ---------- -------- ------- -------------
<S> <C> <C> <C> <C> <C> <C>
Interest Income
Interest and fees on loans ..................... $510,472 $9,130 $519,602 $178,040 $11,901 $709,543
Interest on investment securities .............. 188,484 4,268 192,752 69,461 3,259 265,472
Interest on Federal funds sold and securities
purchased under agreements to resell ......... 255 40 295 2,833 88 3,216
Interest on trading account securities ......... 557 -- 557 59 -- 616
Interest on bank balances ...................... 434 -- 434 250 105 789
-------- ------ -------- -------- ------- --------
Total interest income ........................ 700,202 13,438 713,640 250,643 15,353 979,636
Interest Expense
Interest on savings and time deposits .......... 173,752 3,833 177,585 72,375 4,818 254,778
Interest on commercial certificates of
deposits $100,000 and over ................... 8,256 219 8,475 3,686 505 12,666
Interest on borrowed funds ..................... 62,890 227 63,117 17,849 11 80,977
-------- ------ -------- -------- ------- --------
Total interest expense ....................... 244,898 4,279 249,177 93,910 5,334 348,421
-------- ------ -------- -------- ------- --------
Net interest income .......................... 455,304 9,159 464,463 156,733 10,019 631,215
Provision for loan losses ...................... 55,500 -- 55,500 6,795 467 62,762
-------- ------ -------- -------- ------- --------
Net interest income after provision for
loan losses ................................ 399,804 9,159 408,963 149,938 9,552 568,453
Non-Interest Income
Service charges on deposit accounts ............ 48,474 631 49,105 13,378 915 63,398
Service and loan fee income .................... 20,082 322 20,404 10,367 658 31,429
Trust income ................................... 16,410 118 16,528 8,501 397 25,426
Investment securities gains .................... 1,846 50 1,896 180 125 2,201
Trading account gains .......................... 522 -- 522 129 -- 651
Other .......................................... 33,109 80 33,189 7,425 181 40,795
-------- ------ -------- -------- ------- --------
Total non-interest income .................... 120,443 1,201 121,644 39,980 2,276 163,900
Non-Interest Expenses
Salaries ....................................... 135,521 3,050 138,571 51,404 4,060 194,035
Pension and other employee benefits ............ 41,721 1,135 42,856 14,824 969 58,649
Occupancy, net ................................. 38,492 891 39,383 14,444 908 54,735
Furniture and equipment ........................ 36,170 574 36,744 6,880 724 44,348
Other real estate owned expenses ............... 14,467 76 14,543 2,760 1,215 18,518
FDIC insurance assessment ...................... 20,815 437 21,252 7,555 609 29,416
Advertising and public relations ............... 8,039 178 8,217 2,991 310 11,518
Restructuring charges .......................... -- -- -- 13,565 -- 13,565
Loss on sale of assets ......................... -- -- -- 35,390 -- 35,390
Other .......................................... 70,925 1,457 72,382 24,897 1,665 98,944
-------- ------ -------- -------- ------- --------
Total non-interest expenses .................. 366,150 7,798 373,948 174,710 10,460 559,118
-------- ------ -------- -------- ------- --------
Income before income taxes ....................... 154,097 2,562 156,659 15,208 1,368 173,235
Federal and state income taxes ................. 56,539 952 57,491 7,351 75 64,917
-------- ------ -------- -------- ------- --------
Income before cumulative effect of a change
in accounting principle ........................ 97,558 1,610 99,168 7,857 1,293 108,318
Cumulative effect of a change in accounting
principle .................................... (1,731) -- (1,731) -- -- (1,731)
-------- ------ -------- -------- ------- --------
Net Income ....................................... $ 95,827 $1,610 $ 97,437 $ 7,857 $ 1,293 $106,587
======== ====== ======== ======== ======= ========
Net Income Per Common Share:
Income before cumulative effect of a change
in accounting principle ...................... $ 1.76 $ 1.68 $ 1.74 $ 0.21 $ 0.59 $ 1.21
Cumulative effect of a change in accounting
principle .................................... (0.03) -- (0.03) -- -- (0.02)
-------- ------ -------- -------- ------- --------
Net Income ....................................... $ 1.73 $ 1.68 $ 1.71 $ 0.21 $ 0.59 $ 1.19
======== ====== ======== ======== ======= ========
Average Common Shares Outstanding ................ 54,604 958 56,256 32,997 2,205 87,961(3)
======== ====== ======== ======== ======= ========
</TABLE>
See Notes to Pro Forma Financial Information on page 42.
38
<PAGE>
<TABLE>
<CAPTION>
PRO FORMA CONDENSED COMBINED STATEMENTS OF INCOME
YEAR ENDED DECEMBER 31, 1994
(Unaudited, in thousands except per share data)
UJB and All
Flemington Garden Transactions
UJB Flemington Pro Forma Summit State Pro Forma
-------- ---------- ---------- -------- ------- ------------
<S> <C> <C> <C> <C> <C> <C>
Interest Income
Interest and fees on loans ................... $706,049 $12,733 $718,782 $244,980 $16,534 $ 980,296
Interest on investment securities ............ 253,027 5,641 258,668 93,525 4,274 356,467
Interest on Federal funds sold and securities
purchased under agreements to resell ........ 600 44 644 2,918 140 3,702
Interest on trading account securities ....... 668 -- 668 79 -- 747
Interest on bank balances .................... 629 -- 629 325 137 1,091
-------- ------- -------- -------- ------- ----------
Total interest income ...................... 960,973 18,418 979,391 341,827 21,085 1,342,303
Interest Expense
Interest on savings and time deposits ........ 239,714 5,154 244,868 98,433 6,513 349,814
Interest on commercial certificates of
deposits $100,000 and over .................. 13,639 346 13,985 7,066 766 21,817
Interest on borrowed funds ................... 91,516 467 91,983 25,605 54 117,642
-------- ------- -------- -------- ------- ----------
Total interest expense ...................... 344,869 5,967 350,836 131,104 7,333 489,273
-------- ------- -------- -------- ------- ----------
Net interest income ......................... 616,104 12,451 628,555 210,723 13,752 853,030
Provision for loan losses .................... 84,000 (622) 83,378 7,995 975 92,348
-------- ------- -------- -------- ------- ----------
Net interest income after provision for
loan losses ................................ 532,104 13,073 545,177 202,728 12,777 760,682
Non-Interest Income
Service charges on deposit accounts .......... 64,474 854 65,328 18,523 1,230 85,081
Service and loan fee income .................. 27,531 408 27,939 11,468 773 40,180
Trust income ................................. 21,792 155 21,947 11,875 532 34,354
Investment securities gains (losses) ......... 1,888 (328) 1,560 344 121 2,025
Trading account gains ........................ 670 -- 670 177 -- 847
Other ........................................ 43,933 85 44,018 9,611 257 53,886
-------- ------- -------- -------- ------- ----------
Total non-interest income .................. 160,288 1,174 161,462 51,998 2,913 216,373
Non-Interest Expenses
Salaries ..................................... 183,339 4,324 187,663 66,868 5,467 259,998
Pension and other employee benefits .......... 53,386 1,421 54,807 19,219 1,320 75,346
Occupancy, net ............................... 50,749 1,197 51,946 18,868 1,198 72,012
Furniture and equipment ...................... 49,065 759 49,824 9,496 918 60,238
Other real estate owned expenses ............. 18,287 158 18,445 3,053 1,404 22,902
FDIC insurance assessment .................... 27,933 572 28,505 10,050 805 39,360
Advertising and public relations ............. 10,843 252 11,095 4,761 474 16,330
Restructuring charges ........................ -- -- -- 13,565 -- 13,565
Loss on sale of assets ....................... -- -- -- 35,390 -- 35,390
Other ........................................ 94,597 2,096 96,693 32,416 2,556 131,665
-------- ------- -------- -------- ------- ----------
Total non-interest expenses ................ 488,199 10,779 498,978 213,686 14,142 726,806
-------- ------- -------- -------- ------- ----------
Income before income taxes .................... 204,193 3,468 207,661 41,040 1,548 250,249
Federal and state income taxes (benefit) ..... 72,312 1,288 73,600 16,640 (509) 89,731
-------- ------- -------- -------- ------- ----------
Income before cumulative effect of a change in
accounting principle ......................... 131,881 2,180 134,061 24,400 2,057 160,518
Cumulative effect of a change in accounting
principle ................................... (1,731) -- (1,731) -- -- (1,731)
-------- ------- -------- -------- ------- ----------
Net Income .................................... $130,150 $ 2,180 $132,330 $ 24,400 $ 2,057 $ 158,787
======== ======= ======== ======== ======= ==========
Net Income Per Common Share:
Income before cumulative effect of a
change in accounting principle .............. $ 2.38 $ 2.28 $ 2.35 $ 0.70 $ 0.89 $ 1.79
Cumulative effect of a change in
accounting principle ......................... (0.03) -- (0.03) -- -- (0.02)
-------- ------- -------- -------- ------- ----------
Net Income .................................... $ 2.35 $ 2.28 $ 2.32 $ 0.70 $ 0.89 $ 1.77
======== ======= ======== ======== ======= ==========
Average Common Shares Outstanding ............. 54,697 958 56,349 33,090 2,308 88,238(3)
======== ======= ======== ======== ======= ==========
</TABLE>
See Notes to Pro Forma Financial Information on page 42
39
<PAGE>
<TABLE>
<CAPTION>
PRO FORMA CONDENSED COMBINED STATEMENTS OF INCOME
YEAR ENDED DECEMBER 31, 1993
(Unaudited, in thousands except per share data)
UJB and All
Flemington Garden Transactions
UJB Flemington Pro Forma Summit State Pro Forma
-------- ---------- --------- -------- ------- -------------
<S> <C> <C> <C> <C> <C> <C>
Interest Income
Interest and fees on loans .................. $670,705 $10,952 $681,657 $232,981 $15,751 $ 930,389
Interest on investment securities ........... 234,020 6,268 240,288 89,793 4,898 334,979
Interest on Federal funds sold and securities
purchased under agreements to resell ...... 955 156 1,111 5,175 102 6,388
Interest on trading account securities ...... 1,297 -- 1,297 68 -- 1,365
Interest on bank balances ................... 651 -- 651 1,013 61 1,725
-------- ------- -------- -------- ------- ----------
Total interest income ................... 907,628 17,376 925,004 329,030 20,812 1,274,846
Interest Expense
Interest on savings and time deposits ....... 271,345 5,758 277,103 108,452 7,409 392,964
Interest on commercial certificates of
deposits $100,000 and over ................ 7,319 231 7,550 2,065 528 10,143
Interest on borrowed funds .................. 53,056 89 53,145 14,560 5 67,710
-------- ------- -------- -------- ------- ----------
Total interest expense .................... 331,720 6,078 337,798 125,077 7,942 470,817
-------- ------- -------- -------- ------- ----------
Net interest income ....................... 575,908 11,298 587,206 203,953 12,870 804,029
Provision for loan losses ................... 95,685 440 96,125 17,200 1,117 114,442
-------- ------- -------- -------- ------- ----------
Net interest income after provision
for loan losses ......................... 480,223 10,858 491,081 186,753 11,753 689,587
Non-Interest Income
Service charges on deposit accounts ......... 60,474 800 61,274 16,936 1,211 79,421
Service and loan fee income ................. 21,063 355 21,418 11,751 1,065 34,234
Trust income ................................ 21,852 125 21,977 11,125 473 33,575
Investment securities gains ................. 8,877 1,512 10,389 702 258 11,349
Trading account gains ....................... 1,884 -- 1,884 331 -- 2,215
Other ....................................... 49,151 160 49,311 10,472 217 60,000
-------- ------- -------- -------- ------- ----------
Total non-interest income ............... 163,301 2,952 166,253 51,317 3,224 220,794
Non-Interest Expenses
Salaries .................................... 185,570 3,982 189,552 67,030 4,892 261,474
Pension and other employee benefits ......... 58,601 1,041 59,642 17,594 1,009 78,245
Occupancy, net. ............................. 48,487 992 49,479 18,619 1,138 69,236
Furniture and equipment ..................... 45,592 692 46,284 8,927 887 56,098
Other real estate owned expenses ............ 40,925 1,387 42,312 6,849 4,319 53,480
FDIC insurance assessment ................... 29,244 581 29,825 10,487 854 41,166
Advertising and public relations ............ 10,517 227 10,744 4,443 293 15,480
Restructuring charges ....................... 21,500 -- 21,500 -- -- 21,500
Other ....................................... 97,533 3,549 101,082 36,728 2,168 139,978
-------- ------- -------- -------- ------- ----------
Total non-interest expenses ............. 537,969 12,451 550,420 170,677 15,560 736,657
-------- ------- -------- -------- ------- ----------
Income (loss) before income taxes ............. 105,555 1,359 106,914 67,393 (583) 173,724
Federal and state income taxes (benefit) .... 26,953 450 27,403 21,972 (46) 49,329
-------- ------- -------- -------- ------- ----------
Income (loss) before cumulative effect of
a change in accounting principle ............ 78,602 909 79,511 45,421 (537) 124,395
Cumulative effect of a change in
accounting principle ...................... 3,816 -- 3,816 5,303 -- 9,119
-------- ------- -------- -------- ------- ----------
Net Income (loss) ............................. $ 82,418 $ 909 $ 83,327 $ 50,724 $ (537) $ 133,514
======== ======= ======== ======== ======= ==========
Net Income (loss) Per Common Share:
Income (loss) before cumulative effect of
a change in accounting principle .......... $ 1.43 $ 0.95 $ 1.40 $ 1.37 $ (0.31) $ 1.41
Cumulative effect of a change in
accounting principle ...................... 0.07 -- 0.07 0.17 -- 0.11
-------- ------- -------- -------- ------- ----------
Net Income (loss) ............................. $ 1.50 $ 0.95 $ 1.47 $ 1.54 $ (0.31) $ 1.52
======== ======= ======== ======== ======= ==========
Average Common Shares Outstanding ............. 53,917 958 55,569 32,102 1,724 86,005(3)
======== ======= ======== ======== ======= ==========
</TABLE>
See Notes to Pro Forma Financial Information on page 42.
40
<PAGE>
PRO FORMA CONDENSED COMBINED STATEMENTS OF INCOME
YEAR ENDED DECEMBER 31, 1992
(Unaudited, in thousands except per share data)
<TABLE>
<CAPTION>
UJB and All
Flemington Garden Transactions
UJB Flemington Pro Forma Summit State Pro Forma
-------- ---------- ---------- -------- ------- -----------
<S> <C> <C> <C> <C> <C> <C>
Interest Income
Interest and fees on loans ................... $713,987 $11,988 $725,975 $260,765 $18,176 $1,004,916
Interest on investment securities ............ 258,371 6,609 264,980 95,165 5,270 365,415
Interest on Federal funds sold and
securities purchased under agreements
to resell .................................. 4,615 136 4,751 4,997 96 9,844
Interest on trading account securities ....... 1,367 -- 1,367 66 -- 1,433
Interest on bank balances .................... 668 -- 668 1,503 19 2,190
-------- ------- -------- -------- ------- ----------
Total interest income ...................... 979,008 18,733 997,741 362,496 23,561 1,383,798
Interest Expense
Interest on savings and time deposits ........ 366,023 7,874 373,897 140,546 10,167 524,610
Interest on commercial certificates of
deposits $100,000 and over ................. 16,320 309 16,629 3,900 782 21,311
Interest on borrowed funds ................... 47,382 103 47,485 20,586 6 68,077
-------- ------- -------- -------- ------- ----------
Total interest expense ..................... 429,725 8,286 438,011 165,032 10,955 613,998
-------- ------- -------- -------- ------- ----------
Net interest income ........................ 549,283 10,447 559,730 197,464 12,606 769,800
Provision for loan losses .................... 139,555 770 140,325 25,998 5,501 171,824
-------- ------- -------- -------- ------- ----------
Net interest income after provision for
loan losses .............................. 409,728 9,677 419,405 171,466 7,105 597,976
Non-Interest Income
Service charges on deposit accounts .......... 54,356 757 55,113 16,233 1,137 72,483
Service and loan fee income .................. 21,261 238 21,499 4,555 1,371 27,425
Trust income ................................. 19,837 87 19,924 10,899 314 31,137
Investment securities gains .................. 18,485 208 18,693 710 915 20,318
Trading account gains ........................ 1,804 -- 1,804 525 -- 2,329
Other ........................................ 47,610 301 47,911 8,783 215 56,909
-------- ------- -------- -------- ------- ----------
Total non-interest income .................. 163,353 1,591 164,944 41,705 3,952 210,601
Non-Interest Expenses
Salaries ..................................... 179,457 3,651 183,108 63,007 4,585 250,700
Pension and other employee benefits .......... 51,209 971 52,180 15,429 737 68,346
Occupancy, net ............................... 47,872 952 48,824 18,890 1,091 68,805
Furniture and equipment ...................... 42,404 698 43,102 8,908 858 52,868
Other real estate owned expenses ............. 38,092 496 38,588 9,258 2,293 50,139
FDIC insurance assessment .................... 26,047 505 26,552 9,349 637 36,538
Advertising and public relations ............. 10,578 106 10,684 2,940 273 13,897
Other ........................................ 101,204 2,003 103,207 35,563 2,225 140,995
-------- ------- -------- -------- ------- ----------
Total non-interest expenses ................ 496,863 9,382 506,245 163,344 12,699 682,288
-------- ------- -------- -------- ------- ----------
Income (loss) before income taxes .............. 76,218 1,886 78,104 49,827 (1,642) 126,289
Federal and state income taxes (benefit) ..... 19,430 655 20,085 16,340 (257) 36,168
-------- ------- -------- -------- ------- ----------
Net Income (loss) .............................. $ 56,788 $ 1,231 $ 58,019 $ 33,487 $(1,385) $ 90,121
======== ======= ======== ======== ======= ==========
Net Income (loss) Per Common Share ............. $ 1.09 $ 1.28 $ 1.08 $ 1.07 $ (0.80) $ 1.08
======== ======= ======== ======== ======= ==========
Average Common Shares Outstanding .............. 50,398 958 52,050 30,220 1,724 80,792(3)
======== ======= ======== ======== ======= ==========
</TABLE>
See Notes to Pro Forma Financial Information on page 42.
41
<PAGE>
NOTES TO PRO FORMA FINANCIAL INFORMATION
(1) Reflects charges of approximately $3.9 million, $2.3 million net of tax,
attributable to the Merger. The charges include estimated severance and
outplacement costs, expenses related to facilities closures and
consolidation costs directly attributable to this Merger.
(2) The Pro Forma Condensed Combined Balance Sheet gives effect to the Merger
by combining the respective balance sheets of UJB and Flemington at
September 30, 1995 on a pooling-of-interest basis. The capital accounts
have been adjusted to reflect the issuance of 1.7 million shares of UJB
Stock in exchange for all the outstanding shares of Flemington.s
(3) Reflects the elimination of 96,519 shares of UJB Stock and 23,548 shares of
Flemington Stock owned by Summit at September 30, 1995.
(4) The Pro Forma Condensed Combined Balance Sheet gives effect to the Pooling
Acquisitions by combining the respective balance sheets of UJB and
Flemington Pro Forma Combined with, Summit and Garden State at September
30, 1995 on a pooling-of-interests basis. The capital accounts have been
adjusted to reflect the issuance of 33.5 million shares of UJB Stock in
exchange for all the outstanding shares of Summit and Garden State.
(5) Reflects charges of approximately $85 million, $54 million net of tax,
attributable to the merger of Summit into UJB and $7.4 million, $4.4
million net of tax, attributable to the merger of Garden State into Summit.
These charges include estimated severance and outplacement costs, expenses
related to facilities closures and consolidation costs directly
attributable to these mergers.
42
<PAGE>
MARKET PRICE AND DIVIDEND MATTERS
Market Price and Dividend History
UJB Stock is listed and traded on the NYSE and is quoted under the symbol
"UJB." The following table sets forth, for the periods indicated, the high and
low sale prices of a share of UJB Stock, as reported in published financial
sources, and quarterly dividends declared per share.
Flemington Stock commenced trading on NASDAQ/SmallCap in October, 1994.
Flemington Stock is quoted and traded under the symbol "FLNB" on NASDAQ/SmallCap
and prices for Flemington Stock are reported under the symbol "FlemgBT" in the
Financial Press. The following table sets forth, for the periods indicated, the
high and low bid prices of a share of Flemington Stock, as reported in published
financial sources, and quarterly dividends declared per share.
All stock prices shown in the table below and in the paragraph following
the table have been rounded to the nearest cent and all stock prices and
dividends shown below have been adjusted for stock splits and stock dividends.
<TABLE>
<CAPTION>
UJB Stock Flemington Stock
------------------------------- -------------------------------------
Sale Prices Bid Prices*
---------------- Dividends ---------------- Dividends
High Low Per Share High Low Per Share
------ ------ --------- ------ ------ ----------
<S> <C> <C> <C> <C> <C> <C>
1993
First Quarter ...................... $29.38 $22.50 $0.16 $21.00 $19.00 $ --
Second Quarter ..................... 29.25 21.63 0.16 22.00 21.00 --
Third Quarter ...................... 33.25 24.25 0.16 22.00 19.00 --
Fourth Quarter ..................... 30.25 23.38 0.21 21.00 19.00 0.10
1994
First Quarter ...................... 28.63 23.50 0.21 22.50 20.25 0.10
Second Quarter ..................... 29.25 25.50 0.21 22.50 21.50 0.10
Third Quarter ...................... 29.13 26.13 0.26 23.00 21.50 0.10
Fourth Quarter ..................... 27.13 22.50 0.26 24.75 22.75 0.15
1995
First Quarter ...................... 28.75 24.13 0.29 34.00 24.25 0.10
Second Quarter ..................... 30.75 27.13 0.29 32.25 31.25 0.10
Third Quarter ...................... 37.25 30.00 0.29 48.75 31.75 0.39
Fourth Quarter (through
December 6, 1995) .................. 34.25 31.50 -- 48.75 47.50 --
</TABLE>
- ----------
* Based on data furnished by the National Quotation Bureau, Incorporated. The
quoted bids represent prices between buyers and sellers and do not include
any retail markup, markdown or commission. They may not necessarily
represent actual transactions. These quoted bids have been restated to
reflect the 5% stock dividends that became effective during 1994 and 1995
and rounded to the nearest $0.25.
On August 1, 1995, the last full trading day prior to the public
announcement of the execution of the Merger Agreement, the last sale price of a
share of UJB Stock was $34.875 and the last sale price of a share of Flemington
Stock was $41.25. On December 6, 1995, the last sale price of a share of UJB
Stock was $33.50, and as of December 6, 1995, the last sale price of Flemington
Stock was $48.50. Flemington shareholders are urged to obtain current market
quotations.
On the date the Exchange Ratio is fixed and on the date UJB Certificates
are received by Flemington shareholders entitled thereto, the price of a share
of UJB Stock may differ from those set forth above. Flemington shareholders
should obtain current price quotations. In addition, past dividends paid in
respect of UJB Stock and Flemington Stock are not necessarily indicative of
future dividends which may be declared and paid. No assurance can be given
concerning dividends to be declared and paid in respect of UJB Stock and
Flemington Stock before or after the Effective Time.
43
<PAGE>
Flemington Dividends Under Merger Agreement
In order to ensure that Flemington shareholders would be paid at least one
but no more than one regular dividend in the calendar quarter in which the
Merger is consummated, Flemington agreed to coordinate with UJB the declaration
of any dividends and the setting of any record or payment dates.
In addition, Flemington is permitted under the Merger Agreement to pay a
dividend equivalent to that paid by UJB to UJB shareholders. For each quarter in
which UJB declares a dividend, Flemington is entitled to declare a dividend
equal to the dividend declared by UJB multiplied by 1.3514, the lowest possible
Exchange Ratio in the Merger. In the event the Exchange Ratio ultimately
determined in accordance with the Merger Agreement is greater than 1.3514,
Flemington shareholders of record at the Effective Time will be entitled to
receive an additional dividend in an amount equal to the difference obtained by
subtracting (b) from (a), where (a) is the dividends per share Flemington could
have paid under the Merger Agreement had the multiplier for such dividends been
the actual Exchange Ratio rather than 1.3514, and where (b) is the actual
dividends per share paid by Flemington underthe Merger Agreement prior to the
Effective Time. Pursuant to these provisions, on September 13, 1995,Flemington
declared a dividend of $.39 per share, payable on October 12, 1995, to all
shareholders of record on September28,1995.
Dividend Limitations
The bank subsidiaries of UJB are restricted by law in the amount of
dividends they may pay to UJB. In addition, UJB is restricted by certain debt
agreements in the amount of dividends it may pay to its shareholders. Assuming
the Merger and the other Pooling Acquisitions were effective at September 30,
1995, under the most restrictive of such agreements, the amount that would have
been available on that date for dividend payments to holders of UJB Stock was
approximately $675 million.
THE MERGER
The following information concerning the Merger, insofar as it relates to
matters contained in the Merger Agreement, is qualified in its entirety by
reference to the Merger Agreement, a copy of which is attached hereto as
Appendix A and incorporated herein by reference.
Recommendation of the Flemington Board and Reasons for the Merger
The Merger Agreement provides for the merger of Flemington with and into
UJBank, with UJBank being the surviving corporation ("Surviving Corporation").
Upon consummation of the Merger, each outstanding share of Flemington Stock,
other than (i) shares of Flemington Stock beneficially owned by UJB or a
subsidiary of UJB, if any, (ii) shares of Flemington Stock held in the treasury
of Flemington, if any, and (iii) shares in respect of which dissenters' rights
are exercised (see "THE MERGER AGREEMENT -- Dissenters' Rights") will be
converted into and represent the right to receive the Merger Consideration. The
Exchange Ratio upon which the Merger Consideration will be based has not yet
been fixed and will not be fixed until a date subsequent to the Special Meeting,
which date may not be later than the Closing Date nor earlier than the date
which is ten business days prior to the Closing Date. See "THE MERGER
AGREEMENT--Determination of Exchange Ratio." The Exchange Ratio is subject to
appropriate adjustments in the event that, from the date of the Merger Agreement
to the Effective Time, the outstanding shares of UJB Stock are increased or
decreased, changed into or exchanged for a different number or kind of shares or
securities through reorganization, recapitalization, reclassification, stock
dividend, stock split or reverse stock split or other similar changes.
THE MERGER AGREEMENT HAS BEEN APPROVED BY THE FLEMINGTON BOARD. THE
FLEMINGTON BOARD BELIEVES THAT THE MERGER IS IN THE BEST INTERESTS OF FLEMINGTON
SHAREHOLDERS. THE FLEMINGTON BOARD UNANIMOUSLY RECOMMENDS THAT FLEMINGTON
SHAREHOLDERS VOTE FOR THE PROPOSAL TO APPROVE THE MERGER AGREEMENT.
The Flemington Board has considered the terms of the Merger Agreement and
has concluded that such terms are fair to, and that the Merger is in the best
interests of, Flemington and its shareholders. In determining to accept the
offer from UJB and enter into the Merger Agreement, the Flemington Board
considered the following material fac-
44
<PAGE>
tors: (i) the financial condition, operating results and future prospects
of UJB and Flemington; (ii) the immediate and potential long-term financial
benefits to Flemington shareholders inherent in the terms of the Merger,
including the Exchange Ratio and the substantially increased dividend rate
before and after the Closing; (iii) a comparison of the consideration being paid
in the Merger to consideration paid in comparable mergers, based, among other
things, on multiples of book value and earnings; (iv) a conclusion that further
consolidation in the banking industry was inevitable, that Flemington could be
at a competitive disadvantage as an independent entity in such an environment,
and that market conditions were favorable to a business transaction in the
current time frame; (v) the tax-free nature of the transaction to Flemington
shareholders (except to the extent a Flemington shareholder receives a Cash In
Lieu Amount, see "THE MERGER--Certain Federal Income Tax Consequences"); (vi)
Flemington's alternatives to the Merger; (vii) the ability of the combined
enterprise to offer Flemington's customers a broader range of products and
services than Flemington presently offers as an independent entity; (viii) the
relative prospects for future growth as an independent entity in a confined
trading market as compared to a substantially larger organization operating in
more economically diversified trading areas; (ix) the provisions of the Merger
Agreement allowing Flemington to terminate the Merger Agreement if certain
conditions, including a minimum Exchange Ratio, are not met at the closing (see
"THE MERGER AGREEMENT--Conditions to the Merger; Termination"); and (x) the
opinion of Advest that the financial terms of UJB's offer were fair to
Flemington's shareholders from a financial point of view. The Flemington Board
did not assign any specific or relative weights to the factors under
consideration.
The Flemington Board concluded that the financial condition, operating
results and future prospects of UJB were favorable, and that a merger between
Flemington and UJBank would be beneficial to the shareholders of Flemington. The
Flemington Board also took into account that Flemington shareholders would have
the opportunity to participate in the future growth of UJB by obtaining UJB
Stock in the Merger. The Flemington Board noted that, upon consummation of the
Merger, Flemington, as part of an interstate bank holding company of greater
size and resources, should be able to provide its customers with a greater range
of services and should become a stronger competitor in its existing markets. The
Flemington Board believes that the Merger will result in a stronger and more
effective competitor in its market, better able to compete effectively in the
rapidly changing marketplace for banking and financial services and to take
advantage of opportunities that might not be available to Flemington on its own.
The Flemington Board believes that the Merger will provide Flemington's
customers with a broader range of products and services, as well as greater
convenience.
The Flemington Board determined that the consideration offered by UJB to
Flemington shareholders compared very favorably with the consideration paid in
comparable mergers and that the tax-free nature of the transaction to Flemington
shareholders was an additional positive consideration in approving the Merger.
Flemington's primary alternative to the Merger was to continue as an independent
bank. While the Flemington Board believes this alternative was attractive and
would have increased shareholder value over time, the alternative involved more
risk than the Merger and was not likely, in the long run, to produce shareholder
value in excess of that being provided by the Merger. The provisions of the
Merger Agreement allowing Flemington to terminate the Merger Agreement if
certain conditions are not met at the closing help to ensure that the Flemington
Board can protect the interests of Flemington's shareholders against certain
financial risks inherent in transactions of this nature, and the opinion of
Advest that the financial terms of UJB's offer were fair to Flemington's
shareholders from a financial point of view substantiated the Flemington Board's
view that the proposed Merger was in the best interests of Flemington's
shareholders. The Flemington Board therefore determined that all of these
material factors indicated that the Flemington Board should accept UJB's offer
and enter into the Merger Agreement.
Background
In the late 1980s and early 1990s, Flemington experienced problems in the
quality of its loan portfolio and those problems adversely affected earnings.
These problems, which were in part a result of external forces, resulted in
Flemington entering into a formal agreement with the Office of the Comptroller
of the Currency in October of 1991 (the "OCC Agreement"). The OCC Agreement
largely focused on requiring Flemington to improve its procedures for credit
extension and monitoring, but also required Flemington to study methods for
increasing capital and to develop a three year strategic plan. Following the
execution of the OCC Agreement, the Flemington Board promptly constituted a
Compliance Committee to work with management to affirmatively address the
matters required to be addressed in the OCC Agreement.
45
<PAGE>
During 1993, members of the Flemington Board continued their practice of
attending banking seminars so as to better enable them to evaluate strategic
alternatives for Flemington. Many of these programs raised issues relating to
the increasing difficulty which community banks were having in competing in the
market place against larger, and frequently more technically sophisticated
banks, and a substantial focus of these programs was on issues relating to
business combinations involving community banks and larger institutions. In late
1993 and early 1994, four banking institutions, three of which were based in New
Jersey, made overtures to Flemington regarding the possibility of a business
combination transaction. They were all ultimately advised that Flemington was
not then interested in pursuing such a transaction.
In early 1994, it became apparent to the Board that among the strategic
alternatives it would have to consider would be some form of business
combination transaction. In May of 1994, the Flemington Board constituted a
Study Committee charged with making reports and recommendations to the Board of
Directors on consolidation trends within the banking industry and the New Jersey
market place and options available to Flemington within those trends.
In the spring of 1994, the OCC Agreement was terminated. During the period
the OCC Agreement had been in effect, Flemington's return on average assets had
increased and its non-performing loans as a percentage of its total loans had
decreased. However, Flemington remained below the medians of peer group
performance. During this period, various members of the Flemington Board
continued to attend banking seminars where a substantial focus was on business
acquisition transactions.
The Flemington Board recognized throughout this period that the basic
alternatives available to Flemington were (i) remaining independent, (ii)
acquiring other smaller institutions, (iii) combining with an institution of
substantially equal size, or (iv) being acquired by a larger institution. In
January, 1995, after also considering the retention of two other advisors,
Advest, Inc. was requested to prepare an engagement letter covering the terms
under which they would be compensated if a transaction of the nature described
in clause (iii) or clause (iv) of the preceding sentence were effected by
Flemington. The Study Committee had consulted with Advest since the Committee's
organization in 1994. The letter was accepted by Flemington on February 10,
1995, well prior to any decision having been made by the Board as to which
course Flemington should pursue. During the spring of 1995, Advest continued to
assist the Study Committee on evaluating the stated alternatives.
On May 10, 1995, representatives of Advest met with the Flemington Board
and reviewed in detail the history of their engagement, the methodology employed
by the Study Committee and Advest in analyzing the four stated alternatives, and
a large volume of relevant data. After reviewing with the Flemington Board the
general banking environment in New Jersey and consolidation trends within that
market place, representatives of Advest and members of the Study Committee
reported in detail their analysis of the four alternatives available to
Flemington. After substantial analysis and discussion, the Board concluded that,
for a variety of reasons, neither a strategy of like size business combinations,
nor the acquisition of smaller institutions, nor a path of continued
independence was likely to produce a long-term viable competitor in Flemington's
market place or maximize the value of Flemington Stock. The reasons for these
conclusions included, but were not limited to: (i) the relative unattractiveness
of Flemington Stock as an acquisition medium; (ii) the relatively limited pool
of possible acquisition targets which were smaller than Flemington; (iii) the
substantial dilution that would likely result to Flemington shareholders if
Flemington Stock were used as the acquisition medium in a like-size combination;
and (iv) substantial concerns that the institution resulting from any of these
strategies would not have the necessary capital and breadth of products and
services to remain a viable competitor in Flemington's market place.
Advest representatives then analyzed in substantial detail the current bank
acquisition market in New Jersey. Although Flemington's financial performance
remained slightly below the median of peer group performance, recent transaction
levels indicated that Flemington's substantial presence in a desirable market
area could well result in an acquisition pricing of more than twice book value
(i.e., in excess of $40 per share). When combined with the increasingly
competitive banking environment and the increasing difficulty of smaller banks
competing on an effective basis with larger institutions, the Flemington Board
concluded that the acquisition of Flemington at an acceptable price level--one
that appeared achievable in the current acquisition market place--would likely
prove to be in the best interest of Flemington's shareholders and the
communities which Flemington serves. The Flemington Board further concluded that
postponing a serious investigation of this course of action could adversely
affect Flemington and its shareholders due to a likely decrease in the number of
interested parties (as a result of the continuing consolidation process in the
industry) and a possible decrease in Flemington's competitive position and
market share (as a result of increasing competitive pressures from larger
institutions).
46
<PAGE>
Based on the analyses and recommendations made by the Advest
representatives and the members of the Study Committee at the May 10, 1995,
meeting of the Flemington Board, the Flemington Board authorized Advest to
(i)contact certain institutions identified by Advest as known to be interested
in the New Jersey banking market place, including Flemington's trading area, to
determine whether they may be interested in evaluating Flemington as a possible
acquisition target, (ii) obtain confidentiality letters from those institutions
expressing such an interest, (iii) furnish to those institutions executing
confidentiality letters certain non-public information on Flemington, and (iv)
obtain non-binding indications of interest from those institutions, subject to
due diligence review of Flemington by them, as to the price level at which they
would be prepared to make a formal proposal. No determination was made by the
Flemington Board at its meeting on May 10, 1995, to effect a business
combination in which Flemington would be acquired by a larger entity. However,
the Flemington Board believed that in light of the various alternatives which
then appeared available to Flemington, an investigation of such a transaction
was prudent.
Advest advised the institutions which it had been authorized to contact
that although their proposals could be subject to a due diligence investigation,
it was likely that only the two institutions making proposals determined by the
Flemington Board to be most favorable to Flemington's shareholders would be
permitted to conduct on-site due diligence. Thus, all participating institutions
were aware that their proposals would have to closely approximate their best
proposal if they were to remain in consideration. Of the twelve institutions
contacted, ten executed confidentiality letters and received non-public
information relating to Flemington. On July 13, 1995 eight of those institutions
made written proposals. The proposals ranged from a low of $38.00 per Flemington
share (in a combination of cash and the proposed acquiror's shares, based on
their current price levels) to a high (UJB's proposal) of $48.00 per Flemington
share (in UJB Stock). The original UJB proposal contained no specific protection
in the event of any downward movement in UJB's share price but, by its terms,
indicated an intention to protect, in some manner, a $48.00 per Flemington
common share value.
On July 14, 1995, the Board met to review all of the proposals, as well as
the underlying fundamentals of the proposing institutions. At the end of such
meeting, the Flemington Board authorized Advest to advise UJB and Summit, the
institution with the second highest proposal, that they were permitted to
conduct on-site due diligence. Advest was also instructed to attempt to improve
upon the two highest proposals. UJB conducted due diligence at Flemington
between July 17 and July 19 and Summit conducted due diligence at Flemington
between July 20 and July 24. Both UJB and Summit increased their proposed price
levels during this period; at then-current price levels, UJB's final proposal,
which was that ultimately set forth in the Merger Agreement, remained superior
to Summit's final proposal. Neither UJB nor Summit were aware of the other's
participation in the bidding and due diligence process. No discussions of
Flemington took place at the July 21, 1995 breakfast meeting at which the
possibility of merger between UJB and Summit was broached. See "UJB FINANCIAL
CORP.--Recent Developments."
The Flemington Board met again on July 25, 1995. At that meeting, Advest
advised the Flemington Board that UJB had revised its proposal to that set forth
herein. The new proposal represented a substantial improvement of UJB's prior
proposal in that it (i) increased the basic value attributable to Flemington
stock in the proposed transaction from $48 to $50, (ii) provided a contractual
exit for Flemington if there were a substantial decline in UJB's share value
prior to Closing and UJB proved unwilling to restore to a $45 value (in UJB
Stock) per Flemington share, and (iii) included a dividend incremental which
would likely add between $.29 and $.58 per Flemington share (depending on the
timing of the Closing). After substantial discussion, the Flemington Board
determined that it would be in the best interest of Flemington, its
shareholders, its customers and the communities which it served to pursue a
business combination transaction with UJB. At the close of the meeting, the
Board authorized Advest and Flemington's counsel to attempt to negotiate a
mutually acceptable definitive agreement with UJB.
In the evening of August 1, 1995, the Flemington Board held an extended
meeting. During the meeting, there was further discussion of many of issues
described above. A detailed review was made of the terms of the definitive
agreement, as well as financial and other data relating to UJB. A representative
of Advest present at the meeting expressed the opinion of their firm that the
Exchange Ratio was fair, from a financial point of view, to the shareholders of
Flemington and delivered the written opinion of Advest to that effect. After
substantial discussion, the definitive agreement was unanimously approved by the
nine directors present at the meeting. Joint announcement of the Merger was made
at the commencement of business on August 2.
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Opinion of Flemington's Financial Advisor
By letter dated January 3, 1995 and accepted by Flemington on February 10,
1995, the Flemington Board retained the services of Advest as Flemington's
financial advisor in connection with a strategic study analysis and possible
business combination through a merger of equals methodology or through
acquisition by a larger company. If an acquisition or merger transaction
resulted, the engagement letter requested that Advest render a fairness opinion
regarding the consideration to be received by the shareholders of Flemington,
from a financial point of view.
Advest is a nationally recognized investment banking firm and, as part of
its investment banking business, is regularly engaged in the valuation of bank,
bank holding company and thrift institution securities in connection with
mergers, acquisitions, and other securities transactions. As the financial
advisor to Flemington, Advest was involved in every stage of the discussions
with various financial institutions that resulted in the offer by UJB, as well
as the negotiations with UJB that resulted in the Merger Agreement.
Advest has delivered a written opinion to the Flemington Board of Directors
dated as of August 1, 1995 and updated as of the date of this Proxy Statement-
Prospectus in light of subsequent events including the proposed Summit
Acquisition, to the effect that the Exchange Ratio was fair from a financial
point of view to the shareholders of Flemington. There were no limitations
imposed by Flemington on Advest in connection with its rendering of the Fairness
Opinion. Advest is not a market maker in either Flemington or UJB stock.
The full text of Advest's updated opinion, which sets forth assumptions
made and matters considered, is attached as Appendix B to this Proxy
Statement-Prospectus. Flemington Shareholders are urged to read such opinion in
its entirety. Advest's opinion is directed only to consideration offered in the
Merger and does not constitute a recommendation to any Flemington shareholder as
to how such shareholder should vote at the Special Meeting. The summary
information regarding Advest's updated opinion and the procedures followed in
rendering such opinion set forth in this Proxy Statement-Prospectus is qualified
in its entirety by reference to the full text of such opinion.
In arriving at its updated opinion, Advest conducted the following tasks:
(i) reviewed the Merger Agreement and the exhibits and schedules thereto; (ii)
reviewed the Annual Report on Form 10-KSB for Flemington for each of the two
fiscal years ended December 31, 1994 and on Form 10-K for UJB for each of the
three fiscal year(s) ended December 31, 1994, as well as unaudited financial
information for the quarter ended September 30, 1995 for each of Flemington and
UJB and earnings press releases for the quarter and nine months ended September
30, 1995; (iii) reviewed certain financial information as filed with federal
banking agencies for the three years ended December 31, 1994, as well as for the
nine months ended September 30, 1995, for each of Flemington and UJB, including
comparative financial and operating data on the banking industry and certain
institutions which Advest deemed to be comparable to both companies; (iv)
reviewed the historical market prices and trading activity for the common stock
of each of Flemington and UJB and compared them with certain publicly-traded
companies which Advest deemed to be comparable to each company; (v) reviewed
this Proxy Statement-Prospectus and the financial data contained herein; (vi)
considered the beneficial financial impact to the shareholders of Flemington of
the Equivalent Rate Dividend; (vii) reviewed certain bank mergers and
acquisitions on a state, regional and nationwide basis for institutions which
Advest deemed to be comparable to Flemington and compared the proposed
consideration with the consideration paid in such other mergers and acquisitions
which Advest deemed relevant; (viii) conducted limited discussions with members
of senior management of each of Flemington and UJB concerning the financial
condition, business, and prospects of each respective company; and (ix) reviewed
such other financial studies and analyses and performed such other
investigations and took into account such other matters as Advest deemed
necessary.
In performing its review, Advest assumed and relied upon, without
independent verification, the accuracy and completeness of all the financial
information, analyses and other information reviewed by and discussed with
Advest. Advest did not make any independent evaluation or appraisal of specific
assets or liabilities, the collateral securing assets or liabilities of
Flemington or UJB or any of their subsidiaries, or the collectibility of any
such assets (relying, where relevant, on the analyses and estimates of
Flemington and UJB). With respect to the financial projections reviewed with
management, Advest assumed that they have been reasonably prepared on bases
reflecting the best currently available estimates and judgments of the
respective managements of the respective future financial perfor-
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mances of each of Flemington and UJB. Advest also assumed that there has been
no material change in Flemington's or UJB's assets, financial condition, result
of operations, business or prospects since the date of the last financial
statements made available.
In connection with rendering its updated opinion, Advest performed a
variety of financial analyses. The following is a summary of such analyses, but
does not purport to be a complete description of the Advest analyses. The
preparation of a fairness opinion is a complex process involving subjective
judgments and is not necessarily susceptible to partial analyses or summary
description. Advest believes that its analyses must be considered as a whole and
that selecting portions of such analyses and the factors considered therein,
without considering all factors and analyses, could create an incomplete view of
the analyses and the processes underlying Advest's opinion.
In performing its analyses, Advest made numerous assumptions with respect
to industry performance, business and economic conditions and various other
matters, many of which cannot be predicted and are beyond the control of
Flemington, UJB or Advest. Any estimates contained in Advest's analyses are not
necessarily indicative of future results or values, which may be significantly
more or less favorable than such estimates. Estimates of values of companies do
not purport to be appraisals or necessarily reflect the prices at which
companies or their securities may actually be sold. No company or transaction
utilized in Advest's analyses was identical to Flemington or UJB or the Merger.
Because such estimates are inherently subject to uncertainty, Advest assumes no
responsibility for their accuracy.
Stock Trading History.
Advest examined the history of trading prices for both Flemington Stock and
UJB Stock for the periods from October 1985 through November 1995. Advest also
examined the relationship between movements of the market prices for Flemington
Stock and UJB Stock to movements in the NASDAQ/SmallCap bank stock index during
the period from October 1994 through November 1995 during which Flemington Stock
was listed on NASDAQ/SmallCap.
Since its listing on the NASDAQ/SmallCap in October 1994, but prior to the
middle of February 1995, Flemington Stock primarily traded in the $23.00 to
$26.00 range. In February 1995 there was significant price appreciation and the
stock began trading in the $31.00 to $34.00 range. Since July 5, 1995 the stock
appreciated from $33.25 to a high of $41.75 on July 13, 1995. During the week
prior to the announcement of the Merger, Flemington Stock traded between $39.25
and $41.25 per share. Since the announcement of the Merger, Flemington Stock has
traded between $46.75 and $49.00.
Contribution Analysis.
Advest prepared a contribution analysis showing the percentage contributed
by Flemington to the combined company on a pro forma basis of assets, deposits,
common equity and tangible common equity at September 30, 1995, and net income
for the nine months ended September 30, 1995. Advest then compared these
percentages to theFlemington shareholder's pro forma contribution of UJB's Pro
Forma Condensed Combined Statements. This analysis showed that Flemington, as of
September 30, 1995, would contribute 1.3% of pro forma consolidated assets, 1.4%
of pro forma consolidated deposits, 1.1% of pro forma consolidated equity and
.87% of pro forma consolidated net income for the nine months ended September
30, 1995. Flemington shareholders would hold 1.5% of the pro forma ownership of
the combined company.
Comparable Company Analysis.
In undertaking its analysis, Advest compared the financial condition and
financial operating performance of Flemington with a peer group of nine
commercial banks in New Jersey with between $152 to $562 million in assets. The
review considered asset size, return on average assets and equity, the equity to
assets ratio and the ratio of nonperforming assets to total assets, among other
information. Compared to Flemington, which had a return on average assets of
.81%, and return on average equity of 12.62%, based on twelve months ended June
30, 1995 operating results, and tangible equity to assets ratio of 6.60% and
nonperforming assets to total assets of 1.24% at June 30, 1995, the peer group
had a median return on average assets of .90%, and return on average equity of
13.62% based on twelve months ended June 30, 1995 operating results, tangible
equity to average assets ratio of 8.03% and a nonperforming assets to total
assets ratio of 1.38% at June 30, 1995. In most respects, Flemington was
comparable to the peer group except that its profitability was slightly lower
than peer group level.
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Discounted Cash Flow Analysis.
Advest performed an analysis which estimated the future cash flows of
Flemington over three to five years under various circumstances, assuming
Flemington performed in accordance with the earnings forecasts of its management
and certain variations thereof (including variations with respect to the growth
rate of assets, net interest spread, noninterest income, noninterest expenses
and dividend payout ratio). To approximate the terminal value of Flemington
Stock at the end of the three to five year period Advest applied price to
earnings multiples ranging from 12x to 16x and applied multiples of book value
ranging from 1.50x to 2.00x. The terminal values were then discounted to present
values using a 15 percent discount rate which was chosen to reflect the required
rate of return of likely prospective buyers. This analysis indicated a range of
value per share of Flemington Stock of $27.27 to $37.24 at the end of three
years, and $24.64 and $34.06 at the end of five years.
Analysis of Selected Merger Transactions.
Advest reviewed certain financial data related to 311 acquisitions of
commercial banks, nationwide, with assets between $100 and $800 million
announced since January 1, 1993 of which 83 were announced since January 1,
1995. Advest also reviewed selected regional acquisitions including the
following transactions which were the most recent in the Mid Atlantic region
(identified by acquiror/acquiree): Fulton Financial Corp/Gloucester County,
Bancshares, North Fork Bancorp/Extebank, Carnegie Bancorp/Regents Bancshares,
Hubco Inc./Growth Financial Corp. Hubco Inc./Urban National Bank, Summit
Bancorp/ Garden State Bancshares, United National Bancorp/New Era Bank, Staten
Island Savings Bank/Gateway Bancorp, Midlantic Corporation/Old York Road
Bancorp, and North Fork Bancorp/Great Neck Bancorp.
Advest calculated average price to the target's earnings for the last four
quarters, to stated book value and tangible book value, and premium paid to core
deposits. For nationwide transactions announced since January 1, 1995, the
calculations yielded, as of the date of announcement of these transactions, the
following average multiples; (i) median price offered as a multiple of earnings
of 16.8 times (25.5 times for regional transactions) compared with a multiple of
22.3 times associated with the UJB proposal; (ii) median price offered as a
percent of book value of 180% (156% for regional transactions and 246% for New
Jersey transactions) compared with 250% associated with the UJB proposal; (iii)
median price offered as a percent of tangible book value of 197% (159% for
regional transactions and 246% for New Jersey transactions), compared with 250%
associated with the UJB proposal; (iv) median premium as a percent of core
deposits of 9.94% (11.93% for regional transactions and 13.54% for New Jersey
transactions) compared to 11.2% associated with the UJB proposal. In terms of
price to earnings, price to book and core deposit premiums the UJB proposal is
in line with other New Jersey transactions and substantially above the
nationwide and regional pricing. It also is in line with other New Jersey and
regional transactions in terms of core deposit premium, while being
substantially higher than other transactions nationwide.
No company or transaction used as a comparison in the above analysis is
identical to Flemington, UJB or the Merger. Accordingly, an analysis of the
results of t he foregoing is not mathematical; rather it involves complex
considerations and judgments concerning differences in financial and operating
characteristics of the companies and other factors that could affect the
acquisition value of the companies to which they are being compared.
Impact Analysis.
Advest analyzed the changes in the amount of fully-diluted earnings per
share and book value represented by the issuance of 1.5151 shares of UJB Stock
for each share of Flemington Stock, assuming a $33 price per share of UJB. The
analysis evaluated, among other things, possible dilution or accretion in fully
diluted earnings per share and book value per share for UJB. The analysis was
based upon (i) September 30, 1995 balance sheet data for Flemington;(ii)
September 30, 1995 balance sheet data for UJB; (iii) latest twelve months
earnings for the period ended September 30, 1995 for Flemington; and (iv) latest
twelve months earnings for the period ended September 30, 1995 for UJB.
At of the time of this analysis, these pro forma analyses indicated that
the Merger would be approximately .74% dilutive to UJB's fully diluted earnings
per share, and approximately .56% dilutive to UJB's book value per share.
Impact per Share Analysis.
Advest also analyzed the impact of the Merger on Flemington shareholders
based on the Exchange Ratio of 1.5151 shares of UJB Stock for one share of
Flemington Stock. That analysis, which was based on certain assump-
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tions made by Advest, found that, based on the proposed Exchange Ratio, UJB's
equivalent earnings per share would be $4.04 per share or 80% greater than
existing Flemington earnings per share; that UJB's equivalent book value per
share would be $29.95 or 50% greater than existing Flemington book value per
share, and that UJB's equivalent dividend income would be $.40 per share or 339%
greater than existing Flemington dividends per share.
Advest's retainer agreement provides that Flemington will pay Advest a
transaction fee in connection with the Merger, a substantial portion of which is
contingent upon consummation of the Merger. Under the terms of the agreement,
Flemington has agreed to pay Advest a fee equal to .60% of the aggregate
consideration paid to the Flemington shareholders and option holders in the
Merger, or approximately $294,000 (based on the number of shares of Flemington
Stock outstanding on the Record Date, assuming a market price of $35 for UJB
Stock and assuming no adjustment to the Merger Consideration), net of $148,000
in fees already paid to Advest in relation to the Merger (including $73,800 upon
execution of the Merger Agreement and $75,000 upon delivery of the initial
written fairness opinion) so that the total fees for Advest's engagement by
Flemington, excluding reimbursement for out-of-pocket expenses, shall not exceed
.60% of the total consideration in the Merger.
While the payment of all or a significant portion of fees related to
financial advisory services provided in connection with arm's-length merger and
other business combination transactions upon consummation of such transactions,
as is the case with the Merger, might be viewed as giving such financial
advisors a financial interest in the successful completion of such transactions,
such compensation arrangements are standard and customary for transactions of
the size and type of the Merger.
The summary set forth above does not purport to be a complete description,
but is a brief summary of the material analysis and procedures performed by
Advest in the course of arriving at its opinions.
Charter and By-Laws of Surviving Corporation
Pursuant to the Merger Agreement, the Restated Certificate of Incorporation
and By-Laws of UJBank, as in effect at the Effective Time, will be the
Certificate of Incorporation and By-Laws of the Surviving Corporation in the
Merger unless and until amended.
Board of Directors and Officers of Surviving Corporation
The Merger Agreement provides that the directors and officers of UJBank
immediately prior to the Effective Time will continue to be the directors and
officers, respectively, of the Surviving Corporation.
Dissenters' Rights
Any holder of record of Flemington Stock who follows the procedures
specified in Section 214a of the National Bank Act is entitled to receive, at
the Effective Time, in cash the value of such shares as of the date Flemington
shareholders approve the Merger Agreement in lieu of the Merger Consideration.
The exchange materials to be sent to all Flemington shareholders, including the
dissenting shareholders, will include notice of the Effective Time. The
following summary of Section 214a of 0the National Bank Act is necessarily
incomplete and is qualified in its entirety by reference to Section 214a of the
National Bank Act, which is attached hereto as Appendix C.
Section 214a of the National Bank Act provides that Flemington shareholders
who vote against the Merger Agreement or who give notice in writing to
Flemington at or prior to the Special Meeting that such shareholder dissents
from the Merger Agreement (collectively, "Dissenting Shareholders") are entitled
to receive in cash the value of the Flemington Stock held by such shareholder,
at the time the Merger is consummated, upon written request made by such
shareholder to UJBank at any time within thirty days of the date of consummation
of the Merger. Such written request must be accompanied by surrender of the
appropriate Flemington Certificates. In the event a Flemington shareholder who
may have voted against the Merger Agreement or gave written notice of dissent
from the Merger at or prior to the Special Meeting surrenders Flemington
Certificates in connection with the submission of a properly executed and
completed letter of transmittal to the Exchange Agent following the Effective
Time, such surrender will be deemed by UJB to be a waiver of the right to
receive cash pursuant to an exercise of dissenters' rights. The value of a
dissenter's Flemington Stock shall be determined as of the date Flemington
shareholders approve the Merger Agreement, by a committee of three persons, one
to be selected by majority vote of the Dissenting Shareholders who
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have sent the required written request for payment, one by the directors of
UJBank, and the third by the two so chosen. The valuation agreed upon by any two
of three appraisers thus chosen shall govern; but, if the value so fixed shall
not be satisfactory to any Dissenting Shareholder who has sent the required
written request for payment, such Dissenting Shareholder may within five days
after being notified of the appraised value of his shares appeal to the OCC who
shall cause an appraisal to be made, which shall be final and binding as to the
value of the shares of the appellant. If, within ninety days from the date of
consummation of the Merger, for any reason one or more of the appraisers is not
selected as herein provided, or the appraisers fail to determine the value of
such shares, the OCC shall upon written request of any interested party, cause
an appraisal to be made, which shall be final and binding on all parties. The
expenses of the OCC in making the reappraisal, or the appraisal as the case may
be, shall be paid by UJBank. The Merger Agreement provides that either
Flemington or UJB may refuse to close the Merger in the event the number of
shares of Flemington Stock held by Dissenting Shareholders ("Dissenting Shares")
exceeds five percent (5%) of the shares ofFlemington Stock outstanding on the
Record Date.
New York Stock Exchange Listing
UJB has agreed in the Merger Agreement to use its best efforts to cause the
shares of UJB Stock to be issued in the Merger to be listed on the NYSE. Listing
of such shares of UJB Stock on the NYSE (subject to official notice of issuance)
is a condition to the consummation of the Merger.
Accounting Treatment
It is anticipated that the Merger, when consummated, will be accounted for
as a pooling-of-interests. Under this method of accounting, the historical book
values of the assets, liabilities and shareholders' equity of Flemington, as
reported on its Consolidated Statements of Condition, will be carried over onto
the Consolidated Balance Sheets of UJB and no goodwill or other intangible
assets will be created. UJB will include on its Consolidated Statement of Income
the consolidated results of operations of Flemington for the entire fiscal year
in which the consummation of the Merger occurs.
Certain Federal Income Tax Consequences of the Merger
The following discussion is based upon an opinion of Thompson & Mitchell,
counsel to UJB ("Counsel"), and except as otherwise indicated, reflects
Counsel's opinion. The discussion is a summary of the material United States
federal income tax ("federal income tax") consequences of the Merger to certain
Flemington shareholders and does not purport to be a complete analysis or
listing of all potential tax considerations or consequences relevant to a
decision whether to vote for the approval of the Merger. The discussion does not
address all aspects of federal income taxation that may be applicable to
Flemington shareholders in light of their status or personal investment
circumstances, nor does it address the federal income tax consequences of the
Merger that are applicable to Flemington shareholders subject to special federal
income tax treatment including (without limitation) foreign persons, insurance
companies, tax-exempt entities, retirement plans, dealers in securities, persons
who acquired their Flemington Stock pursuant to the exercise of employee stock
options or otherwise as compensation, and persons who hold their Flemington
Stock as part of a "straddle", "hedge" or "conversion transaction". In addition,
the discussion does not address the effect of any applicable state, local or
foreign tax laws, or the effect of any federal tax laws other than those
pertaining to the federal income tax. As a result, each Flemington shareholder
is urged to consult his or her own tax advisor to determine the specific tax
consequences of the Merger to such shareholder. The discussion assumes that
shares of Flemington Stock are held as capital assets (within the meaning of
Section 1221 of the Internal Revenue Code of 1986, as amended (the "Code")) at
the Effective Time.
Flemington has received an opinion from Counsel to the effect that,
assuming the Merger occurs in accordance with the Merger Agreement, the Merger
will constitute a "reorganization" for federal income tax purposes under Section
368(a)(1) of the Code, with the following federal income tax consequences:
(1) Flemington shareholders will recognize no gain or loss as a result
of the exchange of their Flemington Stock solely for shares of UJB Stock
pursuant to the Merger, except with respect to cash received in lieu of a
fractional share, if any, as discussed below.
(2) The aggregate adjusted tax basis of the shares of UJB Stock
received by each Flemington shareholder in the Merger (including any
fractional share of UJB Stock deemed to be received, as described in
paragraph 4 below) will be equal to the aggregate adjusted tax basis of the
shares of Flemington Stock surrendered.
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(3) The holding period of the shares of UJB Stock received by each
Flemington shareholder in the Merger (including any fractional share of UJB
Stock deemed to be received, as described in paragraph 4 below) will
include the holding period of the shares of Flemington Stock exchanged
therefor.
(4) A Flemington shareholder who receives the Cash In Lieu Amount with
regard to a fractional share of UJB Stock will be treated as if the
fractional share had been received by such shareholder in the Merger and
then redeemed by UJB in return for the Cash In Lieu Amount. The receipt of
such cash will cause the recipient to recognize capital gain or loss equal
to the difference between the amount of cash received and the portion of
such holder's adjusted tax basis in the shares of UJB Stock allocable to
the fractional share.
(5) A Flemington shareholder who receives only cash as a result of the
exercise of dissenters' rights, will realize gain or loss for federal
income tax purposes (determined separately as to each block of Flemington
Stock exchanged) in an amount equal to the difference between (x) the
amount of cash received by such shareholder, and (y) such shareholder's tax
basis for the shares of Flemington Stock surrendered in exchange therefor,
provided that the cash payment does not have the effect of the distribution
of a dividend. Any such gain or loss will be recognized for federal income
tax purposes and will be treated as capital gain or loss. However, if the
cash payment does have the effect of the distribution of a dividend, the
amount of taxable income recognized generally will equal the amount of cash
received; such income generally will be taxable as a dividend; and no loss
(or other recovery of such shareholder's tax basis for the shares of
Flemington Stock surrendered in the exchange) generally will be recognized
by such shareholder. The determination of whether a cash payment has the
effect of the distribution of a dividend will be made pursuant to the
provisions and limitations of Section 302 of the Code, taking into account
the constructiive stock ownership rules of Section 318 of the Code. See
"Impact of Section 302 of the Code," below.
Impact of Section 302 of the Code. With regard to dissenters, the
determination of whether a cash payment has the effect of the distribution of a
dividend generally will be made pursuant to the provisions of Section 302 of the
Code. A cash payment to a Flemington shareholder will be considered not to have
the effect of the distribution of a dividend under Section 302 of the Code and
such shareholder will recognize capital gain or loss only if the cash payment,
(i) results in a "complete redemption" of such shareholder's actual and
constructive stock interest, (ii) results in a "substantially disproportionate"
reduction in such shareholder's actual and constructive stock interest, or (iii)
is "not essentially equivalent to a dividend."
A cash payment will result in a "complete redemption" of a shareholder's
stock interest and such shareholder will recognize capital gain or loss if such
shareholder does not actually or constructively own any stock after the receipt
of the cash payment. A reduction in a shareholder's stock interest will be
"substantially disproportionate" and such shareholder will recognize capital
gain or loss if (i) the percentage of outstanding voting shares actually and
constructively owned by such shareholder after the receipt of the cash payment
is less than four-fifths (i.e. 80%) of the percentage of outstanding voting
shares actually and constructively owned by such shareholder immediately prior
to the receipt of the cash payment, and (ii) such shareholder actually and
constructively owns less than 50% of the number of voting shares outstanding
after the receipt of the cash payment. A cash payment will qualify as "not
essentially equivalent to a dividend" and a shareholder will recognize capital
gain or loss if it results in a meaningful reduction in the percentage of
outstanding shares actually and constructively owned by such shareholder. No
specific tests apply to determine whether a reduction in a shareholder's
ownership interest is meaningful; rather, such determination will be made based
on all the facts and circumstances applicable to such Flemington shareholder. No
general guidelines dictating the appropriate interpration of facts and
circumstances have been announced by the courts or issued by the Internal
Revenue Service (the "Service"). However, the Service has indicated in Revenue
Ruling 76-385 that a minority shareholder (i.e., a holder who exercises no
control over corporate affairs and whose proportionate stock interest is minimal
in relation to the number of shares outstanding) generally is treated as having
had "meaningful reduction" in interest if a cash payment reduces such holder's
actual and constructive stock ownership by even a small amount.
Under the traditional analysis (which apparently continues to be used by
the Service), Section 302 of the Code will apply as though the cash payment were
made by Flemington in a hypothetical redemption of Flemington Stock immediately
prior to, and in a transaction separate from, the Merger (a "deemed Flemington
redemption"). Thus, under the traditional analysis, the determination of whether
a cash payment results in a complete redemption of interest, qualifies as a
substantially disproportionate reduction of interest, or is not essentially
equivalent to a dividend will
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be made by comparing (x) the shareholder's actual and constructive stock
interest in Flemington before the deemed Flemington redemption, with (y) such
shareholder's actual and constructive stock interest in Flemington after the
deemed Flemington redemption (but before the Merger). However, the law is
unclear regarding whether the deemed redemption approach of the Service is
correct, and Counsel has rendered no opinion on the correctness of the Service's
approach. Counsel has noted in its opinion that some tax practitioners believe
that the determination of whether a cash payment has the effect of a
distribution of a dividend should be made as if the Flemington Stock exchanged
for cash in the Merger had instead been exchanged in the Merger for shares of
UJB Stock followed immediately by a redemption of such shares by UJB for the
cash payment (a "deemed UJB redemption"). Under this analysis, the determination
of whether a cash payment satisfies any of the foregoing tests would be made by
comparing (i) the shareholder's actual and constructive stock interest in UJB
before the deemed UJB redemption (determined as if such shareholder had received
soley UJB Stock in the Merger), with (ii) such shareholder's actual and
constructive stock interest in UJB after the deemed UJB redemption. Because this
analysis may be more likely to result in capital gain treatment than the
traditional analysis, each Flemington shareholder who receives solely cash in
exchange for all of the Flemington Stock he or she actually owns should consult
his or her own tax advisor with regard to the proper treatment of such cash.
The determination of ownership for purposes of the three foregoing tests
will be made by taking into account both shares owned actually by such
shareholder and shares owned constructively by such shareholder pursuant to
Section 318 of the Code. Under Section 318 of the Code, a shareholder will be
deemed to own stock that is actually or constructively owned by certain members
of his or her family (spouse, children, grandchildren and parents) and other
related parties including, for example, certain entities in which such
shareholder has a direct or indirect interest (including partnerships, estates,
trusts and corporation), as well as shares of stock that such shareholder (or a
related person) has the right to acquire upon exercise of an option or
conversion right.
Counsel's opinion is subject to the conditions and customary assumptions
that are stated therein and relies upon various representations made by UJB,
Flemington, and certain shareholders of Flemington. If any of these
representations or assumptions is inaccurate, the tax consequences of the Merger
could differ from those described herein. Counsel's opinion is also based upon
the Code, regulations proposed or promulgated thereunder, judicial precedent
relating thereto, and current administrative rulings and practice, all of which
are subject to change. Any such change, which may or may not be retroactive,
could alter the tax consequences discussed herein. The receipt of Counsel's
opinion again as of the date of the closing of the Merger is a condition to the
consummation of the Merger. An opinion of counsel, unlike a private letter
ruling from the Service, has no binding effect on the Service. The Service could
take a position contrary to Counsel's opinion and, if the matter were litigated,
a court may reach a decision contrary to the opinion. Neither UJB nor Flemington
has requested an advance ruling as to the federal income tax consequences of the
Merger, and the Service is not expected to issue such a ruling.
THE FOREGOING IS A SUMMARY OF THE MATERIAL FEDERAL INCOME TAX CONSEQUENCES
OF THE MERGER TO CERTAIN FLEMINGTON SHAREHOLDERS AND DOES NOT TAKE INTO ACCOUNT
THE PARTICULAR FACTS AND CIRCUMSTANCES OF EACH FLEMINGTON SHAREHOLDER'S TAX
STATUS AND ATTRIBUTES. AS A RESULT, THE FEDERAL INCOME TAX CONSEQUENCES
ADDRESSED IN THE FOREGOING DISCUSSION MAY NOT APPLY TO EACH FLEMINGTON
SHAREHOLDER. ACCORDINGLY, EACH FLEMINGTON SHAREHOLDER SHOULD CONSULT HIS OR HER
OWN TAX ADVISOR REGARDING THE SPECIFIC TAX CONSEQUENCES OF THE MERGER, INCLUDING
THE APPLICATION AND EFFECT OF FEDERAL, STATE, LOCAL AND OTHER TAX LAWS AND THE
POSSIBLE EFFECTS OF CHANGES IN FEDERAL AND OTHER TAX LAWS.
Resale of UJB Stock
The shares of UJB Stock into which shares of Flemington Stock are converted
on the Effective Date will be freely transferable under the Securities Act
except for shares issued to any shareholder who may be deemed to be an
"affiliate" of Flemington for purposes of Rule 145 under the Securities Act as
of the date of the Flemington Special Meeting. Affiliates may not sell their
shares of UJB Stock acquired in connection with the Merger except pursuant to an
effective registration statement under the Securities Act covering such shares
or in compliance with Rule 145 under the Securities Act or another applicable
exemption from the registration requirements of the Securities Act.
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Persons who may be deemed to be affiliates of Flemington generally include
individuals or entities that control, are controlled by or are under common
control with Flemington and may include certain officers and directors of
Flemington as well as principal shareholders of Flemington.
Flemington agreed in the Merger Agreement to use its best efforts to cause
each director, executive officer and other persons deemed in the opinion of
Flemington's counsel to be affiliates of Flemington to enter into an agreement
with UJB providing that such persons agree to be bound by the rules which permit
the Merger to be treated as a pooling-of-interests for accounting purposes and
agree to be bound by the restrictions of Rule 145. See "THE MERGER--Accounting
Treatment." The rules regarding pooling-of-interests accounting treatment
includes restrictions on sales or other dispositions of Flemington Stock by
affiliates of Flemington during the period commencing 30 days prior to the
Merger and ending at the time of the publications of financial results covering
at least 30 days of combined operations of UJB and Flemington.
Differences in Shareholders' Rights
The rights of Flemington shareholders, which are determined by the National
Bank Act and the Articles of Association and Bylaws of Flemington, differ from
the rights accorded UJB shareholders, which are determined by New Jersey
corporation law and the Restated Certificate of Incorporation and By-Laws of
UJB. Some of the differences in shareholders' rights are attributable to
differences between the National Bank Act, the law under which Flemington is
incorporated and the corporation law of New Jersey, the state of UJB's
incorporation. The remaining differences in shareholders' rights are
attributable to differences between the Articles of Association and Bylaws of
Flemington and the Restated Certificate of Incorporation and By-Laws of UJB.
Certain of the rights of Flemington shareholders described below that are
provided by the National Bank Act or contained in the Articles of Association or
Bylaws of Flemington, and that are not provided by New Jersey corporation law or
contained in the Restated Certificate of Incorporation or By-Laws of UJB, are
deemed to have an anti-takeover effect and will not be available to Flemington
shareholders as UJB shareholders; however, certain rights provided for by New
Jersey corporation law or the Restated Certificate of Incorporation or By-Laws
of UJB are also deemed to have an anti-takeover effect and will be available to
Flemington shareholders but only after becoming UJB shareholders. The following
is a summary explanation of the material differences between the rights of
shareholders of Flemington and the rights of shareholders of UJB. This summary
is qualified in its entirety by reference to the National Bank Act, the
corporation law of New Jersey and the governing documents of Flemington and UJB
referred to above.
Comparison of Incorporation Documents and By-laws
Board and Related Provisions.
Flemington. The Flemington Board currently consists of ten directors. The
Flemington Board is not classified, and the shareholders elect the entire
Flemington Board at their annual meeting each year.
UJB. The Restated Certificate of Incorporation of UJB divides the UJB Board
into three classes, with each class of directors serving a staggered term of the
three years. Each class of directors must consist, as nearly as possible, of one
third of the number of directors constituting the entire UJB Board. Presently
there are four directors in Class I, five directors in Class II and four
directors in Class III.
The Restated Certificate of Incorporation of UJB further requires that
resolutions increasing the number of directors be approved by 80% of, as the
case may be, directors holding office or shares of capital stock of UJB entitled
to vote generally in the election of directors, voting as a single class.
The Restated Certificate of Incorporation of UJB also provides that the
affirmative vote of the holders of 80% or more of the combined voting shares of
UJB, voting as a single class, is required to amend, repeal or take any action
inconsistent with the classified board of directors or the requirement for an
80% affirmative vote to approve any increase in the number of directors.
Meetings and Consents.
Flemington. Flemington's Articles of Association require that all actions
by the shareholders of Flemington be taken at a duly called annual or special
meeting; neither the Articles of Association nor the National Bank Act contain
provisions for shareholders voting by written consent in lieu of a meeting.
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UJB. The Restated Certificate of Incorporation of UJB requires that all
actions by the shareholders of UJB be taken at a duly called annual or special
meeting of UJB's shareholders or by the unanimous, but not less than unanimous,
written consent of the shareholders. An additional provision in the Restated
Certificate of Incorporation of UJB provides that the affirmative vote of the
holders of 80% or more of the combined voting shares of UJB, voting as a single
class, is required to amend, alter, repeal or take any action inconsistent with
this requirement.
Shareholder Rights Plan.
Flemington. Flemington has not adopted a shareholder rights plan comparable
to that of UJB, and has no comparable mechanism for encouraging negotiation
between potential acquirors and the Flemington Board.
UJB. UJB has in effect a shareholder rights plan pursuant to which holders
of shares of UJB Stock possess one preferred stock purchase right for each share
of UJB Stock held. Each preferred stock purchase right entitles the holder to
buy, as of the close of business on the tenth day following the occurrence of
certain takeover-related events ("effective time"), one-hundredth of a share of
a new series of Preferred Stock, designated the Series R Preferred Stock, at $90
per one-hundredth share ("exercise price"), with full shares having rights per
share equal to 100 times the rights of UJB Stock with respect to voting,
dividends and distributions upon liquidation or merger as well as entitling the
holder to an additional preferential dividend. Upon the occurrence of certain
subsequently occurring events, holders of the preferred stock purchase rights
become entitled to purchase either shares of the Series R Preferred Stock (if
not already purchased) or a number of shares of the "acquiring person" (as
defined in the rights plan) equal in market value to twice the exercise price of
the preferred stock purchase right. The UJB Board has the power to redeem the
preferred stock purchase rights at any time but, after the effective time, it
may do so only upon the majority vote of non-management directors in connection
with a business combination it has approved. For a further description of UJB's
shareholder rights plan, see "DESCRIPTION OF UJB CAPITAL STOCK--Shareholder
Rights Plan." The combination of prohibitive dilution of the acquiring person's
share values and the power of the UJB Board to redeem the preferred stock
purchase rights is intended to encourage potential acquiring persons to
negotiate with the UJB Board with respect to the terms of any acquisition or
business combination and, to the extent possible, discourage or defeat partial
or two-tiered acquisition proposals.
Nominations to the Board, Shareholder Proposals and Conduct of Meetings.
Flemington. Pursuant to Flemington's Articles of Association, holders of
Flemington Stock may nominate directors for election by providing advance notice
of the nominee's name and certain other information to Flemington's president
and to the OCC within the time frame prescribed by the Articles of Association.
Holders of Flemington Stock may cumulate their votes in elections of directors.
UJB. The By-Laws of UJB contain provisions that empower the UJB Board to
adopt rules, regulations and procedures governing meetings of UJB shareholders
and empower the chairman of a meeting of UJB shareholders, subject to the rules
and regulations adopted by the UJB Board, to adopt such rules, regulations and
procedures and to take such actions that the chairman deems necessary,
appropriate or convenient for the proper conduct of a shareholder meeting. The
UJB By-Laws also contain provisions that (1) establish rules governing
nominations for director and shareholder proposals made at annual meetings of
shareholders and, in general, empower the chairman of an annual meeting to
disallow nominations and shareholder proposals that are not made at least 80
days in advance of the particular meeting or that otherwise fail to comply with
the requirements of the By-Laws and (2) establish rules governing nominations
for directors made at special meetings of shareholders and empower the chairman
of a special meeting to disallow nominations that are not made at least 70 days
prior to such special meeting or the 10th day following the day on which public
announcement of such special meeting is first made or that otherwise fail to
comply with the requirements of the By-Laws. Holders of UJB Stock may not
cumulate their votes in elections of directors.
Authorized Stock
Flemington. Flemington has 1,500,000 authorized shares of Flemington Stock.
As of September 30, 1995, there were 958,476 shares of Flemington Stock
outstanding. Flemington's Articles of Association do not authorize preferred
stock. Flemington's Articles of Association provide for preemptive rights to
attach to the ownership of Flemington Stock.
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UJB. The Restated Certificate of Incorporation of UJB authorizes the
issuance of 130,000,000 shares of UJB Stock and 4,000,000 shares of preferred
stock, no par value. As of September 30, 1995, there were 57,581,872 shares of
UJB Stock and 600,166 shares of the Adjustable Rate Cumulative Preferred Stock
of UJB, Series B ($50 stated value) ("UJB Series B Preferred") outstanding and
600,000 shares of UJB Series R Preferred reserved in UJB's Restated Certificate
of Incorporation for issuance under the shareholder rights plan of UJB. The
Restated Certificate of Incorporation of UJB and the New Jersey Business
Corporation Act authorize the UJB Board to amend the Restated Certificate of
Incorporation without shareholder concurrence to divide the authorized shares of
preferred stock into series, to determine the designations and the number of
shares of any such series, and to determine the relative voting, dividend,
conversion, redemption, liquidation and other rights, preferences and
limitations of the authorized shares of preferred stock. No preemptive rights
attached to the ownership of UJB Stock.
Comparison of Corporate Laws of Jurisdiction of Incorporation
Appraisal Rights in Merger or Consolidation. Under New Jersey corporation
law, unless a certificate of incorporation otherwise provides, a dissenting
shareholder of a New Jersey corporation that is a party to a consolidation, or
that is not the surviving corporation in a merger, or that is the surviving
corporation in a merger requiring shareholder approval, has appraisal rights
with respect to any shares other than (1) shares listed on a national securities
exchange or held of record by not less than 1,000 holders, and (2) shares in
exchange for which, pursuant to the plan of merger or consolidation, the
shareholder will receive cash and/or securities that will be listed on a
national securities exchange or held of record by not less than 1,000 holders.
UJB's Restated Certificate of Incorporation contains nothing that provides
differently.
Under the National Bank Act, shareholders who vote against a proposed
merger or consolidation or who give written notice at or before the shareholder
meeting at which the merger or consolidation is to be approved that they dissent
from the plan, shall have the right to receive, in lieu of the merger
consideration, the value of their shares on the date the transaction is
consummated, as determined by appraisers selected by the dissenting shareholders
(acting as a group) and the acquiring entity's board of directors and by such
appraisers, or by the OCC in certain circumstances. See "THE MERGER--Dissenters'
Rights."
Appraisal Rights Relating to Disposition of Assets. Under New Jersey
corporation law, a dissenting shareholder in a New Jersey corporation has
appraisal rights in the case of any sale, lease, exchange or other disposition
of substantially all of the assets of the corporation not in the usual or
regular course of business as conducted by the corporation, except with respect
to (1) shares listed on a national securities exchange or held of record by not
less than 1,000 holders, or (2) a transaction pursuant to a plan of dissolution
of the corporation that provides for the distribution of substantially all of
its net assets to shareholders according to their interests within one year,
where such transaction is wholly for cash and/or securities that will be listed
on a national securities exchange or held of record by not less than 1,000
holders, or (3) a sale pursuant to court order. The National Bank Act does not
address appraisal rights relating to a disposition of a national banking
association's assets.
Class Voting on Merger or Consolidation. Under New Jersey corporation law,
any class or series of shares shall be entitled to vote as a class if the plan
of merger or consolidation contains any provision that, if contained in a
proposed charter amendment, would entitle the class or series to vote as a class
on the amendment. Under the National Bank Act, a merger or consolidation of a
national banking association with a state bank must be approved by shareholders
holding at least two-thirds of the shares of each class outstanding. A merger or
consolidation with a national banking association must be approved by holders of
at least two-thirds of all shares outstanding without regard to class.
Source of Dividends. Under New Jersey corporation law, dividends may not be
paid if, after giving effect to the dividend, either (1) the corporation would
be unable to pay its debts as they become due in the usual course of its
business or (2) the corporation's total assets would be less than its total
liabilities.
Under the National Bank Act, directors of a national banking association
may declare a dividend of so much of the undivided profits of the association as
they think expedient, provided that the association's surplus fund equals or
exceeds its common capital. The approval of the Comptroller of the Currency is
required if the total of all dividends declared by the association in any
calendar year exceeds the total of its net income of that year combined with its
retained net income of the preceding two years, less any required transfers to
surplus or a fund for the retirement of any preferred stock.
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Power to Adopt, Amend or Repeal By-laws. Under New Jersey corporation law,
the power to adopt, amend and repeal by-laws of a corporation is vested in the
board of directors unless such power is reserved to the shareholders in the
certificate of incorporation, but by-laws made by the board of directors may be
amended and repealed and new by-laws adopted by the shareholders and the
shareholders may prescribe in such by-laws that the board may not amend or
repeal by-laws approved by shareholders. The National Bank Act is silent on the
procedures for amendment of a national banking association's by-laws by its
shareholders.
Action by Shareholders by Written Consent in Lieu of a Meeting. Under New
Jersey corporation law, except as otherwise provided in a certificate of
incorporation, any action (other than the election of directors and the approval
of a merger, consolidation or sale of substantially all of the assets of the
corporation) required or permitted to be taken at a meeting of the corporation's
shareholders, may be taken without a meeting upon the written consent of
shareholders who would have been entitled to cast the minimum number of votes
that would have been necessary to take such action at a meeting at which all
shares entitled to vote thereon were present and voted (except that the election
of a director and the approval of a merger, consolidation or sale of
substantially all of the assets of the corporation requires unanimous written
consent of all shareholders). The corporation must give all shareholders advance
notice of such proposed action if the proposed action involves a merger,
consolidation or sale of substantially all of the assets of a corporation. As
discussed earlier, UJB's Restated Certificate of Incorporation permits action by
written consent only where the consent is unanimous. The National Bank Act does
not provide for action by the shareholders of a national banking association by
written consent in lieu of a meeting.
Removal of Directors. Under New Jersey corporation law, one or more of all
directors of a corporation may be removed for cause or, unless otherwise
provided in the certificate of incorporation, without cause by shareholders by
the affirmative vote of the majority of the votes cast by the holders of shares
entitled to vote thereon. However, unless otherwise provided in the certificate
of incorporation, shareholders of a corporation whose board of directors is
classified may not remove a director without cause. The National Bank Act does
not provide for the removal of a director of a national banking association by
its shareholders.
Special Meetings of Shareholders. Under New Jersey corporation law, holders
of not less than 10% of a corporation's voting stock may apply to the New Jersey
Superior Court for an order directing a special meeting of shareholders to be
held. The National Bank Act does not specify the mechanism for calling special
meetings of shareholders.
De Facto Merger. Under New Jersey corporation law, shareholders have the
same voting and dissent and appraisal rights as if they were shareholders of a
surviving corporation in a merger, if (1) voting shares outstanding or issuable
after the transaction exceed by more than 40% voting shares outstanding before
the transaction or (2) shares entitled to participate without limitation in
distributions outstanding or issuable after the transaction exceed by more than
40% such shares outstanding before the transaction. The National Bank Act has no
comparable provision.
Shareholder Approval of Mergers and Consolidations. While shareholder
approval of a merger or consolidation is generally required under the New Jersey
corporation law, the New Jersey corporation law provides that approval of the
shareholders of a surviving corporation in a merger is not required if (i) the
plan of merger does not make an amendment of the certification of incorporation
of the surviving corporation that would otherwise require shareholder approval,
(ii) the shares outstanding immediately before the effectiveness of the merger
are not changed by the merger, and (iii) the number of voting or participating
shares outstanding after the merger, after giving effect to the merger, will not
exceed by more than 40% the number of voting and participating shares, as the
case may be, of the surviving corporation outstanding immediately prior to the
merger.
Under the National Bank Act, before a national banking association may
convert into, or merge or consolidate with, a state bank, the plan of
conversion, merger or consolidation must be approved by the association's Board
of Directors, and at a duly called meeting of the shareholders, holders of at
least two-thirds of each class of the association's capital stock must vote for
the conversion, merger or consolidation. There are no statutory exceptions to
the required shareholder vote.
A national banking association may be consolidated with one or more
national banking associations located within the same state with (1) prior
approval of the OCC, (2) approval of a majority of the board of directors of
each association proposing to be consolidated, and (3) the affirmative vote of
the shareholders of each such association owning at least two-thirds of the
capital stock outstanding.
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Shareholders' Derivative Actions. New Jersey corporation law contains
certain provisions that have the effect of discouraging derivative actions.
Specifically, New Jersey law authorizes the court having jurisdiction over the
action to award reasonable expenses and attorney's fees to the successful
defendants in a derivative action upon a finding that the action was brought
without reasonable cause. In addition, the corporation may require the plaintiff
or plaintiffs to give security for the reasonable expenses, including attorneys'
fees, that may be incurred by the corporation or by other named defendants for
which the corporation may become legally liable if plaintiff or plaintiffs are
holders of less than 5% of the outstanding shares of any class or series of such
corporation (or voting trust certificates therefor) unless the shares or trust
certificates so held have a market value in excess of $25,000. The National Bank
Act does not address shareholders' derivative actions.
Proxies. Under New Jersey corporation law, a proxy is valid for no longer
than eleven months unless a longer period is specified. In addition, a proxy is
revocable at will unless coupled with an interest. The death or incapacity of a
shareholder does not revoke a proxy and it will continue in force until
revocation by the shareholder's personal representative. The National Banking
Act does not specify limitations on proxies.
Inspection of Books and Records. Under New Jersey corporation law, a
shareholder of record for at least 6 months immediately preceding his or her
demand or any holder (or a person authorized on behalf of such holder) of at
least 5% of the outstanding shares of any class or series shall have the right
to examine for any proper purpose the corporation's books and records. The
National Bank Act has no comparable provisions.
Anti-Takeover Statutes. New Jersey has adopted a type of anti-takeover
statute known as a "business combination" statute. Subject to numerous
qualifications and exceptions, the statute prohibits an interested stockholder
of a corporation from effecting a business combination with the corporation for
a period of five years unless the corporation's board approved the transaction
prior to the stockholder becoming an interested stockholder, the transaction
receives the approval of two-thirds of the voting stock of the corporation or
the transaction meets certain minimum financial terms. An "interested
stockholder" is defined to include any beneficial owner of 10% or more of the
voting power of the outstanding voting stock of the corporation and any
affiliate or associate of the corporation who within the prior five-year period
has at any time owned 10% or more of the voting power. The term "business
combination" is defined broadly to include, inter alia, (1) merger or
consolidation of the corporation with the interested stockholder or any
corporation that after such merger or consolidation would be an affiliate or
associate of the interested stockholder, (2) sale, lease, exchange, mortgage,
pledge, transfer or other disposition to an interested stockholder or any
affiliate or associate of the interested stockholder of 10% or more of the
corporation's assets or (3) issuance or transfer to an interested stockholder or
any affiliate or associate of the interested stockholder of 5% or more of the
aggregate market value of the stock of the corporation. The effect of the
statute is to protect non-tendering post-acquisition minority shareholders from
mergers in which they will be "frozen out" after the merger by prohibiting
transactions in which an acquiror could favor itself at the expense of minority
shareholders. The New Jersey statute does not apply to New Jersey corporations
that do not have either their principal executive offices or significant
business operations located in New Jersey. The National Bank Act has no
comparable anti-takeover provisions.
Indemnification, Limitation of Director and Officer Liability. Under New
Jersey corporation law, a corporation may indemnify any person who is or was a
director, officer, employee or agent of the corporation, or is or was serving at
the request of the corporation as a director, officer, trustee, employee or
agent of another corporation, partnership, joint venture, sole proprietorship,
trust or other enterprise, against his or her reasonable expenses (including
counsel fees) in connection with any pending, threatened or completed proceeding
by or in the right of the corporation to procure a judgment in its favor that
involves such person by reason of his or her corporate agent status, if he or
she acted in good faith and in a manner he or she reasonably believed to be in
or not opposed to the best interests of the corporation. However, no
indemnification shall be made in respect of any claim, issue or matter as to
which such person shall have been adjudged to be liable to the corporation,
unless and only to the extent that the Superior Court of New Jersey or the court
in which such proceeding was brought shall determine that, despite the
adjudication of liability but in view of all the circumstances of the case, such
person is fairly and reasonably entitled to indemnity for such expenses that the
Superior Court of New Jersey or such other court shall deem proper. In
connection with any other proceeding, a corporation may indemnify any such
person against his or her reasonable expenses and liabilities in connection with
any such proceeding if he or she acted in good faith and in a manner he or she
reasonably believed to be in or not proposed to the best interests of the
corporation and, with respect to any criminal proceeding, he or she had no
reasonable cause to believe his or her conduct was unlawful. New Jersey
corporation law requires that a corpo-
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ration indemnify any such person against expenses to the extent such person
has been successful on the merits or otherwise in any of the foregoing
proceedings or in the defense of any claim, issue or matter therein, and
provides that any such person may apply to a court for an award of
indemnification by the corporation if the corporation has failed or refused to
provide indemnification as provided under the statute.
New Jersey corporation law also permits a corporation to purchase and
maintain insurance on behalf of any such person against any expenses incurred in
any proceeding and any liabilities asserted against such person by reason of his
or her corporate agent status, whether or not the corporation would have the
power to indemnify such person under the statute.
New Jersey corporation law provides that directors and members of any
committee designated by the board of directors are not liable to a corporation
or its shareholders if, acting in good faith, in discharging their duties they
rely upon (i) the opinion of counsel for the corporation, (ii) written reports
setting forth financial data concerning the corporation and prepared by an
independent public accountant or certified public accountant or firm of such
accountants, (iii) financial statements, books of account or reports of the
corporation represented to them to be correct by the president, the officer of
the corporation having charge of its books of account, or the person presiding
at a meeting of the board, or (iv) written reports of committees of the board.
The New Jersey corporation law further provides that the certificate of
incorporation of domestic corporations may contain provisions which limit the
personal liability of directors and officers, in whole or in part, to the
corporation or its shareholders for damages for breach of any duty owed to the
corporation or its shareholders except for acts or omissions (i) in breach of
the director's or officer's duty of loyalty to the corporation or its
shareholders, (ii) not in good faith or involving a knowing violation of law or
(iii) resulting in receipt by such person of an improper personal benefit. The
New Jersey corporation law provides that the duty of loyalty is breached by an
act or omission known or believed by a director or officer to be contrary to the
best interests of the corporation or its shareholders in connection with a
matter in which the director or officer has a material conflict of interest.
Pursuant to the regulations under the National Bank Act, a national banking
association may provide in its articles of association for the indemnification
of directors, officers and employees of the association for expenses reasonably
incurred in actions to which they are parties or potential parties; provided,
however, that the association may not indemnify directors, officers and
employees against expenses, penalties or other payments incurred in an
administrative proceeding or action instituted by an appropriate bank regulatory
agency when such proceeding or action results in a final order assessing civil
money penalties or requiring affirmative action by an individual or individuals
in the form of payments to the association.
The OCC presumes that indemnification articles which substantially reflect
general standards of law of the state in which the bank is headquartered is
within the corporate powers of a national bank. Flemington's Articles of
Association provide indemnification by the association to the fullest extent
provided by the New Jersey Business Corporation Act (described above in the
discussion of UJB's indemnification provisions), except as limited by 12 C.F.R.
(ss)7.5217 under the National Bank Act.
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THE MERGER AGREEMENT
The following discussion is a summary of the material provisions of the
Merger Agreement, a copy of which is attached hereto as Appendix A and
incorporated herein by reference, and is qualified in its entirety by reference
to that agreement.
Effective Time
If the Merger Agreement is approved by the requisite vote of Flemington
shareholders and the other conditions of the Merger, including receipt of all
requisite regulatory approvals, are satisfied or waived, the Merger will become
effective at 12:01 a.m. on the day immediately following the day the Merger
Agreement and necessary certifications pursuant to the New Jersey Banking Act
have been filed with the New Jersey Commissioner of Banking. It is presently
contemplated that the Effective Time will occur during the first calendar
quarter of 1996. The Merger Agreement may be terminated by either party if,
among other things, the Effective Time does not occur on or before June30, 1996.
Closing of the Merger
The Merger Agreement provides that, unless otherwise agreed, the closing of
the Merger ("Closing") will be held on at least five business days notice
("Closing Notice") given to Flemington by UJB, on a date ("Closing Date") not
earlier than the last to occur, but (subject to the exception described below)
not later than 45 business days after the last to occur, of the following: (1)
the date of approval of the Merger Agreement by the Flemington Shareholders; (2)
if the transactions contemplated by the Merger Agreement are being contested in
any legal proceedings, the date that all such proceedings have been brought to a
conclusion favorable, in the judgment of UJB and Flemington, to the consummation
of the transactions contemplated by the Merger Agreement or such prior date as
UJB and Flemington shall elect, whether or not such proceedings have been
brought to a conclusion; and (3) the date on which all governmental approvals
are received and all required waiting periods have expired.
Determination of Exchange Ratio
In the Merger, the shares of each holder of Flemington Stock will be
converted into and represent the Merger Consideration, the amount of which is
not yet fixed and will not be fixed until the Exchange Ratio is set on a date
subsequent to the Special Meeting. The Merger Agreement provides for the
Exchange Ratio to be fixed as of the Determination Date--the date designated by
UJB in the Closing Notice as the Determination Date, which may not be later than
the Closing Date and may not be earlier than the date which is ten business days
prior to the Closing Date. The Determination Date is the final trading day of
the ten consecutive trading-day period during which the Average Price (the
average of the closing prices of UJB Stock as reported on the NYSE--Composited
Transactions Tape during this period) is determined.
The Exchange Ratio will be determined as follows based on the Average
Price:
(1) If the Average Price of a share of UJB Stock is greater than
$37.00, the Exchange Ratio will be 1.3514.
(2) If the Average Price of a share of UJB Stock is equal to or
greater than $29.00 and equal to or less than $37.00, the Exchange Ratio
will be equal to the quotient obtained by dividing $50.00 by the Average
Price.
(3) If the Average Price of a share of UJB Stock is less than $29.00
and greater than or equal to $26.10, the Exchange Ratio shall be 1.7241.
(4) If the Average Price of a share of UJB Stock is less than $26.10,
Flemington has the right to terminate the Merger Agreement by sending a
notice of termination ("Termination Notice") to UJB within three business
days following notice of the Determination Date, but UJB has the right to
nullify such Termination Notice by sending to Flemington within three
business days of its receipt of the Termination Notice a notice agreeing to
an Exchange Ratio equal to the quotient obtained by dividing $45.00 by the
Average Price.
The Exchange Ratio is also subject to appropriate adjustments in the event
that, from the date of the Merger Agreement to the Effective Time, the
outstanding shares of UJB Stock are increased or decreased, changed into or
exchanged for a different number or kind of shares or securities through
reorganization, recapitalization, reclassification, stock dividend, stock split
or reverse stock split or other similar changes.
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Exchange of Flemington Certificates
Prior to the Effective Time, UJB will appoint United Missouri Trust Company
of New York or another entity reasonably satisfactory to Flemington, as the
exchange agent ("Exchange Agent"). A letter of transmittal and other
appropriate and customary exchange materials will be mailed by the Exchange
Agent to each holder of record of Flemington Stock as of the Effective Time for
use in exchanging Flemington Certificates for UJB Certificates.
To effect a proper surrender and exchange of Flemington Certificates, the
Flemington Certificates must be surrendered to the Exchange Agent with properly
executed and completed letters of transmittal. Until so surrendered, UJB may, at
its option, refuse to pay to the holders of the Flemington Certificates
dividends or other distributions, if any, payable to holders of UJB Stock;
provided, however, that, upon surrender and exchange of the Flemington
Certificates, there will be paid to such holders the amount, without interest,
of dividends and other distributions, if any, which became payable prior thereto
but which were not paid. No transfer of Flemington Stock will be effected on the
stock transfer books of Flemington at and after the Effective Time.
The Exchange Agent shall have reasonable discretion to determine whether
letters of transmittal have been properly completed and executed and to
disregard immaterial defects, and any good faith decisions of UJB regarding such
matters as may be referred to it by the Exchange Agent shall be binding and
conclusive.
Neither certificates for fractions of shares of UJB Stock nor scrip
certificates for such fractions will be issued, and holders of Flemington
Certificates who would otherwise be entitled to receive fractions of shares of
UJB Stock will have none of the rights with respect to such fractions of shares
(including, without limitation, the right to receive dividends) that a holder of
a full share of UJB Stock would possess in respect of such full share, and will
receive in lieu thereof cash in an amount equal to such fraction multiplied by
the Average Price. If more than one Flemington Certificate is surrendered for
the same Flemington shareholder account, the number of full shares of UJB Stock
for which UJB Certificates will be issued pursuant to the Merger Agreement will
be computed on the basis of the aggregate number of shares of Flemington Stock
represented by the Flemington Certificates so surrendered.
Flemington shareholders should not surrender their Flemington Certificates
for exchange until a letter of transmittal, instructions and other exchange
materials are received from the Exchange Agent. However, Flemington shareholders
are urged to notify Flemington's registrar and transfer agent now, at (212)
968-1990, if their Flemington Certificates are lost, stolen, destroyed or not
properly registered, in order to begin the process of issuing replacement
Flemington Certificates.
Termination Fee
Flemington has agreed to pay UJB a fee of $3,000,000 in the event UJB
demands such fee in writing within 90 days following a "Purchase Event." A
"Purchase Event" is defined as either: (1) the acquisition by any person or
group, other than UJB or a UJB subsidiary, of beneficial ownership of 25% or
more of Flemington Stock; or (2) Flemington or any of its subsidiaries, without
having received UJB's prior written consent, shall have entered into an
agreement to engage in any "Acquisition Transaction" or the Flemington Board
shall have recommended that the Flemington Shareholders approve or accept an
"Acquisition Transaction" with anyone other than UJB or one of its subsidiaries.
An "Acquisition Transaction" is defined for this purpose to mean (a) a merger,
consolidation or any similar transaction involving Flemington or any Flemington
subsidiary, (b) a purchase, lease or other acquisition of all or substantially
all of the assets or deposits of Flemington or any Flemington subsidiary, or (c)
a purchase or other acquisition (including by way of merger, consolidation or
share exchange) of securities representing 25% or more of the voting power of
Flemington or any Flemington subsidiary.
The right of UJB to receive such fee shall terminate, however, upon the
earliest to occur of: (1) the time immediately prior to the Effective Time; (2)
24 months after (A) the termination of the Merger Agreement following (i) a
"Preliminary Purchase Event," (ii) discussions relating to an acquisition of
Flemington by a person other than UJB or a UJB subsidiary, or (iii) a
determination by the Flemington Board not to submit the Merger Agreement to the
Flemington Shareholders, (B) the termination of the Merger Agreement by UJB
under certain provisions thereof (termination for material breach of a warranty,
representation or covenant by Flemington, failure by Advest to deliver its
opinion by November 30, 1995 (as such date has been extended by the parties) or
failure to consummate the Merger by June 30, 1996); or (C) the termination of
the Merger Agreement by Flemington due to the failure of a mutual closing
condition not caused by UJB except a failure to receive regulatory approvals; or
(3) the termination of the Merger Agreement pursuant to any other section
thereof prior to a Purchase Event or an event specified in clause (2)(B).
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A "Preliminary Purchase Event" is defined as any of the following events:
(1) the Flemington Board withdraws or modifies, in a manner adverse to UJB, its
approval of, or its recommendation to the Flemington Shareholders to
approve, the Merger Agreement or the Merger; (2) Flemington or any of its
subsidiaries, without having received UJB's prior written consent, enters into
an agreement to engage in an "Acquisition Transaction," or the Flemington Board
recommends that the Flemington Shareholders approve or accept an "Acquisition
Transaction," with anyone other than UJB or one of its subsidiaries; (3) any
person (other than UJB or a UJB subsidiary) acquires beneficial ownership or the
right to acquire beneficial ownership of 10% or more of the outstanding shares
of Flemington Stock; (4) any person (other than UJB or a UJB subsidiary) makes a
bona fide proposal to Flemington or its shareholders to engage in an
"Acquisition Transaction" or files a registration statement with respect to a
tender offer or exchange offer to acquire 10% or more of the outstanding
Flemington Stock; (5) after a proposal is made by a third party to Flemington or
its shareholders to engage in an "Acquisition Transaction," or such person
states its intention to Flemington to make such a proposal if the Merger
Agreement terminates, Flemington breaches any representation, covenant or
obligation contained in the Merger Agreement that would entitle UJB to terminate
the Merger Agreement (without regard to any cure period); or (6) the Flemington
Shareholders do not approve the Merger Agreement at the Special Meeting or the
Special Meeting is not held or is canceled prior to the termination of the
Merger Agreement after any person (other than UJB or a UJB subsidiary) shall
have (a) made or disclosed an intention to make a bona fide proposal to engage
in an "Acquisition Transaction," (b) commenced a tender offer or filed a
registration statement under the Securities Act with respect to an exchange
offer, or (c) filed an application or given a notice under the Bank Holding
Company Act of 1956, as amended (the "BHC Act"), the Bank Merger Act, or the
Change in Bank Control Act of 1978 for approval to engage in an "Acquisition
Transaction." For the purpose of the definition of "Preliminary Purchase Event,"
"Acquisition Transaction" is defined the same as it is for purposes of "Purchase
Events" except 10% rather than 25% is the applicable percentage with respect to
purchases and other acquisitions of voting securities of Flemington.
Amendment
Flemington and UJB may jointly amend the Merger Agreement at any time;
provided, however, that, after the Special Meeting, no amendment may change the
forms of consideration to be received by the Flemington shareholders unless such
modification is submitted to a vote of the Flemington shareholders.
Covenants
Flemington Covenants.
Pursuant to the Merger Agreement, Flemington has covenanted, among other
things, that, until termination of the Merger Agreement, Flemington will advise
UJB of any material adverse change in Flemington's business and certain other
circumstances, and the business of Flemington and its subsidiaries will be
carried on diligently and substantially in the same manner as prior to the
execution of the Merger Agreement. Furthermore, until termination of the Merger
Agreement, without the prior written consent of UJB, Flemington will refrain
from taking certain other actions, including certain actions relating to changes
in its capital stock, the incurrence of liabilities and the issuance of capital
stock.
Flemington also has agreed that, until termination of the Merger Agreement,
it will not directly or indirectly through any agent solicit or initiate, or
encourage any unsolicited inquiry respecting, any proposal or offer for, or
enter into discussions or negotiate for, or authorize or enter into any
agreement or agreement in principle providing for, any business combination or
takeover transaction (other than the Merger), whether as the proposed surviving,
disappearing, acquiring or acquired corporation, except to the extent that a
response to unsolicited inquiries, discussions or the furnishing of information
is legally required for the discharge of the fiduciary duties of the Flemington
Board as advised in writing by the Flemington Board's outside counsel. Further,
except as may be required by court order or decree or required by statute or
regulation, Flemington has also agreed, during this period, that it will not
furnish or cause to be furnished any information, except information previously
made public and any information customarily furnished to the public in the
ordinary course of business, concerning Flemington's business or properties to
any person or entity making any inquiry or proposing a transaction described in
the previous sentence other than UJB and except as noted above with respect to
the discharge of the Flemington Board's fiduciary duties. In addition,
Flemington has agreed to notify UJB by telephone promptly upon receipt of any
inquiry with respect to a proposed merger, consolidation, business combination,
assets acquisition or disposition, tender offer or other takeover transac-
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tion with another person or receipt of a request for information from any
governmental or regulatory authority with respect to a proposed acquisition of
Flemington or any of its subsidiaries or assets by another party, and to deliver
as soon as possible by facsimile transmission to UJB a copy of any document
relating thereto promptly after any such document is received by Flemington.
UJB Covenants.
Pursuant to the Merger Agreement, UJB has covenanted, among other things,
that until termination of the Merger Agreement UJB will advise Flemington of any
material adverse change in UJB's business and certain other circumstances, and
will use its best efforts to preserve its business organization intact and its
relationship with customers and others having business dealings with it.
UJB has also agreed to terminate the Defined Benefit Plan and distribute
all benefits thereunder, provided such termination is consistent with accounting
for the Merger as a pooling-of-interests, and to permit employees to participate
in pension, savings, and health and welfare plans to the extent maintained by
UJB unless a comparable plan of Flemington is retained.
Regulatory Approvals
The Merger is subject to approval by the Federal Reserve Board under the
BHC Act. The BHC Act provides that the Federal Reserve Board may not approve any
transaction (1) that would result in a monopoly, or that would be in furtherance
of any combination or conspiracy to monopolize or to attempt to monopolize the
business of banking in any part of the United States, or (2) the effect of which
in any section of the country may be substantially to lessen competition, or to
tend to create a monopoly, or that in any other manner would be in restraint of
trade, unless the Federal Reserve Board finds that the anticompetitive effects
of the proposed transaction are clearly outweighed in the public interest by the
probable effect of the transaction in meeting the convenience and needs of the
communities to be served. In conducting its review of any application for
approval, the Federal Reserve Board is required to consider the financial and
managerial resources and future prospects of the company or companies and the
banks concerned, and the convenience and needs of the communities to be served.
Under the BHC Act as interpreted by the Federal Reserve Board and the courts,
the Federal Reserve Board may deny any application if it determines that the
financial or managerial resources of the acquiring bank holding company are
inadequate. The acquisition by UJB of 5% or more of Flemington's voting stock is
subject to the same approval. The BHC Act provides that a transaction approved
by the Federal Reserve Board may not be consummated for 30 days after such
approval or, if certain conditions are met, a shorter period, but in no event
less than 15 calendar days after the date of approval. During such period, the
Justice Department may commence legal action challenging the transaction under
the antitrust laws. If, however, the Justice Department does not commence legal
action during the specified waiting period, it may not challenge the transaction
thereafter except in an action commenced under Section 2 of the Sherman
Antitrust Act. The BHC Act provides for the publication of notice and the
opportunity for administrative hearings relating to the application for approval
of the Merger and authorizes the Federal Reserve Board to permit interested
parties to intervene in the proceedings. If an interested party is permitted to
intervene, such intervention could substantially delay the regulatory approval
required for consummation of the Merger. Satisfactory financial condition,
particularly with regard to capital adequacy, and satisfactory Community
Reinvestment Act ratings are generally prerequisites to obtaining Federal
Reserve Board approval to make acquisitions. All of UJB's subsidiary banks are
currently rated "satisfactory" or better under the Community Reinvestment Act.
An application respecting the Merger has been filed by UJB with the Federal
Reserve Board. Regulations of the Federal Reserve Board under the BHC Act
require notice of an application for approval of a merger between bank holding
companies to be published in a newspaper of general circulation and in the
Federal Register and that the public have at least 30 days to comment on the
application. In the event one or more comments protesting approval of the
application are received by the Federal Reserve Board within the time period
provided for in the respective notices, the Federal Reserve Board's regulations
permit the Federal Reserve Bank having jurisdiction over the applicant, acting
on delegated authority from the Federal Reserve Board, to arrange a private
meeting between the applicant and the protestors if the Federal Reserve Bank
decides a private meeting would be appropriate. In addition, if an applicant or
a protestor requests a hearing or if the Federal Reserve Board determines such
to be appropriate, the Federal Reserve Board may order that a formal hearing on
the application be held or that a proceeding permitting all interested parties
to present their views orally before the Federal Reserve Board or its designated
representative be conducted. Due to
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the possibility that a private meeting, public hearing or proceeding providing
for oral presentation will be deemed appropriate by the Federal Reserve Board
following receipt of a protest, and due additionally to the procedures relating
thereto, Federal Reserve Board processing of merger applications receiving one
or more protests will generally take longer than the processing of merger
applications not receiving such protests. The comment period relating to UJB's
application for approval of the Merger expires on or about December 16, 1995. As
of the date of this Proxy Statement-Prospectus UJB has been notified that the
Federal Reserve Board has received one comment requesting a hearing.
The Merger of Flemington into UJBank is subject to the approval of the New
Jersey Commissioner of Banking, which was received on November 8, 1995.
Based on current precedents, the managements of UJB and Flemington
anticipate that the Merger will be approved by the Federal Reserve Board and
believe it is not subject to challenge by the Justice Department under the
antitrust laws. However, there is no assurance that the Federal Reserve Board or
the Justice Department will not challenge the Merger or that any approval by the
Federal Reserve Board will not contain conditions unacceptable to UJB or
Flemington or both. Flemington shareholders should be aware that regulatory
approvals of the Merger may be based upon different considerations than those
that would be important to such shareholders in determining whether or not to
approve the Merger. Any such approvals should in no event be construed by a
Flemington shareholder as a recommendation by any regulatory agency with respect
to the Merger.
Conditions to the Merger; Termination
The obligations of both parties to consummate the Merger are subject to the
satisfaction of certain conditions including: (1) the number of Dissenting
Shares not exceed five percent (5%) of shares of Flemington Stock outstanding on
the Record Date; (2) net worth conditions; (3) receipt of all required
regulatory approvals by UJB, UJBank and Flemington without such approvals
containing restrictions or limitations, which, in the reasonable opinion of UJB
or Flemington, would materially adversely affect the financial condition of UJB
following the consummation of the Merger and the expiration of any waiting
periods required by such approvals; (4) the receipt by UJB and Flemington of an
opinion from Thompson & Mitchell as to certain federal income tax consequences
of the Merger; (5) the UJB Stock to be issued in the Merger having been approved
for listing on the NYSE, subject to official notice of issuance; and (6) other
customary conditions described in the Merger Agreement. Any of such conditions
may be waived by the party for whose benefit the condition was included.
However, the Merger will not be consummated without the receipt of the requisite
regulatory approvals.
Either party may terminate the Merger Agreement if (1) the Flemington
Shareholders fail to approve the Merger Agreement by the requisite vote, (2) the
other party materially breaches a warranty, representation or covenant and such
breach is not cured or capable of being cured within 30 days of the giving of
written notice thereof, (3) a requisite regulatory approval is not received, or
(4) for any other reason the Merger has not been closed by June 30, 1996. In
addition, the parties may terminate the Merger Agreement at any time by mutual
agreement.
Expenses
In the event that the Merger Agreement is terminated by either party, each
party shall be mutually released and discharged from liability to the other
party or to any third party hereunder, and no party shall be liable to any other
party for any costs or expenses incurred in connection with the Merger
Agreement, except that the expenses incurred in connection with the printing of
this Proxy Statement-Prospectus and the Registration Statement and the filing
fees with the Commission, the New Jersey Department of Banking and the NYSE
shall be borne equally by Flemington and UJB. Notwithstanding the foregoing,
should either party terminate the Merger Agreement because the other party has
materially breached a warranty, representation or covenant or because the other
party has not met its conditions to Closing, then the first party shall be
reimbursed by the second party for the first party's out-of-pocket expenses
reasonably incurred in connection with the Merger Agreement, including counsel
fees, printing fees and filing fees, but excluding any brokers', finders' or
investment bankers' fees.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
Directors and executive officers of Flemington have interests in the Merger
that are in addition to their interests as Flemington shareholders. These
interests are described in more detail below.
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Indemnification
In the Merger Agreement UJBank has agreed to indemnify and to advance
expenses in matters that may be subject to indemnification to persons who served
as directors and officers of Flemington or any subsidiary of Flemington on or
before the Effective Time with respect to liabilities and claims (and related
expenses) made against them resulting from their service as such prior to the
Effective Time in accordance with and subject to the requirements and other
provisions of the UJBank Restated Certificate of Incorporation and By-Laws in
effect on the date the Merger Agreement was executed and applicable provisions
of law to the same extent as UJBank is obliged to indemnify and advance expenses
to its own directors and officers with respect to liabilities and claims made
against them resulting from their service of UJBank.
In the Merger Agreement UJBank also agreed that for a period of six (6)
years after the Effective Time UJBank would use its best efforts to provide to
the persons who served as directors or officers of Flemington or any subsidiary
of Flemington on or before the Effective Time insurance against liabilities and
claims (and related expenses) made against them resulting from their service as
such prior to the Effective Time comparable in coverage to that provided by
UJBank to its own directors and officers, but, if not available on commercially
reasonable terms, then coverage substantially similar in all material respects
to the insurance coverage provided to them in such capacities on the date of the
Merger Agreement; provided that in no event is UJBank required to expend more
than 200% of the amount expended by Flemington prior to the execution of the
Merger Agreement for its insurance coverage. UJBank has agreed to use its best
efforts to obtain as much comparable insurance as is available for this amount.
Flemington must renew any existing insurance or purchase any "discovery period"
insurance provided for under existing insurance at UJBank's request.
The Flemington National Bank and Trust Company Defined Contribution Plan
and Other Arrangements
UJB has agreed that, immediately prior to or following the Merger, the
Defined Contribution Plan will be terminated and all accrued benefits, including
benefits that had not vested prior to the Merger, in the Defined Contribution
Plan will be distributed to participants or their beneficiaries, provided that
such termination is consistent with pooling-of-interests accounting treatment.
Following the Merger, Flemington employees will be permitted to participate in
pension, savings and health and welfare plans maintained by UJB unless a
comparable Flemington plan is retained.
Employment and Severance Arrangements
Nathan C. Collins is party to an employment agreement with Flemington,
dated February 28, 1995 (the "Collins Agreement"), pursuant to which Mr. Collins
was employed as President and Chief Executive Officer of Flemington commencing
March 1, 1995. The Collins Agreement provides for a two year term of employment
at an annual rate of compensation of $190,000, plus standard perquisites (i.e.,
use of an automobile, five weeks paid vacation, moving allowance). The contract
contemplates extensions thereafter, upon agreement of the parties, for further
terms of not less than six months each. Under the Merger Agreement, UJBank is
obligated to honor the terms of the Collins Agreement and would be so obligated,
in any event, as a matter of law by reason of the effect of the Merger. UJB has
advised Mr. Collins that it is unlikely that they will require his services
after an approximate three month transition period following the Effective Time;
however, by reason of the Collins Agreement, UJBank will remain obligated to
compensate Mr. Collins at the stated rate through February of 1997.
The Collins Agreement provided that Flemington was obligated to grant Mr.
Collins stock options or stock appreciation rights in respect of 10,000 shares
of Flemington Stock at a base price of $27.50 per share (the market price of
Flemington shares at the time the Collins Agreement was entered into).
Flemington determined to satisfy such obligation by means of cash-only stock
appreciation rights and Flemington and Mr. Collins subsequently entered into an
agreement, dated June 26, 1995, with respect thereto (the "Collins SAR
Agreement"). Under the Collins SAR Agreement, cash-only stock appreciation
rights were granted (i) with respect to 5,000 shares of Flemington Stock which
vested upon grant, and (ii) with respect to 5,000 shares of Flemington Stock
which vested upon the earlier of March 1, 1996 (the first anniversary date of
the Collins Agreement) or a "change in control" of Flemington (as defined in the
Collins SAR Agreement), all as required by the terms of the Collins Agreement.
The Merger will constitute a change in control of Flemington for purposes of the
Collins SAR Agreement and, accordingly, the stock appreciation rights with
respect to the second 5,000 shares of Flemington Stock will vest at the
Effective Time (if not sooner vested on March 1, 1996). The stock appreciation
rights granted by the Collins SAR Agreement have a maximum term of five years
and may be exercised by Mr. Collins, prior to expiration, to the extent vested
on December 31
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or June 30 of any year; provided, (i) if Mr. Collins' employment is terminated
for cause, any unexercised SARs will terminate on the date of such termination;
(ii) if Flemington or any successor terminates Mr. Collins' employment other
than for cause, any then unexercised SARs must be exercised, if at all, and then
only to the extent exercisable, within three months of such termination; (iii)
if Mr. Collins resigns or retires, any unexercised SARs must be exercised, to
the extent exercisable on the date of retirement or resignation, within one year
of such date (but not beyond the termination date), and (iv) if Mr. Collins
dies, SARs must be exercised, to the extent exercisable at his death, by his
personal representative within one year of death (but not beyond the expiration
date). The Collins SAR Agreement provides for an equitable adjustment to both
the number of shares in respect of the SARs granted thereby and the base price
in the event Flemington shares are converted into shares of another entity. The
closing price of UJB Stock on December 6, 1995 was $33.50 per share which would
result in a hypothetical Exchange Ratio of 1.4925. Based upon the foregoing
price and hypothetical Exchange Ratio, the aggregate value of Mr. Collins' SARs,
assuming consummation of the Merger on such date, would be $224,920.
On February 8, 1995, the Flemington Board approved a severance compensation
package for J. Kirby Fowler. Mr. Fowler had been employed by Flemington since
1971, initially as Vice President of Personnel and Planning and, since 1975, as
President and Chief Executive Officer. He was succeeded in those positions by
Mr. Collins. A portion of the compensation package granted to Mr. Fowler by the
Flemington Board on February 8, 1995 were options or SARs in respect of 2,500
shares of Flemington Stock on terms, including base price, substantially
identical to those to be granted to Mr. Collins pursuant to the Collins
Agreement. Accordingly, on the date of the Collins SAR Agreement, Flemington
entered into a stock appreciation rights agreement with Mr. Fowler (the "Fowler
SAR Agreement"). The Fowler SAR Agreement contains terms substantially identical
to the Collins SAR Agreement, except that since the stock appreciation rights
with respect to all 2,500 shares granted to Mr. Fowler vested upon grant, there
is no provision for accelerated vesting upon a change in control of Flemington
in the Fowler SAR Agreement. Based upon the price for UJB Stock of $33.50 and
hypothetical Exchange Ratio of 1.4925, the aggregate value of Mr. Fowler's SAR's
assuming consummation of the Merger on December 6, 1995, would be $56,230.
On April 12, 1995, the Board of Directors of Flemington adopted a Change in
Control Plan (the "Plan") pursuant to which each of Garrett P. Bromley, Thomas
C. Pickel and Victoria Ann Arcella, each an Executive Vice President of
Flemington, will be entitled to receive the equivalent of one year of
compensation in the event that, within one year following a "change of control"
of Flemington (as that term is defined in the Plan), (i) the executive is
involuntarily terminated (other than by reason of death, disability or the
commission of a felony adversely affecting Flemington), or (ii) the executive
resigns after having made a good faith determination that a significant
reduction or adverse change has occurred in the nature or scope of his or her
responsibilities and authority or compensation, or a change of more than
thirty-five miles has occurred in the location of his or her office. The Merger
will constitute a changed control of Flemington under the Plan. The annual rate
of compensation of each of Mr. Bromley, Mr. Pickel and Ms. Arcella is $92,000,
$82,787, and $84,800, respectively.
In order to further induce the continued presence at Flemington through the
Effective Time of each of the executive vice presidents named in the preceding
paragraph, each will be entitled to receive a one-time payment of $72,000 in the
event they do not resign prior to the Effective Time or their employment is
terminated by Flemington (other than for death, disability or cause) prior to
the Effective Time.
Flemington maintains a severance policy under which each employee is
entitled to severance pay equal to one week's pay for each full year of
employment served with Flemington, or any successor institution, on the date of
termination (but in no event more than 26 weeks). Under the Merger Agreement,
UJB is obligated to honor such policy for a period of nine months following the
Effective Time. Because Mr. Collins has an employment agreement, and Messrs.
Bromley and Pickel and Ms. Arcella are participants in the Plan, none of these
individuals are eligible for such payments.
Affiliate Transaction
On January 12, 1995, Flemington executed a lease (the "Lease") with
Flemington Glass Enterprises, Inc. ("FGE") for approximately 6,000 square feet
of commercial space in a portion of a building located at Block 30, Broad
Street, Flemington, New Jersey (the "Premises"). Flemington will use the
Premises as an operations center to house item processing and imaging equipment.
The Lease provides for a one-year term and is renewable for one additional term
of three years at the option of Flemington. The rent is $5,000 per month, or
$60,000 on an annual basis, plus utilities. George D. Muller is Vice President
and a greater than 10% shareholder of FGE. Mr. Muller is also the
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Chairman of the Board of Directors of Flemington. Over eleven locations
were reviewed in 1994 to house the operations center. Most quotes received by
Flemington were at $12 to $15 per square foot per annum plus payments for common
maintenance areas. The cost per square foot for the Premises is $10 per square
foot per annum, with no payment for common maintenance areas. After
consideration by the disinterested directors of Flemington, the FGE proposal was
considered the best and most reasonable from an expense point of view. Mr.
Muller did not participate in the discussion or decision to approve the Lease.
Flemington has expended approximately $300,000 in tenant improvements to the
Premises, substantially all of which will inure to the benefit of the Premises
upon termination of the Lease. Flemington has agreed with UJB that it would
terminate the Lease for the operations center, with such termination to take
effect in the second quarter of 1996.
UJB FINANCIAL CORP.
Description of Business
UJB commenced operations as a New Jersey corporation on October 1, 1970. As
a bank holding company registered under the BHC Act, UJB owns two bank
subsidiaries and eight active non-bank subsidiaries. At September 30, 1995, UJB
had total consolidated assets of $15.5 billion on the basis of which it ranked
as the third largest New Jersey bank holding company.
The bank subsidiaries engage in a general banking business. United Jersey
Bank is UJB's largest bank subsidiary, accounting for approximately 82.3% of
UJB's total consolidated assets at September 30, 1995. UJB's non-bank
subsidiaries engage primarily in discount brokerage, venture capital investment,
commercial finance lending, lease financing, and reinsuring credit life and
disability insurance policies related to consumer loans made by the bank
subsidiaries.
The bank subsidiaries operated 290 banking offices located in major trade
centers and suburban areas in New Jersey and Pennsylvania as of September 30,
1995. The following table lists, as of September 30, 1995, each bank subsidiary,
the location in New Jersey or Pennsylvania of its principal office, the number
of its banking offices and, in thousands of dollars, its total assets and
deposits. Both the New Jersey and Pennsylvania subsidiaries are state banks,
however, only the New Jersey bank is a member of the Federal Reserve System.
Location No. of
of Principal Banking Total Total
Offices Offices Assets(1) Deposits(1)
------------ ------- --------- -----------
United Jersey Bank, Hackensack, NJ 217 $12,789,672 $10,779,818
First Valley Bank, Bethlehem, PA 73 2,736,505 2,089,542
- ----------
(1) Not adjusted to exclude interbank deposits or other transactions among the
subsidiaries.
UJB is a legal entity separate and distinct from its subsidiaries. There
are various legal limitations on the extent to which a bank subsidiary may
finance or otherwise supply funds to UJB or its non-bank subsidiaries. Under
federal law, no bank subsidiary may, subject to certain limited exceptions, make
loans or extensions of credit to, or investments in the securities of, UJB or
its non-bank subsidiaries or take their securities as collateral for loans to
any borrower. Each bank subsidiary is also subject to collateral security
requirements for any loans or extensions of credit permitted by such exceptions.
In addition, certain bank regulatory limitations exist on the availability of
subsidiary bank undistributed net assets for the payment of dividends to UJB
without the prior approval of the bank regulatory authorities. The Federal
Reserve Act, which affects UJB's one state member bank, restricts the payment of
dividends in any calendar year to the net profit of the current year combined
with retained net profits of the preceding two years. Both banks, as
state-chartered banks, may each declare a dividend only if, after payment
thereof, its capital would be unimpaired and its remaining surplus would equal
50 percent of its capital (New Jersey) or 100 percent of its capital
(Pennsylvania). At September 30, 1995, the total undistributed net assets of the
subsidiary banks were $1.3 billion of which $234 million was available under the
most restrictive limitations for the payment of dividends to UJB.
Recent Developments
On February 15, 1995, the UJB Board increased the quarterly dividend of UJB
to $.29 a share from $.26 per share, for an annual rate of $1.16 per share,
representing an 81.3% increase in the annual dividend rate from the $0.64 annual
rate in effect in March 1993.
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On September 10, 1995, UJB entered into an Agreement and Plan of Merger
with Summit pursuant to which Summit will merge with and into UJB under the name
"Summit Bank Corp." Although T. Joseph Semrod, Chairman, President and Chief
Executive Officer of UJB, John G. Collins, Vice Chairman of UJB, and Robert G.
Cox, President and Chief Executive Officer of Summit had had general discussions
about the possible merger of UJB and Summit over the years, Mr. Cox first
expressed a specific interest in exploring the feasibility of a merger at a
breakfast meeting with Mr. Collins on July 21, 1995. Mr. Collins, who had
succeeded Mr. Cox as Chairman of the New Jersey Bankers Association, and Mr. Cox
met regularly for breakfast every three or four months. The July 21, 1995
breakfast was scheduled prior to, but took place subsequent to a July 18, 1995
meeting of Summit's Executive Committee at which strategic alternatives for
Summit were explored. The next contact between UJB and Summit regarding a merger
took place on August 8, 1995. Several meetings were held among Messrs. Semrod,
Collins and Cox between August 17, 1995 and September 10, 1995, the date both
the Summit Board and UJB Board approved the merger agreement between Summit and
UJB. In addition to the merger of Summit into UJB, the merger agreement further
provides for the merger of Summit Bank with and into UJBank under the name
"Summit Bank." Upon consummation of the merger, each share of Summit common
stock will be converted into a right to receive 0.90 shares of UJB Stock and
cash in lieu of fractional shares. Further, each share of Summit Preferred will
be converted into a right to receive a like number of shares of a newly created
class of UJB Series C Preferred having the same relative rights, preferences and
limitations as the Summit Preferred and having relative rights, preferences and
limitations substantially similar to those of the UJB Series B Preferred Stock
except for dividend payment dates, dividend interest rates and the voting rights
that apply in the event of nonpayment of dividends. The Summit Acquisition is
expected to be accounted for as a pooling-of-interests. At September 30, 1995,
Summit had total consolidated assets, deposits and shareholders' equity of $5.6
billion, $4.6 billion and $484.6 million. Subject to the satisfaction of certain
conditions, including the approval of the Summit Acquisition by the shareholders
of UJB and Summit, the Summit Acquisition is expected to close late in the first
quarter of 1996.
In connection with the merger agreement between UJB and Summit, on
September 11, 1995, UJB entered into a stock option agreement with Summit and
Summit entered into a stock option agreement with UJB (the "UJB/Summit Stock
Option Agreements"). Pursuant to the UJB/Summit Stock Option Agreements, UJB
issued to Summit an option purchase 11,450,000 shares of UJB Stock, representing
19.9% of UJB Stock outstanding at that date, at $36.625 per share and Summit
issued to UJB an option to purchase 6,730,000 shares of Summit common stock,
representing 19.9% of Summit common stock outstanding at that date, at $26.75
per share. Generally, the options are exercisable upon the occurrence of a
merger, consolidation or similar transaction between the issuer of the option
and a third party, or an acquisition of 25% or more of such issuer's assets or
voting stock by a third party without the prior written consent of the grantee
of the option. The UJB/Summit Stock Option Agreements are intended to increase
the likelihood that the merger of Summit with and into UJB will be consummated,
and may be expected to discourage offers by third parties to acquire UJB or
Summit prior to such merger.
The merger agreement between UJB and Summit provides that at the effective
time of the Summit Acquisition the Board of Directors of UJB will consist of the
thirteen members of the Board of Directors of UJB at the effective time and six
additional members selected by the Board of Directors of Summit from among those
persons serving as directors of Summit both at the time the merger agreement was
executed and the effective time of the Summit Acquisition. In addition, Robert
G. Cox, a Director and President of Summit, will be one of the six nominees of
Summit to the UJB Board of Directors and will become President of UJB.
Summit conducts its principal operations through its wholly owned
commercial bank subsidiary, Summit Bank, a New Jersey chartered commercial bank.
Summit Bank provides a broad range of commercial banking, retail banking, real
estate, trust and other financial services through 90 branches located in 11
counties in Northern and Central New Jersey. As of September 30, 1995, Summit
Bank had total assets of $5.6 billion and total deposits of $4.7 billion. As
soon as practicable after the consummation of the Summit Acquisition, Summit
Bank will merge with and into UJBank under the name "Summit Bank."
On July 11, 1995, UJB completed the Bancorp Acquisition, which was
accounted for on a purchase accounting basis. At July 11, 1995, Bancorp had
assets of $506 million and deposits of $451 million. In the transaction, 60
percent of the outstanding Bancorp common stock was exchanged for UJB Stock at
the exchange ratio of 1.5441 shares of UJB Stock for each share of Bancorp
common stock, resulting in a total of 1,948,153 shares of UJB Stock being
issued, and the remaining 40 percent of outstanding Bancorp common stock was
exchanged for cash at the rate of $43.10 per share, for an aggregate cash
payment of $36,273,463. As of July 11, 1995, Bancorp through its wholly
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owned subsidiary bank, New Jersey Savings Bank ("NJSB"), operated nine
banking offices located in Basking Ridge, Bedminster, Bridgewater, Flemington,
Hillsborough, Princeton, Somerville, Somerset and Whitehouse, New Jersey. NJSB's
primary business consisted of attracting deposits from the general public and
originating loans that are secured by residential properties, as well as
originating commercial and consumer loans.
On June 13, 1995, Summit entered into an Agreement and Plan of Merger with
Garden State, pursuant to which Garden State will merge with and into Summit.
Upon consummation of the merger, each share of Garden State Stock, will be
converted into a right to receive 1.08 shares of Summit Stock and cash in lieu
of fractional shares. The Garden State Acquisition will be accounted for on a
pooling of interests basis. On September 30, 1995, Garden State had total
consolidated assets, deposits and shareholders' equity of $314 million, $284
million and $29 million, respectively. As of September 30, 1995, Garden State,
through its wholly owned subsidiary bank Garden State Bank ("GSBank"),
operated nine branches in Ocean and Monmouth Counties, New Jersey. GSBank is
a full service commercial bank and offers services generally performed by
commercial banks of similar size and character including checking, savings and
time deposits accounts, certificates of deposit, secured and unsecured personal
and commercial loans, and residential and commercial real estate loans.
DESCRIPTION OF UJB CAPITAL STOCK
UJB is presently authorized to issue 130,000,000 shares of UJB Stock, par
value $1.20 per share, and 4,000,000 shares of Preferred Stock, without par
value ("UJB Preferred Stock"). As of September 30, 1995, there were 57,581,872
shares of UJB Stock and 600,166 shares of UJB Preferred Stock, Series B ("Series
B Preferred Stock") outstanding and 600,000 shares of UJB Series R Preferred
reserved for issuance in UJB's Restated Certificate of Incorporation under the
UJB Rights Plan. In connection with the Summit Acquisition, UJB will be creating
the UJB Series C Preferred. Pursuant to New Jersey law, the UJB Board has
authority to set the terms and conditions of the authorized but unissued UJB
Preferred Stock. UJB may issue any authorized UJB Stock and UJB Preferred Stock
without further shareholder vote, unless required for a particular transaction
by applicable law or stock exchange rules, including rules of the NYSE, on which
the UJB Stock and the Series B Preferred Stock are presently listed. The
issuance of additional UJB Stock or UJB Preferred Stock, including UJB Preferred
Stock that might be convertible into UJB Stock, may, among other things, affect
the earnings per share applicable to existing UJB Stock and the equity and
voting rights of existing holders of UJB Stock.
The following summary does not purport to be complete and is subject in all
respects to the applicable provisions of New Jersey law, UJB's Restated
Certificate of Incorporation, including Certificates of Designation pursuant to
which the UJB Series B Preferred Stock was issued and UJB's Shareholder's Rights
Plan.
Common Stock
The rights of holders of UJB Stock are subject to the preferences of
holders of the Series B Preferred Stock described below and the preferences as
to dividends and liquidation rights and other prior rights, if any, of any other
class or series of UJB Preferred Stock that may be issued. The holders of UJB
Stock are entitled to one vote for each share with respect to all matters voted
upon by shareholders, including the election of directors, and are entitled to
receive dividends when, as and if declared by the UJB Board out of funds of UJB
legally available therefor. Shares of UJB Stock do not have cumulative voting
rights; accordingly, at any Special Meeting of UJB shareholders (or at any
special meeting of shareholders where an election of directors is conducted) the
holders of 50 percent plus 1 of the shares presented at the Special Meeting
(provided a quorum is present) can fill all positions on the UJB Board that are
up for election at such Special Meeting if they so choose and, in such event,
the holders of the remaining less than 50 percent of the shares will not be able
to fill any of such positions. UJB has a classified Board of Directors, under
which approximately one-third of the directors are elected each year. In the
event of the liquidation of UJB, holders of UJB Stock are entitled to share pro
rata in the distribution of UJB's assets available for such purpose. All shares
of UJB Stock are fully paid and nonassessable. No preemptive rights attach to
the ownership of UJB Stock and no personal liability is imposed on the holders
thereof by reason of the ownership of such shares. First Chicago Trust Company
of New York is the transfer agent, dividend disbursing agent and registrar for
the UJB Stock. UJBank is the co-transfer agent.
Preferred Stock
The Series B Preferred Stock is entitled to cumulative dividends that are
payable quarterly on February 1, May 1, August 1 and November 1 of each year.
For each quarterly period, the dividend rate will be determined in advance of
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such period, and will be 1.5 percent less than the highest of the 3-month U.S.
Treasury Bill Rate, the Ten Year Constant Maturity Rate and the Thirty Year
Constant Maturity Rate, which are average yields on certain U.S. Treasury fixed
rate securities, as published by the Federal Reserve Board. However, the
dividend rate for any dividend period will not be less than 6 percent per annum
nor greater than 11 percent per annum. The Series B Preferred Stock is
redeemable at the option of UJB, in whole or in part, at $50 per share, in each
case plus accrued and unpaid dividends. Holders of Series B Preferred Stock have
the right to vote as a class on certain amendments to the Restated Certificate
of Incorporation of UJB that may affect the Series B Preferred Stock and to
elect two directors in the event of a failure to pay full cumulative dividends
for six quarters. They have no other voting rights. The Series B Preferred Stock
is not convertible into shares of UJB Stock and has no preemptive rights. The
Series B Preferred Stock is not subject to any sinking fund or other repurchase
or retirement obligation of UJB. First Chicago Trust Company of New York is the
transfer agent, dividend disbursing agent and registrar for shares of the
Series B Preferred Stock.
In connection with the Summit Acquisition, UJB will be creating the UJB
Series C Preferred. The UJB Series C Preferred will rank on a parity with the
UJB Series B Preferred as to dividends and liquidation preference. The UJB
Series C Preferred will be entitled to cumulative dividends that are
payable quarterly on March 15, June 15, September 15, and December 15 of each
year. For each quarterly period, the dividend rate will be determined in advance
of such period, and will be 2.75 percent less than the highest of the 3-month
U.S. Treasury Bill Rate, the Ten Year Constant Maturity Rate and the Twenty Year
Constant Maturity Rate, which are average yields on certain U.S. Treasury fixed
rate securities, as published by the Federal Reserve Board. However, the
dividend rate for any dividend period will not be less than 6 percent per annum
nor greater than 12 percent annum. The UJB Series C Preferred will be redeemable
at the option of UJB, in whole or in part, at $25 per share, plus accrued and
unpaid dividends. Holders of UJB Series C Preferred will have the right to vote
as a class on certain amendments to the Restated Certificate of Incorporation of
UJB that may adversely affect the rights or preferences of the UJB Series C
Preferred and in the event of a failure to pay full cumulative dividends for six
quarters holders of the UJB Series C Preferred will be entitled to vote in the
election of directors on the same basis as the holders of UJB Stock. Holders of
the UJB Series C Preferred will have no other voting rights. The UJB Series C
Preferred will not be convertible into shares of UJB Stock and will have no
preemptive rights. The UJB Series C Preferred will not be subject to any sinking
fund or other repurchase or retirement obligations of UJB. First Chicago Trust
Company of New York will be the transfer agent, dividend disbursing agent and
registrar for shares of the UJB Series C Preferred.
Shareholder Rights Plan
In August 1989, UJB adopted a shareholder rights plan ("Rights Plan"),
under which preferred stock purchase rights ("Rights") attached to UJB Stock
outstanding as of the close of business on August 28, 1989. Holders of shares of
UJB Stock issued subsequent to that date receive the Rights with their shares.
Except as indicated below, each Right entitles the registered holder to purchase
from UJB one-hundredth of a share of a new series of UJB Preferred Stock,
designated the Series R Preferred Stock ("Series R Preferred Stock"). The Rights
expire on August 16, 1999, and are subject to redemption and amendment in
certain circumstances. The Rights trade automatically with shares of UJB Stock
and become exercisable only under certain circumstances as described below.
In general, the Rights will become exercisable upon the earlier to occur (a
"Distribution Date") of the following: (1) ten days following a public
announcement that a person or group has acquired beneficial ownership of 15% or
more of the UJB Stock outstanding at that time or voting securities of UJB
representing 15% or more of the total voting power of UJB (such person or group
becoming an "Acquiring Person") or (2) ten business days (or such later date as
the UJB Board may determine) after the commencement of a tender offer or
exchange offer that would result in a person or group beneficially owning 30% or
more of the outstanding UJB Stock or voting securities representing 30% or more
of the total voting power of UJB.
Generally, in the event a Distribution Date occurs by virtue of a person or
group becoming an Acquiring Person (other than pursuant to an offer for all
outstanding shares of UJB Stock and other voting securities that the UJB Board
determines to be fair to shareholders and otherwise in the best interests of
UJB), each Right, other than Rights owned by the Acquiring Person, will
thereafter entitle the holder to receive, upon exercise of the Right, Series R
Preferred Stock having a value equal to two times the exercise price of the
Right.
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In the event that a Distribution Date occurs (under either of the
circumstances described above) and UJB is acquired in a merger or other business
combination, or more than 50% of UJB's assets or earning power is sold or
transferred, each Right will thereafter entitle the holder thereof to receive,
upon the exercise of the Right, common stock of the acquiror having a value
equal to two times the exercise price of the Right.
The foregoing description of Rights Plan, does not purport to be complete
and is qualified in its entirety by reference to the terms of the Rights Plan,
which is more fully described in UJB's Registration Statement on Form 8-A filed
August 28, 1989.
THE FLEMINGTON NATIONAL BANK AND TRUST COMPANY
Description of Business
Flemington is a national banking association, which was organized in 1876
under the title of The National Bank of Flemington. Flemington is a member of
the Federal Reserve System and the deposits of which are insured by the Federal
Deposit Insurance Corporation ("FDIC") under the Bank Insurance Fund ("BIF").
Flemington conducts a general banking and trust business embracing the customary
deposit, lending and trust functions of a commercial bank. Commercial banking
involves accepting demand, time and savings deposits and making business,
consumer, personal, construction and permanent mortgage loans. Through its trust
department, Flemington renders services as trustee, executor, administrator,
guardian, managing agent, custodian and investment advisor, and it engages in
other personal and other corporate fiduciary activities authorized by law.
Flemington maintains its legal and principal executive offices at 56 Main
Street, Flemington, New Jersey and operates seven additional branches located in
Hunterdon County, New Jersey. Flemington's lending division is housed at 80 Main
Street, Flemington.
Flemington has one wholly-owned subsidiary, The Flemington National
Investment Co., Inc., a New Jersey investment company. This subsidiary began
operations in October, 1988, and engages in the investment of securities for its
own account. At December 31, 1994, The Flemington National Investment Co., Inc.
had assets of approximately $43.2 million. At September 30, 1995, Flemington had
total consolidated assets of $289.6 million, total deposits of $257.7 million
and total shareholders' equity of $19.2 million.
Loan Portfolio
Composition. The following sets forth the components of Flemington's loan
portfolio at the dates indicated.
<TABLE>
<CAPTION>
December 31,
September 30, -------------------------------------------------------
1995 1994 1993 1992 1991 1990
------------ -------- -------- -------- -------- --------
(dollars on thousands)
<S> <C> <C> <C> <C> <C> <C>
Commercial and financial ............... $ 13,567 $ 14,178 $ 13,180 $ 15,889 $ 31,376 $ 23,382
Real estate construction ............... 120 11,108 5,957 2,306 978 2,515
Real estate mortgage ................... 163,152 142,686 123,163 108,125 101,509 103,401
Consumer ............................... 4,547 4,310 4,076 4,328 4,703 9,411
-------- -------- -------- -------- -------- --------
Total loans ............................ $190,386 $172,282 $146,376 $130,648 $138,566 $138,709
======== ======== ======== ======== ======== ========
</TABLE>
Total loans averaged $182.9 million during the nine months ending September
30, 1995, an increase of $23.2 million, or 14.5%, compared to 1994. Actual loans
outstanding increased from $172.3 million at December 31, 1994 to $190.4 million
at September 30, 1995. Substantially all of Flemington's lending activity is to
customers located within Hunterdon County, New Jersey, and secured by property
in that area. While this market experienced weaknesses in real estate during the
early 1990s, the residential real estate market has shown increases in purchase
activity during 1993 and 1994. During the first nine months of 1995 and during
1994, Flemington concentrated its resources on mortgage lending in the
residential market. Of the loan portfolio as a whole, 90.5% of Flemington's
loans were secured by real estate at September 30, 1995.
For purposes of monitoring credit quality, credit exposure and
concentration of risk, Flemington tracks loans to related individuals and
entities of which one person or entity may be associated as a principal or
otherwise. At September 30, 1995, Flemington had 20 relationships with
outstanding loan balances aggregating $25.8 million, of which each of 11 of
these relationships had outstanding loan balances in excess of $1.0 million.
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Flemington's concentrated effort and the interest rate environment resulted
in an increase of $19.5 million, or 15.9%, in its real estate mortgage portfolio
during 1994. At December 31, 1994, and September 30, 1995, its real estate
mortgage portfolio totaled $142.7 million and $163.2 million, respectively. The
accompanying table illustrates the composition of the real estate mortgage
portfolio.
<TABLE>
<CAPTION>
December 31,
September 30, -------------------------------
1995 1994 1993 1992
-------- -------- -------- --------
(dollars in thousands)
<S> <C> <C> <C> <C>
Residential mortgages ........................... $100,440 $ 86,055 $ 71,840 $ 56,441
Home equity loans and lines of credit ........... 14,800 14,624 14,029 14,520
Commercial mortgages ............................ 47,912 42,007 37,294 37,164
-------- -------- -------- --------
$163,152 $142,686 $123,163 $108,125
======== ======== ======== ========
</TABLE>
Flemington benefited from the widening spread between short-term and
long-term interest rates as homebuyers increasingly chose adjustable rate
mortgages over fixed rate mortgages to finance purchases beginning in 1993. As a
means of achieving Flemington's asset/liability strategy, Flemington generally
retains adjustable rate mortgages for its own portfolio and sells fixed rate
loans upon origination. During 1993, Flemington did, however, begin a program of
retaining ownership of fifteen year fixed rate mortgages, committing
approximately $18.0 million of funding to origination of these loans.
Flemington experienced growth of approximately $14.4 million in its
residential mortgage portfolio during 1995, primarily attributable to funding of
three year adjustable rate mortgages. Flemington's home equity portfolio
experienced a net increase of $176,000 during the nine months ended September
30, 1995. These portions of Flemington's total portfolio maintained adequate
loan-to-value ratios throughout the downturn in the market, with nominal levels
of delinquencies and losses.
As loan funding requirements outpaced the growth in deposits, Flemington
borrowed funds on an overnight basis until borrowed funds reached a high of
$23.5 million in December 1994. Because of the significant use of alternate
funding, in December, 1994, Flemington sold $15.9 million of three year
adjustable rate mortgages to an unrelated third party, using the proceeds to pay
down its borrowings. The sales price, which represented 99.0% of the net book
value of the loans and was determined based upon competitive bidding, resulted
in a loss of $152,000. Flemington retained servicing rights to the loans. At
September 30, 1995, borrowings to fund loans totaled $4.9 million.
Flemington's commercial mortgage portfolio at September 30, 1995 increased
$5.9 million, or 14.1%, compared to December 31, 1994. The growth experienced in
1995 is primarily attributable to funding $4.1 million for 18 commercial
properties and $1.8 for four residential development properties. Flemington's
commercial mortgages consist of both owner-occupied and investor-type
properties. Flemington's lending policy generally requires a 70% loan-to-value
ratio for commercial real estate mortgages with higher standards used for
non-user or investor-type properties. Value is based upon independently
prepared, conforming appraisals. Additionally, irrespective of the collateral
value, the granting of commercial mortgage loans is based upon the cash flow
ability of the borrower to repay the obligation as agreed.
The commercial loan portfolio decreased $0.6 million from year end 1994 to
September 30, 1995. Despite the decrease in total commercial loans, Business
Manager loans increased $0.9 million, or 75%, from year end 1994. These loans
are to customers who are located primarily within Flemington's market area and
are generally for working capital purposes, secured by their accounts
receivable. Introduced in September of 1994, the product provided $1.2 million
in new business by year end 1994. Flemington's commercial portfolio continues to
mirror the diversification of the region with no concentration of loans to any
one particular industry.
Flemington's consumer loan portfolio increased $237,000, or 5.5%, from
December 31, 1994 to September 30, 1995. This portfolio consists certainly of
automobile and boat loans, and has remained relatively stable over the past
couple of years as Flemington has concentrated its lending efforts on mortgage
products.
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The following table provides information concerning the interest rate
sensitivity of Flemington's commercial and financial loans and real estate
construction loans for the periods presented:
<TABLE>
<CAPTION>
September 30, 1995
-----------------------------------------
Over one
year
One year through Over five
or less five years years Total
-------- ----------- --------- -------
(dollars in thousands)
<S> <C> <C> <C> <C>
Loan categories:
Commercial and financial ......................... $ 6,326 $4,213 $ 20 $10,559
Real estate construction ......................... 6,603 2,369 244 9,216
------- ------ ------ -------
$12,929 $6,582 $ 264 $19,775
======= ====== ====== =======
Amounts of loans based upon:
Predetermined interest rates ..................... $ 5,053 $2,038 $ -- $ 7,091
Floating or adjustable interest rates ............ 7,876 4,544 264 12,684
------- ------ ------ -------
$12,929 $6,582 $ 264 $19,775
======= ====== ====== =======
</TABLE>
<TABLE>
<CAPTION>
December 31, 1994
-----------------------------------------
Over one
year
One year through Over five
or less five years years Total
-------- ----------- --------- -------
(dollars in thousands)
<S> <C> <C> <C> <C>
Loan categories:
Commercial and financial ......................... $ 5,475 $4,753 $3,950 $14,178
Real estate construction ......................... 5,012 2,791 3,305 11,108
------- ------ ------ -------
$10,487 $7,544 $7,255 $25,286
======= ====== ====== =======
Amounts of loans based upon:
Predetermined interest rates ..................... $ 5,015 $3,043 $ 28 $ 8,086
Floating or adjustable interest rates ............ 5,472 4,501 7,227 17,200
------- ------ ------ -------
$10,487 $7,544 $7,255 $25,286
======= ====== ====== =======
</TABLE>
The loan maturity table is based upon contractual loan terms. In the
ordinary course of business, loans maturing within one year are often renewed,
in whole or in part, as to principal amount, at interest rates prevailing at the
date of renewal.
In the normal course of business, Flemington enters into a variety of
financial instruments with off-balance sheet risk. Such financial instruments
include commitments to extend credit and letters of credit both of which
involve, to varying degrees, elements of risk in excess of the amounts
recognized in the financial statements. Credit risk, the risk that a
counterparty of a particular financial instrument will fail to perform, is the
contract amount of commitments to extend credit and letters of credit.
Flemington's maximum exposure to accounting loss, based upon the credit risk
associated with unfunded loan commitments and letters of credit outstanding, is
represented by the contract amount of these items. The contract amounts of
off-balance sheet financial instruments at September 30, 1995 for commitments to
extend credit and letters of credit were $31.7 million and $1.3 million,
respectively.
The credit risk associated with these financial instruments is essentially
the same as that involved in extending loans to customers. Credit risk is
managed by limiting the total amount of arrangements outstanding and by applying
normal credit policies to all activities with credit risk. Collateral is
obtained based on management's credit assessment of the customer. The risks
associated with these financial instruments are also included in Flemington's
evaluation of the overall credit risk in determining the allowance for loan
losses.
At September 30, 1995, Flemington had identified approximately $192,000 of
the allowance for loan losses as a general allocation of the reserve for
potential losses due to off-balance sheet credit risk. During 1994 and the first
nine months of 1995, Flemington recorded no charge-offs in connection with loan
commitments or letters of credit. No material amount of commitments currently
outstanding are to borrowers having prior outstanding balances which are
classified as nonperforming or potential problem assets.
Many of the commitments to extend credit are expected to expire without
being drawn upon and, therefore, the total commitment amounts do not necessarily
represent future cash flow requirements.
74
<PAGE>
Asset Quality. Through loan reviews and monthly monitoring of the
portfolio, loan administration attempts to identify problem credits at an
earlier stage to increase recoveries and prevent further loan deterioration.
Increasing the quality of the loan portfolio, reducing concentrations of credit
and reducing the exposure to the real estate market is the primary focus of loan
administration.
The loan underwriting process begins at the time a borrower and Flemington
begin to discuss the origination of a loan. Documentation, including the
borrower's credit history, financial statement analysis, documents establishing
the value and liquidity of potential collateral, the purpose of the loan, the
source and timing of the repayment of the loan and other factors, are analyzed
before a loan is submitted for approval. Except for certain well-defined loans
made by the retail banking sector, primarily to consumers, all credit extensions
are approved by officers of the lending division and, where required by policy,
the President and Chief Executive Officer.
Flemington's written lending policies require underwriting, loan
documentation and credit analysis standards to be met prior to funding any loan.
After the loan has been approved and funded, continued periodic credit review is
required. Due to the homogeneous nature of residential mortgages and installment
loans and the standardization of underwriting of such credits, Flemington's
underwriting standards are audited on an annual schedule by the internal auditor
and an internal loan review is performed on these loans on an individual basis
only as they relate to a borrower relationship as a whole.
The loan portfolio is reviewed at least quarterly to determine whether
specific loans should be placed in a nonperforming status. Nonperforming loans
include nonaccrual loans and loans 90 days past due and still accruing.
Recognition of interest on the accrual method is generally discontinued when
interest or principal payments are 90 days or more in arrears, or when other
factors indicate that the collection of such amounts is doubtful. At the time a
loan is placed on nonaccrual status, previously accrued and uncollected interest
is reversed against income in the current period. If ultimate collectibility of
principal is in doubt, interest collections are applied as principal reductions.
A nonaccruing loan may not be returned to accruing status until the
borrower has resumed paying the full amount of contractual interest and
principal payments on loans or the loan otherwise becomes well secured. A loan
is well secured by: (1) collateral in the form of liens on or pledges of real
property, including securities that have a realizable value sufficient to
discharge the debt, including accrued interest, in full; or (2) by the guarantee
of a responsible third party.
A loan may be returned to accrual status, even though the loan may not have
been brought fully current, provided: (1) all principal and interest amounts
contractually due, including arrearages, are reasonably assured of repayment
within a reasonable period, and (2) there is a sustained period of repayment
performance (generally a minimum of six months) by the borrower in accordance
with the contractual terms involving payments of cash and cash equivalents. A
loan may also be returned to accrual status if it otherwise becomes well secured
and is in the process of collection. If the regulatory reporting criteria for
restoration to accrual status are met, previous charge-offs taken do not have to
be fully recovered before such loans are returned to accrual status.
A loan should be considered in the process of collection if, based on a
probable specific event, such as the closing of a negotiated sales contract, it
is expected that the loan will be repaid or brought current. The commencement of
collection efforts, plans to liquidate collateral, ongoing workouts,
restructuring or settlements do not, in and of themselves, allow a loan to meet
the definition of in process of collection. There must be evidence that
collection in full of amounts due and unpaid will occur shortly. Generally, this
collection period should not exceed 30 days. Only in cases where the timing and
amount of repayment is certain, may there be a longer period of collection.
75
<PAGE>
Nonperforming Assets
Nonperforming assets increased 14.3%, or $434,000, at September 30, 1995 as
compared to December 31, 1994. Included in nonperforming assets are
nonperforming loans, restructured loans and other real estate owned.
Substantially all of Flemington's nonperforming assets are secured by real
estate. The accompanying table depicts the composition of Flemington's
nonperforming assets for the periods indicated.
<TABLE>
<CAPTION>
December 31,
September 30, -----------------------------------------
1995 1994 1993 1992 1991
------ ------ ------ ------ -------
(dollars in thousands)
<S> <C> <C> <C> <C> <C>
Nonaccruing loans:
Commercial and financial ........................... $ 77 $ 104 $ 6 $ 10 $ 1,008
Real estate mortgage ............................... 2,506 2,139 1,716 2,722 3,434
Consumer ........................................... 269 114 6 46 80
------ ------ ------ ------ -------
2,852 2,357 1,728 2,778 4,522
------ ------ ------ ------ -------
Loans 90 days or more past due:
Commercial and financial ........................... 0 0 15 0 10
Real estate mortgage ............................... 0 0 170 0 290
Consumer ........................................... 5 0 32 0 0
------ ------ ------ ------ -------
5 0 217 0 300
------ ------ ------ ------ -------
Total nonperforming loans ........................ 2,857 2,357 1,945 2,778 4,822
Restructured loans ................................... 268 407 443 989 2,874
Other nonperforming assets:
Other real estate owned ............................ 328 125 243 924 479
Insubstance foreclosures .......................... 14 144 218 3,378 3,481
------ ------ ------ ------ -------
342 269 461 4,302 3,960
------ ------ ------ ------ -------
Total nonperforming assets ...................... $3,467 $3,033 $2,849 $8,069 $11,656
====== ====== ====== ====== =======
</TABLE>
Nonperforming loans, which include nonaccrual loans and loans past due 90
days or greater and still accruing interest, amounted to $2.9 million at
September 30, 1995, an increase of $500,000, or 21.2%, compared to December 31,
1994. The increase is primarily a result of placing ten residential loans
totaling $1,148,000 on nonaccrual, offset by repayments of $648,000. Included in
nonperforming loans at September 30, 1995, is $300,000 relating to three
residential land development loans to one borrower, $1.6 million secured by
residential real estate and $709,000 secured by commercial real estate.
Restructured loans, loans for which the terms have been restructured to
provide for a reduction or deferral of interest or a deferral of principal due
to deterioration in the financial position of the borrower, declined at
September 30, 1995, $139,000, or 34.0%, from December 31, 1994 and includes two
loans to unrelated parties.
Other real estate owned, which consists of properties acquired through
foreclosure, amounted to $342,000 at September 30, 1995, an increase of $73,000,
or 27.1%, compared to December 31, 1994. Other real estate owned is accounted
for at the lower of cost or fair value less estimated costs to sell. During the
first nine months of 1995, Flemington sold two properties recognizing a gain of
$120,000. The accompanying table illustrates the activity in other real estate
for the past two years.
December 31,
----------------
September 30, 1995 1994 1993
------------------ ----- ----
(dollars in thousands)
Balance, beginning of year ............ $ 269 $ 461 $4,302
Additions from loan portfolio ......... 258 -- 776
Sales and other reductions ............ (185) (192) (4,138)
Charge offs ........................... -- -- (479)
----- ----- ------
Balance, end of year .................. $ 342 $ 269 $ 461
===== ===== ======
76
<PAGE>
Allowance for Loan Losses
Implicit in the lending function is the fact that loan losses will be
experienced and that the risk of loss will vary with the type of loan being
made, the credit worthiness of the borrower, and prevailing economic conditions.
A standardized process has been established to assess the adequacy of the
allowance for loan losses. This process includes a review to assess the risks
inherent in the loan portfolio. It incorporates a credit review and gives
consideration to areas of exposure such as concentration of credit, economic and
industry conditions, and negative trends in delinquencies and collections.
Consideration is also given to collateral coverage and the composition of the
loan portfolio. Specific allocations are identified by loan category and
allocated according to various categories of loans. Loans classified by
regulators are incorporated in the standardized process of assessing the
adequacy of the allowance for loan losses. The allowance is maintained at a
level determined adequate to provide for potential losses on loans.
The allowance for loan losses at September 30, 1995 was $2.4 million,
compared to $2.1 million at December 31, 1994, an increase of $295,000, or
13.8%. As a percent of total loans, the allowance was 1.25% at September 30,
1995, compared to 1.24% at year end 1994. The ratio of the allowance for loan
losses to nonperforming loans decreased to 85.17% at September 30, 1995,
compared with 90.54% at December 31, 1994. Net recoveries for the nine months
ended September 30, 1995, totaled $295,000, compared to net recoveries of
$512,000 in 1994.
Flemington recorded no provision for loan losses in the nine months ended
September 30, 1994, as compared to a provision for loan losses of a negative
$622,000 for the year ended December 31, 1994. The increase in amounts provided
to the allowance reflects the effect on the adequacy of the allowance of five
specific and significantly large recoveries, totaling a gross $622,000, received
in 1994 on unrelated loans.
The relationship for the past five years among loans, loans charged off and
loan recoveries, the provision for loan losses and the allowance for loan losses
is shown below:
<TABLE>
<CAPTION>
9/30/95 1994 1993 1992 1991 1990
-------- -------- -------- -------- -------- --------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Loans:
Average for the period ................ $182,894 $159,700 $133,775 $134,164 $142,478 $138,912
======== ======== ======== ======== ======== ========
Allowance:
Balance, beginning of period .......... 2,134 2,244 3,092 4,207 2,409 1,000
Provisions charged (credited) to
operations ............................ 0 (622) 440 770 3,778 3,274
Loans charged-off:
Commercial and financial .............. 0 103 462 1,864 1,526 1,692
Real estate mortgage .................. 14 112 1,326 264 533 25
Consumer .............................. 64 86 143 153 199 276
-------- -------- -------- -------- -------- --------
78 301 1,931 2,281 2,258 1,993
-------- -------- -------- -------- -------- --------
Recoveries of previously charged-off
loans:
Commercial and financial ............ 218 481 438 299 161 37
Real estate mortgage ................ 122 312 168 6 47 25
Consumer ............................ 33 20 37 91 70 66
-------- -------- -------- -------- -------- --------
373 813 643 396 278 128
-------- -------- -------- -------- -------- --------
Balance, end of period .................. $ 2,429 $ 2,134 $ 2,244 $ 3,092 $ 4,207 $ 2,409
======== ======== ======== ======== ======== ========
Ratio of:
Net charge-offs (recoveries) to
average loans outstanding ........... (0.16%) (0.32%) 0.96% 1.40% 1.39% 1.34%
Allowance to period-end loans ......... 1.28% 1.24% 1.53% 2.37% 3.03% 1.74%
==== ==== ==== ==== ==== ====
</TABLE>
Flemington is unable to determine in what loan category future charge-offs
and recoveries may occur. The following schedule sets forth the allocation of
the allowance for loan losses among various categories. The allocation is based
upon historical experience and Flemington's review of the specific amount or
specific loan category in which future losses may ultimately occur. However, the
entire allowance for loan losses is available to absorb future loan losses in
any category.
77
<PAGE>
<TABLE>
<CAPTION>
Allocation of the Allowance for Loan Losses
September 30, as of December 31,
---------------- ----------------------------------------------------------------------------------------------
1995 1994 1993 1992 1991 1990
----------------- ------------------ ----------------- ----------------- ---------------- -----------------
Percent Percent Percent Percent Percent Percent
of loans of loans of loans of loans of loans of loans
to total to total to total to total to total to total
Amount loans Amount loans Amount loans Amount loans Amount loans Amount loans
------ -------- ------ --------- ------ -------- ------ -------- ------ -------- ------ --------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial
and
financial .... $ 267 7% $ 334 8% $ 404 9% $ 301 12% $ 953 23% $ 406 17%
Real estate
mortgages .... 894 90% 1,007 89% 1,229 88% 2,095 85% 3,113 74% 1,840 76%
Consumer ....... 109 3% 86 3% 52 3% 82 3% 142 3% 163 7%
Off-balance
sheet
exposure ..... 192 0% 183 0% 436 0% 219 0% 0 0% 0 0%
Unallocated .... 967 0% 524 0% 123 0% 395 0% 0 0% 0 0%
------ --- ------ --- ------ --- ------ --- ------ --- ------ ---
$2,429 100% $2,134 100% $2,244 100% $3,092 100% $4,208 100% $2,409 100%
====== === ====== === ====== === ====== === ====== === ====== ===
</TABLE>
Securities Available for Sale and Investment Portfolio
The accompanying table sets forth the book value and market value of
Flemington's held to maturity portfolio ("investment securities") and securities
available for sale portfolio at the periods indicated:
Securities Available for Sale
December 31,
---------------------------
(dollars in thousands) 9/30/95 1994 1993 1992
------- ------- ------ -------
U.S. Treasury securities ............... $ 4,033 $ 4,054 $ 0 $ 0
U.S. government agency securities ...... 20,287 18,078 0 28,935
Other securities ....................... 1,261 1,261 60 957
------- ------- --- -------
Total book value of securities ......... $25,581 $23,393 $60 $29,892
======= ======= === =======
U.S. Treasury securities ............... $ 4,084 $ 4,062 $ 0 $ 0
U.S. government agency securities ...... 20,261 17,335 0 29,631
Other securities ....................... 1,261 1,261 60 1,008
------- ------- --- -------
Total market value of securities ....... $25,606 $22,658 $60 $30,639
======= ======= === =======
Investment Securities
December 31,
---------------------------
(dollars in thousands) 9/30/95 1994 1993 1992
------- ------- ------- -------
U.S. Treasury securities ............... $ 0 $ 0 $10,570 $32,685
U.S. government agency securities ...... 50,300 51,231 81,397 34,124
State and political subdivisions ....... 6,108 6,238 4,698 4,630
Other securities ....................... 125 1,615 1,471 1,936
------- ------- ------- -------
Total book value of securities ......... $56,533 $59,084 $98,136 $73,375
======= ======= ======= =======
U.S. Treasury securities ............... $ 0 $ 0 $11,021 $32,679
U.S. government agency securities ...... 50,232 47,929 81,600 34,521
State and political subdivisions ....... 6,112 5,934 4,813 4,625
Other securities ....................... 117 1,542 1,492 1,936
------- ------- ------- -------
Total market value of securities ....... $56,461 $55,405 $98,926 $73,761
======= ======= ======= =======
Securities Available for Sale. Securities available for sale amounted to
$25.6 million at September 30, 1995, as compared to $22.7 million at December
31, 1994. Securities classified as available for sale are those securities which
78
<PAGE>
may be sold in response to changing market and interest rate conditions or as
part of the Bank's asset/liability strategy. This portfolio is carried at market
value and, at September 30, 1995, the market value exceeded the amortized cost
of these securities by $25,000.
During the nine months of 1995, securities available for sale appreciated
$761,000 primarily as a result of the bond market's response to investor
reaction to key economic indicators and Federal Reserve Bank interest rate
policies. The market responded to an increasingly prevalent attitude that the
Federal Reserve Bank's interest rate increases will provide enough slowdown in
economic growth to avoid inflation, while not causing a recession.
Effective January 1, 1994, the Bank adopted the provisions of the Financial
Accounting Standards Board Statement No. 115, "Accounting for Certain
Investments in Debt and Equity Securities" (FAS 115) and placed securities with
a fair market value of $69.1 million in its available for sale portfolio. In
July, Flemington reevaluated its available for sale portfolio and, after giving
consideration to its ability and positive intent to hold certain investments to
maturity, transferred securities with a then current market value of $29.5
million to investment securities. The unrealized loss on those securities
transferred totaled $1.5 million on the date of transfer and will be accreted
back to book value from equity over the remaining life for the United States
government agency securities and the average life for the United States
government agency collateralized mortgage obligations ("CMOs") and
mortgage-backed securities ("MBS") transferred. As of September 30, 1995, the
remaining unaccreted loss amounted to $1.2 million.
During 1994, the Bank sold $13.1 million of securities from its available
for sale portfolio, recognizing a net loss of $328,000. Proceeds totaling $10.9
million from the sales in December were used to paydown Flemington's overnight
borrowings. Flemington reinvested the $12.7 million of maturities and other
cashflows from the available for sale portfolio into United States Treasury and
government agency securities, which currently provide a higher yielding
investment vehicle for the cash flows from the Flemington's portfolio.
Investment Securities. Investment securities totaled $56.5 million at
September 30, 1995 compared to $59.1 million at December 31, 1994. Flemington's
investments in municipal securities were made in support of its community and
surrounding areas.
At September 30, 1995, securities having an amortized cost of approximately
$19.7 million were pledged as collateral for public and trust funds, securities
sold under agreements to repurchase and other purposes as required or permitted
by law.
Maintaining investment quality is a primary objective of Flemington's
investment policy which, subject to certain minor exceptions, prohibits the
purchase of any investment security below a Moody's Investor Service rating of
"A." At September 30, 1995, 93.1% of the portfolio was rated AAA and 1.4% of the
portfolio was rated below "A" or was unrated.
The following table sets forth the maturity distribution of the investment
securities portfolio at September 30, 1995. Average maturities are based upon
original maturity dates with the exception of asset backed securities for which
the average lives are used. At September 30, 1995, Flemington's investment
portfolios, including securities available for sale, had an average maturity of
approximately 2.30 years and an average cash flow payback of approximately 8.28
years.
79
<PAGE>
<TABLE>
<CAPTION>
Maturity Distribution Analysis of Investment Securities
After one but After five but
Within one year within five years within ten years After ten years Total
(dollars in thousands) Amount Yield Amount Yield Amount Yield Amount Yield Amount Yield
------- ----- -------- ----- -------- ----- ------- ----- ------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. government agency securities ... $ 3,002 4.65% $39,548 5.53% $ 7,624 6.51% $ 2,990 7.54% $53,164 5.73%
State & political subdivisions ...... 395 3.46% 3,071 4.65% 2,360 5.17% 282 5.60% 6,108 4.82%
Other securities .................... 125 4.73% -- -- % 125 7.13% -- -- % 250 5.93%
------- ---- ------- ---- ------- ---- ------- ---- ------- ----
Total book value of securities ..... $ 3,522 4.52% $42,619 5.46% $10,109 6.21% $ 3,272 7.37% $59,522 5.64%
======= ==== ======= ==== ======= ==== ======= ==== ======= ====
U.S. government agency securities ... $ 2,978 $39,582 $ 7,588 $ 2,990 $53,138
State & political subdivisions ...... 395 3,015 2,413 289 6,112
Other securities .................... 125 -- 117 -- 242
------- ------- ------- ------- -------
Total market value of securities ... $ 3,498 $42,597 $10,118 $ 3,279 $59,492
======= ======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
Maturity Distribution Analysis of Securities Available for Sale
After one but After five but
Within one year within five years within ten years After ten years Total
(dollars in thousands) Amount Yield Amount Yield Amount Yield Amount Yield Amount Yield
------- ----- ------- ----- ------- ----- ------- ----- ------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Treasury securities ............ $ 3,000 8.17% $ 1,033 7.00% $ -- -- % $ -- -- % $ 4,033 7.88%
U.S. government agency securities ... 1,011 5.68% 13,704 6.29% 2,535 7.44% -- -- % 17,250 6.42%
Other securities .................... -- -- % 47 -- % -- -- % -- -- % 47 -- %
------- ---- ------- ---- ------- ---- ------- ---- ------- ----
Total book value of securities ..... $ 4,011 7.54% $14,784 6.32% $ 2,535 7.44% $ -- -- % $21,330 6.68%
======= ==== ======= ==== ======= ==== ======= ==== ======= ====
U.S. Treasury securities ............ $ 3,027 $ 1,058 $ -- $ -- $ 4,085
U.S. government agency securities ... 1,012 13,677 2,546 -- 17,235
Other securities .................... -- 36 -- -- 36
------- ------- ------- ------- -------
Total market value of securities ... $ 4,039 $14,771 $ 2,546 $ -- $21,356
======= ======= ======= ======= =======
</TABLE>
80
<PAGE>
Deposits
Total deposits amounted to $257.7 million at September 30, 1995, an
increase of $16.4 million, or 6.8%, over 1994. On average, deposits increased
$7.3 million, or 3.0% from 1994 to September 1995. Flemington experienced on
average $1.2 million, or 3.3%, of growth in noninterest bearing demand deposits.
Interest bearing demand deposits decreased on average $7.8 million, or 10.3%,
savings deposits decreased $8.3 million, or 12.8%. However, the average balance
of time deposits increased $22.3 million, or 33.8% from December 31, 1994.
During the first nine months of 1995, Flemington experienced a shift in its
interest bearing core deposits to time deposits as a result of the rising
interest rates offered in that product. That is evidenced by, the $1.8 million
decrease in interest bearing demand deposits coupled with the $5.7 million
decrease in savings deposits which was more than offset by a $22.7 million
increase in time deposits. The growth experienced in time deposits was used
primarily to fund loan demand. Flemington expects the trend of higher interest
rates to level off throughout the remainder of 1995 in response to the Federal
Reserve Board interest rate policies. The average rates paid on deposit balances
increased 79 basis points to 3.45% during the first nine months of 1995,
compared to 2.66% during 1994.
<TABLE>
<CAPTION>
Analysis of Deposit Types
(dollars in thousands)
September 30, 1995 December 31, 1994
---------------------------- -----------------------------
Average Average % of Average Average % of
Balance Rate total Balance Rate total
-------- ---- ------ -------- ---- ------
<S> <C> <C> <C> <C> <C> <C>
Noninterest bearing demand deposits ....... $ 37,284 -- 14.92% $ 36,072 -- 14.87%
Interest bearing demand deposits .......... 67,813 2.13% 27.14% 75,638 1.74% 31.19%
Savings deposits .......................... 56,493 2.38% 22.61% 64,789 2.51% 26.72%
Time deposits ............................. 88,271 5.16% 35.33% 66,016 3.88% 27.22%
-------- ---- ------ -------- ---- ------
Total deposits ........................ $249,861 2.94% 100.00% $242,515 2.27% 100.00%
======== ==== ====== ======== ==== ======
<CAPTION>
December 31, 1993 December 31, 1992
---------------------------- ------------------------------
Average Average % of Average Average % of
Balance Rate total Balance Rate total
-------- ---- ------ -------- ---- ------
<S> <C> <C> <C> <C> <C> <C>
Noninterest bearing demand deposits ....... $ 31,508 -- 13.50% $ 27,515 -- 12.33%
Interest bearing demand deposits .......... 76,734 2.16% 32.88% 73,703 3.38% 33.02%
Savings deposits .......................... 59,069 2.77% 25.31% 48,197 3.62% 21.60%
Time deposits ............................. 66,035 4.09% 28.30% 73,764 5.35% 33.05%
-------- ---- ------ -------- ---- ------
Total deposits ........................ $233,346 2.60% 100.00% $223,179 3.71% 100.00%
======== ==== ====== ======== ==== ======
</TABLE>
81
<PAGE>
The following table shows, by time remaining to maturity, all certificates
of deposit $100,000 and over at September 30, 1995:
(dollars in thousands)
Maturing in:
Three months or less ......... $12,335
Over three through six months 2,877
Over six through twelve months 507
Over twelve months ........... 300
-------
$16,019
=======
Competition
Flemington faces strong competition for local business in the communities
it serves from other banking institutions, as well as from other financial
institutions. Many of Flemington's competitors are substantially larger and may
have greater financial resources. A number of these institutions offer their
services throughout New Jersey through bank and non-bank subsidiaries, loan
production offices and solicitations through broadcast and print media and
direct mail. The effect of liberalized branching and acquisition laws has been
to lower barriers to entry into the banking business and to increase competition
for banking business. Nationwide interstate banking will likely accelerate these
trends.
Due to the relaxation of regulatory restrictions, there is increasing
competition from financial institutions other than commercial banks in most of
the services provided by Flemington. Money market funds actively compete with
banks for deposits. Savings banks, savings and loan associations and credit
unions also actively compete for deposits and for various types of loans: such
institutions, as well as securities brokers, consumer finance companies, and
mortgage companies are important competitors. Insurance companies, mutual fund
investment counseling firms and other business firms and individuals offer
competition for personal and corporate trust services and investment advisory
services.
Competition for banking services is based on price, nature of product,
quality of service, and convenience of location.
Supervision and Regulation
The banking industry is highly regulated. Statutory and regulatory controls
increase a bank's cost of doing business and limit the options of its management
to deploy the bank's assets and maximize its income. Areas subject to regulation
and supervision by the bank regulatory agencies include: minimum capital levels;
dividends; expansion of locations; acquisitions and mergers; interest rates paid
on certain types of deposits; reserves against deposits; terms, amounts and
interest rates charged to various types of borrowers; and investments.
The operations of Flemington are subject to federal and state laws
applicable to banks chartered under the banking laws of the United States,
members of the Federal Reserve System and to banks whose deposits are insured by
the FDIC. Flemington is regulated by the OCC, the Federal Reserve Board and the
FDIC.
The primary supervisory authority of Flemington is the OCC. Pursuant to the
Financial Institutions Supervisory Act, the OCC has the authority to prevent a
nationally, chartered bank from engaging in an unsafe or unsound practice in
conducting its business. Flemington may not enter into certain transactions
(such as the establishment or relocation of an office at which the banking
business is conducted, or a merger or consolidation with another bank) unless
certain regulatory tests are met and the transactions are approved by the OCC.
Flemington is subject to regular examinations by the OCC of its loans,
investments, management practices and other aspects of its operation. These
examinations are for the protection of depositors and Flemington Insurance Fund
administered by the FDIC and not for Flemington or its shareholders or other
creditors. In addition to these regular examinations, Flemington must furnish
periodic reports to its supervisors.
Federal and state banking laws govern, among other things, the scope of a
bank's business; the investments a bank may make; the reserves a bank must
maintain against its checking and transactions accounts; the loans a bank may
make and the collateral it takes; and bank activities with respect to mergers
and consolidations and the establishment of branches. The OCC is required to
grant approval only if it finds that there is a need for banking services or
82
<PAGE>
facilities such as those contemplated by a proposed branch and may disapprove
the application if the bank does not have the capital and surplus deemed
necessary by the OCC.
Branching. In addition, the OCC may only grant a national bank's
application to establish a branch if the statutory law of the state in which the
national bank is situated authorizes state banks to establish and operate
branches. Under the New Jersey Banking Act of 1948 (the "Banking Act"), a bank
may establish a full branch office, a mini-branch office or communications
terminal branch office anywhere in the State of New Jersey except that the bank
shall not establish a full branch office or a mini-branch office in a
municipality, other than a municipality in which it maintains its principal
office, which has a population of less then 10,000 and in which another banking
institution maintains its principal office. There is an exception to the
aforestated conditions if the bank acquires an office by merger or consolidation
with another bank. The New Jersey Commissioner of Banking (the "Commissioner")
may set aside the population requirement for full branch, mini-branch or
communication terminal branch offices.
A "full branch office" means a branch office of a bank not subject to the
limitations or restrictions imposed upon mini-branch offices or communication
terminal branch offices. A "mini-branch office" means a branch of a bank which
does not occupy more than 500 square feet of floor space and which does not
contain more than four teller stations, manned by employees of the bank. A
"communication terminal branch office" means a branch office of a bank which is
either manned by a bona fide third party under contract to a bank or unmanned
and which consists of equipment, structures or systems, by means of which
information relating to financial services rendered to the public is transmitted
and through which transactions with banks are consummated, either
instantaneously or otherwise.
Moreover, if the New Jersey Commissioner of Banking finds that the
principal office of a bank will be located in a municipality which serves as a
business or as a banking center for outlying districts not otherwise adequately
provided with banking facilities, so that such bank will transact business with
a substantial number of persons who do not reside in that municipality; or if
the New Jersey Commissioner of Banking finds that, because of location, a bank
will transact a substantial part of its business with persons from a neighboring
municipality or municipalities, the New Jersey Commissioner of Banking may, in
his discretion, require that the capital stock with which the bank shall
commence business shall equal the minimum capital stock which would be required
of the bank if its principal office were to be located in a municipality having
a population equal to that of the combined populations of the municipality in
which it is to be located and of the area, outside such municipality, which it
will serve.
For additional information on interstate branching, see the caption below
entitled "Recent Legislative and Regulatory Developments."
Capital Guidelines. The Federal Reserve Board, the FDIC and the OCC have
issued risk-based capital guidelines to establish ratios to improve the
comparability of capital standards under which banks must compete. These ratios
are expressed as a percentage of risk-adjusted assets (as defined in the
guidelines) whereby various risk-weighted percentages are applied to assets on
the balance sheet as well as off-balance-sheet exposure. The guidelines require
banking organizations to meet a minimum ratio of total capital to total
risk-weighted assets of 8%.
A banking organization's qualifying total capital consists of two
components: Tier 1 Capital (core capital) and Tier 2 Capital (supplementary
capital). Tier 1 Capital is an amount equal to the sum of the following: (1)
common stockholders' equity, including adjustments for any surplus or deficit;
(2) qualifying noncumulative perpetual preferred stock; (3) the bank's minority
interests in the equity accounts of consolidated subsidiaries; and (4) Tier 2
Capital elements in an amount up to 10% of Tier 1 Capital. At least 50% of the
banking organization's total regulatory capital must consist of Tier 1 Capital.
Tier 2 Capital is an amount equal to the sum of the following: (1) the
allowance for loan losses in an amount up to 1.25% of risk-weighted assets; (2)
cumulative perpetual preferred stock and related surplus; (3) hybrid instruments
(instruments with characteristics of both debt and equity), perpetual debt and
mandatory convertible debt securities; and (4) eligible term subordinated debt
and intermediate-term preferred stock with an original maturity of five years or
more, including related surplus, in an amount up to 50% of Tier 1 Capital. The
inclusion of the foregoing elements of Tier 2 Capital are subject to certain
further requirements and limitations of the federal bank regulatory agencies.
Under the risk-weighted capital guidelines, the balance sheet assets and
certain off-balance sheet items, such as standby letters of credit, are assigned
to one of four risk weight categories (0%, 20%, 50% or 100%) according to the
nature of the asset and its collateral or the identity of any obligor or
guarantor. For example, cash is assigned to the 0% risk category, while loans
secured by one-to-four family residences are assigned to the 50% category. The
aggregate
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amount of such assets and off-balance sheet items in each risk category is
adjusted by the risk weight assigned to that category to determine weighted
values, which are added together to determine the total risk-weighted assets for
the banking organization. Accordingly, an asset such as a commercial loan, which
is assigned to a 100% risk category, is included in risk-weighted assets at its
nominal face value, whereas a loan secured by a single-family home mortgage is
included at only 50% of its nominal face value. The applicable ratios reflect
capital, as determined, divided by risk-weighted assets, as determined.
An institution must generally have a ratio of Tier 1 Capital to total
risk-weighted assets of 4% and a ratio of Total Capital to total risk-weighted
assets of 8%. At September 30, 1995, Flemington's Tier 1 and Total Capital
ratios were 12.07% and 13.32%, respectively. In the absence of a formal order
from banking regulatory agencies, most sound, well-run institutions engaged in
the least risky operations must maintain minimum Tier 1 leverage ratios of at
least 3%, with all others required to maintain higher levels of capital
depending on their conditions. At September 30, 1995, Flemington's Tier 1
leverage ratio was 6.94%.
The following table represents Flemington's capital ratios at September 30,
1995:
(dollars in thousands)
----------------------
Tier 1 Capital ................................ $ 19,934
Tier 2 Capital ................................ $ 2,069
Total capital ................................. $ 22,003
Total average assets .......................... $ 281,193
Total risk-weighted assets(1) ................. $ 165,199
Tier 1 risk-based capital ratio(2) ............ 12.07%
Required Tier 1 risk-based capital ratio....... 4.00%
Excess Tier 1 risk-based capital ratio ........ 8.07%
Total risk-based capital ratio(3) ............. 13.32%
Required total risk-based capital ratio........ 8.00%
Excess total risk-based capital ratio ......... 5.32%
Tier 1 leverage ratio(4) ...................... 6.94%
Required Tier 1 leverage ratio ................ 3.00%
Excess Tier 1 leverage ratio .................. 3.94%
- -----------
(1) Includes off-balance sheet items at credit equivalent values.
(2) Tier 1 risk-based capital ratio is defined as the ratio of Tier 1 Capital to
total risk-weighted assets.
(3) Total risk-based capital ratio is defined as the ratio of Tier 2 Capital to
total risk-weighted assets.
(4) Tier 1 leverage ratio is defined as the ratio of Tier 1 Capital to total
average quarterly assets.
Flemington was required to adopt, on January 1, 1994, the provisions of
Statement of Financial Accounting Standards No. 115, "Accounting for Certain
Investments in Debt and Equity Securities" ("FAS 115"). For financial statements
prepared in accordance with generally accepted accounting principles and
regulatory capital reporting purposes, FAS 115 changed the composition of
stockholders' equity by including as a separate component of equity, the amount
of net unrealized holding gains or losses on debt and equity securities that are
deemed to be available for sale.
Effective January 27, 1995, the FDIC has issued a final rule with respect
to the implementation of FAS 115 for regulatory capital reporting purposes.
Under this final rule, net unrealized holding losses on available for sale
equity securities (but not debt securities) with readily determinable fair
values will be included (i.e., deducted) when calculating Flemington's
consolidated Tier 1 Capital. All other unrealized holding gains and losses on
available for sale securities will be excluded (i.e., not deducted) from
Flemington's consolidated Tier 1 Capital. Based upon the composition of
Flemington's investment portfolio as of the filing date of this report, such
final rule will have no material effect on Flemington's consolidated Tier 1
Capital.
Based upon regulatory guidance, Flemington prepared its September 30, 1995
regulatory capital ratios in conformity with the FDIC's final rule as discussed
above. Flemington excluded from the calculation of Tier 1 Capital, the $17,000
of net unrealized gains on its securities available for sale portfolio, net of
the related tax effect, and the $777,000 of net unrealized losses on securities
transferred from available for sale to held to maturity net of the related tax
effect.
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Flemington's ability to maintain the required levels of capital is
substantially dependent upon the success of Flemington's capital and business
plans; the impact of future economic events on Flemington's loan customers; and
Flemington's ability to manage its interest rate risk and investment portfolio
and control its growth and other operating expenses.
Enforcement Powers. Flemington may, among other things, be subject to
potential enforcement actions by the OCC or the FDIC or both for unsafe or
unsound practices in conducting its business; and for violations of any law,
rule or regulation, any cease and desist or consent order, or any written
agreement with a Federal bank regulatory agency. Enforcement actions may include
the imposition of a conservator or receiver, cease and desist orders and written
agreements, the termination of insurance of deposits, the imposition of civil
money penalties and removal and prohibition orders against
institution-affiliated parties.
The Financial Institutions Reform, Recovery & Enforcement Act of 1989
("FIRREA") significantly expanded the enforcement powers of Federal bank
regulatory agencies, increased the penalties for violations of law and
substantially revised and codified the powers of receivers and conservators of
depository institutions. These powers include the power to obtain cease and
desist orders, the power to remove officers and directors, the power to
disapprove all new directors and senior executive officers of certain depository
institutions, and the power to assess criminal and civil money penalties for
violations of law or regulations, or conditions imposed by, or agreements with,
a Federal bank regulatory agency. The receivership and conservatorship
provisions of FIRREA include a statutory claims procedure and provisions which
expand and confirm the powers of the FDIC to obtain a stay of pending litigation
and to repudiate certain contracts or leases it deems burdensome, in order to
promote the orderly administration of the institution's affairs and to set aside
preferential transfers. Under Section 914 of FIRREA and regulations adopted by
the OCC, the OCC must be given 30 days notice of any changes in directors or
senior executive officers of Flemington. The OCC may disapprove such changes.
Recent Legislative and Regulatory Developments
Interstate Banking and Branching. On September 29, 1994, the President
signed into law the Riegle-Neal Interstate Banking and Branching Efficiency Act
of 1994 (the "Interstate Banking Act"). The following discussion describes those
provisions of the Interstate Banking Act that would pertain to Flemington. It is
not an exhaustive description of all provisions of the Interstate Banking Act.
In general, the OCC may approve an application by Flemington to acquire
control of, or acquire all or substantially all of the assets of, a bank located
outside of the State of New Jersey without regard to whether such acquisition is
prohibited under the law of any state. The OCC may approve such application if
it finds, among other things, that Flemington is "adequately capitalized" and
"adequately managed." Moreover, the OCC may not approve such acquisition if the
target bank has not been in existence for the minimum period of time, if any,
required by such target bank's "host" state. The OCC may, however, approve the
acquisition of the target bank that has been in existence for at least five
years without regard to any longer minimum period of time required under the law
of the "host" state of the target bank. These above provisions took effect on
September 30, 1995.
Furthermore, the Interstate Banking Act provides that, beginning June 1,
1997, appropriate federal supervisory agencies may approve a merger of
Flemington with another bank located in a different state or the establishment
by Flemington of a new branch office either by acquisition or de novo, unless
the State of New Jersey enacts a law prior to June 1, 1997, allowing an
interstate merger or expressly prohibiting merger with an out-of-state bank. As
of the filing date of this report. The State of New Jersey has not enacted a law
to "opt-in" or "opt-out" of interstate mergers. Moreover, the Interstate Banking
Act provides that Flemington may establish and operate a de novo branch in any
state that "opts-in" to de novo branching. A "de novo branch" is a branch office
that is originally established as a branch and does not become a branch as a
result of an acquisition or merger. The State of New Jersey has not enacted a
law to "opt-in" to de novo interstate branching.
Flemington has no plans to engage in interstate banking or branching.
Deposit Insurance. On January 1, 1994, the FDIC implemented the permanent
Risk Related Premium System (the "RRPS") with respect to the assessments and
payment of deposit insurance premiums.
Under the RRPS, the FDIC, on a semiannual basis, will assign each
institution to one of three capital groups (well-capitalized, adequately
capitalized or undercapitalized, in each case as these terms are defined for
purposes of
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prompt corrective action rules described below) and further assign
such institution to one of three subgroups within a capital group corresponding
to the FDIC's judgment of its strength based on supervisor evaluations,
including examination reports, statistical analysis and other information
relevant to gauging the risk posed by the institution. Only institutions with a
total capital to risk-adjusted assets ratio of 10.00% or greater, a Tier 1
capital to risk-adjusted assets ratio of 5% or a greater and a Tier 1 leverage
ratio of 5% or greater, are assigned to the well-capitalized group.
Prompt Corrective Action. The Federal Deposit Insurance Corporation
Improvement Act of 1991 ("FDICIA") substantially revised the bank regulatory
provision of the Federal Deposit Insurance Act ("FDI Act") and several other
federal banking statutes. Among other things, FDICIA requires federal banking
agencies to broaden the scope of regulatory corrective action taken with respect
to depository institutions that do not meet minimum capital and related
requirements and to take such actions promptly in order to minimize losses to
the FDIC. In connection with FDICIA, federal banking agencies are required to
establish a capital measure (including both a leverage measure and a risk-based
capital measure) and to specify for each capital measure the levels at which
depository institutions will be considered well capitalized, adequately
capitalized, undercapitalized, significantly undercapitalized or critically
undercapitalized.
Brokered Deposits. FDICIA amended the FDI Act to provide generally that an
insured depository institution that is not well capitalized may not accept,
renew or roll over brokered deposits. Flemington does not accept brokered
deposits at this time.
Safety and Soundness Standards. FDICIA requires that each of the federal
bank regulatory agencies prescribe by regulation depository institution and
depository institution holding company standards relating to operations and
management, asset quality, earnings, and stock valuation and compensation.
Other. FDICIA also contains a variety of other provisions that may affect
the operations of Flemington, including new reporting requirements, revised
regulatory standards for real estate lending, "truth in savings" provision, and
the requirement that a depository institution give 90 days prior notice to
customers and regulatory authorities before closing any branch.
Proposed Legislation
Certain proposals affecting the banking industry have been discussed from
time to time. Such proposals include limitations on investments that an
institution may make with insured funds, regulation of all insured depository
institutions by a single regulator, limitations on the number of accounts
protected by the federal deposit insurance funds, reduction of the $100,000
coverage limit on deposits, imposition of responsibility on bank holding
companies for losses of insured affiliates or subsidiaries and the repeal of the
Glass-Steagall Act. It is uncertain which, if any, of the above proposals may
become law and what effect they would have on Flemington.
Termination of Formal Agreement with the OCC
On October 16, 1991 the Flemington Board entered into a Formal Agreement
(the "OCC Agreement") with the OCC, which related generally to the
administration and operation of Flemington. Under the OCC Agreement, Flemington
was required to, among other things, within specified time periods set forth in
the OCC Agreement: (1) appoint a five-member compliance committee of which a
majority of the members shall not be officers of Flemington to monitor and
coordinate Flemington's compliance with the OCC Agreement; (2) develop a plan
for an evaluation of the depth and structure of the senior management team and
based upon the findings of this evaluation, develop and implement a written plan
to eliminate deficiencies in bank management, staffing or in the supervision of
management by the Board and prepare and adopt a management succession plan; (3)
develop and adopt a written program for strengthening loan administration,
including but not limited to procedures for obtaining and analyzing current and
satisfactory credit information on borrowers prior to granting the extensions of
credit and procedures to ensure the accuracy of internal management information
systems; (4) revise Flemington's written lending policy, correcting deficiencies
pointed out by the OCC and including fundamental elements of sound loan
policies; (5) adopt and implement a program to eliminate the basis of criticism
of assets characterized as "doubtful," "substandard" or "other assets especially
mentioned;" (6) develop and implement a monitoring program to ensure the timely
and accurate identification of problem loans; (7) obtain the services of an
independent certified appraiser to provide written or updated appraisals on any
real property collateralizing a criticized asset; (8) review and revise its
program for the maintenance of an adequate allowance for loan and lease losses;
(9) adopt and implement a three-year strategic plan,
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establishing objectives for earnings performance, growth, balance sheet
mix, liability structure, capital adequacy, reduction in volume of under or
nonperforming assets, product line and market segment development; (10) not
accept any brokered deposits without prior written approval of the OCC; (11)
develop a capital plan to maintain its regulatory capital ratios at acceptable
levels, specifically to maintain a Tier 1 leverage ratio of at least 5%,
maintain the required minimum levels of Tier 1 and total Capital to
risk-weighted assets and provide for a dividend policy and projections of future
dividend requirements; (12) take all steps necessary to correct violations of
law, rule or regulation and adopt specific procedures to prevent future
violations; and (13) provide monthly reports of progress in complying with the
OCC Agreement.
On March 30, 1994, the OCC terminated the OCC Agreement because Flemington
had fulfilled its obligations under the OCC Agreement.
Employees
At September 30, 1995, Flemington had 100 full-time employees and 20
part-time employees. In management's opinion, Flemington enjoys a satisfactory
relationship with its employees. Flemington is not a party to any collective
bargaining agreement.
Description of Properties
Flemington owns its principal operating office at 56 Main Street,
Flemington, New Jersey, where it maintains its main banking and administrative
offices. Flemington has leased property at 114 Broad Street, Flemington, New
Jersey to house its item processing and imaging operations. The lending division
of Flemington is housed in rented office space at 80 Main Street, Flemington,
New Jersey. Flemington operates an additional seven branch offices at the
following locations in Hunterdon County, New Jersey: Clinton Point, Delaware
Township, Three Bridges, East Amwell Township, Raritan Township, Lambertville
and an additional office in Flemington. All owned and leased offices are used in
banking activity and are well maintained and suitable to their respective
present needs and operation.
Flemington owns the buildings in which, and the land on which, all of its
branch offices are located except for the land and building for the Clinton
Point branch, the office space occupied by the lending division, the commercial
space to be occupied by Flemington's item processing and imaging operations, the
space provided by Shop Rite, in Flemington, for the branch located therein, and
the space occupied by Flemington's Lambertville branch. Flemington leases the
space at these locations. The leases are noncancelable, nonfinancing leases,
certain of which provide for increased rentals based upon increases in real
estate taxes and the cost of living index. These leases, which have renewal
provisions, terminate from time to time through the year 2004. Rent expense
amounted to $475,000 in 1994, $425,000 in 1993 and $410,000 in 1992.
Legal Proceedings
In the opinion of the management of Flemington, there are no proceedings
pending to which Flemington is a party or to which its property is subject,
which, if determined adversely to Flemington, would be material in relation to
Flemington's stockholders' equity or financial condition. There are no
proceedings pending other than ordinary routine litigation incident to the
business of Flemington. In addition, no material proceedings are pending or are
known to be threatened or contemplated against Flemington by government
authorities.
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DESCRIPTION OF FLEMINGTON CAPITAL STOCK
Common Stock
Flemington is presently authorized to issue 1,500,000 shares of Flemington
Stock, par value $2.50 per share. As of September 30, 1995, there were 958,476
shares of Flemington Stock outstanding.
Dividends. The holders of Flemington Stock are entitled to receive and
share equally in such dividends as may be declared by the Flemington Board out
of funds legally available therefor.
Voting Rights. The holders of Flemington Stock possess exclusive voting
rights. They elect the Flemington Board and act on such other matters as are
required to be presented to them under the National Bank Act or as are otherwise
presented to them by the Flemington Board. Each holder of Flemington Stock is
entitled to one vote per share except that in the election of directors holders
of Flemington Stock may cumulate votes. Directors of Flemington are elected by a
plurality of votes cast.
Preemptive Rights. Holders of Flemington Stock are entitled to preemptive
rights with respect to any shares that may be issued.
OTHER MATTERS THAT MAY PROPERLY COME BEFORE THE SPECIAL MEETING
The Flemington Board knows of no business that will be presented for
consideration at the Special Meeting, other than that stated in the Notice of
Special Meeting of Shareholders and this Proxy Statement--Prospectus. Should any
other matter properly come before the Special Meeting or any adjournments
thereof, it is intended that proxies will be voted on such matters in accordance
with the judgment of the person or persons exercising the proxies, acting by a
plurality of those present. Although the Special Meeting may be adjourned,
proxies voting against the Merger Agreement may not be used by the proxy holders
to vote in favor of the adjournment pursuant to such proxyholders' discretionary
voting authority.
SHAREHOLDER PROPOSALS FOR 1996 ANNUAL MEETINGS
The Annual Meeting of Shareholders of Flemington is tentatively scheduled
to be held April 10, 1996, subject to the earlier consummation of the Merger.
In the event that the Flemington 1996 Annual Meeting is held, proposals of
shareholders intended to be present at that meeting would have been required to
be received by November 13, 1995, for inclusion in Flemington's proxy statement
and form of proxy relating to such Annual Meeting.
The 1996 Annual Meeting of Shareholders of UJB has not yet been scheduled.
The UJB Board will consider and include in the Proxy Statement for the 1996
Annual Meeting proposals which meet the rules and regulations of the Commission
and New Jersey law and which comply with the Company's By-Laws. In order to be
considered for inclusion, proposals would have been required to be received on
or before November 10, 1995 based on the date of last year's Annual Meeting.
The By-Laws of UJB provide that shareholder proposals which do not appear
in the Proxy Statement may be considered at an annual meeting of shareholders
only if written notice of the proposal is received by the Secretary of UJB not
less than 80 and not more than 100 days before the date of the first anniversary
of the prior year's annual meeting; provided, however, that, in the event that
the date of the annual meeting is more than 30 days before or more than 60 days
after such anniversary date, written notice must be so delivered not less than
80 and not more than 100 days before the date of the annual meeting or the tenth
day following the day on which public announcement of the date of such meeting
is first made by UJB. Such shareholder's notice shall set forth: (A) a brief
description of the business desired to be brought before the meeting, the
reasons for conducting such business at the meeting and any interest in such
business of such shareholder and the beneficial owner, if any, on whose behalf
the proposal is made and (B) as to the shareholder giving the notice and the
beneficial owner, if any, on whose behalf the nomination or proposal is made (i)
the name and address of such shareholder, as they appear on the UJB books, and
of such beneficial owner and record owner of the shares beneficially owned, (ii)
the class and number of shares of UJB which are owned beneficially and of record
by such shareholder and such beneficial owner, (iii) a description of all
agreements, arrangements or understandings between such shareholder and
beneficial owner and any other shareholder or beneficial owner relating to the
matter to be voted on and any financial or contractual interest of such
shareholder or beneficial owner in the outcome of such vote and (iv) such other
information regarding the matter to be voted on and the
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shareholder or beneficial owner intending to present the matter for a vote
as would be required to be included in a proxy statement soliciting the vote of
shareholders in respect of such matter pursuant to the proxy rules of the
Commission. Notwithstanding the foregoing, the shareholder must also comply with
all applicable requirements of the Exchange Act and the rules and regulations
thereunder with respect to the matters set forth above. Nothing set forth above
will be deemed to affect any rights of shareholders to request inclusion of
proposals in UJB's proxy statement pursuant to Rule 14a-8 under the Exchange
Act.
LEGAL MATTERS
The legality of the UJB Stock offered hereby will be passed upon for UJB by
Richard F. Ober, Jr., Esq., Executive Vice President, General Counsel and
Secretary of UJB. Mr. Ober owns 22,811 shares of UJB Stock and options to
purchase 67,227 shares of UJB Stock at a weighted average exercise price of
$19.11. Certain federal tax matters will be passed upon for UJB and Flemington
by Thompson & Mitchell, Saint Louis, Missouri.
EXPERTS
The consolidated financial statements of UJB Financial Corp. and
subsidiaries as of December 31, 1994 and 1993 and for each of the years in the
three-year period ended December 31, 1994, included in UJB's Annual Report on
Form 10-K, incorporated by reference herein and in the Registration Statement,
have been incorporated by reference herein and in the Registration Statement in
reliance upon the report of KPMG Peat Marwick LLP, independent certified public
accountants, incorporated by reference herein, and upon the authority of said
firm as experts in accounting and auditing.
The report of KPMG Peat Marwick LLP with respect to UJB Financial Corp. and
subsidiaries for the year ended December 31, 1994 refers to a change in the
method of accounting for certain investments and post employment benefits in
1994 and to a change in the method of accounting for income taxes in 1993.
The consolidated financial statements of The Flemington National Bank and
Trust Company and subsidiary as of December 31, 1994 and 1993 and for each of
the years in the three-year period ended December 31, 1994, have been included
herein and in the Registration Statement in reliance upon the report of KPMG
Peat Marwick LLP, independent certified public accountants, appearing elsewhere
herein, and upon the authority of said firm as experts in accounting and
auditing.
The report of KPMG Peat Marwick LLP with respect to The Flemington National
Bank and Trust Company for the year ended December 31, 1994 refers to a change
in the method of accounting for certain investments in debt and equity
securities in 1994 and to a change in the method of accounting for income taxes
in 1992.
The consolidated financial statements of The Summit Bancorporation, and
subsidiaries as of December 31, 1994 and 1993 and for each of the years in the
three-year period ended December 31, 1994, included in Summit's Annual Report on
Form 10-K, incorporated by reference herein and in the Registration Statement,
have been incorporated by reference herein and in the Registration Statement in
reliance upon the report of KPMG Peat Marwick LLP, independent certified public
accountants, incorporated by reference herein, and upon the authority of said
firm as experts in accounting and auditing.
By Order of the Board of Directors
VICTORIA ARCELLA
-----------------------------------
Victoria Arcella
Secretary
December 13, 1995
YOU ARE CORDIALLY INVITED TO ATTEND THE SPECIAL MEETING IN PERSON. WHETHER
OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING, YOU ARE REQUESTED TO SIGN AND
PROMPTLY RETURN THE ACCOMPANYING WHITE PROXY CARD IN THE ENCLOSED, POSTAGE-PAID
ENVELOPE.
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INDEX TO FINANCIAL STATEMENTS
Page
----
THE FLEMINGTON NATIONAL BANK AND TRUST COMPANY
Consolidated Financial Statements for the years ended
December 31, 1994 and 1993:
Independent Auditors' Report ....................................... F-2
Consolidated Statements of Condition ............................... F-3
Consolidated Statements of Operations .............................. F-4
Consolidated Statements of Stockholders' Equity .................... F-5
Consolidated Statements of Cash Flows .............................. F-6
Notes to Consolidated Financial Statements ......................... F-7
Distribution of Assets, Liabilities and Stockholders' Equity:
Interest Rates and Interest Differential .......................... F-20
Consolidated Interim Financial
Statements for the period ended September 30, 1995:
Consolidated Statements of Condition ............................... F-21
Consolidated Statements of Operations .............................. F-22
Consolidated Statements of Stockholders' Equity .................... F-23
Consolidated Statements of Cash Flows .............................. F-24
Notes to Consolidated Interim Financial Statements ................. F-25
F-1
<PAGE>
[KPMG PEAT MARWICK LLP LOGO]
Certified Public Accountants
New Jersey Headquarters
150 John F. Kennedy Parkway
Short Hills, NJ 07078
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
The Flemington National Bank and Trust Company
We have audited the accompanying consolidated statements of condition of
The Flemington National Bank and Trust Company and subsidiary as of December 31,
1994 and 1993, and the related consolidated statements of operations,
stockholders' equity, and cash flows for each of the years in the three-year
period ended December 31, 1994. These consolidated financial statements are the
responsibility of the Bank's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of The
Flemington National Bank and Trust Company and subsidiary as of December 31,
1994 and 1993, and the results of their operations and their cash flows for each
of the years in the three-year period ended December 31, 1994 in conformity with
generally accepted accounting principles.
As discussed in note 1 to the consolidated financial statements, the Bank
changed its method of accounting for certain investments in debt and equity
securities in 1994 to adopt the provisions of Financial Accounting Standards
Board's Statement of Financial Accounting Standards No. 115. "Accounting for
Certain Investments in Debt and Equity Securities" and changed its method of
accounting for income taxes in 1992 to adopt the provisions of the Financial
Accounting Standards Board's Statement of Financial Accounting Standards No.
109, "Accounting for Income Taxes."
KPMG Peat Marwick LLP
January 31, 1995
F-2
<PAGE>
CONSOLIDATED STATEMENTS OF CONDITION
December 31,
-------------------
1994 1993
----- ----
(dollars in thousands)
ASSETS:
Cash and due from banks (note 2) ................. $ 9,378 $ 8,309
Federal funds sold ............................... 585 2,700
Money market investments ......................... 50 50
------- -------
Total cash and cash equivalents ................ 10,013 11,059
------- -------
Securities available for sale .................... 22,658 60
Investment securities (market value
of $55,405 in 1994
and $98,926 in 1993) (note 3) ................... 59,084 98,136
Loans (note 4) ................................... 172,282 146,376
Less allowance for loan losses .................. 2,134 2,244
-------- --------
Net loans ........................................ 170,148 144,132
-------- --------
Bank premises and equipment (note 5) ............. 3,223 3,560
Other real estate owned (note 4) ................. 269 461
Accrued interest and other assets (note 8) ....... 2,912 3,304
-------- --------
Total Assets ................................... $268,307 $260,712
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY:
Deposits (note 6):
Noninterest bearing ............................. $ 40,073 $ 35,326
Interest bearing ................................ 201,207 205,499
-------- --------
Total deposits ................................. 241,280 240,825
-------- --------
Other borrowed funds (notes 3 and 7) ............. 7,315 851
Accrued interest and other liabilities ........... 2,184 1,915
-------- --------
Total liabilities .............................. 250,779 243,591
-------- --------
Commitments and contingent liabilities
(notes 11, 12 and 14).
Stockholders' equity (notes 9 and 10):
Common stock, par value $2.50 per share;
Authorized 1,500,000 shares: Issued and
Outstanding 913,027 in 1994 and 869,730
in 1993 ......................................... 2,283 2,174
Surplus ........................................... 9,249 8,361
Retained earnings ................................. 5,996 6,586
-------- --------
Total stockholders' equity ..................... 17,528 17,121
-------- --------
Total Liabilities and Stockholders' Equity ..... $268,307 $260,712
======== ========
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year ended December 31,
--------------- ---------------
1994 1993 1992
----- ---- ----
(dollars in thousands,
except per share data)
<S> <C> <C> <C>
INTEREST INCOME:
Interest and fees on loans (note 4) ................................... $12,733 $10,952 $11,988
Interest on investment securities (note 3):
Taxable .............................................................. 5,380 6,094 6,516
Tax-exempt ........................................................... 261 174 93
Interest on Federal funds sold and other short-term investments ........ 44 156 136
------- ------- -------
Total interest income ............................................... 18,418 17,376 18,733
------- ------- -------
INTEREST EXPENSE:
Interest on deposits (note 6) ......................................... 5,500 5,989 8,183
Interest on other borrowed funds (note 7) ............................. 467 89 103
------- ------- -------
Total interest expense .............................................. 5,967 6,078 8,286
------- ------- -------
Net interest income ................................................... 12,451 11,298 10,447
Provision for loan losses (note 4) .................................... (622) 440 770
------- ------- -------
Net interest income after provison for loan losses .................... 13,073 10,858 9,677
------- ------- -------
NONINTEREST INCOME:
Service fees on deposit accounts ...................................... 854 800 757
Fees and other income ................................................. 648 640 626
Securities gains (losses) ............................................. (328) 1,512 208
------- ------- -------
Total noninterest income ............................................ 1,174 2,952 1,591
------- ------- -------
NONINTEREST EXPENSE:
Salaries and employee benefits (note 13) .............................. 5,745 5,023 4,622
Net occupancy expense (notes 5 and 14) ................................ 1,197 992 952
Equipment expense (note 5) ............................................ 759 692 698
Loss on sale of loans (note 4) ........................................ 152 1,486 --
Other noninterest expense (notes 4 and 15) ............................ 2,926 4,258 3,110
------- ------- -------
Total noninterest expense ........................................... 10,779 12,451 9,382
------- ------- -------
Income before income taxes and cumulative effect for change in
accounting principle .................................................. 3,468 1,359 1,886
Income taxes (note 8) .................................................. 1,288 450 740
------- ------- -------
Income before cumulative effect for change in accounting principle ..... 2,180 909 1,146
Cumulative effect for change in accounting principle (note 8) .......... -- -- 85
------- ------- -------
Net income ............................................................. $ 2,180 $ 909 $ 1,231
======= ======= =======
Net income per common share:
Income before cumulative effect for change in accounting principle ..... $ 2.39 $ 1.00 $ 1.26
Cumulative effect for change in accounting principle ................... -- -- 0.09
------- ------- -------
Net income per common share ............................................ $ 2.39 $ 1.00 $ 1.35
======= ======= =======
Weighted average shares outstanding .................................... 913,027 912,943 912,629
======= ======= =======
See accompanying notes to consolidated financial statements.
</TABLE>
F-4
<PAGE>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Outstanding Common Retained
Shares Stock Surplus Earnings Total
----------- ------ ------- -------- -----
(in thousands, except for outstanding shares)
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1991 ............................... 397,274 $1,987 $7,024 $6,002 $15,013
Net income .............................................. -- -- -- 1,231 1,231
4 1/4% stock dividend declared .......................... 16,884 85 540 (625) --
5% stock dividend declared .............................. 20,508 102 779 (891) (10)
Stock split (2 for 1) ................................... 434,666 -- -- -- --
Net unrealized gain on securities available for sale,
net of tax ............................................. -- -- -- 46 46
------- ------ ------ ------ -------
Balance, December 31, 1992 ............................... 869,332 2,174 8,343 5,763 16,280
Net income .............................................. -- -- -- 909 909
Issuance of 398 shares of common stock .................. 398 -- 18 -- 18
Cash dividends .......................................... -- -- -- (86) (86)
------- ------ ------ ------ -------
Balance, December 31, 1993 ............................... 869,730 2,174 8,361 6,586 17,121
Net income .............................................. -- -- -- 2,180 2,180
5% stock dividend declared .............................. 43,297 109 888 (1,001) (4)
Cash dividends .......................................... -- -- -- (403) (403)
Net unrealized loss on securities transferred,
net of tax ............................................. -- -- -- (904) (904)
Net unrealized loss on securities available for sale,
net of tax ............................................. -- -- -- (462) (462)
------- ------ ------ ------ -------
Balance, December 31, 1994 ............................... 913,027 $2,283 $9,249 $5,996 $17,528
======= ====== ====== ====== =======
See accompanying notes to consolidated financial statements.
</TABLE>
F-5
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year ended December 31,
---------------------------------
1994 1993 1992
------- ---- ----
(dollars in thousands)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ............................................................ $ 2,180 $ 909 $ 1,231
Adjustments to reconcile net income to net cash provided by
operating activities:
Provision for loan losses and other real estate ..................... (622) 919 1,112
Depreciation and amortization expense ............................... 721 515 581
Amortization of premium on securities, net .......................... 289 297 239
Loss on sale of securities available for sale ....................... 328 (1,512) (208)
Loss on sale of loans ............................................... 152 1,486 --
Gain on sale of other real estate ................................... (3) 577 20
Deferred income tax provision ....................................... 409 322 469
Change in accrued interest and other assets ......................... (17) 205 68
Change in accrued interest and other liabilities .................... 269 433 (1,061)
------- ------- -------
Net cash provided by operating activities ........................... 3,706 4,151 2,451
------- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of securities available for sale ................... 12,760 22,246 --
Proceeds from maturities of securities available for sale ............. 12,652 8,233 --
Proceeds from maturities of investment securities ..................... 5,159 10,427 24,968
Proceeds from sale of investment securities ........................... 30 21,734 5,881
Purchase of securities available for sale ............................. (10,283) -- --
Purchase of investment securities ..................................... (5,847) (56,354) (53,961)
Proceeds from sale of loans ........................................... 15,716 1,893 --
Change in loans made to customers ..................................... (42,075) (21,814) 4,157
Cash collected on previously charged-off loans ........................ 813 643 396
Bank premises and equipment expenditures .............................. (384) (637) (854)
Proceeds from sale of other real estate owned ......................... 195 3,561 776
------- ------- -------
Net cash used in investing activities ............................... (11,264) (10,068) (18,637)
------- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Change in interest and noninterest bearing demand deposits
and savings deposits ................................................. (4,835) 8,863 25,999
Change in certificates of deposit ..................................... 5,290 (162) (21,207)
Change in other borrowed funds ........................................ 6,464 (6,960) 5,995
Proceeds from sale of common stock .................................... -- 18 --
Cash dividends ........................................................ (407) (86) (10)
------- ------- -------
Net cash provided by financing activities ............................ 6,512 1,673 10,777
------- ------- -------
Net decrease in cash and cash equivalents ............................. (1,046) (4,244) (5,409)
Cash and cash equivalents as of beginning of year ..................... 11,059 15,303 20,712
------- ------- -------
Cash and cash equivalents as of end of year .......................... $10,013 $11,059 $15,303
======= ======= =======
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest ............................................................. $ 6,023 $ 6,350 $ 9,245
Income taxes ......................................................... 490 86 276
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING
ACTIVITIES:
Transfer of securities available for sale to investments .............. 29,519 -- --
Transfer of investments to securities available for sale .............. 68,167 -- 29,892
Transfer of loans to other real estate owned .......................... -- 776 1,480
See accompanying notes to consolidated financial statements.
F-6
</TABLE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Summary of Significant Accounting Policies
The accompanying consolidated financial statements include the accounts of
The Flemington National Bank and Trust Company and its wholly-owned subsidiary,
Flemington National Investment Company. Significant intercompany accounts and
transactions have been eliminated in consolidation. The significant accounting
policies are summarized as follows:
Basis of financial statement presentation: The consolidated financial
statements have been prepared in conformity with generally accepted accounting
principles. In preparing the consolidated financial statements, management is
required to make estimates and assumptions that affect the reported amounts of
assets and liabilities as of the date of the consolidated statements of
condition and revenues and expenses for the period. Actual results could differ
from those estimates.
Management believes that the allowance for loan losses is adequate and that
the carrying value of real estate owned approximates fair value. While
management uses available information to recognize losses on loans and real
estate owned, future additions to the allowance and write-downs of real estate
owned may be necessary based on changes in economic conditions. In addition,
various regulatory agencies, as an integral part of their examination process,
periodically review the Bank's allowance for loan losses and the recorded value
of real estate owned. Such agencies may require the Bank to recognize additions
to the allowance and reductions in the carrying value of other real estate owned
based on their judgments about information available to them at the time of
their examination.
Fair value of financial instruments: Statement of Financial Accounting
Standards No. 107, "Disclosure About Fair Value of Financial Instruments" (FAS
107), requires that the Bank disclose estimated fair values for its financial
instruments. The fair value estimates are made at a discrete point in time based
on relevant market information about the financial instruments. Because no
market exists for a significant portion of the Bank's financial instruments,
fair value estimates are based on judgments regarding future expected loss
experience, current economic conditions, risk characteristics of various
financial instruments, and such other factors. These estimates are subjective in
nature and involve uncertainties and matters of significant judgment and
therefore cannot be determined with precision. Changes in assumptions could
significantly affect the estimates.
In addition, the fair value estimates are based on existing on-and
off-balance sheet financial instruments without attempting to estimate the value
of anticipated future business and the value of assets and liabilities that are
not considered financial instruments. In addition, the tax ramification related
to the realization of the unrealized gains and losses can have a significant
effect on the fair value estimates and have not been considered in any of these
estimates. Fair value estimates, methods, and assumptions are set forth
throughout each respective footnote regarding the Bank's financial instruments.
Cash equivalents: For purposes of the consolidated statements of cash
flows, the Bank considers cash on hand, amounts due from banks, Federal funds
sold and other short-term investments to be cash equivalents.
Securities available for sale: On January 1, 1994, the Bank adopted
Statement of Financial Accounting Standards No. 115, "Accounting for Certain
Investments in Debt and Equity Securities" (FAS 115). Debt securities to be held
for indefinite periods of time and not intended to be held to maturity, as well
as marketable equity securities, are classified as available for sale.
Securities available for sale include securities that management intends to use
as part of its asset/liability management strategy. Such securities are carried
at fair value and unrealized gains and losses, net of related tax effect, are
excluded from earnings but are included in stockholders' equity. Gains or losses
on the sale of such securities are recognized in the period in which such
transactions are consummated and are included in noninterest income.
Investment securities: Investment securities are carried at cost, adjusted
for amortization of premium and accretion of discount, which are recognized as
adjustments to interest income, on a level yield basis. Gains and losses on
disposition are included in non-interest income. Management determines the
appropriate classification of securities at the time of purchase. If management
has the intent and the Bank has the ability at the time of purchase to hold
securities until maturity, they are classified as investment securities and
carried at amortized historical cost.
Loans: Loans are generally carried at the principal amount outstanding, net
of deferred loan origination fees and costs. Interest on loans is accrued and
credited to interest income monthly as earned. Loan origination fees and certain
direct loan origination costs are deferred and recognized over the life of the
loan as an adjustment to the loan's yield. Other loan fees are recorded as
earned and included in noninterest income.
F-7
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
Note 1. Summary of Significant Accounting Policies--continued
Loans are placed on nonaccrual status when a default of principal or
interest has existed for 90 days and if serious doubt exists as to the ability
of the borrower to comply with the repayment terms. If the value of any
collateral held equals or is greater than the principal and related interest due
on a loan, that loan may not be placed on nonaccrual status. Once a loan is
placed on nonaccrual status, interest previously accrued and not collected is
charged against current earnings and interest is included in earnings thereafter
only to the extent actually received in cash, or if ultimate collectibility of
principal is in doubt, applied as principal reductions.
Allowance for loan losses: The loan portfolio and other extensions of
credit are regularly reviewed to determine the adequacy of the allowance for
loan losses. The impact of economic conditions on the creditworthiness of the
borrowers is given consideration, as well as loan loss experience, changes in
the composition and volume of the loan portfolio, and management's assessment of
the risk inherent in the loan portfolio. These and other factors are used in
assessing the overall adequacy of the allowance for loan losses and the
resulting provision for loan losses.
The allowance for loan losses is established through charges to earning in
the form of a provision for loan losses. Losses on loans and loans which are
determined to be uncollectible are deducted from the allowance and subsequent
recoveries, if any, are credited to the allowance.
Bank premises and equipment: Bank premises and equipment are stated at cost
net of accumulated depreciation and amortization. Depreciation and amortization
are computed using the straight-line method over the estimated useful lives of
the assets, except for leasehold improvements which are amortized over the
shorter of the term of the lease or the estimated useful life of the asset.
Estimated useful lives range from 10 to 50 years for premises and from 5 to 12
years for equipment. Upon disposition, assets are removed from the property
accounts at their carrying amount and gains and losses, if any, are included in
other noninterest expense. Repairs and maintenance costs are expensed as
incurred.
Other real estate owned: Other real estate owned includes both formally
foreclosed and insubstance foreclosed property. Insubstance foreclosed property
includes properties for which borrowers have little or no equity or prospects
for building equity in the collateral and for which the loan repayment can only
be expected from the operation or sale of the collateral. Insubstance foreclosed
properties are generally in the process of formal foreclosure.
When property is acquired through foreclosure or insubstance foreclosure,
the excess of the carrying amount over fair value, if any, is charged to the
allowance for loan losses. The properties are carried at the lower of cost or
fair value less estimated cost to sell. Subsequent write-downs may be required
to reduce the carrying value of the property and are included in other
non-interest expense.
Operating results from other real estate, including rental income,
operating expenses and gains and losses realized from the sales of other real
estate owned are recorded in other noninterest expense.
Income taxes: Effective January 1, 1992, the Bank adopted Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes" (FAS 109),
which required a change from the deferred method of accounting for income taxes
of Accounting Principles Board Opinion 11 to the asset and liability method of
accounting for income taxes. Under the asset and liability method of FAS 109,
deferred tax assets and liabilities are recognized for the estimated future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax rates
in effect for the year in which those temporary differences are expected to be
recovered or settled. Under FAS 109, the effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in the period that
includes the enactment date. The Bank, in adopting FAS 109, has reported the
cumulative effect of the change in the method of accounting for income taxes in
the 1992 consolidated statement of operations.
Other postretirement benefits: In December 1990, the Financial Accounting
Standards Board issued Statement of Financial Accounting Standards No. 106,
"Employers' Accounting for Postretirement Benefits Other Than Pensions" (FAS
106), which requires a change from recognizing the cost of providing
postretirement benefits other than pensions on a "pay as you go" basis to
recognizing the cost over the employees' period of service.
Effective January 1, 1993, the Bank adopted FAS 106 and elected to amortize
the transition obligation over a twenty year period. The effect of adopting FAS
106 was not material to the consolidated financial statements.
F-8
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
Note 1. Summary of Significant Accounting Policies--continued
Earnings per share: Earnings per share is calculated based on the weighted
average common shares outstanding during the year. The share and per share
information have been restated to reflect the issuance of stock dividends and
stock splits.
Reclassifications: Certain amounts included in the 1993 and 1992
consolidated financial statements have been reclassified to conform to the 1994
presentation.
Note 2. Due from Banks
The Bank maintains various deposits in other banks. The withdrawal or usage
restrictions on those deposits do not have a significant impact on the
consolidated operations of the Bank. During 1994 and 1993, the Bank maintained
average balances of approximately $2,669,000 and $2,664,000, respectively, at
the Federal Reserve Bank of New York in satisfaction of statutory reserve
requirements.
Note 3. Securities Available for Sale and Investment Securities
The authorized cost and estimated fair value of the investment portfolios
as of December 31, 1994 and 1993 are as follows:
<TABLE>
<CAPTION>
Gross Gross Estimated
Amortized unrealized unrealized fair
cost gains losses value
--------- ---------- ---------- ---------
(dollars in thousands)
<S> <C> <C> <C> <C>
December 31, 1994
Securities available for sale:
U.S. Treasury securities .............................. $ 4,054 $ 26 $ 18 $ 4,062
U.S. Government and its agencies ...................... 18,078 -- 743 17,335
Other securities ...................................... 1,261 -- -- 1,261
------- ------ ------ -------
$23,393 $ 26 $ 761 $22,658
======= ====== ====== =======
Investment securities:
U.S. Government and its agencies ...................... $51,231 $ 4 $3,306 $47,929
State and political subdivisions ...................... 6,238 3 307 5,934
Other securities ...................................... 1,615 -- 73 1,542
------- ------ ------ -------
$59,084 $ 7 $3,686 $55,405
======= ====== ====== =======
December 31, 1993
Securities available for sale:
Other securities ...................................... $ 60 $ -- $ -- $ 60
======= ====== ====== =======
Investment securities:
U.S. Treasury securities .............................. $10,570 $ 451 $ -- $11,021
U.S. Government and its agencies ...................... 81,397 791 588 81,600
State and political subdivisions ...................... 4,698 125 10 4,813
Other securities ...................................... 1,471 24 3 1,492
------- ------ ------ -------
$98,136 $1,391 $ 601 $98,926
======= ====== ====== =======
</TABLE>
The fair values for securities held for investment as well as securities
available for sale are quoted market prices or dealer quotes. If a quoted market
price was not available, fair value was estimated using quoted market prices of
similar securities.
F-9
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
The amortized cost and estimated fair value of securities available for
sale and investment securities as of December 31, 1994, by contractual maturity
are shown below. Expected maturities will differ from contractual maturities
because borrowers may have the right to call or prepay obligations with or
without call or prepayment penalties.
Amortized
Cost Estimated
--------- ---------
(dollars in thousands)
Securities available for sale:
Due in one year or loss ........................ $ 4,592 $ 4,560
Due after one year through five years .......... 9,581 9,249
Due after five years through ten years ......... 5,904 5,635
Due after ten years ............................ 3,316 3,214
------- -------
$23,393 $22,658
======= =======
Investment securities:
Due in one year or less ........................ $ 5,919 $ 5,509
Due after one year through five years .......... 20,897 19,645
Due after five years through ten years ......... 12,984 12,078
Due after ten years ............................ 19,284 18,173
------- -------
$59,084 $55,405
======= =======
Gross gains of $50,000 and $844,000 were recognized on the disposition of
securities available for sale during 1994 and 1993, respectively. A gross loss
of $378,000 was recognized on the disposition of securities available for sale
in 1994. No gross losses were experienced during 1993. Gross gains of $668,000
and $208,000 were recognized on the disposition of investment securities during
1993 and 1992, respectively. No gross losses were experienced within this
portfolio during this period.
Securities having an amortized cost of approximately $29,835,000 as of
December 31, 1994 and $13,632,000 as of December 31, 1993 were pledged as
collateral for public and trust funds, securities sold under agreements to
repurchase and for other purposes as required or permitted by law.
The Bank adopted FAS 115 (see note 1) as of January 1, 1994 which resulted
in an immediate increase of $608,000 in retained earnings. There was no effect
on net income as a result of this adoption. As of December 31, 1994, the net
unrealized loss on securities available for sale, net of the related tax effect,
reduced retained earnings by $485,000 and the net unrealized loss on securities
transferred from available for sale, net of the related tax effect, reduced
retained earnings by $904,000.
Note 4. Loans and Allowance for Loan Losses
The composition of the loan portfolio, net of deferred origination fee and
costs, as of December 31, 1994 and 1993 is as follows:
1994 1993
---- ----
(dollars in thousands)
Commercial and financial .................... $ 14,178 $ 13,180
Real estate construction .................... 11,108 5,957
Real estate mortgage ........................ 142,686 123,163
Consumer and other loans .................... 4,310 4,076
-------- --------
$172,282 $146,376
======== ========
The fair value estimate of the loan portfolio as of December 31, 1994 and
1993 is $169,241,000 and $146,427,000, respectively. Fair values are estimated
for portfolios of loans with similar financial characteristics. Loans are
segregated by type, such as residential and commercial real estate, commercial
and other consumer. Each loan category is further segmented into fixed and
adjustable rate interest terms, and by performing, and nonperforming categories.
The fair value of loans is primarily calculated by discounting contractual
cash flows using estimated market discount rates which reflect the credit and
interest rate risk inherent in the loan. For performing residential mortgage
F-10
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
loans, fair value is estimated by discounting contractual cash flows adjusted
for prepayment estimates using discount rates based on secondary market sources
adjusted to reflect differences in servicing credit costs.
Fair value of significant nonperforming loans is based on either recent
external appraisals or estimated cash flows which are discounted using a rate
commensurate with the associated risk. Assumptions regarding credit risk, cash
flows, and discount rates are judgmentally determined using available market
information and specific borrower information.
An analysis of the changes in the allowance for loan losses for 1994, 1993
and 1992 is as follows:
1994 1993 1992
---- ---- ----
(dollars in thousands)
Balance as of the beginning of year .......... $2,244 $3,092 $4,207
Provisions charged (credited) to operations .. (622) 440 770
Recoveries of previously charged-off loans ... 813 643 396
Loans charged-off ............................ (301) (1,931) (2,281)
------ ------ ------
Balance as of the end of year ................ $2,134 $2,244 $3,092
====== ====== ======
The allowance for loan losses presented in the accompanying consolidated
financial statements exceeded the allowance for Federal income tax purposes by
approximately $383,000, $1,005,000 and $2,166,000 at December 31, 1994, 1993 and
1992, respectively.
Nonperforming assets include nonperforming loans, restructured loans and
other real estate owned. The nonperforming loan category includes loans on which
income under the accrual method has been discontinued with subsequent interest
payments credited to income as received, or if ultimate collectibility of
principal is in doubt, applied as principal reductions, and loans 90 days past
due or greater and still accruing. Restructured loans are loans the terms of
which have been restructured to provide for a reduction or deferral of interest
or a deferral or principal due to deterioration in the financial position of the
borrower. Other real estate consists of properties acquired through foreclosure.
As of December 31, 1994 and 1993, nonperforming assets were as follows:
1994 1993
---- ----
(dollars in thousands)
Nonperforming loans ............................ $2,357 $1,945
Restructured loans ............................. 407 443
Other real estate owned ........................ 269 461
------ ------
$3,033 $2,849
====== ======
Nonperforming loans as a percentage of total loans were 1.37% as of
December 31, 1994 and 1.33% as of December 31, 1993. The Bank's nonperforming
loan portfolio by type as of December 31, 1994 and 1993 is as follows:
1994 1993
---- -----
(dollars in thousands)
Nonaccruing loans:
Commercial and financial ...................... $ 104 $ 6
Real estate mortgage .......................... 2,139 1,716
Consumer and other loans ...................... 114 6
------ ------
Total nonaccruing loans ..................... 2,357 1,728
------ ------
Past due 90 days or more:
Commercial and financial ...................... -- 15
Real estate mortgage .......................... -- 170
Consumer and other loans ...................... -- 32
------ ------
Total loans past due 90 days or more ........ -- 217
------ ------
Total nonperforming loans ................... $2,357 $1,945
====== ======
On December 20, 1994, the Bank sold a $15,868,000 package of performing
residential real estate loans to an unrelated third party. The Bank retained
servicing rights to the loans. The sales price, which represented 99.0% of the
F-11
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
net book value of the loans and was determined based upon competitive bidding,
resulted in a loss of $152,000 and is included in noninterest expense in the
accompanying consolidated statements of operations.
On September 10, 1993, the Bank sold a $4,974,000 package of troubled real
estate assets to an unrelated third party for $2,808,000 in cash, net of
commissions and closing costs. Included in the package were performing loans
with a book value of $2,048,000, net of reserves totaling $749,000,
nonperforming loans with a book value of $1,306,000, net of reserves totaling
$125,000, and other real estate owned with a book value of $1,620,000.
Additionally, the Bank sold to the same party three notes for which the
receivable had previously been charged-off the Bank's records for $61,000 in
cash. The $1,486,000 loss on the sale of the performing and nonperforming loans
and the $680,000 loss on the sale of the other real estate owned is included in
other noninterest expense in the accompanying consolidated statements of
operations. The proceeds from the sale of the charged-off notes was recorded as
a recovery to the allowance for loan losses.
Additional income before income taxes amounting to approximately $227,000
in 1994, $82,000 in 1993 and $69,000 in 1992 would have been recognized if
interest on all loans, classified as nonaccruing at the respective year ends,
had been recorded based upon original contract terms.
Executive officers and directors of the Bank, and companies with which they
are affiliated, were customers of, and had other transactions with the Bank in
the ordinary course of business. All loans included in such transactions 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 did not involve more than normal risk of collectibility or include other
unfavorable features. As of December 31, 1994 and 1993, the aggregate
outstanding loans to officers and directors, and companies in which they had an
interest, aggregated $1,967,000 and $1,270,000, respectively. During 1994
approximately $1,231,000 of new loans were made and repayments totaled $534,000.
The Financial Accounting Standards Board issued Statements No. 114,
"Accounting by Creditors for Impairment of a Loan," and No. 118, "Accounting by
Creditors for Impairment of a Loan--Interest Recognition and Disclosures." The
new statements, which are effective for financial statements issued for fiscal
years beginning after December 15, 1994, require impaired loans to be measured
at the present value of expected future cash flows by discounting those cash
flows generally at the loan's effective interest rate or, as a practical
expedient, at the loan's observable market price or the fair value of the
collateral if the loan is collateral dependent. The new statements also require
troubled debt restructurings involving a modification of terms be re-measured on
a discounted basis. Management has determined that these statements will not
have a material impact on results of operations or financial position.
Note 5. Bank Premises and Equipment
The components of bank premises, furniture and equipment as of December 31,
1994 and 1993 were as follows:
1994 1993
---- ----
(dollars in thousands)
Land .............................................. $ 380 $ 380
Premises and leasehold improvements ............... 2,366 2,409
Furniture and equipment ........................... 3,721 4,243
------ ------
6,467 7,032
Less accumulated depreciation and amortization .... 3,244 3,472
------ ------
$3,223 $3,560
====== ======
Depreciation and amortization charged to operations amounted to $721,000 in
1994, $515,000 in 1993 and $581,000 in 1992.
F-12
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
Note 6. Deposits
As of December 31, 1994 and 1993, deposits consisted of the following:
1994 1993
---- ----
(dollars in thousands)
Noninterest bearing demand deposits $ 40,073 $ 35,326
Interest bearing demand deposits 69,393 78,040
Savings deposits 60,734 61,669
Time deposits of $100,000 and over 11,088 6,491
Other time deposits 59,992 59,299
-------- --------
$241,280 $240,825
======== ========
Under FAS 107, the fair value of deposits with no stated maturity, such as
noninterest bearing demand deposits, savings, and NOW and money market accounts,
is equal to the amount payable on demand as of December 31, 1994 and 1993. The
fair value of certificates of deposit is based on the discounted value of
contractual cash flows. The discount rate is estimated using the rates currently
offered for deposits of similar remaining maturities.
Time deposits, including $100,000 and over, having an aggregate carrying
value of $71,080,000 as of December 31, 1994 and $65,790,000 as of December 31,
1993 have an estimated fair value of $70,810,000 and $65,970,000 as of December
31, 1994 and 1993, respectively. The fair value estimates do not include the
benefit that results from the low-cost funding provided by the deposit
liabilities compared to the cost of borrowing funds in the market.
Interest expense incurred on time deposits of $100,000 and over amounted to
$346,000 in 1994, $231,000 in 1993 and $309,000 in 1992.
Note 7. Other Borrowed Funds
Other borrowed funds consisted of the following as of December 31, 1994 and
1993:
1944 1993
---- ----
(dollars in thousands)
Securities sold under agreements to repurchase ...... $6,565 $101
Treasury tax and loan notes payable on demand ....... 750 750
------ ----
$7,315 $851
====== ====
Under FAS 107, the fair value of borrowed funds payable on demand and
securities sold under agreementsto repurchase with stated maturity of three
months or less is equal to the amount payable as of December 31, 1994 and 1993.
A summary of certain information regarding securities sold under agreements
to repurchase for 1994 and 1993 is as follows:
1994 1993
---- ----
(dollars in thousands)
Average amount outstanding for the year ............ $ 7,490 $2,326
Average interest rate for the year ................. 4.79% 3.08%
Maximum amount outstanding at any month-end ........ $16,301 $8,316
Average interest rate on year-end balance .......... 6.45% 2.90%
Interest expense incurred on securities sold under agreements to repurchase
of $100,000 and over aggregated $359,000 in 1994, $69,000 in 1993 and $59,000 in
1992.
F-13
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
Note 8. Income Taxes
As discussed in note 1, the Bank adopted FAS 109 in 1992. The cumulative
effect of this change in accounting for income taxes of $85,000 was determined
as of January 1, 1992 and is reported separately in the consolidated statement
of operations for the year ended December 31, 1992.
The income tax provision for 1994, 1993 and 1992 aggregated $1,288,000,
$450,000 and $740,000, respectively. The current and deferred amounts of such
provisions are as follows:
1994 1993 1992
---- ---- ----
(dollars in thousands)
Statements of Operations:
Federal:
Current expense ........................... $ 634 $ 74 $ 112
Deferred expense .......................... 409 322 469
State:
Current expense ........................... 245 54 159
------ ----- -----
$1,288 $ 450 $ 740
====== ===== =====
Statement of Condition:
Deferred tax on securities transferred
from available for sale ................... $ (466) $ -- $ --
Deferred tax on securities available
for sale .................................. (250) -- --
------ ----- -----
$ 716 $ -- $ --
====== ===== =====
Total income tax expense differed from the amounts computed by applying the
U.S. Federal income tax rate of 34% in 1994, 1993 and 1992 to income before
income taxes as a result of the following:
1994 1993 1992
---- ---- ----
(dollars in thousands)
Current "expected" tax expense ................ $1,179 $ 462 $ 641
Increase (decrease) in taxes
resulting from:
Tax exempt income ........................... (96) (61) (34)
State income taxes, net of
Federal benefit ........................... 162 36 105
Alternative minimum tax ..................... -- -- 23
Other ....................................... 43 13 5
------ ----- -----
$1,288 $ 450 $ 740
====== ===== =====
The significant components of deferred income tax expense for the years
ended December 31, 1994, 1993 and 1992 are as follows:
1994 1993 1992
---- ---- ----
(dollars in thousands)
Statements of Operations:
Provision for loan losses ................... $ 212 $ 395 $ 459
Interest on nonperforming loans ............. (55) 90 15
Deferred loan fees .......................... (53) (52) 22
Accretion of bond discount .................. (7) 23 16
Depreciation ................................ (16) 58 (49)
Other real estate owned write downs ......... 6 -- (25)
Alternative minimum tax credit
carryforward .............................. 322 (40) 23
Gain on sale of investments over book ....... -- (134) --
Other ....................................... -- (18) 8
------ ----- -----
$ 409 $ 322 $ 469
====== ===== =====
Statements of Condition:
Deferred tax on securities transfered
from available for sale ................... $ (466) $ -- $ --
Deferred tax on securities available
for sale .................................. (250) -- --
------ ----- -----
$ (716) $ -- $ --
====== ===== =====
F-14
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities as of December
31, 1994 and 1993 are as follows:
1994 1993
------ ------
(dollars in thousands)
Deferred tax assets:
Allowance for loan losses .......................... $ 130 $ 342
Deferred loan fees ................................. 145 92
Other real estate owned write downs ................ 19 25
Interest on nonperforming loans .................... 97 42
Nondeductible accrued expense ...................... 18 18
Alternative minimum tax carryforward ............... 174 496
Unrealized loss on securities transferred
from available for sale .......................... 466 --
Unrealized loss on securities available for sale ... 250 --
------ ------
Total deferred tax assets ........................ 1,299 1,015
------ ------
Deferred-tax liabilities:
Unamortized discount accretion ..................... -- (7)
Depreciation ....................................... (415) (431)
------ ------
Total deferred tax liabilities ................... (415) (438)
------ ------
Net deferred tax asset ........................... $ 884 $ 577
====== ======
Except for the effects of the reversal of net deductible temporary
differences and tax exempt income, the Bank is not currently aware of any
factors which would cause any significant differences between taxable income and
pre-tax book income in future years. However, there can be no assurances that
there will be no significant differences in the future between taxable income
and pre-tax book income if circumstances change. In order to fully realize the
deferred tax asset the Bank will need to generate future taxable income.
Management believes it is more likely than not that the Bank will realize the
benefit of the net deductible temporary differences and that such net deductible
temporary differences will reverse during periods in which the Bank generates
net taxable income. There can be no assurances, however, that the Bank will
generate any earnings or any specific lever of continuing earnings.
At December 31, 1994, the Bank has alternative minimum tax credit
carryforwards of $174,000 which are available to reduce future Federal regular
income taxes, if any, over an indefinite period.
Note 9. Restrictions on Bank Dividends and Other Regulatory Matters
Certain limitations exist on the availability of the Bank's undistributed
net assets for the payment of dividends without the prior approval of the
regulatory authorities. Federal regulatory guidelines restrict the payment of
dividends in any calendar year to the net profit of the current year combined
with retained net profits of the preceding two years. As of January 1, 1995, the
Bank has $2,596,000 of available retained earnings with which it may declare
cash dividends without regulatory approval.
The Bank is required to maintain minimum amounts of capital to total "risk
weighted" assets, as defined by the banking regulators. The Bank is required to
have minimum Tier I and Total Capital Ratios of 4.00% and 8.00%, respectively.
The Bank's actual ratios at December 31, 1994 were 12.47% and 13.88%,
respectively. The Bank's leverage ratio at December 31, 1994 was 6.68% (minimum
regulatory guidelines for 1994 range between 3.00% and 5.00%).
The Federal Deposit Insurance Corporation Improvement Act (FDICIA) was
signed into law on December 19, 1991. Regulations implementing the prompt
corrective action provisions of FDICIA became effective on December 19, 1992. In
addition to the prompt corrective action requirements, FDICIA includes
significant changes to the legal and regulatory environment for insured
depository institutions, including reductions in insurance coverage for certain
kinds of deposits, increased supervision by the Federal regulatory agencies,
increased reporting requirements for insured institutions, and regulations
concerning internal controls, accounting and operations.
The prompt corrective action regulations define five specific capital
categories based on an institution's capital ratios. The capital categories, in
declining order, are "well capitalized", "adequately capitalized",
"undercapital-
F-15
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
ized", "significantly undercapitalized", and "critically undercapitalized". To
be considered "well capitalized", an institution must generally have a leverage
ratio of at least 5%, a Tier I risk-based capital ratio of at least 6%, and a
total risk-based capital ratio of at least 10%. The Bank is considered to be
"well capitalized" under the subject regulations.
Note 10. Stockholders' Equity
Effective April 13, 1994, the Bank declared a 5% stock dividend for all
stockholders of record on that date which resulted in the transfer of
approximately $997,000 from retained earnings to common stock and surplus.
On March 1, 1993, the Bank sold 398 shares of its authorized but unissued
$2.50 par value common stock for cash proceeds of $18,000.
Effective December 4, 1992, the Bank declared a 5% stock dividend for all
stockholders of record on that date which resulted in the transfer of
approximately $881,000 from retained earning to common stock and surplus.
Simultaneously, the Bank declared a two-for-one stock split for all stockholders
of record on December 4, 1992.
Effective April 4, 1992, the Bank declared a 4.25% stock dividend for all
stockholders of record on that date which resulted in the transfer of
approximately $625,000 from retained earning to common stock and surplus.
Note 11. Commitments and Contingent Liabilities
The Bank is party, in the ordinary course of business, to litigation
involving collection matters, contract claims and other miscellaneous causes of
action arising from its business. Management does not consider that any
such proceedings depart from usual routine litigation, and in its judgment, the
Bank's consolidated financial position will not be affected materially by the
final outcome of any pending legal proceedings.
Note 12. Off-Balance-Sheet Financial Instruments
The Bank enters into a variety of financial instruments with
off-balance-sheet risk in the normal course of business. Such financial
instruments include commitments to extend credit and letters of credit both of
which involve, to varying degrees, elements of risk in excess of the amounts
recognized in the financial statements.
Credit risk, the risk that a counterparty of a particular financial
instrument will fail to perform, is the contract amount of commitments to extend
credit and letters of credit. The credit risk associated with these financial
instruments is essentially the same as that involved in extending loans to
customers. Credit risk is managed by limiting the total amount of arrangements
outstanding and by applying normal credit policies to all activities with credit
risk. Collateral is obtained based on management's credit assessment of the
customer.
The contract amounts of off-balance-sheet financial instruments at December
31, 1994 for commitments to extend credit and letters of credit were $36,727,000
and $1,590,000, respectively.
Many commitments to extend credit are expected to expire without being
drawn upon and, therefore, the total commitment amounts do not necessarily
represent future cash flow requirements.
The estimated fair value of the unused commitments to extend credit and the
letters of credit approximates the contract amounts as of December 31, 1994.
Fair value is estimated using the fees currently charged to enter into similar
agreements. For fixed rate loan commitments, fair value considers the difference
between current levels of interest rates and the committed rates.
Note 13. Benefit Plans
The Bank has a trusteed, non-contributory profit sharing plan covering
substantially all employees with one or more years of service. Under the plan,
the Bank contributes 20% of its net profits, as defined. The Bank's
annual contribution may not exceed the amount needed to provide each participant
with an allocation equal to the lessor of $25,000 or 15% of each eligible
participant's salary. Contributions to the plan amounted to $434,000 in 1994,
$62,000 in 1993 and $70,000 in 1992.
Effective April 1, 1993, the Bank adopted a savings plan under Section
401(k) of the Internal Revenue Code, which covers substantially all employees
who have completed 1,000 hours of service during the previous year. Under the
plan, employee contributions are partially matched by the Bank. Such matchings
become vested when the employee reaches seven years of credited service.
Contributions to the plan amounted to $55,000 in 1994 and $46,000 in 1993.
F-16
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
In addition to profit sharing and savings benefits, the Bank provides
additional postretirement health care benefits to retired employees and all
employees eligible to retire with benefits as of January 1, 1993. Included in
the group of eligible employees are those who, as of January 1, 1993, were over
the age of 62 and had completed 20 years of service or were over the age of 55
and had completed 25 years of service. All retirees and eligible employees are
required to contribute a portion of the cost of providing these benefits and the
provisions may be changed at the discretion of the Bank.
As discussed in note 1, the Bank adopted FAS 106 effective January 1, 1993
and elected to amortize its transition obligation of $558,000 over a twenty year
period. Prior to 1993, expense was recognized on a "pay as you go" basis and
amounted to $34,000 in 1992.
The periodic postretirement benefit cost for 1994 and 1993 under FAS 106
were as follows:
1994 1993
---- ----
(dollars in thousands)
Interest cost ............................... $32 $37
Amortization of gain ........................ (3) --
Amortization of transition obligation ....... 26 26
--- ---
$55 $63
=== ===
The actuarial present value of benefit obligations and the amount
recognized in the consolidated statements of condition for 1994 and 1993 were as
follows:
1994 1993
---- ----
(dollars in thousands)
Actuarial present value of benefit obligations:
Retirees ...................................... $327 $391
Fully eligible active plan participants ....... 149 167
---- ----
Accumulated postretirement benefit obligation ... 476 558
Unrecognized gain ............................... (81) --
Unrecognized transition obligation .............. 504 530
---- ----
Accrued postretirement benefit obligation ....... $ 53 $ 28
==== ====
The assumed annual rate of future increases in per capita cost of health
care benefits was 12% for 1994. The rate was assumed to decline gradually to 6%
in 2000 and remain at that level thereafter. Increasing the health care cost
trend by 1% in each year would have an insignificant effect on the accumulated
benefit obligation and the interest cost for fiscal 1994. The weighted average
discount rate used in determining the accumulated benefit obligation was 7%.
Note 14. Lease Commitments
Noninterest expense rentals for premises and equipment of $475,000 in 1994,
$425,000 in 1993 and $410,000 in 1992. At December 31, 1994, the Bank was
obligated under a number of non-cancelable leases for premises and equipment,
certain of which provide for increased rentals based upon increases in real
estate taxes and the cost of living index. These leases, most of which have
renewal provisions, are principally non-financing leases. Minimum rentals under
the terms of these leases for years 1995 through 1999 are $459,000, $390,000,
$346,000, $307,000, and $309,000 respectively. Minimum rentals due after 1999
are $1,417,000.
F-17
<PAGE>
Note 15. Other Noninterest Expense
Other noninterest expense consists of the following:
1994 1993 1992
------ ------ ------
(dollars in thousands)
Communications and supplies .......... $ 583 $ 560 $ 526
Professional and other fees .......... 620 763 698
Promotion ............................ 252 227 106
Appraisal costs and other loan fees .. 105 114 282
FDIC Insurance ....................... 572 581 505
Other insurance expense .............. 90 116 116
Other real estate costs .............. 158 1,387 496
Other ................................ 546 510 381
------ ------ ------
$2,926 $4,258 $3,110
====== ====== ======
Note 16. Fair Value of Financial Instruments
The estimated fair value of the Bank's financial instruments as of December
31, 1994 are as follows:
Carrying Estimated
amount fair value
-------- ---------
(dollars in thousands)
Financial assets:
Cash and cash equivalents .................... $ 10,013 $ 10,013
Securities available for sale (note 3) ....... 22,658 22,658
Investment securities (note 3) ............... 59,084 55,405
Loans (note 4) ............................... 172,282 169,241
Financial liabilities:
Deposits (note 6) ............................ 241,280 241,010
Other borrowed funds (note 7) ................ 7,315 7,315
Off-balance sheet financial instruments:
Commitments to extend credit (note 12) ....... 36,727 36,727
-------- --------
Standby letters of credit (note 12) .......... $ 1,590 $ 1,590
======== ========
The methods and assumptions used to measure the fair value of each class of
financial instruments for which it is practical to estimate that value are
described in note 1 and the above referenced notes to the accompanying
consolidated financial statements.
F-18
<PAGE>
Note 17. Quarterly Financial Data (Unaudited)
The following summarizes certain 1994 and 1993 quarterly consolidated
financial data for the Bank. In the opinion of management, all adjustments
necessary for a fair presentation of the results for each quarter have been
included.
<TABLE>
<CAPTION>
First Second Third Fourth
quarter quarter quarter quarter
------- ------- ------- -------
(dollars in thousands, except per share data)
<S> <C> <C> <C> <C>
Year ended December 31, 1994
Interest income ..................... $4,185 $4,520 $4,733 $4,980
Interest expense .................... 1,350 1,395 1,534 1,688
Provision for loan losses ........... -- -- -- (622)
Income from earning assets .......... 2,835 3,125 3,199 3,914
Noninterest income (loss) ........... 402 393 406 (27)
Noninterest expense ................. 2,557 2,598 2,643 2,981
Applicable income taxes ............. 250 331 371 336
------ ------ ------ ------
Net income .......................... $ 430 $ 589 $ 591 $ 570
====== ====== ====== ======
Net income per common share ......... $ 0.47 $ 0.64 $ 0.65 $ 0.62
====== ====== ====== ======
Year ended December 31, 1993
Interest income ..................... $4,479 $4,440 $4,093 $4,364
Interest expense .................... 1,680 1,592 1,416 1,390
Provision for loan losses ........... 210 90 90 50
Income from earning assets .......... 2,589 2,758 2,587 2,924
Noninterest income .................. 664 639 1,244 405
Noninterest income .................. 2,793 2,782 4,263 2,613
Applicable income taxes (benefit) ... 171 219 (109) 169
------ ------ ------ ------
Net income (loss) ................... $ 289 $ 396 $ (323) $ 547
====== ====== ====== ======
Net income (loss) per common share .. $ 0.32 $ 0.43 $(0.35) $ 0.60
====== ====== ====== ======
</TABLE>
F-19
<PAGE>
DISTRIBUTION OF ASSETS, LIABILITIES AND STOCKHOLDERS' EQUITY:
INTEREST RATES AND INTEREST DIFFERENTIAL
The following table reflects the Bank's consolidated assets, liabilities
and stockholders' equity as well as the amount of interest income or interest
expense and the average rate for each category of interest earning assets and
interest bearing liabilities. Nonperforming loans are included in average loans.
Interest on loans includes fees on loans, which fees are not material.
Nontaxable income from investment securities and loans is presented on a tax
equivalent basis assuming a 34% tax rate:
<TABLE>
<CAPTION>
December 31,
---------------------------------------------------------------------------------------
1994 1993 1992
--------------------------- -------------------------- ----------------------------
Average Average Average Average Average Average
Balance Interest Rate Balance Interest Rate Balance Interest Rate
-------- ------- ------- -------- -------- ------- -------- -------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS:
Interest earning assets:
Federal funds sold ............... $ 1,069 $ 39 3.65% $ 4,306 $ 128 2.97% $ 3,772 $ 136 3.61%
Money market investments ......... 167 5 3.17% 941 28 2.98% 2,116 80 3.78%
Investment securities(1):
Taxable ......................... 91,538 5,379 5.88% 96,698 6,094 6.30% 86,426 6,624 7.42%
Tax-exempt ...................... 5,735 395 6.90% 3,588 263 7.33% 2,112 151 7.15%
-------- ------- ---- -------- ------- ---- -------- ------- ----
Total investment securities .... 97,273 5,774 5.94% 100,286 6,357 6.34% 88,736 6,577 7.41%
-------- ------- ---- -------- ------- ---- -------- ------- ----
Loans(2) ......................... 159,700 12,760 7.99% 133,775 10,966 8.20% 134,164 12,001 8.95%
-------- ------- ---- -------- ------- ---- -------- ------- ----
Total interest earning assets .. 258,209 18,578 7.19% 239,308 17,479 7.30% 228,788 18,794 8.21%
-------- ------- ---- -------- ------- ---- -------- ------- ----
Cash and due banks ............... 8,810 8,805 8,321
Allowance for loan losses ........ (2,413) (3,057) (4,103)
Other assets ................... 7,221 10,120 11,323
-------- -------- --------
Total Assets ................... $271,827 $255,176 $244,329
======== ======== ========
LIABILITIES & STOCKHOLDERS'
EQUITY:
Interest bearing liabilities:
Demand deposits ................. $ 75,638 $ 1,316 1.74% $ 76,734 $ 1,656 2.16% $ 73,703 $ 2,493 3.38%
Savings deposits ................ 64,789 1,623 2.51% 59,069 1,635 2.77% 48,197 1,744 3.62%
Time deposits ................... 66,016 2,561 3.88% 66,035 2,698 4.09% 73,764 3,946 5.35%
-------- ------- ---- -------- ------- ---- -------- ------- ----
Total interest bearing
deposits ...................... 206,443 5,500 2.66% 201,838 5,989 2.97% 195,664 8,183 4.18%
Other borrowed funds ............. 9,688 467 4.82% 2,968 89 3.00% 3,327 103 3.10%
-------- ------- ---- -------- ------- ---- -------- ------- ----
Total interest bearing
liabilities ................... 216,131 5,967 2.76% 204,806 6,078 2.97% 198,991 8,286 4.16%
-------- ------- ---- -------- ------- ---- -------- ------- ----
Demand deposits .................. 36,072 31,508 27,515
Other liabilities ................ 2,471 2,115 2,132
Stockholders' equity ............. 17,153 16,747 15,691
-------- -------- --------
Total Liabilities and
Stockholders' Equity .......... $271,827 $255,176 $244,329
======== ======== ========
Net interest income on tax
equivalent basis ................ 12,611 11,401 10,508
Tax equivalent adjustment ........ (161) (103) (61)
======= ======= =======
Net interest income .............. $12,450 $11,298 $10,447
======= ======= =======
Net Interest Spread(3) ........... 4.43% 4.34% 4.05%
==== ==== ====
Net Interest Margin(4) ........... 4.88% 4.76% 4.59%
==== ==== ====
- ------------
<FN>
(1) Includes securities available for sale.
(2) Average balances and rates include nonaccruing and renegotiated loans.
(3) Average rate earned on interest earning assets less average rate paid on
interest bearing liabilities.
(4) Net interest income on tax equivalent basis divided by total interest
earning assets.
</FN>
</TABLE>
F-20
<PAGE>
THE FLEMINGTON NATIONAL BANK AND TRUST COMPANY AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CONDITION
(Unaudited)
<TABLE>
<CAPTION>
Sept. 30, December 31,
1995 1994
--------- ------------
ASSETS (dollars in thousands)
<S> <C> <C>
Cash and due from banks ......................................... $ 10,591 $ 9,378
Federal funds sold .............................................. 800 585
Money market investments ........................................ 50 50
-------- --------
Total cash and cash equivalents .............................. 11,441 10,013
-------- --------
Securities available for sale, at market value (cost of
$25,582 in 1995 and $23,393 in 1994) ........................... 25,607 22,658
Investment securities (market value of $56,501 in 1995
and $55,405 in 1994) ........................................... 56,533 59,084
Loans ........................................................... 190,386 172,282
Less allowance for loan losses ................................. 2,429 2,134
-------- --------
Net loans ....................................................... 187,957 170,148
-------- --------
Bank premises and equipment ..................................... 3,657 3,223
Other real estate owned ......................................... 342 269
Accrued interest and other assets ............................... 4,036 2,912
-------- --------
Total Assets ................................................. $289,573 $268,307
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Noninterest bearing demand deposits ............................ $ 41,059 $ 40,073
Interest bearing demand deposits ............................... 67,610 69,393
Savings deposits ............................................... 55,019 60,734
Other time deposits ............................................ 75,341 59,992
Time deposits of $100,000 and over ............................. 18,306 11,088
-------- --------
Total deposits .................................................. 257,335 241,280
-------- --------
Other borrowed funds ............................................ 8,640 7,315
Accrued interest and other liabilities .......................... 4,424 2,184
-------- --------
Total liabilities ............................................ 270,399 250,779
-------- --------
Commitments and contingent liabilities:
Stockholders' equity:
Common Stock, par value $2.50 per share; Authorized
1,500,000 shares; Issued and Outstanding 958,476 in
1995 and 913,027 in 1994 ...................................... 2,397 2,283
Surplus ......................................................... 10,237 9,249
Retained earnings ............................................... 6,540 5,996
-------- --------
Total stockholders' equity ................................... 19,174 17,528
-------- --------
Total Liabilities and Stockholders' Equity ................... $289,573 $268,307
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-21
<PAGE>
THE FLEMINGTON NATIONAL BANK AND TRUST COMPANY AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
For the nine months For the three months
ended Sept. 30, ended Sept. 30,
------------------- -------------------
1995 1994 1995 1994
-------- ------- ------- -------
(dollars in thousands, except per share data)
<S> <C> <C> <C> <C>
INTEREST INCOME
Interest and fees on loans ................................. $ 11,387 $ 9,130 $ 3,986 $ 3,266
Interest on investment securities:
Taxable ................................................... 3,553 4,078 1,187 1,383
Tax-exempt ................................................ 203 190 66 74
Interest on Federal funds sold and other short-term
investments ............................................... 22 40 4 10
-------- ------- ------- -------
Total interest income ...................................... 15,165 13,438 5,243 4,733
-------- ------- ------- -------
INTEREST EXPENSE:
Interest on deposits ....................................... 5,489 4,052 1,947 1,355
Interest on other borrowed funds ........................... 448 227 152 179
-------- ------- ------- -------
Total interest expense ..................................... 5,937 4,279 2,099 1,534
-------- ------- ------- -------
Net interest income ........................................ 9,228 9,159 3,144 3,199
Provision for loan losses .................................. 0 0 0 0
-------- ------- ------- -------
Net interest income after provision for loan losses ........ 9,228 9,159 3,144 3,199
-------- ------- ------- -------
NONINTEREST INCOME:
Service fees on deposit accounts ........................... 731 631 236 217
Fees and other income ...................................... 436 520 142 189
Investment securities gains ................................ 0 50 0 0
-------- ------- ------- -------
Total noninterest income ................................... 1,167 1,201 378 406
-------- ------- ------- -------
NONINTEREST EXPENSE:
Salaries and employee benefits ............................. 4,470 4,185 1,548 1,403
Net occupancy expense ...................................... 862 891 239 302
Equipment expense .......................................... 575 574 182 182
Other noninterest expense .................................. 2,073 2,148 593 756
-------- ------- ------- -------
Total noninterest expense .................................. 7,980 7,798 2,562 2,643
-------- ------- ------- -------
Income before income taxes ................................. 2,415 2,562 960 962
Income taxes ............................................... 832 952 435 371
-------- ------- ------- -------
Net income ................................................. $ 1,583 $ 1,610 $ 525 $ 591
======= ======= ======= =======
Net income per common share ................................ $ 1.65 $ 1.68 $ 0.55 $ 0.62
======= ======= ======= =======
Weighted average shares outstanding ........................ 958,476 958,476 958,476 958,476
======= ======= ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-22
<PAGE>
THE FLEMINGTON NATIONAL BANK AND TRUST COMPANY AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Unaudited)
<TABLE>
<CAPTION>
Outstanding Common Retained
Shares Stock Surplus Earnings Total
----------- ------ ------- --------- -------
(in thousands except for outstanding shares)
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1991 ........................ 397,274 $1,987 $ 7,024 $ 6,002 $15,013
Net income ....................................... -- -- -- 1,231 1,231
4 1/4% stock dividend declared ................... 16,884 85 540 (625) --
5% stock dividend declared ....................... 20,508 102 779 (891) (10)
Stock split (2 for 1) ............................ 434,666 -- -- -- --
Change in valuation allowance for investment
securities ...................................... -- -- -- 46 46
------- ------ ------- ------- -------
Balance, December 31, 1992 ........................ 869,332 2,174 8,343 5,763 16,280
Net income ....................................... -- -- -- 909 909
Issuance of 398 shares common stock .............. 398 -- 18 -- 18
Cash dividends ................................... -- -- -- (86) (86)
------- ------ ------- ------- -------
Balance, December 31, 1993 ........................ 869,730 2,174 8,361 6,586 17,121
Net income ....................................... -- -- -- 2,180 2,180
Cash dividends ................................... -- -- -- (403) (403)
5% stock dividend declared ....................... 43,297 109 888 (1,001) (4)
Change in valuation allowance for investment
securities ...................................... -- -- -- (1,366) (1,366)
------- ------ ------- ------- -------
Balance, December 31, 1994 ........................ 913,027 2,283 9,249 5,996 17,528
Net income ....................................... -- -- -- 1,583 1,583
Cash dividends ................................... -- -- -- (566) (566)
5% stock dividend declared ....................... 45,449 114 988 (1,102) --
Change in valuation allowance for investment .....
securities ...................................... -- -- -- 629 629
======= ====== ======= ======= =======
Balance, September 30, 1995 ....................... 958,476 $2,397 $10,237 $ 6,540 $19,174
======= ====== ======= ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-23
<PAGE>
THE FLEMINGTON NATIONAL BANK AND TRUST COMPANY AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
For the nine months
ended September 30,
-------------------
1995 1994
------- -------
(dollars in thousands)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ....................................................................... $ 1,583 $ 1,610
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization expense .......................................... 499 564
Amortization of premium on investment securities, net .......................... 123 236
Gain on sale of securities available for sale .................................. -- (50)
Valuation allowance for investment securities .................................. (630) 677
Gain on sale of other real estate .............................................. (123) (2)
Loss on sale of bank premises and equipment .................................... 11 --
Change in accrued interest and other assets .................................... (1,124) (637)
Change in accrued interest and other liabilities ............................... 2,240 556
------- -------
Net cash provided by (used in) operating activities .............................. 2,579 2,954
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from maturities of investment securities ................................ 2,764 4,244
Proceeds from sale of securities for sale ........................................ -- 2,075
Proceeds from maturities of securities available for sale ........................ 7,714 8,371
Purchase of securities available for sale ........................................ (9,990) (11,000)
Purchase of investment securities ................................................ (57) (4,932)
Change in loans made to customers ................................................ (18,127) (23,012)
Cash collected on previously charged-off loans ................................... 373 597
Bank premises and equipment expenditures ......................................... (950) (172)
Proceeds from sale of other real estate owned .................................... 308 185
------- -------
Net cash used in investing activities ............................................ (17,965) (23,644)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Change in interest and noninterest bearing demand
deposits and savings deposits ................................................... (6,512) 2,474
Change in certificates of deposit ................................................ 22,567 817
Change in other borrowed funds ................................................... 1,325 16,200
Cash dividends ................................................................... (566) (270)
------- -------
Net cash provided by financing activities ........................................ 16,814 19,221
------- -------
Net increase in cash and cash equivalents ........................................ 1,428 (1,469)
Cash and Cash equivalents as of beginning of period .............................. 10,013 11,059
------- -------
Cash and cash equivalents as of end of period .................................... $11,441 $ 9,590
======= =======
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest ........................................................................ $ 5,205 $ 4,316
Income taxes .................................................................... 770 235
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING ACTIVITIES:
Transfer to securities available for sale from investment securities ............. -- 68,167
Transfer to investment securities from securities available for sale ............. -- 29,519
Transfer of loans to other real estate owned ..................................... 158 --
</TABLE>
See accompanying notes to consolidated financial statements.
F-24
<PAGE>
THE FLEMINGTON NATIONAL BANK AND TRUST COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(Unaudited)
Note 1. Summary of Significant Accounting Policies
The financial information in this report is unaudited and is subject to
year-end adjustments and audit. However, in the opinion of management, the
information reflects all adjustments (consisting of normal, recurring accruals)
and disclosures which are necessary for a fair presentation of the consolidated
financial data as of and for the three and nine month periods ended September
30, 1995 and 1994. The results of operations for the nine month period ended
September 30, 1995 are not necessarily indicative of the results to be expected
for the entire year ending December 31, 1995.
Basis of presentation. The accompanying consolidated financial statements
include the accounts of The Flemington National Bank and Trust Company and its
wholly-owned subsidiary, Flemington National Investment Company. All material
intercompany accounts and transactions have been eliminated in consolidation. In
preparing the consolidated financial statements, management is required to make
estimates and assumptions that affect the reported amounts of assets and
liabilities as of the date of the consolidated statements of condition and
revenues and expenses for the period. Actual results could differ from those
estimates.
Management believes that the allowance for loan losses is adequate and that
the carrying value of real estate owned approximates fair value. While
management uses available information to recognize losses on loans and real
estate owned, future additions to the allowance and write-downs of real estate
owned may be necessary based on changes in economic conditions. In addition,
various regulatory agencies, as an integral part of their examination process,
periodically review the Bank's allowance for loan losses and the recorded value
of real estate owned. Such agencies may require the Bank to recognize additions
to the allowance based on their judgments about information available to them at
the time of their examination.
Certain information and footnote disclosures required under generally
accepted accounting principles have been condensed or omitted pursuant to the
rules and regulations of the Office of the Comptroller of the Currency ("OCC").
These interim financial statements should be read in conjunction with the
consolidated financial statements and notes thereto included in the Bank's
annual report for the year ended December 31, 1994.
Fair value of financial instruments. Statement of Financial Accounting
Standards No. 107, "Disclosure About Fair Value of Financial Instruments" (FAS
107), requires that the Bank disclose estimated fair values for its financial
instruments. The fair value estimates are made at a discrete point in time based
on relevant market information about the financial instruments. Because no
market exists for a significant portion of the Bank's financial instruments,
fair value estimates are based on judgments regarding future expected loss
experience, current economic conditions, risk characteristics of various
financial instruments, and such other factors. These estimates are subjective in
nature and involve uncertainties and matters of significant judgment and
therefore cannot be determined with precision. Changes in assumptions could
significantly affect the estimates.
In addition, the fair value estimates are based on existing on- and
off-balance sheet financial instruments without attempting to estimate the value
of anticipated future business and the value of assets and liabilities that are
notconsidered financial instruments. In addition, the tax ramifications related
to the realization of the unrealized gains and losses can have a significant
effect on the fair value estimates and have not been considered in many of these
estimates.
The fair value estimates, methods and assumptions are set forth in the
Bank's 1994 annual report. Management is not aware of any conditions during the
first nine months of 1995 that would have materially affected the estimates of
fair value as of December 31, 1994.
F-25
<PAGE>
THE FLEMINGTON NATIONAL BANK AND TRUST COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS--Continued
(Unaudited)
Note 1. Summary of Significant Accounting Policies--continued
The following is a summary of the more significant accounting policies:
Securities available for sale. On January 1, 1994, the Bank adopted
Statement of Accounting Standards No. 115 "Accounting for Certain Investments in
Debt and Equity Securities" (FAS 115). Debt securities to be held for indefinite
periods of time and not intended to be held to maturity, as well as marketable
equity securities, are classified as available for sale. Securities available
for sale include securities that management intends to use as part of its
asset/liability management strategy. Such securities are carried at fair value
and unrealized gains and losses, net of related tax effect, are excluded from
earnings but are included in stockholders' equity. Gains or losses on the sales
of such securities are recognized in the period in which such transactions are
consummated and are included in noninterest income.
Investment securities. Investment securities are carried at cost, adjusted
for amortization of premium and accretion of discount, which are recognized as
adjustments to interest income, on a level yield basis. Gains and losses on
disposition are included in noninterest income. Management determines the
appropriate classification of securities at the time of purchase. If management
has the intent and the Bank has the ability at the time of purchase to hold
securities until maturity, they are classified as investment securities and
carried at amortized historical cost.
Allowance for loan losses. The allowance for loan losses is based on
management's on-going assessment of the Bank's credit exposure. The impact of
economic conditions on the creditworthiness of the borrowers is given
consideration, as well as loan loss experience, changes in the composition and
volume of the loan portfolio, and management's assessment of the risk inherent
in the loan portfolio. These and other factors are used in assessing the overall
adequacy of the allowance for loan losses and the resulting provision for loan
losses.
The allowance for loan losses is established through charges to earnings in
the form of a provision for loan losses. Losses on loans and loans which are
determined to be uncollectible are deducted from the allowance and subsequent
recoveries, if any, are added back to the allowance.
Other real estate. Other real estate consists of properties acquired
through foreclosure and is carried at the lower of cost or fair value minus
estimated costs to sell. Where fair value cannot be readily determined, the
estimated net realizable value is used. When a property is acquired, the excess
of the loan balance over fair value or the estimated net realizable value is
charged to the allowance for loan losses. Subsequent write-downs may be required
to reduce the carrying value of the property and are included in other
noninterest expense. Operating results from other real estate, including rental
income, operating expenses, and gains and losses realized from the sales of
other real estate are recorded in other noninterest expense.
Income taxes. Effective January 1, 1992, the Bank adopted Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes" (FAS 109),
which required a change from the deferred method of accounting for income taxes
of Accounting Principles Board Opinion 11 to the asset and liability method of
accounting for income taxes. Under the asset and liability method of FAS 109,
deferred tax assets and liabilities are recognized for the estimated future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax rates
in effect for the year in which those temporary differences are expected to be
recovered or settled. Under FAS 109, the effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in the period that
includes the enactment date.
Earnings per share. Earnings per share is calculated based on the weighted
average common shares outstanding during the three and nine month periods ended
September 30, 1995 and 1994. The share and per share information have been
restated to reflect the issuance of stock dividends and stock splits.
Reclassification. Certain amounts included in the 1994 consolidated
financial statements have been reclassified to conform to the 1995 presentation.
F-26
<PAGE>
APPENDIX A
AGREEMENT AND PLAN OF MERGER
This Agreement and Plan of Merger (the "Agreement") dated as of August 1,
1995 among UJB Financial Corp., a New Jersey corporation ("UJB"), United Jersey
Bank, a New Jersey banking corporation ("UJBank" and the "Receiving Bank") and
The Flemington National Bank and Trust Company, a national banking association
("Bank" and the "Merging Bank") recites and provides:
A. The respective boards of directors of UJB, UJBank and Bank deem it
advisable to merge Bank into UJBank (the "Merger") pursuant to this Agreement
and to issue to the holders of shares of Common Stock of Bank, par value $2.50
per share ("Bank Stock"), in exchange for their Bank Stock in the Merger, shares
of the Common Stock of UJB, par value $1.20 per share ("UJB Stock").
B. To effectuate the foregoing, the parties desire to adopt a plan of
reorganization in accordance with the provisions of Section 368(a) of the United
States Internal Revenue Code of 1986, as, amended (the "Code");
NOW, THEREFORE, in consideration of the premises and the representations,
warranties, covenants and agreements contained herein, the parties hereto,
intending to be legally bound, agree as follows:
ARTICLE I.
GENERAL PROVISIONS
Section 1.01. The Merger. Upon the terms and subject to the conditions
contained in this Agreement, at the Effective Time (as defined in Section 1.06),
Bank shall be merged with and into UJBank pursuant to and in accordance with the
provisions of the New Jersey Banking Act of 1948, as amended, Chapter 67 of the
Laws of 1948, New Jersey Revised Statutes 17:9:A-1 et seq. (the "New Jersey
Banking Act").
Section 1.02. Capital Stock of UJB. All shares of the capital stock of UJB
outstanding immediately prior to the Effective Time shall be unaffected by the
Merger and shall remain outstanding immediately thereafter.
Section 1.03. Terms of Conversion of Bank Stock.
(a) At the Effective Time, by virtue of the Merger and without any action
on the part of any Bank shareholder:
A-1
<PAGE>
(1) All shares of Bank Stock which immediately prior to the Effective Time are
either owned beneficially by UJB, if any, or held in the treasury of Bank,
if any, shall be cancelled and retired and no cash, securities or other
consideration shall be paid or delivered under this Agreement in exchange
for such Bank Stock; and
(2) Subject to Sections 1.07, 1.08 and 1.09, each share of Bank Stock
outstanding immediately prior to the Effective Time shall be converted into
the number of shares of UJB Stock equal to the exchange ratio determined in
accordance with the following (the "Exchange Ratio"):
(A) If the Average Price (as defined in Section 1.03(b) below) of a share
of UJB Stock is greater than $37.00, the Exchange Ratio shall be
1.3514;
(B) If the Average Price of a share of UJB Stock is equal to or greater
than $29.00 and equal to or less than $37.00, the Exchange Ratio shall
be equal to the quotient obtained by dividing $50.00 by the Average
Price; and
(C) If the Average Price of a share of UJB Stock is less than $29.00, the
Exchange Ratio shall be 1.7241; provided, however, that if the Average
Price of a share of UJB Stock is less than $26.10, the Board of
Directors of Bank shall have the right, exercisable only until 11:59
p.m. on the third business day following the Determination Date (as
defined in Section 9.01), to terminate this Agreement by giving UJB
notice of such termination, referring to this Section 1.03(a)(2)(C),
and this Agreement shall be terminated pursuant to such notice,
subject to Section 9.02, effective as of 11:59 p.m. on the third
business day following receipt of such notice by UJB, unless UJB
shall, prior to 11:59 p.m. on the third business day following receipt
of such termination notice, send notice to Bank agreeing that the
Exchange Ratio shall be equal to the quotient obtained by dividing
$45.00 by the Average Price.
(b) For purposes of this Agreement:
(1) "Average Price" means the average (rounded to the nearest penny) of the
closing prices of a share of UJB Stock on the New York Stock Exchange -
Composite Transactions Tape for the 10 consecutive trading days ending
on the Determination Date as reported in The Wall Street Journal, or if
not reported therein, as reported in an authoritative source mutually
agreeable to Bank and UJB.
(2) "business day" shall mean a calendar day other than a Saturday or a
Sunday, January 1, the third Monday in January, the third Monday in
February, the last Monday in May, July 4, the first Monday in September,
the second Monday in October, November 11, the fourth Thursday in
November, or December 25. If
A-2
<PAGE>
January 1, July 4, November 11 or December 25 fall on a Sunday, the
next Monday is not a business day.
(c) The provisions of Section 1.03(a)(2) and the Exchange Ratio shall be subject
to appropriate adjustments in the event that, from the date hereof to the
Effective Time, the outstanding UJB Stock shall have been increased,
decreased, changed into or exchanged for a different number or kind of
shares or securities through reorganization, recapitalization,
reclassification, stock dividend, stock split, reverse stock split or other
like changes in the outstanding shares of UJB Stock so that Bank
shareholders who are entitled to receive UJB Stock pursuant to the
provisions hereof shall be entitled to receive such number of shares of UJB
Stock or other stock as they would have received if the Effective Time had
occurred prior to the happening of such event.
Section 1.04. Reservation of UJB Stock; Issuance of Shares Pursuant to the
Merger. UJB shall reserve and make available for issuance to holders of Bank
Stock in connection with the Merger, on the terms and subject to the conditions
of this Agreement, sufficient shares of UJB Stock (which shares, when issued and
delivered, will be duly authorized, legally and validly issued, fully paid and
non-assessable). The shares of UJB Stock to be issued in accordance with the
Agreement are sometimes referred to herein as the "Shares". Upon the terms, and
subject to the conditions of this Agreement, including the conversion of Bank
Stock according to the Exchange Ratio, UJB shall issue the Shares upon
consummation of the Merger to holders of Bank Stock.
Section 1.05. Exchange Agent Arrangements. Prior to the Effective Time, UJB
shall appoint First Chicago Trust Company of New York or another entity
reasonably satisfactory to Bank as the exchange agent (the "Exchange Agent")
responsible for exchanging, in connection with and upon consummation of the
Merger, certificates representing shares of Bank Stock for certificates
representing the Shares (the "UJB Certificates") and Cash In Lieu Amounts (as
defined at Section 1.08) and as disbursing agent for amounts required to be paid
by Section 4.16, if any, and upon consummation of the Merger UJB shall deliver
to the Exchange Agent sufficient certificates representing shares of UJB Stock
and cash (representing the aggregate Cash In Lieu Amount) as shall be required
to effect the exchange required by this Agreement and sufficient cash to pay any
amounts required to be paid by Section 4.16.
Section 1.06. Effective Time. The Merger shall be effective at 12:01 a.m.
on the day after this Agreement and the necessary certifications pursuant to
Section 17:9A-137B of the New Jersey Banking Act have been filed with the
Department of Banking of New Jersey. UJB shall file this Agreement and the
aforedescribed certifications not later than one business day following the
Closing Date (as defined at Section 9.01).
Section 1.07. Exchange of Bank Certificates.
(a) After the Effective Time, the holders of certificates theretofore
representing shares of Bank Stock (the "Bank Certificates"), upon surrender of
such certificates to the Exchange Agent, and only upon such surrender, shall be
entitled to receive (i) in exchange therefor
A-3
<PAGE>
certificates representing the number of whole Shares to which the holders are
entitled pursuant to the conversion effected by Section 1.03 and any Cash In
Lieu Amount; provided, however, that each Dissenting Shareholder (as defined at
Section 1.09) who becomes entitled to receive cash pursuant 12 U.S.C. ss.214a
shall receive such payment in lieu of whole Shares and any Cash In Lieu Amount,
and (ii) any cash required to be paid by Section 4.16. Until so surrendered,
outstanding Bank Certificates, other than those not converted pursuant to
Section 1.03(a)(1), shall be deemed for all purposes, other than as provided
below with respect to unsurrendered Bank Certificates and UJB's right to refuse
the payment of dividends or other distributions, if any, in respect of UJB
Stock, to represent (i) the number of whole Shares into which the shares of Bank
Stock have been converted and the right to receive a Cash In Lieu Amount, if
any, as provided in Section 1.08, and (ii) the right to receive amounts, if any,
required to be disbursed under Section 4.16. Until Bank Certificates are so
surrendered, UJB may, at its option, refuse to pay to the holders of such Bank
Certificates dividends or other distributions, if any, payable to holders of UJB
Stock; provided, however, that upon surrender and exchange of such Bank
Certificates there shall be paid to such holders the Amount, without interest,
of dividends and other distributions, if any, which became payable prior thereto
but which were not paid.
(b) Holders of Bank Certificates as of the Effective Time shall cease to
be, and shall have no further rights as, shareholders of Bank.
(c) As promptly as practicable after the Effective Time, if not previously
sent, UJB shall cause the Exchange Agent to send to each holder of Bank
Certificates instructions and transmittal materials for use in surrendering and
exchanging Bank Certificates. If Bank Certificates are properly presented to the
Exchange Agent, UJB shall cause the Exchange Agent to cancel and exchange them
for UJB Certificates and Cash In Lieu Amounts, and, to the extent particular
holders are entitled thereto, to disburse any cash amount required to be paid by
Section 4.16.
(d) At and after the Effective Time there shall be no transfers on the
stock transfer books of Bank of the shares of Bank Stock which were outstanding
immediately prior to the Effective Time.
Section 1.08. Fractional Shares. Each holder of a Bank Certificate who by
virtue of this Article I would have been entitled to receive a fraction of a
share of UJB Stock (after taking into account all shares of Bank Stock
represented by the Bank Certificates then delivered by such holder) shall
receive at the time such holder is to receive UJB Certificates, in lieu of such
fraction of a share, cash in an amount equal to such fraction multiplied by the
Average Price (the "Cash In Lieu Amount").
Section 1.09. Dissenting Bank Shareholders. Bank shall give UJB (i) prompt
notice of any Bank shareholder who gives notice in writing to the Bank at or
prior to the meeting of Bank shareholders contemplated by Section 4.03 that such
Bank shareholder dissents from this Agreement (ii) a list of those Bank
shareholders who vote against the Merger, and (iii) the opportunity to
participate in all negotiations and proceedings with a Bank shareholder
described in clause (i) or (ii) (collectively, "Dissenting Shareholders") with
respect to such Dissenting
A-4
<PAGE>
Shareholder's Bank Stock. Any Dissenting Shareholder shall be entitled to
payment for such shares of Bank Stock only to the extent required by and in
accordance with the provisions of 12 U.S.C. ss.214a and UJB shall cause the
Receiving Bank to pay such consideration with funds provided by UJB. Bank shall
not, except with the prior written consent of UJB, voluntarily make any payment
with respect to, or settle, any such demands for payments.
Section 1.10. Additional Actions. If, at any time after the Effective Time,
the Receiving Bank shall consider or be advised that any deeds, bills of sale,
assignments, assurances or any other actions or things are necessary or
desirable to vest, perfect or confirm of record or otherwise in the Receiving
Bank its right, title or interest in, to or under any of the rights, properties
or assets of Merging Bank acquired or to be acquired by the Receiving Bank as a
result of, or in connection with, the Merger or otherwise to carry out this
Agreement, the officers and directors of the Receiving Bank shall be authorized
to execute and deliver, in the name and on behalf of Merging Bank or otherwise,
all such deeds, bills of sale, assignments and assurances and to take, in the
name and on behalf of Merging Bank, all such other actions and things as may be
necessary or desirable to vest, perfect or confirm any and all right, title and
interest in, to and under such rights, properties or assets in the Receiving
Bank or otherwise to carry out this Agreement.
Section 1.11. Offices of the Receiving Bank. The Receiving Bank on the date
hereof has offices located as set forth in Exhibit B hereto.
Section 1.12. Offices of the Merging Bank. The Merging Bank on the date
hereof has offices located as set forth in Exhibit C hereto.
Section 1.13. Name of Receiving Bank. The name by which the Receiving Bank
will be known will be UNITED JERSEY BANK.
Section 1.14. Directors of the Receiving Bank. The names of the persons who
will be Directors of the Receiving Bank from and after the Effective Time are as
set forth in Exhibit D.
Section 1.15. Principal Officers of Receiving Bank. The names of the
persons who will be the Principal Officers of the Receiving Bank are as set
forth in Exhibit E. All other officers of the Receiving Bank at the Effective
Time shall retain their then current titles.
Section 1.16. Principal Office of Receiving Bank. The location of the
principal office of the Receiving Bank to be maintained after the Effective Time
shall be the location now occupied by the principal office of the Receiving
Bank, being 210 Main Street, Hackensack, Bergen County, New Jersey.
Section 1.17. Branch Offices of Receiving Bank. The location now occupied
by the main office of Merging Bank at 56 Main Street, Flemington, New Jersey,
will continue as a branch office of the Receiving Bank. All branch office
locations of Merging Bank listed on Exhibit C not closed prior to the Effective
Time, in addition to its main office referred to above, will continue as branch
offices of the Receiving Bank. All branch office locations of the Receiving Bank
listed on
A-5
<PAGE>
Exhibit B not closed prior to the Effective Time, in addition to its
principal office referred to in Section 1.16, will continue as branch offices of
the Receiving Bank. UJBank and Bank shall revise Exhibits B and C, as
appropriate, to reflect branch openings and closings between the date hereof and
the Effective Time.
Section 1.18. Capital Stock of Receiving Bank.
(a) The shares of the common stock of the Receiving Bank outstanding
immediately prior to the Effective Time shall remain outstanding. At the
Effective Time, the Receiving Bank shall issue to UJB an amount of its common
stock equal to the number of shares of Bank Stock outstanding immediately prior
to the Effective Time divided by two.
(b) The amount of issued and outstanding capital stock of the Receiving
Bank upon the Effective Time shall be $113,548,265 consisting of 21,509,653
shares of common stock with a par value of $5.00 per share, and 120,000 shares
of preferred stock with a par value of $50.00 per share. The Receiving Bank will
have $355,063,000 of surplus at the Effective Time.
Section 1.19. Preferred Stock of UJBank. The Series A Preferred Stock of
the Receiving Bank (par value $50.00) outstanding immediately prior to the
Merger shall remain outstanding.
Section 1.20. Certificate of Incorporation. The Certificate of
Incorporation of the Receiving Bank upon the Effective Time shall be the
Restated Certificate of Incorporation as in effect on the date hereof until duly
amended as provided by law.
Section 1.21. By-Laws of Receiving Bank. The By-Laws of the Receiving Bank
upon the Effective Time shall be the By-Laws of the Receiving Bank which are in
effect immediately prior to the Effective Time, until duly amended in accordance
with the By-Laws.
Section 1.22. Effect of Merger.
(a) At the Effective Time the corporate existence of Merging Bank shall be
merged into that of the Receiving Bank, and the property and rights of Merging
Bank shall thereupon vest in the Receiving Bank without further act or deed, and
the rights and obligations of Merging Bank shall become the rights and
obligations of the Receiving Bank, and all fiduciary and agency duties and
relationships of Merging Bank shall vest in the Receiving Bank and be performed
by it in the same manner as though the Receiving Bank itself originally assumed
such fiduciary and agency duties and relationships, and any pending action by or
against Merging Bank or the Receiving Bank shall survive the Merger, and the
Receiving Bank shall be substituted for Merging Bank.
(b) At the Effective Time, and to the fullest extent not prohibited by law,
all and singular the rights, powers, privileges, franchises, licenses, effects
and property of Merging Bank, of whatever kind, nature or description, and all
debts, obligations and liabilities, due or owing or
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to grow due or owing to Merging Bank, choses in action as well as all other
things in action or belonging to Merging Bank, and all and every right, title
and interest of Merging Bank in and to any cash, assets or property, shall,
together with the banking business of Merging Bank, be vested in the Receiving
Bank, and be as effectually the property of the Receiving Bank as the same was
of Merging Bank before the Merger.
Section 1.23. Manner of Disposing of UJB Stock Not Taken By Dissenting
Shareholders. Shares of UJB Stock otherwise issuable in the Merger pursuant to
this Agreement in exchange for shares of Bank Stock shall not be issued to a
Dissenting Shareholder who requests in writing to receive in cash the value of
the Bank Stock held by such Dissenting Shareholder before thirty days after the
date of consummation of the Merger. Such UJB Stock shall remain authorized and
unissued common stock of UJB.
ARTICLE II.
REPRESENTATIONS AND WARRANTIES OF BANK
Bank represents and warrants to UJB and UJBank as follows:
Section 2.01. Organization, Capital Stock.
(a) Each of Bank and its nonbank subsidiaries (the term "subsidiary", as
used herein, shall mean any corporation or other organization or entity of which
25% or more of the outstanding shares of any class of capital stock or other
equity security is directly or indirectly owned), all of which are listed,
together with their respective states of incorporation, on Bank Schedule 2.01,
is, as the case may be, a national banking association or a corporation duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation, qualified to transact business in and in good
standing under the laws of all jurisdictions where the failure to be so
qualified would have a material adverse effect on the business, results of
operations, assets or financial condition of Bank and its subsidiaries on a
consolidated basis (a "Bank Material Adverse Change"). However, a Bank Material
Adverse Change will not include a change resulting from a change in law, rule,
regulation or generally accepted or regulatory accounting principles, or from
any other matter affecting financial institutions generally. Each of Bank and
its subsidiaries has all corporate power and authority and all material
licenses, franchises, certificates, permits and other governmental
authorizations which are legally required to own and lease its properties, to
occupy its premises and to engage in its business and activities as presently
engaged in, and each has complied in all material respects with all applicable
laws, regulations and orders.
(b) Bank or one of its subsidiaries is the holder and beneficial owner of
all of the issued and outstanding capital stock of all of Bank's direct and
indirect nonbank subsidiaries.
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(c) The authorized capital stock of Bank consists of 1,500,000 shares of
Bank Stock, of which at the date of hereof 958,476 shares were issued and
outstanding. Except as set forth above, or in Section 2.01 (a) hereof, there are
no other Equity Securities of Bank or any subsidiary of Bank outstanding.
"Equity Securities" of an issuer means capital stock or other equity securities
of such issuer, options, warrants, scrip, rights to subscribe to, call or
commitments of any character whatsoever relating to, or securities or rights
convertible into, shares of any capital stock or other Equity Securities of such
issuer, or contracts, commitments, understandings or arrangements by which such
issuer is or may become bound to issue additional shares of its capital stock or
other Equity Securities of such issuer, or options, warrants, scrip or rights to
purchase, acquire, subscribe to, calls on or commitments for any shares of its
capital stock or other Equity Securities. Since April 28, 1995, no Equity
Securities of Bank have been issued. All of the issued and outstanding shares of
Bank Stock and shares of capital stock of each subsidiary of Bank have been
fully paid, were duly authorized and validly issued, and except as otherwise
provided by Federal law relating to national banking associations are
non-assessable, have been issued pursuant to an effective registration statement
and current prospectus under the Securities Act of 1933 (the "Securities Act")
or an appropriate exemption from registration under the Securities Act, and were
not issued in violation of the preemptive rights of any shareholder of Bank or
any subsidiary of Bank. Bank has previously delivered a valid list of
shareholders dated not earlier than the fifth business day prior to the date of
this Agreement.
(d) Bank owns no bank subsidiary ("bank" is hereby defined to include
commercial banks, savings banks, private banks, trust companies, savings and
loan associations, building and loan associations and similar institutions
receiving deposits and making loans).
(e) All Equity Securities of its direct and indirect subsidiaries
beneficially owned by Bank or a subsidiary are held free and clear of any
claims, liens, encumbrances or security interests.
Section 2.02. Financial Statements. The financial statements and schedules
contained or incorporated in Bank's (a) annual report to shareholders for the
fiscal year ended December 31, 1994, (b) annual report on Form 10-KSB pursuant
to the Exchange Act for the fiscal year ended December 31, 1994, and (c)
quarterly report on Form 10-QSB pursuant to the Exchange Act for the fiscal
quarter ended March 31, 1995 (the "Bank Financial Statements") are true and
correct in all material respects as of their respective dates and each fairly
presents, in accordance with generally accepted accounting principless
consistently applied, the consolidated statements of condition, income, changes
in shareholders' equity and cash flows of Bank and its subsidiaries at its
respective date and for the period to which it relates. Except as may otherwise
be described therein or in related notes or in accountants' reports thereon, the
Bank Financial Statements were prepared in accordance with generally accepted
accounting principles consistently applied. The Bank Financial Statements do
not, as of the dates thereof, include any material asset or omit any material
liability, absolute or contingent, or other fact, the inclusion or omission of
which renders the Bank Financial Statements, in light of the circumstances under
which they were made, misleading in any respect.
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Section 2.03. No Conflicts. Bank and each of its subsidiaries is not in,
and has received no notice of, violation or breach of, or default under, nor
will the execution, delivery and performance of this Agreement by Bank, or the
consummation of the transactions contemplated hereby, including the Merger, by
Bank upon the terms provided herein (assuming receipt of the Required Consents,
as that term is defined in Section 4.01), violate, conflict with, result in the
breach of, constitute a default under, give rise to a claim or right of
termination, cancellation, revocation of, or acceleration under, or result in
the creation or imposition of any lien, charge or encumbrance upon any of the
material rights, permits, licenses, assets or properties of Bank or any of its
subsidiaries or upon any of the Equity Securities of Bank or any of its
subsidiaries, or constitute an event which could, with the lapse of time, action
or inaction by Bank or any of its subsidiaries or a third party, or the giving
of notice and failure to cure, result in any of the foregoing, under any of the
terms, conditions or provisions, as the case may be, of:
(a) the Articles of Association or By-Laws of Bank or the Certificate or
Articles of Incorporation or By-Laws of any of Bank's subsidiaries;
(b) any law, statute, rule, ruling, determination, ordinance or regulation
of or agreement with any governmental or regulatory authority;
(c) any judgment, order, writ, award, injunction or decree of any court or
other governmental authority; or
(d) except as set forth in Bank Schedule 2.03, any material note, bond,
mortgage, indenture, lease, policy of insurance or indemnity, license, contract,
agreement or other instrument;
to which Bank or any of its subsidiaries is a party or by which Bank or any of
its subsidiaries or any of their assets or properties are bound or committed,
the consequences of which individually or in the aggregate, would be a Bank
Material Adverse Change, or enable any person to enjoin the transactions
contemplated hereby.
Section 2.04. Absence of Undisclosed Liabilities. To the best knowledge of
Bank management, except as set forth in Bank Schedule 2.04, Bank and its
subsidiaries have no liabilities, whether contingent or absolute, direct or
indirect, matured or unmatured (including but not limited to liabilities for
federal, state and local taxes, penalties, assessments, lawsuits or claims
against Bank or any of its subsidiaries), and no loss contingency (as defined in
Statement of Financial Accounting Standards No. 5) other than (a) those
reflected in the Bank Financial Statements or disclosed in the notes thereto,
(b) commitments made by Bank or any of its subsidiaries in the ordinary course
of its business which are not in the aggregate material in frequency or amount
to Bank and its subsidiaries, taken as a whole, and (c) liabilities arising in
the ordinary course of its business since December 31, 1994 which are not in the
aggregate material in frequency or amount to Bank and its subsidiaries, taken as
a whole. Neither Bank nor any of its subsidiaries has, since December 31, 1994,
become obligated on any debt due in more than one year from the date of this
Agreement in excess of $150,000, other than intra-corporate debt and deposits
received, repurchase agreements and borrowings of federal funds from
correspondent
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banks and the Federal Home Loan Bank of New York all entered into in the
ordinary course of business.
Section 2.05. Absence of Litigation, Agreements with Bank Regulators. There
is no outstanding order, injunction or decree of any court or governmental or
self-regulatory body against or affecting Bank or any of its subsidiaries which
materially and adversely affects Bank and its subsidiaries, taken as a whole,
and there are no actions, arbitrations, claims, charges, suits, investigations
or proceedings (formal or informal) material to Bank and its subsidiaries, taken
as a whole, pending or, to Bank's knowledge, threatened, against or involving
Bank or any of its subsidiaries or their officers or directors (in their
capacity as such) in law or equity or before any court, panel or governmental
agency. Neither Bank nor any subsidiary is a party to any agreement or
memorandum of understanding with, or is a party to any commitment letter to, or
has submitted a board of directors resolution or similar undertaking to, or is
subject to any order or directive by, or is a recipient of any extraordinary
supervisory letter from, any governmental or regulatory authority which
restricts materially the conduct of its business, or in any manner relates to
regulatory examinations, its capital adequacy, its credit or reserve policies or
its management. Bank has not been advised by any governmental or regulatory
authority that it is contemplating issuing or requesting (or is considering the
appropriateness of issuing or requesting) any of the foregoing. Bank has
resolved to the satisfaction of the applicable regulatory agency any significant
deficiencies cited by any such agency in its most recent examinations of each
aspect of Bank's business.
Section 2.06. Brokers' Fees. Bank has entered into this Agreement with UJB
as a result of direct negotiations without the assistance or efforts of any
finder, broker, financial advisor or investment banker, other than Advest, Inc.
("Advest"). Bank Schedule 2.06 contains a true and complete copy of all
agreements between Bank and Advest with respect to fees payable on account of
the transactions contemplated by this Agreement.
Section 2.07. Material Information. The representations and warranties made
by Bank in this Agreement and the Bank Schedules hereto, and, at the time of
filing, all filings made by Bank and its subsidiaries after December 31, 1988
with the Office of the Comptroller of the Currency (the "OCC") do not or did not
contain any untrue statement of a material fact and do not or did not omit to
state any material fact required to be stated herein or therein or necessary to
make the statements contained herein or therein, in light of the circumstances
under which they were made, not misleading. Such filings complied in all
material respects with all applicable rules and regulations of the OCC and with
the Securities Act and Exchange Act. Bank has timely made all filings required
by the Securities Act, and the Exchange Act and other federal laws of like
import relating to national banking associations.
Section 2.08. Corporate Action. Assuming due execution and delivery by each
of the other parties hereto, and subject to the approval by the shareholders of
Bank of this Agreement, the Merger and the other transactions contemplated
hereby in accordance with Bank's Articles of Association at a meeting of such
holders to be duly called and held, Bank has the corporate power and is duly
authorized by all necessary corporate action to execute, deliver and perform
this Agreement. The Board of Directors of Bank has taken all action required by
law, its Articles of
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Association, its By-Laws or otherwise to authorize the execution and delivery
of this Agreement. This Agreement is a valid and binding agreement of Bank
enforceable in accordance with its terms except as such enforcement may be
limited by applicable principles of equity, and by bankruptcy, insolvency,
moratorium or other similar laws presently or hereafter in effect affecting the
enforcement of creditors' rights generally. The Board of Directors of Bank in
authorizing the execution of this Agreement has determined to recommend to the
shareholders of Bank the approval of this Agreement, the Merger and the other
transactions contemplated hereby.
Section 2.09. Absence of Changes. There has not been, since December 31,
1994, any Bank Material Adverse Change. Except as disclosed in Bank Schedule
2.09, neither Bank nor any of its subsidiaries has, since December 31, 1994: (a)
declared, set aside or paid any dividend or other distribution in respect of its
capital stock, other than dividends from subsidiaries to Bank or other
subsidiaries of Bank, or, directly or indirectly, purchased, redeemed or
otherwise acquired any shares of such stock held by persons other than Bank and
its subsidiaries; (b) incurred current liabilities since that date other than in
the ordinary course of business; (c) sold, exchanged or otherwise disposed of
any of their assets except in the ordinary course of business; (d) made any
extraordinary officers' salary increase or wage increase, entered into any
employment, consulting, severance or change of control contract with any present
or former director, officer or salaried employee, or instituted any employee or
director welfare, bonus, stock option, profit-sharing, retirement, severance or
other benefit plan or arrangement or modified any of the foregoing so as to
increase its obligations thereunder in any material respect; (e) suffered any
taking by condemnation or eminent domain or other damage, destruction or loss in
excess of $30,000, whether or not covered by insurance, adversely affecting its
business, property or assets, or waived any rights of value in excess of
$30,000; (f) entered into any transactions which in the aggregate exceeded
$150,000 other than in the ordinary course of business; or (g) acquired the
assets or capital stock of another company, except in a fiduciary capacity or in
the course of securing or collecting loans or leases.
Section 2.10. Allowance for Loan and Lease Losses. At December 31, 1994 and
thereafter Bank's allowance for loan and lease losses is adequate in all
material respects to provide for all losses on loans and leases outstanding and,
to the best of Bank's knowledge, the loan and lease portfolios of Bank in excess
of such allowances are collectible in the ordinary course of business. Bank
Schedule 2.10 constitutes a list of all loans and leases made by Bank or any of
its subsidiaries that have been "classified" as to quality by any internal or
external auditor, accountant or examiner, and such list is accurate and complete
in all material respects.
Section 2.11. Taxes and Tax Returns. Neither Bank nor any of its
subsidiaries has at any time filed a consent pursuant to Section 341(f) of the
Code or consented to have the provisions of Section 341(f)(2) of the Code apply
to any disposition of a subsection (f) asset (as such term is defined in Section
341(f)(4) of the Code) owned by Bank or any of its subsidiaries. None of the
property being acquired by UJB or its subsidiaries in the Merger is property
which UJB or its subsidiaries will be required to treat as being owned by any
other person pursuant to the provisions of Section 168(f)(8) of the Internal
Revenue Code of 1954, as amended and in effect immediately prior to the
enactment of the Tax Reform Act of 1986 or is "tax-exempt use property" within
the meaning of Section 168(h)(1) of the Code. Proper and accurate amounts
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have been withheld from employees by Bank and each of its subsidiaries for
all periods in full and complete compliance with the tax, social security and
unemployment withholding provisions of applicable federal, state and local law.
Proper and accurate federal, state and local returns have been timely filed by
Bank and each of its subsidiaries for all periods for which returns were due,
including with respect to employee income tax withholding, social security and
unemployment taxes, and the amounts shown thereon to be due and payable have
been paid in full or adequate provision therefor has been included on the books
of Bank or its appropriate subsidiary. Neither Bank nor any of its subsidiaries
is required to file tax returns with any state other than the State of New
Jersey. Provision has been made on the books of Bank or its appropriate
subsidiary for all unpaid taxes, whether or not disputed, that may become due
and payable by Bank or any of its subsidiaries in future periods in respect of
transactions, sales or services previously occurring or performed. The status of
federal and New Jersey tax audits are as disclosed in Bank Schedule 2.11.
Neither Bank nor any of its subsidiaries is subject to an audit or review of its
tax returns by any state other than the State of New Jersey. Bank is not and has
not been a United States real property holding corporation as defined in Section
897(c)(2) of the Code during the applicable period specified in Section
897(c)(1)(A)(ii) of the Code. Neither Bank nor any of its subsidiaries is
currently a party to any tax sharing or similar agreement with any third party.
There are no material matters, assessments, notices of deficiency, demands for
taxes, proceedings, audits or proposed deficiencies pending or, to Bank's
knowledge, threatened against Bank or any of its subsidiaries and there have
been no waivers of statutes of limitations or agreements related to assessments
or collection in respect of any federal, state or local taxes. Neither Bank nor
any of its subsidiaries has agreed to or is required to make any adjustment
pursuant to Section 481(a) of the Code by reason of a change in accounting
method initiated by Bank or any of its subsidiaries, and neither Bank nor any of
its subsidiaries has any knowledge that the IRS has proposed any such adjustment
or change in accounting method. Bank and its subsidiaries have complied in all
material respects with all requirements relating to information reporting and
withholding (including back-up withholding) and other requirements relating to
the reporting of interest, dividends and other reportable payments under the
Code and state and local tax laws and the regulations promulgated thereunder and
other requirements relating to reporting under federal law including record
keeping and reporting on monetary instruments transactions.
Section 2.12. Properties. Bank, directly or through its subsidiaries, has
good and marketable title to all of its properties and assets, tangible and
intangible, including those reflected in the most recent consolidated balance
sheet included in the Bank Financial Statements (except individual properties
and assets disposed of since that date in the ordinary course of business with
gross proceeds not in excess of $30,000 and individual OREO property disposed of
since that date with gross proceeds not in excess of $50,000), which properties
and assets are not subject to any mortgage, pledge, lien, charge or encumbrance
other than as reflected in the Bank Financial Statements or which in the
aggregate do not materially adversely affect or impair the operation of Bank and
its subsidiaries taken as a whole. Bank and each of its subsidiaries enjoys
peaceful and undisturbed possession under all material leases under which it or
any of its subsidiaries is the lessee, where the failure to enjoy such peaceful
and undisturbed possession would have a material adverse effect on Bank and its
subsidiaries taken as a whole, and none of such leases contains any unusual or
burdensome provision which would materially and adversely affect or impair the
operations of Bank and its subsidiaries taken as a whole.
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Section 2.13. Condition of Properties; Insurance. All real and tangible
personal properties owned by Bank or any of its subsidiaries or used by Bank or
any of its subsidiaries in its business are in a good state of maintenance and
repair, are in good operating condition, subject to normal wear and tear,
conform in all material respects to all applicable ordinances, regulations and
zoning laws, and are adequate for the business conducted by Bank or such
subsidiary subject to exceptions which are not, in the aggregate, material to
Bank and its subsidiaries, taken as a whole. Bank and each of its subsidiaries
maintains insurance (with companies which, to the best of Bank's knowledge, are
authorized to do business in New Jersey) against loss relating to such
properties in amounts which are customary, usual and prudent for corporations or
banks, as the case may be, of their size. Such policies are in full force and
effect, are carried in an amount and form and are otherwise adequate to protect
Bank and each of its subsidiaries from any adverse loss resulting from risks and
liabilities reasonably foreseeable at the date hereof, and are disclosed on Bank
Schedule 2.13. All material claims thereunder have been filed in a due and
timely fashion. Since December 31, 1988, neither Bank nor any of its
subsidiaries has ever been refused insurance for which it has applied or had any
policy of insurance terminated (other than at its request).
Section 2.14. Contracts.
(a) Except as set forth in Bank Schedule 2.14(a), neither Bank nor any of
its subsidiaries is a party to and neither they nor any of their assets are
bound by any written or oral lease or license with respect to any property, real
or personal, as tenant or licensee involving an annual consideration in excess
of $50,000.
(b) Except as set forth in Bank Schedule 2.14(b), neither Bank nor any of
its subsidiaries is a party to and neither they nor any of their assets is bound
by any written or oral: (i) employment or severance contract (including, without
limitation, any collective bargaining contract or union agreement) which is not
terminable without penalty by Bank or a subsidiary, as appropriate, on 60 days'
or less notice; (ii) contract or commitment for capital expenditures in excess
of $50,000 in the aggregate for any one project or in excess of $150,000 in the
aggregate for all projects; (iii) contract or commitment whether or not made in
the ordinary course of business for the purchase of materials or supplies or for
the performance of services involving consideration in excess of $50,000
(including advertising and consulting agreements and retainer agreements with
attorneys, accountants, actuaries, or other professionals); (iv) contract or
option to purchase or sell any real or personal property involving consideration
in excess of $50,000; or (v) other contracts material to the business of Bank
and its subsidiaries taken as a whole and not made in the ordinary course of
business.
(c) Except as previously disclosed to UJB, neither Bank nor any of its
subsidiaries is a party to or otherwise bound by any contract, agreement, plan,
lease, license, commitment or undertaking which, in the reasonable opinion of
management of Bank, is materially adverse, onerous, or harmful to any aspect of
the business of Bank and its subsidiaries taken as a whole.
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Section 2.15. Interest of Management and Affiliates. All loans presently on
the books of Bank or any of its subsidiaries to its present or former directors
or executive officers, or their related interests, affiliates, associates, or
any members of their immediate families, have been made in the ordinary course
of business and on the same terms and interest rates as those prevailing for
comparable transactions with others and do not involve more than the normal risk
of repayment or present other unfavorable features. Except as set forth in Bank
Schedule 2.15, no present or former officer or director of Bank or any of its
subsidiaries or any of their associates or any members of their immediate
families has any interest in any property, real or personal, tangible or
intangible, used in or pertaining to the business of Bank or any of its
subsidiaries except for the normal rights of a shareholder; no such person is
indebted to or has a contract or commitment for the purchase or sale of real or
personal property, materials, supplies or services in excess of $10,000 per
annum or for longer than one year whether or not in the ordinary course of
business with Bank or any of its subsidiaries, except for normal business
expense advances and loans or other extensions of credit of not more than
$25,000 in the aggregate; neither Bank nor any of its subsidiaries has any
commitment, whether written or oral, to lend any funds to any such person; and
neither Bank nor any of its subsidiaries is indebted to any such person except
for deposits taken in the ordinary course of business and amounts due for normal
compensation or reimbursement of expenses incurred in furtherance of the
business of such person's employer and reimbursable according to a policy of
Bank or such subsidiary, as appropriate, as in effect immediately prior to the
date hereof. Except as set forth in Bank Schedule 2.15, the consummation of the
transactions contemplated hereby will not (either alone, or upon the occurrence
of any act or event, the lapse of time, or the giving of notice and failure to
cure) result in any payment (severance or other) becoming due from Bank or any
of its subsidiaries or any successor or assign thereof to any director, officer
or employee of Bank or any of its subsidiaries or any successor or assign of
such subsidiary.
Section 2.16. Pension and Benefit Plans.
(a) Neither Bank nor any of its subsidiaries maintains an employee pension
benefit plan, within the meaning of Section 3(2) of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA"), or has made any contributions
to any such employee pension benefit plan except employee pension benefit plans
listed in Bank Schedule 2.16(a) (individually a "Bank Plan" and collectively the
"Bank Plans"). In its present form each Bank Plan complies in all material
respects with all applicable requirements under ERISA and the Code. Except as
disclosed in Bank Schedule 2.16(a), each Bank Plan and the trust created
thereunder is qualified and exempt under Sections 401(a) and 501(a) of the Code,
and Bank or the subsidiary whose employees are covered by such Bank Plan has
received from the IRS a determination letter to that effect. Each Bank Plan has
been administered and communicated to the participants and beneficiaries in all
material respects in accordance with its terms and ERISA. Except as disclosed in
Bank Schedule 2.16(a), no employee or agent of Bank or any subsidiary whose
employees are covered by a Bank Plan has engaged in any action or has failed to
act in such manner that, as a result of such action or failure: (i) the IRS
could revoke, or refuse to issue (as the case may be), a favorable determination
as to such Bank Plan's qualification and the associated trust's exemption or
impose any liability or penalty under the Code, or (ii) a participant or
beneficiary or a nonparticipating employee has been denied benefits properly due
or to become due under such
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Bank Plan or has been misled as to his or her rights under such Bank Plan.
No Bank Plan is subject to Section 412 of the Code or Title IV of ERISA. Except
as disclosed in Bank Schedule 2.16(a), no person has engaged in any prohibited
transaction involving any Bank Plan or associated trust within the meaning of
Section 406 of ERISA or Section 4975 of the Code. All reports, filings,
disclosures, and other communications which have been required to be made to the
participants and beneficiaries, other employees, the SEC, the IRS, the U.S.
Department of Labor, or any other governmental agency pursuant to the Code,
ERISA, or other applicable statute or regulation have been made in a timely
manner and all such reports and communications were true and correct in all
material respects. Except as disclosed in Bank Schedule 2.16(a), no liability
has been, or is likely to be, incurred on account of delinquent or incomplete
compliance or failure to comply with such requirements. "ERISA Affiliate" where
used in this Agreement means any trade or business (whether or not incorporated)
which is a member of a group of which Bank is a member and which is under common
control within the meaning of Section 414 of the Code. Except as disclosed in
Bank Schedule 2.16(a), there are no unfunded benefit or pension plans or
arrangements or any individual agreements, whether qualified or not, to which
Bank or any of its subsidiaries or ERISA Affiliates has any obligation to
contribute. There has been no change in control of any Bank Plan since the last
effective date of any such change of control disclosed to UJB in Bank Schedule
2.16(a).
(b) All bonus, deferred compensation, profit-sharing, retirement, pension,
stock option, stock award and stock purchase plans and all other employee
benefit plans with an annual cost in excess of $25,000 other than medical, major
medical, disability, life insurance or dental plans covering employees
generally, maintained by Bank or any of its subsidiaries (collectively "Benefit
Plans") are listed in Bank Schedule 2.16(b) and, except as disclosed thereon,
comply in all material respects with all applicable requirements imposed by the
Securities Act, the Exchange Act, ERISA, the Code, and all applicable rules and
regulations thereunder. Except as disclosed on Bank Schedule 2.16(b), the
Benefit Plans have been administered and communicated to the participants and
beneficiaries in all material respects in accordance with their terms and ERISA,
and no employee or agent of Bank or any of its subsidiaries has engaged in any
action or failed to act in such manner that, as a result of such action or
failure: (i) the IRS could revoke, or refuse to issue, a favorable determination
as to a Benefit Plan's qualification and any associated trust's exemption or
impose any liability or penalty under the Code; or (ii) a participant or
beneficiary or a nonparticipating employee has been denied benefits properly due
or to become due under the Benefit Plans or has been misled as to their rights
under the Benefit Plans. All reports, filings, disclosures, and other
communications which have been required to be made to the participants and
beneficiaries, other employees of Bank or any of its subsidiaries, the SEC, the
IRS, the U.S. Department of Labor, the PBGC, and any other governmental agency
pursuant to the Code, ERISA, or other applicable statute or regulation have been
made in a timely manner and all such reports and communications were true and
correct in all material respects. No material liability has been, or is likely
to be, incurred on account of delinquent or incomplete compliance or failure to
comply with such requirements.
Section 2.17. Fidelity Bonds. Since at least January 1, 1989, Bank and each
of its subsidiaries has continuously maintained fidelity bonds insuring them
against acts of dishonesty by each of the respective insured's employees in such
amounts as are customary, usual and prudent
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for organizations of its size and business. All material claims thereunder
have been filed in a due and timely fashion. Since January 1, 1989, the
aggregate amount of all claims under such bonds has not exceeded the policy
limits of such bonds (excluding, except in the case of excess coverage, a
deductible amount of not more than $30,000) and neither Bank nor any of its
subsidiaries is aware of any facts which would form the basis of a claim or
claims under such bonds aggregating in excess of the applicable deductible
amounts under such bonds. Neither Bank nor any of its subsidiaries has reason to
believe that its respective fidelity coverage will not be renewed by its carrier
on substantially the same terms as the existing coverage, except for possible
premium increases unrelated to Bank's and its subsidiaries' past claim
experience.
Section 2.18. Labor Matters. Hours worked by and payment made to employees
of Bank and each of its subsidiaries have not been in violation of the Fair
Labor Standards Act or any applicable law dealing with such matters; and all
payments due from Bank and each of its subsidiaries on account of employee
health and welfare insurance have been paid or accrued as a liability on the
books of Bank or its appropriate subsidiary. Bank is in compliance with all
other laws and regulations relating to the employment of labor, including all
such laws and regulations relating to collective bargaining, discrimination,
civil rights, safety and health, plant closing (including the Worker Adjustment
Retraining and Notification Act), workers' compensation and the collection and
payment of withholding and Social Security and similar taxes, except for any
immaterial non-compliance. No labor dispute, strike or other work stoppage has
occurred and is continuing or is threatened with respect to Bank or any of its
subsidiaries. No employee of Bank or any of its subsidiaries has been
terminated, suspended, disciplined or dismissed under circumstances that are
likely to result in a material claim, suit, action, complaint or proceeding
against Bank or any of its subsidiaries. No employees of Bank or any of its
subsidiaries are unionized nor has such union representation been requested by
any group of employees or any other person within the last two years. There are
no organizing activities involving Bank pending with, or, to the knowledge of
Bank, threatened by, any labor organization or group of employees of Bank.
Section 2.19. Books and Records. The minute books of Bank and each of its
subsidiaries contain complete and accurate records of and fairly reflect all
actions taken at all meetings and accurately reflect all other corporate action
of the shareholders and the boards of directors and each committee thereof. The
books and records of Bank and each of its subsidiaries fairly and accurately
reflect the transactions to which Bank and each of its subsidiaries is or has
been a party or by which their properties are subject or bound, and such books
and records have been properly kept and maintained.
Section 2.20. Concentrations of Credit. Except as disclosed on Bank
Schedule 2.20, no customer or affiliated group of customers (a) is owed by Bank
or any subsidiary of Bank an aggregate amount equal to more than 5% of the
shareholders' equity of Bank or such subsidiary (including deposits, other debts
and contingent liabilities) or (b) owes to Bank or any of its subsidiaries an
aggregate amount equal to more than 5% of the shareholders' equity of Bank or
such subsidiary (including loans and other debts, guarantees of debts of third
parties, and other contingent liabilities).
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Section 2.21. Trademarks and Copyrights. Neither Bank nor any of its
subsidiaries has received notice or otherwise knows that the manner in which
Bank or any of its subsidiaries conducts its business including its current use
of any material trademark, trade name, service mark or copyright violates
asserted rights of others in any trademark, trade name, service mark, copyright
or other proprietary right.
Section 2.22. Equity Interests. Except as disclosed in Bank Schedule 2.22,
neither Bank nor any of its subsidiaries owns, directly or indirectly, any
equity interest, other than by virtue of a security interest securing an
obligation not presently in default, in any bank, corporation, partnership or
other entity, except: (a) in a fiduciary capacity; or (b) an interest valued at
less than $25,000 acquired in connection with a debt previously contracted.
Section 2.23. Environmental Matters. Except as set forth in Bank Schedule
2.23, no Hazardous Substances (as hereinafter defined) have been stored,
treated, dumped, spilled, disposed, discharged, released or deposited at, under
or on (1) any property now owned, occupied or leased ("Present Property") by
Bank or any of its subsidiaries, (2) any property previously owned, occupied or
leased ("Former Property") by Bank or any of its subsidiaries during the time of
such previous ownership, occupancy or lease; or (3) any Participation Facility
(as hereinafter defined) during the time that Bank or any of its subsidiaries
participated in the management of, or may be deemed to be or to have been an
owner or operator of, such Participation Facility. Neither Bank nor any of its
subsidiaries has disposed of, or arranged for the disposal of, Hazardous
Substances from any Present Property, Former Property or Participation Facility,
and no owner or operator of a Participation Facility disposed of, or arranged
for the disposal of, Hazardous Substances from a Participation Facility during
the time that Bank or any of its subsidiaries participated in the management of,
or may be deemed to be or to have been an owner or operator of, such
Participation Facility. No Hazardous Substances have been stored, treated,
dumped, spilled, disposed, discharged, released or deposited at, under or on any
Loan Property (as hereinafter defined), nor is there, with respect to any such
Loan Property, any violation of environmental law which could materially
adversely affect the value of such Loan Property to an extent which could
prevent or delay Bank or any of its subsidiaries from recovering the full value
of its loan in the event of a foreclosure on such Loan Property.
As used in this Agreement, (a) "Participation Facility" shall mean any
property or facility of which the relevant person or entity (i) has at any time
participated in the management or (ii) may be deemed to be or to have been an
owner or operator, (b) "Loan Property" shall mean any real property in which the
relevant person or entity holds a security interest in an amount greater than
$30,000 and (c) "Hazardous Substances" shall mean (i) any flammable substances,
explosives, radioactive materials, hazardous materials, hazardous substances,
hazardous wastes, toxic substances, pollutants, contaminants or any related
materials or substances specified in any applicable Federal or state law or
regulation relating to pollution or protection of human health or the
environment (including, without limitation, ambient or indoor air, surface
water, groundwater, land surface or subsurface strata) and (ii) friable
asbestos, polychlorinated biphenyls, urea formaldehyde, and petroleum and
petroleum-based products.
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It shall be considered material for all purposes of this Agreement if the
cost of taking all remedial or other corrective actions and measures (as
required by applicable law, as recommended or suggested by phase two
investigation reports or as may be prudent in light of serious life, health or
safety concerns) with respect to matters required to be disclosed pursuant to
this Section 2.23 but not so disclosed, is in the aggregate in excess of
$1,000,000, as reasonably estimated by an environmental expert retained for such
purpose by UJB, or if the cost of such actions and measures cannot be so
reasonably estimated by such expert to be such amount or less with any
reasonable degree of certainty.
ARTICLE III.
REPRESENTATIONS AND WARRANTIES OF UJB AND UJBANK
UJB represents and warrants to Bank as follows:
Section 3.01. Organization, Capital Stock.
(a) UJB is a corporation duly organized, validly existing and in good
standing under the laws of the State of New Jersey with authorized capital stock
consisting of 130,000,000 shares of Common Stock, each of par value $1.20, of
which 55,468,117 shares were issued and outstanding as of June 30, 1995 and
4,000,000 shares of Preferred Stock, each without par value, of which 600,166
shares of Series B Adjustable Rate Cumulative Preferred Stock ($50 stated value)
were issued and outstanding and 600,000 shares of Series R Preferred Stock were
reserved for issuance as of June 30, 1995. UJBank is a banking corporation duly
organized, validly existing and in good standing under the laws of the State of
New Jersey with authorized capital stock consisting of 25,000,000 shares of
common stock par value $5.00 per share, of which 19,957,687 shares are currently
issued and outstanding and 250,000 shares of preferred stock of which 120,000
shares are currently issued and outstanding.
(b) UJB is qualified to transact business in and is in good standing under
the laws of all jurisdictions where the failure to be so qualified would have a
material adverse effect on the business, results of operations, assets or
financial condition of UJB and its subsidiaries on a consolidated basis (a "UJB
Material Adverse Change"). However, a UJB Material Adverse Change will not
include a change resulting from a change in law, rule, regulation or generally
accepted or regulatory accounting principles, or from any other matter affecting
financial institutions or their holding companies generally. The bank
subsidiaries of UJB are duly organized, validly existing and in good standing
under the laws of their jurisdiction of organization. UJB and its bank
subsidiaries have all corporate power and authority and all material licenses,
franchises, certificates, permits and other governmental authorizations which
are legally required to own and lease their respective properties, occupy their
respective premises, and to engage in their respective businesses and activities
as presently engaged in. UJB is duly registered as a bank holding company under
the Bank Holding Company Act.
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(c) All issued shares of the capital stock of UJB and of each of its bank
subsidiaries have been fully paid, were duly authorized and validly issued, are
non-assessable, have been issued pursuant to an effective registration statement
and current prospectus under the Securities Act or an appropriate exemption from
registration under the Securities Act and were not issued in violation of the
preemptive rights of any shareholder. UJB or one of its subsidiaries is the
holder and beneficial owner of all of the issued and outstanding capital stock
of its bank subsidiaries. No options covering capital stock of UJB or any of its
bank subsidiaries, warrants to purchase or contracts to issue capital stock of
UJB or any of its bank subsidiaries, or any other contracts, rights (including
preemptive rights), commitments or convertible securities entitling anyone to
acquire from UJB or any of its subsidiaries or obligating them to issue any
capital stock, or securities convertible into or exchangeable for shares of
capital stock, of UJB or any of its bank subsidiaries are outstanding, in
existence, or the subject of an agreement, except for UJB Stock issuable
pursuant to employee stock options granted under stock option plans of UJB, UJB
Stock issuable pursuant to UJB's Dividend Reinvestment and Stock Purchase Plan,
UJB Savings Incentive Plan and 1993 Incentive Stock and Option Plan and Series R
Preferred Stock issuable pursuant to the UJB Shareholder Rights Plan.
Section 3.02. Financial Statements. The financial statements and schedules
contained or incorporated in UJB's (a) annual report to shareholders for the
fiscal year ended December 31, 1994, (b) annual report on Form 10-K pursuant to
the Exchange Act for the fiscal year ended December 31, 1994, (c) quarterly
report on Form 10-Q pursuant to the Exchange Act for the fiscal quarter ended
March 31, 1995, and (d) news release, the Second Quarter Report dated August 1,
1995 and bank regulatory call report relating to financial results for the
fiscal quarter ended June 30, 1995 (the "UJB Financial Statements") are true and
correct in all material respects as of their respective dates and each fairly
presents, in accordance with generally accepted accounting principles
consistently applied, the consolidated balance sheets, statements of income,
statements of shareholders' equity and statements of cash flows of UJB and its
subsidiaries at its respective date and for the period to which it relates.
Except as may otherwise be described therein or in the related notes or in
accountants' reports thereon, the UJB Financial Statements were prepared in
accordance with generally accepted accounting principles consistently applied.
The UJB Financial Statements do not, as of the dates thereof, include any
material asset or omit any material liability, absolute or contingent, or other
fact, the inclusion or omission of which renders the UJB Financial Statements,
in light of the circumstances under which they were made, misleading in any
respect.
Section 3.03. No Conflicts. Each of UJB and UJBank is not in, and has
received no notice of, violation or breach of, or default under, nor will the
execution, delivery and performance of this Agreement by UJB or UJBank, or the
consummation of the Merger by UJB and UJBank upon the terms and conditions
provided herein (assuming receipt of the Required Consents), violate, conflict
with, result in the breach of, constitute a default under, give rise to a claim
or right of termination, cancellation, revocation of, or acceleration under, or
result in the creation or imposition of any lien, charge or encumbrance upon any
rights, permits, licenses, assets or properties material to UJB and its
subsidiaries, taken as a whole, or upon any of the capital stock of UJB or
UJBank, or constitute an event which could, with the lapse of time, action or
inaction by UJB or UJBank, or a third party, or the giving of notice and failure
to cure,
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result in any of the foregoing, under any of the terms, conditions or
provisions, as the case may be, of:
(a) the Restated Certificate of Incorporation or the By-Laws of UJB or
UJBank;
(b) any law, statute, rule, ruling, determination, ordinance, or regulation
of any governmental or regulatory authority;
(c) any judgment, order, writ, award, injunction, or decree of any court or
other governmental authority; or
(d) any material note, bond, mortgage, indenture, lease, policy of
insurance or indemnity, license, contract, agreement, or other instrument;
to which UJB or UJBank is a party or by which UJB or UJBank, or any of its
assets or properties are bound or committed, the consequences of which would be
a UJB Material Adverse Change, or enable any person to enjoin the transactions
contemplated hereby.
Section 3.04. Absence of Litigation, Agreements with Bank Regulators. There
is no outstanding order, injunction, or decree of any court or governmental or
self-regulatory body against or affecting UJB or its subsidiaries which
materially and adversely affects UJB and its subsidiaries, taken as a whole, and
there are no actions, arbitrations, claims, charges, suits, investigations or
proceedings (formal or informal) material to UJB and its subsidiaries, taken as
a whole, pending or, to UJB's knowledge, threatened, against or involving UJB or
their officers or directors (in their capacity as such) in law or equity or
before any court, panel or governmental agency, except as disclosed in the Forms
10-K and 10-Q of UJB referred to in Section 3.02 or as previously provided to
Bank. Neither UJB nor any bank subsidiary of UJB is a party to any agreement or
memorandum of understanding with, or is a party to any commitment letter to, or
has submitted a board of directors resolution or similar undertaking to, or is
subject to any order or directive by, or is a recipient of any extraordinary
supervisory letter from, any governmental or regulatory authority which
restricts materially the conduct of its business, or in any manner relates to
its capital adequacy, its credit or reserve policies or its management. Neither
UJB nor any bank subsidiary of UJB, has been advised by any governmental or
regulatory authority that it is contemplating issuing or requesting (or is
considering the appropriateness of issuing or requesting) any of the foregoing.
UJB and the bank subsidiaries of UJB have resolved to the satisfaction of the
applicable regulatory agency any significant deficiencies cited by any such
agency in its most recent examinations of each aspect of UJB or such bank
subsidiary's business except for examinations received within the 30 days prior
to the date hereof.
Section 3.05. Material Information. The representations and warranties made
by UJB in this Agreement and, at the time of filing, all filings made by UJB and
its subsidiaries after December 31, 1989 with the SEC and appropriate bank
regulatory authorities do not contain any untrue statement of a material fact
and do not omit to state any material fact required to be stated herein or
therein or necessary to make the statements contained herein or therein, in
light of the circumstances under which they were made, not misleading. To the
extent such filings were
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subject to the Securities Act or Exchange Act, such filings complied in all
material respects with the Securities Act or Exchange Act, as appropriate, and
all applicable rules and regulations thereunder of the SEC. UJB has timely made
all filings required by the Securities Act and the Exchange Act.
Section 3.06. Corporate Action. Assuming due execution and delivery by each
of the other parties thereto, and subject to the approval by UJB of this
Agreement as the sole shareholder of UJBank pursuant to Section 5.14, each of
UJB and UJBank has the corporate power and is duly authorized by all necessary
corporate action to execute, deliver, and perform this Agreement. The Board of
Directors of UJB has taken all action required by law or by the Restated
Certificate of Incorporation or By-Laws of UJB or otherwise to authorize the
execution and delivery of this Agreement. Approval by the shareholders of UJB of
this Agreement, the Merger or the transactions contemplated by this Agreement
are not required by applicable law. The sole shareholder and the Board of
Directors of UJBank have taken all action required by law or by the Restated
Certificate of Incorporation or By-Laws of UJBank or otherwise to authorize the
execution and delivery of this Agreement. This Agreement is a valid and binding
agreement of UJB enforceable in accordance with its terms except as such
enforcement may be limited by applicable principles of equity, and by
bankruptcy, insolvency, moratorium or other similar laws presently or hereafter
in effect affecting the enforcement of creditors' rights generally.
Section 3.07. Absence of Changes. Except as disclosed in the UJB Financial
Statements, there has not been, since December 31, 1994, any UJB Material
Adverse Change and there is no matter or fact which may result in any such UJB
Material Adverse Change in the future.
Section 3.08. Non-bank Subsidiaries. The non-bank subsidiaries of UJB did
not, taken in the aggregate, constitute a "significant subsidiary" of UJB, as
that term is defined in Rule 1-02(v) of Regulation S-X of the SEC (17 CFR
ss.210.1-02(v)), at December 31, 1994.
Section 3.09. Absence of Undisclosed Liabilities. The UJB Financial
Statements are prepared on an accrual basis and reflect all known assets and
liabilities. There are no material undisclosed liabilities to the best knowledge
of management.
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ARTICLE IV.
COVENANTS OF BANK
Bank hereby covenants and agrees with UJB and UJBank that:
Section 4.01. Preparation of Registration Statement and Applications for
Required Consents. Bank will cooperate with UJB in the preparation and filing
with the SEC of a Registration Statement on Form S-4 (the "Registration
Statement"), including the Bank proxy statement to be included as a part thereof
(the "Proxy Statement"), for the registration of the UJB Stock to be issued in
connection with the Merger. In connection therewith, Bank will furnish all
information concerning Bank reasonably deemed necessary by counsel to UJB for
the filing or preparation for filing under the Securities Act of the
Registration Statement. Bank will cooperate with UJB and provide such
information as may be advisable in obtaining an order of effectiveness for the
Registration Statement, appropriate permits or approvals under state securities
and "blue sky" laws, the required approval by the Board of Governors of the
Federal Reserve System (the "Federal Reserve Board"), the required approval from
the Department of Banking of the State of New Jersey, the listing of the Shares
on the New York Stock Exchange (subject to official notice of issuance) and any
other governmental or regulatory consents or approvals or the taking of any
other governmental or regulatory action necessary or, in the reasonable judgment
of UJB, advisable to consummate the Merger (the "Required Consents"). Bank
covenants and agrees that all information furnished by Bank for inclusion in the
Registration Statement, the Proxy Statement and applications or submissions for
the Required Consents will comply in all material respects with the provisions
of applicable law, including the Securities Act and the Exchange Act and the
rules and regulations of the SEC, Federal Reserve Board and OCC, and will not
contain any untrue statement of a material fact and will not omit to state any
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. Bank will furnish to Advest, investment bankers advising Bank, such
information as they may reasonably request for purposes of the opinion referred
to in Section 8.07.
Section 4.02. Notice of Adverse Changes. Bank will promptly advise UJB in
writing of (a) any event occurring subsequent to the date of this Agreement
which would render any representation or warranty of Bank contained in this
Agreement or the Bank Schedules or the materials furnished pursuant to the
Post-Signing Disclosure List (as defined in Section 4.09), if made on or as of
the date of such event or the Closing Date (as defined at Section 9.01), untrue
or inaccurate in any material respect, (b) any Bank Material Adverse Change, (c)
any inability or perceived inability of Bank to perform or comply with the terms
or conditions of this Agreement, (d) the institution or threat of institution of
litigation or administrative proceedings involving Bank or any of its
subsidiaries or assets, which, if determined adversely to Bank or any of its
subsidiaries, would have a material adverse effect upon Bank and its
subsidiaries taken as a whole or the Merger and the related transactions, and
(e) any governmental complaint, investigation, hearing, or communication
indicating that such litigation or administrative proceedings are contemplated,
(f) any written notice of, or other communication relating to, a default or
event
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which, with notice or lapse of time or both, would become a default,
received by Bank or a subsidiary subsequent to the date hereof and prior to the
Effective Time, under any agreement, indenture or instrument to which Bank or a
subsidiary is a party or is subject and which is material to the business,
operation or condition (financial or otherwise) of Bank and its subsidiaries
taken as a whole, and (g) any written notice or other communication from any
third party alleging that the consent of such third party is or may be required
in connection with the transactions contemplated by this Agreement including the
Merger. Bank agrees that the delivery of such notice shall not constitute a
waiver by UJB of any of the provisions of Articles VI or VII.
Section 4.03. Meeting of Shareholders. Bank will call a meeting of its
shareholders for the purpose of voting upon this Agreement, the Merger and the
transactions contemplated hereby to be held as promptly as practicable and, in
connection therewith, will comply with the National Bank Act, the Exchange Act,
the New Jersey Banking Act and all regulations promulgated thereunder governing,
to the extent appropriate, shareholder meetings and proxy solicitations. In
connection with such meeting, Bank shall mail the Proxy Statement to its
shareholders and use its best efforts, subject to the fiduciary duties of the
Board of Directors of Bank, to obtain shareholder approval of this Agreement,
the Merger and the transactions contemplated hereby.
Section 4.04. Copies of Filings. Without limiting the provisions of Section
4.01, Bank will deliver to UJB, at least twenty-four hours prior to an
anticipated date of filing or distribution, all documents to be filed with any
bank regulatory authority or to be distributed in any manner to the shareholders
of Bank or the public, together with, in the case of all quarterly financial
statements provided pursuant to this section, a written opinion of the chief
financial officer of Bank to the effect that such financial statements are true,
correct and complete in all material respects and have been prepared in
accordance with generally accepted accounting principles consistently applied,
except as disclosed therein, and with the books and records of Bank, and present
fairly the consolidated financial position of Bank and its subsidiaries at the
date thereof and the results of operations and cash flows for the period covered
thereby.
Section 4.05. No Material Transactions. Until the Effective Time, Bank will
not and will not allow any of its subsidiaries to, without the prior written
consent of UJB: (a) pay (or make a declaration which creates an obligation to
pay) any cash dividends, other than dividends from subsidiaries of Bank to Bank
or other subsidiaries of Bank, except that Bank may declare a dividend for each
quarter in which UJB, after the date hereof, declares a dividend equal to the
dividend so declared by UJB multiplied by 1.3514; (b) fail to coordinate with
UJB the declaration of any dividends or the setting of any record or payment
dates; (c) declare or distribute any stock dividend or authorize or effect a
stock split; (d) merge with, consolidate with, or sell any material asset to any
other corporation, bank, or person (except for mergers of subsidiaries of Bank
into other subsidiaries of Bank) or enter into any other transaction not in the
ordinary course of business; (e) incur any liability or obligation other than
intracompany obligations, make or agree to make any commitment or disbursement,
acquire or dispose or agree to acquire or dispose of any property or asset
(tangible or intangible), make or agree to make any contract or agreement or
engage or agree to engage in any other transaction, except transactions in the
ordinary course of business and other transactions aggregating not more than
$150,000; (f) subject any of its properties or assets to any lien, claim,
charge, option or encumbrance, except in the ordinary
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course of business and for amounts not material in the aggregate to the
Bank and its subsidiaries taken as a whole; (g) increase or enter into any
agreement to increase the rate of compensation of the employees on the date
hereof at an annualized rate exceeding five percent (5%), or pay any employee
bonus other than bonuses listed on Bank Schedule 4.05(g) which may be paid to
employees pursuant to the bonus plan of Bank and the "staying bonuses" listed on
Schedule 4.05(g) which may be paid to the employees specified on such Schedule
if such employee remains in the employ of the Bank through the Closing Date; (h)
except as set forth in Bank Schedule 4.05(h), create, adopt or modify any
employment or severance arrangement or any pension or profit sharing plan,
bonus, deferred compensation, death benefit, retirement or other employee or
director benefit plan of whatsoever nature, or change the level of benefits
under any such arrangement or plan, or increase any severance or termination pay
benefit or any other fringe benefit; (i) distribute, issue, sell or grant any of
its Equity Securities or any stock appreciation rights; (j) except in a
fiduciary capacity, purchase, redeem, retire, repurchase, or exchange, or
otherwise acquire or dispose of, directly or indirectly, any of its Equity
Securities, whether pursuant to the terms of such Equity Securities or
otherwise, or enter into any agreement providing for any of the foregoing
transactions; (k) amend, its Articles of Association or its Certificate or
Articles of Incorporation or By-laws; (l) modify, amend or cancel any of its
existing borrowings other than intra-corporate borrowings and borrowings of
federal funds from correspondent banks and the Federal Home Loan Bank of New
York or enter into any contract, agreement, lease or understanding, respecting
the sale of OREO property with an individual sale price in excess of $50,000 or
any contracts, agreements, leases or understandings other than those in the
ordinary course of business or which do not involve the creation of any material
obligation or release of any material right of Bank or any of its subsidiaries;
(m) create, or accelerate the exercisability of, any stock appreciation rights
or options or the release of any restrictions on stock issued under the Benefit
Plans; (n) except as otherwise permitted by Section 4.05(e), directly or
indirectly through any investment banker, broker, financial or investment
advisor or other agent, solicit or initiate, or encourage any unsolicited
inquiry respecting, any proposal or offer for, or enter into discussions or
negotiate for, or authorize or enter into any agreement or agreement in
principle providing for, any merger, consolidation, sale or other disposition of
assets or securities, tender offer, exchange offer or other acquisition of
outstanding securities issued by it or other business combination or takeover
transaction (other than the Merger); (o) except as may be required by court
order or decree or required by statute or regulation, furnish or cause to be
furnished any information relating to any inquiry or proposal described in the
foregoing subsection (n), except information previously made public and any
information customarily furnished to the public in the ordinary course of
business concerning its business or properties, to any person or entity making
any inquiry or proposing any transaction described in subsection (n), other than
UJB; or (p) make any employer contribution to a Bank Plan or a Benefit Plan
which under the terms of the particular Plan is voluntary and within the sole
discretion of the Bank to make. In addition, Bank will notify UJB by telephone
to its chief executive officer or general counsel promptly upon receipt of any
inquiry with respect to a proposed merger, consolidation, business combination,
assets acquisition or disposition, tender offer or other takeover transaction
with another person or receipt of a request for information from any
governmental or regulatory authority with respect to a proposed acquisition of
Bank or any of its subsidiaries or assets by another party, and will immediately
deliver as soon as possible by facsimile transmission, receipt acknowledged, to
the UJB officer notified as required above a copy of any document relating
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thereto promptly after any such document is received by Bank. Anything in
clauses (n) or (o) of the foregoing sentence to the contrary notwithstanding,
Bank may, after written notice to UJB, respond to unsolicited inquiries from
third parties and/or engage in discussions with third parties and/or furnish
information to third parties, if, in each case, it receives a written opinion of
its counsel that to fail to do so would constitute a breach or failure on the
part of members of the Bank's Board of Directors to perform the fiduciary duties
of their office.
Section 4.06. Operation of Business in Ordinary Course. Bank, on behalf of
itself and its subsidiaries, covenants and agrees that from and after the date
hereof and until the Effective Time, it and its subsidiaries: (a) will carry on
their business diligently and substantially in the same manner as heretofore and
will not institute any unusual or novel methods of management or operation of
their properties or business and will maintain such in their customary manner;
(b) will use their best efforts to continue in effect their present insurance
coverage on all properties, assets, business and personnel; (c) will use their
best efforts to preserve their business organization intact, preserve their
present relationships with customers, suppliers, and others having business
dealings with them, and keep available their present employees, provided,
however, that Bank or any of its subsidiaries may terminate any employee for
unsatisfactory performance or other reasonable business purpose, and provided
further, however, that Bank will notify and consult with UJB prior to
terminating any of the five highest paid employees of Bank; (d) will use their
best efforts to continue to maintain fidelity bonds insuring Bank and its
subsidiaries against acts of dishonesty by each of their employees in such
amounts (not less than present coverage) as are customary, usual and prudent for
corporations or banks, as the case may be, of their size; (e) will not do
anything or fail to do anything which will cause a breach of or default under
any representation, warranty or covenant of Bank or any contract, agreement,
commitment or obligation to which they or any one of them is a party or by which
they or any of their assets or properties may be bound or committed if the
consequence of such, individually or in the aggregate, may have a material
adverse effect on Bank and its subsidiaries taken as a whole; and (f) will not
change their methods of accounting in effect at December 31, 1994, or change any
of their methods of reporting income and deductions for Federal income tax
purposes from those employed in the preparation of their Federal income tax
returns for the taxable year ending December 31, 1994, except as required by
changes in laws, regulations or generally accepted accounting principles or
changes that are to a preferable accounting method, and approved in writing by
Bank's independent certified public accountants.
Section 4.07. Further Actions. Bank will: (a) execute and deliver such
instruments and take such other actions as UJB may reasonably require to carry
out the intent of this Agreement; (b) use all reasonable efforts to obtain
consents of all third parties and governmental bodies necessary or reasonably
desirable for the consummation of the transactions contemplated by this
Agreement; (c) diligently support this Agreement in any proceeding before any
regulatory authority whose approval of any of the transactions contemplated
hereby is required or reasonably desirable or before any court in which
litigation in respect thereof is pending; and (d) use its best efforts, subject
to the qualification with respect to the fiduciary duties of the Board in
Section 4.03, so that the other conditions precedent to the obligations of UJB
set forth in Articles VI and VII hereof are satisfied.
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Section 4.08. Cooperation. Until the Effective Time, Bank will give to UJB
and to its representatives, including its accountants, KPMG Peat Marwick LLP,
and its legal counsel, full access during normal business hours to all of its
property, documents, contracts and records, will provide such information with
respect to its business affairs and properties as UJB from time to time may
reasonably request, and will cause its managerial employees, counsel and
independent certified public accountants to be available on reasonable request
to answer questions of UJB's representatives covering the business and affairs
of Bank or any of its subsidiaries.
Section 4.09. Copies of Documents. As promptly as practicable, but not
later than 30 days after the date hereof, Bank will furnish to or make available
to UJB all the documents, contracts, agreements, papers, and writings called for
by the list or lists provided by UJB to Bank on or prior to the date hereof (the
"Post-Signing Disclosure List").
Section 4.10. Applicable Laws. Bank and its subsidiaries will use their
best efforts to comply promptly with all requirements which federal or state law
may impose on Bank or any of its subsidiaries with respect to the Merger and
will promptly cooperate with and furnish information to UJB in connection with
any such requirements imposed upon UJB or on any of its subsidiaries in
connection with the Merger.
Section 4.11. Agreements of Affiliated Shareholders. Bank agrees to furnish
to UJB, not later than 10 business days prior to the date of mailing of the
Proxy Statement, a list of each person who, in the opinion of Drinker Biddle &
Reath, special counsel to Bank, is an affiliate of Bank for the purposes of Rule
145 under the Securities Act (a "Bank Affiliate"), shall cause each Bank
Affiliate to enter into, prior to the date of mailing of the Proxy Statement, an
agreement, satisfactory in form and substance to UJB, substantially in the form
of Exhibit F hereto, and effective prior to such date (an "Affiliate
Agreement"), which provides that, among other things, (a) the UJB Stock to be
acquired by a Bank Affiliate upon consummation of the Merger (such shares of UJB
Stock being sometimes referred to herein as "Acquired Shares") will not be
acquired with a view to the sale or distribution thereof except as permitted by
Rule 145, (b) the shares of Bank Stock beneficially owned by such person on the
effective date of the Affiliate Agreement and the Acquired Shares (collectively,
the "Affiliate Shares") will not be disposed of in such a manner as to violate
the Securities Act or the Affiliate Agreement and without UJB having first
received evidence of compliance with Rule 145 and the Affiliate Agreement (e.g.,
copies of brokers' representation letters or any other forms customarily
required to effectuate a brokers' transaction under Rule 145), in each case
satisfactory to UJB (the Office of the Corporate Secretary of UJB can be
consulted for guidance on what constitutes satisfactory evidence of compliance),
(c) the certificates representing the Acquired Shares may bear a legend
referring to the foregoing restrictions on disposition and UJB may issue to its
transfer agent appropriate stop transfer instructions with respect to the
Acquired Shares, and (d) in a transfer of Affiliate Shares not complying with
Rule 145, each Bank Affiliate will obtain an agreement, and deliver a copy of
such to UJB, from the transferee in such a transfer which is substantially
similar to an Affiliate Agreement, unless such transferee may under the
Securities Act dispose of the Affiliate Shares without registration under the
Securities Act and without violation of the Affiliate Agreement.
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Section 4.12. Loans and Leases to Affiliates. All loans and leases
hereafter made by Bank or any of its subsidiaries to any of its present or
former directors, executive officers, or their respective associates shall be
made only in the ordinary course of business and on the same terms and at the
same interest rates as those prevailing for comparable transactions with others
and shall not involve more than the normal risk of repayment or present other
unfavorable features.
Section 4.13. ERISA. Bank shall maintain and cause each of its ERISA
affiliates to maintain Bank Plan assets that are at least equal in value to Plan
benefits guaranteed under Title IV of ERISA, and not permit any Prohibited
Transaction within the meaning of Section 406 of ERISA to exist.
Section 4.14. Fee.
(a) Bank hereby agrees to pay UJB, and UJB shall be entitled to payment of,
a fee (the "Fee") of $3,000,000 following the occurrence of a Purchase Event (as
defined below); provided that UJB shall have sent written demand for such Fee
within 90 days following such Purchase Event; and provided further that the
right to receive the Fee shall terminate and be of no further force and effect
upon the earliest to occur of:
(i) the Effective Time;
(ii) 24 months after
(A) the termination of this Agreement following:
(x) the occurrence of a Preliminary Purchase Event (as
defined below),
(y) discussions occurring pursuant to the last sentence of
Section 4.05, or
(z) a determination by the Board of Directors of Bank not
to submit this Agreement and the transactions
contemplated hereby, including, without limitation, the
Merger, to Bank's shareholders; or
(B) the termination of this Agreement by UJB pursuant to:
(x) Section 9.02(a)(ii), other than a termination occurring
due to a breach of a Bank representation or warranty
existing on the date hereof,
(y) Section 9.02(a)(iii),
(z) Section 9.02(b), other than a termination by UJB
occurring due to a breach of a Bank representation or
warranty existing on the date hereof or a failure of
either of the conditions set forth in Section 7.07 or
Section 7.09;
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(C) the termination of this Agreement by Bank pursuant to
Section 9.02(a)(iv), other than a termination occurring
during such time as UJB shall have failed to perform or
observe an agreement set forth in this Agreement which was
required to be performed or observed on or prior to the
Closing Date and other than a termination due to a failure
of the condition set forth at Section 6.01; or
(iii) termination of this Agreement pursuant to any Section other than
those listed in clause (ii)(B) above, provided such termination
occurs prior to any Purchase Event or any other event or
circumstance described in clause (ii)(A).
Payment of the Fee shall be made in immediately available funds within five
business days after delivery of such written demand.
(b) The term "Preliminary Purchase Event" shall mean any of the following
event or transactions occurring after the date hereof:
(i) The Board of Directors of Bank shall withdraw or modify in a
manner adverse to UJB its approval of, or its recommendation to
the shareholders of Bank to approve, this Agreement or the
transactions contemplated hereby, including, without limitation,
the Merger.
(ii) Bank or any of its subsidiaries (each a "Bank Subsidiary"),
without having received UJB's prior written consent, shall have
entered into an agreement to engage in an Acquisition Transaction
(as defined below) with any person (the term "person" for
purposes of this Agreement having the meaning assigned thereto in
Sections 3(a)(9) and 13(d)(3) of the Exchange Act and the rules
and regulations thereunder) other than UJB or any of its
subsidiaries (each a "UJB Subsidiary") or the Board of Directors
of Bank shall have recommended that the shareholders of Bank
approve or accept any Acquisition Transaction with any person
other than UJB or any UJB Subsidiary. For purposes of this
Agreement, "Acquisition Transaction" shall mean (A) a merger or
consolidation, or any similar transaction, involving Bank or any
Bank Subsidiary, (B) a purchase, lease or other acquisition of
all or substantially all of the assets or deposits of Bank or any
Bank Subsidiary, or (C) a purchase or other acquisition
(including by way of merger, consolidation, share exchange or
otherwise) of securities representing 10% or more of the voting
power of Bank or any Bank Subsidiary; provided that the term
"Acquisition Transaction" does not include any internal merger or
consolidation involving only one or more of Bank and the Bank
Subsidiaries.
(iii) Any person (other than UJB or any UJB Subsidiary) shall have
acquired beneficial ownership or the right to acquire beneficial
ownership of 10% or more of the outstanding shares of Bank Stock
(the term "beneficial ownership" for purposes of this Agreement
having the meaning assigned thereto in Section 13(d) of the
Exchange Act, and the rules and regulations thereunder), or (B)
any group (as such term "group" is defined in Section 13(d)(3) of
the Exchange Act), other than
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a group of which UJB or any UJB Subsidiary is a member, shall
have been formed that beneficially owns 10% or more of the Bank
Stock then outstanding.
(iv) Any person other than UJB or any UJB Subsidiary shall have made a
bona fide proposal to Bank or its shareholders, by public
announcement or written communication that is or becomes the
subject of public disclosure, to engage in an Acquisition
Transaction (including, without limitation, any situation in
which any person other than UJB or any UJB Subsidiary shall have
commenced (as such term is defined in Rule 14d-2 under the
Exchange Act) or shall have filed a registration statement under
the Securities Act with respect to, a tender offer or exchange
offer to purchase any shares of Bank Stock such that, upon
consummation of such offer, such person would own or control 10%
or more of the then outstanding shares of Bank Stock (such an
offer referred to herein as a "Tender Offer" or an "Exchange
Offer", respectively));
(v) After a proposal is made by a third party to Bank or its
shareholders to engage in an Acquisition Transaction, or such
third party states its intention to Bank to make such a proposal
if the Agreement terminates, Bank shall have breached any
representation, covenant or obligation contained in this
Agreement, other than a breach of a representation existing on
the date hereof, and such breach would entitle UJB to terminate
this Agreement under Section 9.02 of this Agreement (without
regard to the cure periods provided for in said Section 9.02 of
this Agreement unless such cure is promptly effected prior to a
termination of this Agreement by UJB without jeopardizing
consummation of the Merger pursuant to the terms of this
Agreement); or
(vi) The holders of Bank Stock shall not have approved this Agreement
at the meeting of such shareholders held for the purpose of
voting on this Agreement or such meeting shall not have been held
or shall have been canceled prior to termination of this
Agreement, in each case after any person (other than UJB or any
UJB Subsidiary) shall have (A) made, or disclosed an intention to
make, a bona fide proposal to engage in an Acquisition
Transaction, (B) commenced a Tender Offer or filed a registration
statement under the Securities Act with respect to an Exchange
Offer or (C) filed an application (or given a notice), whether in
draft or final form, under the New Jersey Banking Act, the Bank
Holding Company Act, the Bank Merger Act or the Change in Bank
Control Act of 1978, as amended, for approval to engage in an
Acquisition Transaction.
(c) The term "Purchase Event" shall mean either of the following events or
transactions occurring after the date hereof:
(i) The acquisition by any person, other than UJB or any UJB
Subsidiary, alone or together with such person's affiliates and
associates, or any group (as defined in Section 13(d)(3) of the
Exchange Act), of beneficial ownership of 25% or more of the Bank
Stock; or
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(ii) The occurrence of a Preliminary Purchase Event described in
subsection (b)(ii) of this Section 4.14 except that the
percentage referred to in clause (C) shall be 25%.
(d) Bank shall notify UJB promptly in writing of its knowledge of the
occurrence of any Preliminary Purchase Event or Purchase Event or the occurrence
of either of the events or circumstances described at Section 4.14(a)(ii)(A)(y)
and Section 4.14(a)(ii)(A)(z); provided, however, that the giving of such notice
by Bank shall not be a condition to the right of UJB to the Fee.
(e) This Section 4.14 shall survive any termination of this Agreement.
Section 4.15. Confidentiality. All information furnished by UJB to Bank or
its representatives pursuant hereto shall be treated as the sole property of UJB
and, if the Merger shall not occur, Bank and its representatives shall return to
UJB all of such written information and all documents, notes, summaries or other
materials containing, reflecting or referring to, or derived from, such
information, except that any such confidential information or notes or abstracts
therefrom presented to the Board of Directors of Bank or any committee thereof
for the purpose of considering this Agreement, the Merger and the related
transactions may be kept and maintained by Bank with other records of Board, and
Board committee, meetings subject to a continuing obligation of confidentiality.
Bank shall, and shall use its best efforts to cause its representatives to, keep
confidential all such information, and shall not directly or indirectly use such
information for any competitive or other commercial purposes. The obligation to
keep such information confidential shall continue for five years from the date
the proposed Merger is abandoned and shall not apply to: (i) any information
which (x) was legally in Bank's possession prior to the disclosure thereof by
UJB, (y) was then generally known to the public, or (z) was disclosed to Bank by
a third party not bound by an obligation of confidentiality; or (ii) disclosures
made as required by law. It is further agreed that if, in the absence of a
protective order or the receipt of a waiver hereunder, Bank is nonetheless, in
the written opinion of its outside counsel, compelled to disclose information
concerning UJB to any tribunal or governmental body or agency or else stand
liable for contempt or suffer other censure or penalty, Bank may disclose such
information to such tribunal or governmental body or agency without liability
hereunder and shall so notify UJB in advance to the extent practicable. This
Section 4.15 shall survive any termination of this Agreement.
Section 4.16. Dividend Equivalency. In the event the Exchange Ratio is
greater than 1.3514, shareholders of record of Bank at the Effective Time shall
become entitled to receive a cash payment per share of Bank Stock held by them
at the Effective Time equal in amount to the difference between the dividends
per share Bank would have been able to pay pursuant to Section 4.05(a) had the
multiplier stated therein been the Exchange Ratio and the dividends per share
actually paid by Bank. The payment to which Bank shareholders may become
entitled pursuant to this Section 4.16 shall be distributed by UJB
simultaneously with the distribution of Shares and Cash In Lieu Amounts provided
for in Article I.
Section 4.17. Dividends. Bank will coordinate with UJB the declaration of
any dividends and the record and payment dates thereof so that the holders of
Bank Stock will not be paid two
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dividends for a single calendar quarter with respect to their shares of
Bank Stock and any shares of UJB Stock they become entitled to receive in the
Merger or fail to be paid one dividend in each calendar quarter.
Section 4.18. Tax Opinion Certificates. Bank shall execute and deliver to
Thompson & Mitchell a tax opinion certificate dated as of the date of
effectiveness of the Registration Statement and as of the Closing Date
substantially in the form of Exhibit G, and Bank shall use its best efforts to
cause each of its executive officers, directors and holders of five percent (5%)
or more of outstanding Bank Stock (including shares beneficially held) to
execute and deliver to Thompson & Mitchell a tax opinion certificate dated as of
the date of effectiveness of the Registration Statement and as of the Closing
Date substantially in the form of Exhibit H hereto.
Section 4.19. Best Efforts to Ensure Pooling. Bank agrees to use, and
agrees to cause each of its subsidiaries to use, its and their best efforts to
cause the Merger to qualify for pooling-of-interests accounting treatment.
ARTICLE V.
COVENANTS OF UJB
UJB hereby covenants and agrees with Bank that:
Section 5.01. Approvals and Registrations. Based on such assistance and
cooperation of Bank as UJB may reasonably request, UJB will use its best efforts
to prepare and file (a) with the SEC, the Registration Statement, (b) with the
Federal Reserve Board, an application for approval of the Merger, (c) with the
New Jersey Department of Banking, an application for approval of the Merger, and
(d) with the New York Stock Exchange, an application for the listing of the
shares of UJB Stock issuable upon the Merger, subject to official notice of
issuance, except that UJB shall have no obligation to file a new registration
statement or a post-effective amendment to the Registration Statement covering
any reoffering of UJB Stock by Bank Affiliates. UJB shall cooperate with Bank in
the preparation and filing of the Proxy Statement by Bank with the OCC and, in
connection therewith, UJB will furnish all information concerning UJB reasonably
deemed necessary by counsel to Bank for such filing or preparation for filing.
UJB covenants and agrees that all information furnished by UJB for inclusion in
the Registration Statement, the Proxy Statement, and all applications and
submissions for the Required Consents will comply in all material respects with
the provisions of applicable law, including the Securities Act and the Exchange
Act and the rules and regulations of the SEC, Federal Reserve Board and OCC, and
will not contain any untrue statement of a material fact and will not omit to
state any 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. UJB will furnish to Advest, investment bankers
advising Bank, such information as they may reasonably request for purposes of
the opinion referred to in Section 8.07.
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Section 5.02. Notice of Adverse Changes. UJB will promptly advise Bank in
writing of (a) any event occurring subsequent to the date of this Agreement
which would render any representation or warranty of UJB or UJBank contained in
this Agreement or the UJB Schedules, if made on or as of the date of such event
or the Closing Date, untrue or inaccurate in any material respect, (b) any UJB
Material Adverse Change, (c) any inability or perceived inability of UJB or
UJBank to perform or comply with the terms or conditions of this Agreement, (d)
the institution or threat of institution of material litigation or
administrative proceedings involving UJB or its assets which, if determined
adversely to UJB, would have a material adverse effect on UJB and its
subsidiaries taken as a whole or the Merger, (e) any governmental complaint,
investigation, or hearing or communication indicating that such litigation or
administrative proceedings are contemplated, (f) any written notice of, or other
communication relating to, a default or event which, with notice or lapse of
time or both, would become a default, received by UJB subsequent to the date
hereof and prior to the Effective Time, under any agreement, indenture or
instrument to which UJB or UJBank is a party or is subject and which is material
to the business, operation or condition (financial or otherwise) of UJB and its
subsidiaries taken as a whole, and (g) any written notice or other communication
from any third party alleging that the consent of such third party is or may be
required in connection with the transactions contemplated by this Agreement
including the Merger. UJB agrees that the delivery of such notice shall not
constitute a waiver by Bank of any of the provisions of Articles VI or VIII.
Section 5.03. Copies of Filings. UJB shall promptly provide to Bank copies
of the application for approval of the Merger filed with the Federal Reserve
Board and the New Jersey Department of Banking and all reports filed by it with
the SEC on Forms 10-Q, 8-K and 10-K.
Section 5.04. Further Actions. UJB will: (a) execute and deliver such
instruments and take such other actions as Bank may reasonably require to carry
out the intent of this Agreement; (b) use all reasonable efforts to obtain
consents of all third parties and governmental bodies necessary or reasonably
desirable for the consummation of the transactions contemplated by this
Agreement; (c) diligently support this Agreement in any proceeding before any
regulatory authority whose approval of any of the transactions contemplated
hereby is required or reasonably desirable or before any court in which
litigation in respect thereof is pending; and (d) use its best efforts so that
the other conditions precedent to the obligations of Bank set forth in Articles
VI and VIII hereof are satisfied.
Section 5.05. Applicable Laws. UJB will use its best efforts to comply
promptly with all requirements which federal or state law may impose on UJB with
respect to the Merger and will promptly cooperate with and furnish information
to Bank in connection with any such requirements imposed upon Bank or on any of
its subsidiaries in connection with the Merger.
Section 5.06. Unpaid Bank Dividends. By virtue of the Merger and without
further action on anyone's part, UJB shall assume the obligation of Bank to pay
dividends, if any, on Bank Stock which has a record date prior to the Effective
Time but are not payable until after the Effective Time.
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Section 5.07. Cooperation. Until the Effective Time, UJB will provide such
information with respect to its business affairs and properties as Bank from
time to time may reasonably request, and will cause its managerial employees,
counsel and independent certified public accountants to be available on
reasonable request to answer questions of Bank's representatives covering the
business and affairs of UJB or any of its subsidiaries.
Section 5.08. Confidentiality. All information furnished by Bank to UJB or
its representatives pursuant hereto shall be treated as the sole property of
Bank and, if the Merger shall not occur, UJB and its representatives shall
return to Bank all of such written information and all documents, notes,
summaries or other materials containing, reflecting or referring to, or derived
from, such information, except that any such confidential information or notes
or abstracts therefrom presented to the Board of Directors of UJB or any
committee thereof for the purpose of considering this Agreement, the Merger and
the related transactions may be kept and maintained by UJB with other records of
Board, and Board committee, meetings subject to a continuing obligation of
confidentiality. UJB shall, and shall use its best efforts, to cause its
representatives to, keep confidential all such information, and shall not
directly or indirectly use such information for any competitive or other
commercial purposes. The obligation to keep such information confidential shall
continue for five years from the date the proposed Merger is abandoned and shall
not apply to: (i) any information which (x) was legally in UJB's possession
prior to the disclosure thereof by Bank, (y) was then generally known to the
public, or (z) was disclosed to Bank by a third party not bound by an obligation
of confidentiality; or (ii) disclosures made as required by law. It is further
agreed that if, in the absence of a protective order or the receipt of a waiver
hereunder, UJB is nonetheless, in the written opinion of its counsel, compelled
to disclose information concerning Bank to any tribunal or governmental body or
agency or else stand liable for contempt or suffer other censure or penalty, UJB
may disclose such information to such tribunal or governmental body or agency
without liability hereunder and shall so notify Bank in advance to the extent
practicable. This Section 5.08 shall survive any termination of this Agreement.
Section 5.09. Further Transactions. UJB continually evaluates possible
acquisitions and may prior to the Effective Time enter into one or more
agreements providing for, and may consummate the acquisition by it of another
bank, association, bank holding company, savings and loan holding company or
other company (or the assets thereof) for consideration that may include UJB
Stock. In addition, prior to the Effective Time, UJB may, depending on market
conditions and other factors, otherwise determine to issue equity-linked or
other securities for financing purposes. Notwithstanding the foregoing, UJB will
not take any action that would (i) prevent the transactions and contemplated
hereby from qualifying as a reorganization within the meaning of Section 368 of
the Code or (ii) materially impede or delay receipt of any Required Consent or
the consummation of the transactions contemplated by this Agreement.
Section 5.10. Indemnification.
(a) UJBank shall indemnify, and advance expenses in matters that may be
subject to indemnification to, persons who served as directors and officers of
Bank or any subsidiary of Bank on or before the Effective Time with respect to
liabilities and claims (and related expenses)
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made against them resulting from their service as such prior to the
Effective Time in accordance with and subject to the requirements and other
provisions of UJBank Restated Certificate of Incorporation and By-Laws in effect
on the date of this Agreement and applicable provisions of law to the same
extent as UJBank is obliged thereunder to indemnify and advance expenses to its
own directors and officers with respect to liabilities and claims made against
them resulting from their service for UJBank.
(b) For a period of six (6) years after the Effective Time, UJBank will use
its best efforts to provide to the persons who served as directors or officers
of Bank or any subsidiary of Bank on or before the Effective Time insurance
against liabilities and claims (and related expenses) made against them
resulting from their service as such prior to the Effective Time comparable in
coverage to that provided by UJBank to its own directors and officers, but, if
not available on commercially reasonable terms, then coverage substantially
similar in all material respects to the insurance coverage provided to them in
such capacities at the date hereof; provided, however, that in no event shall
UJBank be required to expend more than 200% of the current amount expended by
Bank (the "Insurance Amount") to maintain or procure insurance coverage pursuant
hereto, and, further provided, that if UJBank is unable to maintain or obtain
the insurance called for by this Section 5.10, UJBank shall use its best efforts
to obtain as much comparable insurance as available for the Insurance Amount.
Bank shall renew any existing insurance or purchase any "discovery period"
insurance provided for thereunder at UJBank's request.
(c) This Section 5.10 shall be construed as an agreement as to which the
directors and officers of Bank referred to herein are intended to be third party
beneficiaries and shall be enforceable by the such persons and their heirs and
representatives.
(d) If UJB or any of its successors or assigns (i) shall consolidate with
or merge into any other corporation or entity and shall not be the continuing or
surviving corporation or entity of such consolidation or merger, or (ii) shall
transfer all or substantially all of its properties and assets to any
individual, corporation or other entity, then in each such case, UJB or such
successor or assign shall take such actions as shall be necessary for the
successors or assigns of UJBank to assume the obligations set forth in this
Section 5.10.
Section 5.11. Employee Matters.
(a) After the Effective Time, UJB may in its discretion maintain,
terminate, merge or dispose of (i) the Bank Plans, (ii) the Benefit Plans, and
(iii) all other medical, major medical, disability, life insurance, accidental
death and dismemberment insurance, dental, vision care, or other health or
welfare plan maintained by Bank (the "Health or Welfare Plans"); provided,
however, that any action taken by UJB shall comply with ERISA and other
applicable laws, including laws regarding the preservation of employee pension
benefit plan benefits and, provided further, that if UJB maintains a plan
available to all its employees generally which is similar in character or nature
to, or which covers risks similar to those covered by, a Bank Plan, a Benefit
Plan or a Health or Welfare Plan available to all Bank employees generally,
then, if such Bank plan is terminated by UJB or is otherwise rendered inactive
by UJB, UJB shall offer to the former employees of Bank affected by such plan
termination or cessation of activity the opportunity to
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participate in the similar plan of UJB without being subject to any
exclusions due to pre-existing conditions and such employees shall be given
credit for years of service with Bank for purposes of eligibility, vesting and
benefit accrual purposes, except benefit accruals under the UJB Retirement Plan,
supplemental employee retirement plans and severance plans.
(b) After the Effective Time, Bank employees shall not be entitled to
participate automatically in benefits plans, programs or arrangements of UJB not
maintained by UJB for its employees generally, including without limitation
bonus plans, stock option plans, stock award plans, severance plans and
reduction in force plans, but shall be allowed to participate if and only if
selected for participation by the persons authorized by the terms of such plans
to select participants.
(c) Following the Effective Time, UJBank shall assume the obligations of
Bank with respect to the following agreements, policies or plans existing prior
to the date hereof which have been disclosed in the Bank Schedules: (i)
employment agreements, (ii) stock appreciation rights agreements, (iii) change
of control plan (but only with respect to the three participants on the date
hereof), (iv) for the nine-month period following the Effective Time, severance
policies, but excluding from the coverage of this clause (iv) the President of
Bank and the participants in the change of control plan referred to in clause
(iii), and (v) bonus plan, but only with respect to the bonuses listed in Bank
Schedule 4.05(g) payable by Bank with respect to services rendered in 1995 but
not paid by Bank at or prior to the Effective Time.
(d) In the event Bank shall not have terminated the Bank Savings Plan prior
to the Effective Time, UJB or UJBank shall terminate the Bank Savings Plan
provided such termination would be consistent with accounting for the Merger as
a pooling of interests.
Section 5.12. Best Efforts to Ensure Pooling. UJB agrees to use, and agrees
to cause its subsidiaries to use, its and their best efforts to cause the Merger
to qualify for pooling-of-interests accounting treatment.
Section 5.13. Publication of Results of Combined Operations. If the Closing
Date is a date within the first or third month of any calendar quarter, UJB will
publish financial results including not less than 30 days of post-merger
combined operations which shall be published promptly following the first full
calendar month following the Closing Date and which shall be in accordance with
Section 201.01 of the SEC's Codification of Financial Reporting Policies, and
UJB shall file a Form 8-K for this purpose if necessary.
Section 5.14. Approval of Sole Shareholder of UJBank. UJBank will call a
meeting of its sole shareholder for the purpose of voting upon this Agreement,
the Merger and the transactions contemplated hereby to be held as promptly as
practicable and, in connection therewith, will comply with the New Jersey
Banking Act and all regulations promulgated thereunder governing shareholder
meetings. UJB shall at the shareholder meeting so called, or by means of a
written consent in lieu of meeting, approve this Agreement, the Merger and the
transactions contemplated hereby.
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ARTICLE VI.
CONDITIONS PRECEDENT TO THE RESPECTIVE OBLIGATIONS OF UJB,
UJBANK AND BANK
The respective obligations of UJB, UJBank and Bank under this Agreement to
consummate the Merger are subject to the satisfaction of all the following
conditions, compliance with which or the occurrence of which may only be waived
in whole or in part in writing by UJB, UJBank and Bank:
Section 6.01. Receipt of Required Consents. UJB, UJBank and Bank shall have
received the Required Consents; the Required Consents shall not, in the
reasonable opinion of UJB or Bank, contain restrictions or limitations which
would materially adversely affect the financial condition of UJB after
consummation of the Merger; the Required Consents and the transactions
contemplated hereby shall not on the Closing Date be contested by any federal or
state governmental authority; and on the Closing Date the Required Consents
needed for the Merger shall have been obtained and shall not have been withdrawn
or suspended.
Section 6.02. Effective Registration Statement. The Registration Statement
shall have been declared effective by the SEC; no stop order suspending the
effectiveness of the Registration Statement shall have been issued and remain in
effect on the Closing Date; and no proceeding for that purpose shall have been
initiated or, to the knowledge of UJB or Bank, shall be contemplated or
threatened by the SEC on the Closing Date.
Section 6.03. Tax Matters. At the time of effectiveness of the Registration
Statement and at the Closing Date, each of UJB and Bank shall have received from
Thompson & Mitchell an opinion (the "Tax Opinion"), reasonably satisfactory in
form and substance to it, to the effect that (a) the Merger will constitute a
reorganization within the meaning of Section 368 of the Code, (b) except with
respect to fractional share interests, holders of Bank Stock who receive solely
UJB Stock in the Merger will not recognize gain or loss for federal income tax
purposes, (c) the basis of such UJB Stock (including any fractional share for
which cash is received) will equal the basis of the Bank Stock for which it is
exchanged, (d) the holding period of such UJB Stock (including any fractional
share for which cash is received) will include the holding period of the Bank
Stock for which it is exchanged, assuming that such Bank Stock is a capital
asset in the hands of the holder thereof at the Effective Time, and (e) holders
of Bank Stock who dissent and receive solely cash in exchange for their Bank
Stock will recognize gain or loss, provided that the cash payment does not have
the effect of the distribution of a dividend under Code Section 302.
In addition, no condition or set of facts or circumstances shall exist at the
Closing Date which will either (x) preclude any of the parties to this Agreement
from satisfying the terms or conditions of, or assumptions made in, the Tax
Opinions, as the case may be, or (y) result in any of the factual assumptions
contained in the Tax Opinions being untrue.
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Section 6.04. Absence of Litigation. At the Closing Date, no investigation
by any state or federal agency, and no action, suit, arbitration or proceeding
before any court, state or federal agency, panel or governmental or regulatory
body or authority, shall have been instituted or threatened against UJB or any
of its subsidiaries, or Bank or any of its subsidiaries, that is material to the
Merger or to the financial condition of UJB and its subsidiaries taken as a
whole or Bank and its subsidiaries taken as a whole, as the case may be. At the
Closing Date, no order, decree, judgment, or regulation shall have been entered
or law or regulation adopted by any such agency, panel, body or authority which
enjoined or has a material adverse effect upon the Merger or on the financial
condition of UJB and its subsidiaries taken as a whole or Bank and its
subsidiaries taken as a whole, as the case may be.
Section 6.05. NYSE Listing. At the Closing Date, the shares of UJB Common
Stock to be issued in the Merger shall have been listed on the New York Stock
Exchange subject to official notice of issuance.
Section 6.06. Shares of Dissenting Shareholders. The number of shares of
Bank Stock, if any, represented by Dissenting Shareholders shall not exceed five
percent (5%) of the shares of Bank Stock outstanding on the Closing Date.
ARTICLE VII.
CONDITIONS PRECEDENT TO THE OBLIGATIONS OF UJB AND UJBANK
The obligation of UJB and UJBank to consummate the Merger is subject to
the satisfaction of all of the following conditions, compliance with which or
the occurrence of which may be waived in whole or in part by UJB and UJBank in
writing:
Section 7.01. No Adverse Changes. During the period from December 31, 1994
to the Closing Date there shall not have been any Bank Material Adverse Change,
and Bank and its subsidiaries shall have not sustained any material loss or
damage to their properties, whether or not insured, which materially affects the
ability of Bank and its subsidiaries, taken as a whole, to conduct their
business.
Section 7.02. Representations and Covenants. Except with respect to matters
resulting from transactions specifically contemplated by this Agreement, all
representations and warranties made by Bank in this Agreement and the Bank
Schedules and the material furnished pursuant to the Post-Signing Disclosure
List shall be true and correct on the date of this Agreement, and in all
material respects on the Closing Date with the same force and effect as if such
representations and warranties were made on the Closing Date. Bank shall have
complied in all material respects with all covenants and agreements contained
herein to be performed by Bank on or before the Closing Date.
Section 7.03. Secretary's Certificate. Bank shall have furnished to UJB a
certificate signed by the Secretary of Bank and dated the Closing Date,
certifying to the satisfaction of the
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conditions set forth in Section 7.11 herein and the effectiveness of all
resolutions adopted by the Board of Directors (including committees thereof) and
shareholders of Bank relating to this Agreement, the Merger Agreement and the
Merger and related transactions, a copy of which resolutions shall be attached
to such certificate.
Section 7.04. Officer's Certificate. Bank shall have furnished to UJB a
certificate signed by the Chairman or President of Bank, dated the Closing Date,
certifying to the satisfaction of the conditions set forth in Sections 6.01, the
last paragraph of Section 6.03, and Section 6.04 as they relate to Bank and in
Sections 7.01, 7.02, 7.08, 7.09 and 7.12.
Section 7.05. Opinion of Bank's Counsel. UJB shall have received an opinion
of Drinker Biddle & Reath, dated the Closing Date and reasonably satisfactory in
form and substance to counsel for UJB, substantially to the effect provided in
Exhibit I.
Section 7.06. Affiliate Agreements and Tax Opinion Certificates. Each
person who is a Bank Affiliate shall have delivered to UJB an executed Affiliate
Agreement.
Section 7.07. Approvals of Legal Counsel. All actions, proceedings,
instruments and documents required to carry out the transactions contemplated by
this Agreement or incidental thereto and all related legal matters shall be
reasonably satisfactory to counsel to UJB, and such counsel shall have been
furnished with certified copies of actions and proceedings and such other
documents and instruments as they shall have reasonably requested.
Section 7.08. Consents to Bank Contracts. All consents, approvals or
waivers, in form and substance reasonably satisfactory to UJB, required to be
obtained in connection with the Merger from other parties to each mortgage,
note, lease, permit, franchise, loan or other agreement, or other contract to
which Bank or any of its subsidiaries is a party or by which they or any of
their assets or properties may be bound or committed, which contract is material
to the business, franchises, operations, assets, financial condition or
prospects (financial or otherwise) of Bank and its subsidiaries on a
consolidated basis, shall have been obtained.
Section 7.09. Net Worth. The sum of (i), (ii), (iii), (iv) and (v) (where
(i) is the sum of consolidated shareholders' equity and consolidated allowance
for loan losses of Bank (as determined in accordance with generally accepted
accounting principles consistently applied with those used in preparing the Bank
Financial Statements as of December 31, 1994) at the last day of the month
preceding the Closing Date, (ii) is the sum of expenses incurred or accrued by
Bank in respect of the Merger and related transactions as of the Closing Date
and expenses attributable to stock appreciation rights agreements as of the
Closing Date, (iii) is the acceleration, if any, in amortization of leasehold
improvements arising from notice of termination by Bank of existing leases, (iv)
is the net negative effect after June 30, 1995, if any, of mark-to-market
accounting for securities available for sale, and (v) is the sum of the "staying
bonuses" payable on the Closing Date to the three individuals named on Bank
Schedule 4.05(g) to the extent acrued by the Bank prior to such date) shall be
not less than the sum of consolidated shareholders' equity and consolidated
allowance for loan losses of Bank (as determined in accordance with generally
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accepted accounting principles consistently applied with those used in preparing
the Bank Financial Statements as of December 31, 1994) at June 30, 1995.
Section 7.10. FIRPTA Affidavit. Bank shall have delivered to UJB an
affidavit of an executive officer of Bank stating, under penalties of perjury,
that Bank is not and has not been a United States real property holding company
(as defined in Section 897(c)(2) of the Code) during the applicable period
specified in Section 897(c)(1)(A)(ii) of the Code.
Section 7.11. Shareholder Approval. The shareholders of Bank, at the
meeting contemplated by this Agreement, shall have authorized and approved the
Merger and this Agreement and all transactions contemplated by this Agreement as
and to the extent required by all applicable laws and regulations and the
provisions of Bank's Articles of Association and By-Laws.
Section 7.12. Absence of Regulatory Agreements. Neither Bank nor any Bank
subsidiary shall be a party to any agreement or memorandum of understanding
with, or commitment letter to, or board of directors resolution submitted to or
similar undertaking made to, or be subject to any order or directive by, or be a
recipient of any extraordinary supervisory letter from, any governmental or
regulatory authority which restricts materially the conduct of its respective
business or has a material adverse effect upon the Merger or upon the financial
condition of Bank or Bank and its subsidiaries taken as a whole, and neither
Bank nor Bank shall have been advised by any governmental or regulatory
authority that such authority is contemplating issuing or requesting, or
considering the appropriateness of issuing or requesting, any of the foregoing.
The receipt of the documents required by this Article VII by UJB shall in no way
constitute a waiver by UJB of any of the provisions of or its rights under this
Agreement.
ARTICLE VIII
CONDITIONS PRECEDENT TO THE OBLIGATION OF BANK
The obligation of Bank to consummate the Merger is subject to the
satisfaction of all of the following conditions, compliance with which or the
occurrence of which may be waived in whole or in part by Bank in writing:
Section 8.01. No Adverse Changes. During the period from December 31, 1994
to the Closing Date there shall not have been any UJB Material Adverse Change,
and UJB and its subsidiaries shall not have sustained any material loss or
damage to their properties, whether or not insured, which materially affects the
ability of UJB and its subsidiaries, taken as a whole, to conduct their
business.
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Section 8.02. Representations and Covenants. Except with respect to matters
resulting from transactions specifically contemplated by this Agreement, all
representations and warranties made by UJB in this Agreement shall be true and
correct on the date of this Agreement and, in all material respects, on the
Closing Date with the same force and effect as if such representations and
warranties were made on the Closing Date. UJB shall have complied in all
material respects with all covenants and agreements contained herein or therein
to be performed by UJB on or before the Closing Date. The entry by UJB after the
date hereof into any agreement to acquire any company or other entity, the
issuance of up to $400 million of debt equity, and the issuance of Series R
Preferred Stock pursuant to UJB's Shareholder Rights Plan, the redemption or
repurchase by UJB of its Common Stock, Series B Adjustable Rate Cumulative
Preferred Stock, the Rights attached to UJB Common Stock or the Series R
Preferred Stock issuable pursuant to UJB's Shareholder Rights Plan, and any
transactions reasonably necessary or appropriate in connection therewith, are
specifically permitted by this Agreement.
Section 8.03. Secretary's Certificate. UJB shall have furnished to Bank a
certificate signed by the Secretary of UJB and dated the Closing Date,
certifying to the satisfaction of the condition set forth in Section 6.05 and
the effectiveness of all resolutions adopted by the Board of Directors
(including committees thereof) of UJB relating to this Agreement, the Merger
Agreement and the Merger and related transactions, a copy of which resolutions
shall be attached to such certificate.
Section 8.04. Officer's Certificate. UJB shall have furnished to Bank a
certificate signed by the Chairman, Vice Chairman, President or an Executive
Vice President of UJB, dated the Closing Date, certifying to the satisfaction of
the conditions set forth at Sections 6.01 and 6.02, the next to last paragraph
of Section 6.03, and Section 6.04 as they relate to UJB and Sections 8.01, 8.02
and 8.08.
Section 8.05. Opinions of UJB Counsel. Bank shall have received an opinion
of General Counsel for UJB, dated the Closing Date and reasonably satisfactory
in form and substance to counsel for Bank, substantially to the effect provided
in Exhibit J.
Section 8.06. Approvals of Legal Counsel. All actions, proceedings,
instruments and documents required to carry out the transactions contemplated by
this Agreement or incidental thereto and all related legal matters shall be
reasonably satisfactory to counsel to Bank, and such counsel shall have been
furnished with certified copies of actions and proceedings and such other
documents and instruments as they shall have reasonably requested.
Section 8.07. Fairness Opinion. The Proxy Statement shall have contained
the favorable signed opinion of Advest, dated the date of the Proxy Statement or
not more than five business days prior thereto, regarding the fairness from a
financial point of view of the consideration to be received by the shareholders
of Bank in the Merger.
Section 8.08. Absence of Regulatory Agreements. Neither UJB nor any of its
bank subsidiaries shall be a party to any agreement or memorandum of
understanding with, or commitment letter to, or board of directors resolution
submitted to or similar undertaking made
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to, or be subject to any order or directive by, or be a recipient of any
extraordinary supervisory letter from, any governmental or regulatory authority
which restricts materially the conduct of UJB's business or has a material
adverse effect upon the Merger or upon the financial condition of UJB and its
subsidiaries taken as a whole, except for such of the foregoing as was
previously disclosed to Bank, and neither UJB nor any of its bank subsidiaries
shall have been advised by any governmental or regulatory authority that such
authority is contemplating issuing or requesting, or considering the
appropriateness of issuing or requesting, any of the foregoing.
Section 8.09. Bank Shareholder Approval. The shareholders of Bank, at the
meeting contemplated by this Agreement, shall have authorized and approved the
Merger and this Agreement and all transactions contemplated by this Agreement as
and to the extent required by all applicable laws and regulations and the
provisions of Bank's Articles of Association and By-Laws.
Section 8.10. UJBank Shareholder Approval. UJB as sole shareholder of
UJBank shall have authorized and approved the Merger, this Agreement and all
transactions contemplated by this Agreement, either pursuant to a meeting held
for that purpose or by means of a written consent of sole shareholder, as and to
the extent required by all applicable laws and regulations and the provisions of
UJBank's Restated Certificate of Incorporation and By-Laws.
The receipt of the documents required by this Article VIII by Bank shall in no
way constitute a waiver by Bank of any of the provisions of or its rights under
this Agreement.
ARTICLE IX
CLOSING; TERMINATION RIGHTS
Section 9.01. Closing. Unless a different place and time are agreed to by
the parties hereto, the closing of the Merger (the "Closing") shall take place
on a date determined by UJB on at least five business days notice (the "Closing
Notice") given to Bank, at the office of UJB, 301 Carnegie Center, Princeton,
New Jersey, commencing at 10:00 a.m., which date shall not be later than 45
business days after the last to occur of the following:
(a) the date of the approval of the Merger by the shareholders of Bank in
accordance with Section 7.11;
(b) if the transactions contemplated by this Agreement are being contested
in any legal proceeding, the date that such proceeding has been brought to a
conclusion favorable, in the judgment of UJB and Bank, to the consummation of
the transactions contemplated herein or such prior date as UJB and Bank shall
elect, whether or not such proceeding has been brought to a conclusion; or
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(c) the date of receipt of the last of the Required Consents (and the
expiration of any required waiting period required by statute or incorporated
into such Required Consents);
Such date is sometimes referred to herein as the "Closing Date". In the Closing
Notice, UJB shall specify the "Determination Date" for purposes of determining
the Average Price, which date shall be not more than ten business days prior to
the Closing Date. At the Closing, the parties will exchange certificates, legal
opinions and other documents for the purpose of determining whether the
conditions precedent to the obligations of the parties set forth herein have
been satisfied or waived. After all such conditions have been satisfied or
waived, UJB shall cause to be filed with the New Jersey Department of Banking in
accordance with Section 1.06, the Merger Agreement and certifications required
under the New Jersey Banking Act. All proceedings to be taken and all documents
to be executed and delivered by all parties at the Closing shall be deemed so
taken, executed and delivered simultaneously, and no proceedings shall be deemed
taken or any documents executed or delivered until all have been taken, executed
or delivered.
Section 9.02. Termination Rights.
(a) The Boards of Directors of Bank and UJB may terminate this Agreement by
mutual consent at any time prior to the Effective Time. In addition, if either
party shall refuse to close because, on the date on which the Closing must be
held as determined by Section 9.01, all the conditions precedent to its
obligation to close under Article VI shall not have been met, the Board of
Directors of such party may terminate this Agreement by giving written notice of
such termination to the other party. Furthermore, the Board of Directors of
either party may terminate this Agreement in the event that:
(i) the shareholders of Bank at the meeting of shareholders
contemplated by Section 4.03, called for the purpose of approving the
Merger, this Agreement and the transactions contemplated by this Agreement,
upon voting, shall have failed to approve by the requisite vote, or
(ii) a material breach of a warranty or representation or covenant
made by the other party shall have occurred and such breach has not been
cured, or is not capable of being cured, within 30 days after written
notice of the existence thereof shall have been given to the other party
(provided that the terminating party is not then in material breach of any
representation, warranty, covenant or other agreement contained herein);
(iii) Bank's investment banker is unable to deliver to Bank by
November 30, 1995 the opinion required by Section 8.07; or
(iv) the Closing is not consummated on or before June 30, 1996, unless
the failure of such occurrence shall be due solely to the failure of the
party seeking to terminate this Agreement to perform or observe its
agreements set forth in this Agreement required to be performed or observed
by such party on or before the Closing Date.
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(b) If either party shall refuse to close because, on the date on which the
Closing must be held as determined by Section 9.01, all the conditions to its
obligation to close (other than a condition set forth in Article VI) shall not
have been met (other than a failure of the condition set forth at Section 7.11
or 8.07 due to the circumstances set forth in Section 9.02(a)(i) hereof or a
failure of the condition set forth at Section 8.07 due to the circumstances set
forth at Section 9.02(a)(iii) hereof), the Board of Directors of such party may
terminate this Agreement by giving written notice of such termination to the
other party.
(c) Upon a termination of this Agreement pursuant to this Section 9.02 or
Section 1.03(a)(2)(C) hereof:
(i) the obligations of the parties under this Agreement (except for
those under this Section 9.02 and Sections 4.14, 4.15 and 5.08) shall
terminate and be of no further force or effect and each party shall be
mutually released and discharged from liability to the other party or to
any third parties hereunder except for any liability arising out of any
uncured wilful breach of any covenant or other agreement contained herein
or any fraudulent breach of a representation or warranty contained herein,
and
(ii) no party shall be liable to any other party for any costs or
expenses paid or incurred in connection herewith by such other party,
except that expenses incurred in connection with printing the Proxy
Statement and the Registration Statement, and the filing fees of regulatory
authorities or self-regulatory organizations, shall be borne equally by UJB
and Bank; provided, however, that: (A) if Bank terminates this Agreement
pursuant to Section 9.02(a)(ii) or Section 9.02(b), UJB shall reimburse
Bank for its out-of-pocket expenses reasonably incurred in connection with
this Agreement, including counsel fees and the printing and filing fees
referred to above, but excluding any brokers', finders' or investment
bankers' fees; and (B) if UJB terminates this Agreement pursuant to Section
9.02(a)(i) or (a)(ii) or Section 9.02(b), Bank shall reimburse UJB for its
out-of-pocket expenses reasonably incurred in connection with this
Agreement, including counsel fees and the printing and filing fees referred
to above, but excluding any brokers', finders' or investment bankers' fees.
(d) Notwithstanding any termination of this Agreement, (i) Bank shall
indemnify and hold UJB harmless from and against any claim by any broker or
finder asserting a right to brokerage commissions or finders' fees as a result
of any action allegedly taken by or understanding allegedly reached with Bank
and (ii) UJB shall indemnify and hold Bank harmless from and against any claim
by any broker or finder asserting a right to brokerage commissions or finders'
fees as a result of any action allegedly taken by or understanding allegedly
reached with UJB.
(e) Except as provided otherwise herein in the event of a termination of
this Agreement, Bank and its subsidiaries shall bear their own expenses incident
to preparing, entering into and carrying out this Agreement and to consummating
the Merger, provided, however, that UJB shall pay all printing and mailing
expenses and filing fees associated with the Registration Statement, the Proxy
Statement and regulatory applications.
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ARTICLE X
MISCELLANEOUS
Section 10.01. Press Releases. At all times until the Closing Date or the
termination of this Agreement, each party shall promptly advise and consult with
the other prior to issuing, or permitting any of its subsidiaries, directors,
officers, employees or agents to issue, any press release or other information
to the press or any third party with respect to this Agreement, or the
transactions contemplated hereby.
Section 10.02. Article and Section Headings. Article and section headings
contained in this Agreement are for reference purposes only and shall not affect
in any way the meaning or interpretation of this Agreement.
Section 10.03. Entire Agreement; Amendments. This Agreement, the Bank
Schedules, the Post-Signing Disclosure List and the Exhibits hereto and thereto,
if any, entered into contemporaneously herewith by the parties hereto constitute
the entire agreement between the parties pertaining to the subject matter hereof
and supersede all prior and contemporaneous agreements, understandings,
negotiations and discussions, whether oral or written, of the parties, and there
are no warranties, representations or other agreements between the parties in
connection with the subject matter hereof except as specifically set forth
herein or therein. No supplement, modification, waiver or termination of this
Agreement shall be binding unless executed in writing by the party to be bound
thereby (or in the case of a termination occurring pursuant to Section 9.02 or
Section 1.03(a)(2)(C) hereof by the party exercising a right to terminate this
Agreement). No waiver of any of the provisions of this Agreement shall be deemed
or shall constitute a waiver of any other provision hereof or thereof (whether
or not similar), nor shall any waiver constitute a continuing waiver unless
otherwise expressly provided in the instrument granting such waiver. The parties
hereto may amend or modify this Agreement in such manner as may be agreed upon
by a written instrument executed by the parties, except that, after the meeting
described in Section 7.11 hereof, no such amendment or modification shall reduce
the amount of, or change the forms of consideration to be received by the
shareholders of Bank contemplated by this Agreement, unless such modification is
submitted to a vote of the shareholders of Bank.
Section 10.04. Survival of Representations, Warranties and Covenants. No
investigation made by the parties hereto made heretofore or hereafter shall
affect the representations and warranties of the parties which are contained
herein and each such representation and warranty shall survive such
investigation. None of the representations, warranties, covenants and agreements
in this Agreement or in any instrument delivered pursuant to this Agreement
shall survive the Effective Time, except for those representations, covenants
and agreements contained herein and therein which by their terms apply in whole
or in part after the Effective Time.
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Section 10.05. Notices. Any notice or other communication required or
permitted hereunder shall be in writing, and shall be deemed to have been given,
unless otherwise specified in a particular provision of this Agreement, if
placed in the mail, registered or certified, postage prepaid, or if delivered
personally or by courier, receipt requested, or by facsimile transmission,
receipt acknowledged addressed as follows:
UJB or UJBank: UJB Financial Corp.
Attn: John G. Collins
301 Carnegie Center
P.O. Box 2066
Princeton, NJ 08543-2066
Telephone No.: 609-987-3422
Facsimile No.: 609-987-3435
With a copy to: Richard F. Ober, Jr., Esq.
UJB Financial Corp.
301 Carnegie Center
P.O. Box 2066
Princeton, NJ 08543-2066
Telephone No.: 609-987-3430
Facsimile No.: 609-987-3435
Bank: The Flemington National Bank and
Trust Company
Attn: Nathan C. Collins
56 Main Street
Flemington, NJ 08822
Telephone No.: 908-782-3151
Facsimile No.: 908-782-9787
With a copy to: Henry S. Bryans, Esq.
Drinker Biddle & Reath
Philadelphia National Bank Building
Broad & Chestnut Streets
Philadelphia, PA 19107
Telephone No.: 215-988-2823
Facsimile No.: 215-988-2757
or to such other address as such party may designate by notice to the others,
which change of address shall be deemed to have been given upon receipt.
A notice or other communication hereunder shall be deemed delivered (i) if
mailed by certified or registered mail to the proper address, with adequate
postage prepaid, on the fifth business day following posting or (ii) if
delivered by other means, when received by the party to whom it is directed.
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Section 10.06. Governing Law. This Agreement shall be governed by and
construed and enforced in accordance with the laws of the State of New Jersey,
without giving effect to the provisions, policies or principles thereof relating
to choice or conflict of laws except that matters affecting the validity of
corporate action taken by Bank shall be governed by the laws of the United
States.
Section 10.07. Counterparts. This Agreement is being executed
simultaneously in two or more counterparts, each of which shall be deemed an
original, but all of which together shall constitute one and the same agreement.
Section 10.08. Binding Effect. All of the terms and provisions of this
Agreement shall be binding upon and shall inure to the benefit of the parties
hereto and their respective successors and assigns.
Section 10.09. Extensions; Waivers and Consents. Either party hereto, by
written instrument signed by its Chairman, Vice Chairman, President, or Chief
Financial Officer, may extend the time for the performance of any of the
obligations of the other party hereto, and may waive, at any time before or
after approval of this Agreement and the transactions contemplated hereby by the
shareholders of Bank, subject to the provisions of Section 10.03 hereof: (i) any
inaccuracies of the other party in the representations and warranties in this
Agreement or any other document delivered pursuant hereto or thereto; (ii)
compliance with any of the covenants or agreements of the other party contained
in this Agreement; (iii) the performance (including performance to the
satisfaction of a party or its counsel) by the other party of any of its
obligations hereunder or thereunder; and (iv) the satisfaction of any conditions
to the obligations of the waiving party hereunder or thereunder. Any consent or
approval of a party hereunder shall be effective only if signed by the Chairman,
Vice Chairman, President or Chief Financial Officer of such party. Subject to
Section 10.03, no such instrument, consent or approval may modify the form or
amount of consideration to be received by the shareholders of Bank.
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IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
in counterparts by their duly authorized officers and their corporate seals to
be hereunto affixed as of the date first above written.
CORPORATE SEAL UJB FINANCIAL CORP.
Attest /S/ RICHARD F. OBER, JR. By /S/ JOHN G. COLLINS
------------------------- -----------------------------------
Richard F. Ober, Jr., John G. Collins
Secretary Vice Chairman of the Board
CORPORATE SEAL UNITED JERSEY BANK
Attest /S/ RICHARD F. OBER, JR. By /S/ JOHN G. COLLINS
------------------------ -----------------------------------
Richard F. Ober, Jr. John G. Collins
Secretary Vice Chairman of the Board
CORPORATE SEAL THE FLEMINGTON NATIONAL BANK
AND TRUST COMPANY
Attest /S/ VICTORIA C. ARCELLA By /S/ NATHAN C. COLLINS
------------------------ ----------------------------------
Victoria A. Arcella Nathan C. Collins
Secretary President & Chief
Executive Officer
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APPENDIX B
ADVEST LETTERHEAD
December , 1995
Board of Directors
The Flemington National Ban
56 Main Street
Flemington, New Jersey 08822
Members of the Board:
The Flemington National Bank and Trust Company ("Flemington"), UJB
Financial Corp. ("UJB") and United Jersey Bank, a wholly-owned subsidiary of UJB
("UJBank") have entered into an Agreement and Plan of Merger dated as of August
1, 1995 (the "Agreement"), pursuant to which Flemington will be merged with and
into UJBank.
Pursuant to the Agreement, each outstanding share of Flemington common
stock, par value $2.50, will be converted into the right to receive the number
of shares of UJB Common Stock ("UJB Common Stock") equal to the exchange ratio
(the "Exchange Ratio") determined as set forth below, subject to certain
adjustments set forth in the Agreement. For purposes of the Agreement, the
Exchange Ratio shall be determined as follows: (i) if the Average Price (as
defined in the Agreement) of a share of UJB Common Stock is greater than $37.00,
the Exchange Ratio shall be 1.3514; (ii) if the Average Price of a share of UJB
Common Stock is equal to or greater than $29.00 and equal to or less than
$37.00, the Exchange Ratio shall be equal to the quotient obtained by dividing
$50 by the Average Price, and (iii) if the Average Price of a share of UJB
Common Stock is less than $29.00, the Exchange Ratio shall be 1.7241 provided,
however, that if the Average Price of a share of UJB Common Stock is less than
$26.10, Flemington may terminate the Agreement unless UJB agrees that the
Exchange Ratio shall be equal to the quotient obtained by dividing $45.00 by the
Average Price. In addition, Flemington has the right to declare, set aside or
pay cash dividends per share of Flemington common stock equivalent to cash
dividends per share declared, set aside or paid by UJB multiplied by the lowest
Exchange Ratio provided above up to the Effective Time (the "Equivalent Rate
Dividend"), and to pay a further dividend at the Effective Time based upon the
actual Exchange Ratio if the actual Exchange Ratio is higher.
The terms and conditions of the proposed transaction are described in more
detail in the Agreement. The Agreement also provides for the payment of a
$3,000,000 fee to UJB upon the occurrence of certain events specified in the
Agreement. The Agreement is expected to be considered by the shareholders of
Flemington at a shareholders' meeting and consummated shortly after the receipt
of shareholder and state and federal regulatory approvals.
You have requested our opinion, as investment bankers, as to whether the
Exchange Ratio is fair, from a financial point of view, to the shareholders of
Flemington.
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In arriving at the opinion set forth below, we have among other things:
reviewed the Agreement and the exhibits and schedules thereto; reviewed the
Annual Reports on form 10-KSB for Flemington and 10-K for UJB for each of the
(three) fiscal year(s) ended December 31, 1994, as well as unaudited financial
information for the quarters ended September 30, 1995 for each of Flemington and
UJB and earnings press releases for the quarters and nine months ended September
30, 1995; reviewed certain financial information as filed with federal banking
agencies for the three years ended December 31, 1994, as well as for the nine
months September 30, 1995, for each of Flemington and UJB, including comparative
financial and operating data on the banking industry and certain institutions
which we deemed to be comparable to both companies; reviewed the historical
market prices and trading activity for the common stock of each of Flemington
and UJB and compared them with certain publicly-traded companies which we deemed
to be comparable to each company; reviewed the Proxy Statement-Prospectus for
Flemington's special meeting of shareholders to vote on the transaction,
including the financial data set forth therein; considered the beneficial
financial impact to the shareholders of Flemington of the Equivalent Rate
Dividend; reviewed certain bank mergers and acquisitions on a state, regional
and nationwide basis for institutions which we deemed to be comparable to
Flemington and compared the proposed consideration with the consideration paid
in such other mergers and acquisitions which we deemed relevant; conducted
limited discussions with members of senior management of each of Flemington and
UJB concerning the financial condition, business, and prospects of each
respective company; and reviewed such other financial studies and analyses and
performed such other investigations and took into account such other matters as
we deemed necessary.
In preparing this opinion we have assumed and relied upon the accuracy and
completeness of all financial and other information reviewed by us for purposes
of this opinion, and we have not independently verified such information nor
have we undertaken an independent evaluation of the assets or liabilities of
Flemington or UJB. Advest has been retained by the Board of Directors of
Flemington to act as financial advisor to Flemington with respect to the Merger
and will receive a fee for its services including a fee for this opinion. This
opinion is necessarily based upon circumstances and conditions as they exist and
can be evaluated by us as of the date of this letter. Our opinion is directed to
the Board of Directors of Flemington and does not constitute a recommendation of
any kind to any shareholder of Flemington as to how such shareholder should vote
at the shareholders' meeting to be held in connection with the merger. We have
assumed for purposes of this opinion that there has been no material change in
the financial condition of either Flemington or UJB from that existing on
September 30, 1995.
In reliance upon and subject to the foregoing, it is our opinion that, as
of the date hereof, the Exchange Ratio is fair, from a financial point of view,
to the shareholders of Flemington.
Very truly yours,
ADVEST, INC.
/s/ EDWARD T. LUTZ
By: ________________________________
Edward T. Lutz
Managing Director
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APPENDIX C
SECTION 214a OF THE NATIONAL BANK ACT
(SS)214a. Procedure for conversion, merger, or consolidation;
vote of stockholders
A national banking association may, by vote of the holders of at least
two-thirds of each class of its capital stock, convert into, or merge or
consolidate with, a State bank in the same State in which the national banking
association is located, under a State charter, in the following manner:
(a) Approval of board of directors; publication of notice of stockholders'
meeting; waiver of publication; notice by registered or certified mail.
The plan of conversion, merger, or consolidation must be approved by a
majority of the entire board of directors of the national banking association.
The bank shall publish notice of the time, place, and object of the
shareholders' meeting to act upon the plan, in some newspaper with general
circulation in the place where the principal office of the national banking
association is located, at least once a week for four consecutive weeks:
Provided, that the newspaper publication may be dispensed with entirely if
waived by all the shareholders and in the case of a merger or consolidation one
publication at least ten days before the meeting shall be sufficient if
publication for four weeks is waived by holders of at least two-thirds of each
class of capital stock and prior written consent of the Comptroller of the
Currency is obtained. The national banking association shall send such notice to
each shareholder of record by registered mail or by certified mail at least ten
days prior to the meeting, which notice may be waived specifically by any
shareholder.
(b) Rights of dissenting stockholders
A shareholder of a national banking association who votes against the
conversion, merger, or consolidation, or who has given notice in writing to the
bank at or prior to such meeting that he dissents from the plan, shall be
entitled to receive in cash the value of the shares held by him, if and when the
conversion, merger, or consolidation is consummated, upon written request made
to the resulting State bank at any time before thirty days after the date of
consummation of such conversation, merger, or consolidation, accompanied by the
surrender of his stock certificates. The value of such shares shall be
determined as of the date on which the shareholders' meeting was held
authorizing the conversion, merger, or consolidation, by a committee of three
persons, one to be selected by majority vote of the dissenting shareholders
entitled to receive the value of their shares, one by the directors of the
resulting State bank, and the third by the two so chosen. The valuation agreed
upon by any two of three appraisers thus chosen shall govern; but, if the value
so fixed shall not be satisfactory to any dissenting shareholder who has
requested payment as provided herein, such shareholder may within five days
after being notified of the appraised value of his shares appeal to the
Comptroller of the Currency, who shall cause a reappraisal to be made, which
shall be final and binding as to the value of the shares of the appellant. If,
within ninety days from the date of consummation of the conversion, merger, or
consolidation, for any reason one or more of the appraisers is not selected as
herein provided, or the appraisers fail to determine the value of such shares,
the Comptroller shall upon written request of any interested party, cause an
appraisal to be made, which shall be final and binding on all parties. The
expenses of the Comptroller in making the reappraisal, or the appraisal as the
case may be, shall be paid by the resulting State bank. The plan of conversion,
merger, or consolidation shall provide the manner of disposing of the shares of
the resulting State bank not taken by the dissenting shareholders of the
national banking association.
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PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 20. Indemnification of Directors and Officers.
With respect to the indemnification of directors and officers, Section 5 of
Article IX of the By-Laws of UJB provides:
Section 5. Indemnification and Insurance. (a) Each person who was or is
made a party or is threatened to be made a party to or is involved in any
proceeding, by reason of the fact that he or she is or was a corporate agent of
the Corporation, whether the basis of such proceeding is alleged action in an
official capacity as a corporate agent or in any other capacity while serving as
a corporate agent, shall be indemnified and held harmless by the Corporation to
the fullest extent authorized by the laws of the State of New Jersey as the same
exists or may hereafter be amended (but, in the case of any such amendment, only
to the extent that such amendment permits the Corporation to provide broader
indemnification rights than said law permitted the Corporation to provide prior
to such amendment), against all expenses and liabilities in connection
therewith, and such indemnification shall continue as to a person who has ceased
to be a corporate agent and shall inure to the benefit of such corporate agent's
heirs, executors, administrators and other legal representatives; provided,
however, that except as provided in Section 5(c) of this By-Law, the Corporation
shall indemnify any such person seeking indemnification in connection with a
proceeding (or part thereof) initiated by such person only if such proceeding
(or part thereof) was authorized by the Board of Directors. The right to
indemnification conferred in this By-Law shall be a contract right and shall
include the right to be paid by the Corporation the expenses incurred in
defending any such proceeding in advance of its final disposition, such advances
to be paid by the Corporation within 20 days after the receipt by the
Corporation of a statement or statements from the claimant requesting such
advance or advances from time to time; provided, however, that the advancement
of counsel fees to a claimant other than a claimant who is or was a director or
Executive Vice President or higher ranking officer of the Corporation shall be
made only when the Board of Directors or the General Counsel of the Corporation
determines that arrangements for counsel are satisfactory to the Corporation;
and provided, further, that if the laws of the State of New Jersey so require,
the payment of such expenses incurred by a corporate agent in such corporate
agent's capacity as a corporate agent (and not in any other capacity in which
service was or is rendered by such person while a corporate agent, including,
without limitation, service to an employee benefit plan) in advance of the final
disposition of a proceeding shall be made only upon delivery to the Corporation
of an undertaking by or on behalf of such corporate agent to repay all amounts
so advanced if it shall ultimately be determined that such corporate agent is
not entitled to be indemnified under this By-Law or otherwise.
(b) To obtain indemnification under this By-Law, a claimant shall submit to
the Corporation a written request, including therein or therewith such
documentation and information as is reasonably available to the claimant and is
reasonably necessary to determine whether and to what extent the claimant is
entitled to indemnification. Upon written request by a claimant for
indemnification pursuant to the first sentence of this Section 5(b), a
determination, if required by applicable law, with respect to the claimant's
entitlement thereto shall be made as follows: (1) if requested by a claimant who
is or was a director or Executive Vice President or higher ranking officer of
this Corporation, by independent counsel (as hereinafter defined) in a written
opinion to the Board of Directors, a copy of which shall be delivered to the
claimant; or (2) if the claimant is not a person described in Section 5(b)(1),
or is such a person and if no request is made by such a claimant for a
determination by independent counsel, (A) by the Board of Directors by a
majority vote of a quorum consisting of disinterested directors (as hereinafter
defined), or (B) if a quorum of the Board of Directors consisting of
disinterested directors is not obtainable or, even if obtainable, such quorum of
disinterested directors so directs, by independent counsel in a written opinion
to the Board of Directors, a copy of which shall be delivered to the claimant.
In the event the determination of entitlement to indemnification is to be made
by independent counsel at the request of the claimant, the independent counsel
shall be selected by the Board of Directors and paid by the Corporation. If it
is so determined that the claimant is entitled to indemnification, payment to
the claimant shall be made within 20 days after such determination.
(c) If a claim under Section 5(a) of this By-Law is not paid in full by the
Corporation within thirty days after a written claim pursuant to Section 5(b) of
this By-Law has been received by the Corporation, the claimant may at any time
thereafter bring suit against the Corporation to recover the unpaid amount of
the claim and, if successful in whole or in part, the claimant shall be entitled
to be paid also the expense of prosecuting such claim, including attorney's
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<PAGE>
fees. It shall be a defense to any such action (other than an action brought to
enforce a claim for expenses incurred in defending any proceeding in advance of
its final disposition where the required undertaking, if any is required, has
been tendered to the Corporation) that the claimant has not met the standard of
conduct which makes it permissible under the laws of the State of New Jersey for
the Corporation to indemnify the claimant for the amount claimed, but the burden
of proving such defense shall be on the Corporation. Neither the failure of the
Corporation (including its Board of Directors or independent counsel) to have
made a determination prior to the commencement of such action that
indemnification of the claimant is proper in the circumstances because the
claimant has met the applicable standard of conduct set forth in the laws of the
State of New Jersey, nor an actual determination by the Corporation (including
its Board of Directors or independent counsel) that the claimant has not met
such applicable standard of conduct, shall be a defense to the action or create
a presumption that the claimant has not met the applicable standard of conduct.
(d) If a determination shall have been made pursuant to Section 5(b) of
this By-Law that the claimant is entitled to indemnification, the Corporation
shall be bound by such determination in any judicial proceeding commenced
pursuant to Section 5(c) of this By-Law.
(e) The right to indemnification and the payment of expenses incurred in
defending a proceeding in advance of its final disposition conferred in this
By-Law shall not be exclusive of any other rights which any person may have or
hereafter acquire under any statute, provision of the Certificate of
Incorporation, By-Laws, agreement, vote of shareholders or disinterested
directors or otherwise. No repeal or modification of this By-Law shall in any
way diminish or adversely affect the rights of any corporate agent of the
Corporation hereunder in respect of any occurrence or matter arising prior to
any such repeal or modification.
(f) The Corporation may maintain insurance, at its expense, to protect
itself and any corporate agent of the Corporation or other enterprise against
any expense or liability, whether or not the Corporation would have the power to
indemnify such person against such expense or liability under the laws of the
State of New Jersey.
(g) If any provision or provisions of this By-Law shall be held to be
invalid, illegal or unenforceable for any reason whatsoever: (1) the validity,
legality and enforceability of the remaining provisions of this By-Law
(including, without limitation, each portion of any section of this By-Law
containing any such provision held to be invalid, illegal or unenforceable)
shall not in any way be affected or impaired thereby; and (2) to the fullest
extent possible, the provisions of this By-Law (including, without limitation,
each such portion of any section of this By-Law containing any such provision
held to be invalid, illegal or unenforceable) shall be construed so as to give
effect to the intent manifested by the provision held invalid, illegal or
unenforceable.
(h) For purposes of this By-Law:
(1) "disinterested director" means a director of the Corporation who
is not and was not a party to or otherwise involved in the matter in
respect of which indemnification is sought by the claimant.
(2) "independent counsel" means a law firm, a member of a law firm, or
an independent practitioner that is experienced in matters of corporation
law and shall include any person who, under the applicable standards of
professional conduct then prevailing, would not have a conflict of interest
in representing either the Corporation or the claimant in an action to
determine the claimant's rights under this By-Law.
(3) "corporate agent" means any person who is or was a director,
officer, employee or agent of the Corporation or of any constituent
corporation absorbed by the Corporation in a consolidation or merger and
any person who is or was a director, officer, trustee, employee or agent of
any subsidiary of the Corporation or of any other enterprise, serving as
such at the request of this Corporation, or of any such constituent
corporation, or the legal representative of any such director, officer,
trustee, employee or agent;
(4) "other enterprise" means any domestic or foreign corporation,
other than the Corporation, and any partnership, joint venture, sole
proprietorship, trust or other enterprise, whether or not for profit,
served by a corporate agent;
(5) "expenses" means reasonable costs, disbursements and counsel fees;
(6) "liabilities" means amounts paid or incurred in satisfaction of
settlements, judgments, fines and penalties;
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<PAGE>
(7) "proceeding" means any pending, threatened or completed civil,
criminal, administrative, legislative, investigative or arbitrative action,
suit or proceeding, and any appeal therein and any inquiry or investigation
which could lead to such action, suit or proceeding; and
(8) References to "other enterprises" include employee benefit plans;
references to "fines" include any excise taxes assessed on a person with
respect to an employee benefit plan; and references to "serving at the
request of the indemnifying corporation" include any service as a corporate
agent which imposes duties on, or involves services by, the corporate agent
with respect to an employee benefit plan, its participants, or
beneficiaries; and a person who acted in good faith and in a manner the
person reasonably believed to be in the interest of the participants and
beneficiaries of an employee benefit plan shall be deemed to have acted in
a manner "not opposed to the best interests of the corporation."
(i) Any notice, request or other communication required or permitted to be
given to the Corporation under this By-Law shall be in writing and either
delivered in person or sent by facsimile, telex, telegram, overnight mail or
courier service, or certified or registered mail, postage prepaid, return
receipt requested, to the Secretary of the Corporation and shall be effective
only upon receipt by the Secretary.
(j) This By-Law shall be implemented and construed to provide any corporate
agent described above who is found to have acted in good faith and in a manner
such person reasonably believed to be in or not opposed to the best interests of
the Corporation the maximum indemnification, advancement of expenses, and
reimbursement for liabilities and expenses allowed by law.
Such provision is consistent with Section 14A:3-5 of the Business
Corporation Act of the State of New Jersey, the state of UJB's incorporation,
which permits the indemnification of officers and directors, under certain
circumstances and subject to specified limitations, against liability which any
officer or director may incur in such capacity.
UJB carries officers' and directors' liability insurance policies which
provide coverage against judgements, settlements and legal costs incurred
because of actual or asserted acts or omissions of such officers and directors
of UJB arising out of their duties as such, subject to certain exceptions,
including, but not limited to, damages based upon illegal personal profits or
adjudicated dishonesty of the person seeking indemnification. The policies
provide coverage of $35,000,000 in the aggregate.
Item 21. Exhibits and Financial Statement Schedules
(a) Exhibits
This Registration Statement includes the following exhibits:
Exhibit No. Description
- ----------- -----------
2 Agreement and Plan of Merger dated August 1, 1995, between UJB, and
UJBank and Flemington. (Included without exhibits as Appendix A to
the Proxy Statement--Prospectus included in this Registration
Statement; with exhibits A, B and C incorporated by reference to
Exhibit (4) to the Current Report on Form 8-K of UJB, dated August 1,
1995).
3(a) Restated Certificate of Incorporation of UJB, as restated July 1,
1988, as amended through May 19, 1994 (incorporated by reference to
Exhibit (3)A.(i) on Form 10-Q for the quarter ended September 30,
1994).
(b) By-Laws of UJB as amended through October 18, 1995 (incorporated by
reference to Exhibit (3)(b) to Registration Statement on Form S-4
No. 33-63783).
5 Opinion of Richard F. Ober, Jr., Esq. regarding legality of securities
being issued.
8(a) Opinion of Thompson & Mitchell, regarding tax matters.
23(a) Consent of KPMG Peat Marwick LLP (UJB).
(b) Consent of KPMG Peat Marwick LLP (Flemington)
(c) Consent of KPMG Peat Marwick LLP (Summit)
(d) Consent of Richard F. Ober, Jr., Esq.--included in his opinion filed as
Exhibit 5 to this Registration Statement.
(e) Consent of Thompson & Mitchell--included in its opinion filed as
Exhibit 8(a) to this Registration Statement.
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<PAGE>
Exhibit No. Description
- ----------- -----------
24(a) Power of Attorney for all individuals except Fred G. Harvey and John R.
Howell included on the signature page of the original filing.
(b) Power of Attorney for Fred G. Harvey and John R. Howell.
99(a) Form of Proxy.
(b) Opinion of Advest Inc. (Included as Appendix B to the Proxy
Statement--Prospectus included in this Registration Statement).
(c) Consent of Advest, Inc.
(d) Agreement and Plan of Merger dated September 10, 1995, between UJB
and Summit (incorporated by reference to Exhibit 10(a) to the
Schedule 13D dated September 11, 1995 filed by UJB with respect to
the Common Stock, no par value, of The Summit Bancorporation).
(e) Summit Stock Option Agreement, dated September 11, 1995 between UJB,
as grantee and Summit, as issuer (incorporated by reference to
Exhibit 10(b) to the Schedule 13D dated September 11, 1995 filed by
UJB with respect to the Common Stock, no par value, of The Summit
Bancorporation).
(f) UJB Stock Option Agreement, dated September 11, 1995, between Summit,
as grantee and UJB, as issuer (incorporated by reference to Exhibit
(4) to the Current Report on Form 8-K of UJB, dated September 10,
1995).
(b) Financial Statement Schedules.
All financial statement schedules either are not required or are included
in the notes to the financial statements incorporated by reference herein.
Item 22. Undertakings.
(a) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
(b) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising
after the effective date of the registration statement (or the most
recent post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement. Not withstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the
estimated maximum offering range may be reflected in the form of
prospectus filed with the Commission pursuant to Rule 424(b)
([sec]230.424(b) of this chapter) if, in the aggregate, the changes
in volume and price represent no more than a 20% change in the
maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement;
(iii) To include any material information with respect to the
plan of distribution not previously disclosed in the registration
statement or any material change to such information in the
registration statement;
Provided, however, that paragraphs (a)(1)(ii) of this section do not apply
if the registration statement is on Form S-3, Form S-8 or Form F-3, and the
information required to be included in a post-effective amendment by those
paragraphs is contained in periodic reports filed with or furnished to the
Commission by the registrant pursuant
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<PAGE>
to section 13 or section 15(d) of the Securities Exchange Act of 1934 that
are incorporated by reference in the registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(c) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the provisions set forth in response to Item 20
hereof, or otherwise, the registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public policy
as expressed in the Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the registrant of expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question of whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
(d) The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Items 4, 10(b), 11 or 13 of this Form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through the
date of responding to the request.
(e) The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
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<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has duly
caused this Amendment No. 1 to Registration Statement No. 33-64119 to be signed
on its behalf by the undersigned, thereunto duly authorized, in the Township of
West Windsor, and the State of New Jersey on the 7th day of December, 1995.
UJB FINANCIAL CORP.
By: *
--------------------------------------
T. Joseph Semrod,
Chairman of the Board of Directors and President
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to Registration Statement No. 33-64119 has been signed below on the 7th
day of December, 1995 by the following persons in the capacities indicated.
Signatures Titles
---------- ------
*
- -------------------------------------- Chairman of the Board of Directors and
T. Joseph Semrod President (Chief Executive Officer)
*
- -------------------------------------- Senior Executive Vice President-Finance
John R. Haggerty (Principal Financial Officer)
*
- -------------------------------------- Executive Vice President and Comptroller
William J. Healy (Principal Accounting Officer)
*
- -------------------------------------- Director
Robert L. Boyle
*
- -------------------------------------- Director
John G. Collins
*
- -------------------------------------- Director
T.J. Dermot Dunphy
*
- -------------------------------------- Director
Anne Evans Estabrook
*
- -------------------------------------- Director
Elinor J. Ferdon
*
- -------------------------------------- Director
Fred G. Harvey
*
- -------------------------------------- Director
John R. Howell
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<PAGE>
Signatures Titles
---------- ------
*
- -------------------------------------- Director
Francis J. Mertz
*
- -------------------------------------- Director
George L. Miles, Jr.
*
- -------------------------------------- Director
Henry S. Patterson II
*
- -------------------------------------- Director
Raymond Silverstein
*
- -------------------------------------- Director
Joseph M. Tabak
- -----------------
* RICHARD F. OBER, JR., by signing his name hereto, does sign this document on
behalf of each of the persons indicated above pursuant to powers of attorney
executed by such persons, filed with the Securities and Exchange Commission.
/s/ RICHARD F. OBER, JR.
- --------------------------------------
Richard F. Ober, Jr.
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<PAGE>
EXHIBIT INDEX
Exhibit No. Description
- ----------- -----------
2 Agreement and Plan of Merger dated August 1, 1995, between UJB, and
UJBank and Flemington. (Included without exhibits as Appendix A to the
Proxy Statement--Prospectus included in this Registration Statement; with
exhibits A, B and C incorporated by reference to Exhibit (4) to the
Current Report on Form 8-K of UJB, dated August 1, 1995).
3(a) Restated Certificate of Incorporation of UJB, as restated July 1, 1988,
as amended through May 19, 1994 (incorporated by reference to Exhibit
(3)A.(i) on Form 10-Q for the quarter ended September 30, 1994).
(b) By-Laws of UJB as amended through October 18, 1995 (incorporated by
reference to Exhibit (3)(b) to Registration Statement on Form S-4,
No. 33-63783).
5 Opinion of Richard F. Ober, Jr., Esq. regarding legality of securities
being issued.
8(a) Opinion of Thompson & Mitchell, regarding tax matters.
23(a) Consent of KPMG Peat Marwick LLP (UJB).
(b) Consent of KPMG Peat Marwick LLP (Flemington)
(c) Consent of KPMG Peat Marwick LLP (Summit)
(d) Consent of Richard F. Ober, Jr., Esq.--included in his opinion filed as
Exhibit 5 to this Registration Statement.
(e) Consent of Thompson & Mitchell--included in its opinion filed as Exhibit
8(a) to this Registration Statement.
24(a) Power of Attorney for all individuals except Fred G. Harvey and
John R. Howell included on the signature page of the original filing.
Statement.
(b) Power of Attorney for Fred G. Harvey and John R. Howell.
99(a) Form of Proxy.
(b) Opinion of Advest Inc. (Included as Appendix B to the Proxy
Statement--Prospectus included in this Registration Statement).
(c) Consent of Advest, Inc.
99(d) Agreement and Plan of Merger dated September 10, 1995, between UJB and
Summit (incorporated by reference to Exhibit 2 to the Current Report on
Form 8-K of UJB, dated September 10, 1995).
99(e) Summit Stock Option Agreement, dated September 11, 1995 between UJB, as
grantee and Summit, as issuer (incorporated by reference to Exhibit 10(b)
to the Schedule 13D dated September 11, 1995 filed by Registrant with
respect to the Common Stock, no par value, of The Summit Bancorporation).
99(f) UJB Stock Option Agreement, dated September 11, 1995, between Summit, as
grantee and UJB, as issuer (incorporated by reference to Exhibit (4) to
the Current Report on Form 8-K of UJB, dated September 10, 1995).
EXHIBIT 5
[LETTERHEAD OF RICHARD F. OBER, JR., EXECUTIVE VICE PRESIDENT,
GENERAL COUNSEL & SECRETARY OF ISSUER]
December 8, 1995
UJB Financial Corp.
301 Carnegie Center
P.O. Box 2066
Princeton, NJ 08543
Re: Registration Statement on Form S-4 of UJB Financial Corp.
Relating to Shares of UJB Financial Corp. Common Stock
Issuable in Connection with the Acquisition of
The Flemington National Bank and Trust Company
by UJB Financial Corp.
Gentlemen:
This opinion is given in connection with Registration Statement No.
33-64119 on Form S-4 (the "Registration Statement") filed by UJB Financial Corp.
(the "Company") with the Securities and Exchange Commission under the Securities
Act of 1933, as amended, with respect to up to 1,652,508 shares of the Company's
Common Stock, par value $1.20 per share (the "Common Shares"), to be issued to
shareholders of The Flemington National Bank and Trust Company ("FNBT") in
connection with the merger of FNBT with and into United Jersey Bank, a wholly
owned subsidiary of the Company (the "Merger"), pursuant to an Agreement and
Plan of Merger dated August 1, 1995 (the "Merger Agreement").
I have acted as counsel for the Company in connection with the filing of
the Registration Statement. In so acting, I have made such investigation,
including the examination of originals or copies, certified or otherwise
identified to my satisfaction, of such corporate documents and instruments as I
have deemed relevant and necessary as a basis for the opinion hereinafter set
forth. In connection therewith I have assumed the genuineness of all signatures
and the authenticity of all documents submitted to me as originals and the
conformity to original documents of all documents submitted to me as certified
or photostatic copies. As to questions of fact material to such opinion, I have
relied upon representations of officers or representatives of the Company.
Based on the foregoing and assuming that (i) the Merger Agreement is duly
approved by the requisite vote of the shareholders of FNBT and (ii) the Merger
Agreement and accompanying certifications required by the New Jersey Banking Act
are duly executed and filed in accordance with the New Jersey Banking Act, I am
of the opinion that the Common Shares registered under the Registration
Statement and to be issued in accordance with the Merger Agreement upon the
effectiveness of the Merger in exchange for outstanding shares of the Common
Stock, par value $2.50 per share, of FNBT will be validly issued, fully paid and
nonassessable.
I hereby consent to the use of this opinion as an exhibit to the
Registration Statement. I further consent to any and all references to me in the
Proxy Statement-Prospectus which is part of said Registration Statement.
Very truly yours,
/s/ RICHARD E. OBER, JR.
----------------------------
Richard F. Ober, Jr.
EXHIBIT 8.(a)
[Letterhead of Thompson & Mitchell]
December 7, 1995
Board of Directors
Flemington National Bank and Trust Company
56 Main Street
Flemington, New Jersey 08822
Ladies and Gentlemen:
You have requested our opinion with regard to certain federal income tax
consequences of the proposed merger (the "Merger") of Flemington National Bank
and Trust Company ("Flemington") with and into United Jersey Bank ("UJBank"), a
wholly owned subsidiary of UJB Financial Corp. ("UJB").
In connection with the preparation of our opinion, we have examined and
have relied upon the following:
(i) The Agreement and Plan of Merger by and among UJB, UJBank, and
Flemington dated as of August 1, 1995, including the schedules and exbibits
thereto (the "Agreement");
(ii) UJB's Registration Statement on Form S-4, including the Proxy
Statement-Prospectus contained therein, filed with the Securities and
Exchange Commission on November 9, 1995, as supplemented and amended to the
date hereof (the "Registration Statement");
(iii) The representations and undertaking of UJB substantially in the
form of Exhibit A hereto;
(iv) The representations and undertakings of Flemington and certain
holders of Flemington common stock, par value $2.50 per share ("Flemington
Common Stock") substantially in the forms of Exhibit B and Exhibit C
hereto; and
(v) The Shareholder Rights Plan between UJB and First Chicago Trust
Company of New York as Rights Agent, dated as of August 16, 1989.
Our opinion is based solely upon applicable law and the factual information
and undertakings contained in the above-mentioned documents. In rendering our
opinion, we have assumed the accuracy of all information and the performance of
all undertakings contained in each of such documents. We also have assumed the
authenticity of all original documents, the conformity of all copies to the
original documents, and the genuineness of all signatures. We have not attempted
to verify independently the accuracy of any information in any such document,
and we have assumed that such documents accurately and completely set forth all
material facts relevant to this opinion. All of our assumptions were made with
your consent. If any fact or assumption described herein or below is incorrect,
any or all of the federal income tax consequences described herein may be
inapplicable.
<PAGE>
Flemington National Bank and Trust Company
December 7, 1995
Page 2
OPINION
Subject to the foregoing, to the conditions and limitations expressed
elsewhere herein, and assuming that the Merger is consummated in accordance with
the Agreement, we are of the opinion that for federal income tax purposes:
1. The Merger will constitute a reorganization within the meaning of
sections 368(a)(1)(A) and 368(a)(2)(D) of the Internal Revenue Code of
1986, as amended to the date hereof (the "Code").
2. Each shareholder of Flemington who exchanges, in the Merger, shares
of Flemington Common Stock solely for shares of UJB common stock, par value
$1.20 per share ("UJB Common Stock"):
a) will recognize no gain or loss as a result of the exchange,
except with regard to cash received in lieu of a fractional share, as
discussed below (Code section 354(a)(1));
b) will have an aggregate basis for the shares of UJB Common
Stock received (including any fractional share of UJB Common Stock
deemed to be received, as described in paragraph 3, below) equal to
the aggregate adjusted tax basis of the shares of Flemington Common
Stock surrendered (Code section 358(a)(1)); and
c) will have a holding period for the shares of UJB Common Stock
received (including any fractional share of UJB Common Stock deemed to
be received, as described in paragraph 3, below) which includes the
period during which the shares of Flemington Common Stock surrendered
were held, provided that the shares of Flemington Common Stock
surrendered were capital assets in the hands of such holder at the
time of the Merger (Code section 1223(1)).
3. Each shareholder of Flemington who receives, in the Merger, cash in
lieu of a fractional share of UJB Common Stock will be treated as if the
fractional share had been received in the Merger and then redeemed by UJB.
Provided that the shares of Flemington Common Stock surrendered were
capital assets in the hands of such holder at the time of the Merger, the
receipt of such cash will cause the recipient to recognize capital gain or
loss, equal to the difference between the amount of cash received and the
portion of such holder's basis in the shares of UJB Common Stock allocable
to the fractional share (Code sections 1001 and 1222; Rev. Rul. 66-365,
1966-2 C.B. 116; Rev. Proc. 77-41, 1977-2 C.B. 574).
4. Each shareholder of Flemington who receives solely cash as a result
of the exercise of dissenters' rights will recognize gain or loss
(determined separately as to each block of Flemington Common Stock
exchanged) in an amount equal to the difference between (i) the amount of
cash received by such shareholder and (ii) such shareholder's aggregate
adjusted tax basis for the shares of Flemington Common Stock surrendered,
provided that the cash payment does not have the effect of the distribution
of a dividend (Code sections 1001 and 302(a)). Such gain or loss will be
capital gain or loss if the shares of Flemington Common Stock surrendered
were capital assets in the hands of the holder, and long-term or short-term
depending on the holder's holding period for each block of Flemington
Common Stock surrendered (Code section 1222). However, if the cash payment
does have the effect of the distribution of a dividend, such shareholder
will recognize income in the
<PAGE>
Flemington National Bank and Trust Company
December 7, 1995
Page 3
amount of the cash received (without regard to such shareholder's basis in
the Flemington Common Stock surrendered), which generally will be taxable
as a dividend (Code sections 302(d) and 301).
The determination of whether a cash payment has the effect of the
distribution of a dividend will be made pursuant to the provisions and
limitations of section 302 of the Code, taking into account the stock ownership
attribution rules of section 318 of the Code. Because such determination
generally will depend on the facts and circumstances of each Flemington
shareholder, we express no opinion as to whether the cash payments discussed in
this paragraph 4 will be treated as having the effect of the distribution of a
dividend.
A cash payment will be considered not to have the effect of the
distribution of a dividend under section 302 of the Code only if the cash
payment (i) results in a "complete redemption" of such shareholder's actual and
constructive stock interest, (ii) qualifies as a "substantially
disproportionate" reduction in such shareholder's actual and constructive stock
interest, or (iii) is not "essentially equivalent to a dividend" (Code section
302(b)(1), (2), (3)).
A cash payment will result in a "complete redemption" of a shareholder's
stock interest if such shareholder does not actually or constructively own any
stock after the Merger. A reduction in a shareholder's stock interest will be
"substantially disproportionate" if (i) the percentage of outstanding shares
actually and constructively owned by such shareholder after the receipt of the
cash payment is less than four-fifths (i.e., 80%) of the percentage of
outstanding shares actually and constructively owned by such shareholder
immediately prior to the receipt of the cash payment, and (ii) such shareholder
actually and constructively owns less than 50 percent of the number of shares
outstanding after the receipt of the cash payment (Code section 302(b)(3)). The
cash payment will not be "essentially equivalent to a dividend" if there has
been a "meaningful reduction" (as the quoted term has been interpreted by
judicial authorities and by rulings of the Internal Revenue Service (the
"Service")) of the shareholder's actual and constructive ownership interest
(Code section 302(b)(1); United States v. Davis, 397 U.S. 301 (1970); see, e.g.,
Rev. Rul. 76-385, 1976-2 C.B. 92; Rev. Rul. 76-364, 1976-2 C.B. 91).
Under the traditional analysis (which apparently continues to be used by
the Service), section 302 of the Code will apply as though the distribution of
cash were made by Flemington in a hypothetical redemption of Flemington Common
Stock immediately prior to, and in a transaction separate from, the Merger (a
"deemed pre-Merger redemption"). Thus, under the traditional analysis, the
determination of whether a cash payment results in a complete redemption of
interest, qualifies as a substantially disproportionate reduction of interest,
or is not essentially equivalent to a dividend will be made by comparing (i) the
shareholder's actual and constructive stock interest in Flemington before the
deemed pre-Merger redemption, with (ii) such shareholder's actual and
constructive stock interest in Flemington after the deemed pre-Merger redemption
(but before the Merger). Nevertheless, in view of Commissioner v. Clark, 489
U.S. 726 (1989), many tax practitioners believe that the continuing validity of
the traditional analysis is open to question and that, in a transaction such as
the Merger, the receipt of solely cash in exchange for stock actually owned
should be treated in accordance with the principles of Commissioner v. Clark,
supra, as if the Flemington Common Stock exchanged for cash in the Merger had
instead been exchanged in the Merger for shares of UJB Common Stock followed
immediately by a redemption of such shares by UJB for the cash payment (a
"deemed post-Merger redemption"). Under this analysis, the determination of
whether a cash payment satisfies any of the foregoing tests would be made by
comparing (i) the shareholder's actual and constructive stock interest in UJB
before the deemed post-Merger redemption (determined as if such shareholder had
received solely UJB Common Stock in the
<PAGE>
Flemington National Bank and Trust Company
December 7, 1995
Page 4
Merger), with (ii) such shareholder's actual and constructive stock interest in
UJB after the deemed post-Merger redemption. Because this analysis may be more
likely to result in capital gain treatment than the traditional analysis, each
Flemington shareholder who receives solely cash in exchange for all of the
Flemington Common Stock he or she actually owns should consult his or her own
tax advisor with regard to the proper treatment of such cash.
The determination of ownership for purposes of the foregoing tests will be
made by taking into account both shares actually owned by such shareholder and
shares constructively owned by such shareholder pursuant to section 318 of the
Code (Code section 302(c)). Under section 318 of the Code, a shareholder will be
deemed to own stock that is owned or deemed to be owned by certain members of
his or her family (spouse, children, grandchildren, and parents) and other
related parties including, for example, certain entities in which such
shareholder has a direct or indirect interest (including partnerships, estates,
trusts and corporations), as well as shares of stock that such shareholder (or a
related person) has the right to acquire upon exercise of an option or
conversion right. Section 302(c)(2) of the Code provides certain exceptions to
the family attribution rules for the purpose of determining whether a complete
redemption of a shareholder's interest has occurred for purposes of Code section
302.
*************************
We express no opinion with regard to (1) the federal income tax
consequences of the Merger not addressed expressly by this opinion, including
without limitation, (i) the tax consequences, if any, to those shareholders of
Flemington who acquired shares of Flemington Common Stock pursuant to the
exercise of employee stock options or otherwise as compensation, and (ii) the
tax consequences to special classes of shareholders, if any, including without
limitation, foreign persons, insurance companies, tax-exempt entities,
retirement plans, and dealers in securities; and (2) federal, state, local, or
foreign taxes (or any other federal, state, local, or foreign laws) not
specifically referred to and discussed herein. Further, our opinion is based
upon the Code, Treasury Regulations proposed or promulgated thereunder, and
administrative interpretations and judicial precedents relating thereto, all of
which are subject to change at any time, possibly with retroactive effect, and
we assume no obligation to advise you of any subsequent change thereto. If there
is any change in the applicable law or regulations, or if there is any new
administrative or judicial interpretation of the applicable law or regulations,
any or all of the federal income tax consequences described herein may become
inapplicable.
The foregoing opinion reflects our legal judgment solely on the issues
presented and discussed herein. This opinion has no official status or binding
effect of any kind. Accordingly, we cannot assure you that the Service or any
court of competent jurisdiction will agree with this opinion.
We hereby consent to the filing of this letter as an exhibit to the
Registration Statement and to all references made to this letter and to this
firm in the Registration Statement.
Very truly yours,
THOMPSON S. MITCHELL
EXHIBIT 23(a)
AUDITORS' CONSENT
Board of Directors
UJB Financial Corp.:
We consent to the use of our report dated January 18, 1995, relating to the
consolidated balance sheets of UJB Financial Corp. and subsidiaries as of
December 31, 1994 and 1993 and the related consolidated statements of income,
shareholders' equity and cash flows for each of the years in the three year
period ended December 31, 1994, incorporated herein by reference, and to the
reference to our Firm under the heading "Experts" in the registration statement.
The report of KPMG Peat Marwick LLP refers to changes in the method of
accounting for certain investments and postemployment benefits in 1994 and a
change in the method of accounting for income taxes in 1993.
KPMG PEAT MARWICK LLP
Short Hills, New Jersey
December 7, 1995
EXHIBIT 23(b)
AUDITORS' CONSENT
The Board of Directors
The Flemington National Bank & Trust Company:
We consent to the use of our report dated January 31, 1995, relating to the
consolidated statements of condition of The Flemington National Bank & Trust
Company and subsidiary as of December 31, 1994 and 1993 and the related
consolidated statements of operations, stockholders' equity, and cash flows for
each of the years in the three-year period ended December 31, 1994, included in
this Proxy Statement/Prospectus and in the registration statement, and to the
reference to our Firm under the heading "Experts" in the registration statement.
Our report refers to a change in the method of accounting for certain
investments in debt and equity securities in 1994 and the method of accounting
for income taxes in 1992.
KPMG PEAT MARWICK LLP
Short Hills, New Jersey
December 7, 1995
EXHIBIT 23(c)
AUDITORS' CONSENT
The Board of Directors
The Summit Bancorporation:
We consent to the incorporation by reference in the registration statement
on Form S-4 of UJB Financial Corp. of our report dated January 17, 1995,
relating to the consolidated balance sheets of The Summit Bancorporation and
subsidiaries as of December 31, 1994 and 1993 and the related consolidated
statements of income, stockholders' equity, and cash flows for each of the years
in the three-year period ended December 31, 1994, which report appears in the
Form 10-K dated December 31, 1994 of The Summit Bancorporation, incorporated
herein by reference, and to the reference to our Firm under the heading
"Experts" in the registration statement.
KPMG PEAT MARWICK LLP
Short Hills, New Jersey
December 7, 1995
EXHIBIT 24(b)
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints T. Joseph Semrod, John R. Haggerty, William J.
Healy and Richard F. Ober, Jr., and each of them, the undersigned's true and
lawful attorney-in-fact and agents, with full power of substitution and
resubstitution, for the undersigned and in the undersigned's name, place and
stead, in any and all capacities, to sign any and all amendments (including
post-effective amendments) to this Registration Statement, and to file the same
with all exhibits thereto and other documents in connection therewith, with the
Commission, granting unto said attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing
requisite and necessary to be done in ratifying and confirming all that said
attorneys-in-fact and agents, or any of them, or their substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below on the 6th day of November, 1995 by
the following persons in the capacities indicated:
/s/ FRED G. HARVEY
-------------------------------
Fred G. Harvey
Director
/s/ JOHN R. HOWELL
-------------------------------
John R. Howell
Director
EXHIBIT 99(a)
Form of Flemington Proxy Card
[Front Side]
THE FLEMINGTON NATIONAL BANK AND TRUST COMPANY
PROXY
SPECIAL MEETING OF SHAREHOLDERS TO BE HELD JANUARY 26, 1996
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby constitutes and appoints Patricia A. McKiernan and
C. Edward Herder, and each of them, proxies of the undersigned, with full power
of substitution, to vote all of the shares of The Flemington National Bank and
Trust Company (the "Flemington") that the undersigned may be entitled to vote at
the Special Meeting of Shareholders of the Flemington to be held at 56 Main
Street, Flemington, New Jersey 08822, on Friday, January 26, 1996 at 9:30 a.m.,
prevailing time, and at any adjournment or postponement thereof, upon the matter
set forth on the reverse side and described in the accompanying Proxy
Statement-Prospectus and, in their discretion, upon such other business as may
properly come before the meeting or any adjournment thereof. The said proxies
and their substitutes shall vote or abstain as directed on the reverse hereof,
or, in the absence of such direction, FOR the proposal set forth on the reverse
hereof.
(Continued, and to be signed, on other side)
- -------------------------------------------------------------------------------
[Reverse Side]
Proposal to approve the Agreement and Plan of Merger, dated as of August 1,
1995, among UJB Financial Corp., United Jersey Bank and The Flemington National
Bank and Trust Company ("Flemington") and the transactions contemplated thereby,
which Agreement provides for the Merger of Flemington with and into United
Jersey Bank.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
The undersigned acknowledges receipt of the Proxy Statement-Prospectus of
The Flemington National Bank and Trust Company and UJB Financial Corp. dated
December __, 1995.
Dated_______________________, 199_
----------------------------------
----------------------------------
Signature if held jointly
Note: Please sign above exactly as
your name appears hereon. Joint
owners should each sign. When
signing as attorney, executor,
administrator, trustee or guardian,
please give full title as such.
THIS PROXY MUST BE DATED, SIGNED BY THE SHAREHOLDER AND RETURNED PROMPTLY
IN THE ENCLOSED ENVELOPE.
EXHIBIT 99.(c)
CONSENT OF ADVEST, INC.
Advest, Inc. ("Advest"), an investment banking firm experienced in the
valuation of financial institutions, hereby consents to the inclusion of its
fairness opinion to the Board of Directors of The Flemington National Bank
and Trust Company ("Flemington") included as Appendix B to the Proxy
Statement-Prospectus which forms a part of the Registration Statement on Form
S-4 of UJB Financial Corp. relating to the proposed merger of Flemington with
and into United Jersey Bank and the references of such opinion in the Proxy
Statement-Prospectus under the caption "Opinion of Flemington's Financial
Advisor".
By giving such consent, Advest does not thereby admit that it comes within
the category of persons whose consent is required under Section 7 of the
Securities Act of 1933, as amended, or the rules and regulations promulgated
thereunder.
Advest, Inc.
By: /s/ EDWARD T. LUTZ
---------------------
Edward T. Lutz
Managing Director and Group Head
New York, New York
December 7, 1995
