As filed with the Securities and Exchange Commission on December 17, 1998
Registration No. 333-
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- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------
SUMMIT BANCORP.
(Exact name of registrant as specified in its charter)
---------------
<TABLE>
<S> <C> <C>
6711 22-1903313
NEW JERSEY
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification Number)
</TABLE>
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)
---------------
RICHARD F. OBER, JR., ESQ.
EXECUTIVE VICE PRESIDENT, GENERAL COUNSEL AND SECRETARY
301 CARNEGIE CENTER, P.O. BOX 2066
PRINCETON, NEW JERSEY 08543-2066
(609) 987-3430
(Name, address, including ZIP code, and telephone number, including area code,
of agent for service)
---------------
COPY TO:
PAUL B. EDELBERG, ESQ.
RUCCI, BURNHAM, CARTA & EDELBERG, LLP
800 POST ROAD
P.O. BOX 1107
DARIEN, CT 06820
(203) 655-7695
---------------
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 merger of New Canaan Bank and Trust Company into 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 -.
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF SECURITIES BEING AMOUNT TO BE OFFERING PRICE PER AGGREGATE OFFERING AMOUNT OF
REGISTERED REGISTERED UNIT PRICE REGISTRATION FEE
- ----------------------------------------------- --------------- -------------------- -------------------- -----------------
<S> <C> <C> <C> <C>
Common Stock, par value $.80 (and 1,422,161 (2) $ 122.00 (3) $45,825,274 (4) $12,740
associated stock purchase rights) (1) .........
</TABLE>
(1) Prior to the occurrence of certain events, the stock purchase rights will
not be evidenced separately from the common stock.
(2) Based upon the number of shares of New Canaan Bank and Trust Company common
stock outstanding on August 24, 1998, plus the shares subject to
outstanding stock options, for an aggregate of 375,617 shares, multiplied
by 3.7862, the highest exchange ratio provided for in the Agreement and
Plan of Merger dated August 24, 1998.
(3) Based upon the average of the bid and asked prices of New Canaan Bank and
Trust Company common stock on December 15, 1998, pursuant to Rule 457.
(4) Based upon the price of New Canaan Bank and Trust Company common stock
referred to in footnote (3) hereof multiplied by the number of shares of
New Canaan Bank and Trust Company common stock referred to in footnote (2)
hereof.
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>
December , 1998
Dear Fellow Shareholder:
We are pleased to invite you to a Special Meeting of Shareholders of New
Canaan Bank and Trust Company ("New Canaan") to be held at the New Canaan
Library, 151 Main Street, New Canaan, Connecticut, at 10:00 a.m. local time on
, January , 1999.
At the Special Meeting you will be asked to approve an Agreement and Plan
of Merger dated August 24, 1998 (the "Merger Agreement") between New Canaan and
Summit Bancorp., a New Jersey-based bank holding company ("Summit"). The Merger
Agreement provides for the acquisition of New Canaan by Summit (the "Merger")
and the conversion of New Canaan's common stock into the right to receive whole
shares of Summit common stock based upon an exchange ratio to be determined
subsequent to the Special Meeting. The exchange ratio will not be lower than
2.9448 nor higher than 3.7862 shares of Summit common stock for each share of
New Canaan's common stock (and cash, without interest, instead of fractional
shares). You are also being asked to vote on a proposal to adjourn the Special
Meeting if required to solicit additional votes.
You will have the opportunity to be a shareholder of Summit if New Canaan
shareholders approve the Merger. We believe that completion of the Merger will
enable us to offer our customers additional products and services. We likewise
believe that, after the Merger, Summit will be well positioned to achieve New
Canaan's goals for community service, continued revenue growth and improved
profitability, customer service and shareholder return.
Completion of the Merger is subject to certain conditions, including the
approval of the Merger by the necessary vote of New Canaan's shareholders and
by various bank regulatory authorities.
YOUR BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED THE MERGER AGREEMENT AND
UNANIMOUSLY RECOMMENDS THAT YOU VOTE FOR APPROVAL OF THE MERGER AGREEMENT AND
CONSUMMATION OF THE TRANSACTIONS CONTEMPLATED THEREBY AND FOR APPROVAL OF THE
PROPOSAL REGARDING ADJOURNMENT.
The enclosed Proxy Statement-Prospectus explains in detail the terms of
the proposed Merger and related matters. Please carefully review and consider
all of this information.
It is very important that your shares are represented at the Special
Meeting, whether or not you plan to attend in person. The affirmative vote of
the holders of two-thirds of the outstanding shares of New Canaan's common
stock entitled to vote is required for approval of the Merger. Your failure to
vote for approval of the Merger, either by not returning the enclosed proxy
card or by checking the "Abstain" box thereon, will have the same effect as a
vote against the Merger. The approval of any proposed adjournment requires the
affirmative vote of a majority of the votes cast by holders of New Canaan's
common stock. IN ORDER TO ENSURE THAT YOUR VOTE IS REPRESENTED AT THE SPECIAL
MEETING, PLEASE SIGN, DATE AND MAIL THE PROXY CARD IN THE ENCLOSED ENVELOPE.
You are, of course, welcome to attend the meeting and to vote your shares in
person.
<TABLE>
<S> <C>
- ---------------------------------- ----------------------------------
T. Brock Saxe Frederick R. Afragola
Chairman President and Chief Executive Officer
</TABLE>
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THIS PROGRAM IS NOT SPONSORED BY THE NEW CANAAN LIBRARY.
<PAGE>
NEW CANAAN BANK AND TRUST COMPANY, INC.
208 ELM STREET
NEW CANAAN, CONNECTICUT 06840
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD JANUARY , 1999
TO OUR SHAREHOLDERS:
NOTICE IS HEREBY GIVEN that a Special Meeting of Shareholders (the
"Special Meeting") of New Canaan Bank and Trust Company ("New Canaan") will be
held at 10:00a.m. local time on January , 1999 at the New Canaan Library, 151
Main Street, New Canaan, Connecticut, for the following purposes:
1. To consider and vote upon a proposal to approve and adopt the
Agreement and Plan of Merger dated August 24, 1998 (the "Merger
Agreement") between New Canaan and Summit Bancorp. ("Summit") and the
transactions contemplated thereby, including the acquisition of New
Canaan by Summit through the merger of New Canaan into a wholly owned
subsidiary of Summit (the "Merger"), and the conversion of shares of
New Canaan Common Stock into the right to receive whole shares of
Summit Common Stock and cash in lieu of fractional shares based upon
an exchange ratio to be determined subsequent to the date of the
Special Meeting, as more fully described in the accompanying Proxy
Statement-Prospectus.
2. To consider and vote upon a proposal to approve in advance an
adjournment of the Special Meeting in the event there are not
sufficient votes to constitute a quorum or approve the Merger
Agreement at the scheduled time of the Special Meeting, in order to
permit further solicitation of proxies.
3. To transact such other business as may properly come before the
Special Meeting.
THE NEW CANAAN BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED THE MERGER
AGREEMENT AND UNANIMOUSLY RECOMMENDS THAT YOU VOTE "FOR" APPROVAL OF THE MERGER
AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY AND "FOR" APPROVAL OF THE
PROPOSAL REGARDING ADJOURNMENT.
Shareholders of record as of the close of business on , 1998 are
entitled to notice of and to vote at the Special Meeting. All shareholders are
cordially invited to attend the meeting. Holders of New Canaan Common Stock
have dissenters rights in connection with the Merger. See "Dissenters Rights"
in, and Appendix C to, the accompanying Proxy Statement-Prospectus for a
description of the manner in which such rights may be exercised.
By order of the Board of Directors
Frederick R. Afragola
President and Chief Executive Officer
New Canaan, Connecticut
, 1998
WHETHER OR NOT YOU EXPECT TO ATTEND THE SPECIAL MEETING, PLEASE COMPLETE,
DATE AND SIGN THE ENCLOSED PROXY CARD AND PROMPTLY MAIL THE PROXY CARD IN THE
ENCLOSED ENVELOPE IN ORDER TO ASSURE REPRESENTATION OF YOUR SHARES AT THE
SPECIAL MEETING. NO POSTAGE NEED BE AFFIXED IF THE PROXY CARD IS MAILED WITHIN
THE UNITED STATES.
<PAGE>
SUBJECT TO COMPLETION
<TABLE>
<S> <C>
[NEW CANAAN LOGO TO COME] [SUMMIT LOGO TO COME]
PROXY STATEMENT PROSPECTUS
NEW CANAAN BANK AND TRUST COMPANY SUMMIT BANCORP.
208 ELM STREET 301 CARNEGIE CENTER
NEW CANAAN, CONNECTICUT 06840 PRINCETON, NEW JERSEY 08543-2066
(203) 966-7100 (609) 987-3200
</TABLE>
The Boards of Directors of Summit Bancorp. and New Canaan Bank and Trust
Company have agreed upon a merger of New Canaan with and into NSS Bank, a
wholly-owned subsidiary of Summit. In the merger, each share of New Canaan
common stock that you hold will be converted into the right to receive whole
shares of Summit common stock and cash instead of fractional shares of Summit
common stock resulting from the conversion, based on an exchange ratio to be
determined after the special meeting of New Canaan shareholders. The exchange
ratio will not be lower than 2.9448 and will not be higher than 3.7862.
We cannot complete the merger unless we obtain the necessary governmental
approvals and unless the shareholders of New Canaan approve it. A Special
Meeting of Shareholders of New Canaan will be held on January , 1999 at the
New Canaan Library, 151 Main Street, New Canaan, Connecticut at 10:00 a.m.,
local time, to vote on this merger.
This Proxy Statement-Prospectus gives you detailed information about the
merger we are proposing and it includes our merger agreement as an appendix.
You can also obtain information about Summit from publicly available documents
Summit has filed with the Securities and Exchange Commission and information
about New Canaan from publicly available documents New Canaan has filed with
Federal Deposit Insurance Corporation. We encourage you to read this document
carefully. Summit has supplied all information contained in this Proxy
Statement-Prospectus about Summit and New Canaan has supplied all information
about New Canaan.
----------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
REGULATORS HAVE APPROVED OR DISAPPROVED THE SUMMIT COMMON STOCK TO BE ISSUED
UNDER THIS PROXY STATEMENT-PROSPECTUS NOR HAVE THEY DETERMINED IF THIS PROXY
STATEMENT-PROSPECTUS IS ACCURATE OR ADEQUATE. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
----------------
THE SECURITIES OF SUMMIT BEING OFFERED THROUGH THIS DOCUMENT ARE NOT SAVINGS
ACCOUNTS, DEPOSITS OR OTHER OBLIGATIONS OF ANY BANK OR SAVINGS ASSOCIATION AND
ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER
GOVERNMENTAL AGENCY.
This Proxy Statement-Prospectus is dated , 1998 and was first mailed to
New Canaan shareholders on or about , 1998.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
INDEX OF DEFINED TERMS ................................................. iii
SUMMARY ................................................................ 1
The Companies ....................................................... 1
New Canaan Special Meeting .......................................... 1
Stock Held by New Canaan Affiliates ................................. 2
The Merger .......................................................... 2
Recent Developments ................................................. 5
Market Prices and Dividends ......................................... 5
Summary of Comparative and Pro Forma Per Share Financial Information 7
INTRODUCTION ........................................................... 9
SPECIAL MEETING ........................................................ 9
Record Date; Vote Required; Revocability of Proxies ................. 9
SELECTED FINANCIAL DATA ................................................ 11
MARKET PRICE AND DIVIDEND MATTERS ...................................... 13
Market Price and Dividend History ................................... 13
Coordination and Determination of Dividends Under Merger Agreement .. 14
Dividend Limitations ................................................ 14
PROPOSAL I - APPROVAL OF THE MERGER AGREEMENT .......................... 14
THE MERGER .......................................................... 14
General ............................................................. 14
Closing and Effective Time .......................................... 14
Conversion of New Canaan Common ..................................... 15
Exchange Ratio ...................................................... 15
Exchange of New Canaan Certificates ................................. 16
Conversion of New Canaan Stock Options .............................. 17
Recommendation of New Canaan Board .................................. 17
Background .......................................................... 17
Reasons for the Merger .............................................. 19
Opinion of New Canaan's Financial Advisor ........................... 19
Regulatory Approvals ................................................ 24
Interests of Certain Persons in the Merger .......................... 25
Board of Directors and Officers of Surviving Bank ................... 26
The Merger Agreement ................................................ 28
Dissenters Rights ................................................... 31
New York Stock Exchange Listing ..................................... 33
Accounting Treatment ................................................ 33
Certain Federal Income Tax Consequences of the Merger ............... 33
Resale of Summit Common ............................................. 34
Differences in Shareholder Rights ................................... 35
SUMMIT BANCORP. ........................................................ 44
Description of Business ............................................. 44
Recent Developments ................................................. 45
DESCRIPTION OF SUMMIT CAPITAL STOCK .................................... 45
Common Stock ........................................................ 46
Shareholder Rights Plan ............................................. 46
</TABLE>
(i)
<PAGE>
<TABLE>
<CAPTION>
PAGE
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<S> <C>
NEW CANAAN BANK AND TRUST COMPANY
Description of Business ................................................ 47
Description of New Canaan Capital Stock ............................. 47
Security Ownership of Certain Beneficial Owners and Management ......... 48
NEW CANAAN MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS ............................................. 49
PROPOSAL II - ADJOURNMENT OF SPECIAL MEETING ........................... 61
SHAREHOLDER PROPOSALS .................................................. 61
LEGAL MATTERS .......................................................... 61
EXPERTS ................................................................ 62
WHERE YOU CAN FIND MORE INFORMATION .................................... 62
INDEX TO FINANCIAL STATEMENTS OF NEW CANAAN ............................ 65
FINANCIAL STATEMENTS OF NEW CANAAN ..................................... F-1
</TABLE>
MERGER AGREEMENT (w/o exhibits).................................... Appendix A
OPINION OF BROWN BROTHERS HARRIMAN & CO............................ Appendix B
SECTIONS 33-555 TO 33-872, INCLUSIVE, OF THE CONNECTICUT
GENERAL STATUTES ................................................. Appendix C
(ii)
<PAGE>
INDEX OF DEFINED TERMS
(INDEX OF CAPITALIZED TERMS DEFINED IN THIS PROXY STATEMENT-PROSPECTUS)
<TABLE>
<CAPTION>
PAGE IN
DEFINED TERM PROSPECTUS
- --------------------------------------------- -----------
<S> <C>
Acquiring Person ............................
Acquisition Proposal ........................
Acquisition Transaction .....................
Adjournment Proposal ........................
Special Meeting .............................
BHC Act .....................................
CBCA ........................................
Cash in Lieu Amount .........................
Certificate of Merger .......................
Closing .....................................
Closing Date ................................
Closing Notice ..............................
Code ........................................
Commission ..................................
Connecticut Commissioner of Banking .........
Counsel .....................................
Distribution Date ...........................
Effective Time ..............................
Exchange Act ................................
Exchange Agent ..............................
Exchange Ratio ..............................
Extension Event .............................
Federal Reserve Board .......................
</TABLE>
<TABLE>
<CAPTION>
PAGE IN
DEFINED TERM PROSPECTUS
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<S> <C>
New Canaan ..................................
New Canaan Board ............................
New Canaan Certificate ......................
New Canaan Option ...........................
New Option ..................................
NYSE ........................................
Original Option .............................
Purchase Event ..............................
Record Date .................................
Registration Rights .........................
Registration Statement ......................
Merger ......................................
Merger Agreement ............................
Merger Consideration ........................
Required Approvals ..........................
Rights ......................................
Rights Plan .................................
Securities Act ..............................
Service .....................................
Substitute Option ...........................
Summit ......................................
Summit Common .............................
Summit Certificate ..........................
Summit Preferred ............................
Summit Series R Preferred ...................
Surviving Corporation .......................
</TABLE>
(iii)
<PAGE>
SUMMARY
THIS SUMMARY HIGHLIGHTS SELECTED INFORMATION FROM THIS DOCUMENT AND MAY
NOT CONTAIN ALL OF THE INFORMATION THAT IS IMPORTANT TO YOU. TO UNDERSTAND THE
MERGER FULLY AND FOR A MORE COMPLETE DESCRIPTION OF THE LEGAL TERMS OF THE
MERGER, YOU SHOULD READ CAREFULLY THIS ENTIRE DOCUMENT AND THE DOCUMENTS WE
HAVE REFERRED YOU TO. SEE "WHERE YOU CAN FIND MORE INFORMATION." (P. )
THE COMPANIES
SUMMIT BANCORP. (SEE PAGE )
Summit Bancorp. is a New Jersey corporation and registered bank holding
company with principal executive offices located at 301 Carnegie Center,
Princeton, New Jersey. Through its wholly owned subsidiary banks, Summit Bank
(Hackensack, NJ) and Summit Bank (Bethlehem, PA), Summit Bancorp operated 450
banking offices (including 53 supermarket branches) located in New Jersey and
eastern Pennsylvania as of September 30, 1998. Its telephone number is (609)
987-3200. The subsidiary banks of Summit Bancorp. are engaged in a general
banking business. They offer demand and interest bearing deposit accounts, make
business, real estate, personal and installment loans, and provide lease
financing, fiduciary, investment management, investment advisory, custodial,
correspondent and treasury services and insurance and nondeposit investment
products and services. In addition, Summit Bancorp. owns subsidiaries that are
engaged in securities brokerage, insurance brokerage, venture capital
investment, commercial finance lending, lease financing, asset based lending
production, letter of credit issuance, data processing and reinsuring credit
life and disability insurance policies related to consumer loans made by the
bank subsidiaries. In November 1998, Summit acquired NSS Bank, a Connecticut
savings bank, as a result of the merger of NSS Bancorp Inc. into Summit.
NEW CANAAN BANK AND TRUST COMPANY (SEE PAGE )
New Canaan Bank and Trust Company is a Connecticut chartered bank and
trust company with principal executive offices at 208 Elm Street, New Canaan,
Connecticut. As of September 30, 1998, New Canaan operated 4 banking offices in
Fairfield County, Connecticut. In December 1998 New Canaan submitted an
application to open an additional branch in Stamford, Connecticut which
application is currently pending with the Connecticut Banking Commissioner and
Federal Deposit Insurance Corporation. Its telephone number is (203) 966-7100.
New Canaan is principally engaged in the customary deposit and lending
functions of a commercial bank in Connecticut, using deposits from the general
public to extend loans for residential, commercial and industrial purposes.
NEW CANAAN SPECIAL MEETING
TIME, DATE, PLACE AND PURPOSE (SEE PAGE )
A special meeting of shareholders of New Canaan will be held on January
, 1999 at 10:00 a.m. (local time), in the New Canaan Library, 151 Main
Street, New Canaan, Connecticut, to vote upon (1) the merger agreement and the
transactions contemplated thereby, and (2) adjournment of the special meeting,
if necessary to obtain a quorum or to obtain additional votes in favor of the
merger. A copy of the merger agreement is attached as Appendix A.
RECORD DATE, VOTE REQUIRED (SEE PAGE )
You are entitled to vote at the New Canaan special meeting if you owned
shares of New Canaan common stock at the close of business on __, 1998. A
majority of the _________ shares of New Canaan common stock outstanding on
__________ , 1998 must be present, in person or by proxy, to constitute a
quorum at the special meeting. The merger agreement will be approved if the
holders of at least two-thirds of the shares of New
1
<PAGE>
Canaan common stock vote in favor of the merger agreement. If a quorum is not
present or there are insufficient votes to approve the merger agreement, 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 the New Canaan Board of Directors.
STOCK HELD BY NEW CANAAN AFFILIATES
The directors and executive officers of New Canaan and their affiliates
beneficially owned, as of December __, 1998 164,672 shares of New Canaan common
stock, representing 44.8% of the outstanding shares of New Canaan common stock
(assuming the exercise of all options to purchase New Canaan common stock held
by such persons and outstanding on such date and exercisable through February
28, 1999). Each of the directors and executive officers of New Canaan has
entered into an agreement with Summit to vote all of their shares of New Canaan
common stock in favor of the proposal to approve the merger agreement.
Summit beneficially owns 2,000 shares of New Canaan common stock, which
represents less than 1% of the outstanding shares of New Canaan common stock,
and intends to vote these shares in favor of the proposal to approve the Merger
Agreement and the proposal to adjourn the special meeting (if necessary).
THE MERGER
EFFECTIVE TIME (SEE PAGE )
If the merger is approved by the New Canaan shareholders and all the
conditions to closing are satisfied, we will file certificates of merger with
the State of New Jersey and the State of Connecticut which will specify the
date and time at which the merger will become effective. If the merger is
approved by New Canaan shareholders and the conditions set forth in the merger
agreement are satisfied or waived, we currently expect that the merger will
become effective during the first calendar quarter of 1999.
EXCHANGE RATIO (SEE PAGE )
The number of shares of Summit common stock that you will receive in
exchange for your New Canaan common stock has not been fixed and under the
merger agreement cannot be fixed until after the New Canaan shareholders have
approved the merger agreement.
The exchange ratio will be determined by the "Summit Price". The "Summit
Price" is defined in the merger agreement as the average of the closing prices
of a share of Summit common stock on the New York Stock Exchange Composite
Transactions List for the ten consecutive full trading days ending on the
"Determination Date". The merger agreement provides for an automatic
Determination Date seven business days prior to a closing date that will be set
for 45 business days after all required shareholder and government approvals
are received, but also permits Summit to select a different closing date and to
designate a "Determination Date" in the notice of the closing date sent to New
Canaan by Summit. The number of shares of Summit common stock that you receive
in exchange for your New Canaan common stock will be based upon the following
formula:
<TABLE>
<CAPTION>
"SUMMIT PRICE" AS OF
THE "DETERMINATION DATE" EXCHANGE RATIO
- ---------------------------------------------------------------------- ---------------------------------------
<S> <C>
Greater than $45.84375 ............................................... 2.9448
Equal to or less than $45.84375 and equal to or greater than $35.65625 $135.00 divided by the Summit Price
Less than $35.65625 .................................................. 3.7862
</TABLE>
You will be required to vote on the merger agreement prior to knowing the
exchange ratio. In addition, it is possible that by virtue of Summit's right to
select the Determination Date, Summit could choose a pricing period after the
date of New Canaan Special Meeting which includes the New Canaan special
meeting date or which includes up to 4 days prior to the New Canaan special
meeting.
2
<PAGE>
CONVERSION OF NEW CANAAN COMMON STOCK (SEE PAGE )
As a result of the merger, New Canaan shareholders will receive shares of
Summit common stock in exchange for shares of New Canaan based upon the
exchange ratio described in the preceding paragraph. No fractional shares will
be issued. Instead, New Canaan shareholders will receive a check in payment of
any fractional shares based upon the market value of Summit common stock.
CONVERSION OF NEW CANAAN STOCK OPTIONS (SEE PAGE )
Each New Canaan stock option outstanding at the effective time of the
merger will be converted automatically into an immediately exercisable option
to purchase Summit common stock. The number of shares of Summit common stock
subject to the converted options and the exercise price of the new options will
be adjusted as provided in the merger agreement based on the exchange ratio.
RECOMMENDATION OF NEW CANAAN BOARD OF DIRECTORS (SEE PAGE )
The New Canaan Board of Directors unanimously recommends that New Canaan
shareholders vote to approve the merger agreement and the proposal to adjourn
the meeting if necessary.
OPINION OF NEW CANAAN'S FINANCIAL ADVISOR (SEE PAGE )
In deciding to approve the merger agreement, the New Canaan Board of
Directors engaged Brown Brothers Harriman & Co to act as financial advisor to
New Canaan and to render its opinion to the New Canaan Board as to whether the
exchange ratio is fair, from a financial point of view, to the shareholders of
New Canaan. Brown Brothers Harriman & Co. has delivered to the New Canaan Board
an opinion dated as of the date of this Proxy Statement-Prospectus stating
that, as of such date, based on the review and assumptions and subject to the
limitations described therein, the exchange ratio is fair, from a financial
point of view, to New Canaan's shareholders. A copy of Brown Brothers Harriman
& Co. opinion is attached as Appendix B to this Proxy Statement-Prospectus and
should be read in its entirety.
DISSENTERS' RIGHTS (SEE PAGE )
Under Connecticut banking law, you will have the right to dissent from the
merger, in which event you may be entitled to receive the "fair value" of your
shares of New Canaan common stock by complying with the specific procedures
described in this Proxy Statement-Prospectus. The dissenters rights provisions
of the Connecticut banking laws are attached as Appendix C to this Proxy
Statement-Prospectus.
FEDERAL INCOME TAX CONSEQUENCES (SEE PAGE )
We have structured the merger so that New Canaan shareholders will not
recognize any gain or loss for federal income tax purposes in the merger
(except for tax payable because of cash received instead of fractional shares).
We have conditioned the merger on our receipt of a legal opinion that such is
the case.
REGULATORY APPROVALS (SEE PAGE )
The acquisition of New Canaan by Summit must be approved by the Federal
Deposit Insurance Corporation and the Commissioner of Banking of the State of
Connecticut.
CONDITIONS TO THE MERGER (SEE PAGE )
The completion of the merger depends upon meeting a number of conditions,
including the following:
(i) the approval of the merger agreement by the holders of two-thirds of
the outstanding New Canaan shares;
3
<PAGE>
(ii) the approval of regulatory authorities without burdensome demands and
the expiration of any waiting period following such approval;
(iii) our receipt of the opinion of Thompson Coburn, special tax counsel
to Summit, as to certain federal income tax consequences of the merger.
Certain conditions of closing may be waived by the party for whose benefit
the condition was included. However, the merger will not be completed without
the receipt of required regulatory approvals and New Canaan shareholder
approval.
TERMINATION OF THE MERGER AGREEMENT (SEE PAGE )
We can agree to terminate the merger agreement without completing the
merger and either of us can terminate the merger agreement if any of the
following occurs:
(i) the shareholders of New Canaan do not approve the merger;
(ii) the other party materially breaches a warranty or representation or
covenant and does not cure the breach or the breach cannot be cured within 30
days of notice (provided that the terminating party is not in material breach
of any representation, warranty, covenant or other agreement); or
(iii) we do not complete the merger by June 1, 1999.
In addition, the New Canaan Board of Directors may terminate the merger
agreement if the average closing price of a share of Summit Common on the NYSE
Composite Transactions List for the 10 consecutive full trading days ending on
the determination date provided for in the merger agreement or selected by
Summit is less than $32.60 and the number that results from dividing such
average price by $40.75 is more than .15 less than the number obtained by
dividing the average closing price per share of the common stocks of 16
selected bank holding companies for the 10 consecutive full trading days ending
on the determination date by the average closing price per share of the common
stocks of the bank holding companies on August 24, 1998. The Board of Directors
of Summit may terminate the merger agreement if the New Canaan Board of
Directors fails to recommend approval of the merger agreement or withdraws its
approval or if the costs of certain environmental matters exceeds the
thresholds set forth in the merger agreement.
OTHER INTERESTS OF NEW CANAAN OFFICERS AND DIRECTORS IN THE MERGER (SEE PAGE
)
In considering the New Canaan Board's recommendation that you vote in
favor of the merger agreement, you should be aware that some directors and
executive officers of New Canaan have interests in the merger that are
different from, or in addition to, yours as a shareholder of New Canaan. These
interests exist because of certain provisions in the merger agreement and
rights that certain New Canaan officers have under an employment agreement with
and benefit plans maintained by New Canaan.
The merger agreement contains indemnification arrangements for officers
and directors of New Canaan, and Summit has agreed to purchase directors' and
officers' liability insurance for a six-year period following the merger.
Summit has also agreed to appoint Frederick Afragola and six additional New
Canaan Board members to the Board of New Canaan or any successor bank for a one
year period after the merger. In addition, if the merger is completed, options
to purchase New Canaan common stock held by New Canaan's officers will be
automatically converted into options to acquire shares of Summit common stock,
adjusted in accordance with the exchange ratio of common shares in the merger.
Furthermore, Frederick Afragola, President and Chief Executive Officer of New
Canaan, has an employment agreement with New Canaan under which he is entitled
to receive compensation equal to two-times his current compensation if his
employment is terminated following the merger. The New Canaan Board recognized
these interests and considered them when they approved the merger agreement.
Subsequent to the execution of the merger agreement, Summit announced that
Mr. Afragola will serve as the Chairman and Chief Executive Officer of Summit's
Connecticut bank subsidiary after the completion of the merger. An employment
agreement for Mr. Afragola's service in such capacity is currently being
negotiated.
4
<PAGE>
DIFFERENCE IN SHAREHOLDERS' RIGHTS (SEE PAGE )
The rights of New Canaan shareholders, which are determined by Connecticut
banking and corporation laws and the Certificate of Incorporation and By-Laws
of New Canaan, differ from the rights accorded Summit shareholders, which are
determined by New Jersey corporation law and the Restated Certificate of
Incorporation and By-Laws of Summit. Some of the differences in shareholders'
rights are attributable to differences between the banking and corporation laws
of Connecticut, the state of New Canaan's incorporation, and the corporation
law of New Jersey, the state of Summit's incorporation. The remaining
differences in shareholder's rights are attributable to differences between the
Certificate of Incorporation and By-Laws of New Canaan and the Restated
Certificate of Incorporation and By-Laws of Summit. Upon completion of the
merger your rights will be governed by New Jersey corporation law and Summit's
Restated Certificate of Incorporation and By-laws.
TERMINATION FEES (SEE PAGE )
The merger agreement generally requires New Canaan to pay Summit a
termination fee of $4,000,000 if another person acquires 25% of the New Canaan
stock, New Canaan agrees to be acquired by someone else, or, after the
occurence of an "Extension Event" (as defined in the Merger Agreement) the New
Canaan shareholders do not approve the merger, a special meeting for the
purpose of voting on the merger agreement is not held or the New Canaan Board
withdraws its recommendation that shareholders approve the merger. The
termination fee provision is intended to increase the likelihood that the
merger will be completed, and is likely to discourage offers by other parties
to acquire New Canaan.
RECENT DEVELOPMENTS
On November 21, 1998, Summit completed its acquisition of NSS Bancorp.
Inc., a Connecticut corporation and bank holding company. As a result of the
acquisition of NSS Bancorp by Summit, NSS Bank, a Connecticut savings bank,
became a wholly-owned subsidiary of Summit. As of September 30, 1998, NSS Bank
operated eight banking offices in Fairfield County, Connecticut and had total
assets of approximately $650,000,000.
MARKET PRICES AND DIVIDENDS
Summit common stock is listed and traded on the New York Stock Exchange
under the symbol "SUB". New Canaan common stock is not traded on any exchange
and no established public trading market exists for New Canaan common stock.
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 Summit common stock and the high and low bid prices
of a share of New Canaan common stock and dividends declared per share on
Summit common stock and New Canaan common stock.
<TABLE>
<CAPTION>
SUMMIT COMMON STOCK NEW CANAAN COMMON STOCK
--------------------------------------- --------------------------------------
SALE PRICE BID PRICE*
------------------------- -------------------------
DIVIDENDS DIVIDENDS
CALENDAR YEAR HIGH LOW PER SHARE HIGH LOW PER SHARE
- ------------------------------------------ ----------- ----------- ----------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
1996 ..................................... $ 30.08 $ 21.75 $ 0.90 $ 55.00 $ 34.25 $ 0.00
1997 ..................................... 53.38 28.50 1.02 90.00 47.00 0.00
1998 (through December 17, 1998) ......... 1.17 0.75
</TABLE>
- --------
* Based on quotations provided by broker-dealers who trade in New Canaan common
stock. The quoted bids represent prices between buyers and sellers and do
not include any retail mark-up, mark-down or commission. They may not
necessarily represent actual transactions.
The following table presents (rounded to the nearest cent) as of August
24, 1998 (the last full trading day prior to the public announcement of the
execution of the merger agreement), and as of December __, 1998 the last sale
price of a share of Summit common stock, the last bid price of a share of New
Canaan common stock
5
<PAGE>
and the pro forma equivalent in Summit common stock of a share of New Canaan
common stock computed by multiplying the last sale price of Summit common stock
on each of the dates specified in the table by the low, high and mid-point of
the exchange ratio. The pro forma equivalents set forth below are provided for
illustration purposes only. None of the pro forma equivalents are intended to
represent the actual pro forma equivalent that will be applicable to the merger
because the actual exchange ratio in the merger will not be calculated until
after the Special Meeting.
<TABLE>
<CAPTION>
PRO FORMA NEW CANAAN
SUMMIT NEW CANAAN EQUIVALENT EXCHANGE RATIO (1)
----------- ------------ --------------------- -------------------
<S> <C> <C> <C> <C>
August 24, 1998 ........... $ 40.25 $ 93.00 $ 118.53 2.9448
133.34 3.3129
152.39 3.7862
December __, 1998 ......... __.__ __.__ __.__ 2.9448
3.3129
3.7862
</TABLE>
ON THE DATE THAT THE EXCHANGE RATIO IS FIXED AND ON THE DATE YOU RECEIVE
SUMMIT COMMON STOCK CERTIFICATES IN EXCHANGE FOR YOUR NEW CANAAN CERTIFICATES
THE PRICE OF A SHARE OF SUMMIT COMMON STOCK, THE ACTUAL EXCHANGE RATIO AND THE
PRO FORMA NEW CANAAN EQUIVALENT MAY BE DIFFERENT FROM THOSE SET FORTH ABOVE.
YOU SHOULD OBTAIN CURRENT PRICE QUOTATIONS. IN ADDITION, THE TIMING AND AMOUNT
OF FUTURE DIVIDENDS DECLARED ON SUMMIT COMMON STOCK WILL BE SET AT THE
DISCRETION OF THE SUMMIT BOARD AND WILL BE DETERMINED AFTER CONSIDERATION OF
VARIOUS FACTORS, INCLUDING (WITHOUT LIMITATION) THE EARNINGS AND FINANCIAL
CONDITION OF SUMMIT AND ITS SUBSIDIARIES.
The following table presents, as of December __, 1998, the current
annualized dividend rate for a share of Summit common stock, for a share of New
Canaan common stock, and (rounded to the nearest cent) for the pro forma
equivalent in Summit common stock of a share of New Canaan common stock
computed by multiplying the annualized dividend rate of a share of Summit
common stock by the lowest, highest and mid-point exchange ratios described
below.
<TABLE>
<CAPTION>
PRO FORMA NEW CANAAN
SUMMIT NEW CANAAN EQUIVALENT EXCHANGE RATIO (1)
---------- ------------ --------------------- -------------------
<S> <C> <C> <C> <C>
December , 1998 ......... $ 1.20 $ 1.00 $ 3.53 2.9448
3.98 3.3129
4.54 3.7862
</TABLE>
(1) The listed exchange ratios have been furnished for illustration purposes
only. The exchange ratio has not been fixed, will not be fixed until after the
special meeting, and may, when fixed as provided for in the merger agreement,
differ from the exchange ratios set forth above. The exchange ratios set forth
above would be applicable in the following situations:
<TABLE>
<CAPTION>
SUMMIT PRICE
EXCHANGE RATIO AS OF DETERMINATION DATE
- ----------------- -------------------------
<S> <C>
2.9448......... Greater than $45.84375
3.3129......... $ 40.75
3.7862......... Less than $35.65625
</TABLE>
The merger agreement provides that for Summit Prices on the determination
date of between $45.84375 and $35.65625, the exchange ratio would vary from
2.9448 to 3.7862 (based on the formula of $135.00 divided by
6
<PAGE>
the average price). The exchange ratio of 3.3129 applies only if the Summit
Price on the determination date is exactly $40.75, the mid-point between
$45.84375 and $35.65625.
SUMMARY OF COMPARATIVE AND PRO FORMA PER SHARE FINANCIAL INFORMATION
The following summary presents, for the periods indicated, selected
comparative and pro forma per share financial information: (i) on a historical
basis for both Summit and New Canaan; (ii) on a pro forma combined basis for
Summit, giving effect to the merger; and (iii) on a pro forma equivalent basis
per common share for New Canaan. Such financial information is computed on a
pro forma equivalent basis with respect to a share of New Canaan common stock
by multiplying the pro forma combined amount (giving effect to the merger) by
the exchange ratios assumed in the pro forma computation. As previously
discussed, the exchange ratio has not yet been fixed and will not be fixed
until after the New Canaan shareholders' meeting. When fixed, the actual
exchange ratio may differ from the exchange ratios used in the following
summary. The pro forma information does not reflect anticipated cost savings
expected to be realized from the merger. The purchase accounting adjustments
used for the purpose of calculating the pro forma combined results are subject
to final determination, based upon estimates and other evaluations of fair
value, as of the close of the transaction. Therefore, the pro forma amounts
reflected in the pro forma per share financial information may differ from the
amounts ultimately determined. The unaudited pro forma information does not
purport to be indicative of the combined financial position or results of
operations of future periods.
<TABLE>
<CAPTION>
NINE MONTHS ENDED YEAR ENDED
SEPTEMBER 30, 1998 DECEMBER 31, 1997
-------------------- ------------------
<S> <C> <C>
NET INCOME PER DILUTED SHARE
Historical:
Summit .............................................. $1.96 $2.09
New Canaan .......................................... 4.42 5.69
Pro Forma Combined at exchange ratio of(1):
2.9448 .............................................. 1.96 2.08
3.3129 .............................................. 1.95 2.08
3.7862 .............................................. 1.95 2.08
Pro Forma New Canaan Equivalent at exchange ratio of(1):
2.9448 .............................................. 5.76 6.13
3.3129 .............................................. 6.47 6.89
3.7862 .............................................. 7.39 7.87
DIVIDENDS PER SHARE
Historical:
Summit .............................................. $0.87 $1.02
New Canaan .......................................... 0.50 0.00
Pro Forma Combined at exchange ratio of:
2.9448 .............................................. 0.87 1.02
3.3129 .............................................. 0.87 1.02
3.7862 .............................................. 0.87 1.02
Pro Forma New Canaan Equivalent at exchange ratio of:
2.9448 .............................................. 2.56 3.00
3.3129 .............................................. 2.88 3.38
3.7862 .............................................. 3.29 3.86
</TABLE>
7
<PAGE>
<TABLE>
<CAPTION>
SEPTEMBER 30, 1998 DECEMBER 31, 1997
-------------------- ------------------
<S> <C> <C>
BOOK VALUE PER SHARE
Historical:
Summit .............................................. $15.19 $14.79
New Canaan .......................................... 48.95 44.53
Pro Forma Combined at exchange ratio of(1):
2.9448 .............................................. 15.37 14.79
3.3129 .............................................. 15.36 14.79
3.7862 .............................................. 15.34 14.79
Pro Forma New Canaan Equivalent at exchange ratio of(1):
2.9448 .............................................. 45.26 43.55
3.3129 .............................................. 50.89 49.00
3.7862 .............................................. 58.08 56.00
</TABLE>
- --------
(1) The pro forma per share financial information does not include the impact
of Summit's acquisition of NSS Bancorp, Inc. ("NSS"). At September 30,
1998, NSS had total assets of $650 million. This transaction, accounted
for as a purchase, was completed on November 21, 1998. The impact of this
acquisition is not material to the pro forma per share financial
information.
8
<PAGE>
INTRODUCTION
This Proxy Statement-Prospectus is being sent to shareholders of New
Canaan Bank and Trust Company ("New Canaan") as of , 1998 (the "Record
Date") in connection with the solicitation of proxies by the Board of Directors
of New Canaan (the "New Canaan Board") for use at the Special Meeting of
Shareholders of New Canaan to be held on January __, 1999 at the New Canaan
Library, 151 Main Street, New Canaan, Connecticut, at 10:00a.m., local time or
any adjournments thereof ("Special Meeting"). The purpose of the Special
Meeting is to consider and vote upon (i) a proposal to approve the Agreement
and Plan of Merger dated August 24, 1998 ("Merger Agreement") between Summit
Bancorp., a New Jersey corporation and registered bank holding company
("Summit") and New Canaan and the transactions contemplated thereby, and (ii) a
proposal to approve in advance an adjournment of the Special Meeting in order
to permit further solicitation of proxies by New Canaan if insufficient shares
are present at the Special Meeting to constitute a quorum or to approve the
merger agreement (the "Adjournment Proposal").
THE NEW CANAAN BOARD HAS UNANIMOUSLY APPROVED THE MERGER AGREEMENT AND
UNANIMOUSLY RECOMMENDS THAT NEW CANAAN SHAREHOLDERS VOTE FOR ITS APPROVAL. THE
BOARD OF DIRECTORS OF NEW CANAAN ALSO UNANIMOUSLY RECOMMENDS THAT NEW CANAAN
SHAREHOLDERS VOTE FOR APPROVAL OF THE ADJOURNMENT PROPOSAL.
SPECIAL MEETING
RECORD DATE; VOTE REQUIRED; REVOCABILITY OF PROXIES
The securities to be voted at the Special Meeting consist of shares of New
Canaan common stock, par value $5.00 per share ("New Canaan Common"), with each
share entitling its owner to one vote on each proposal and on all other matters
properly brought before the Special Meeting. New Canaan had no other class of
outstanding voting securities entitled to vote on the Merger Agreement or the
Adjournment Proposal at the close of business on the Record Date. There were
_____ holders of record of New Canaan Common and __________ shares of New
Canaan Common 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 __, 1998.
The presence at the Special Meeting, in person or by proxy, of the holders
of at least a majority of the shares of New Canaan Common outstanding on the
Record Date will constitute a quorum for the transaction of business. By
checking the appropriate box on the proxy card provided by the New Canaan
Board, a shareholder may vote "FOR" approval of the Merger Agreement, vote
"AGAINST" approval of the Merger Agreement or "ABSTAIN" from voting. Under the
Banking Law of Connecticut (the "BLC"), the approval of the proposal to approve
the Merger Agreement requires the affirmative vote of two-thirds of the
outstanding shares entitled to vote thereon at the Special Meeting, and the
approval of the Adjournment Proposal requires that more votes be cast in favor
of the proposal than against the proposal. Accordingly, "broker non-votes"
(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 with respect to which the broker or nominee does not have
discretionary voting power under the applicable NYSE rule) will have the effect
of a vote against the Merger Agreement but will have no effect on whether the
Adjournment Proposal is approved. Abstentions will be treated as shares that
are present and entitled to vote for purposes of determining the presence of a
quorum and the number of votes necessary to adopt any proposal but as not voted
on the particular proposal. Therefore an abstention will also have the effect
of a vote against the Merger Agreement but will have no effect on the
Adjournment Proposal vote. Proxies voting against the Merger Agreement will not
be used by the proxy holders to vote in favor of the Adjournment Proposal
unless the shareholder has voted FOR approval of the Adjournment Proposal on
the proxy card. The Special Meeting may be adjourned from time to time if
necessary to obtain a quorum or to obtain the votes necessary to approve the
Merger Agreement. The approval of the Merger Agreement by New Canaan
shareholders is a condition to the consummation of the Merger. See "THE
MERGER-The Merger Agreement-Conditions to the Merger; Termination".
If a quorum is not obtained, or if fewer shares of New Canaan Common are
voted in favor of approval of the Merger Agreement than the number required for
approval, it is expected that, if a majority of the shares
9
<PAGE>
voted, in person or by proxy, with respect to the Adjournment Proposal have
been voted in favor of the Adjournment Proposal, the Special Meeting will be
postponed or adjourned for the purpose of allowing additional time for
obtaining additional proxies or votes, and, at any subsequent reconvening of
the Special Meeting, all proxies will be voted in the same manner as such
proxies would have been voted at the original convening of the Special Meeting
(except for any proxies which have theretofore effectively been revoked or
withdrawn). As to other matters that may properly come before the Special
Meeting, unless otherwise provided in the Certificate of Incorporation or
By-laws of New Canaan or by statute, the matter will be approved if a majority
of the votes cast are in favor of the matter.
If the enclosed form of proxy is properly executed and returned to New
Canaan 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 approval of the Merger Agreement and FOR approval of the
Adjournment Proposal, except that if a proxy is voted against the Merger
Agreement and no instruction is given in connection with the Adjournment
Proposal, the proxy will not be voted in favor of the Adjournment Proposal.
Should any other matter properly come before the Special Meeting, the persons
named as proxies in the accompanying proxy, acting by a plurality of those
proxies present, will have discretionary authority to vote on such matters in
accordance with their judgment. As of the time of the preparation of this Proxy
Statement-Prospectus, the New Canaan Board does not know of any matters other
than those referred to in the Notice of Special Meeting of Shareholders to be
presented for action at the Special Meeting.
Shareholders who execute a proxy retain the right to revoke it at any time
prior to its use. Unless so revoked, the shares represented by such proxies
will be voted at the Special Meeting and all adjournments thereof. Prior to the
Special Meeting a proxy may be revoked by filing a written revocation or a duly
executed proxy bearing a later date with the Secretary of New Canaan, Joseph J.
Rucci, Jr. During the Special Meeting a proxy may be revoked by filing a
written revocation or a duly executed proxy bearing a later date with the
secretary of the Special Meeting prior to the close of voting. A proxy will not
be voted if a shareholder attends the Special Meeting and votes in person.
If a person holding New Canaan Common in street name wishes to vote such
New Canaan Common at the Special Meeting, the person must obtain from the
nominee holding the New Canaan Common in street name a properly executed "legal
proxy" identifying the individual as a New Canaan shareholder, authorizing the
New Canaan 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.
The cost of soliciting proxies will be borne by New Canaan. In addition to
use of the mails, proxies may be solicited personally or by telephone,
telecopier or telegraph by officers, directors or employees of New Canaan, who
will not be specially compensated for such solicitation activities.
Arrangements will also be made by New Canaan to reimburse brokerage houses and
other custodians, nominees and fiduciaries for their reasonable expense
incurred in forwarding solicitation materials to the beneficial owners of
shares held of record by such persons. New Canaan has retained Morrow & Co.,
Inc., a proxy soliciting firm, to assist in the solicitation of proxies, at a
fee of $5,000 plus fees for direct telephone solicitations, if authorized, and
reimbursement of certain out-of-pocket costs.
10
<PAGE>
SELECTED FINANCIAL DATA
The tables below set forth selected historical financial information for
Summit and New Canaan for each of the five years in the period ended December
31, 1997 and the nine month periods ended September 30, 1998 and 1997. Such
information has been derived from and should be read in conjunction with the
consolidated financial statements of Summit and New Canaan, including the
respective notes thereto, and management's discussions and analysis of
financial condition and results of operations contained in the Form 10-K and
Form 10-Q's of Summit, which are incorporated by reference in this Proxy
Statement-Prospectus and the financial statements and management's discussion
and analysis of financial condition and results of operations of New Canaan
contained herein. See "WHERE YOU CAN FIND MORE INFORMATION". The selected
historical financial information for Summit and New Canaan for the nine month
periods ended September 30, 1998 and 1997 reflect, in the opinion of the
managements of Summit and New Canaan, respectively, all adjustments (comprising
only normal recurring accruals) necessary for a fair presentation of the
consolidated operating results and financial position of Summit and New Canaan
for such interim periods. Results for the interim periods are not necessarily
indicative of results for the full year or any other period.
SUMMIT BANCORP.
SUMMARY OF SELECTED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
NINE-MONTHS ENDED
SEPTEMBER 30,
-------------------------------
1998 1997
--------------- ---------------
<S> <C> <C>
SUMMARY OF OPERATIONS:
Interest income ........................... $ 1,619,762 $ 1,535,646
Interest expense .......................... 743,731 681,034
Net interest income ....................... 876,031 854,612
Provision for loan losses ................. 51,000 45,100
Securities gains .......................... 4,440 3,471
Net income ................................ 348,755 258,752
Net income per diluted share .............. 1.96 1.46
Cash dividends declared per share ......... 0.87 0.75
Average diluted common shares
outstanding .............................. 177,505 177,235
BALANCE SHEET DATA (AT PERIOD END):
Total assets .............................. $31,852,214 $29,091,106
Securities ................................ 9,806,968 8,705,460
Loans ..................................... 20,300,663 18,630,663
Deposits .................................. 22,146,853 21,938,028
Long-term debt ............................ 2,401,826 1,001,617
Shareholders' equity ...................... 2,627,974 2,517,439
Book value per common share ............... 15.19 14.33
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------------------------------------------
1997 1996 1995 1994 1993
---------------- ---------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C> <C>
SUMMARY OF OPERATIONS:
Interest income ........................... $ 2,064,706 $ 1,906,996 $ 1,831,934 $ 1,572,370 $ 1,452,643
Interest expense .......................... 919,617 853,707 822,232 599,732 558,889
Net interest income ....................... 1,145,089 1,053,289 1,009,702 972,638 893,754
Provision for loan losses ................. 59,100 64,034 72,090 94,347 115,902
Securities gains .......................... 5,637 3,862 8,595 4,954 12,681
Net income ................................ 370,965 283,675 300,412 213,917 182,683
Net income per diluted share .............. 2.09 1.67 1.87 1.36 1.17
Cash dividends declared per share ......... 1.02 0.90 0.79 0.63 0.46
Average diluted common shares
outstanding .............................. 177,459 168,788 159,249 155,520 153,323
BALANCE SHEET DATA (AT PERIOD END):
Total assets .............................. $ 29,964,172 $ 27,767,271 $ 26,647,452 $ 25,484,073 $ 22,605,545
Securities ................................ 9,267,655 8,320,520 8,026,968 8,445,936 7,035,110
Loans ..................................... 18,888,366 17,386,059 16,413,222 15,048,579 13,552,381
Deposits .................................. 22,329,436 21,629,531 21,232,926 19,981,071 18,956,204
Long-term debt ............................ 1,246,750 695,793 431,754 552,736 492,052
Shareholders' equity ...................... 2,612,420 2,290,838 2,130,108 1,813,445 1,691,108
Book value per common share ............... 14.79 13.61 13.04 11.40 10.80
</TABLE>
11
<PAGE>
NEW CANAAN BANK AND TRUST COMPANY
SUMMARY OF SELECTED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
NINE-MONTHS ENDED
SEPTEMBER 30,
-------------------------
1998 1997
------------ ------------
<S> <C> <C>
SUMMARY OF OPERATIONS:
Interest income ........................... $ 8,726 $ 7,732
Interest expense .......................... 2,827 2,421
Net interest income ....................... 5,899 5,311
Provision for loan losses ................. - -
Securities gains (losses) ................. - -
Net income ................................ 1,548 1,467
Net income per diluted share .............. 4.42 4.31
Cash dividends declared per share ......... 0.50 -
Average diluted common shares
outstanding .............................. 350 341
BALANCE SHEET DATA (AT PERIOD END):
Total assets .............................. $164,321 $139,763
Securities ................................ 42,136 33,446
Loans ..................................... 100,175 89,886
Total deposits ............................ 146,535 122,892
Long-term debt ............................ - -
Shareholders' equity ...................... 16,364 14,251
Book value per common share ............... 48.95 43.03
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------------------
1997 1996 1995 1994 1993
------------ ------------ ------------ ------------ -----------
<S> <C> <C> <C> <C> <C>
SUMMARY OF OPERATIONS:
Interest income ........................... $ 10,372 $ 9,658 $ 9,575 $ 8,588 $ 8,436
Interest expense .......................... 3,234 3,134 3,338 2,642 2,935
Net interest income ....................... 7,138 6,524 6,237 5,946 5,501
Provision for loan losses ................. - - 7 63 199
Securities gains (losses) ................. - - - - -
Net income ................................ 1,949 1,668 1,213 659 1,558
Net income per diluted share .............. 5.69 4.98 3.69 2.01 4.76
Cash dividends declared per share ......... - - - - -
Average diluted common shares
outstanding .............................. 342 335 328 328 327
BALANCE SHEET DATA (AT PERIOD END):
Total assets .............................. $153,481 $141,035 $137,232 $138,310 $134,092
Securities ................................ 46,443 34,529 32,085 33,202 36,072
Loans ..................................... 88,528 87,477 87,187 92,349 81,076
Total deposits ............................ 137,580 127,595 125,256 115,864 123,564
Long-term debt ............................ - - - - -
Shareholders' equity ...................... 14,790 12,604 10,901 9,569 9,102
Book value per common share ............... 44.53 38.41 33.29 29.20 27.83
</TABLE>
12
<PAGE>
MARKET PRICE AND DIVIDEND MATTERS
MARKET PRICE AND DIVIDEND HISTORY
Summit common stock, par value $.80 per share (including associated
preferred stock purchase rights attached thereto "Summit Common") is listed and
traded on the New York Stock Exchange ("NYSE") and is quoted under the symbol
"SUB". New Canaan Common is not listed on any exchange and trades in the over-
the-counter market. The following table sets forth, for the periods indicated,
the high and low sale prices of a share of Summit Common and the high and low
bid prices of a share of New Canaan Common and quarterly dividends declared per
share of Summit Common and New Canaan Common.
Where necessary, sale prices and bid prices shown in the table below have
been rounded to the nearest cent. All sale prices and dividends shown below
with respect to Summit Common have been adjusted for stock splits.
<TABLE>
<CAPTION>
SUMMIT COMMON NEW CANAAN COMMON
----------------------------------- ----------------------------------
SALES PRICES BID PRICES*
----------------------- -----------------------
HIGH LOW DIVIDENDS HIGH LOW DIVIDENDS
----------- ----------- ----------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
1996
First Quarter ................................. $ 26.75 $ 22.92 $ .21 $ 35.50 $ 34.25 -
Second Quarter ................................ 26.33 22.67 .21 38.50 36.00 -
Third Quarter ................................. 27.42 21.75 .24 38.00 37.25 -
Fourth Quarter ................................ 30.08 26.33 .24 55.00 41.50 -
1997
First Quarter ................................. 33.33 28.50 .24 55.50 47.00 -
Second Quarter ................................ 35.08 28.58 .24 58.75 50.00 -
Third Quarter ................................. 45.31 33.58 .27 60.13 57.50 -
Fourth Quarter ................................ 53.38 38.38 .27 90.00 60.13 -
1998 ..........................................
First Quarter ................................. 53.88 45.88 .27 95.00 85.25 -
Second Quarter ................................ 53.50 44.75 .30 108.00 90.00 0.25
Third Quarter ................................. 49.94 32.75 .30 122.00 92.00 0.25
Fourth Quarter (through December 17, 1998)..... .30 0.25
</TABLE>
- --------
* Based upon quotations provided by broker-dealers who trade in New Canaan
Common. 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.
On August 24, 1998, 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 Summit Common was $40.25. The last bid price of a share of New Canaan
Common prior to August 25, 1998 was $93.00, which bid occured on August 24,
1998. On ___, 1998, the last sale price of Summit Common was $____. The last
bid price of New Canaan Common prior to , 1998 was $______ which occurred on ,
1998. New Canaan shareholders are urged to obtain current market quotations.
ON THE DATE THE EXCHANGE RATIO OF SUMMIT COMMON TO NEW CANAAN COMMON IS
FIXED AND THE DATE SUMMIT STOCK CERTIFICATES ARE RECEIVED BY NEW CANAAN
SHAREHOLDERS ENTITLED THERETO, THE PRICE OF A SHARE OF SUMMIT COMMON MAY DIFFER
FROM THOSE SET FORTH ABOVE. NEW CANAAN SHAREHOLDERS SHOULD OBTAIN CURRENT PRICE
QUOTATIONS. IN ADDITION, PAST DIVIDENDS PAID ON SUMMIT COMMON AND NEW CANAAN
COMMON ARE NOT NECESSARILY INDICATIVE OF FUTURE DIVIDENDS WHICH MAY BE PAID. NO
ASSURANCE CAN BE GIVEN CONCERNING DIVIDENDS TO BE DECLARED AND PAID ON SUMMIT
COMMON AND NEW CANAAN COMMON BEFORE OR AFTER THE MERGER.
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COORDINATION AND DETERMINATION OF DIVIDENDS UNDER MERGER AGREEMENT
In order to ensure that New Canaan shareholders would be paid no more than
one regular dividend in the calendar quarter in which the Merger is
consummated, New Canaan has agreed to coordinate with Summit the declaration of
any dividends and the setting of any dividend record or payment dates. Under
the Merger Agreement, New Canaan may declare a quarterly dividend up to $.25
per share of New Canaan Common in each quarter in which the New Canaan
shareholders are not otherwise entitled to a Summit dividend on the share of
Summit Common received in the Merger.
DIVIDEND LIMITATIONS
Summit's primary source of funds to pay dividends to its shareholders is
provided by dividends from its subsidiary banks. The bank subsidiaries of
Summit are restricted by law in the amount of dividends they may pay to Summit.
In addition, Summit is restricted by certain debt agreements in the amount of
dividends it may pay to its shareholders. At September 30, 1998, the subsidiary
banks had approximately $129 million available under the most restrictive
limitations for the payment of dividends to Summit.
PROPOSAL I - APPROVAL OF THE MERGER AGREEMENT
THE MERGER
The following information concerning the merger of New Canaan with and
into Summit, 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.
GENERAL
The Merger Agreement provides for the reorganization of New Canaan with
and into Summit, pursuant to the merger of New Canaan into NSS Bank, a
wholly-owned Connecticut chartered savings bank subsidiary of Summit (the
"Merger"). Upon consummation of the Merger, each outstanding share of New
Canaan Common other than (i) shares of New Canaan Common beneficially owned by
Summit or a subsidiary of Summit (other than shares held in a fiduciary
capacity or as a result of foreclosures or debts previously contracted), if
any, (ii) shares of New Canaan Common beneficially owned by New Canaan or a
subsidiary of New Canaan (other than shares of New Canaan Common held in a
fiduciary capacity or as a result of forfeitures or debts previously
contracted), if any, and (iii) shares of New Canaan Common held in the treasury
of New Canaan, if any, will be converted into and represent the right to
receive whole shares of Summit Common and cash in lieu of fractional shares
resulting from the conversion (the "Cash In Lieu Amount") based upon an
exchange ratio to be determined subsequent to the date of the Special Meeting
(the "Exchange Ratio"), adjusted if necessary in accordance with certain
anti-dilution provisions (whole shares of Summit Common and any Cash In Lieu
Amount determined in accordance with the Exchange Ratio are referred to
collectively herein as the "Merger Consideration"). The Exchange Ratio will not
be lower than 2.9448 and will not be higher than 3.7862.
CLOSING AND EFFECTIVE TIME
The Merger Agreement provides that, unless an earlier date designated by
Summit on at least five business days notice ("Closing Notice") is given to New
Canaan, the Closing will be held 45 days after the last to occur of the
following (the "Scheduled Date"): (1) 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 Summit and New Canaan, to the consummation of the transactions
contemplated by the Merger Agreement or such prior date as Summit and New
Canaan shall elect, whether or not such proceedings have been brought to a
conclusion; or (2) the date on which the approvals (collectively the "Required
Approvals") of the shareholders of New Canaan, the Federal Deposit Insurance
Corporation ("FDIC") and the Banking Commissioner of the State of Connecticut
("Connecticut Banking Commissioner") are received and any required waiting
periods have expired.
If the Merger Agreement is approved by the requisite vote of New Canaan
shareholders, all other conditions of the Merger are satisfied or waived and
the Closing is held, the Merger will become effective at the date
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<PAGE>
and time specified in the certificate of merger required to be filed with the
Secretary of the State of the State of New Jersey (the "New Jersey
Certificate") or, if filed later than the New Jersey Certificate, the
certificate of merger and the approval of the Connecticut Banking Commissioner
filed with the Secretary of State of the State of Connecticut (the "Connecticut
Certificate") following the date on which the closing of the Merger occurs
("Closing Date"). If the Merger Agreement is approved by New Canaan
shareholders on the scheduled date of the Special Meeting, subject to the
satisfaction or waiver of certain other conditions described herein, it is
presently contemplated that the Effective Time will occur during the first
calendar quarter of 1999. The Merger Agreement may be terminated by either
party if, among other things, the Closing fails to occur on or before June 1,
1999, but a party may not exercise this right if the failure to close is due
solely to that party's failure to perform or observe agreements required by the
Merger Agreement to be performed or observed by it on or before the Closing
Date. The Summit Board of Directors ("Summit Board") and the New Canaan Board
each also has the right to terminate the Merger Agreement under certain
circumstances. See "THE MERGER-The Merger Agreement-Conditions to the Merger;
Termination".
CONVERSION OF NEW CANAAN COMMON
Upon consummation of the Merger, the outstanding shares of New Canaan
Common held at the Effective Time by each shareholder of New Canaan, other than
(i) shares of New Canaan Common beneficially owned by Summit or a subsidiary of
Summit (other than shares held in fiduciary capacity or as a result of
foreclosures or debts previously contracted), if any, (ii) shares of New Canaan
Common beneficially owned by New Canaan or a subsidiary of New Canaan (other
than shares of New Canaan Common held in a fiduciary capacity or as a result of
foreclosures or debts previously contracted), if any, and (iii) shares of New
Canaan Common held in the treasury of New Canaan, if any, will be converted
into Summit Common at the Exchange Ratio and represent the right of the
particular shareholder to receive the number of whole shares of Summit Common
resulting from the conversion and, in lieu of any fractional share of Summit
Common resulting from the conversion, a Cash in Lieu Amount equal to the
fraction of a whole share represented by the fractional share multiplied by the
closing price of a share of Summit Common on the NYSE-Composite Transactions
List on the last trading day prior to the Effective Time. 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 Summit Common
are increased or decreased, changed into or exchanged for a different number or
kind of shares or securities through merger, recapitalization,
reclassification, stock dividend, stock split or reverse stock split or other
similar changes.
EXCHANGE RATIO
In the Merger, the shares of each holder of New Canaan will be converted
into and represent the right to receive the Merger Consideration. However, the
Exchange Ratio upon which the Merger Consideration will be based, and the date
as of which the Exchange Ratio will be determined (the "Determination Date"),
have not been fixed and will not be fixed until a date subsequent to the
Special Meeting. Once the Determination Date has been fixed (in accordance with
the Merger Agreement, as explained below), the Exchange Ratio will be
determined as follows, based on the average of the closing prices of a share of
Summit Common as reported on the NYSE-Composite Transactions List for the ten
consecutive full trading days ending on the Determination Date (the "Summit
Price"):
(1) If the Summit Price is greater than $45.84375, the Exchange Ratio shall
be 2.9448.
(2) If the Summit Price is equal to or less than $45.84375 and equal to or
greater than $35.65625, the Exchange Ratio shall be equal to the
quotient obtained by dividing $135.00 by the Summit Price.
(3) If the Summit Price is less than $35.65625, the Exchange Ratio shall be
3.7862.
The date as of which the Exchange Ratio will be fixed, the Determination
Date, is a date which is seven business days prior to the Scheduled Date or,
alternatively, the date designated by Summit, along with the Closing Date, in
the Closing Notice sent by Summit to New Canaan. However, the Merger Agreement
does not permit the Closing Notice to be sent to New Canaan by Summit until (i)
New Canaan shareholders have
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<PAGE>
approved the Merger, (ii) all required regulatory approvals have been received
and applicable waiting periods have expired and (iii) any litigation contesting
the Merger has been resolved to the satisfaction of Summit and New Canaan or
Summit and New Canaan agree to close the Merger notwithstanding the existence
of any such litigation. Consequently, under the Merger Agreement, it is not
possible for the Determination Date to be designated, or the Exchange Ratio to
be fixed, prior to the approval by New Canaan shareholders of the Merger. New
Canaan shareholders will, therefore, be required to vote on the proposal to
approve the Merger Agreement prior to the determination of the Exchange Ratio.
The Merger Agreement provides that if Summit designates a Closing Date
prior to the Scheduled Date, the Closing Notice must be sent no less than five
business days in advance of the Closing Date designated by Summit in the
Closing Notice, and that Summit must designate one of the business days in the
ten business day period immediately preceding the Closing Date as the
Determination Date. Due to the range of dates which could be designated by
Summit as the Determination Date, it is possible that Summit could select a
pricing period (by virtue of its selection of a Determination Date) which
includes the date of the New Canaan Special Meeting and up to four of the
business days immediately preceding such date.
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 Summit Common 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.
EXCHANGE OF NEW CANAAN CERTIFICATES
Prior to the Effective Time, Summit will appoint EquiServe-First Chicago
Trust Division or another entity reasonably satisfactory to New Canaan as the
exchange agent for the Merger ("Exchange Agent"). As promptly as practicable
after the Effective Time, but in no event more than 10 days after the Exchange
Agent receives an accurate and complete list of all holders of record of
outstanding New Canaan Common as of the Effective Time, Summit will cause the
Exchange Agent to send to each New Canaan shareholder a letter of transmittal
and instructions for exchanging their certificates representing New Canaan
Common ("New Canaan Certificates") for a certificate representing the number of
whole shares of Summit Common ("Summit Certificate") and, if applicable, a
check representing a Cash In Lieu Amount, to which such shareholder is entitled
as Merger Consideration.
To effect a proper surrender and exchange of New Canaan Certificates, all
New Canaan Certificates held by a particular New Canaan shareholder must be
surrendered to the Exchange Agent by such shareholder with properly executed
and completed letters of transmittal. Until a New Canaan shareholder has
properly surrendered New Canaan Certificates, Summit may, at its option, refuse
to pay to such holder dividends or other distributions, if any, payable to
holders of Summit Common; provided, however, that, upon proper surrender and
exchange of New Canaan Certificates, there will be paid to such holder the
amount, without interest, of dividends and other distributions, if any, which
became payable prior thereto but which were not paid. No transfer of New Canaan
Common will be effected on the stock transfer books of New Canaan 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 Summit 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 Summit Common nor scrip
certificates for such fractions will be issued, and holders of New Canaan
Certificates who would otherwise be entitled to receive fractions of shares of
Summit Common 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 Summit Common would possess in respect of such full
share, and will receive instead the Cash In Lieu Amount.
If more than one New Canaan Certificate is surrendered for the same New
Canaan shareholder account, the number of whole shares of Summit Common for
which a Summit Certificate will be issued to the owner of such account pursuant
to the Merger Agreement will be computed on the basis of the aggregate number
of shares of New Canaan Common represented by all New Canaan Certificates so
surrendered by such account owner.
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<PAGE>
NEW CANAAN SHAREHOLDERS SHOULD NOT SURRENDER THEIR NEW CANAAN CERTIFICATES
FOR EXCHANGE UNTIL A LETTER OF TRANSMITTAL, INSTRUCTIONS AND OTHER EXCHANGE
MATERIALS ARE RECEIVED FROM THE EXCHANGE AGENT. HOWEVER, NEW CANAAN
SHAREHOLDERS ARE URGED TO NOTIFY NEW CANAAN NOW, AT (203) 972-4696 IF THEIR NEW
CANAAN CERTIFICATES ARE LOST, STOLEN, DESTROYED OR NOT PROPERLY REGISTERED, IN
ORDER TO BEGIN THE PROCESS OF ISSUING REPLACEMENT NEW CANAAN CERTIFICATES.
CONVERSION OF NEW CANAAN STOCK OPTIONS
Each stock option relating to New Canaan Common ("Original Option")
granted pursuant to the New Canaan Bank and Trust Company 1995 Stock Option
Plan (the "New Canaan Option Plan") which is outstanding and unexercised at the
Effective Time, will be converted automatically at the Effective Time into an
immediately exercisable option to purchase Summit Common ("New Option"),
whether or not exercisable immediately prior to the Effective Time. Subject to
the adjustment in exercise price per share and number of shares, described
below, each New Option will continue to be governed by the terms of the New
Canaan Option Plan and the stock option agreement by which it was evidenced,
including terms and provisions governing exercises. In each case, (i) the
number of shares of Summit Common subject to the New Option will be equal to
the number of shares of Summit Common which would have been issued in the
Merger if the shares of New Canaan Common subject to that option were issued
and outstanding immediately prior to the Effective Time, rounded down to the
next lower full share (the "Converted Number"), and (ii) the exercise price per
share of Summit Common subject to the New Option will be equal to the aggregate
exercise price that would have been payable upon exercise in full of the
Original Option divided by the Converted Number.
Within 45 days after the receipt by Summit of an accurate and complete
list of all holders of Original Options, Summit will issue to each holder of
New Options, upon receipt and cancellation of all agreements under which
Original Options were issued to such holder, appropriate instruments confirming
the conversion described above; provided, however, that Summit will not be
obligated to issue such confirming instruments or any shares of Summit Common
issuable upon exercise of a New Option until the shares of Summit Common
issuable upon exercise of the New Options have been registered with the
Commission and authorized for listing on the NYSE and for sale by any
appropriate state securities regulators, which Summit will use its best efforts
to effect within 30 days after New Canaan shall have delivered to Summit the
above mentioned option-holder list.
RECOMMENDATION OF NEW CANAAN BOARD
THE MERGER AGREEMENT HAS BEEN UNANIMOUSLY APPROVED BY THE NEW CANAAN
BOARD. THE NEW CANAAN BOARD BELIEVES THAT THE MERGER IS IN THE BEST INTERESTS
OF NEW CANAAN SHAREHOLDERS. THE NEW CANAAN BOARD UNANIMOUSLY RECOMMENDS THAT
NEW CANAAN SHAREHOLDERS VOTE FOR THE PROPOSAL TO APPROVE THE MERGER AGREEMENT.
BACKGROUND
In May 1998, a large financial institution (the "Other Party") contacted
New Canaan and expressed an interest in partnering with New Canaan through
either a strategic alliance or possibly an acquisition. This inquiry was duly
reported to the New Canaan Board and, on May 28, 1998, representatives from New
Canaan met with the Other Party to discuss the strategic fit between the two
companies.
In late May, New Canaan contacted Brown Brothers Harriman & Co. ("Brown
Brothers") about potentially serving as New Canaan's financial advisor. On June
3, 1998, representatives from Brown Brothers met with New Canaan management to
review New Canaan's recent financial performance and the strategic issues and
alternatives facing New Canaan. On June 16, 1998, the Other Party contacted New
Canaan again and expressed a strong interest in acquiring New Canaan. On June
18, 1998, the New Canaan Board authorized New Canaan management to enter into a
financial advisory agreement with Brown Brothers.
On June 18, 1998, Summit publicly announced that it had agreed to purchase
NSS Bancorp, Inc. ("NSS"). Shortly after the announcement of the NSS
transaction, a representative of Summit contacted New Canaan and expressed
Summit's interest in potentially acquiring New Canaan. New Canaan and Brown
Brothers executed
17
<PAGE>
a financial advisory agreement on June 29, 1998. At a meeting held on June 29,
1998, Brown Brothers made a presentation to the New Canaan Board reviewing New
Canaan's financial performance, recent bank merger and acquisition activity
including the NSS transaction, and the expression of interest from the Other
Party. During the meeting, the New Canaan Board authorized New Canaan
management to continue discussions with the Other Party and to meet with Summit
to learn more about Summit's interest in New Canaan.
At a meeting held on July 7, 1998, representatives from New Canaan and
Summit discussed the strategic fit between the two companies. On July 8, 1998,
Summit informed New Canaan that it had a strong interest in acquiring New
Canaan.
On July 14, 1998, the New Canaan Board met to discuss the expressions of
interest from Summit and the Other Party. At the meeting, Brown Brothers
reviewed information regarding the financial, operating, and market performance
of Summit and the Other Party and discussed the expressions of interest from
the two companies. The New Canaan Board then authorized New Canaan management
and Brown Brothers to provide information to and hold additional meetings with
Summit and the Other Party. The New Canaan Board also approved a modification
to the Brown Brothers financial advisory agreement which increased Brown
Brothers' financial advisory fee from 1.15% to 1.25%.
On July 22, 1998, Brown Brothers sent certain financial and operating
information about New Canaan to Summit and the Other Party, both of whom had
previously executed confidentiality agreements with New Canaan. During late
July and early August, New Canaan management and Brown Brothers held a series
of meetings and conversations concerning a potential acquisition of New Canaan
with representatives from Summit and the Other Party. In addition, a delegation
of New Canaan Board members met on July 23, 1998 with senior executives of
Summit and on July 31, 1998 with senior executives of the Other Party.
On August 11, 1998, Summit and the Other Party both submitted to Brown
Brothers written indications of interest regarding a potential acquisition of
New Canaan. At a meeting held on August 12, 1998, the New Canaan Board (with
the assistance of Brown Brothers) carefully reviewed the two indications of
interest and discussed New Canaan's alternatives including continuing as an
independent company, negotiating a purchase agreement with either Summit or the
Other Party, and contacting other potential acquirers of New Canaan. Following
this review and discussion, the New Canaan Board authorized Brown Brothers and
New Canaan management to continue negotiations with Summit to determine whether
a mutually acceptable merger agreement could be reached. The decision to
proceed with Summit reflected, among other factors, (i) the New Canaan Board's
recognition that the acquisition of New Canaan by a large financial institution
could be the best means of maximizing the value of New Canaan Common and (ii)
the New Canaan Board's conclusion that, based on price and other factors
considered relevant, the indication of interest from Summit was compelling and
superior to the indication of interest from the Other Party.
On August 13, 1998, Brown Brothers contacted Summit to clarify certain key
issues relating to Summit's indication of interest. During the following two
weeks, negotiations between New Canaan and Summit toward a definitive merger
agreement and related agreements occurred, including a final determination as
to the amount and structure of the consideration to be paid to the New Canaan
shareholders in the Merger. During this period, Summit representatives
completed their due diligence investigation of New Canaan and representatives
of New Canaan and Brown Brothers completed their due diligence investigation of
Summit.
At a meeting held on August 24, 1998, representatives of Brown Brothers
made a detailed presentation to the New Canaan Board regarding Summit's
financial condition and the financial terms of the Merger Agreement. Brown
Brothers also orally advised the New Canaan Board that, as of such date, the
Exchange Ratio was fair from a financial point of view to the holders of New
Canaan Common. Attorneys from the law firm of Rucci, Burnham, Carta & Edelberg,
LLP, legal counsel to New Canaan, also reviewed with the New Canaan Board the
terms of the Merger Agreement and related documents. After extensive discussion
and consideration, the New Canaan Board unanimously voted to accept the
proposed transaction with Summit and approve the Merger Agreement. On that same
day, August 24, 1998, the Merger Agreement was executed and delivered on behalf
of Summit and New Canaan.
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<PAGE>
REASONS FOR THE MERGER
NEW CANAAN. In reaching its determination to approve the Merger Agreement,
the New Canaan Board considered; (i) the interests of the shareholders of New
Canaan, long-term as well as short-term, including whether these interests
would be best served by the continued independence of New Canaan, (ii) the
interests of New Canaan's employees and customers, (iii) the interests of the
citizens and the business community of New Canaan and each of the towns in
which an office of New Canaan is located and (iv) such other factors as the
directors considered appropriate. Among the various factors considered by the
New Canaan Board were the following:
<TABLE>
<S> <C>
(i) New Canaan's business, operations, financial condition, earnings and prospects;
(ii) The Merger Consideration offered by Summit in the Merger Agreement in relation to the market value and
book value of New Canaan;
(iii) The terms of the Merger Agreement including the mechanism for determining the Exchange Ratio;
(iv) The price attainable for New Canaan Common at this time compared with the risks involved and possible
price available if New Canaan were to remain independent or pursue a change of control at a later time;
(v) The opportunity for the holders of New Canaan Common to exchange their shares of New Canaan Com-
mon on a favorable basis for a security with greater market liquidity than New Canaan Common;
(vi) The current and historical dividends paid on New Canaan Common and Summit Common and the signifi-
cant increase in dividends (on a pro forma equivalent basis) which would result to New Canaan's share-
holders who continued to hold shares of Summit Common after the Merger;
(vii) The financial terms of other recent business combinations in the banking industry;
(viii) The economic conditions and prospects for the markets in which New Canaan operates and the possibility
of increased competition from new entrants in New Canaan's markets;
(ix) The management, business, product offerings, results of operations and financial condition of Summit;
(x) The future prospects of Summit and the anticipated strengths, benefits, and opportunities for growth from
the combination of Summit and New Canaan;
(xi) The financial advice rendered by Brown Brothers, including its opinion to the effect that the Exchange
Ratio was fair from a financial point of view to New Canaan shareholders; and
(xii) The expectation that the Merger will be tax-free for federal income tax purposes to New Canaan, and its
shareholders. (See "THE MERGER - Certain Federal Income Tax Consequences of the Merger.")
</TABLE>
In reaching its determination to approve the Merger Agreement, the New
Canaan Board did not assign any specific or relative weights to the factors it
considered, and individual directors may have given differing weights to
different factors.
THE NEW CANAAN BOARD UNANIMOUSLY RECOMMENDS THAT NEW CANAAN SHAREHOLDERS
VOTE "FOR" APPROVAL OF THE MERGER AGREEMENT.
SUMMIT. The Summit Board believes the Merger will enhance Summit's retail
franchise and competitive position in key market areas.
OPINION OF NEW CANAAN'S FINANCIAL ADVISOR
New Canaan retained Brown Brothers to render financial advisory services
in connection with the Merger based upon its qualifications, expertise and
reputation.
At the August 24, 1998 meeting of the New Canaan Board at which the New
Canaan Board reviewed and considered the terms of the Merger, Brown Brothers
rendered its oral opinion to the New Canaan Board that,
19
<PAGE>
as of such date, the Exchange Ratio was fair from a financial point of view to
the holders of shares of New Canaan Common Stock. Brown Brothers subsequently
confirmed its August 24, 1998 oral opinion by delivering to the New Canaan
Board a written opinion dated [the date of this Proxy Statement-Prospectus]. No
limitations were imposed by the New Canaan Board upon Brown Brothers with
respect to the investigations made or procedures followed by it in rendering
its opinions.
THE FULL TEXT OF THE WRITTEN OPINION OF BROWN BROTHERS, DATED [THE DATE OF
THIS PROXY STATEMENT-PROSPECTUS], WHICH SETS FORTH, AMONG OTHER THINGS, THE
ASSUMPTIONS MADE, PROCEDURES FOLLOWED, MATTERS CONSIDERED AND ANY LIMITS ON THE
REVIEW UNDERTAKEN IN CONNECTION THEREWITH, IS ATTACHED AS APPENDIX B TO THIS
PROXY STATEMENT-PROSPECTUS, AND IS INCORPORATED HEREIN BY REFERENCE. NEW CANAAN
SHAREHOLDERS ARE URGED TO, AND SHOULD, READ THE OPINION IN ITS ENTIRETY. THE
OPINION OF BROWN BROTHERS IS ADDRESSED TO THE NEW CANAAN BOARD, IS DIRECTED
ONLY TO THE FAIRNESS FROM A FINANCIAL POINT OF VIEW OF THE EXCHANGE RATIO TO
THE HOLDERS OF NEW CANAAN COMMON AND DOES NOT ADDRESS ANY OTHER ASPECT OF THE
MERGER, NOR DOES IT CONSTITUTE A RECOMMENDATION TO ANY NEW CANAAN SHAREHOLDER
AS TO HOW SUCH SHAREHOLDER SHOULD VOTE AT THE SPECIAL MEETING. THE SUMMARY OF
THE OPINION OF BROWN BROTHERS SET FORTH IN THIS PROXY STATEMENT-PROSPECTUS
DESCRIBES THE MATERIAL ASPECTS OF SUCH OPINION AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO THE FULL TEXT OF SUCH OPINION.
In connection with its analysis of the proposed Merger, New Canaan and
Summit furnished to Brown Brothers the Merger Agreement and information
concerning their respective businesses and operations, and Brown Brothers
reviewed financial and operating data provided to it by New Canaan and Summit,
as well as information contained in documents filed with regulatory authorities
or otherwise available from published sources. Brown Brothers reviewed the
Merger Agreement and supporting documentation and had discussions with
management personnel of New Canaan and Summit with respect to the foregoing. In
arriving at its opinion, Brown Brothers reviewed, among other things, (i)
certain audited and unaudited, publicly available, financial statements and
financial and statistical information for New Canaan and Summit, including
comparative per share data and the pro forma financial effects of the Merger;
(ii) certain financial statements and other financial and operating data
concerning New Canaan, prepared by the management of New Canaan; (iii) certain
financial projections for New Canaan, prepared by the management of New Canaan;
and certain earnings projections for Summit prepared by third-party analysts
and consensus earnings projections of third-party analysts as reported by
Institutional Brokers Estimate System, Inc. ("IBES"), which were discussed with
Summit management; (iv) the business, operations, financial position and
general prospects of New Canaan and Summit as discussed by their respective
managements with Brown Brothers; (v) the reported share price ranges, trading
activity and dividend histories for New Canaan Common and Summit Common; (vi)
comparative analyses of financial performance and stock market data of New
Canaan and Summit with selected public companies in the same industry deemed by
Brown Brothers to be comparable to New Canaan and Summit; (vii) the terms and
conditions of other business combinations in the U.S. commercial banking
industry, to the extent publicly available, which Brown Brothers deemed to be
comparable or otherwise relevant; and (viii) such other financial studies,
analyses and investigations as Brown Brothers deemed necessary or appropriate,
including its assessment of general economic, market and monetary conditions.
Brown Brothers has not conducted any independent evaluation or appraisal
of the assets or liabilities of New Canaan, Summit or any subsidiaries of
Summit and has not concluded a physical inspection of the properties or
facilities of New Canaan or Summit. Brown Brothers has not made any independent
evaluation of the adequacy of the allowance for loan losses of New Canaan or
Summit, has not reviewed individual credit files of New Canaan or Summit, and
has not been provided with any such evaluation or appraisal. Brown Brothers is
not an expert in the evaluation of loan portfolios for the purposes of
assessing the adequacy of the allowances for losses with respect thereto and
has assumed that the respective aggregate allowance for loan losses for Summit
and New Canaan is adequate to cover such losses and will be adequate on a pro
forma basis for the combined entity.
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<PAGE>
The opinion of Brown Brothers is based on financial, economic, market,
monetary and other conditions as they existed on, and the information made
available to them as of, the date of the opinion.
Brown Brothers relied on and assumed the accuracy and completeness
(without independent verification) of the information supplied or otherwise
made available to Brown Brothers by New Canaan and Summit. In that regard,
Brown Brothers assumed that the financial projections prepared by and provided
to it by New Canaan have been reasonably prepared on a basis reflecting the
best currently available judgments and estimates of the senior management of
New Canaan and that such projections will be realized in the amounts and at the
times contemplated thereby. In arriving at its opinion, with the assent of the
New Canaan Board, Brown Brothers was not provided with and did not have any
access to any financial projections prepared by the management of Summit as to
the projected stand-alone financial performance of Summit and accordingly,
based on Brown Brothers' discussion with Summit's management and review of
publicly available earnings projections for Summit reported by IBES, Brown
Brothers also assumed, with the assent of the New Canaan Board, that such
projections have been reasonably prepared and are based on reasonable
assumptions and that such projections will be realized in the amounts and at
the times contemplated thereby. In performing its analysis, Brown Brothers
assumed that the publicly available estimates of research analysts are a
reasonable basis upon which to evaluate and analyze the future stand-alone
financial performance of Summit.
Brown Brothers assumed that in the course of obtaining the necessary
regulatory and governmental approvals for the Merger, no restriction will be
imposed on Summit that would have a material adverse effect on the contemplated
benefits of the Merger. Brown Brothers assumed that there would not occur any
change in applicable law or regulation that would cause a material adverse
change in the prospects or operations of Summit after the Merger. Brown
Brothers also assumed that the Merger will qualify as a tax-free reorganization
for U.S. federal income tax purposes and that the Merger will be accounted as a
purchase under generally accepted accounting principles. Brown Brothers has
made all the above-mentioned assumptions without any independent verification
or investigation.
The opinion of Brown Brothers does not address the relative merits of the
Merger as compared to any alternative business transaction that might be or
might have been available to New Canaan.
The following is a summary of the analyses performed by Brown Brothers in
connection with its presentation and its oral opinion rendered to the New
Canaan Board on August 24, 1998. In connection with its written opinion dated
____________, 1998, Brown Brothers confirmed the appropriateness of its
reliance on the analyses used to render its August 24, 1998 oral opinion by
performing procedures to update certain of such analyses and by reviewing the
assumptions upon which such analyses were based and the factors considered in
connection therewith.
VALUATION SUMMARY. Brown Brothers reviewed the terms of the proposed
transaction, including the Exchange Ratio and the implied aggregate transaction
value. Brown Brothers noted that under the terms of the Merger Agreement, the
Exchange Ratio shall be a number between 2.9448 and 3.7862 with the exact
number determined by dividing $135.00 by the Summit Price, except that if the
Summit Price is greater than $45.84375, the Exchange Ratio shall be 2.9448 and
that if the Summit Price is less than $35.65625, the Exchange Ratio shall be
3.7862. Based on Summit's mid-day trading price of $40.75 on August 24, 1998,
Brown Brothers calculated an implied exchange ratio of 3.3129 and an implied
aggregate transaction value of $49.3 million (including New Canaan Common with
a total value of $45.1 million and options to purchase New Canaan Common with a
total in-the-money value of $4.2 million). The implied aggregate transaction
value represented a multiple of 24.3x reported earnings for the twelve-month
period ended June 30, 1998 and a price-to-book multiple of 3.12x June 30, 1998
book value. Brown Brothers calculated that the implied price per share
represented a price-to-market multiple of 1.45x the price paid in the last
trade, before the announcement of the Merger, in New Canaan Common.
EXCHANGE RATIO ANALYSIS. Brown Brothers reviewed the historical prices of
Summit Common and New Canaan Common, respectively, and the resulting
market-based exchange ratios (i.e., the ratio obtained by dividing the closing
price of New Canaan Common Stock by the closing price of Summit Common on a
particular date) from January 1, 1995 to August 21, 1998. Based upon the
closing stock prices of Summit Common and New Canaan Common on August 21, 1998
of $40.56 and $93.00, respectively, the market-based
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exchange ratio was 2.29. The minimum and maximum exchange ratios over the
analysis period were 1.09 and 2.53. Brown Brothers compared those numbers to
the proposed Exchange Ratio range of 2.9448 to 3.7862 and to the Exchange Ratio
of 3.3129 implied by Summit's mid-day trading price of $40.75 on August 24,
1998.
PRO FORMA MERGER ANALYSIS. Based on publicly available earnings
projections for Summit from IBES and earnings projections for New Canaan
provided by New Canaan management, Brown Brothers analyzed certain potential
pro forma effects of the Merger in calendar year 1999. This analysis indicated
that, relative to Summit on a stand-alone basis, the Merger would be dilutive
in an immaterial respect to the projected earnings per share of Summit in 1999.
Brown Brothers also analyzed the pro forma impact of the Merger on the
dividends payable to shareholders of New Canaan who continued to hold shares of
Summit Common after the Merger. Based on the Exchange Ratio of 3.3129 implied
by Summit's mid-day trading price of $40.75 on August 24, 1998, Brown Brothers
calculated that the annual dividend payable per share of New Canaan Common
converted into Summit Common would, assuming Summit continued to pay its then
current level of dividends, meaningfully increase.
DISCOUNTED DIVIDEND ANALYSIS. Using a discounted dividend analysis, Brown
Brothers analyzed the present value of the future dividend stream that New
Canaan could produce over a six-year period if New Canaan performed in
accordance with New Canaan's management projections for years 1998, 1999 and
2000, and utilizing an assumed net income growth rate of 15.0% and an assumed
payout ratio (dividends as a percentage of net income) of 25.0% for each of
years 2001, 2002 and 2003. Brown Brothers also estimated the terminal value of
New Canaan's common equity at the end of year 2003 using an assumed perpetual
net income growth rate of 7.0% and an assumed perpetual payout ratio of 40.0%.
The dividend streams and terminal value were then discounted to present values
using discount rates ranging from 11.0% to 18.0%. This discounted dividend
analysis indicated that a $49.3 million aggregate purchase price for New Canaan
would be substantially higher than the value of New Canaan to its shareholders
as a stand-alone entity.
ANALYSIS OF SELECTED PUBLICLY TRADED COMPANIES. Using publicly available
information, Brown Brothers compared selected financial information of New
Canaan to the corresponding data for a group of Connecticut banks and bank
holding companies that in Brown Brothers' judgment were deemed appropriate for
purposes of this analysis (collectively the "Connecticut Composite"). The
Connecticut Composite consisted of the following list of publicly traded
Connecticut banks, thrifts, and bank holding companies with assets between $100
million and $700 million: NSS Bancorp, Inc., New England Community Bancorp
Inc., Bancorp Connecticut, Inc., New Milford Bancorp Inc., Village Bancorp,
Inc., First International Bancorp Inc., and Cornerstone Bank. The comparison
showed, among other things, that for the twelve months ended March 31, 1998;
(i) New Canaan's return on average equity was 13.7%, compared to a mean of
12.8% for the Connecticut Composite, (ii) New Canaan's return on average assets
was 1.3% compared to a mean of 1.4% for the Connecticut Composite, (iii) New
Canaan's net interest margin was 5.1% compared to a mean of 4.8% for the
Connecticut Composite, (iv) New Canaan's cost of funds was 2.9% compared to a
mean of 4.3% for the Connecticut Composite and (v) New Canaan's efficiency
ratio was 65.0% compared to a mean of 64.0% for the Connecticut Composite.
Brown Brothers also used publicly available information to compare and
contrast the financial and market performance of Summit to the collective and
individual performance of 11 banks and bank holding companies operating within
the northeast United States that in Brown Brothers' judgment were deemed
appropriate for purposes of this analysis (collectively the "Northeast
Composite"). The Northeast Composite consisted of the following banks and bank
holding companies: Bank of New York Company, Inc., BankBoston Corporation,
Chase Manhattan Corporation, First Union Corporation, Fleet Financial Group,
Inc., KeyCorp, Mellon Bank Corporation, Northern Trust Corporation, PNC Bank
Corp, Republic New York Corporation and State Street Corporation. The
comparison with the Northeast Composite showed, among other things, that for
the twelve months ended March 31, 1998; (i) Summit's return on average equity
was 17.5% compared to a mean of 18.8% for the Northeast Composite, (ii)
Summit's return on average assets was 1.5% compared to a mean of 1.4% for the
Northeast Composite, (iii) Summit's net interest margin was 4.8% compared to a
mean of 3.5%, for the Northeast Composite and (iv) Summit's cost of funds was
4.2% compared to a mean of 4.3% for the Northeast Composite, (v) Summit's
efficiency ratio was 54.9% compared to a mean of 61.7% for the Northeast
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Composite and (vi) Summit's ratio of non-interest income to net revenues was
19.1% compared to a mean of 48.8% for the Northeast Composite. That analysis
also indicated that based on figures for the twelve months ended March 31, 1998
and the closing price on August 11, 1998 of Summit Common and the common stock
of each of the companies in the Northeast Composite: (a) the dividend yield for
Summit was 2.9% compared to a mean of 2.3% for the Northeast Composite, (b) the
dividend payout ratio was 45.3% for Summit compared to a mean of 33.8%, (c) the
ratio of Summit's market price to earnings was 17.5x compared to a mean of
18.0x for the Northeast Composite, (d) the ratio of Summit's market price to
estimated 1998 earnings was 15.3x compared to a mean of 16.1x for the Northeast
Composite (assuming reported average earnings estimates based on data from
IBES) and (e) the ratio of Summit's market price to book value was 2.7x
compared to a mean of 3.4x for the Northeast Composite.
ANALYSIS OF SELECTED MERGER TRANSACTIONS. Using publicly available
information, Brown Brothers performed an analysis of certain merger and
acquisition transactions involving Connecticut banks that in Brown Brothers'
judgment were deemed comparable for purposes of this analysis (collectively,
the "Connecticut Transactions") in order to obtain a value range for New
Canaan. Brown Brothers also compared the multiples of the last twelve months
earnings and book value implied by the Merger Consideration to be received by
the New Canaan shareholders in the Merger with corresponding multiples
indicated for the "Connecticut Transactions."
The implied aggregate transaction value in the Merger represented a
multiple (the "Earnings Multiple") of 24.3x reported earnings for the
twelve-month period ended June 30, 1998 and a price-to-book multiple (the "Book
Multiple") of 3.12x June 30, 1998 book value. This compared to (i) an Earnings
Multiple of 13.7x and Book Multiple of 1.8x with respect to Connecticut
Acquisitions completed in 1995, (ii) an Earnings Multiple of 15.0x and Book
Multiple of 2.0x with respect to Connecticut Acquisitions completed in 1996,
(iii) an Earnings Multiple of 21.4x and Book Multiple of 1.9x with respect to
Connecticut Acquisitions completed in 1997 and (iv) an Earnings Multiple of
22.1x and Book Multiple of 2.9x with respect to Connecticut Acquisitions
completed or announced prior to June 30, 1998.
In connection with the preparation and delivery of its opinion to the New
Canaan Board, Brown Brothers performed a variety of financial and comparative
analyses, as described above. The preparation of a fairness opinion is a
subjective one based on the experience and judgment of Brown Brothers, and not
merely the result of mathematical analysis of financial data. Such preparation
involves various determinations as to the most appropriate and relevant methods
of financial and comparative analysis and the application of those methods to
the particular circumstances and, therefore, a fairness opinion is not readily
susceptible to summary description. Accordingly, the summary set forth above
does not purport to be a complete description of the presentations by Brown
Brothers to the New Canaan Board or of the analyses performed by Brown
Brothers.
In arriving at its opinion, Brown Brothers did not attribute any
particular weight to any analysis or factor considered by it, but rather made
qualitative judgments as to the significance and relevance of each analysis and
factor. Accordingly, Brown Brothers believes that its analyses must be
considered as a whole and that considering portions of such analyses or certain
of the factors considered by Brown Brothers without considering all such
analyses and factors could create a misleading or incomplete view of the
process underlying the opinion.
In its analyses, Brown Brothers made numerous assumptions with respect to
business, market, monetary and economic conditions, industry performance,
business and economic conditions and other matters, many of which are beyond
Brown Brothers', New Canaan's, and Summit's control. Analyses relating to the
value of businesses did not purport to be appraisals or to reflect the prices
at which businesses may actually be sold. Any estimates contained in Brown
Brothers' analyses are not necessarily indicative of future or actual values,
which may be significantly more or less favorable than such estimates. No
company or transaction used in the above analyses as a comparison is identical
to New Canaan, Summit, or the Merger. Accordingly, an analysis of the results
of the 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 public
trading value of the companies to which they are being compared. The analyses
performed by Brown Brothers are not necessarily indicative of actual values or
actual future results, which may be significantly more or less favorable than
suggested by such analyses.
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Such analyses were prepared solely as part of Brown Brothers' analysis of
the fairness from a financial point of view of the Exchange Ratio to the
holders of New Canaan Common.
Brown Brothers, in its capacity as financial advisor, is regularly engaged
in the evaluation of businesses and their securities in connection with mergers
and acquisitions, equity and debt financings, and valuations for estate,
corporate, and other purposes. In the course of Brown Brothers' normal trading
activities, Brown Brothers may from time to time effect transactions and hold
securities, including derivative securities, of New Canaan or Summit for its
own account or for the account of customers. Brown Brothers advised New Canaan
in its discussions and negotiations with Summit and, through its participation
in such discussions and its advice to New Canaan, assisted in the development
of the terms of the Merger Agreement.
Pursuant to the terms of an engagement letter dated June 29, 1998 and as
subsequently modified on July 17, 1998, Brown Brothers will, in the event an
acquisition, merger, sale of all or a substantial portion of assets or similar
transaction (a "Transaction") is consummated with the active assistance of
Brown Brothers, be entitled to a cash fee (the "Closing Fee") equal to 1.25% of
the Transaction consideration for its financial advisory services, including
the rendering of the fairness opinion. Such Closing Fee will be payable at the
closing of the Transaction. The Transaction consideration will be equal to the
fair market value, as of the closing date, of the consideration received by the
holders of New Canaan Common (including option holders) in the Transaction. In
the event that the Merger is not consummated within 12 months of the date of
the acceptance of the engagement letter by New Canaan (or such earlier date as
the New Canaan Board decides not to pursue a Transaction), New Canaan will pay
Brown Brothers a cash termination fee of $50,000 (the "Termination Fee").
Whether or not the Merger is consummated, New Canaan has agreed to reimburse
Brown Brothers for out-of-pocket expenses, which shall not exceed $10,000
without the prior written consent of New Canaan, and has agreed to indemnify
Brown Brothers, its affiliates and their respective partners, officers, agents
and employees against certain expenses and liabilities relating to or arising
out of or in connection with Brown Brothers' engagement, including those
arising under the federal securities laws. New Canaan is entitled to terminate
this advisory relationship at any time by written notice to Brown Brothers
following which Brown Brothers will be entitled to receive payment of (i) the
Termination Fee, (ii) the Closing Fee (less any Termination Fee previously
paid) only in the event that a Transaction is consummated within one year of
such termination between New Canaan and another party if Brown Brothers
assisted New Canaan in evaluating a proposed Transaction with such other party,
and (iii) the reimbursement of out-of-pocket disbursements made prior to the
termination.
REGULATORY APPROVALS
The merger of New Canaan into NSS Bank is subject to approval by the FDIC
under the Bank Merger Act (the "BMA"). The BMA provides that the FDIC 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 FDIC 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 FDIC is required to consider the financial and
managerial resources and future prospects of the banks concerned, and the
convenience and needs of the communities to be served. Under the BMA, as
interpreted by the FDIC and the courts, the FDIC may deny any application if it
determines that the financial or managerial resources of the acquiring bank are
inadequate. The BMA provides that a transaction approved by the FDIC may not be
consummated for 30 days after such approval or, if certain conditions are met,
a shorter period, but, in the absence of an emergency, not 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. Satisfactory financial condition, particularly with
regard to capital adequacy, and satisfactory Community Reinvestment Act ratings
generally are prerequisites to obtaining FDIC approval to make acquisitions.
All of Summit's subsidiary banks are currently rated "outstanding" or better
under the Community Reinvestment Act.
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An application with respect to the Merger was filed by Summit with the
FDIC on December __, 1998. Regulations of the FDIC under the BMA require notice
of an application for approval of the Merger to be published in a newspaper of
general circulation in the communities where the main offices of the merging
banks are located and the public to 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 FDIC within the time period provided for in the
respective notices, the FDIC's regulations permit the Regional Director for the
FDIC Region having jurisdiction over the applicant, acting on delegated
authority from the FDIC, to arrange informal proceedings in the nature of a
meeting involving the applicant and the protesters if the FDIC decides such a
procedure would be appropriate. In addition, if an applicant or a protester
requests a hearing or if the FDIC determines such to be appropriate, the FDIC
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
Regional Director or other presiding officer designated by the FDIC. Due to the
possibility that an informal proceeding or proceeding providing for oral
presentation will be scheduled by the FDIC following receipt of a protest, and
due additionally to the procedures relating thereto, FDIC 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 Summit's application for approval of the Merger expires on
or about , 1999.
The acquisition of New Canaan by NSS Bank and, indirectly, by Summit, is
also subject to the approval by the Connecticut Banking Commissioner under the
BLC. Under the BLC, the Connecticut Banking Commissioner, in considering the
merger, is to consider whether the acquisition is reasonably expected to
produce benefits to the public, whether such benefits clearly outweigh possible
effects, including, but not limited to, an undue concentration of resources and
decreased or unfair competition, and whether the terms of the merger are
reasonable and in accordance with law and sound public policy. The Connecticut
Banking Commissioner may not approve the acquisition without considering
whether: (i) the investment and lending policies of each merging bank and the
resulting bank after the Merger will be consistent with safe and sound banking
practices and will benefit the state; (ii) the services or proposed services of
the resulting bank after the Merger will be consistent with safe and sound
banking practices and will benefit the economy of the state; (iii) the
acquisition of New Canaan by NSS Bank (and indirectly by Summit) will not
substantially lessen competition in the banking industry in the state and (iv)
NSS Bank, Summit and New Canaan will have sufficient capital to ensure and will
ensure that the resulting bank will comply with applicable minimum capital
requirements and will have sufficient managerial resources to operate the
resulting bank in a safe and sound manner. In addition, the Connecticut Banking
Commissioner may not approve the acquisition of New Canaan by NSS Bank (and
indirectly by Summit) unless he finds that NSS Bank, Summit and New Canaan have
a record of compliance with the Community Reinvestment Act of 1977 and
Connecticut community reinvestment and consumer protection banking laws and
that following the acquisition of New Canaan by NSS Bank (and indirectly by
Summit), New Canaan will provide adequate services to meet the banking needs of
all community residents, including low income residents and moderate income
residents. An application for approval of the acquisition of New Canaan by NSS
Bank (and indirectly by Summit) was filed with the Connecticut Banking
Commissioner on , 1998.
New Canaan 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 New Canaan
shareholder as a recommendation by any regulatory agency with respect to the
Merger.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
Directors and executive officers of New Canaan have interests in the
Merger that are in addition to their interests as New Canaan shareholders.
These interests are described in more detail below.
INDEMNIFICATION
In the Merger Agreement, Summit 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 New Canaan or any subsidiary of New Canaan
on or before the Effective Time with respect to liabilities and claims (and
related expenses including fees and disbursements of counsel) made against them
resulting from their service as such prior to the Effective Time
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in accordance with and subject to the requirements and other provisions of the
Summit 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 Summit 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 to Summit. During such time as New Canaan or
its subsidiaries remains a separate entity organized under Connecticut law, the
directors and officers thereof will be entitled to indemnification and
advancement of expenses as provided by New Canaan's or such subsidiary's
Certificate of Incorporation and by-laws and Connecticut law.
In the Merger Agreement, Summit also agreed that, subject to New Canaan's
covenant to take all requisite action to preserve its rights under its
directors' and officers' liability insurance policies with respect to matters
occurring prior to the Effective Time, for a period of six years after the
Effective Time Summit would use its best efforts to provide to the persons who
served as directors' or officers' of New Canaan or any subsidiary of New Canaan
on or before the Effective Time insurance against liabilities and claims (and
related expenses) made against them resulting from their service prior to the
Effective Time comparable in coverage to that provided by Summit 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 ("Comparable Coverage"); provided that in no event is Summit required
to expend more than 200% of the amount expended by New Canaan prior to the
execution of the Merger Agreement for one year of coverage ("Coverage Amount").
Summit has agreed to use its best efforts to obtain as much comparable
insurance as is available for the Coverage Amount if it is unable to maintain
or obtain Comparable Coverage. New Canaan must renew any existing insurance or
purchase any "discovery period" insurance provided for under existing insurance
at Summit's request.
BOARD OF DIRECTORS AND OFFICERS OF SURVIVING BANK
Summit has agreed that for a period of one year following the Effective
Time, and thereafter at the discretion of Summit, Frederick R. Afragola and six
additional members of the New Canaan Board serving in such capacity at the
Effective Time (to be designated by Summit) shall, subject to director
qualification requirements, serve as members of the Board of Directors of New
Canaan or any sucessor of New Canaan after the Effective Time.
It has been announced that, upon the merger of New Canaan into NSS Bank,
Mr. Afragola will be appointed Chairman and Chief Executive Officer of the
resulting bank.
EMPLOYMENT AGREEMENT WITH FREDERICK AFRAGOLA
New Canaan has an employment agreement with Frederick R. Afragola,
President and Chief Executive Officer of New Canaan. The employment agreement,
which initially extended through December 31, 1998, with automatic extensions
for one additional year each year thereafter unless terminated by the New
Canaan Board, was extended in November, 1998 for an additional year ending
December 31, 1999. Among other items, Mr. Afragola's employment agreement
provides for base salary of $175,000 and bonus compensation as determined by
the Compensation and Personnel Committee of the New Canaan Board based upon
agreed upon qualitative and quantitative goals. In addition, Mr. Afragola is
eligible to participate in New Canaan's stock option and other incentive
compensation plans and New Canaan is required to provide a combination of term
and split dollar insurance with a cost comparable to that provided in 1998. The
employment agreement also provides that if Mr. Afragola's employment is
terminated following a "Change in Control" (the definition of which would
include the Merger) he is entitled to receive as severance compensation two
times his current compensation as of the date of termination, plus health,
dental and disability benefits for two years. As a result of a November 1998
amendment to his employment agreement with New Canaan, Mr. Afragola is also
entitled to the foregoing payments and benefits if he voluntarily terminates
his employment due to the failure of Summit and Mr. Afragola to execute a new
employment agreement. If payments were required to be made under the foregoing
change of control provision, the estimated amount of payment to Mr. Afragola
would be $350,000.
Several months subsequent to the execution of the Merger Agreement, Summit
agreed to enter into, on or before the Closing Date, an employment agreement
with Frederick R. Afragola, providing for Mr. Afragola to serve, commencing at
the Effective Time, as the Chairman and Chief Executive Officer of New Canaan
or its successor, for an initial term of two years. An employment agreement for
Mr. Afragola's services in such capacity is currently
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being negotiated. It is expected that the employment agreement will provide for
an initial bonus of cash and restricted stock and annual salary and bonus at
least as favorable as currently provided for under Mr. Afragola's existing
employment agreement with New Canaan.
SEVERANCE PAY PROVISION
The Merger Agreement provides that any employee of New Canaan or a
subsidiary of New Canaan at the Effective Time not party to an employment,
change of control, termination or similar agreement, whose employment is
terminated by Summit, other than for cause, within twelve months of the
Effective Time is entitled to receive a severance payment equal to the sum of:
(i) the greater of (A) four times the employee's gross weekly salary or (B) the
product of such employee's gross weekly salary multiplied by two times the
number of full years of service completed by such employee prior to the
termination of employment; and (ii) in the event less than 60 days advance
notice of termination is provided to a particular employee, the product of (A)
the difference of 60 minus the number of days of advance notice of termination
received by a particular employee and (B) the employee's annual salary rate at
the time of termination of employment divided by 365. However, no employee of
New Canaan or a subsidiary of New Canaan shall be eligible to receive the
foregoing payment if such employee is offered a position by Summit which is
similar in job content to the position held by such employee with New Canaan or
a subsidiary and is located at a reasonably accessible location within the
State of Connecticut.
NEW CANAAN STOCK OPTION PLAN
As described under "THE MERGER - Conversion of New Canaan Stock Options,"
Original Options outstanding at the Effective Time will be automatically
converted into New Options, subject to the terms of the Option Plan and grant
agreement governing the Original Options, including terms and provisions
governing exercises. The number of shares covered by the New Options (the
"Converted Number") will be set by multiplying the number of shares covered by
the Original Options by the Exchange Ratio and the exercise price per share of
the New Options will be equal to the aggregate exercise price that would have
been payable upon exercise in full of the Original Option divided by the
Converted Number. Pursuant to the terms of the Option Plan, all Original
Options will be converted into immediately exercisable New Options whether or
not the Original Option was exercisable.
The following table sets forth certain information relating to Original
Options held by the executive officers of New Canaan, namely, Frederick R.
Afragola, Robert J. Hebert and Robert F. O'Connell as follows: (i) the number
of Original Options held by such persons; (ii) the number of Original Options
held by such persons that will be exercisable as of February 28, 1999; (iii)
the number of unexercisable Original Options held by such persons that will be
converted into exercisable New Options at the Effective Time; (iv) the weighted
average exercise price for exercisable Original Options as of February 28,
1999; (v) the weighted average exercise price for unexercisable Original
Options that will be converted into exercisable New Options at the Effective
Time; and (vi) the aggregate net unrealized value of all Original Options based
on the number of shares of Summit Common covered by, and the exercise price of,
the New Options into which the Original Options are convertible and using the
last sale price of a share of Summit Common on __, 1998 of $_____ as the market
price for purposes of the calculation.
<TABLE>
<CAPTION>
WEIGHTED
OPTIONS WEIGHTED AVERAGE EXERCISE AGGREGATE
EXERCISABLE AVERAGE PRICE OF OPTIONS NET
IN CONNECTION EXERCISE PRICE EXERCISABLE IN UNREALIZED
OPTIONS EXERCISABLE WITH THE OF EXERCISABLE CONNECTION WITH VALUE OF
HELD OPTIONS* MERGER OPTIONS* THE MERGER OPTIONS
--------- ------------- --------------- ---------------- ------------------ -----------
<S> <C> <C> <C> <C> <C> <C>
Frederick R. Afragola ............. 26,300 24,134 2,166 28.11 37.77
Robert J. Hebert .................. 5,500 4,000 1,500 35.75 39.00
Robert F. O'Connell ............... 6,500 5,000 1,500 33.80 39.00
Executive Officers as
a Group (3 Persons total) ......... 38,300 33,134 5,166 29.89 38.48
</TABLE>
- --------
* Given as of February 28, 1999.
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STAY BONUSES
The Merger Agreement authorizes New Canaan after the Closing Date to pay
"stay bonuses" of up to $75,000 in the aggregate to employees of New Canaan
designated by the New Canaan Board (after consultation with Summit) who
continue to be employees of New Canaan on such payment date and who execute a
release of claims against Summit and its affiliates. It is possible that one or
more of the executive officers of New Canaan could be recipients of stay
bonuses.
THE MERGER AGREEMENT
AMENDMENT
New Canaan and Summit may jointly amend the Merger Agreement at any time;
provided, however, that, after the Special Meeting, no amendment may reduce the
amount of, or change the form of consideration to be received by New Canaan
shareholders unless such modification is submitted to a vote of New Canaan
shareholders.
NEW CANAAN COVENANTS
In order to ensure that New Canaan shareholders would be paid no more than
one dividend in each calendar quarter between the date of the Merger Agreement
and the Effective Time, New Canaan agreed in the Merger Agreement to coordinate
with Summit the declaration of any dividends and the setting of any dividend
record or payment dates.
Pursuant to the Merger Agreement, New Canaan has agreed, among other
things, that, until termination of the Merger Agreement, New Canaan will advise
Summit of any material adverse change in New Canaan's business and of certain
other circumstances, and the business of New Canaan and its subsidiaries will
be carried on 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 Summit, New Canaan will not declare or pay
any dividend other than a quarterly cash dividend at a rate up to $.25 per
share and will refrain from taking certain other actions, including certain
actions relating to changes in its capital stock, the incurrence of
liabilities, the making of certain expenditures, the relinquishment of certain
rights, the amendment of its certificate of incorporation and bylaws and the
issuance of capital stock.
New Canaan also has agreed that, until termination of the Merger Agreement
or the Effective Time, neither New Canaan nor any of its subsidiaries nor any
of the officers or directors of New Canaan or its subsidiaries shall, and that
New Canaan shall direct and use its best efforts to cause its employees,
agents, affiliates and representatives (including investment bankers, brokers,
financial or investment advisors, attorneys or accountants retained by New
Canaan or any of its subsidiaries) not to, initiate, solicit or encourage,
directly or indirectly, any inquiries, proposals or offers with respect to, or
engage in any negotiations or discussions with any person or provide any
nonpublic information or authorize or enter into any agreement or agreement in
principle concerning, or recommend, endorse or otherwise facilitate any effort
or attempt to induce or implement any Acquisition Proposal (as defined below).
"Acquisition Proposal" is defined as any offer, including an exchange offer or
tender offer, or proposal concerning a merger, consolidation, business
combination or takeover transaction involving New Canaan or any of its
subsidiaries, or the acquisition of any assets (other than those permitted
under the Merger Agreement) or any securities of New Canaan or any of its
subsidiaries. Further, New Canaan is to immediately cease any activities,
discussions, or negotiations with respect to the foregoing. In addition, New
Canaan has agreed to notify Summit, by telephone call to its chief executive
officer or general counsel, promptly upon receipt of any inquiry with respect
to an Acquisition Proposal with another person or receipt of a request for
information from any governmental or regulatory authority with respect to a
proposed acquisition of New Canaan or any of its subsidiaries or assets by
another party and to deliver as soon as possible by facsimile transmission to
such Summit officer a copy of any document relating thereto promptly after any
such document is received by New Canaan.
New Canaan is obligated under the Merger Agreement to disclose to Summit
certain information regarding environmental conditions affecting (1) any
property now or previously owned, occupied, leased or held or managed in a
representative or fiduciary capacity, (2) any property or facility of which New
Canaan has at any time participated in the management or may be deemed to be or
to have been an owner or operator, and (3) any real
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property in which New Canaan holds a security interest in an amount greater
than $50,000. The Merger Agreement provides Summit with certain environmental
investigative rights prior to the Effective Time with respect to real property
owned, leased or operated by New Canaan on or after the date of the Merger
Agreement.
DISCONTINUANCE FEE
As an inducement and condition to Summit's willingness to enter into the
Merger Agreement, New Canaan agreed to pay a discontinuance fee of $4,000,000
(the "Discontinuance Fee") in the event a "Purchase Event" (as defined below)
occurs.
Unless Summit is in breach of any material covenant or obligation
contained in the Merger Agreement and, if the Merger Agreement has not
terminated prior thereto, such breach would entitle New Canaan to terminate the
Merger Agreement, Summit may exercise its right to receive the Discontinuance
Fee, at any time and from time to time following the occurrence of a Purchase
Event (as defined below); provided that New Canaan's obligation to pay the
Discontinuance Fee will terminate upon the earliest to occur of certain events,
including:
(1) the Effective Time;
(2) termination of the Merger Agreement prior to the occurrence of an
Extension Event (as defined below) (other than a termination by Summit
resulting from (i) a material breach thereof by New Canaan which has
not been cured or is not capable of being cured within the time
allotted, (ii) nonsatisfaction of a condition to Summit's obligation to
close the Merger (other than failure to obtain shareholder approval of
the Merger or failure to obtain the fairness opinion of Brown
Brothers), or (iii) the New Canaan Board's failure to recommend or
withdrawal of its recommendation to shareholders to approve the
Merger);
(3) 15 months after the termination of the Merger Agreement following the
occurrence of an Extension Event (as defined below) or the termination
of the Merger Agreement by Summit upon (i) a breach by New Canaan which
has not been cured or is not capable of being cured within the time
allotted, (ii) nonsatisfaction of a condition to Summit's obligation to
close the Merger, or (iii) the New Canaan Board's failure to recommend
or withdrawal of its recommendation to shareholders to approve the
Merger; or
(4) termination of the Merger Agreement (i) by Summit pursuant to the
termination provision relating to environmental costs or (ii) by the
New Canaan Board pursuant to the termination provision relating to the
Summit Price.
The term "Extension Event" shall mean the occurrence of certain events
without Summit's prior written consent, including:
(1) New Canaan, the New Canaan Board or any of its subsidiaries taking
certain actions (each an "Acquisition Transaction"), including
recommending or entering into an agreement with any third party to
effect (a) a merger, consolidation or similar transaction involving New
Canaan (b) the purchase, lease, or other acquisition of ten percent or
more of the aggregate value of the assets or deposits of New Canaan (c)
the purchase or other acquisition of securities representing ten
percent or more of the voting power of New Canaan or (d) any
substantially similar transaction, in each case except as otherwise
permitted by the Merger Agreement;
(2) any third party acquiring beneficial ownership or the right to acquire
beneficial ownership of ten percent or more of the aggregate voting
power of New Canaan;
(3) any third party making a bona fide proposal to New Canaan or its
shareholders, by public announcement or written communication that is
or becomes publicly disclosed, to engage in an Acquisition Transaction
(including the commencement of a tender offer or exchange offer to
purchase ten percent or more of the aggregate voting power of New
Canaan);
(4) after a proposal by a third party to New Canaan or its shareholders to
engage in an Acquisition Transaction, New Canaan breaches (without
cure) any representation or covenant in the Merger Agreement which
would entitle Summit to terminate the Merger Agreement;
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(5) any third party filing an application with any federal or state bank
regulatory authority for approval to engage in an Acquisition
Transaction; or
(6) any Purchase Event (as defined below).
The term "Purchase Event" shall mean any of the following events or
transactions:
(1) any person other than Summit or a subsidiary of Summit acquiring
beneficial ownership of twenty five percent or more of the aggregate
voting power of New Canaan, except as otherwise permitted by the Merger
Agreement; or
(2) failure of the shareholders of New Canaan to approve the Merger
Agreement, failure of the New Canaan Board to call a meeting for
consideration of the Merger or cancellation of such a meeting, or if
the New Canaan Board shall have withdrawn or modified in a manner
adverse to the consummation of the Merger its recommendation with
respect to the Merger Agreement, in each case after an Extension Event;
or
(3) the occurrence of an Extension Event described in subparagraph (1) of
the definition of "Extension Event" above, except that the percentage
referred to in clauses (b) and (c) thereof shall be 25 percent.
The Discontinuance Fee is intended to increase the likelihood that the
Merger will be consummated according to the terms set forth in the Merger
Agreement and may be expected to discourage offers by third parties to acquire
New Canaan prior to the Merger.
To the knowledge of Summit and New Canaan, no event giving rise to the
right to exercise the Discontinuance Fee has occurred as of the date of this
Proxy Statement-Prospectus.
A copy of the Merger Agreement providing for the Discontinuance Fee is set
forth in Appendix A to this Proxy Statement-Prospectus, and reference is made
thereto for the complete terms thereof. The foregoing discussion is qualified
in its entirety by reference to the Merger Agreement.
SUMMIT COVENANTS
Pursuant to the Merger Agreement, Summit has agreed, among other things,
that, until termination of the Merger Agreement, Summit will advise New Canaan
of any material adverse change in Summit's business and certain other
circumstances.
CONDITIONS TO THE MERGER; TERMINATION
The obligations of both parties to consummate the Merger are subject to
the satisfaction of certain conditions including: (1) approval of the Merger
Agreement by the requisite vote of the holders of New Canaan Common; (2)
receipt of all required regulatory approvals by Summit and New Canaan without
restrictions or limitations, that, in the reasonable opinion of Summit , would
materially adversely affect the financial condition of Summit following the
consummation of the Merger and the expiration of any waiting periods required
by such approvals; (3) continued effectiveness of the registration statement;
(4) the receipt by Summit and New Canaan of an opinion from Thomson Coburn as
to certain federal income tax consequences of the Merger; (5) the NYSE has
indicated that the shares of Summit Common to be issued in the Merger are to be
listed on the NYSE, subject to official notice of issuance; (6) the absence of
material litigation; (7) the absence of regulatory agreements relating to the
parties; (8) the delivery of officers' certificates by New Canaan and Summit;
and (9) 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 shareholder and regulatory approvals.
Either party may terminate the Merger Agreement if (1) New Canaan
shareholders, in a vote on the Merger Agreement at a meeting held for such
purpose, 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 (provided that the terminating party is not in material
breach of any representation, warranty, covenant or other agreement), (3) on
the designated Closing Date all the conditions precedent to such parties'
obligations to close are not met due to the other party's material
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breach, or (4) the Closing is not consummated on or before June 1, 1999,
provided, however, that a party does not have the termination right described
by this clause (4) if the failure to close by June 1, 1999 is due to its
failure to perform or observe an agreement which the Merger Agreement requires
it to perform or observe by the Closing Date. In addition, the parties may
terminate the Merger Agreement at any time by mutual agreement. In addition,
the New Canaan Board may terminate the Merger Agreement if the Summit Price is
less than $32.60 and the number obtained by dividing the Summit Price by $40.75
is more than .15 less than the number obtained by dividing the average closing
price per share of the common stocks of the 16 specified bank holding companies
(the "Index Group") for the 10 consecutive full trading days ending on the
Determination Date by the average closing price per share of the common stocks
of the Index Group on August 24, 1998. The Summit Board may terminate the
Merger Agreement if the New Canaan Board fails to recommend approval of the
Merger Agreement or withdraws such recommendation or if the cost of certain
environmental matters exceeds $1,000,000 in the aggregate (or an
unascertainable amount which cannot be reasonably estimated to be less than
such amount).
EXPENSES
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 of closing or if Summit terminates
because the New Canaan Board fails to recommend the Merger or because of the
environmental contingency referred to above, then the terminating party shall
be reimbursed by the defaulting party for the terminating 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. In the event that the Merger Agreement is
terminated by either party other than under circumstances described in the
immediately preceding sentence, each party is mutually released and discharged
from liability to the other party or to any third party thereunder, and no
party is liable to any other party for any costs or expenses incurred in
connection with the Merger Agreement, except that each party is responsible for
one-half of 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 FDIC, the Connecticut Department of Banking and the NYSE.
Each party has agreed to indemnify the other for claims for brokerage
commissions and finders fees.
DISSENTERS' RIGHTS
Any New Canaan shareholder who objects to the Merger Agreement has the
right to be paid the fair value of all shares of New Canaan Common owned by
such shareholder in accordance with the provisions of Section 36a-125(h) of the
BLC and Sections 33-855 to 33-872 of the Connecticut Business Corporation Act
("CBCA"), a copy of which is set forth in Appendix C to this Proxy
Statement-Prospectus. The following discussion is not a complete statement of
the law pertaining to such rights, and is qualified in its entirety by
reference to such sections of the CBCA.
If the Merger is consummated, a shareholder of New Canaan who does not
vote in favor of the approval of the Merger Agreement, and who follows the
provisions of the dissenters' rights statute summarized herein may require
Summit to pay the fair value of his or her shares of New Canaan Common,
determined as provided in the dissenters' rights statute.
A shareholder of New Canaan who desires to pursue his or her dissenters'
rights must deliver to New Canaan, before the taking of the vote on the Merger
Agreement, a written notice of intent to demand payment for his or her shares
if the Merger is effectuated. Notice of an intention to demand payment should
be addressed to Joseph J. Rucci, Jr., Corporate Secretary, New Canaan Bank and
Trust Company, 208 Elm Street, P.O. Box 967, New Canaan, Connecticut 06840. The
shareholder must then not vote any shares in favor of the approval of the
Merger Agreement. A vote against the approval of the Merger Agreement, whether
by proxy or in person at the New Canaan Meeting, is not required to preserve a
shareholder's dissenters' rights, nor will a negative vote be considered a
demand for payment in and of itself without compliance with the requirements
set forth in Appendix C, including the delivery prior to the shareholder vote
of the notice of intent to demand payment. A New Canaan shareholder who votes
in favor of the Merger Agreement will be precluded from exercising dissenters'
rights.
If the Merger Agreement is approved and all conditions to the Merger are
satisfied or waived, Summit will send a dissenters' notice to shareholders who
have given written notice of intent to demand payment within ten
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days after the consummation of the Merger. The dissenters' notice will state
where the shareholder's demand for payment must be sent and where and when
certificates for certificated shares must be deposited; inform holders of
uncertificated shares to what extent transfer of the shares will be restricted
after the payment demand is received; supply a form for demanding payment that
includes the date of the first announcement to news media or to shareholders of
the terms of the Merger Agreement (August 25, 1998); and require that each
shareholder asserting dissenters' rights certify whether or not such
shareholder acquired beneficial ownership of the shares before that date.
Finally, Summit will set a date by which Summit must receive the payment
demand, which date will not be fewer than 30 nor more than 60 days after the
date of the written dissenters' notice. Each such dissenters' notice will
include a copy of CBCA Section 33-855 to 33-872.
Within the time period set forth in Summit's dissenters' notice, a
dissenting shareholder must demand payment for his or her shares and certify
whether he or she beneficially owned such shares prior to August 25, 1998. A
shareholder who demands payment must deposit the certificate or certificates
representing such shares with Summit in accordance with the terms of the
dissenters' notice. Failure to demand payment or deposit share certificates
terminates a shareholder's dissenters' rights.
A notice of intent to demand payment and a demand for payment may be
executed by or for the record shareholder, as the shareholder's name appears on
the share certificate. A beneficial owner of shares of New Canaan Common who is
not the record owner may demand payment with respect to all (but not less than
all) shares held on his or her behalf if the beneficial owner submits to New
Canaan at or before the assertion of his or her dissenters' rights the written
consent of the record holder. A record owner, such as a broker, who holds New
Canaan Common for others, may give such notice of intent or demand payment with
respect to less than all of the shares of New Canaan Common held of record by
such person. In that event, the record owner must give such notice of intent or
demand payment with respect to all shares owned beneficially by the same
person, and must provide New Canaan with the name and address of each person on
whose behalf such demand is being made.
With respect to shares acquired by a dissenting shareholder before August
25, 1998, Summit will pay, as soon as the Merger is consummated or promptly
after receipt of a post-Merger demand, to each shareholder who makes a proper
demand for payment, the amount Summit estimates to be the fair value of such
shareholder's shares (plus accrued interest from the Effective Time). The
payment by Summit to such shareholder will be accompanied by: New Canaan's
balance sheet for the fiscal year ending not more than 16 months before the
date of payment; an income statement for that year; a statement of changes in
shareholders' equity for that year; the latest available interim financial
statements, if any, a statement of Summit's estimate of the fair value of the
shares; an explanation of how the interest was calculated; a statement of the
dissenting shareholder's rights to demand payment; and a copy of the
dissenters' rights sections of the CBCA.
Summit may elect to withhold payment to a shareholder who makes a demand
for payment if the shareholder was not the beneficial owner of New Canaan
Common before August 25, 1998 (shares acquired after such date referred to
herein as After Acquired Shares). If Summit elects to withhold payment to such
shareholder, Summit will send to the dissenting shareholder its offer of
payment (plus accrued interest from the Effective Time) accompanied by a
statement of Summit's estimate of the fair value of the shares, an explanation
of how the interest was calculated and a statement of the shareholder's right
to demand payment if dissatisfied. A shareholder's acceptance of such offer is
in full satisfaction of the shareholder's demand.
If dissatisfied with Summit's payment or offer, a dissenting New Canaan
shareholder must, within 30 days after Summit makes or offers payment, notify
Summit in writing of such shareholder's own estimate of the fair value of his
shares and the amount of interest due, and demand payment of his or her
estimate, less any payment by Summit, or may (in the case of After Acquired
Shares) reject Summit's offer and demand payment for the fair value of his or
her shares and interest owing. Such action may be taken only if (i) the
shareholder believes that the amount paid or offered is less than the fair
value of the shareholder's shares or that the interest due is incorrectly
calculated; or (ii) Summit fails to make payment within 60 days after the date
set for the shareholder's demand for payment. Failure to make such a demand
within the 30-day period will be treated as a waiver of the shareholder's right
to demand payment in an amount exceeding the amount previously paid or offered
by Summit.
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If a New Canaan shareholder's proper demand for payment remains unsettled,
Summit will commence a proceeding within 60 days after receipt of shareholder's
payment demand in Connecticut Superior Court for the judicial district of
Fairfield to determine fair value of the shares (plus accrued interest thereon)
making each dissenting shareholder whose demand remains unsettled a party to
the proceeding. If Summit fails to timely commence such proceeding, Summit
shall pay each dissenting shareholder whose demand remains unsettled the amount
demanded. The court may, if it so elects, appoint appraisers to recommend the
fair value of New Canaan Common. Each New Canaan shareholder made a party to
the proceeding is entitled to the excess of fair value of such shareholder's
shares (as determined by the court), plus interest over the amount paid by
Summit, or to the fair value (plus accrued interest) of the After Acquired
Shares for which Summit elected to withhold payment. The costs and expenses,
including the reasonable compensation and expenses of court-appointed
appraisers will be assessed against Summit; provided, however that all or any
part of such costs and expenses may be apportioned and assessed against any or
all shareholders who are parties to the proceedings to whom Summit has made an
offer for payment if the court finds that the action of such shareholders was
arbitrary or vexatious or not in good faith.
Any holder of New Canaan Common who intends to object to the Merger
Agreement should carefully review the text of the applicable provisions of the
CBCA set forth in Appendix C to this Proxy Statement-Prospectus and should also
consult with such holder's attorney. THE FAILURE OF A HOLDER OF NEW CANAAN
COMMON TO FOLLOW PRECISELY THE PROCEDURES SUMMARIZED ABOVE AND SET FORTH IN
APPENDIX C MAY RESULT IN LOSS OF DISSENTERS' RIGHTS. No further notice of the
events giving rise to dissenters' rights or any steps associated therewith will
be furnished to holders of New Canaan Common, except as otherwise discussed
above and required by law.
While not specifically covered by the opinion of tax counsel discussed
below, in general, any objecting shareholder who perfects the right to be paid
the fair value of such holder's New Canaan Common in cash will recognize
taxable gain or loss for federal income tax purposes upon receipt of such cash
in an amount equal to the difference between the amount of cash received and
their adjusted tax basis in the New Canaan Common.
NEW YORK STOCK EXCHANGE LISTING
Summit has agreed in the Merger Agreement to use its best efforts to cause
the shares of Summit Common to be issued in the Merger to be listed on the
NYSE. The NYSE's indication that such shares of Summit Common are to be listed
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 treated as a
purchase. Under the purchase method of accounting, the amount by which the
purchase price paid by Summit exceeds the fair value of the net assets acquired
will be treated as goodwill, which will be amortized over a period not to
exceed 20 years.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER
The following discussion is based upon an opinion of Thompson Coburn,
special counsel to Summit ("Counsel"), and except as otherwise indicated,
reflects Counsel's opinion. The discussion is a summary of the material United
States federal income tax consequences of the Merger to certain New Canaan
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 Agreement. The discussion does not address
all aspects of federal income taxation that may be applicable to New Canaan
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 New Canaan 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 New Canaan Common pursuant to the exercise of employee stock
options or otherwise as compensation, and persons who hold their New Canaan
Common as part of a "straddle," "hedge" or "conversion transaction." In
addition, the discussion does not address the effect of any applicable state,
local
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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 New Canaan 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 New Canaan Common are held as capital assets (within the meaning of
Section 1221 of the Code) at the Effective Time.
New Canaan 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 "Merger" for federal income tax purposes under Section
368(a)(1) of the Code, with the following federal income tax consequences:
(1) New Canaan shareholders will recognize no gain or loss as a result
of the exchange of their New Canaan Common solely for shares of
Summit Common pursuant to the Merger, except with respect to Cash in
Lieu Amounts with regard to fractional shares, if any, as discussed
below.
(2) The aggregate adjusted tax basis of the shares of Summit Common
received by each New Canaan shareholder in the Merger (including any
fractional share of Summit Common deemed to be received, as described
in paragraph 4 below) will be equal to the aggregate adjusted tax
basis of the shares of New Canaan Common surrendered.
(3) The holding period of the shares of Summit Common received by each
New Canaan shareholder in the Merger (including any fractional share
of Summit Common deemed to be received, as described in paragraph 4
below) will include the holding period of the shares of New Canaan
Common exchanged therefor.
(4) A New Canaan shareholder who receives the Cash In lieu Amount with
regard to a fractional share of Summit Common will be treated as if
the fractional share had been received by such shareholder in the
Merger and then redeemed by Summit 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 Summit Common allocable to the fractional
share.
Counsel's opinion is subject to the conditions and customary assumptions
that are stated therein and relies upon various representations made by Summit
and New Canaan. 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 Internal
Revenue Service ("Service"), has no binding effect. 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 Summit nor New
Canaan 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 NEW CANAAN SHAREHOLDERS AND DOES NOT TAKE INTO ACCOUNT
THE PARTICULAR FACTS AND CIRCUMSTANCES OF EACH NEW CANAAN SHAREHOLDER'S TAX
STATUS AND ATTRIBUTES. AS A RESULT, THE FEDERAL INCOME TAX CONSEQUENCES
ADDRESSED IN THE FOREGOING DISCUSSIONS MAY NOT APPLY TO EACH NEW CANAAN
SHAREHOLDER. ACCORDINGLY, EACH NEW CANAAN 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 SUMMIT COMMON
The shares of Summit Common into which shares of New Canaan Common are
converted on the Effective Time will be freely transferable under the
Securities Act except for shares issued to any shareholder who
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may be deemed to be an "affiliate" of New Canaan for purposes of Rule 145 under
the Securities Act as of the date of Special Meeting. Affiliates may not sell
their shares of Summit Common 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. Persons who may be deemed to be affiliates of New Canaan
generally include individuals or entities that control, are controlled by or
are under common control with New Canaan and may include executive officers and
directors of New Canaan as well as principal shareholders of New Canaan.
New Canaan agreed in the Merger Agreement to use its best efforts to cause
each director, executive officer and other person deemed in the opinion of New
Canaan's counsel to be affiliates of New Canaan to enter into an agreement with
Summit providing that such persons agree to be bound by the restrictions of
Rule 145.
DIFFERENCES IN SHAREHOLDERS' RIGHTS
The rights of New Canaan shareholders, which are determined by the BLC,
and the CBCA when applicable, and the Certificate of Incorporation and By-Laws
of New Canaan, differ from the rights accorded Summit shareholders, which are
determined by New Jersey corporation law and the Restated Certificate of
Incorporation and By-Laws of Summit. Some of the differences in shareholders'
rights are attributable to differences between the banking and corporation laws
of Connecticut, the state of New Canaan's incorporation, and the corporation
law of New Jersey, the state of Summit's incorporation. The remaining
differences in shareholders' rights are attributable to differences between the
Certificate of Incorporation and By-Laws of New Canaan and Restated Certificate
of Incorporation and By-Laws of Summit. Certain of the rights of New Canaan
shareholders described below which are provided by Connecticut banking and
corporation law or contained in the Certificate of Incorporation or By-Laws of
New Canaan and which are not provided by New Jersey corporation law or
contained in the Restated Certificate of Incorporation or By-Laws of Summit may
be deemed to have an anti-takeover effect and will not be available to New
Canaan shareholders as Summit shareholders; however, certain rights provided
for by New Jersey corporation law or the Restated Certificate of Incorporation
or By-Laws of Summit also may be deemed to have an anti-takeover effect and
will be available to New Canaan shareholders only after becoming Summit
shareholders. The following is a summary discussion of the most significant
differences in shareholders' rights. This summary is qualified in its entirety
by reference to the banking and corporation laws of Connecticut and New Jersey
and the governing documents of New Canaan and Summit referred to above.
COMPARISON OF CERTIFICATES OF INCORPORATION AND BY-LAWS
CLASSIFIED BOARD AND RELATED PROVISIONS
NEW CANAAN. The By-Laws of New Canaan provide that the New Canaan Board
shall consist of not less than twelve nor more than twenty-five directors.
Directors are elected by a plurality of votes cast. The New Canaan Board is not
classified and presently there are thirteen directors of New Canaan. Holders of
New Canaan Common may not cumulate their votes in elections of directors.
SUMMIT. The Restated Certificate of Incorporation of Summit provides that
the Summit Board shall consist of not less than five and not more than forty
persons and divides the Summit Board into three classes, with each class of
directors serving a staggered term of three years. Each class of directors must
consist, as nearly as possible, of one third of the number of directors
constituting the entire Summit Board. Directors are elected by a plurality of
votes cast by shares entitled to vote. Presently there are seven directors in
Class I, five directors in Class II and six directors in Class III. Holders of
Summit Common may not cumulate their votes in elections of directors.
The Restated Certificate of Incorporation of Summit 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 Summit
entitled to vote generally in the election of directors, voting as a single
class.
The Restated Certificate of Incorporation of Summit also provides that the
affirmative vote of the holders of 80% or more of the combined voting shares of
Summit, voting as a single class, is required to amend, repeal
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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. The effect of the classified board and related provisions is to
make it difficult for persons other than those negotiating directly with the
Summit Board to acquire seats on the Summit Board and obtain control of Summit.
MEETINGS AND CONSENTS
NEW CANAAN. New Canaan's By-Laws provide that a special meeting of
shareholders may be called by the President, the Chairman, or a majority of the
Board of Directors and the President or Chairman shall call a special meeting
upon the written request of holders of not less than 10% of the voting power of
all shares entitled to vote at the meeting.
SUMMIT. Under Summit's By-Laws, except as otherwise provided by law,
special meetings may be called only by the Chairman, Vice Chairman, President
or majority of the entire Board. The Restated Certificate of Incorporation of
Summit requires that, subject to the rights of holders of any series of
Preferred Stock or other class or series of stock having preference over the
Summit Common as to dividends or upon liquidation, all actions by the
shareholders of Summit be taken exclusively at a duly called annual or special
meeting of Summit'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 Summit provides that the affirmative
vote of the holders of 80% or more of the combined voting shares of Summit,
voting as a single class, is required to amend, alter, repeal or take any
action inconsistent with this requirement. Under the Summit By-Laws, except as
otherwise required by law or Summit's Restated Certificate of Incorporation,
all actions by shareholders must be taken at a meeting unless the Board
determines that such action shall be taken by written consent.
SUMMIT SHAREHOLDER RIGHTS PLANS
Summit has in effect a shareholder rights plan pursuant to which holders
of shares of Summit Common possess one preferred stock purchase right for each
share of Summit Common held by them. 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 one hundred-fiftieth of a share of a new series of Preferred Stock,
designated the Series R Preferred Stock, at $60 per one one hundred-fiftieth
share ("exercise price"), with full shares having rights per share equal to 150
times the rights of Summit Common 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 Summit Board has the power to redeem the
preferred stock purchase rights at any time but, after the preferred stock
purchase rights become exercisable, 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 Summit's shareholder rights plan, see
"DESCRIPTION OF SUMMIT CAPITAL STOCK-Shareholder Rights Plan." The combination
of prohibitive dilution of the acquiring person's share value and the power of
the Summit Board to redeem the preferred stock purchase rights is intended to
encourage potential acquiring persons to negotiate with the Summit 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.
New Canaan has not adopted a shareholders rights plan.
NOMINATIONS TO THE BOARD, SHAREHOLDER PROPOSALS AND CONDUCT OF MEETING
NEW CANAAN. The New Canaan's By-Laws contain no provisions with respect to
shareholder nominations for election to the Board of Directors.
SUMMIT. The By-Laws of Summit contain provisions that empower the Summit
Board to adopt rules, regulations and procedures governing meetings of Summit
shareholders and empower the chairman of a meeting of Summit shareholders,
subject to the rules and regulations adopted by the Summit Board, to adopt such
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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 Summit By-Laws also contain provisions that (1)
establish rules governing nominations for director and shareholder proposals
made at 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 anniversary of the preceding year's
annual 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.
VOTE REQUIRED FOR CHARTER AND BY-LAW AMENDMENTS
NEW CANAAN. The New Canaan Certificate of Incorporation may be amended by
New Canaan shareholders in accordance with the CBCA which generally requires an
affirmative vote of a majority of shares entitled to vote. Pursuant to New
Canaan's By-Laws, the New Canaan Board may make, adopt, alter, amend and repeal
the By-Laws by a majority vote. Shareholders of New Canaan also have the power
to make, amend and repeal By-Laws by a majority vote of outstanding shares.
SUMMIT. As discussed above, the Restated Certificate of Incorporation of
Summit requires that certain provisions relating to increases in the number of
directors (which number may also be increased by the Board), changes to the
classified board provision and changes to the provision requiring that actions
by shareholders be effected at an annual or special meeting or by unanimous
written consent, receive the affirmative vote of holders of 80% of the combined
voting shares of Summit, voting as a single class. The By-Laws of Summit
provide for amendments upon two-thirds vote of the Board of Directors. Under
the New Jersey Business Corporation Act, by-laws made by a corporation's board
may be altered or repealed and new by-laws made by the shareholders.
REMOVAL OF DIRECTORS
NEW CANAAN. Under the New Canaan's By-Laws, any individual director may be
removed with or without cause by the affirmative vote of the holders of a
majority of shares entitled to vote or by seventy-five percent (75%) vote of
the directors present.
SUMMIT. The Summit Restated Certificate of Incorporation contains no
specific provisions with respect to removal of directors (other than for
directors elected by preferred shareholders). Under the New Jersey Business
Corporation Act, with respect to a classified board, directors may be removed
by shareholders for cause only, by the affirmative vote of the majority of
votes cast by the holders entitled to vote thereon.
AUTHORIZED SHARES
NEW CANAAN. New Canaan has 2,000,000 authorized shares of New Canaan
Common. New Canaan does not have authorized preferred stock. As of September
30, 1998, there were 334,317 shares of New Canaan Common outstanding. New
Canaan's shareholders have preemptive rights except in certain limited
circumstances.
SUMMIT. The Restated Certificate of Incorporation of Summit authorizes the
issuance of 390,000,000 shares of Summit Common and 6,000,000 shares of
preferred stock, no par value. As of September 30, 1998, there were
approximately 172,968,000 shares of Summit Common outstanding and 1,500,000
shares of Summit Series R Preferred reserved for issuance under the shareholder
rights plan of Summit. The Restated Certificate of Incorporation of Summit and
the New Jersey Business Corporation Act authorize the Summit 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
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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 attach to the ownership of Summit Common.
INDEMNIFICATION; LIMITATION OF LIABILITY
NEW CANAAN. Article VII of New Canaan's By-Laws provides that New Canaan
shall indemnify and reimburse the directors, officers, and employees to the
extent permitted by the Connecticut Stock Corporation Act, predecessor statute
to the CBCA which has been superseded by the CBCA. Article VIII of New Canaan's
Certificate of Incorporation provides that the personal liability of a director
of New Canaan to New Canaan or its shareholders for monetary damages for breach
of duty owed as a director is limited to the amount of compensation received
during the year of the violation unless (1) the breach involved a knowing and
culpable violation of law by the director; (2) the breach enabled the director
or an "associate" (as that term is defined in the Connecticut General Statutes)
to receive an improper personal economic gain; (3) the breach showed a lack of
good faith and conscious disregard for the duty of the director to New Canaan
under circumstances in which the director was aware that his or her conduct or
omission created an unjustifiable risk of serious injury to New Canaan; (4) the
breach constitutes a sustained and unexcused pattern of inattention that
amounted to an abdication of the director's duties to New Canaan; or (5) the
breach created liability under what is currently Section 36a-58 of the
Connecticut General Statutes.
SUMMIT. Summit's By-Laws provide that corporate agents (which term
includes directors, officers and employees) of Summit shall be indemnified and
held harmless by Summit to the fullest extent authorized by the laws of the
State of New Jersey against expenses and liabilities arising in connection with
actions performed by the corporate agent on behalf of Summit and that Summit
may maintain insurance for corporate agents against liabilities and expenses.
Summit's Restated Certificate of Incorporation limits the personal liability of
a director or officer for damages for breach of any duty owned to the company
or its shareholders except for liability for breach of duty based upon an act
or omission: (i) in breach of such person's duty of loyalty to the corporation
or its shareholders, (ii) not in good faith or involving a knowing violation of
the law, or (iii) resulting in receipt by such person of an improper personal
benefit.
COMPARISON OF CORPORATION AND BANKING LAWS
DISSENTERS 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 that 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 which will be listed on a
national securities exchange or held of record by not less than 1,000 holders.
Summit's Restated Certificate of Incorporation contains nothing which provides
otherwise.
Connecticut law provides dissenters' rights of appraisal to shareholders
of a bank, such as New Canaan, in the event of a merger or consolidation or
similar transaction. If a shareholder properly exercises his or her rights as
an objecting shareholder, he or she will have the right to be paid "fair value"
of his or her shares based, initially, on the bank's estimated fair value of
the shares. If a shareholder and the bank do not agree on the fair value of his
or her shares, the dissenting shareholder may submit to the bank his or her own
estimate of the fair value rejecting the bank's estimated fair value offer. The
bank must then commence a proceeding in the Connecticut Superior Court for the
judicial district where the bank's principal office is located to determine the
fair value of the shares. The court shall determine the fair value of the
shares as of the day prior to the date on which notice of the proposed
transaction was given, exclusive of any element of value arising from the
expectation or accomplishment of the proposed transaction. The court may also
order the payment of interest and/or certain costs and expenses under equitable
principles. See "THE MERGER - Dissenters' Rights."
DISSENTERS' 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
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disposition of all or substantially all of the assets of the corporation not in
the usual or regular course of business as conducted by the corporation (other
than for certain transfers of assets of a wholly owned subsidiary by the parent
corporation), except, unless the certificate of incorporation provides
otherwise, 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 which 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 which 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 Connecticut dissenters' right statute discussed in the preceding paragraph
also applies in the event of the sale of substantially all of the property of a
corporation, other than pursuant to a court order or a plan approved by
shareholders which provides that all of the net proceeds will be distributed to
shareholders within one year.
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 provisions that, if contained in a
proposed charter amendment, would entitle the class or series to vote as a
class on the amendment. Connecticut corporation law contains a similar
provision on class voting on a plan of merger.
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 ordinary course of
its business or (2) the corporation's total assets would be less than its total
liabilities. Under Connecticut banking law, dividends may be paid only out of
net profits. "Net Profits" is defined as the remainder of all earnings from
current operations. The total of all dividends declared by a bank in any
calendar year may not, unless specifically approved by the Connecticut
Commissioner of Banking, exceed the total of its net profits of that year
combined with its retained net profits of the preceding two years.
SHAREHOLDER APPROVAL OF MERGERS AND CONSOLIDATIONS. While shareholder
approval of a merger or consolidation is generally required under both the New
Jersey and the Connecticut corporation laws, the New Jersey corporation law
provides that, unless otherwise provided in the corporation's certificate of
incorporation, 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 certificate 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 (including shares
issuable upon conversion of other securities or upon exercise of rights or
warrants issued pursuant to the merger) 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 New Jersey corporation law, unless otherwise provided in the
corporation's certificate of incorporation, a merger requiring shareholder
approval must be approved by the majority of the shares voted holders entitled
to vote thereon. Under Connecticut banking law, mergers in which a Connecticut
bank is a participating bank must be approved by the board of directors and the
affirmative vote of at least two-thirds of the issued and outstanding shares of
each class of the capital stock of such bank entitled to be cast by each voting
group.
SHAREHOLDER APPROVAL OF ASSET SALES. Under New Jersey corporation law, a
sale of all or substantially all of a corporation's assets outside the regular
course of business requires the approval of the board of directors and the
affirmative vote of a majority of the shares voted. The Restated Certificate of
Incorporation of Summit provides that the Board of Directors of Summit may sell
all the rights, franchises and property of the company as an entirety with the
approval of two-thirds of the outstanding shares. Under Connecticut banking
law, a sale of all or substantially all of the assets of a bank requires the
approval of the board of directors and holders of at least two-thirds of the
outstanding stock of each class of stock, whether or not entitled to vote
thereon.
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
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that the board may not amend or repeal by-laws approved by shareholders. Under
Connecticut corporation law, the board of directors has the power to adopt,
amend or repeal by-laws of a corporation unless: (1) the corporation's
certificate of incorporation reserves power to the corporation's shareholders,
or (2) the shareholders, in amending or repealing a particular by-law, provide
expressly that the board of directors may not amend or repeal that by-law.
Furthermore, Connecticut corporation law allows a corporation's shareholders to
amend or repeal a corporation's by-laws even though the by-laws may also be
amended or repealed by its board of directors.
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) 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. The annual election of directors, if not
conducted at a shareholders' meeting, may only be effected by unanimous written
consent. Under New Jersey corporation law, a shareholder vote on a plan of
merger, consolidation or sale of substantially all of the assets of the
corporation, if not conducted at a shareholders' meeting, may only be effected
by either: (i) unanimous written consent of all shareholders entitled to vote
on the matter with advance notice to any other shareholders, or (ii) unless
otherwise provided in the corporation's certificate of incorporation, written
consent of shareholders who would have been entitled to cast the minimum number
of votes necessary to authorize such action at a meeting, together with advance
notice to all other shareholders. As previously discussed, Summit's Restated
Certificate of Incorporation permits action by written consent only where the
consent is unanimous. Connecticut corporation law, except as otherwise provided
in a company's certificate of incorporation, permits any action which may be
taken at a meeting of shareholders to be taken without a meeting as follows:
(i) by consent in writing, setting forth the action so taken or to be taken,
signed by all of the persons who would be entitled to vote upon such action at
a meeting, or by their duly authorized attorneys; or (ii) if the certificate of
incorporation so provides, by consent in writing, setting forth the action to
be taken, signed by persons holding such designated proportion, not less than a
majority, of the voting power of shares, or the shares of any particular class,
entitled to vote thereon or to take such action, as may be provided in the
certificate of incorporation, or their duly authorized attorneys; except that
directors may not be elected by action of shareholders without a meeting of
shareholders other than by unanimous written consent, or pursuant to a plan of
merger.
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 shares voted cast. Unless otherwise
provided in the certificate of incorporation, shareholders of a corporation
whose board of directors, is classified (such as Summit) may not remove a
director except for cause. Under Connecticut corporation law, any director or
the entire board of directors may be removed, with or without cause, by the
holders of a majority of the shares then entitled to vote at an election of
directors unless the certificate of incorporation provides that directors may
be removed only for cause.
SPECIAL MEETINGS OF SHAREHOLDERS. Under New Jersey corporation law,
special meetings of shareholders may be called by the president or board of
directors of the corporation, or by such other officers, directors or
shareholders as provided for in the by-laws. In addition, 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.
Under Connecticut corporation law, special meetings of stockholders may be
called by the board of directors or by such person or persons as may be
authorized by a company's certificate of incorporation or the by-laws, or by
holders of not less than 35% of the corporation's voting stock in the case of a
public company; New Canaan's By-laws, however, provide that holders of not less
than 10% of its voting stock may call a special meeting of shareholders.
DEFACTO MERGER. Under New Jersey corporation law, shareholders have the
same voting and dissenters' 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
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exceed by more than 40% such shares outstanding before the transaction.
Connecticut corporation and banking laws do not contain a comparable provision.
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. Connecticut corporation law also contains a provision authorizing the
court to award reasonable expenses, including attorneys' fees to the defendant
in a derivative action if the court finds that the proceeding was commenced or
maintained without reasonable cause or for an improper purpose. However,
Connecticut corporation law does not require the plaintiff or plaintiffs to
give security for the reasonable expenses that may be incurred by the
corporation or other named defendants. In addition, Connecticut corporation law
provides for an award to plaintiffs of reasonable expenses, including attorneys
fees, incurred in the proceeding if the court finds that the proceeding has
resulted in a substantial benefit to the corporation.
INSPECTION OF BOOKS AND RECORDS. Under New Jersey corporation law, a
shareholder of record for at least 6 months immediately preceding his 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 minutes of the proceedings of shareholders and
record of shareholders. Furthermore, upon establishing a proper purpose and
receiving a court order a shareholder may examine the books and records of
account, minutes and records of shareholders of a corporation. Under
Connecticut corporation law, upon five business days written notice a
shareholder (including a beneficial owner) is entitled to inspect and copy the
corporation's certificate of incorporation and by-laws (and any amendments
thereto), board resolutions creating series or classes of shares and fixing
rights, preferences and limitations thereto, minutes of shareholders meetings
and actions by consent for the past three years, written communications to
shareholders, including financial statements, for the past 3 years, names and
business addresses of directors and officers, and the corporation's most recent
annual report filed with the Secretary of State, minutes of meetings of
directors, committees, accounting records and shareholder records, provided
that the shareholder demand is in writing, is made in good faith, states a
proper purpose, describes with reasonable particularity the purpose and records
to be inspected and such records are directly related to such purpose.
Shareholders also have the right, upon written demand, to inspect the
shareholders list beginning two days after notice of a shareholders meeting for
which the list was proposed and continuing through the meeting.
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, and after such
five-year period a business combination may only be effected if the transaction
was approved by the corporation's board of directors prior to the stockholder
becoming an interested stockholder, the transaction receives the approval of
two-thirds of the voting stock of the corporation not beneficially owned by the
interested stockholder, 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)
the 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) the 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) the 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
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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 stockholders. 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.
Connecticut corporation law which, in this context, encompasses banking
corporations, provides that any "business combination" must, with certain
exceptions, be approved by the board of directors and the affirmative vote of
at least the holders of 80% of the voting power of the outstanding shares of
voting stock of the corporation and the holders of two-thirds of the voting
power of the outstanding shares of voting stock of the corporation other than
voting stock held by the "interested shareholder" (generally defined as the
beneficial owner of 10% or more of the voting power of the outstanding shares
of voting stock of a corporation) who is, or whose affiliate or associate is, a
party to the business combination or held by an affiliate or associate of the
interested shareholder. A "business combination" is generally defined in the
CBCA to include (A) any merger, consolidation or share exchange with (i) any
interested shareholder (as defined below) or (ii) any other domestic or foreign
corporation whether or not itself an interested shareholder, which is, or after
the merger, consolidation or share exchange would be, an affiliate or associate
of an interested shareholder that was an interested shareholder prior to the
transaction; (B) any sale, lease, exchange, mortgage, pledge, transfer or other
disposition, other than in the usual and regular course of business, in one
transaction or a series of transactions in any twelve-month period, to any
interested shareholder or any affiliate or associate of any interested
shareholder, other than the corporation, or any of its subsidiaries, of any
assets of the corporation or any subsidiary having an aggregate book value of
10% or more of the total market value of the outstanding shares of the
corporation or of its net worth, (C) the issuance or transfer by the
corporation, or any subsidiary, of any equity securities of the corporation or
any subsidiary which have an aggregate value of 5% or more of the total market
value of the outstanding shares of the corporation to any interested
shareholder or any affiliate or associate of any interested shareholder, (D)
the adoption of any resolution for the liquidation or dissolution of the
corporation or any subsidiary proposed by or on behalf or an interested
shareholder or any affiliate or associate of any interested shareholder, other
than the corporation or any of its subsidiaries; or (E) any reclassification of
securities, as defined therein, which has the direct or indirect effect of
increasing by 5% or more of the total number of outstanding shares, the
proportionate amount of the outstanding shares of the corporation owned by any
interested shareholder or affiliate or associate of an interested shareholder,
in each case subject to certain limitations. This supermajority voting
provision is not applicable if (i) all of the fair price and procedural
conditions set forth in Section 33-842(b) of the CBCA are met or (ii) the board
of directors approves the business combination prior to the time the interested
shareholder became an interested shareholder, unless the certificate of
incorporation otherwise provides.
In addition to the "business combination" statute described above, the
CBCA further provides that a resident domestic corporation (as defined in the
CBCA), including a banking corporation, may not engage in a business
combination (which is defined similarly to the definition set forth above) with
an interested shareholder of such corporation for a period of five years
following the date that the interested shareholder became such unless such
business combination or the purchase of stock made by such interested person on
the date that the interested shareholder became such is approved by the board
of directors of the corporation and by a majority of the nonemployee directors,
of which there must be at least two, prior to the interested shareholder's
stock acquisition date. The foregoing provisions do not apply to action
excepted transactions listed in Section 33-845 of the CBCA.
Under New Jersey corporation law, a director of a New Jersey corporation,
in discharging his or her duties to the corporation, and in determining what he
or she reasonably believes to be in the best interest of the corporation may,
in addition to considering the effects of any action on shareholders, consider
any of the following: (a) the effects of the action on the corporation's
employees, suppliers, creditors and customers; (b) the effects of the action on
the community in which the corporation operates; and (c) the long-term as well
as the short-term interest of the corporation and its shareholders, including
the possibility that these interests may best be served by the continued
independence of the corporation. Determinations resulting in the rejection of a
proposal or offer to acquire the corporation are expressly covered by this
provision of the New Jersey Business
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Corporation Act. The Connecticut Business Corporation Law contains a similar
"other constituency" provision with regard to mergers, sales of assets and
other business combinations.
INDEMNIFICATION. Under the New Jersey corporation law, a corporation may
indemnify any person who is or was a director, officer, trustee, 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 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 which involves such
person by reason of his 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
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 opposed 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 corporation shall 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 indemnify such person under the statute.
Connecticut corporation law provides that, unless the corporation's
certificate of incorporation expressly provides otherwise, a corporation formed
prior to January 1, 1997 is required to indemnify directors, officers,
employees and agents with respect to certain actions by reason of the fact that
he or she is or was a director, officer, employee or agent against expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
incurred by him or her in connection with the defense or settlement of such
action, suit or proceeding if (i) he or she conducted himself or herself in
good faith, (ii) he or she reasonably believed: (A) in the case of conduct in
his or her official capacity with the corporation, that his or her conduct was
in its best interests and (B) in all other cases, that his or her conduct was
not opposed to its best interests, and (iii) with respect to any criminal
action or proceeding, he or she had no reasonable cause to believe his or her
conduct was unlawful. With respect to derivative actions, however, no
indemnification shall be made to a director except for reasonable expenses
incurred in connection with the proceeding if it is determined that the
director has met the relevant standard of conduct under the Connecticut General
Statutes. Connecticut corporation law requires that a corporation shall
indemnify any such person against expenses to the extent such person has been
successful, whether on the merits or otherwise, in any of the foregoing
proceedings or defense of any such claims.
Connecticut corporation law permits a Connecticut bank to purchase and
maintain insurance on behalf of any person who is a director, officer, employee
or agent of the bank, or who in such capacity acted in other capacities at the
request of the bank, against any liability asserted against such person or
incurred by him or her in any such capacity, or arising out of his status as
such, whether or not the bank would have the power to indemnify such person.
Both New Jersey and Connecticut corporation law permit advancement of
expenses.
LIMITATION OF DIRECTOR AND OFFICER LIABILITY. 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,
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<PAGE>
(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 Connecticut corporation law contains a similar
provision which provides that members of a board of directors are entitled to
rely in good faith upon the records of the corporation and upon such
information, opinions, reports or statements presented to the corporation by
any of the corporation's officers or employees, or committees of the board of
directors, or by any other person as to matters the member reasonably believes
are within such other person's professional or expert competence.
The New Jersey corporation law further provides that the certificate or
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.
With respect to the foregoing provisions, 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 matters in which the
director or officer has a material conflict of interest. Under the BLC, the
certificate of incorporation of a Connecticut bank may provide that the
personal liability of the bank's directors to the bank and its shareholders for
breach of duty owed as a director is limited to the amount of compensation
received during the year of the violation unless: (i) the breach involved a
knowing and culpable violation of law by the director; (ii) the breach enabled
the director or an "associate" (as that term is defined in the Connecticut
General Statutes) to receive an improper personal economic gain; (iii) the
breach showed a lack of good faith and conscious disregard for the duty of the
director to the bank under circumstances in which the director was aware that
his or her conduct or omission created an unjustifiable risk of serious injury
to the bank; (iv) the breach constitutes a sustained and unexcused pattern of
inattention that amounted to an abdication of the director's duties to the
bank; or (5) the breach created liability under Section 36a-58 of the
Connecticut General Statutes.
SUMMIT BANCORP.
DESCRIPTION OF BUSINESS
Summit commenced operations on October 1, 1970 as a bank holding company
registered under the Bank Holding Company Act. Summit currently owns three bank
subsidiaries and several active non-bank subsidiaries. At September 30, 1998,
Summit had total consolidated assets of $31.9 billion on the basis of which it
ranked as the largest New Jersey-based bank holding company.
The bank subsidiaries engage in a general banking business. Summit Bank
(Hackensack, NJ) is Summit's largest bank subsidiary, accounting for
approximately 92% of Summit's total consolidated assets at September 30, 1998.
Summit's non-bank subsidiaries engage primarily in securities brokerage,
insurance brokerage, venture capital investment, commercial finance lending,
lease financing, asset-based lending production, letter of credit issuance,
data processing and reinsuring credit life and disability insurance policies
related to consumer loans made by the bank subsidiaries.
As of September 30, 1998, prior to the acquisition of NSS Bank, Summit
owned two bank subsidiaries which operated 450 banking offices located in major
trade centers and suburban areas in New Jersey and Pennsylvania. The following
table lists, as of September 30, 1998, 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 and members of the
Federal Reserve System. NSS Bank is a state bank and not a member of the
Federal Reserve System.
44
<PAGE>
<TABLE>
<CAPTION>
LOCATION OF NO. OF BANKING TOTAL ASSETS (2) TOTAL DEPOSITS (2)
PRINCIPAL OFFICES OFFICES (1) (IN THOUSANDS) (IN THOUSANDS)
- ------------------------------------- ---------------- ------------------ --------------------
<S> <C> <C> <C>
Summit Bank, Hackensack, NJ ......... 382 $29,062,434 $20,151,784
Summit Bank, Bethlehem, PA .......... 68 2,811,228 1,989,600
</TABLE>
- --------
(1) Banking offices include 53 supermarket branches (46 in NJ; 7 in PA)
(2) Not adjusted to exclude interbank deposits or other transactions among the
subsidiaries.
Summit 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 Summit 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 Summit 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 Summit without the prior approval of the bank
regulatory authorities. The Federal Reserve Act, which affects Summit Bank
(Hackensack NJ) and Summit Bank (Bethlehm PA), 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. Each bank, as a
state-chartered bank, may 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 its surplus would not be reduced (New
Jersey and Pennsylvania). At September 30, 1998, the total undistributed net
assets of Summit's subsidiary banks were $2.4 billion of which $129 million was
available under the most restrictive limitations for the payment of dividends
to Summit.
RECENT DEVELOPMENTS
On November 21, 1998, Summit completed its acquisition of NSS Bancorp.
Inc., a Connecticut corporation and bank holding company. As a result of the
acquisition of NSS Bancorp by Summit, NSS Bank, a Connecticut savings bank,
became a wholly-owned subsidiary of Summit. As of September 30, 1998, NSS Bank
operated eight banking offices in Fairfield County, Connecticut and had total
assets of approximately $650,000,000.
DESCRIPTION OF SUMMIT CAPITAL STOCK
Summit is presently authorized to issue 390,000,000 shares of Summit
Common and 6,000,000 shares of Preferred Stock, without par value ("Summit
Preferred"). As of September 30, 1998 there were approximately 172,968,000
shares of Summit Common outstanding and 1,500,000 shares of Summit Series R
Preferred designated in Summit's Restated Certificate of Incorporation and
reserved for issuance under the Summit Rights Plan (as defined herein). On the
date of this Proxy Statement-Prospectus there were no shares of Summit
Preferred outstanding. Pursuant to the New Jersey Business Corporation Act, the
Summit Board has authority to set the terms and conditions of the authorized
but unissued Summit Preferred. Summit may issue any authorized Summit Common
and Summit Preferred without further shareholder vote, unless such a vote is
required for a particular transaction by applicable law or stock exchange
rules, including rules of the NYSE, on which the Summit Common is presently
listed. The issuance of additional Summit Common or Summit Preferred, including
Summit Preferred that might be convertible into Summit Common, may, among other
things, affect the earnings per share applicable to existing Summit Common and
the equity and voting rights of existing holders of Summit Common.
The following summary does not purport to be complete and is subject in
all respects to the applicable provisions of the New Jersey Business
Corporation Act, Summit's Restated Certificate of Incorporation and Summit's
Rights Plan.
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<PAGE>
COMMON STOCK
The rights of holders of Summit Common are subject to the preferences as
to dividends and liquidation rights and other prior rights, if any, of any
class or series of Summit Preferred that may be issued. The holders of Summit
Common 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 Summit Board out
of funds of Summit legally available therefor. Shares of Summit Common do not
have cumulative voting rights; accordingly, at any annual meeting of Summit
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
represented at the meeting (provided a quorum is present) can fill all
positions on the Summit Board that are up for election at such meeting if they
so choose and, in such event, the holders of the remaining shares will not be
able to fill any of such positions. Summit 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 Summit, holders of Summit Common are entitled
to share pro rata in the distribution of Summit's assets available for such
purpose. All shares of Summit Common are fully paid and nonassessable. No
preemptive rights attach to the ownership of Summit Common and no personal
liability is imposed on the holders thereof by reason of the ownership of such
shares. Equiserve - First Chicago Trust Division is the transfer agent,
dividend disbursing agent and registrar for the Summit Common. Summit Bank
(Hackensack, NJ) is the co-transfer agent.
SHAREHOLDER RIGHTS PLAN
In August 1989, Summit adopted a shareholder rights plan ("Rights Plan"),
under which preferred stock purchase rights ("Rights") attached to Summit
Common outstanding as of the close of business on August 28, 1989. Holders of
shares of Summit Common issued subsequent to that date receive the Rights with
their shares. Except as indicated below, each Right entitles the registered
holder to purchase from Summit one one-hundred and fiftieth of a share of a new
series of Summit Preferred Stock, designated the Series R Preferred Stock
("Summit Series R Preferred"). The Rights expire on August 16, 1999, and are
subject to redemption and amendment in certain circumstances. The Rights trade
automatically with shares of Summit Common 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", as defined in the Rights Plan) of the following: (i)
ten days following a public announcement that a person or group has acquired
beneficial ownership of 15% or more of the Summit Common outstanding at that
time or voting securities of Summit representing 15% or more of the total
voting power of Summit (such person or group becoming an "Acquiring Person", as
defined in the Rights Plan) or (ii) ten business days (or such later date as
the Summit 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 Summit Common or voting securities representing 30%
or more of the total voting power of Summit.
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 Summit Common and other voting securities that the Summit
Board determines to be fair to shareholders and otherwise in the best interests
of Summit), each Right, other than Rights owned by the Acquiring Person, will
thereafter entitle the holder to receive, upon exercise of the Right, Summit
Series R Preferred having a value equal to two times the exercise price of the
Right.
In the event that a Distribution Date occurs (under either of the
circumstances described above) and Summit is acquired in a Merger or other
business combination, or more than 50% of Summit's assets or earning power is
sold or transferred, each Right will thereafter entitle the holder there 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 combination of prohibitive dilution of the Acquiring Person's share
values and the power of the Summit Board to redeem the Rights is intended to
encourage potential acquiring persons to negotiate with the Summit 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.
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<PAGE>
The foregoing description of the 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 Summit's Registration Statement
on Form 8-A filed August 28, 1989.
NEW CANAAN BANK AND TRUST COMPANY
DESCRIPTION OF BUSINESS
New Canaan is a Connecticut state bank and trust company incorporated in
December, 1974 which conducts a general banking business embracing all of the
customary deposit and lending functions of a commercial bank in Connecticut. As
of September 30, 1998, New Canaan had total assets of $164,321,000. New
Canaan's primary deposit products are demand, savings, and time accounts and
its primary lending products are real estate mortgages and commercial and
industrial loans. New Canaan also offers debit cards and safe deposit boxes to
its customers and arranges to issue travelers' checks and VISA cards. New
Canaan does not offer trust services. The principal markets for the services of
New Canaan are the residents and businesses of New Canaan, Connecticut and
surrounding Fairfield County communities. There are no unusual seasonal
influences on New Canaan's operations.
New Canaan has four banking offices in Fairfield County, Connecticut. Its
main office is located at 208 Elm Street in the Town of New Canaan, and it
maintains a branch at 42 Forest Street also in the Town of New Canaan. A third
office is located at 777 Post Road, Darien, Connecticut. The fourth office is
located at 1312 Post Road, Fairfield, Connecticut. New Canaan has recently made
application for regulatory approvals to open an office at 1959 Summer Street,
Stamford, Connecticut and has entered into a lease for a branch office at that
address.
New Canaan's principal sources of income are interest on loans and
interest and dividends on investments, primarily U.S. Government agency and
mortgage-backed securities and other short-term investments. New Canaan
realizes income from the sale of loans. To a lesser extent, New Canaan realizes
other non-interest income, including income from service charges on deposit
accounts, safe deposit fees and debit and credit card fees. The principal
sources of funds for New Canaan activities are deposit accounts, amortization
and prepayment of loans and funds provided from operations. New Canaan's
deposits are insured by the FDIC to the maximum extent permitted by law.
New Canaan had no material expenditures for new product lines or
environmental pollution compliance in fiscal year 1998 to date and none are
anticipated.
There are presently approximately 62 full-time equivalent employees of the
Bank.
As of September 30, 1998, New Canaan met all capital adequacy requirements
to which it is subject. If New Canaan were to fail to meet its minimum capital
requirements, the regulators would require the Bank to obtain additional
capital, among other items.
New Canaan is subject to regulation by the FDIC and the Connecticut
Banking Commissioner.
DESCRIPTION OF NEW CANAAN CAPITAL STOCK
COMMON STOCK New Canaan is presently authorized to issue 2,000,000 shares
of New Canaan Common. As of September 30, 1998, there were 334,317 shares of
New Canaan Common outstanding. New Canaan does not have authorized preferred
stock.
DIVIDENDS. The holders of New Canaan Common are entitled to receive and
share equally in such dividends as may, at its discretion, be declared by the
New Canaan Board out of funds legally available therefor.
VOTING RIGHTS. The holders of New Canaan Common elect the New Canaan Board
and act on such other matters as are required to be presented to them under the
BLC and New Canaan's Certificate of Incorporation and By-laws or as are
otherwise presented to them by the New Canaan Board. Each holder of New Canaan
Common is entitled to one vote per share. Holders of New Canaan Common may not
cumulate votes in the election of directors. Directors of New Canaan are
elected by a plurality of votes cast.
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<PAGE>
PREEMPTIVE RIGHTS. Holders of New Canaan Common are, subject to certain
limited exceptions, entitled to preemptive rights with respect to any shares
that may be issued.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Listed in the following table are those persons who, as of January , 1999,
beneficially owned more than 5% of New Canaan Common and the number of shares
beneficially owned by New Canaan Directors and Executive Officers,
individually, and New Canaan Directors and Executive Officers as a group:
<TABLE>
<CAPTION>
NUMBER OF SHARES
NAME BENEFICIALLY OWNED (1) PERCENT OF TOTAL (2)
- --------------------------------------------------------- ------------------------ ---------------------
<S> <C> <C>
Frederick R. Afragola ................................... 24,232(3) 6.6%
Richard L. Ahern ........................................ 14,248 3.9%
Emil F. Aysseh .......................................... 680 0.2%
George P. Bauer ......................................... 2,530 0.7%
Robert W. Cruickshank ................................... 2,000 0.5%
E. Clark Grimes ......................................... 4,939 1.3%
Hugh Halsell, III ....................................... 16,624 4.5%
Robert J. Hebert ........................................ 4,000(4) 1.1%
Michael D. Hobbs ........................................ 16,941 4.6%
Daniel S. Jones ......................................... 23,569 6.4%
Robert F. O'Connell ..................................... 5,000(5) 1.3%
Frances Frost Overlock .................................. 4,367 1.2%
Joseph J. Rucci, Jr. .................................... 5,824 1.6%
T. Brock Saxe ........................................... 30,718 8.4%
S. VanZandt Schreiber ................................... 9,000 2.5%
All Executive Officers and Directors as a group ......... 164,672(6) 44.8%
</TABLE>
- --------
(1) In accordance with the regulations of the Securities and Exchange
Commission, beneficially owned shares include shares over which the named
person exercises either sole or shared voting power or sole or shared
investment power. The numbers listed above also include shares owned (i) by a
spouse, minor children or by relatives sharing the same home, (ii) by entities
owned or controlled by the named person and (iii) shares which the named person
has the right to acquire within 60 days by the exercise of any right or option.
All shares identified above are owned of record individually or jointly or
beneficially by the named person.
(2) Based upon the total shares issued and outstanding plus shares subject to
option exercise within the SEC's beneficial ownership rule (total of 367,451
shares).
(3) Mr. Afragola owns 98 shares jointly with his spouse, and is deemed to be
the beneficial owner of an additional 24,134 which may be acquired upon the
exercise of stock options exercisable within 60 days.
(4) Includes 4,000 shares which may be acquired upon the exercise of stock
options exercisable within 60 days.
(5) Includes 5,000 shares which may be acquired upon the exercise of stock
options exercisable within 60 days
(6) Includes 33,134 shares which may be acquired upon the exercise of stock
options exercisable within 60 days.
48
<PAGE>
NEW CANAAN MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
THREE MONTH AND NINE MONTH PERIODS ENDED SEPTEMBER 30, 1998
The following discussion should be read in conjunction with the unaudited
financial statements and notes thereto set forth beginning at page F-21 of this
Proxy Statement-Prospectus.
Total assets at September 30, 1998 were $164,321,000 which represents an
increase of $10,840,000, or 7.1%, from the $153,481,000 recorded as of the end
of 1997. Total deposits increased $8,955,000, or 6.5%, to end the third quarter
at $146,535,000. This increase was due primarily to the opening of a new branch
office in Fairfield in June, 1998. Total shareholders' equity increased
$1,574,000 to $16,364,000 as of September 30, 1998. Retained earnings increased
14.1% during 1998 which reflected year-to-date net income of $1,548,000 and
dividends declared during the second and third quarters of $0.25 per share.
The additional funds available created by the increase in deposits and
shareholders' equity were deployed primarily in the loan portfolio. Total loans
increased $11,647,000, or 13.2%, from year-end 1997 to reach $100,175,000 as of
September 30, 1998. Commercial loans increased $5,374,000, or 15.4%, due to the
increased emphasis on small business lending. The residential mortgage
portfolio increased $6,831,000, or 17.2%, due to the increased demand for
purchase and refinance funding created by the lower interest rate environment.
Total loans closed in the third quarter were $28,421,000, and on a year-to-date
basis loans closed were $27,600,000, or 41.5%, higher than the same period last
year. Securities held to maturity decreased by $7,447,000 as the proceeds from
maturing short-term investments were redeployed into securities available for
sale or other asset categories. Premises and equipment increased $391,000, or
19.9%, primarily relating to the opening of the new branch in June.
Net income for the quarter ended September 30, 1998 was $561,000 ($1.68
basic earnings per share and $1.60 diluted earnings per share) compared to
$560,000 ($1.69 basic earnings per share and $1.64 diluted earnings per share)
for the third quarter of 1997. The third quarter earnings comparison reflects
the start-up costs for the new branch during the third quarter of 1998 and
$125,000 of pre-tax income on loans sold from the residential portfolio during
the third quarter of 1997. For the nine months ended September 30, 1998 net
income was $1,548,000 ($4.64 basic earnings per share and $4.42 diluted
earnings per share) compared to $1,467,000 ($4.46 basic earnings per share and
$4.31 diluted earnings per share) for the same period last year. The higher
level of earnings on a year-to-date basis was due to the growth in deposits
that resulted in a 13.2% increase in average earning assets and a greater
volume of loans originated and sold in the secondary market. This was offset by
the start-up costs for the new branch.
Net interest income was up 6.4% for the quarter ended September 30, 1998
compared to the same period last year and was up 11.1% on a year-to-date
comparison. This increase was a result of the 13.6% increase in average
deposits that funded a 28.3% increase in average commercial loans outstanding
for the nine-month period ended September 30. This increase was tempered by a
higher percentage of time deposits to total deposits during the third quarter
of 1998. Total other operating income was up $55,000, or 14.3%, in the third
quarter of 1998 compared to the same period in the prior year. On a
year-to-date basis total other operating income was up $348,000, or 28.3%. The
increases for both periods reflect the higher volume of loans originated and
sold in the secondary market in 1998. The third quarter increase reflects the
$125,000 of pre-tax gain on loans sold from the residential portfolio in 1997.
Total other operating expenses were 24.1% for the quarter ended September
30, 1998 and 24.9% on a year-to-date basis. The quarterly comparison includes a
full three months of operating expenses for the Fairfield branch opened in June
1998 for which there were no expenses in 1997. The nine-month comparison
includes four months of expenses for Fairfield and nine months of expenses for
the Darien branch that was opened in September 1997 for which there was only
one month of expenses in 1997. The branch costs include higher levels of
salaries and employee benefits, equipment and occupancy costs, and advertising
and marketing promotions. Commissions paid to loan originators, included in
salaries and benefits, were up $30,000 for the quarter and $129,000 for the
nine-month period reflecting the higher volume of loans originated during 1998.
Third quarter
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<PAGE>
operating expenses also include approximately $135,000 of costs relating to the
merger with Summit. The provision for income taxes for the third quarter of
1998 was $153,000 less than the same period last year due to a refund from the
State of Connecticut for $167,543 of which $127,018 represented back taxes.
Total past due and non-accrual loans to total loans that were 1.5% at
September 30, 1997 and December 31, 1997 decreased to 0.7% as of September 30,
1998. During that same timeframe classified assets to total assets went from
1.7% at September 30, 1997 and 1.5% at December 31, 1997 to 1.0% at September
30, 1998. The loan loss reserve increased slightly from $2,110,000 at year-end
1997 to $2,119,000 as of September 30, 1998. Due to the growth in the loan
portfolio the percentage of the loan loss reserve to total loans has decreased
during the year from 2.4% to 2.1%. Based upon an analysis of risks inherent in
the loan portfolio it is management's assessment that the loan loss reserve is
adequate at the current level and therefore no provision for loan losses was
made during the third quarter.
New Canaan continues to maintain very strong capital ratios as a
well-capitalized bank. The leverage capital ratio at September 30, 1998 was
9.70% and the risk-based capital ratio was 15.25%. While these ratios are up
from the second quarter of 1998 they are down slightly from year-end 1997 due
to the growth in the balance sheet.
New Canaan is continuing its work on comprehensive Year 2000 (Y2K) issues.
These issues exist because in the past, many systems were designed to use only
two digits to represent the year. If these systems are not corrected, the Year
2000 may be interpreted as 1900 or as an invalid year. The potential effects of
Y2K related issues include not only New Canaan's internal processes, but also
the systems of every external vendor with whom New Canaan has business
relationships.
New Canaan's Steering Committee, which is comprised of key staff members
representing all functional areas in the New Canaan, is overseeing the Y2K
project. This committee meets regularly and communicates its progress to senior
management and the New Canaan Board. New Canaan's internal auditor, the FDIC,
and the Connecticut Banking Commissioner periodically review the Bank's Y2K
progress. The Steering Committee has developed Y2K Project Management and
Testing Plans, which have been adopted by the New Canaan Board. The project
management plan implements the approach recommended by the Federal Financial
Institutions Examination Council. This approach consists of five phases,
including developing awareness of the problem, assessing current systems,
renovating or upgrading systems as needed, testing mission critical systems,
and implementing compliant systems on a full scale. New Canaan has also
established a subcommittee to review loan related issues that may arise due to
Y2K problems.
To date, New Canaan has inventoried its systems and identified systems
vulnerable to date related issues. Several systems are currently in the process
of being upgraded or replaced. A customer awareness strategy has been
implemented. In addition, a vendor management program has been instituted, in
which the Y2K status of our key vendors, suppliers and critical business
partners are monitored. Y2K testing is in process. New Canaan expects to be
complete with internal systems testing by December 31, 1998 and to complete all
other testing by June 30, 1999. For critical applications that will be used in
the Year 2000, New Canaan management anticipates meeting all FFIEC testing
guidelines.
Contingency plans with trigger dates and viable alternatives have been
developed and are currently being reviewed and revised. These plans include
provisions for handling problems that may be revealed during Y2K testing, and
also cover the handling of mission critical functions on January 3, 2000 should
any additional problems arise, such as the failure of a key third party vendor.
50
<PAGE>
YEARS ENDED DECEMBER 31, 1997 AND 1996
The following financial information was derived from New Canaan's Annual Report
on Form 10-K for the fiscal year ended December 31, 1997, as filed with the
FDIC. The management's discussion and analysis of financial condition and
results of operations was contained in New Canaan's 1997 Annual Report to
Shareholders and should be read in conjunction with the financial statements
and footnotes thereto included in this Proxy Statement-Prospectus beginning at
F-1.
<TABLE>
<CAPTION>
Average Balance
-------------------------------------
Increase %
1997 1996 (Decrease) Change
FINANCIAL CONDITION ----------- ----------------------- ------------ -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
ASSETS
Cash and Due from Banks ........................... $ 6,524 $ 6,096 $ 428 7.0%
Short-Term Investments ............................ 10,639 8,732 1,907 21.8%
Investment Securities ............................. 33,804 31,752 2,052 6.5%
Total Loans ....................................... 89,635 85,912 3,723 4.3%
-------- -------- -------
Total Earning Assets .............................. 134,078 126,396 7,682 6.1%
Less: Allowance for Loan Losses ................... (2,056) (2,033) (23) ( 1.1%)
Premises and Equipment, Net ....................... 1,688 1,756 (68) ( 3.9%)
Other Assets ...................................... 1,509 1,507 2 0.1%
-------- -------- -------
Total Assets ....................................... $141,743 $133,722 $ 8,021 6.0%
======== ======== =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Demand Deposits ................................... $ 20,955 $ 17,430 $ 3,525 20.2%
NOW Accounts ...................................... 36,827 37,039 (212) ( 0.6%)
Savings Deposits .................................. 13,609 14,634 (1,025) ( 7.0%)
Insured Money Market Accounts ..................... 18,146 18,279 (133) ( 0.7%)
Certificates of Deposit under $100,000............. 24,883 23,839 1,044 4.4%
Certificates of Deposit $100,000 and
greater ........................................... 12,738 9,867 2,871 29.1%
-------- -------- -------
Total Deposits .................................... 127,158 121,088 6,070 5.0%
Other Interest Bearing Liabilities ................ 6 23 (17) (73.9%)
Other Liabilities ................................. 960 964 (4) ( 0.4%)
Shareholders' Equity .............................. 13,619 11,647 1,972 16.9%
-------- -------- ---------
Total Liabilities and Shareholders' Equity ......... $141,743 $133,722 $ 8,021 6.0%
======== ======== =========
</TABLE>
51
<PAGE>
DISTRIBUTION OF ASSETS, LIABILITIES AND SHAREHOLDERS' EQUITY, INTEREST RATES
AND INTEREST DIFFERENTIAL FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996.
<TABLE>
<CAPTION>
1997 1996
--------------------------------- ---------------------------------
AVERAGE YIELD/ AVERAGE YIELD/
BALANCE INTEREST RATE BALANCE INTEREST RATE
(DOLLARS IN THOUSANDS) (DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
ASSETS:
Interest earning assets:
Loans ........................................ $ 89,635 $ 7,944 8.86% $ 85,912 $7,538 8.77%
Investment securities ........................ 33,804 1,861 5.51% 31,752 1,665 5.24%
Short term investments ....................... 10,639 567 5.33% 8,732 455 5.21%
-------- ------- -------- ------ ----
Total interest earning assets ................. 134,078 10,372 7.74% 126,396 9,658 7.64%
------- ------
Noninterest earning assets:
Cash and due from banks ...................... 6,524 6,096
Other assets ................................. 3,197 3,263
Less allowance for loan losses ............... (2,056) (2,033)
-------- --------
Total assets .................................. $141,743 $133,722
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY:
Interest bearing liabilities:
NOW, Savings, IMMA's ......................... $ 68,582 1,250 1.82% $ 69,952 1,353 1.94%
Certificates of deposit ...................... 37,621 1,984 5.27% 33,706 1,780 5.28%
Borrowed funds(1) ............................ 6 - 0.00% 23 1 4.35%
-------- ------- -------- ------
Total interest bearing liabilities ............ 106,209 3,234 3.04% 103,681 3,134 3.02%
------- ------
Noninterest bearing liabilities:
Demand ....................................... 20,955 17,430
Other liabilities ............................ 960 964
Shareholders' equity ......................... 13,619 11,647
-------- --------
Total liabilities and shareholders' equity..... $141,743 $133,722
======== ========
Net interest income ........................... $ 7,138 $6,524
======= ======
Net yield on earning assets ................... 5.32% 5.16%
==== ====
Net yield on interest-earning assets .......... 4.70% 4.62%
==== ====
</TABLE>
(1) Borrowed funds are comprised of FHLB term borrowings.
52
<PAGE>
The following table sets forth for the periods indicated a summary of the
changes in interest earned and interst paid resulting from changes in volume
and changes in rate:
<TABLE>
<CAPTION>
1997 COMPARED TO 1996 1996 COMPARED TO 1995
INCREASE/(DECREASE) DUE TO INCREASE/(DECREASE) DUE TO
---------------------------------------- ------------------------------------
VOLUME RATE NET VOLUME RATE NET
----------- ----------- ------------ ---------- ---------- ----------
(DOLLARS IN THOUSANDS) (DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
INTEREST EARNED ON:
Loans ...................................... $330 $ 76 $ 406 $ (454) $ 189 $ (265)
Investment securities ...................... 111 85 196 103 62 165
Short-term investments ..................... 101 11 112 215 (32) 183
---- ---- ----- ------ ------ ------
Total interest earning assets .............. $542 $172 $ 714 $ (136) $ 219 $ 83
==== ==== ===== ====== ====== ======
INTEREST EXPENSE ON:
NOW, Savings & IMMA's ...................... $(25) $(78) $(103) $ (60) $ (97) $ (157)
Certificates of deposit .................... 205 (1) 204 312 48 360
Borrowed funds ............................. (1) - (1) (304) (103) (407)
------- ------ -------- ------ ------ ------
Total interest bearing liabilities ......... $179 $(79) $ 100 $ (52) $ (152) $ (204)
====== ====== ======= ====== ====== ======
</TABLE>
The change in interest due to both rate and volume has been allocated to volume
and rate changes in proportion to the relationship of the absolute dollar
amounts of the change in each.
SECURITIES PORTFOLIO
The following table sets forth the amortized cost of securities at the dates
indicated:
<TABLE>
<CAPTION>
DECEMBER 31,
1997 1996
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
Securities Available for Sale:
U.S. Treasury Securities ............................................... $ 3,999 $ 9,010
Obligations of other U.S. Government Agencies and Corporations ......... 18,521 10,494
Marketable Equity Securities ........................................... 9,511 11,011
------- -------
Total Securities Available for Sale ................................... $32,031 $30,515
======= =======
Securities Held to Maturity:
Obligations of other U.S. Government Agencies and Corporations ......... $ 8,610 $ 3,317
Corporate Securities ................................................... 4,981 -
------- -------
Total Securities Held to Maturity ..................................... $13,591 $ 3,317
======= =======
</TABLE>
53
<PAGE>
The following table sets forth the maturities of securities at December 31,
1997 and the weighted average yields of such securities (calculated on the
basis of the cost and effective yields weighted for the scheduled maturity of
each security):
<TABLE>
<CAPTION>
AFTER ONE BUT AFTER FIVE BUT
WITHIN ONE YEAR WITHIN FIVE YEARS WITHIN TEN YEARS AFTER TEN YEARS
--------------------- ------------------ ---------------- ---------------
AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD
---------- ---------- ---------- ------- -------- ------- -------- ------
(DOLLARS IN THOUSANDS) (DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Securities Available for Sale:
U.S. Treasury Securities ........ $ 3,999 5.07% $ - - $ - - $ - -
Obligations of other U.S.
Government Agencies and
Corporations ................... 1,000 5.35% 16,521 6.10% 1,000 7.00% - -
Marketable Equity Securities..... 9,511 4.34% - - - - - -
Securities Held to Maturity:
Obligations of other U.S.
Government Agencies and
Corporations ................... 1,859 5.75% 6,583 6.55% 83 9.00% 85 9.73%
Corporate Securities ............ 4,981 5.79% - - -
------- ------- ------ ---
$21,350 4.98% $23,104 6.23% $1,083 7.15% $85 9.73%
======= ==== ======= ==== ====== ==== === ====
</TABLE>
Included in total obligations of U.S. Treasury and other U.S. Government
agencies are obligations of the U.S. Treasury and FHLMC Debentures which have
an aggregate book value of approximately $ 4,994,000 and an aggregate market
value of $4,996,000 as of December 31, 1997, which have been pledged to
collateralize U.S. Treasury demand note liabilities and public funds. Yield
figures for Marketable Equity Securities are stated rates.
LOAN PORTFOLIO
The following table shows the Bank's loan distribution at the dates indicated:
<TABLE>
<CAPTION>
DECEMBER 31,
1997 1996
---------- ----------
(IN THOUSANDS)
<S> <C> <C>
Loans secured by real estate:
Mortgages ................................................................ $38,984 $46,716
Mortgages Held for Sale .................................................. 2,285 1,359
Home Equity Loans ........................................................ 11,257 12,099
Construction ............................................................. 6,779 3,775
Commercial and Industrial ................................................. 28,107 19,917
Loans to Individuals for Household, Family and Other Personal Expenditures 823 3,365
Cash Reserve .............................................................. 405 490
Other ..................................................................... 97 50
------- -------
$88,737 $87,771
======= =======
</TABLE>
54
<PAGE>
The following table shows the maturity of loans outstanding as of December 31,
1997. Also provided are the amounts due after one year classified according to
the sensitivity to changes in interest rates.
<TABLE>
<CAPTION>
MATURING
------------------------------------------------------------
AFTER ONE AFTER FIVE AFTER
WITHIN BUT WITHIN BUT WITHIN TEN
ONE YEAR FIVE YEARS TEN YEARS YEARS TOTAL
---------- ------------ ------------ ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Loans secured by real estate:
Mortgages(1) ................................ $ 355 $ 893 $ 1,494 $36,242 $38,984
Mortgages Held for Sale ..................... 2,285 - - - 2,285
Home Equity Loans ........................... - - 1,353 9,904 11,257
Construction ................................ 6,779 - - - 6,779
Commercial and Industrial .................... 3,263 10,569 12,907 1,368 28,107
Loans to Individuals for Household, Family
and Other Personal Expenditures ............. 601 210 12 - 823
Cash Reserve ................................. 405 - - - 405
Other ........................................ 97 - - - 97
------- ------- ------- ------- -------
Total ........................................ $13,785 $11,672 $15,766 $47,514 $88,737
======= ======= ======= ======= =======
</TABLE>
(1) Mortgage loans are grouped based upon the final maturity. Construction
loans and mortgages held for sale are grouped as if they mature within one
year.
The following table shows the maturity of fixed and variable rate loans
outstanding:
<TABLE>
<CAPTION>
AFTER ONE BUT AFTER FIVE BUT
WITHIN FIVE YEARS WITHIN TEN YEARS AFTER TEN YEARS
------------------- ------------------ ----------------
(IN THOUSANDS)
<S> <C> <C> <C>
Loans maturing after one year with:
Fixed interest rates ............. $ 5,491 $12,373 $11,390
Variable interest rates .......... 6,181 3,393 36,124
------- ------- -------
$11,672 $15,766 $47,514
======= ======= =======
</TABLE>
55
<PAGE>
Summary of Loan Loss Experience
<TABLE>
<CAPTION>
DECEMBER 31,
1997 1996
---------- -----------
(IN THOUSANDS)
<S> <C> <C>
Balance, beginning of year ................. $ 2,028 $ 2,031
------- -------
Charge-offs:
Commercial ................................ 6 32
Cash reserve .............................. 12 3
Installment ............................... - 1
Mortgage .................................. - -
------- -------
18 36
------- -------
Recoveries:
Commercial ................................ 14 27
Cash reserve .............................. 2 4
Installment ............................... 1 2
Mortgage .................................. 83 -
------- -------
100 33
------- -------
Net charge-offs ............................ (82) 3
Provision charged to operations(1) ......... - -
------- -------
Balance end of year ........................ $ 2,110 $ 2,028
======= =======
Ratio of net charge-offs during the period
to average loans outstanding .............. -0.09% 0.00%
======= =======
</TABLE>
(1) The allowance for loan losses is maintained at an amount which, in
management's judgment, will be adequate, under current economic
conditions, to absorb charge-offs of existing loans.
DEPOSITS
The average daily amount of deposits and rates paid on such deposits are
summarized for the periods indicated in the following table:
<TABLE>
<CAPTION>
1997 1996
----------------------- -----------------------
AMOUNT RATE AMOUNT RATE
---------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Demand-noninterest bearing ......... $ 20,955 $ 17,430
NOW, Savings & IMMA's .............. 68,582 1.82% 69,952 1.94%
Certificates of deposit ............ 37,621 5.27% 33,706 5.28%
-------- --------
Total deposits ..................... $127,158 $121,088
======== ========
</TABLE>
Maturities of time deposits of $100,000 or more outstanding at December 31,
1997 and 1996 are summarized as follows:
<TABLE>
<CAPTION>
1997 1996
---------------- ---------------
(IN THOUSANDS) (IN THOUSANDS)
<S> <C> <C>
3 months or less ........................ $ 9,706 $ 7,694
Over 3 months through 6 months .......... 3,888 4,070
Over 6 months through 12 months ......... 841 1,187
Over 12 months .......................... 311 749
------- -------
Total ................................... $14,746 $13,700
======= =======
</TABLE>
56
<PAGE>
The following table presents, as of December 31, 1997, interest-rate sensitive
assets and liabilities. GAP is the difference between assets and liabilities
that will mature or become subject to repricing during a given interval of
time. Investments classified as available for sale are listed at their fair
value in the table below.
<TABLE>
<CAPTION>
0-6 6 MO.-1 1-2 2-3
MO. YEAR YEARS YEARS
----------- ----------- ------------ -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Rate-Sensitive Assets:
Cash and Due From
Banks ......................... $ $ $ $
Short-term Investments ......... 9,055
Available-for-Sale
Securities .................... 21,013 2,999 4,019 1,001
Held-to-Maturity
Securities .................... 8,980 1,126 37 4,041
Mortgage Loans ................. 8,624 8,664 1,406 4,389
Adjustable-rate
commercial loans .............. 17,156 1,623 834 500
Fixed-rate commercial
loans ......................... 1,468 1 206 779
All Other Loans ................ 13,112 852 33 33
Other Assets ...................
- ----------------------------------
Total rate-sensitive assets ..... 79,408 15,265 6,535 10,743
- --------------------------------- --------- --------- ---------- ---------
Rate-Sensitive Liabilities:
Demand .........................
NOW Accounts ................... 10,567 4,000 26,000
Regular Savings ................ 6,968 6,968
Money Market Accounts........... 20,352
Term Certificates .............. 32,815 3,736 1,624 737
Other Liabilities ..............
Capital ........................
- ----------------------------------
Total rate-sensitive
liabilities ..................... 70,702 14,704 27,624 737
- --------------------------------- --------- --------- ---------- ---------
GAP ............................ 8,706 561 (21,089) 10,006
CUMULATIVE GAP ................. 8,706 9,267 (11,822) (1,816)
PERCENT OF TOTAL
ASSETS ........................ 5.67% 6.04% -7.70% -1.18%
<CAPTION>
NON-
3-5 5-10 OVER 10 INTEREST
YEARS YEARS YEARS SENSITIVE TOTAL
----------- ----------- ----------- ------------ -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Rate-Sensitive Assets:
Cash and Due From
Banks ......................... $ $ $ $ 7,966 $ 7,966
Short-term Investments ......... 9,055
Available-for-Sale
Securities .................... 2,995 11 32,038
Held-to-Maturity
Securities .................... 54 82 85 14,405
Mortgage Loans ................. 8,457 2,231 5,247 689 39,707
Adjustable-rate
commercial loans .............. 7,309 167 535 28,124
Fixed-rate commercial
loans ......................... 2,038 1,218 952 6,662
All Other Loans ................ 75 12 31 14,148
Other Assets ................... 1,376 1,376
- ---------------------------------- ---------- ---------
Total rate-sensitive assets ..... 20,928 3,710 6,284 10,608 153,481
- ---------------------------------- --------- --------- --------- ---------- ---------
Rate-Sensitive Liabilities:
Demand ......................... 22,970 22,970
NOW Accounts ................... 40,567
Regular Savings ................ 13,936
Money Market Accounts........... 20,352
Term Certificates .............. 843 39,755
Other Liabilities .............. 1,111 1,111
Capital ........................ 14,790 14,790
- ---------------------------------- ---------- ---------
Total rate-sensitive
liabilities ..................... 843 - - 38,871 153,481
- ---------------------------------- --------- --------- --------- ---------- ---------
GAP ............................ 20,085 3,710 6,284 (28,263) -
CUMULATIVE GAP ................. 18,269 21,979 28,263 - -
PERCENT OF TOTAL
ASSETS ........................ 11.90% 14.32% 18.41% -
</TABLE>
57
<PAGE>
OVERVIEW
Total average deposits were up $6,070,000 in 1997 from $121,088,000 in 1996 to
$127,158,000. Demand deposits averaged $20,955,000, which represented an
increase of $3,525,000, or 20.2%, over the prior year. All categories of demand
deposits showed strong growth as business checking increased $2,066,000 or
22.1%, personal checking increased $1,133,000 or 18.1%, and other demand
increased $326,000 or 17.2%. The increases were the result of strong growth in
commercial and small business lending, and revamped consumer products.
Certificates of deposit $100,000 and greater were up 29.1%, or $2,871,000.
Higher levels of municipal business relating to the new branch opening resulted
in 53% of the increase. Certificates of deposit under $100,000 were up just
over $1 million and savings deposits were down just over $1 million as
consumers shifted funds into higher yielding variable rate products in order to
maintain yield in this low interest rate environment. The interest in the
variable rate product accounted for the remaining increase in the jumbo
certificate category. Total average assets of $141,743,000 were a record high,
increasing $8,021,000 from the prior year. Total loans increased 4.3% during
the year, but commercial loans increased 30.4% to average $30,592,000 for the
year. This increase was the result of higher levels of small business and
construction lending, as New Canaan consciously restructured the loan portfolio
to include a greater percentage of commercial loans. At the same time, the
residential mortgage portfolio dropped 11.6%, or $5,847,000, due to loan sales
for asset and liability management purposes and accelerated paydowns and
refinances due to the low interest rate environment. Most of the residential
loans originated during 1997 were sold in the secondary market. Investment
securities were up $2,052,000 and short term investments were up $1,907,000 due
to the growth in the deposit base during the year. Both categories generally
have short-term maturities as the relatively flat yield curve did not provide
any incentive to invest in longer term instruments. These investments provide
the base to fund future loan growth.
EARNINGS SUMMARY
Net income for 1997 was also a record high at $1,949,000 ($5.91 per share)
which represented an increase of 16.8% over the prior year when net income was
$1,668,000. Return on average assets increased from 1.25% in 1996 to 1.38% in
1997. The favorable comparative results were due to an improved interest
margin, higher levels of other operating income, and good expense control. Net
income in 1996 was up 37.5% over the results of 1995 when net income was
$1,213,000 ($3.70 per share). Net revenue, as measured by both net interest
income and other operating income, increased while operating expenses
decreased. At the same time, the effective tax rate in 1996 was 400 basis
points lower than the prior year.
NET INTEREST INCOME
Net interest income in 1997 was $7,138,000, which represented a 9.4%
increase over the $6,524,000 in the prior year. The significant increase in the
margin was due to a 6.1% increase in average earning assets and improved
spreads. The improved spread from 4.66% of average assets in 1996 to 4.79% in
1997 was due almost equally to an improved income stream and a lower cost of
funds. The previously mentioned restructuring of the loan portfolio to place
more emphasis on commercial loans improved the yield from that portfolio. The
return on the investment portfolio also improved as lower yielding treasuries
and agencies matured and were replaced by agency callables and mortgage backed
securities. The 20.2% increase in demand deposits and 16.9% increase in capital
provided a core base that helped to reduce the overall cost of funds.
Net interest income in 1996 was up 4.6% to $6,524,000, primarily due to
lower funding costs. Average borrowed funds outstanding dropped $6,207,000
comparing 1995 to 1996 as a result of a statement of condition restructuring
that took place in 1995 by which costly borrowed funds were replaced by core
deposits thus significantly reducing New Canaan's cost of funds. In addition,
average non-interest bearing deposits increased $1,849,000 in 1996 which also
contributed to the decrease in interest expense from $3,338,000 in 1995 to
$3,134,000 in 1996. Total interest income in 1996 was $9,658,000 compared to
$9,575,000 in 1995, as a result of slightly higher average earning assets in
1996.
OTHER OPERATING INCOME AND EXPENSES
Total other operating income was up 26.2% in 1997 to end the year at
$1,247,000. The net gain on sale of loans, which included $56,000 from the sale
of portfolio loans, was up $252,000, or 96.2%. Total residential loans
58
<PAGE>
closed in 1997 were up 47.4%. Total other operating income was up 16.8% in
1996, compared to 1995, to end the year at $988,000. Increased volume in loan
sales accounted for a 43.2% increase in that category from $183,000 in 1995 to
$262,000 in 1996. Other activity based fees were also up 12.3% to $594,000.
Total other operating expenses were up $407,000, an increase of 8.3%, from
$4,893,000 in 1996 to $5,300,000 in 1997. This increase was primarily due to
higher staffing levels for the new branch and the commercial loan department,
and more commission expense related to the higher levels of loan originations.
Total salaries expense was up $248,000 or 11.9%. Salaries and wages were up
$127,000 due to higher staffing levels and normal wage increases, while
commission expense, which is totally volume related, was up $87,000. Employee
benefits were up $83,000, or 20.0%, as a result of a $46,000 increase in the
level of contribution to New Canaan's 401K plan and a $27,000 increase in
payroll taxes as a result of the higher levels of salaries and commissions.
Equipment and data processing expense was up $57,000 or 8.0% for the year.
36.8% of that increase was due to the new branch opening in September, 1997 and
the remainder was due to service and maintenance of New Canaan's physical
security systems and higher levels of data processing costs. Total occupancy
costs were up 5.7%, or $38,000, related entirely to the new branch opening. All
other operating expenses were down 1.9% for the year.
Total other operating expenses were down 3.0% from $5,043,000 in 1995 to
$4,893,000 in 1996. Salaries were down $104,000, or 4.7%, as a result of lower
staffing levels. Employee benefits were down $44,000 representing a decrease of
9.6% primarily as the result of a switch to a fully insured medical insurance
plan from the self-funded program used in 1995. Occupancy expense was up 13.8%
or $81,000, as a result of building and maintenance costs. Janitorial services,
previously performed by staff employees, were contracted out in 1996 thereby
shifting expenses from salaries to occupancy. Snow removal expenses were also
high due to the severe weather experienced during the first quarter of 1996.
FDIC insurance premiums were down $149,000, or 89.2%, as a result of a further
lowering of the assessment to New Canaan. Other expenses increased $65,000, an
increase of 7.0%, to $993,000 resulting from higher legal and professional fees
relating to management and strategic projects.
INCOME TAXES
New Canaan's effective tax rate increased slightly from 36.3% in 1996 to
36.8% in 1997. The increase was due to New Canaan's pretax income rising at a
faster rate than New Canaan's tax advantage investment portfolio. Projected
lower future state tax rates also impacted the value of New Canaan's deferred
tax assets. New Canaan's tax rate of 36.3% in 1996 was down significantly from
40.3% in 1995 due to the increasing use of tax advantaged investments in New
Canaan's portfolio. These investments, which qualify for favorable federal and
state tax rates, produce a lower net interest margin for New Canaan but provide
a greater after tax return than comparable fully taxable investments.
ASSET QUALITY
Overall asset quality remains strong and showed considerable improvement
during 1997. Non-performing assets to total assets dropped from .9% at December
31,1996 to .8% at December 31, 1997. Classified assets to total assets fell
from 2.3% to 1.5% over the same period. Total classified assets ended 1997 at
$2,268,000 compared to $3,309,000 at the end of 1996 and $3,751,000 at the end
of 1995. Total past due and non-accrual loans to total loans dropped from 1.7%
at December 31, 1996 to 1.5% at the end of 1997. Total non-accrual loans during
this period decreased from $1,316,000 to $1,255,000. The reserve for loan
losses which was 2.3% of total loans at December 31, 1996 and 1995 has
increased slightly to 2.4% at the end of 1997. Based upon the ongoing
evaluation of risk within the portfolio, management believes that the allowance
for loan losses is adequate.
ASSET AND LIABILITY MANAGEMENT
In addition to credit risk, management also monitors interest rate risk in
the portfolio on a regular basis. During 1995 an internal asset and liability
management committee was formed with the objective of reviewing the
interrelationships within the statement of condition to maximize net interest
income while minimizing overall interest rate risk. One action from that review
was a reduction in costly borrowed funds with the proceeds from maturing
investments with an accompanying improvement in the net interest margin.
In order to minimize interest rate risk on an ongoing basis, the focus is
on maintaining a proper balance between the volume of assets and liabilities
that reprice within the same time interval in order to maintain satisfactory
levels
59
<PAGE>
of net interest income in both rising and falling interest rate environments.
One method used to maintain this balance is to originate variable rate loans
for the portfolio and purchase short term investments to offset the
ever-increasing short term repricing of the liability side of the statement of
condition. By maintaining this balance, New Canaan's net interest income will
not be significantly impacted by changes in the interest rate environment.
Proper asset and liability management also focuses on insuring a sufficient
level of liquidity and maintaining capital adequacy.
New Canaan has in place an asset/liability policy that addresses goals to
be met and what steps are to be taken to manage interest rate risk exposure and
provide for adequate levels of liquidity and capital. Specific limits have been
set within the policy as to the amount of interest rate risk exposure that New
Canaan is willing to accept. These limits are reviewed periodically by
management with the board of directors, and revised as necessary. Reports are
required of management to reflect how well the current policies have achieved
the desired goals.
CAPITAL MANAGEMENT
New Canaan maintains a strong level of capital in order to sustain asset
growth and take advantage of business opportunities as they arise, while
insuring that adequate resources are available to absorb risks inherent in the
banking business. The primary source of capital formation for New Canaan is
earnings retention. From a regulatory standpoint, New Canaan's capital ratios
place it in the "well-capitalized" category, which is the highest
classification a bank can receive.
Total equity capital was up 17.3% in 1997 and 15.6% in 1996 reflecting the
strong earnings performance in both years. Total equity capital at December 31,
1997 of $14,790,000 resulted in a leverage ratio of 10.29% compared to 9.25% at
the end of 1996 and 8.46% at the end of 1995. Risk based capital, which was up
from 14.00% in 1995 to 16.06% at the end of 1996, decreased slightly to 15.34%
at December 31, 1997. The Bank measures capital against three standards set by
the regulators as described in Note 11 to the financial statements. As of
December 31, 1997, New Canaan significantly exceeded the capital ratio
requirements in each of the three standards set by the regulators.
LIQUIDITY
New Canaan maintains a prudent level of liquidity in order to fund loan
demand, satisfy withdrawal requirements of depositors, and to support the
operating needs of New Canaan. New Canaan determines the amount of liquidity to
be maintained based upon current economic conditions, interest rate outlook,
security portfolio maturities and deposit and loan forecasts. During 1995, the
Financial Accounting Standards Board provided a window of opportunity from
November 15 until December 31 for all banks to review the classification of
their investment portfolio in accordance with FAS 115. As a result of this
opportunity, New Canaan reclassified $23,554,000 of securities from the Held to
Maturity portfolio to the Available for Sale portfolio. This change provided
New Canaan more options and greater flexibility in managing the overall
investment portfolio and provided another source of liquidity.
Sources of liquidity in the statement of condition at December 31, 1997
consisted of $17,025,000 of Cash and Due from Banks, Federal Funds Sold and
other Short-Term Investments and $32,038,000 of securities held in the
Available for Sale portfolio. Additional sources of liquidity were represented
by normal cash flow from the loan portfolio, investment maturities from the
held to maturity portfolio, and cash flow generated by the $5,423,000 mortgage
backed security portfolio.
In addition, New Canaan maintains repurchase agreements with brokers which
allow New Canaan to borrow up to $10,000,000 on a short-term basis based upon
collateral held in the investment portfolio.
New Canaan became a member of the Federal Home Loan Bank of Boston in 1992
and as such has a capacity to borrow twenty times the value of its stock
holding of $814,400 or $16,288,000. As of December 31, 1997 New Canaan had no
borrowings outstanding with the Federal Home Loan Bank of Boston. By borrowing
from the Federal
60
<PAGE>
Home Loan Bank, New Canaan has a reliable source of funds for predetermined
terms without risk of early withdrawals. New Canaan considers its relationship
with the Federal Home Loan Bank as a valuable liquidity management tool.
PROPOSAL II - ADJOURNMENT OF SPECIAL MEETING
In the event there are not sufficient votes to constitute a quorum or to
approve the Merger Agreement at the time of the Special Meeting, the Merger
Agreement could not be approved unless the Special Meeting were adjourned in
order to permit further solicitation of proxies. In order to allow proxies that
have been received by New Canaan at the time of the Special Meeting to be voted
for such adjournment, if necessary, New Canaan has submitted the question of
adjournment under the circumstances to its shareholders as a separate matter
for their consideration. In order to approve any such adjournment more votes
must be cast in favor of Proposal II than against. The New Canaan Board
recommends that shareholders vote their proxies in favor of such Adjournment
Proposal so that their proxies may be used for purposes of adjourning the
Special Meeting in the event it should become necessary. Properly executed
proxies will be voted in favor of any such adjournment unless otherwise
indicated thereon. If it is necessary to adjourn the Special Meeting, no notice
of the time and place of the adjourned meeting is required to be given to
shareholders other than an announcement of such time and place at the Special
Meeting unless such adjournment exceeds 90 days.
SHAREHOLDER PROPOSALS
In order to be eligible for inclusion in New Canaan's proxy materials for
New Canaan's 1999 annual meeting of shareholders in the event that the Merger
is not consummated prior to such meeting, any shareholder proposal to take
action at such meeting would have been required to be received at New Canaan's
main office at 208 Elm Street, New Canaan, Connecticut 06840, not later than
November 10, 1998. Any such proposals are subject to the requirements of the
proxy rules adopted under the Exchange Act.
In order to be considered for inclusion in the Summit Proxy Statement for
the 1999 Annual Meeting of Summit shareholders, any shareholder proposals would
have been required to be addressed to the Secretary of Summit and received by
Summit not later than November 6, 1998.
The By-Laws of Summit provide that shareholder proposals which do not
appear in the proxy statement may be considered at a meeting of shareholders
only if written notice of the proposal is received by the Secretary of Summit
not less than 80 and not more than 100 days before the anniversary of the
preceding year's annual meeting; provided, however, that, if the date of the
annual meeting is more than 30 days before or more than 60 days after such
anniversary date, the notice of a shareholder proposal, to be timely, must be
received by the Secretary not later than the close of business on the later of
the 80th day prior to such annual meeting or the tenth day following the day on
which public announcement of the meeting date is first made. Any such notice of
a shareholder proposal by a shareholder to the Secretary of Summit must be
accompanied by (a) the name and address of the shareholder who intends to
present the proposal for a vote, (b) a representation that such shareholder is
a holder of record of shares entitled to vote at the meeting, (c) a description
of all agreements, arrangements or understandings between such shareholder and
any other shareholder relating to the proposal to be voted on and any financial
contractual interest of such shareholder in the outcome of such vote and (d)
such other information regarding the proposal to be voted on and the
shareholder intending to present the proposal for a vote as would be required
to be included in a proxy statement soliciting the vote of shareholders in
respect of such proposal pursuant to the proxy rules of the Commission.
LEGAL MATTERS
The legality of the Summit Common offered hereby will be passed upon for
Summit by Richard F. Ober, Jr., Esq., Executive Vice President, General Counsel
and Secretary of Summit. Mr. Ober owns 43,393 shares of Summit Common and
options to purchase 123,934 shares of Summit Common at a weighted average
exercise
61
<PAGE>
price of $19.90. Certain federal tax matters will be passed upon for Summit and
New Canaan by Thompson Coburn, Saint Louis, Missouri. Certain legal matters
will be passed upon for New Canaan by Rucci, Burnham, Carta & Edelberg, LLP,
Darien, Connecticut, of which Joseph J. Rucci, Jr., Esq. is a partner. Mr.
Rucci is Secretary and a member of the Board of Directors of New Canaan and
owns directly or is deemed the beneficial owner of an aggregate of 5,824 shares
of New Canaan Common.
EXPERTS
The consolidated financial statements of Summit Bancorp. and subsidiaries
as of December 31, 1997 and 1996 and for each of the years in the three-year
period ended December 31, 1997, 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.
The financial statements of New Canaan Bank and Trust Company as of
December 31, 1997 and 1996 and for each of the years in the three-year period
ended December 31, 1997, included in New Canaan's Annual Report on Form 10-K as
filed with the FDIC, have been included herein and in the Registration
Statement in reliance upon the report of Wolf & Company, P.C., independent
certified public accountants, and upon authority of said firm as experts in
accounting and auditing.
WHERE YOU CAN FIND MORE INFORMATION
Summit has filed with the Securities and Exchange Commission
("Commission") a Registration Statement under the Securities Act that registers
the distribution to New Canaan shareholders of the shares of Summit Common to
be issued in connection with the Merger (the "Registration Statement"). The
Registration Statement, including the attached exhibits and schedules, contains
additional relevant information about Summit and Summit Common. The rules and
regulations of the Commission allow us to omit certain information included in
the Registration Statement from this Proxy Statement-Prospectus.
In addition, Summit files reports, proxy statements and other information
with the Commission under the Exchange Act. You may read and copy this
information at the following locations of the Commission:
Public Reference Room New York Regional Office Chicago Regional Office
450 Fifth Street, N.W. 7 World Trade Center Citicorp Center
Room 1024 Suite 1300 500 West Madison Street
Washington, D.C. 20549 New York, New York 10048 Suite 1400
Chicago, Illinois 60661-2511
You may also obtain copies of this information by mail from the Public
Reference Section of the Commission, 450 Fifth Street, N.W., Room 1024,
Washington, D.C. 20549, at prescribed rates.
The Commission also maintains an Internet world wide web site that
contains reports, proxy statements and other information about issuers, like
Summit, who file electronically with the Commission. The address of that site
is http://www.sec.gov.
You can also inspect reports, proxy statements and other information about
Summit at the offices of the NYSE, 20 Broad Street, New York, New York 10005.
The Commission allows Summit to "incorporate by reference" information
into this Proxy Statement-Prospectus. This means that Summit can disclose
important information to you by referring you to another document filed
separately with the Commission. The information incorporated by reference is
considered to be a part of this Proxy Statement-Prospectus, except for any
information that is superseded by information that is included directly in this
document.
This Proxy Statement-Prospectus incorporates by reference the documents
listed below that Summit has previously filed with the Commission. They contain
important information about Summit and its financial
62
<PAGE>
condition.
<TABLE>
<CAPTION>
SUMMIT SEC FILINGS PERIOD
- --------------------------------------------------- ---------------------------------------------------
<S> <C>
Annual Report on Form 10-K ........................ Year ended December 31, 1997, as filed March 27,
1998
Quarterly Reports on Form 10-Q .................... Quarter ended March 31, 1998, as filed May 15,
1998; quarter ended June 30, 1998, as filed August
14, 1998 quarter ended September 30, 1998, as
filed November 16, 1998.
Reports on Form 8-K ............................... Dated and filed November 6, 1998.
The description of Summit Common set forth in the
Summit Registration Statement on Form 10 filed
pursuant to Section 12(b) of the Exchange Act
dated August 31, 1970, including any amendment
or report filed with the Commission for the pur-
pose of updating such description.
The description of Summit Preferred Stock Purchase
Rights set forth in the Summit registration state-
ment filed under Section 12 of the Exchange Act
of 1934, as amended (the "Exchange Act") on
Form 8-A on August 28, 1989, including any
amendment or report filed with the Commission
for the purpose of updating such description.
</TABLE>
You can obtain any of the Summit documents incorporated by reference in
this document through Summit or from the Commission through the Commission's
web site at the address described above. Documents incorporated by reference
are available from Summit without charge, excluding any exhibits to those
documents unless the exhibit is specifically incorporated by reference as an
exhibit in this Proxy Statement-Prospectus. You can obtain Summit documents
incorporated by reference in this Proxy Statement-Prospectus by requesting them
in writing or by telephone from Summit at the following address:
SUMMIT BANCORP.
Corporate Secretary
301 Carnegie Center
Princeton, NJ 08543
Telephone (609) 987-3442
If you would like to request Summit documents, please do so by January ,
1999 to receive them before the Special Meeting. If you request any
incorporated documents from Summit, Summit will mail them to you by first class
mail, or another equally prompt means, within one business day after we receive
your request.
New Canaan files reports, proxy statements and other information with the
FDIC under the Exchange Act. You may read and copy this information at the
following location of the FDIC:
Registration and Disclosure Section Public Files
Room F - 6043
1776 F Street, N.W.
Washington, DC 20006
You may also obtain copies of this information by mail from the
Registration and Disclosure Section at prescribed rates by calling (202)
898-8920 or by written request via facsimile at (202) 898-3909.
63
<PAGE>
Set forth below are documents filed by New Canaan with the FDIC during
1998. They contain important information about New Canaan and its financial
condition:
<TABLE>
<CAPTION>
NEW CANAAN FDIC FILINGS PERIOD
- ---------------------------------------- -------------------------------------
<S> <C>
Annual Report on Form 10-K ............. Year ended December 31, 1997
Quarterly Reports on Form 10Q .......... Quarters ended March 30, 1998,
June 30, 1998 and September 30, 1998
Report on Form 8-K ..................... Report dated August 24, 1998
</TABLE>
Summit has supplied all information contained or incorporated by reference
in this Proxy Statement-Prospectus relating to Summit, and New Canaan has
supplied all such information relating to New Canaan.
We have not authorized anyone to give any information or make any
representation about the Merger or our companies that is different from, or in
addition to, that contained in this Proxy Statement-Prospectus or in any of the
materials that we've incorporated into this document. Therefore, if anyone does
give you information of this sort, you should not rely on it. If you are in a
jurisdiction where offers to exchange or sell, or solicitations of offers to
exchange or purchase, the securities offered by this document or the
solicitation of proxies is unlawful, or if you are a person to whom it is
unlawful to direct these types of activities, then the offer presented in this
document does not extend to you. The information contained in this document
speaks only as of the date of this document unless the information specifically
indicates that another date applies.
64
<PAGE>
INDEX TO NEW CANAAN'S FINANCIAL STATEMENTS
New Canaan Bank and Trust Company
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
Independent Auditors' Report ......................................................... F-1
Statements of Condition as of December 31, 1997 and 1996 ............................. F-2
Statements of Income - for the years ended December 31, 1997, 1996 and 1995 .......... F-3
Statements of Changes in Shareholders' Equity- for the years ended
December 31, 1997, 1996 and 1995 .................................................... F-4
Statements of Cash Flows - for the years ended December 31, 1997, 1996 and 1995 ...... F-5
Notes to Financial Statements ........................................................ F-6
FINANCIAL STATEMENTS FOR THE PERIODS ENDED SEPTEMBER 30, 1998 AND 1997
Statements of Condition as of September 30, 1998 and December 31, 1997 ............... F-21
Statements of Income for the three months and nine months ended September 30, 1998 and
1997 ................................................................................. F-22
Statements of Cash Flows for the nine months ended September 30, 1998 and 1997 ....... F-23
Statements of Changes in Shareholders' Equity for the nine months
ended September 30, 1998 and 1997 ................................................... F-24
Notes to Unaudited Financial Statements .............................................. F-25
</TABLE>
65
<PAGE>
NEW CANAAN BANK
AND TRUST COMPANY
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders of
New Canaan Bank and Trust Company
We have audited the accompanying statements of condition of New Canaan Bank and
Trust Company as of December 31, 1997 and 1996, and the related statements of
income, changes in shareholders' equity and cash flows for each of the years in
the three-year period ended December 31, 1997. These financial statements are
the responsibility of the Bank's management. Our responsibility is to express
an opinion on these 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 financial statements referred to above present fairly, in
all material respects, the financial position of New Canaan Bank and Trust
Company as of December 31, 1997 and 1996, and the results of its operations and
its cash flows for each of the years in the three-year period ended December
31, 1997 in conformity with generally accepted accounting principles.
/s/ Wolf & Company, P.C.
- -------------------------
Wolf & Company, P.C
Boston, Massachusetts
January 22, 1998, except for Note 14, as to which
the date is August 25, 1998
F-1
<PAGE>
STATEMENTS OF CONDITION NEW CANNAN BANK
AND TRUST COMPANY
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1997 1996
----------- -----------
(IN THOUSANDS, EXCEPT
SHARE
DATA)
<S> <C> <C>
ASSETS
Cash and Due from Banks ................................. $ 7,966 $ 7,113
Federal Funds Sold ...................................... 1,840 5,187
Short-Term Investments .................................. 7,219 5,562
-------- --------
Total Cash and Cash Equivalents ........................ 17,025 17,862
-------- --------
Securities Available for Sale, at Fair Value ............ 32,038 30,398
Securities Held to Maturity, at Amortized Cost .......... 13,591 3,317
Federal Home Loan Bank of Boston Stock, at Cost ......... 814 814
-------- --------
Total Investment Securities ............................ 46,443 34,529
-------- --------
Loans ................................................... 88,528 87,477
Allowance for Loan Losses ............................... (2,110) (2,028)
-------- --------
Loans, Net .............................................. 86,418 85,449
-------- --------
Premises and Equipment, Net ............................. 1,968 1,623
Accrued Interest Receivable ............................. 801 849
Other Assets ............................................ 826 723
-------- --------
TOTAL ASSETS ............................................ $153,481 $141,035
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Non-interest Bearing ................................... $ 22,970 $ 19,438
Interest Bearing ....................................... 114,610 108,157
-------- --------
Total Deposits ......................................... 137,580 127,595
Accrued Interest Payable ................................ 204 227
Other Liabilities ....................................... 907 609
-------- --------
Total Liabilities ...................................... 138,691 128,431
-------- --------
Commitments and Contingencies
Shareholders' Equity:
Common Stock, Par Value $5 Per Share;
Authorized, 2,000,000 Shares;
Issued and Outstanding, 332,150 Shares in 1997
and 328,150 Shares in 1996. ........................... 1,661 1,641
Additional Paid-in Capital .............................. 3,356 3,212
Retained Earnings ....................................... 9,769 7,820
-------- --------
14,786 12,673
Net Unrealized Gain (Loss) on Securities
Available for Sale, Net of Tax Effects ................. 4 (69)
-------- --------
Total Shareholders' Equity ............................. 14,790 12,604
-------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY. $153,481 $141,035
======== ========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
F-2
<PAGE>
STATEMENTS OF INCOME NEW CANNAN BANK
AND TRUST COMPANY
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------
1997 1996 1995
----------- ----------- -----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
INTEREST AND DIVIDEND INCOME:
Loans, Including Fees ...................... $ 7,944 $ 7,538 $ 7,803
Investment Securities ...................... 1,861 1,665 1,500
Short-Term Investments ..................... 567 455 272
-------- ------- -------
Total Interest and Dividend Income ......... 10,372 9,658 9,575
-------- ------- -------
INTEREST EXPENSE:
Deposits ................................... 3,234 3,133 2,930
Borrowings ................................. - 1 408
-------- ------- -------
Total Interest Expense ..................... 3,234 3,134 3,338
-------- ------- -------
NET INTEREST INCOME ......................... 7,138 6,524 6,237
Provision for Loan Losses .................. - - 7
-------- ------- -------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES .................. 7,138 6,524 6,230
-------- ------- -------
OTHER OPERATING INCOME:
Service Charges ............................ 598 594 529
Gain on Sale of Loans, Net ................. 514 262 183
Other Income ............................... 135 132 134
-------- ------- -------
Total Other Operating Income ............... 1,247 988 846
-------- ------- -------
OTHER OPERATING EXPENSES:
Salaries ................................... 2,338 2,090 2,194
Employee Benefits .......................... 497 414 458
Equipment and Data Processing .............. 768 711 710
Occupancy .................................. 705 667 586
FDIC Insurance Premiums .................... 15 18 167
Other Expenses ............................. 977 993 928
-------- ------- -------
Total Other Operating Expenses ............. 5,300 4,893 5,043
-------- ------- -------
Income Before Income Taxes .................. 3,085 2,619 2,033
Provision for Income Taxes .................. 1,136 951 820
-------- ------- -------
NET INCOME .................................. $ 1,949 $ 1,668 $ 1,213
======== ======= =======
Basic earnings per share .................... $ 5.91 $ 5.08 $ 3.70
Diluted earnings per share .................. $ 5.69 $ 4.98 $ 3.69
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
F-3
<PAGE>
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY NEW CANNAN BANK
AND TRUST COMPANY
<TABLE>
<CAPTION>
NET
UNREALIZED
GAIN (LOSS)
COMMON STOCK ADDITIONAL ON SECURITIES
------------------ PAID-IN RETAINED AVAILABLE
SHARES AMOUNT CAPITAL EARNINGS FOR SALE TOTAL
--------- -------- ------------ ---------- -------------- ----------
(IN THOUSANDS, EXCEPT SHARES)
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1994 ............. 327,400 $1,637 $3,194 $4,939 $ (201) $ 9,569
Net Income ............................. - - - 1,213 - 1,213
Net Change in Unrealized Gain (Loss)
on Securities Available for Sale ...... - - - - 119 119
------- ------ ------ ------ ------ -------
Balance, December 31, 1995 ............. 327,400 1,637 3,194 6,152 (82) 10,901
Net Income ............................. - - - 1,668 - 1,668
Exercise of Stock Options, Net ......... 750 4 18 - - 22
Net Change in Unrealized Gain (Loss)
on Securities Available for Sale ...... - - - - 13 13
------- ------ ------ ------ ------ -------
Balance, December 31, 1996 ............. 328,150 1,641 3,212 7,820 (69) 12,604
Net Income ............................. - - - 1,949 - 1,949
Exercise of Stock Options, Net ......... 4,000 20 144 - - 164
Net Change in Unrealized Gain (Loss)
on Securities Available for Sale ...... - - - - 73 73
------- ------ ------ ------ ------ -------
BALANCE, DECEMBER 31, 1997 ............. 332,150 $1,661 $3,356 $9,769 $ 4 $14,790
======= ====== ====== ====== ====== =======
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
F-4
<PAGE>
STATEMENTS OF CASH FLOWS NEW CANNAN BANK
AND TRUST COMPANY
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------
1997 1996 1995
(IN THOUSANDS)
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net Income ......................................................... $ 1,949 $ 1,668 $ 1,213
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for loan losses ......................................... - - 7
Depreciation and amortization expense ............................. 311 320 316
Write-off of foreclosed real estate ............................... - - 2
Amortization of investment premiums and discounts, net ............ 16 57 116
Gain on sale of loans, net ........................................ (514) (262) (183)
Proceeds from sale of loans ....................................... 50,889 23,595 15,204
Origination of loans for sale ..................................... (51,301) (24,292) (15,271)
Loss on disposition of equipment .................................. - 1 -
Deferred income tax (benefit) provision ........................... (82) (10) 34
Decrease in accrued interest receivable ........................... 48 60 127
(Decrease) increase in accrued interest payable ................... (23) 37 11
Decrease in deferred loan fees, net ............................... (85) (3) (59)
(Increase) decrease in other assets ............................... (38) 31 197
Increase (decrease) in other liabilities .......................... 323 (301) 651
--------- ---------- ---------
Net cash provided by operating activities ........................ 1,493 901 2,365
--------- ---------- ---------
INVESTING ACTIVITIES:
Proceeds from maturities of available for sale securities .......... 87,497 64,000 12,000
Proceeds from maturities of held to maturity securities ............ 2,806 510 6,202
Purchases of available for sale securities ......................... (89,023) (65,002) (17,000)
Purchases of held to maturity securities ........................... (13,086) (1,988) -
Net decrease in loans .............................................. 42 669 5,347
Purchases of premises and equipment ................................ (656) (102) (133)
Proceeds from sale of other real estate ............................ - - 88
--------- ---------- ---------
Net cash (used in) provided by investing activities ................ (12,420) (1,913) 6,504
--------- ---------- ---------
FINANCING ACTIVITIES:
Net increase in deposits ........................................... 9,985 2,339 9,392
Decrease in Advances from Federal Home Loan Bank ................... - - (8,500)
Decrease in Securities Sold Under Agreement to Repurchase .......... - - (3,964)
Proceeds from exercise of stock options, net ....................... 105 22 -
--------- ---------- ---------
Net cash provided by (used in) financing activities ................ 10,090 2,361 (3,072)
--------- ---------- ---------
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (837) 1,349 5,797
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR ....................... 17,862 16,513 10,716
--------- ---------- ---------
CASH AND CASH EQUIVALENTS, END OF YEAR ............................. $ 17,025 $ 17,862 $ 16,513
========= ========== =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Income taxes paid, net ............................................. $ 1,200 $ 1,325 $ 192
Interest paid ...................................................... 3,257 3,097 3,327
Transfer of securities from held to maturity to available for sale . - - 23,554
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
F-5
<PAGE>
NOTES TO FINANCIAL STATEMENTS NEW CANAAN BANK
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995 AND TRUST COMPANY
1. SUMMARY OF SIGNIFICANT ACCOUNTING AND REPORTING POLICIES
New Canaan Bank and Trust Company (the "Bank") provides banking services to the
residents and businesses of the Town of New Canaan, Connecticut and surrounding
communities and is chartered by the State of Connecticut. The Bank's primary
deposit products are demand, savings, and time accounts, and its primary
lending products are real estate mortgages and commercial and industrial loans.
The significant accounting policies followed by the Bank are summarized as
follows:
BASIS OF FINANCIAL STATEMENT PRESENTATION
The financial statements have been prepared in accordance with generally
accepted accounting principles and with practices prevalent within the banking
industry. In preparing such 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 statement of condition and the revenues and
expenses for the period. Actual results could differ significantly from those
estimates.
An estimate that is particularly susceptible to significant change in the
near-term relates to the determination of the allowance for loan losses. In
connection with the determination of the allowance for loan losses, management
obtains independent appraisals for significant properties.
RECLASSIFICATION
Certain amounts have been reclassified in the 1996 and 1995 financial
statements to conform to the 1997 presentation.
CASH AND CASH EQUIVALENTS
Cash equivalents include amounts due from banks, federal funds sold on a daily
basis, and other short-term investments, with maturities less than ninety days.
INVESTMENT SECURITIES
Investments are classified into the following categories:
Held to maturity securities for which the Bank has both the positive intent
and ability to hold until maturity are reported at amortized or accreted
cost.
Available for sale securities, which do not meet the criteria of held to
maturity, are reported at fair value with unrealized gains and losses, net
of applicable income taxes, reported as a separate component of
shareholders' equity.
Federal Home Loan Bank of Boston stock is reflected at cost.
Gains or losses on the sale of securities are determined using the specific
identification method. Purchase premiums and discounts are amortized to income
by a method which approximates the interest method over the terms of the
instruments.
LOANS
Substantially all of the Bank's lending activities are with customers located
in New Canaan, Darien, and the surrounding communities in Fairfield County,
Connecticut. The Bank has credit policies applicable to each type of lending
activity in which it engages, evaluates the credit worthiness of each customer,
and, in most cases, extends credit of up to 75 percent of the market value of
the collateral at the date of the credit extension, depending on the Bank's
evaluation of the borrower's credit worthiness and the type of collateral. The
market value of collateral is monitored on an on-going basis and additional
collateral is obtained when warranted. Real estate is the primary form of
collateral. Other important forms of collateral are marketable securities and
time deposits. While collateral provides assurance as a secondary source of
repayment, the Bank ordinarily requires the primary source of repayment to be
based on the borrower's ability to generate continuing cash flows.
F-6
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED) NEW CANAAN BANK
AND TRUST COMPANY
Loans are stated at principal amounts outstanding, net of deferred loan fees
and costs. Loan origination fees and direct costs associated with the loan
underwriting process are deferred and recognized as an adjustment of loan
yields over the life of the related loan. Interest on loans is not accrued on
loans which are ninety days or more past due.
Mortgage loans held for sale are stated at the lower of cost or market.
ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses is established through a provision for loan
losses charged to earnings and is maintained at an amount which, in
management's judgment, will be adequate, under current economic conditions, to
absorb any charge-offs of existing loans.
While management uses available information to recognize loan losses, future
additions to the allowance may be necessary based on changes in economic
conditions, particularly in the Bank's service area. In addition, regulatory
agencies, as an integral part of their examination process, periodically review
the Bank's allowance for loan losses. Such agencies may require the Bank to
recognize additions to the allowance based on their judgment of information
available to them at the time of their examination.
A loan is considered impaired when, based on current information and events, it
is probable that a creditor will be unable to collect the scheduled payments of
principal or interest when due according to the contractual terms of the loan
agreement. Factors considered by management in determining impairment include
payment status, collateral value, and the probability of collecting scheduled
principal and interest payments when due. Loans that experience insignificant
payment delays and payment shortfalls generally are not classified as impaired.
Management determines the significance of payment delays and payment shortfalls
on a case-by-case basis, taking into consideration all of the circumstances
surrounding the loan and the borrower, including the length of the delay, the
reasons for the delay, the borrower's prior payment record, and the amount of
the shortfall in relation to the principal and interest owed. Impairment is
measured on a loan by loan basis by either the present value of expected future
cash flows discounted at the loan's effective interest rate, the loan's
obtainable market price, or the fair value of the collateral if the loan is
collateral dependent. Substantially all of the Bank's loans which have been
identified as impaired have been measured by the fair value of existing
collateral.
Large groups of smaller balance homogeneous loans are collectively evaluated
for impairment. Accordingly, the Bank does not separately identify individual
consumer or residential loans under $227,000 for impairment disclosures.
PREMISES AND EQUIPMENT
Premises and equipment are stated at cost less accumulated depreciation and
amortization. Depreciation is computed on the straight-line method at rates
based on estimated useful lives, generally 3 to 30 years. Leasehold
improvements are amortized over the lesser of the lease terms or their
estimated useful lives. Expenditures for maintenance and repairs are charged to
earnings as incurred. Any gains or losses from the sale or disposition of
premises and equipment are included in other operating income or expense.
INCOME TAXES
Deferred tax assets and liabilities are reflected at currently enacted income
tax rates applicable to the period in which the deferred tax assets or
liabilities are expected to be realized or settled. As changes in tax laws or
rates are enacted, deferred tax assets and liabilities are adjusted accordingly
through the provision for income taxes. The Bank's base amount of its federal
income tax reserve for loan losses is a permanent difference for which there is
no recognition of a deferred tax liability. However, the loan loss allowance
maintained for financial reporting purposes is a temporary difference with
allowable recognition of a related deferred tax asset, if it is deemed
realizable.
F-7
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED) NEW CANAAN BANK
AND TRUST COMPANY
STOCK OPTION PLAN
In October 1995, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 123, "Accounting for
Stock-Based Compensation." This Statement encourages all entities to adopt a
fair value based method of accounting for employee stock compensation plans,
whereby compensation cost is measured at the grant date based on the value of
the award and is recognized over the service period, which is usually the
vesting period. However, it also allows an entity to continue to measure
compensation cost for those plans using the intrinsic value based method of
accounting prescribed by APB Opinion No. 25, "Accounting for Stock Issued to
Employees", whereby compensation cost is the excess, if any, of the quoted
market price of the stock at the grant date (or other measurement date) over
the amount an employee must pay to acquire the stock. Stock options issued
under the Bank's stock option plan have no intrinsic value at the grant date,
and under Opinion No. 25 no compensation cost is recognized for them. The Bank
has elected to remain with the accounting in Opinion No. 25 and, as a result,
must make pro forma disclosures of net income and earnings per share and other
disclosures, as if the fair value based method of accounting had been applied.
The pro forma disclosures include the effects of all awards granted on or after
January 1, 1995. (See Note 11.)
EARNINGS PER SHARE
In February 1997, FASB issued SFAS No. 128, "Earnings per Share" which requires
that earnings per share be calculated on a basic and a dilutive basis. Basic
earnings per share represents income available to common stock divided by the
weighted-average number of common shares outstanding during the period. Diluted
earnings per share reflects additional common shares that would have been
outstanding if dilutive potential common shares had been issued, as well as any
adjustment to income that would result from the assumed conversion. Potential
common shares that may be issued by the Bank relate solely to outstanding stock
options, and are determined using the treasury stock method. The assumed
conversion of outstanding dilutive stock options would increase the shares
outstanding but would not require an adjustment to income as a result of the
conversion. The Statement is effective for interim and annual periods ending
after December 15, 1997, and requires the restatement of all prior-period
earnings per share data presented. Accordingly, the Bank has restated all
earnings per share data presented herein.
The weighted average number of common shares outstanding for purposes of
calculating basic earnings per share during 1997, 1996, and 1995 were 329,802,
328,082, and 327,400, respectively. The weighted average number of common
equivalent shares outstanding for purposes of calculating diluted earnings per
share during 1997, 1996, and 1995 were 342,286, 334,712, and 328,438,
respectively.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1997, FASB issued SFAS No. 130, "Reporting Comprehensive Income,"
effective for fiscal years beginning after December 15, 1997. Accounting
principles generally require that recognized revenue, expenses, gains and
losses be included in net income. Certain FASB statements, however, require
entities to report specific changes in assets and liabilities, such as
unrealized gains and losses on available-for-sale securities, as a separate
component of the equity section of the statement of condition. Such items,
along with net income, are components of comprehensive income. SFAS No. 130
requires that all items of comprehensive income be reported in a financial
statement that is displayed with the same prominence as other financial
statements. Additionally, SFAS No. 130 requires that the accumulated balance of
other comprehensive income be displayed separately from retained earnings and
additional paid-in capital in the equity section of the statement of condition.
The Bank will adopt these disclosure requirements beginning in the first
quarter of 1998.
In June 1997, FASB issued SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information," effective for fiscal years beginning after
December 15, 1997. SFAS No. 131 establishes standards for the way that public
business enterprises report information about operating segments in annual and
interim financial statements. It also establishes standards for related
disclosures about products and services, geographic areas and major customers.
Generally, financial information is required to be reported on the basis that
it is used internally for evaluating segment performance and deciding how to
allocate resources to segments. The Statement also requires descriptive
information about the way that the operating segments were determined, the
products and services
F-8
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED) NEW CANAAN BANK
AND TRUST COMPANY
provided by the operating segments, differences between the measurements used
in reporting segment information and those used by the enterprise in its
general-purpose financial statements, and changes in the measurement of segment
amounts from period to period. Management has not yet determined how the
adoption of SFAS No. 131 will impact the Bank's financial reporting.
2. CASH RESERVE REQUIREMENTS
In accordance with banking regulations, the Bank's reserve requirements at
December 31, 1997 and 1996 were $2,434,000 and $1,978,000, respectively.
3. INVESTMENT SECURITIES
The amortized cost and estimated fair values of securities, with contractual
maturities, are shown below. Expected maturities will differ from contractual
maturities because issuers may have the right to call or prepay obligations
with or without call or prepayment penalties.
<TABLE>
<CAPTION>
DECEMBER 31, 1997
---------------------------------------------------
GROSS UNREALIZED
------------------
ESTIMATED
AMORTIZED COST GAINS LOSSES FAIR VALUE
---------------- ------- -------- -----------
<S> <C> <C> <C> <C>
SECURITIES AVAILABLE FOR SALE: (IN THOUSANDS)
- ------------------------------------------------
U.S. Treasury Securities:
Within one year ............................. $ 3,999 $ - $ 7 $ 3,992
Obligations of other U.S. Government
Agencies and Corporations:
Within one year ............................. 1,000 - 2 998
After 1 but within 5 years .................. 16,521 18 29 16,510
After 5 but within 10 years ................. 1,000 3 - 1,003
Marketable Equity Securities ................... 9,511 24 - 9,535
------- ----- --- -------
Total Securities Available for Sale ......... $32,031 $45 $38 $32,038
======= ===== === =======
SECURITIES HELD TO MATURITY:
- -------------------------------------------------
Obligations of other U.S. Government
Agencies and Corporations:
Within one year ............................. $ 1,859 $24 $ - $ 1,883
After 1 but within 5 years .................. 6,583 26 9 6,600
After 5 but within 10 years ................. 83 7 - 90
After 10 years .............................. 85 7 - 92
Corporate:
Within one year 4,981 3 1 4,983
------- ----- --- -------
Total Securities Held to Maturity ........... $13,591 $67 $10 $13,648
======= ===== === =======
</TABLE>
F-9
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED) NEW CANAAN BANK
AND TRUST COMPANY
<TABLE>
<CAPTION>
DECEMBER 31, 1996
---------------------------------------------------
GROSS UNREALIZED
------------------
ESTIMATED
AMORTIZED COST GAINS LOSSES FAIR VALUE
---------------- ------- -------- -----------
SECURITIES AVAILABLE FOR SALE:
- ------------------------------------------------ (IN THOUSANDS)
<S> <C> <C> <C> <C>
U.S. Treasury Securities ....................... $ 9,010 $ - $ 51 $ 8,959
Obligations of other U.S. Government
Agencies and Corporations ...................... 10,494 7 84 10,417
Marketable Equity Securities ................... 11,011 11 - 11,022
------- --- ---- -------
Total Securities Available for Sale ......... $30,515 $18 $135 $30,398
======= === ==== =======
SECURITIES HELD TO MATURITY:
- -------------------------------------------------
Obligations of other U.S. Government
Agencies and Corporations ...................... $ 3,317 $49 $ 12 $ 3,354
======= === ==== =======
</TABLE>
There were no sales of securities in 1997, 1996 or 1995.
<TABLE>
<CAPTION>
DECEMBER 31, 1997 DECEMBER 31, 1996
---------------------------- ---------------------------
ESTIMATED ESTIMATED
FAIR FAIR
AMORTIZED COST VALUE AMORTIZED COST VALUE
---------------- ----------- ---------------- ----------
SECURITIES WERE PLEDGED AS FOLLOWS: (IN THOUSANDS)
<S> <C> <C> <C> <C>
To secure United States Treasury demand deposits .................... $4,000 $3,996 $3,999 $3,969
To secure public funds included in interest bearing deposits ........ 994 1,000 1,010 1,001
</TABLE>
In November 1995, the FASB issued guidance allowing a one-time reassessment of
an entity's investment classifications during the period November 15, 1995 to
December 31, 1995. As a result, the amortized cost of securities held to
maturity that were transferred to available for sale amounted to $23,554,000,
and the related unrealized loss amounted to $119,000.
4. LOANS AND ALLOWANCE FOR LOAN LOSSES
The composition of loans is as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1997 1996
---------- ----------
(IN THOUSANDS)
<S> <C> <C>
Real Estate Mortgages .................... $ 38,984 $ 46,716
Mortgages Held for Sale .................. 2,285 1,359
Home Equity Lines of Credit .............. 11,257 12,099
Commercial and Industrial ................ 28,107 19,917
Construction ............................. 6,779 3,775
Loans to Individuals for Household, Family
and Other Personal Expenditures ......... 823 3,365
Cash Reserve ............................. 405 490
Other .................................... 97 50
-------- --------
Total Loans .............................. 88,737 87,771
Deferred Loan Fees, Net .................. (209) (294)
Allowance for Loan Losses ................ (2,110) (2,028)
-------- --------
Loans, Net ............................... $ 86,418 $ 85,449
======== ========
</TABLE>
F-10
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED) NEW CANAAN BANK
AND TRUST COMPANY
Changes in the allowance for loan losses were as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------
1997 1996 1995
--------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Balance, Beginning of Year ............ $2,028 $2,031 $2,148
Provision Charged to Earnings ......... - - 7
Loans Charged-Off ..................... (18) (36) (179)
Recoveries ............................ 100 33 55
------ ------ ------
Balance, End of Year .................. $2,110 $2,028 $2,031
====== ====== ======
</TABLE>
Non-accrual loans totaled $1,255,000 and $1,316,000 at December 31, 1997 and
1996, respectively. The Bank would have recorded additional interest income of
$86,000, $96,000, and $76,000 in 1997, 1996 and 1995, respectively, if
non-accrual loans were performing in accordance with original loan terms. The
Bank has no commitments to lend additional funds to borrowers whose loans are
classified as non-accrual.
The following is a summary of the recorded investment in impaired loans:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1997 1996
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
Loans with no Valuation Allowance ...................... $2,231 $2,362
Loans with a Corresponding Valuation Allowance ......... 624 383
------ ------
Total Impaired Loans ................................... $2,855 $2,745
====== ======
Corresponding Valuation Allowance ...................... $ 624 $ 288
====== ======
</TABLE>
No additional funds are committed to be advanced in connection with impaired
loans.
For the years ended December 31, 1997 and 1996, the average recorded investment
in impaired loans amounted to $2,766,000 and $2,503,000, respectively. The Bank
recognized $207,000 and $156,000 of interest income on impaired loans during
the period that they were impaired, primarily on the accrual basis.
The following is a summary of mortgage loans sold to various investors:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
------------------------------------
1997 1996 1995
---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
Mortgage loans sold, servicing released ............ $45,342 $23,333 $15,021
Sold mortgage loans with open recourse provisions at
December 31, ...................................... $18,886 $ 3,663 $ 4,108
</TABLE>
F-11
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED) NEW CANAAN BANK
AND TRUST COMPANY
5. PREMISES AND EQUIPMENT
Premises and equipment consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1997 1996
----------- -----------
(IN THOUSANDS)
<S> <C> <C>
Buildings ............................................... $ 1,827 $ 1,827
Leasehold and Building Improvements ..................... 677 427
Furniture and Equipment ................................. 1,908 1,541
-------- --------
Total ................................................... 4,412 3,795
Less: Accumulated Depreciation and Amortization ......... (2,444) (2,172)
-------- --------
Premises and Equipment, Net ............................. $ 1,968 $ 1,623
======== ========
</TABLE>
Depreciation and amortization expense for the years ended December 31, 1997,
1996, and 1995 amounted to $311,000, $320,000, and $316,000, respectively.
6. DEPOSITS
The composition of deposits is as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1997 1996
---------- ----------
(IN THOUSANDS)
<S> <C> <C>
Demand ................. $ 22,970 $ 19,438
Savings ................ 74,855 69,270
Time ................... 39,755 38,887
-------- --------
Total Deposits ......... $137,580 $127,595
======== ========
</TABLE>
Time deposits in denominations of $100,000 or more amounted to $14,746,000 and
$13,700,000 at December 31, 1997 and 1996, respectively.
The summary of term certificates, by maturity, is as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1997 DECEMBER 31, 1996
----------------------------- ---------------------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
AMOUNT RATE AMOUNT RATE
---------------- ---------- --------------- ---------
(IN THOUSANDS) (IN THOUSANDS)
<S> <C> <C> <C> <C>
Within 1 year ......................... $32,966 5.29% $31,713 5.17%
After 1 year through 3 years .......... 5,947 5.79 5,937 5.53
After 3 years through 5 years ......... 842 5.59 1,237 6.00
------- -------
$39,755 5.38% $38,887 5.25%
======= =======
</TABLE>
Interest on deposits, classified by type, is as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
---------------------------------
1997 1996 1995
--------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Savings ......... $1,250 $1,353 $1,510
Time ............ 1,984 1,780 1,420
------ ------ ------
$3,234 $3,133 $2,930
====== ====== ======
</TABLE>
F-12
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED) NEW CANAAN BANK
AND TRUST COMPANY
7. INCOME TAXES
Allocation of federal and state income taxes between current and deferred
portions is as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1997 1996 1995
----------- -------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Current Tax Provision:
Federal ............................ $ 913 $ 733 $ 584
State .............................. 305 228 202
----- ----- -----
Total ............................... 1,218 961 786
----- ----- -----
Deferred Tax Provision (Benefit):
Federal ............................ (53) 7 32
State .............................. (9) 3 22
-------- ----- -----
Total ............................... (62) 10 54
------- ----- -----
Change in Valuation Reserve ......... (20) (20) (20)
------- ----- -----
Provision for Income Taxes .......... $1,136 $ 951 $ 820
======= ===== =====
</TABLE>
The reasons for the differences between the statutory federal income tax rate
and the effective tax rates are summarized as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Federal Income Tax at Statutory Rate ............. 34.0% 34.0% 34.0%
Increase (Decrease) Resulting From:
State Taxes, Net of Federal Tax Benefit ......... 6.3% 5.8% 7.3%
Dividends Received Deduction .................... (3.0) (3.0) (0.7)
Change in Valuation Allowance ................... (0.6) (0.8) (1.0)
Other, Net ...................................... 0.1 0.3 0.7
---- ---- ----
Effective Income Tax Rates ....................... 36.8% 36.3% 40.3%
==== ==== ====
</TABLE>
The components of the net deferred tax asset, included in other assets, are as
follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1997 1996
-------- ---------
(IN THOUSANDS)
<S> <C> <C>
Deferred Tax Asset:
Federal ........................... $ 739 $ 700
State ............................. 228 230
------ ------
967 930
Valuation Reserve on Asset ......... (40) (60)
------ ------
927 870
------ ------
Deferred Tax Liability:
Federal ........................... (230) (207)
State ............................. (71) (68)
------ ------
(301) (275)
------ ------
Net Deferred Tax Asset ............. $ 626 $ 595
====== ======
</TABLE>
F-13
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED) NEW CANAAN BANK
AND TRUST COMPANY
The tax effects of each type of income and expense item that give rise to
deferred taxes are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1997 1996
---------- -------
(IN THOUSANDS)
<S> <C> <C>
Allowance for Loan Losses ......................................... $568 $ 573
Net Realized (Gain) Loss on Securities Available for Sale ......... (3) 48
Non-accrual Income ................................................ 36 39
Depreciation ...................................................... 44 (23)
Other ............................................................. 21 18
------ -----
666 655
Valuation Reserve ................................................. (40) (60)
------ -----
Net Deferred Tax Asset ............................................ $626 $ 595
====== =====
</TABLE>
The balance of the allowance for loan losses reported for federal income tax
purposes was $699,000, $618,000, and $620,000 for the years ended 1997, 1996,
and 1995, respectively. The Bank deducted $0, $0, and $100,000, in 1997, 1996,
and 1995, respectively, for federal income tax purposes, which represented the
maximum allowable amount that could be deducted.
A summary of the change in the net deferred tax asset is as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1997 1996 1995
-------- ---------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Balance at Beginning of Year ............. $ 595 $594 $ 709
Deferred Tax Provision (Benefit) ......... 62 (10) (54)
Change in Net Unrealized Gain/Loss on
Securities Available for Sale ........... (51) (9) (81)
Reduction of Valuation Reserve ........... 20 20 20
----- ------ -----
Balance at End of Year ................... $ 626 $595 $ 594
===== ====== =====
</TABLE>
The change in the valuation reserve applicable to the net deferred tax asset is
as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------
1997 1996 1995
-------- -------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Balance at Beginning of Year ................ $ 60 $ 80 $ 100
Change in Future Income Assumptions ......... (20) (20) (20)
----- ----- -----
Balance at End of Year ...................... $ 40 $ 60 $ 80
===== ===== =====
</TABLE>
8. COMMITMENTS
LOAN COMMITMENTS
The Bank is a party to financial instruments with off-balance-sheet risk in the
normal course of business to meet the financing needs of its customers. These
financial instruments include commitments to extend credit. Such commitments
involve, to varying degrees, elements of credit and interest rate risk in
excess of the amount recognized in the statements of condition.
F-14
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED) NEW CANAAN BANK
AND TRUST COMPANY
The Bank's exposure to credit risk is represented by the contractual amount of
these commitments. The Bank uses the same credit policies in making commitments
as it does for recorded instruments.
At December 31, 1997 and 1996, the following financial instruments were
outstanding whose contract amounts represent credit risk:
<TABLE>
<CAPTION>
CONTRACT AMOUNT
---------------------
1997 1996
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
Commitments to Grant Loans:
Fixed rate ...................................................... $ 1,081 $2,684
Variable rate ................................................... 1,610 1,275
Unadvanced Construction Funds .................................... 3,474 4,771
Unadvanced Funds on Home Equity Lines of Credit .................. 10,154 9,030
Unadvanced Funds on Commercial and Other Lines of Credit ......... 4,928 3,209
Standby Letters of Credit ........................................ 201 210
</TABLE>
Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the contract. Commitments
generally have fixed expiration dates or other termination clauses and may
require payment of a fee. The commitments for lines of credit may expire
without being drawn upon. Therefore, the total commitment amounts do not
necessarily represent future cash requirements. The Bank evaluates each
customer's credit worthiness on a case-by-case basis. Commitments to grant
loans, unadvanced construction funds, and home equity lines of credit are
secured by real estate. Collateral for commercial and other lines of credit is
obtained when deemed appropriate.
Standby letters of credit are conditional commitments issued by the Bank to
guarantee the performance of a customer to a third party. The credit risk
involved in issuing letters of credit is essentially the same as that involved
in extending loan facilities to customers.
LEASE COMMITMENTS
Future minimum payments under noncancellable operating leases for bank
premises, including land, with initial or remaining terms of one year or more
are as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
- ----------------------------------------
(IN THOUSANDS)
<S> <C>
1998 ............... $ 255
1999 ............... 255
2000 ............... 268
2001 ............... 269
2002 ............... 269
Thereafter ......... 2,663
------
$3,979
======
</TABLE>
The leases contain provisions which provide for annual adjustments to reflect
changes in the cost of living index.
Net rental expense of approximately $380,000, $314,000, and $309,000 is
included in occupancy expense for the years 1997, 1996, and 1995, respectively,
which includes $163,000, $160,000, and $156,000 of escalation charges and
contingent rentals relating to additional office space.
F-15
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED) NEW CANAAN BANK
AND TRUST COMPANY
EMPLOYMENT CONTRACT
The Bank has an employment agreement with the President which runs through
December 31, 1998. The agreement provides for specified minimum salary and
benefits. Under the agreement, in the event of a change-in-control, as defined
in the agreement, the President is entitled to two years' salary.
9. RELATED PARTY TRANSACTIONS
Certain directors and executive officers, including their immediate families
and companies in which they are principal owners, were loan customers of the
Bank during 1997 and 1996. The aggregate dollar amount of these loans was
approximately $157,000 and $377,000 at December 31, 1997 and 1996,
respectively. Loans to related parties are made in the ordinary course of
business under normal credit terms, including interest rates on collateral,
prevailing at the time of origination for comparable transactions with other
persons, and do not represent more than normal credit risk. An analysis of the
activity of these loans is as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER
31,
---------------------
1997 1996
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
Balance at beginning of year ......... $ 377 $ 897
Additions ........................... 14 154
Repayments .......................... (234) (674)
------ ------
Balance at end of year ............... $ 157 $ 377
====== ======
</TABLE>
10. EMPLOYEE BENEFITS
The Bank has a Qualified Retirement and 401(k) Benefit Plan ("the Plan"). The
Plan is administered through Allmerica Financial Corporation. The Plan covers
all eligible employees who are at least 21 years old and who have been employed
by the Bank for at least one year.
Employees may elect to contribute up to fifteen percent (15%) of their
compensation to the Plan each year. However, the total savings contribution is
limited by law and, the contribution limit applicable to the Plan was $9,500
for both 1997 and 1996, and $9,240 for 1995. The Bank contributes a matching
amount of fifty cents ($0.50) per dollar up to the first four percent (4%) of
each employee's compensation. The Bank contributed, as its matching share of
the Plan, a total of approximately $28,000, $25,000 and $20,000 for 1997, 1996,
and 1995, respectively, into the Plan on behalf of eligible employees. In
addition, the Board of Directors approved contributions to the retirement
portion of the Plan of approximately $84,000, $41,000, and $32,000 for 1997,
1996, and 1995, respectively.
11. SHAREHOLDERS' EQUITY
STOCK OPTION PLAN
On April 20, 1995, the Bank adopted a non-qualified stock option plan ("The
Option Plan") which supersedes the 1989 Stock Option Plan, terminated by
resolution of the Board except for any outstanding options previously granted.
The Board is authorized to grant options to designated key employees to
purchase up to but not to exceed a maximum of 75,000 shares of common stock of
the Bank. Such shares may be unissued shares or previously issued shares
reacquired or to be reacquired by the Bank. All or any shares subject to an
option under the Plan which, for any reason, expires or terminates unexercised
as to such shares may again be subject to an option under this Plan. Options
become exercisable between the grant date and three years after the grant date
and expire ten years after the grant date. Under the Option Plan, the exercise
price of options shall not be less than 100% of the fair market value of the
Bank's Common Stock on the date the option is granted. Stock appreciation
rights may be granted by the Board in connection with any stock option provided
that the exercise by the optionee of a stock
F-16
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED) NEW CANAAN BANK
AND TRUST COMPANY
appreciation right shall be subject to the consent of the Board.
At December 31, 1997, 29,200 shares of common stock were reserved for future
issuance.
The Bank applies APB Opinion 25 and related Interpretations in accounting for
stock options awarded to employees. Accordingly, no compensation cost has been
recognized. Had compensation cost for the Bank's stock-based compensation been
determined based on the fair value at the grant dates for awards consistent
with the method prescribed by SFAS No. 123, the Bank's net income and earnings
per share would have been reduced to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------
1997 1996 1995
----------- ----------- -----------
(IN THOUSANDS, EXCPET PER SHARE DATA)
<S> <C> <C> <C> <C>
Net income As reported .......... $ 1,949 $ 1,668 $ 1,213
Pro forma ............ 1,888 1,579 1,165
Basic Earnings per share As reported .......... $ 5.91 $ 5.08 $ 3.70
Pro forma ............ 5.73 4.81 3.56
Diluted earnings per share As reported .......... $ 5.69 $ 4.98 $ 3.69
Pro forma ............ 5.52 4.72 3.56
</TABLE>
The fair value of each option grant is estimated on the date of grant using the
Black-Scholes option-pricing model with the following weighted-average
assumptions:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1997 1996 1995
--------- --------- --------
<S> <C> <C> <C>
Dividend yield .................. 0% 0% 0%
Expected life ................... 5 YEARS 5 years 5 years
Expected volatility ............. 32% 32% 15%
Risk-free interest rate ......... 6% 6% 6%
</TABLE>
A summary of the status of the Bank's stock option plan as of December 31,
1997, 1996, and 1995, and changes during the years then ended, is presented
below:
<TABLE>
<CAPTION>
1997 1996 1995
------------------------ ----------------------- -------------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
----------- ---------- ---------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at Beginning of Year ......... 39,800 $ 28.49 31,550 $ 26.04 2,350 $ 20.88
Granted .................................. 6,000 47.00 11,000 35.00 30,800 26.00
Exercised ................................ (4,000) 26.00 (750) 27.61 - -
Expired or Cancelled ..................... - - (2,000) 26.00 (1,600) 17.72
------ ------ ------
Outstanding at End of Year ............... 41,800 $ 31.38 39,800 $ 28.49 31,550 $ 26.04
====== ====== ======
Options Exercisable at Year-end .......... 26,468 $ 27.25 13,401 $ 26.00 750 $ 27.61
====== ====== ======
Weighted-Average Fair Value of
Options Granted During the Year ......... $ 18.25 $ 13.65 $ 7.37
</TABLE>
F-17
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED) NEW CANAAN BANK
AND TRUST COMPANY
Information pertaining to options outstanding at December 31, 1997 is as
follows:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
----------------------------- --------------------
Weighted
Average
Remaining
Number Contractual Number
Range of Exercise Prices Outstanding Life Exercisable
- ------------------------------------ ------------- ------------- --------------------
(YEARS)
<S> <C> <C> <C>
$26.00...................... 24,800 7.33 22,801
35.00...................... 11,000 9.25 3,667
47.00...................... 6,000 9.00 -
------ ------
Outstanding at End of Year ......... 41,800 8.08 26,468
====== ======
</TABLE>
MINIMUM REGULATORY CAPITAL REQUIREMENTS
The Bank is subject to various regulatory capital requirements administered by
the federal banking agencies. Failure to meet minimum capital requirements can
initiate certain mandatory and possibly additional discretionary actions by
regulators that, if undertaken, could have a direct material effect on the
Bank's financial statements. Under capital adequacy guidelines and the
regulatory framework for prompt corrective action, the Bank must meet specific
capital guidelines that involve quantitative measures of the Bank's assets,
liabilities and certain off-balance-sheet items as calculated under regulatory
accounting practices. The Bank's capital amounts and classification are also
subject to qualitative judgments by the regulators about components, risk
weightings, and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Bank to maintain minimum amounts and ratios of total and Tier I
capital (as defined) and of Tier I capital (as defined) to average assets (as
defined). As of December 31, 1997 and 1996, the Bank meets all capital adequacy
requirements to which it is subject.
As of December 31, 1997, the most recent notification from the Federal Deposit
Insurance Corporation categorized the Bank as well capitalized under the
regulatory framework for prompt corrective action. To be categorized as well
capitalized, the Bank must maintain minimum total risk-based, Tier I risk-based
and Tier I leverage ratios as set forth in the following table. There are no
conditions or events since that notification that management believes have
changed the Bank's category. The Bank's actual capital amounts and ratios as of
December 31, 1997 and 1996 are also presented in the table.
<TABLE>
<CAPTION>
MINIMUM TO BE
WELL CAPITALIZED
MINIMUM FOR UNDER PROMPT
CAPITAL ADEQUACY CORRECTIVE ACTION
ACTUAL PURPOSES PROVISIONS
------------------------ ------------------------ ------------------------
DECEMBER 31, 1997 AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
- ------------------------------------------ ---------- ----------- ----------- ---------- ---------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Total Capital (to Risk Weighted Assets) $16,109 15.34% $8,403 8.00% $10,504 10.00%
Tier I Capital (to Risk Weighted Assets) 14,786 14.08 4,202 4.00 6,303 6.00
Tier I Capital (to Average Assets) 14,786 10.29 5,748 to 4.00 to 7,184 5.00
7,184 5.00
</TABLE>
<TABLE>
<CAPTION>
MINIMUM TO BE
WELL CAPITALIZED
MINIMUM FOR UNDER PROMPT
CAPITAL ADEQUACY CORRECTIVE ACTION
ACTUAL PURPOSES PROVISIONS
------------------------ -------------------------- ----------------------
DECEMBER 31, 1996 AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
- ------------------------------------------ ---------- ----------- ------------- ---------- -------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Total Capital (to Risk Weighted Assets) $13,743 16.06% $6,847 8.00% $8,559 10.00%
Tier I Capital (to Risk Weighted Assets) 12,673 14.81 3,424 4.00 5,136 6.00
Tier I Capital (to Average Assets) 12,673 9.25 5,478 to 4.00 to 6,847 5.00
6,847 5.00
</TABLE>
F-18
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED) NEW CANAAN BANK
AND TRUST COMPANY
12. AVAILABLE LINES OF CREDIT
As a member of the Federal Home Loan Bank of Boston, the Bank was eligible to
borrow up to $16,288,000 at December 31, 1997. The borrowings would be secured
by stock in the Federal Home Loan Bank and certain other qualified collateral.
The Bank also maintains repurchase agreement lines with brokers which allow the
Bank to borrow up to $10,000,000 on a short-term basis based upon collateral
held in the investment portfolio.
There were no borrowings outstanding during 1997 and 1996.
13. FAIR VALUE OF FINANCIAL INSTRUMENTS
SFAS No. 107, "Disclosures about Fair Value of Financial Instruments", requires
disclosure of estimated fair values of all financial instruments where it is
practicable to estimate such values. In cases where quoted market prices are
not available, fair values are based on estimates using present value or other
valuation techniques. Those techniques are significantly affected by the
assumptions used, including the discount rate and estimates of future cash
flows. Accordingly, the derived fair value estimates cannot be substantiated by
comparison to independent markets and, in many cases, could not be realized in
immediate settlement of the instruments. Statement No. 107 excludes certain
financial instruments and all nonfinancial instruments from its disclosure
requirements. Accordingly, the aggregate fair value amounts presented do not
represent the underlying value of the Bank.
The following methods and assumptions were used by the Bank in estimating fair
value disclosures for financial instruments:
CASH AND CASH EQUIVALENTS
The carrying amounts of cash and short-term instruments approximate fair
values. Short-term investments generally mature or "roll over" on a daily
basis, but in all cases have maturities of less than ninety days.
INVESTMENT SECURITIES
Fair values for investment securities, excluding Federal Home Loan Bank of
Boston stock, are based on quoted market prices, where available. If quoted
market prices are not available, fair values are based on quoted market prices
of comparable instruments. The carrying value of Federal Home Loan Bank of
Boston stock approximates fair value.
LOANS
For variable rate loans that reprice frequently and with no significant change
in credit risk, fair values are based on carrying values. Fair values for all
loans other than variable rate loans that reprice frequently are estimated
using discounted cash flow analyses, using interest rates currently being
offered for loans with similar terms to borrowers of similar credit quality.
This analysis assumes no prepayments. Fair values for loans are adjusted for
management's estimate of credit risk.
DEPOSITS
The fair values disclosed for demand deposits (e.g., interest and non-interest
checking, savings, and money market accounts) are, by definition, equal to the
amount payable on demand at the reporting date (i.e., their carrying amounts).
The carrying amounts of variable rate, fixed-term certificates of deposit
approximate their fair values at the reporting date. Fair values for fixed rate
certificates of deposit are estimated using a discounted cash flow calculation
that applies interest rates currently being offered on certificates to a
schedule of aggregated expected monthly maturities on time deposits.
F-19
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED) NEW CANAAN BANK
AND TRUST COMPANY
ACCRUED INTEREST
The carrying amounts of accrued interest approximate fair value.
OFF BALANCE SHEET INSTRUMENTS
Fair values for off balance sheet lending commitments are based on fees
currently charged to enter into similar agreements, taking into account the
remaining terms of the agreements and the counterparties' credit standing. The
fair values of these instruments are considered immaterial.
The carrying amount and the estimated fair value of the Bank's financial
instruments as of December 31 are as follows:
<TABLE>
<CAPTION>
1997 1996
----------------------- -----------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
---------- ---------- ---------- ----------
(IN THOUSANDS) (IN THOUSANDS)
<S> <C> <C> <C> <C>
Financial Assets:
Cash and Cash Equivalents ............. $ 17,025 $ 17,025 $ 17,862 $ 17,862
Federal Home Loan Bank Stock .......... 814 814 814 814
Securities Available for Sale ......... 32,038 32,038 30,398 30,398
Securities Held to Maturity ........... 13,591 13,648 3,317 3,354
Loans, Net ............................ 86,418 87,760 85,449 86,779
Accrued Interest Receivable ........... 801 801 849 849
Financial Liabilities:
Deposits .............................. 137,580 137,620 127,595 124,193
Accrued Interest Payable .............. 204 204 227 227
</TABLE>
14. SUBSEQUENT EVENTS
On August 25, 1998, the Bank and Summit Bancorp, a New Jersey-based bank
holding company ("Summit") jointly announced that they had entered into a
definitive Agreement and Plan of Merger (the "Agreement"). On September 30,
1998, the Bank filed Form 8-K with the FDIC regarding this "Item 5 event". The
Agreement, dated August 24, 1998, provides for the acquisition of the Bank by
Summit by one of several methods and the conversion of the Bank's common stock
into the right to receive whole shares of Summit common stock based upon an
exchange ratio of between 2.9448 and 3.7862 shares of Summit common stock for
each share of the Bank's common stock (and cash, without interest, in lieu of
fractional shares). Consummation of the Merger is subject to certain
conditions, including the approval of the Merger by the requisite vote of the
Bank's Shareholders and approval of the Merger by various bank regulatory
authorities.
F-20
<PAGE>
NEW CANNAN BANK AND TRUST COMPANY
STATEMENTS OF CONDITION
(in thousands, except share data)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1998 1997
(UNAUDITED) (AUDITED)
--------------- -------------
<S> <C> <C>
ASSETS
Cash and Due from Banks $ 7,027 $ 7,966
Federal Funds Sold 12,160 1,840
Short-Term Investments 818 7,219
-------- --------
Total Cash and Cash Equivalents 20,005 17,025
-------- --------
Securities Available for Sale, at Fair Value 35,178 32,038
Securities Held to Maturity, at Amortized Cost 6,144 13,591
Federal Home Loan Bank of Boston Stock, at Cost 814 814
-------- --------
Total Investment Securities 42,136 46,443
-------- --------
Loans 100,175 88,528
Allowance for Loan Losses (2,119) (2,110)
-------- --------
Loans, Net 98,056 86,418
-------- --------
Premises and Equipment, Net 2,359 1,968
Accrued Interest Receivable 904 801
Other Assets 861 826
-------- --------
TOTAL ASSETS $164,321 $153,481
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Non-interest Bearing $ 22,727 $ 22,970
Interest Bearing 123,808 114,610
-------- --------
Total Deposits 146,535 137,580
Accrued Interest Payable 302 204
Other Liabilities 1,120 907
-------- --------
Total Liabilities 147,957 138,691
-------- --------
Commitments and Contingencies
Shareholders' Equity:
Common Stock, Par Value $5 Per Share;
Authorized, 2,000,000 Shares;
Issued and Outstanding, 334,317 Shares in 1998 and 332,150 shares in 1997 1,672 1,661
Additional Paid-in Capital 3,459 3,356
Retained Earnings 11,150 9,769
-------- --------
16,281 14,786
Accumulated Other Comprehensive Income 83 4
-------- --------
Total Shareholders' Equity 16,364 14,790
-------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $164,321 $153,481
======== ========
</TABLE>
SEE NOTES TO UNAUDITED FINANCIAL STATEMENTS.
F-21
<PAGE>
NEW CANNAN BANK AND TRUST COMPANY
STATEMENTS OF INCOME
(in thousands, except per share data)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER
SEPTEMBER 30, 30,
1998 1997 1998 1997
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
------------- ------------- ------------- ------------
<S> <C> <C> <C> <C>
INTEREST AND DIVIDEND INCOME:
Loans, Including Fees $ 2,224 $ 2,072 $ 6,365 $ 5,970
Investment Securities 591 446 1,803 1,386
Short-Term Investments 204 158 558 376
-------- -------- -------- --------
Total Interest and Dividend Income 3,019 2,676 8,726 7,732
-------- -------- -------- --------
INTEREST EXPENSE:
Deposits 1,030 806 2,827 2,421
-------- -------- -------- --------
Total Interest Expense 1,030 806 2,827 2,421
-------- -------- -------- --------
NET INTEREST INCOME 1,989 1,870 5,899 5,311
Provision for Loan Losses - - - -
-------- -------- -------- --------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 1,989 1,870 5,899 5,311
-------- -------- -------- --------
OTHER OPERATING INCOME:
Service Charges 161 147 462 444
Gain on Sale of Loans, Net 196 204 602 337
Other Income 83 34 166 101
-------- -------- -------- --------
Total Other Operating Income 440 385 1,230 882
-------- -------- -------- --------
OTHER OPERATING EXPENSES:
Salaries & Employee Benefits 871 695 2,527 2,063
Equipment and Data Processing 201 179 611 550
Occupancy 216 176 643 502
Other Expenses 390 302 1,040 745
-------- -------- -------- --------
Total Other Operating Expenses 1,678 1,352 4,821 3,860
-------- -------- -------- --------
Income Before Income Taxes 751 903 2,308 2,333
Provision for Income Taxes 190 343 760 866
-------- -------- -------- --------
NET INCOME $ 561 $ 560 $ 1,548 $ 1,467
======== ======== ======== ========
Basic Earnings Per Share $ 1.68 $ 1.69 $ 4.64 $ 4.46
======== ======== ======== ========
Diluted Earnings Per Share $ 1.60 $ 1.64 $ 4.42 $ 4.31
======== ======== ======== ========
Weighted Average Shares Outstanding 334,317 330,607 333,947 329,286
======== ======== ======== ========
Diluted Weighted Average Shares
Outstanding 351,188 341,845 350,153 340,526
======== ======== ======== ========
</TABLE>
SEE NOTES TO UNAUDITED FINANCIAL STATEMENTS.
F-22
<PAGE>
NEW CANNAN BANK AND TRUST COMPANY
STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER
30,
1998 1997
(UNAUDITED) (UNAUDITED)
------------- ------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net Income $ 1,548 $ 1,467
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for loan losses - -
Depreciation and amortization expense 263 223
Amortization of security premiums
and discounts, net 14 11
Gain on sale of loans, net (602) (337)
Proceeds from sale of loans 48,410 37,530
Origination of loans for sale (47,727) (38,494)
Deferred income tax benefit (10) (5)
Realized security gains 11 -
(Increase) decrease in accrued interest receivable (103) 171
Increase (decrease) in accrued interest payable 98 (36)
Decrease in deferred net loan fees, net (18) (73)
Increase in other assets (26) (119)
Increase in other liabilities 213 1,845
--------- ---------
Net cash provided by operating activities 2,071 2,183
--------- ---------
INVESTING ACTIVITIES:
Proceeds from maturities of available for sale securities 67,988 63,500
Proceeds from maturities of held to maturity securities 9,884 2,564
Purchases of available for sale securities (71,015) (60,996)
Purchases of held to maturity securities (2,441) (3,887)
Net increase in loans (11,701) (958)
Purchase of premises and equipment (654) (385)
--------- ---------
Net cash used in investing activities (7,939) (162)
--------- ---------
FINANCING ACTIVITIES:
Net increase (decrease) in deposits 8,955 (4,703)
Proceeds from exercise of stock options, net 60 79
Cash dividends paid on common stock (167) -
--------- ---------
Net cash provided by (used in) financing activities 8,848 (4,624)
--------- ---------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 2,980 (2,603)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 17,025 17,862
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 20,005 $ 15,259
========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Income taxes paid, net $ 673 $ 900
Interest paid 2,729 2,457
</TABLE>
SEE NOTES TO UNAUDITED FINANCIAL STATEMENTS.
F-23
<PAGE>
NEW CANNAN BANK AND TRUST COMPANY
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(in thousands) (unaudited)
<TABLE>
<CAPTION>
ACCUMULATED
ADDITIONAL OTHER
COMPREHENSIVE COMMON PAID-IN RETAINED COMPREHENSIVE TOTAL
9 MONTHS ENDED 9/30/98 INCOME STOCK CAPITAL EARNINGS INCOME EQUITY
- ---------------------------------- --------------- -------- ------------ ---------- --------------- ----------
<S> <C> <C> <C> <C> <C> <C>
Balances, Beginning of Year $1,661 $3,356 $ 9,769 $ 4 $14,790
Comprehensive Income:
Net Income $1,548 1,548 1,548
Unrealized gain on
available-for-sale securities,
net of tax and reclassification
adjustment 79 79 79
------
Comprehensive Income $1,627
======
Exercise of Stock Options, Net 11 103 114
Dividends Declared (167) (167)
------- -------
Balances, 9/30/98 $1,672 $3,459 $11,150 $ 83 $16,364
====== ====== ======= ===== =======
9 MONTHS ENDED 9/30/97
- ----------------------------------
Balances, Beginning of Year $1,641 $3,212 $ 7,820 $ (69) $12,604
Comprehensive Income:
Net Income $1,467 1,467 1,467
Unrealized gain on available-
for-sale securities, net of tax
and reclassification
adjustment 64 64 64
------
Comprehensive Income $1,531
======
Exercise of Stock Options, Net 15 101
------ ------
Balances, 9/30/97 $1,656 $3,313 $ 9,287 $ (5) $14,251
====== ====== ======= ===== =======
</TABLE>
SEE NOTES TO UNAUDITED FINANCIAL STATEMENTS.
F-24
<PAGE>
NEW CANNAN BANK AND TRUST COMPANY
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
[1] Unaudited Financial Statements
In the opinion of management, the accompanying financial statements reflect all
adjustments necessary to present fairly the financial position of the New
Canaan Bank and Trust Company (the "Bank") and the results of its operations,
cash flows and changes in financial position for the periods presented.
While management believes that the disclosures presented are adequate to make
the information not misleading, it is suggested that these financial statements
be read in conjunction with the financial statements and the notes thereto
included in the 1997 annual report of the Bank.
[2] On August 25, 1998, the Bank and Summit Bancorp, a New Jersey-based bank
holding company ("Summit") jointly announced that they had entered into a
definitive Agreement and Plan of Merger (the "Agreement"). On September 30,
1998, the Bank filed Form 8-K with the FDIC regarding this "Item 5 event". The
Agreement, dated August 24, 1998, provides for the acquisition of the Bank by
Summit by one of several methods and the conversion of the Bank's common stock
into the right to receive whole shares of Summit common stock based upon an
exchange ratio of between 2.9448 and 3.7862 shares of Summit common stock for
each share of the Bank's common stock (and cash, without interest, in lieu of
fractional shares). Consummation of the Merger is subject to certain
conditions, including the approval of the Merger by the requisite vote of the
Bank's Shareholders and approval of the Merger by various bank regulatory
authorities.
[3] In February 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings Per
Share" which requires that earnings per share be calculated on a basic and a
dilutive basis. Basic earning per share represents income available to common
stock divided by the weighted-average number of common shares outstanding
during the period. Diluted earnings per share reflects additional common shares
that would have been outstanding if dilutive potential common shares had been
issued, as well as any adjustment to income that would result from the assumed
conversion. Potential common shares that may be issued by the Bank relate
solely to outstanding stock options, and are determined using the treasury
stock method. The assumed conversion of outstanding dilutive stock options
would increase the shares outstanding but not require an adjustment to income
as a result of the conversion. The Statement is effective for interim and
annual periods ending after December 15, 1997, and requires the restatement of
all prior-period earnings per share data presented. Accordingly, the Bank has
restated all earnings per share data presented herein.
The weighted average number of common shares outstanding for purposes of
calculating basic earnings per share during the third quarter of 1998 and 1997
were 334,317 and 330,607, respectively. The weighted average number of common
equivalent shares outstanding for purposes of calculating diluted earnings per
share during the third quarter of 1998 and 1997 were 351,188 and 341,845,
respectively.
[4] In June 1997, FASB issued SFAS No. 130, "Reporting Comprehensive Income,"
effective for fiscal years beginning after December 15, 1997. Accounting
principles generally require that recognized revenue, expenses, gains and
losses be included in net income. Certain FASB statements, however, require
entities to report specific changes in assets and liabilities, such as
unrealized gains and losses on available-for-sale securities, as a separate
component of the equity section of the statement of condition. Such items,
along with net income, are components of comprehensive income. SFAS No. 130
requires that all items of comprehensive income be reported in a financial
statement that is displayed with the same prominence as other financial
statements. Additionally, SFAS No. 130 requires that the accumulated balance of
other comprehensive income be displayed separately from retained earnings and
additional paid-in capital in the equity section of the statement of condition.
The Bank has adopted these disclosure requirements for the period ended
September 30, 1998 and retroactively for the period ended September 30, 1997.
[5] In June 1997, FASB issued SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information," effective for fiscal years beginning after
December 15, 1997. SFAS No. 131 establishes standards for the way that public
business enterprises report information about operating segments and for
related disclosures about products and services, geographic areas and major
customers. Generally, financial information is required
F-25
<PAGE>
NEW CANNAN BANK AND TRUST COMPANY
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED) (CONTINUED)
to be reported on the basis that it is used internally for evaluating segment
performance and deciding how to allocate resources to segments. The Statement
also requires descriptive information about the way that the operating segments
were determined, the products and services provided by the operating segments,
differences between the measurements used in reporting segment information and
those used by the enterprise in its general-purpose financial statements, and
changes in the measurement of segment amounts from period to period. In this
initial year of application, the Statement need not be applied to interim
financial statements. Management has not yet determined how the adoption of
SFAS No. 131 will impact the Bank's financial reporting.
F-26
<PAGE>
APPENDIX A
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER dated August 24, 1998 between Summit
Bancorp., a New Jersey business corporation ("Summit"), New Canaan Bank and
Trust Company, a Connecticut bank and trust company ("Bank") and NSS Bank, a
Connecticut capital stock savings bank and wholly owned bank subsidiary of
Summit (the "Designated Summit Bank Subsidiary", as contemplated by Section
1.01(b) below).
Section 0.01. INTEGRATION OF TERMS. Summit and Bank at Section 1.01(b) of
the Agreement agreed that, subsequent to the date of execution of the Agreement
by Summit and Bank, Summit would add terms to the Agreement which satisfied the
conditions set forth at said Section 1.01(b) and which would have the same
force and effect as if present in the Agreement on date executed by Summit and
Bank. The heading preceding this Section 0.01 and Sections 0.01 through 0.13
constitute such additional terms to the Agreement and "Exhibit A" as
contemplated by the Agreement.
Section 0.02. CORPORATE FORM OF RESULTING BANK. At the Effective Time (as
defined at Section 0.12 below), Bank shall be merged with and into Designated
Summit Bank Subsidiary ("Merger") and Designated Summit Bank Subsidiary, as the
"resulting bank" pursuant to Connecticut General Statutes Section 36a-125(a),
shall continue its corporate existence after the Merger as a capital stock
savings bank. (Bank and Designated Summit Bank Subsidiary are sometimes
referred to individually as "Constituent Bank" and collectively as the
"Constituent Banks").
Section 0.03. NAME OF RESULTING BANK. The name of the capital stock
savings bank continuing its existence after the Merger shall be NSS Bank (the
merged corporation is hereinafter referred to as the "Resulting Bank").
Section 0.04. MAIN OFFICE OF RESULTING BANK. The Resulting Bank shall have
its main office at 48 Wall Street in the County of Fairfield, in the town of
Fairfield in the State of Connecticut.
Section 0.05. BOARD OF DIRECTORS OF RESULTING BANK. The Resulting Bank
shall be managed by the Board of Directors consisting of a minimum of three (3)
members and a maximum of twenty-five (25) members. The Board of Directors of
the Resulting Bank at the Effective Time shall consist of the following
persons: (i) all persons who are directors of Designated Summit Bank Subsidiary
immediately prior to the Effective Time, (ii) Messrs. Frederick R. Afragola and
Michael J. Giacobello and (iii) six of the persons serving as members of the
board of directors of Bank immediately prior to the Effective Time as
designated by Summit at or subsequent to the Effective Time.
Section 0.06. CAPITAL STOCK OF RESULTING BANK. At the Effective Time, the
Resulting Bank shall have equity capital substantially in excess of the
$5,000,000 required minimum pursuant to Connecticut General Statutes Section
36a-70(b). At the Effective Time the capital stock of the Resulting Bank with
consist of 2,456,303 shares of issued and outstanding common stock, each of
$5.00 par value.
(i) Section 0.07. CERTIFICATE OF INCORPORATION OF RESULTING BANK. At the
Effective Time and until thereafter amended in accordance with law, the
Certificate of Incorporation of the Resulting Bank shall be the Certificate of
Incorporation attached hereto as Attachment A.
Section 0.08. BYLAWS OF RESULTING BANK. At the Effective Time and until
thereafter amended as provided therein and in the Certification of
Incorporation of the Resulting Bank, the Bylaws of the Resulting Bank shall be
the Bylaws of NSS Bank in effect immediately prior to the Effective Time.
Section 0.09. CONTINUITY OF BANK. Until changed by the Board of Directors
of the Resulting Bank, all corporate acts, plans, policies, contracts,
approvals and authorizations of Designated Summit Bank Subsidiary and its
stockholders, board of directors, committees elected or appointed thereby,
officers and agents, which were valid and effective immediately prior to the
Effective Time, shall continue in effect after the Effective Time as the acts,
plans, policies, contracts, approvals and authorizations of the Resulting Bank
with the same force and effect as immediately prior to the Effective Time.
(i)
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Section 0.10. CONTINUATION OF RIGHTS AND OBLIGATIONS OF CONSTITUENT
BANKS. At the Effective Time, the corporate existence of Bank shall be merged
with and into Designated Summit Bank Subsidiary; and the Constituent Banks
shall be continued by and in the Resulting Bank; and the Resulting Bank shall
be deemed a continuation in the entity and identity of each of the Constituent
Banks; and the Resulting Bank shall possess all the rights, privileges, powers
and franchises of each of the Constituent Banks. The Resulting Bank shall be
subject to all the debts, accounts, undertakings, contractual obligations,
liabilities, duties and relations of each Constituent Bank, and shall without
the necessity of any conveyance, assignment or transfer become the owner of the
assets, business, goodwill and franchises, of every kind and character,
formerly belonging to the Constituent Banks. If Bank shall be at the Effective
Time acting as trustee, registrar, transfer agent, depositary, guardian,
executor, administrator or in any other fiduciary capacity, the Resulting Bank
shall, without the necessity of any judicial action or action by the creator of
such trust, continue such office, trust or fiduciary relationship and shall
perform all of the duties and obligations and exercise all the powers and
authority connected with or incidental to such fiduciary relationship in the
same manner as though the Resulting Bank had been originally named or
designated as such fiduciary. The Resulting Bank shall be entitled to receive,
accept, collect, hold and enjoy any and all gifts, bequests, devises,
conveyances, trusts and appointments in favor of or in the name of Bank whether
made or created to take effect prior to or after the Merger, and the same shall
inure to and vest in such Resulting Bank.
Section 0.11. CONVERSION OF CAPITAL STOCK OF CONSTITUENT BANKS. The mode
of carrying the Merger into effect and the manner and basis of converting
shares of Bank Stock into shares of Summit Stock shall be as set forth below at
Sections 1.03, 1.05 and 1.07 of the Agreement and all shares of the capital
stock of Designated Summit Bank Subsidiary issued and outstanding immediately
prior to the Effective Time shall remain issued and outstanding after the
Effective Time.
Section 0.12. EFFECTIVE TIME. The date and time at which the Merger shall
become effective ("Effective Time") shall be 12:01 a.m. on the day after this
Agreement and the requisite approval under Connecticut law of the Merger by the
Commissioner of Banking of the State of Connecticut is filed in the Office of
the Secretary of State of the State of Connecticut.
Section 0.13. NOTICES TO DESIGNATED SUMMIT BANK SUBSIDIARY. Information
with respect to Designated Summit Bank Subsidiary for all purposes of Section
10.05 of the Agreement is as follows:
Designated Summit Bank Subsidiary: NSS Bank (c/o Summit Bancorp.)
Attn: John G. Collins
301 Carnegie Center
P.O. Box 2066
Princeton, New Jersey 08543-2066
Telephone No.: 609-987-3422
Facsimile No.: 609-987-3435
with a copy to: Richard F. Ober, Esq.
301 Carnegie Center
P.O. Box 2066
Princeton, New Jersey 08543-2066
Telephone No.: 609-987-3430
Facsimile No.: 609-987-3435
(ii)
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AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER dated August 24, 1998 between Summit
Bancorp., a New Jersey business corporation ("Summit"), and New Canaan Bank and
Trust Company, a Connecticut bank and trust company ("Bank").
W I T N E S S E T H :
WHEREAS, the respective boards of directors of Summit and Bank deem it
advisable and in the best interests of their respective shareholders to adopt a
plan of reorganization in accordance with the provisions of Section 368 of the
Internal Revenue Code of 1986, as amended ("Code") providing for the
acquisition of Bank by Summit on the terms and conditions provided for in this
Agreement and Plan of Merger ("Agreement");
WHEREAS, the Board of Directors of Summit and Bank have each determined
that the reorganization contemplated by this Agreement ("Reorganization") is
consistent with, and in furtherance of, their respective business strategies
and goals; and
WHEREAS, the parties desire to make certain representations, warranties
and agreements in connection with the Reorganization and also to prescribe
certain other terms and conditions of the Reorganization.
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 REORGANIZATION.
(a) Upon the terms and subject to the conditions contained in this
Agreement, at the Effective Time (as defined at Section 1.06), the
Reorganization shall be effected as follows: Bank shall be merged into a bank
subsidiary of Summit or into a bank subsidiary of a bank subsidiary of Summit
(in either case, a "Summit Bank Subsidiary") or a Summit Bank Subsidiary shall
be merged into Bank, in either case pursuant to and in accordance with the
provisions of, and with the effect provided in, the banking laws of the
jurisdiction of incorporation of each of the constituent banks in such merger
("Applicable Banking Laws").
(b) Summit shall prior to the Effective Time elect the method for carrying
out the Reorganization from among those methods set forth at Section 1.01(a)
("Reorganization Election") and following the Reorganization Election Summit
shall (i) cause the Summit Bank Subsidiary designated as the constituent bank
in the Reorganization ("Designated Summit Bank Subsidiary") to approve, execute
and deliver this Agreement in accordance with all Applicable Banking Laws, (ii)
where appropriate, cause this Agreement to be approved by the sole shareholder
of the Designated Summit Bank Subsidiary, (iii) attach as Exhibit A to this
Agreement (A) any additional terms and conditions to this Agreement required by
Applicable Banking Laws to effect the Reorganization and other transactions
contemplated by this Agreement, (B) the terms and conditions of any agreement
or plan of merger required by Applicable Banking Laws, (C) the date and time
that the merger shall be effective or the mechanism for determining the date
and time that the merger shall be effective and (D) such other terms and
conditions as Summit shall determine in its discretion to be desirable and not
contrary to this Agreement or Applicable Banking Laws regarding the corporate
governance of the bank surviving the merger contemplated by Section 1.01(a),
including without limitation terms and conditions governing certificates or
articles of incorporation and amendments thereto or restatements thereof,
by-laws of the bank surviving the merger and amendments thereto, and directors
and officers of the bank surviving the merger; provided, however, that no
provision of Exhibit A shall (x) alter or change the amount or kind of
consideration to be received by Shareholders of Bank as provided for in this
Agreement on the date hereof, (y) adversely affect the tax treatment of the
Reorganization Consideration (as defined in Section 1.03(a)(2) below) to be
received by Shareholders of Bank or (z) materially impede or delay consummation
of the transactions contemplated by this Agreement and
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(iv) cause the Designated Summit Bank Subsidiary to take all actions
appropriate to accomplish the Reorganization and the other transactions
contemplated by this Agreement. Exhibit A shall constitute a part of this
Agreement as fully as if attached hereto on the date hereof.
Section 1.02. CAPITAL STOCK OF SUMMIT. All shares of the capital stock of
Summit issued or issued and outstanding immediately prior to the Effective
Time, including the Common Stock, par value $.80 per share, of Summit and the
rights attached thereto ("Summit Rights") pursuant to the Rights Agreement
dated as of August 16, 1989 between Summit and First Chicago Trust Company of
New York, as Rights Agent ("Summit Rights Agreement") (references to "Summit
Stock" herein shall mean the Common Stock of Summit with Summit Rights attached
thereto), shall be unaffected by the Reorganization and shall remain issued or
issued and outstanding, as the case may be, immediately thereafter.
Section 1.03. TERMS OF CONVERSION OF BANK CAPITAL STOCK.
(a) At the Effective Time, by virtue of the Reorganization and without any
action on the part of any shareholder of Bank:
(1) All shares of the Common Stock, par value $5.00 per share, of Bank
("Bank Stock") which immediately prior to the Effective Time are
beneficially owned either directly, or indirectly through a bank,
broker or other nominee, by Summit or a subsidiary of Summit or by
Bank or a subsidiary of Bank (other than Bank Stock held as a result
of foreclosures or debts previously contracted), if any, or held in
the treasury of Bank, if any, shall be canceled and retired and no
cash, securities or other consideration shall be payable or paid or
delivered under this Agreement in exchange for such Bank Stock; and
(2) Subject to Section 1.03(a)(1), outstanding shares of Bank Stock held
as of the Effective Time by each Bank Shareholder (as defined at
Section 1.07(c) below) shall be converted into the right to receive
whole shares of Summit Stock and cash in lieu of fractional shares of
Summit Stock as follows: the aggregate number of shares of Bank Stock
held by each Bank Shareholder shall be multiplied by the Exchange
Ratio (as defined at Section 1.03(c) below) and (i) the number of
whole shares of Summit Stock that a Bank Shareholder shall become
entitled to receive pursuant to this Section 1.03(a)(2) shall equal
the whole number resulting from the foregoing multiplication, and
(ii) the cash in lieu of a fractional share of Summit Stock ("Cash In
Lieu Amount") a Bank Shareholder shall become entitled to receive
pursuant to this Section 1.03(a)(2) shall equal the product obtained
by multiplying the fraction, if any, which results from the foregoing
multiplication by the closing price of one share of Summit Stock on
the New York Stock Exchange ("NYSE") Composite Transactions List (as
reported in THE WALL STREET JOURNAL or, in the absence thereof, as
reported by another authoritative source mutually agreed upon by Bank
and Summit) on the last trading day ending prior to the Effective
Time. (The shares of Summit Stock issuable in accordance with this
Section 1.03(a)(2) are sometimes referred to herein as the "Shares").
(The Shares and any Cash In Lieu Amounts payable in the
Reorganization, both adjusted as and if necessary in accordance with
Section 1.03(b) below, are sometimes collectively referred to herein
as the "Reorganization Consideration").
(b) In the event that, from the date hereof to the Effective Time, the
outstanding Summit 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 there occur other like changes in the outstanding
shares of Summit Stock ("Capital Change"), the Exchange Ratio and, if
necessary, the form and amount of Summit capital stock issuable in the
Reorganization in exchange for Bank Stock shall be appropriately adjusted to
give effect to the Capital Change.
(c) The "Exchange Ratio" is hereby defined to be the number determined in
accordance with the following:
(A) If the Summit Price (as defined at Section 9.02(e)(ii) below) is
greater than $45.84375, the Exchange Ratio shall be 2.9448;
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(B) If the Summit Price is equal to or greater than $35.65625 and equal to
or less than $45.84375, the Exchange Ratio shall be equal to the
quotient obtained by dividing $135.00 by the Summit Price; and
(C) If the Summit Price is less than $36.65625, the Exchange Ratio shall
be 3.7862.
Section 1.04. RESERVATION OF SUMMIT STOCK; ISSUANCE OF SHARES PURSUANT TO
THE REORGANIZATION. Summit shall reserve and make available for issuance to
holders of Bank Stock in connection with the Reorganization, on the terms and
subject to the conditions of this Agreement, sufficient shares of Summit Stock
to effect the conversion contemplated by Section 1.03 and related terms of this
Agreement, which shares, when issued and delivered, will be duly authorized,
legally and validly issued, fully paid and non-assessable and subject to no
preemptive rights. Upon the terms and subject to the conditions of this
Agreement, particularly Sections 1.03 and 1.07, Summit shall issue the Shares
upon the effectiveness of the Reorganization to Bank Shareholders.
Section 1.05. EXCHANGE AGENT ARRANGEMENTS. Prior to the Effective Time,
Summit shall appoint First Chicago Trust Company of New York, or another entity
reasonably satisfactory to Bank, as the exchange agent ("Exchange Agent")
responsible for exchanging, in connection with and upon consummation of the
Reorganization and subject to Sections 1.03 and 1.07, certificates representing
whole shares of Summit Stock ("Summit Certificates") and Cash In Lieu Amounts
for certificates representing shares of Bank Stock ("Bank Certificates") and
Summit shall deliver to the Exchange Agent sufficient Summit Certificates and
cash as shall be required to satisfy Summit's obligations to Bank Shareholders
under Section 1.07(c), prior to the time such obligations arise.
Section 1.06. EFFECTIVE TIME. The Reorganization shall be effective at the
date and time specified in Exhibit A or determined in accordance with Exhibit A
("Effective Time").
Section 1.07. EXCHANGE OF BANK CERTIFICATES.
(a) After the Effective Time and subject to Section 1.07(c) below, each
Bank Shareholder (except as provided otherwise in Section 1.03(a)(1) above),
upon surrender to the Exchange Agent of all Bank Certificates registered to the
Bank Shareholder, shall be entitled to receive in exchange therefor a Summit
Certificate representing the number of whole shares of Summit Stock such Bank
Shareholder becomes entitled to receive pursuant to Section 1.03(a)(2) and the
Cash In Lieu Amount, payable by check, such Bank Shareholder may become
entitled to receive pursuant to Section 1.03(a)(2); provided, however, that a
Bank Affiliate (as defined at Section 4.11) shall not become entitled to
exchange Bank Certificates for the Reorganization Consideration as described in
this Section 1.07(a) until such time as Summit shall have received from the
particular Bank Affiliate an executed Affiliate Agreement (as defined at
Section 4.11). Until so surrendered, outstanding Bank Certificates held by each
Bank Shareholder, other than Bank certificates governed by Section 1.03(a)(1),
shall be deemed for all purposes (other than as provided below with respect to
unsurrendered Bank Certificates and Summit's right to refuse payment of
dividends or other distributions, if any, in respect of Summit Stock) to
represent only the right to receive the number of whole shares of Summit Stock
and the Cash In Lieu Amount, if any, without interest, determined in accordance
with Section 1.03(a)(2). Until so surrendered, Summit may, at its option,
refuse to pay to the holders of the unsurrendered Bank Certificates dividends
or other distributions, if any, on Summit Stock declared after the Effective
Time; provided, however, that upon the surrender and exchange of Bank
Certificates following a dividend or other distribution on Summit Stock there
shall be paid to such Bank Shareholders 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, but in no event more than 10 days, after
the Exchange Agent receives an accurate and complete list of all holders of
record of outstanding Bank Stock as of the Effective Time ("Bank Shareholders")
(including the address and social security number of and the number of shares
of Bank Stock held by each Bank Shareholder) from Bank ("Final Shareholder
List"), Summit shall cause the Exchange Agent to send to each Bank Shareholder
instructions and transmittal materials for use in surrendering and exchanging
Bank Certificates for the Reorganization Consideration. If Bank Certificates
are properly presented to the
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Exchange Agent (with proper presentation including satisfaction of all
requirements of the letter of transmittal), Summit shall as soon as
practicable, but in no event more than 10 days, after the later to occur of
such presentment or the receipt by the Exchange Agent of an accurate and
complete Final Shareholder List from Bank cause the Exchange Agent to cancel
and exchange Bank Certificates for Summit Certificates and Cash In Lieu
Amounts, if any; provided, however, that if the Exchange Agent, in order to
satisfy its obligations under the Code with respect to the reporting of
dividend income to former shareholders of Bank, must suspend the exchange
process provided for in the second sentence of this Section 1.07(c) in order to
preserve and report the required reporting information, the 10-day exchange
requirement shall be extended 5 business days for exchanges being processed by
the Exchange Agent at the commencement of, or which are received during, the
period of the suspension.
(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. BANK STOCK OPTIONS.
(a) At the Effective Time, each Bank Option (as defined in Section 1.08(b)
below) shall be deemed to constitute, and shall automatically be converted at
the Exchange Ratio into, options to purchase Summit Stock ("Converted Options")
and each Converted Option shall immediately vest in full and shall be
administered in all material respects in accordance with the terms and
conditions provided for in the Bank Stock Compensation Plan under which the
related Bank Option was granted and the stock option agreement by which it was
evidenced. The number of shares of Summit Stock which may be purchased upon
exercise of a particular Converted Option shall be the number of shares of Bank
Stock which would have been issuable upon exercise in full of the related Bank
Option multiplied by the Exchange Ratio and rounded down to the nearest whole
number ("Converted Number"). The exercise price per share of Summit Stock
purchasable upon exercise of a Converted Option shall equal the aggregate
exercise price that would have been payable upon an exercise in full of the
related Bank Option divided by the Converted Number and rounded up to the
nearest ten-thousandth decimal place. In the event a Capital Change shall occur
prior to the Effective Time, an appropriate adjustment shall be made to the
terms of the Bank Options at the time of the foregoing conversion so that
Converted Options give effect to the Capital Change. Within 45 days after the
receipt by Summit of an accurate and complete list of all holders of Bank
Options, all information about the Bank Options and the holders thereof
(including the address and social security number of each such holder and a
description of the Bank Options held by such holder specifying, at a minimum,
the plan under which issued, type (incentive or nonqualified), grant date,
expiration date, exercise price and the number of shares of Bank Stock subject
thereto) and copies of each form of option agreement, warrant agreement or
letter agreement entered into between Bank and a holder of a Bank Option (all
of the foregoing being collectively referred to as the "Final Option List and
Materials"), Summit shall issue to the holders of such Bank Options appropriate
instruments confirming the rights of such holders with respect to Summit Stock,
on the terms and conditions provided by this Section 1.08, upon surrender of
the outstanding instruments representing such Bank Options; provided, however,
that Summit shall not be obligated to issue any such confirming instruments
which relate to the issuance of Summit Stock, or issue any shares of Summit
Stock, until such time as the shares of Summit Stock issuable upon exercise of
Converted Options shall have been registered with the Securities and Exchange
Commission (the "SEC") pursuant to an effective registration statement and
authorized for listing on the NYSE and for sale by any appropriate state
securities regulators, which such registrations and authorizations Summit shall
use its best efforts to effect within 30 days after Bank shall have delivered
to Summit the Final Option List and Materials. Summit shall use its best
efforts to maintain the effectiveness of such registration statement (and
maintain the current status of the prospectus or prospectuses contained
therein) for so long as the Converted Options remain outstanding. Summit shall
take all corporate action necessary to reserve for issuance a sufficient number
of shares of Summit Stock for delivery upon exercise of Converted Options.
Notwithstanding anything in the foregoing to the contrary, Bank Options
intended to qualify as "incentive stock options" under the Code shall be
converted into Converted Options in a manner consistent with the preservation
of such qualification under the Code.
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(b) For purposes of this Section 1.08, "Bank Option" is hereby defined to
mean an option relating to the purchase of Bank Stock, and any rights
appurtenant thereto including Equity Based Rights (as defined at Section
2.01(c)(2) below), granted under a Bank Stock Compensation Plan (as defined at
Section 2.01(c)(3) below), outstanding both on the date hereof and at the
Effective Time.
Section 1.09. ADDITIONAL ACTIONS. If, at any time after the Effective
Time, the bank surviving the merger contemplated by Sections 1.01(a) 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 such surviving bank its right, title or
interest in, to or under any of the rights, properties or assets of the
nonsurviving bank or otherwise to carry out this Agreement, the officers and
directors of the surviving bank shall be authorized to execute and deliver, in
the name and on behalf of the nonsurviving bank or otherwise, all such deeds,
bills of sale, assignments and assurances and to take, in the name and on
behalf of the nonsurviving 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 surviving
bank or otherwise to carry out this Agreement.
Section 1.10. UNCLAIMED REORGANIZATION CONSIDERATION. If, upon the
expiration of one year following the Effective Time, Reorganization
Consideration remains with the Exchange Agent due to the failure of Bank
Shareholders to surrender and exchange Bank Certificates for Reorganization
Consideration, Summit may, at its election, continue to retain the Exchange
Agent for purposes of the surrender and exchange of Bank Certificates or take
possession of such unclaimed Reorganization Consideration, in which such latter
case, Bank Shareholders who have theretofore failed to surrender and exchange
Bank Certificates shall thereafter look only to Summit for payment of the
Reorganization Consideration and the unpaid dividends and distributions on the
Summit Stock declared after the Effective Time, without any interest thereon.
Notwithstanding the foregoing, none of Summit, Bank, the Exchange Agent or any
other person shall be liable to any former holder of shares of Bank Stock for
any property properly delivered to a public official pursuant to applicable
abandoned property, escheat or similar laws.
Section 1.11. LOST BANK CERTIFICATES. In the event any Bank Certificate
shall have been lost, stolen or destroyed, upon the making of an affidavit of
that fact by the person claiming such Bank Certificate to be lost, stolen or
destroyed and the posting by such person of a personal, nonsurety bond in such
amount as Summit may determine is reasonably necessary as indemnity against any
claim that may be made against it with respect to such Bank Certificate, the
Exchange Agent will issue in exchange for such lost, stolen or destroyed Bank
Certificate the Reorganization Consideration deliverable in respect thereof
pursuant to this Agreement.
ARTICLE II.
REPRESENTATIONS AND WARRANTIES OF BANK
Bank represents and warrants to Summit as follows (where an item required
to be disclosed on a Bank Schedule is required to be disclosed on one or more
additional Bank Schedules, or where a copy of an item required to be attached
to a Bank Schedule is required to be attached to one or more additional Bank
Schedules, such disclosure or copy need not be provided on more than one Bank
Schedule provided the Bank Schedules with respect to which the disclosure or
copy is required but not provided contain a cross reference to the location of
the required disclosure or copy in the Bank Schedules which is clear and
unambiguous):
Section 2.01. ORGANIZATION, CAPITAL STOCK.
(a) Each of Bank and its subsidiaries (the term "subsidiary", as used in
this Agreement, shall mean any corporation or other organization of which 10%
or more of the shares or other interests having by their terms ordinary voting
power to elect a majority of the Board of Directors or other group performing
similar functions with respect to such corporation or other organization is
directly or indirectly owned; the term "indirect" ownership means ownership
through a succession of one or more other subsidiaries), all of which are
listed, together with their respective states of incorporation and direct and
indirect beneficial owners, on Bank Schedule 2.01(a), is a bank or corporation,
as the case may be, duly organized, validly existing and in good standing under
the
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laws of the state of its incorporation, qualified to transact business under
the laws of all jurisdictions where the failure to be so qualified would be
likely to have a material adverse effect on (i) the business, results of
operations, assets or financial condition of Bank and its subsidiaries, on a
consolidated basis, or (ii) the ability of Bank to perform its obligations
under, and to consummate the transactions contemplated by, this Agreement
("Bank Material Adverse Effect"). However, a Bank Material Adverse Effect or
Bank Material Adverse Change (as defined at Section 2.03 below) will not
include a change resulting (i) from a change in law, rule, regulation,
generally accepted or regulatory accounting principle or other matter affecting
banking institutions or their holding companies generally, (ii) from charges or
expenses incident to the Reorganization or (iii) payments and charges set forth
on Bank Schedule 2.01(a)(iii) in the amounts specified on BANK SCHEDULE
2.01(a)(iii) and for the Bank Benefit Plan or Bank Pension Plan specified on
Bank Schedule 2.01(a)(iii) with respect to such amounts. 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 and assets, 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 outstanding capital stock of all of Bank's direct and indirect
subsidiaries.
(c) (1) The authorized capital stock of Bank consists exclusively of
2,000,000 shares of Common Stock, par value $5.00 per share, of which 334,317
shares are issued and outstanding. All issued and outstanding shares of the
capital stock of Bank and of each of its subsidiaries have been fully paid,
were duly authorized and validly issued, are nonassessable and have been issued
pursuant to an effective registration statement under the Securities Act of
1933, as amended (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.
(2) Except as set forth in Section 2.01(c)(1), all Equity Securities of
Bank and its subsidiaries outstanding, in existence, the subject of
an agreement or reserved for issuance ("Current Equity Securities"),
and all rights or entitlements appurtenant to, based upon, derived
from or valued based on the performance or value of Equity Securities
of Bank outstanding, in existence, the subject of an agreement or
reserved for issuance ("Equity Based Rights") are listed on Bank
Schedule 2.01(c)(2) and all significant information relating to such
Current Equity Securities (other than Common Stock) and Equity Based
Rights is listed on Bank Schedule 2.01(c)(2) including without
limitation, where applicable, name of holder, address and
relationship to Bank if not an employee of Bank or a subsidiary, date
of grant, award or issuance, expiration dates, vesting dates, the
Bank Stock Plan (as defined in Section 2.01(c)(3) below) under which
granted, awarded or issued, any intended qualification or
nonqualification or other status under the Code, those Current Equity
Securities or Equity Based Rights granted in tandem with other
Current Equity Securities or Equity Based Rights, exercise price,
number of shares, valuation formula and performance goals. All
Current Equity Securities have been (to the extent such is capital
stock or similar equity interest) fully paid, were duly authorized
and validly issued, are (to the extent such is capital stock or
similar equity interest) nonassessable and have been issued pursuant
to an effective registration statement 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.
(3) All contracts, plans and arrangements, whether oral or written or
formal or informal, pursuant to which Current Equity Securities or
Equity Based Rights were granted, awarded or issued or which provide
for the granting, awarding or issuance of Equity Securities or Equity
Based Rights or are relevant in any fashion to Current Equity
Securities or Equity Based Rights ("Bank Stock Plan") are listed in
and appended in their entirety (including any amendments) to Bank
Schedule 2.01(c)(3). All Bank Stock Plans constituting a compensatory
contract, plan or arrangement ("Bank Stock Compensation Plan"),
including all amendments thereto, have been duly approved by the
shareholders of Bank and such approvals have been obtained in
compliance with all applicable laws and all applicable regulations of
governmental or self-regulatory authorities.
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(4) "Equity Securities" of an issuer means (i) the capital stock or other
equity securities or equity interests of such issuer, (ii) options,
warrants, scrip, interests in, rights (including preemptive rights)
to subscribe to, purchase or acquire, calls on or commitments of any
character whatsoever relating to, or securities or rights convertible
into or exchangeable for, capital stock or other equity securities or
equity interests or any security or right convertible into or
exchangeable for the capital stock or other equity security or equity
interests of such issuer, and (iii) contracts, commitments,
obligations, agreements, understandings or arrangements entitling
anyone to acquire from the issuer, or by which such issuer is or may
become bound to issue, capital stock or other equity security or
equity interest or any security or right convertible into or
exchangeable for the capital stock or other equity security or equity
interest of such issuer.
(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). Bank is duly authorized to conduct all
activities and exercise all powers of a capital stock bank and trust company
contemplated by the laws of Connecticut other than the exercise of trust and
fiduciary powers. Bank is an insured bank as defined in the Federal Deposit
Insurance Act and 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 and
assets, to occupy its premises, and to engage in its business and activities as
presently engaged in, and has complied in all material respects with all
applicable laws, regulations and orders.
(e) All Equity Securities of its direct and indirect subsidiaries
beneficially owned by Bank or a subsidiary of Bank are held free and clear of
any claims, liens, encumbrances or security interests.
Section 2.02. FINANCIAL STATEMENTS. The financial statements (and related
notes and schedules thereto) contained in or incorporated by reference into
Bank's (a) annual report to shareholders for the fiscal year ended December 31,
1997, (b) annual report on Form 10-K filed pursuant to the Securities Exchange
Act of 1934, as amended ("Exchange Act") for the fiscal year ended December 31,
1997 and (c) the quarterly reports on Form 10-Q filed pursuant to the Exchange
Act for the fiscal quarters ended March 31, 1998 and June 30, 1998 (the "Bank
Financial Statements") are true and correct in all material respects as of
their respective dates and each fairly presents (subject, in the case of
unaudited statements, to recurring audit adjustments normal in nature and
amount), in accordance with generally accepted accounting principles, the
consolidated statements of condition, income, changes in stockholders' 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 and
except that, in the case of unaudited statements, no consolidated statements of
changes in stockholders' equity are included. 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.
Section 2.03. NO CONFLICTS. Except as set forth on BANK SCHEDULE 2.03,
Bank and each of its subsidiaries is not in violation or breach of or default
under, and has received no notice of violation, breach, revocation or
threatened or contemplated revocation of or default or denial of approval
under, nor will the execution, delivery and performance of this Agreement by
Bank, or the consummation of the transactions contemplated hereby including the
Reorganization 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:
(i) the Certificate of Incorporation or the By-Laws of Bank or any of its
subsidiaries;
(ii) any applicable law, statute, rule, ruling, determination, ordinance
or regulation of or agreement with any governmental or regulatory
authority;
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(iii) any judgment, order, writ, award, injunction or decree of any court
or other governmental authority; or
(iv) 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 likely to
result in a material adverse change in the business, results of operations,
assets or financial condition of Bank and its subsidiaries, on a consolidated
basis, from that reflected in the Bank Financial Statements as of and for the
six months ended June 30, 1998 ("Bank Material Adverse Change"), or enable any
person to enjoin the transactions contemplated hereby.
Section 2.04. ABSENCE OF UNDISCLOSED LIABILITIES. 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 to Bank and its
subsidiaries, on a consolidated basis, and (c) liabilities arising in the
ordinary course of its business since June 30, 1998, which are not in the
aggregate material to Bank and its subsidiaries, on a consolidated basis. Other
than as may be set forth on BANK SCHEDULE 2.04, neither Bank nor any of its
subsidiaries has, since June 30, 1998, become obligated on any debt due in more
than one year from the date of this Agreement in excess of $100,000, other than
intra-corporate debt and deposits received, repurchase agreements and
borrowings from the Federal Home Loan Bank of Boston 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,
on a consolidated basis, and there are no actions, arbitrations, claims,
charges, suits, investigations or proceedings (formal or informal) material to
Bank and its subsidiaries, on a consolidated basis, 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, except as may be disclosed in
the Forms 10-K and 10-Q of Bank referred to in Section 2.02 or set forth in
Bank Schedule 2.05. Neither Bank nor any subsidiary of the Bank 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 material statutory or regulatory noncompliance
discovered in any regulatory examinations, its capital adequacy, its credit or
reserve policies or its management. Neither Bank nor any subsidiary of the Bank
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. Neither Bank nor any subsidiary of
the Bank has failed to resolve to the satisfaction of the applicable regulatory
agency any significant deficiencies cited by any such agency in its most
recently completed examination of each aspect of Bank's or a Bank subsidiary's
business nor has Bank or any subsidiary of the Bank been advised of any
significant deficiencies by any such agency in connection with any current
examination of any Bank subsidiary or of Bank subsidiary by any such agency.
Section 2.06. BROKERS' FEES. Bank has entered into this Agreement with
Summit as a result of direct negotiations without the assistance or efforts of
any finder, broker, financial advisor or investment banker, other than Brown
Brothers Harriman & Co. ("Brown Brothers"). BANK SCHEDULE 2.06 consists of true
and complete copies of all agreements between Bank and Brown Brothers with
respect to the transactions contemplated by this Agreement or similar
transactions.
Section 2.07. REGULATORY FILINGS. At the time of filing, all filings made
by Bank and its subsidiaries after December 31, 1992 with the appropriate bank
regulatory authorities 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
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or necessary to make the statements contained therein, in light of the
circumstances under which they were made, not misleading. To the extent such
filings were 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.
Each of the financial statements (including related notes and schedules
thereto) contained in or incorporated by reference into such filings are true
and correct in all material respects as of their respective dates and each
fairly presents (subject, in the case of unaudited statements, to recurring
audit adjustments normal in nature and amount), in accordance with generally
accepted accounting principles, the consolidated statements of condition,
income, changes in stockholders' 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 and except that, in the case of
unaudited statements, no consolidated statements of changes in stockholders'
equity is included. Bank and its subsidiaries have since December 31, 1992, to
the extent legally required, timely made all filings required by the Securities
Act and the Exchange Act, Federal and state banking laws and regulations and
the rules and regulations of the NASD and any other self-regulatory
organization, and have paid all fees and assessments due and payable in
connection therewith.
Section 2.08. CORPORATE ACTION. Assuming due execution and delivery by
Summit, and subject to the requisite approval by the shareholders of Bank of
this Agreement, the Reorganization and the other transactions contemplated
hereby in accordance with Bank's Certificate of Incorporation and the Banking
Law of Connecticut ("Connecticut Law") 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
Certificate of Incorporation, its By-Laws or otherwise, (i) to authorize the
execution and delivery of this Agreement and (ii) provided Summit elects a
method for carrying out the Reorganization set forth at Section 1.01(a)(1) or
Section 1.01(a)(2) of this Agreement, for shareholders of Bank to approve this
Agreement and the transactions contemplated hereby, including the
Reorganization, at the meeting held in accordance with Section 4.03 by an
affirmative vote of the holders of at least two-thirds of the issued and
outstanding shares of Bank Stock. Assuming due execution and delivery by
Summit, 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, reorganization,
fraudulent transfer, moratorium or other laws of general applicability
presently or hereafter in effect affecting the enforcement of creditors' rights
generally or institutions, the deposits of which are insured by the Federal
Deposit Insurance Corporation, or the affiliates of such institutions. 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 Reorganization and the other transactions contemplated hereby
and such other proposals as may be requested by Summit pursuant to Section
4.03.
Section 2.09. ABSENCE OF CHANGES. There has not been, since June 30, 1998,
any Bank Material Adverse Change except as may be set forth in BANK SCHEDULE
2.09. Except as may be set forth in BANK SCHEDULE 2.09, neither Bank nor any of
its subsidiaries has since June 30, 1998: (a) (i) declared, set aside or paid
any dividend or other distribution in respect of its Equity Securities, other
than dividends from subsidiaries to Bank or other subsidiaries of Bank, and an
ordinary cash dividend to Bank shareholders of $0.25 per share or less per
fiscal quarter, or, (ii) directly or indirectly purchased, redeemed or
otherwise acquired any shares of any Equity Securities; (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 officers' salary increase or wage
increase not consistent with past practices, 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 $50,000, whether or not covered by insurance, adversely affecting its
business, property or assets, or waived any rights of value in excess of
$50,000; (f) entered into transactions other than in the ordinary course of
business which in the aggregate exceeded $100,000; or (g) acquired assets or
capital stock of another company of whatsoever amount, except in a fiduciary
capacity or in the course of securing or collecting loans or leases.
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Section 2.10. ALLOWANCE FOR CREDIT LOSSES. At June 30, 1998 and thereafter
the allowances for credit losses of Bank and its subsidiaries were and are
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 Summit or its subsidiaries in the
Reorganization is property which Summit 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.
All amounts required to be withheld have been withheld from employees by Bank
and each of its subsidiaries for all periods in compliance with the tax, social
security, unemployment and other applicable withholding provisions of
applicable federal, state and local law. Proper and accurate federal, state and
local returns (as defined below) 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, unemployment and other
applicable taxes (as defined below), and the amounts shown thereon to be due
and payable, as well as any interest, additions, and penalties due with respect
to completed and settled examinations or concluded litigation relating to Bank
or any of its subsidiaries, 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 Connecticut. 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
occurring or performed prior to the date of this Agreement. The most recent
audit by the Internal Revenue Service ("IRS") of the consolidated federal
income tax returns of Bank was for the taxable year ended on December 31, 1990.
The State of Connecticut has never audited the Connecticut income tax returns
of Bank and its subsidiaries. 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 Connecticut. 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, claims, assessments, examinations, notices of deficiency, demands for
taxes, refund litigation, proceedings, audits or proposed deficiencies pending
or, to Bank's knowledge, threatened against Bank or any of its subsidiaries,
including a claim or assessment by any authority in a jurisdiction where Bank
or any of its subsidiaries do not file tax returns and Bank or any such
subsidiary is subject to taxation, 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, including tax
identification number 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.
For purposes of this Agreement, "taxes" shall mean all taxes, charges,
fees, levies, penalties or other assessments imposed by any United States
Federal, state, local, or foreign taxing authority, including, but not limited
to, income, excise, property, sales, transfer, franchise, payroll, withholding,
social security or other taxes,
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including any interest, penalties or additions attributable thereto; and
"return" shall mean any return, report, information return or other documents
(including any related or supporting information) with respect to taxes.
Section 2.12. PROPERTIES. Bank has, directly or through its subsidiaries,
good and marketable title to all of its properties and assets, tangible and
intangible, including those reflected in the Bank Financial Statements (except
individual properties and assets disposed of since June 30, 1998 in the
ordinary course of business), 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, on a
consolidated basis. 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 be likely to have a Bank Material Adverse Effect,
and none of such leases contains any unusual or burdensome provision which
would be likely to materially and adversely affect or impair the operations of
Bank and its subsidiaries, on a consolidated basis.
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, on a consolidated basis. Bank and each of its
subsidiaries maintains insurance (with companies which, to the best of Bank's
knowledge, are approved by all appropriate state insurance regulators to sell
such insurance where purchased by Bank) against loss relating to such
properties and such other risks as companies engaged in similar business
located in Connecticut, would, in accordance with good business practice, be
customarily insured 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 and 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, 1992, neither Bank
nor any of its subsidiaries has been refused insurance for which it has applied
or had any policy of insurance terminated (other than at its request) nor have
Bank or any of its subsidiaries received notice from any insurance carrier that
(i) such insurance will be canceled or that coverage thereunder will be reduced
or eliminated or (ii) premium costs with respect to such insurance will be
increased other than customary premium increases in the ordinary course of
business.
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 2.09 or 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 are bound by any written or oral: (i) employment or severance
contract (including, without limitation, any Bank bargaining contract or union
agreement) or other agreement with any director, executive officer or other key
employee of Bank or any subsidiary, the benefits of which are contingent, or
the terms of which are materially altered, upon the occurrence of a transaction
involving Bank or any of its subsidiaries of the nature contemplated by this
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 for any one project or in excess of $100,000
in the aggregate for all projects; (iii) contract or commitment whether 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, data processing agreements, and retainer agreements with attorneys,
accountants, actuaries, or other professionals); (iv) contract or option to
purchase or sell any real or personal property, other than to sell OREO
property, involving consideration in excess of $50,000; (v) agreement or plan,
including any stock option plan, stock appreciation rights plan, restricted
stock plan, stock purchase plan, or any other non-qualified compensation plan,
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any of the benefits of which will be increased, or the vesting of the benefits
of which will be accelerated, by the occurrence of any of the transactions
contemplated by this Agreement or the value of any of the benefits of which
will be calculated on the basis of any of the transactions contemplated by this
Agreement, (vi) agreement containing covenants that limit the ability of Bank
or any of its subsidiaries to compete in any line of business or with any
person, or that involve any restriction on the geographic area in which or
method by which Bank (including any successor thereof) or any of its
subsidiaries may carry on its business (other than as may be required by law or
any regulatory agency), (vii) agreement which by its terms limits the payment
of dividends by Bank or any of its subsidiaries, (viii) contract (other than
this Agreement) limiting the freedom of Bank or its subsidiaries to engage in
any type of banking or bank-related business permissible under law; (ix)
contract, plan or arrangement which provides for payments of benefits payable
to any participant therein or party thereto, and which might render any portion
of any such payments or benefits subject to disallowance of deduction therefor
as a result of the application of Section 280G of the Code or (x) any other
contract material to the business of Bank and its subsidiaries, on a
consolidated basis, and not made in the ordinary course of business.
(c) 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, on a consolidated basis.
Section 2.15. 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 2.15(a) (individually a "Bank
Pension Plan" and collectively the "Bank Pension Plans"). In its present form
each Bank Pension Plan complies in all material respects with all applicable
requirements under ERISA and the Code. Each Bank Pension 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
Pension Plan has received from the IRS a determination letter to that effect
and such determination letter may still be relied on. No event has occurred and
there has been no omission or failure to act which would adversely affect such
qualification or exemption. Each Bank Pension Plan has been administered and
communicated to the participants and beneficiaries in all material respects in
accordance with its terms and ERISA. No employee or agent of Bank or any
subsidiary whose employees are covered by a Bank Pension Plan 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 (as the case may be), a
favorable determination as to such Bank Pension 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 Bank Pension Plan or
has been misled as to his or her rights under such Bank Pension Plan. No Bank
Pension Plan is subject to Section 412 of the Code or Title IV of ERISA. No
person has engaged in any prohibited transaction involving any Bank Pension
Plan or associated trust within the meaning of Section 406 of ERISA or Section
4975 of the Code. There are no pending or threatened claims (other than routine
claims for benefits) against the Bank Pension Plans or any fiduciary thereof
which would subject Bank or any of its subsidiaries to a material liability.
All reports, filings, returns and disclosures and other communications which
have been required to be made to the participants and beneficiaries, other
employees, the Pension Benefit Guaranty Corporation ("PBGC"), 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, communications, filings, returns and
disclosures were true and correct in all material respects. 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. Neither
Bank nor any of its subsidiaries has any material liability under ERISA or the
Code as a result of its being a member of a group described in Sections 414(b),
(c), (m) or (o) of the Code. 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
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to contribute and the present value of all benefits vested and all benefits
accrued under each Bank Pension Plan which is subject to Title IV of ERISA did
not, in each case, as of the last applicable annual valuation date, exceed the
value of the assets of the Bank Pension Plan allocable to such vested or
accrued benefits. No Bank Pension Plan or any trust created thereunder has been
terminated, nor has there been any "reportable events" with respect to any Bank
Pension Plan, as that term is defined in Section 4043 of ERISA since January 1,
1992. No Bank Pension Plan or any trust created thereunder has incurred any
"accumulated funding deficiency" as such term is defined in Section 302 of
ERISA (whether or not waived). No Bank Pension Plan is a "multiemployer plan"
as that term is defined in Section 3(37) of ERISA. There has been no change in
control of any Bank Pension Plan.
(b) All bonus, deferred compensation, profit-sharing, retirement, pension,
stock option, stock award and stock purchase plans and all other employee
benefit, health and welfare plans, arrangements or agreements, including
without limitation the Bank Stock Compensation Plans and medical, major
medical, disability, life insurance or dental plans covering employees
generally, other than the Bank Pension Plans, maintained by Bank or any of its
subsidiaries with an annual cost in excess of $50,000 (collectively "Bank
Benefit Plans") are listed in BANK SCHEDULE 2.15(b) (unless already listed in
Bank Schedule 2.15(a) or BANK SCHEDULE 2.01(d)(3)) and 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. The Bank Benefit Plans have been administered and communicated to
the participants and beneficiaries in all material respects in accordance with
their terms and ERISA (as applicable), 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 Bank 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 Bank Benefit Plans or has been misled as to their rights under
the Bank Benefit Plans. There are no pending or threatened claims (other than
routine claims for benefits) against the Bank Benefit Plans which would subject
Bank or any of its subsidiaries to liability. Any trust which is intended to be
tax-exempt has received a determination letter from the IRS to that effect and
no event has occurred which would adversely affect such exemption. All reports,
filings, returns and disclosures required to be made to the participants and
beneficiaries, other employees of Bank or any of its subsidiaries, the PBGC,
the SEC, the IRS, the U.S. Department of Labor and any other governmental
agency pursuant to the Code, ERISA, or other applicable statute or regulation,
if any, have been made in a timely manner and all such reports, filings,
returns and disclosures 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.
(c) There is no pending or, to Bank's knowledge, threatened litigation,
administrative action or proceeding relating to any Bank Benefit Plan or Bank
Pension Plan. There has been no announcement or commitment by Bank or any
subsidiary of Bank to create an additional Bank Benefit Plan or Bank Pension
Plan, or to amend a Bank Benefit Plan or Bank Pension Plan, except for
amendments required by applicable law, which may materially increase the cost
of such Bank Benefit Plan or Bank Pension Plan and, except for any plans or
amendments expressly described on Bank Schedule 2.01(d)(3), BANK SCHEDULE
2.15(a) or Bank Schedule 2.15(b), Bank and its subsidiaries do not have any
obligations for post-retirement or post-employment benefits under any Bank
Benefit Plan (exclusive of any coverage mandated by the Consolidated Omnibus
Reconciliation Act of 1986 ("COBRA") that cannot be amended or terminated upon
more than sixty (60) days' notice without incurring any liability thereunder.
Disclosed on and appended to BANK SCHEDULE 2.15(c) with respect to each Bank
Benefit Plan and Bank Pension Plan, to the extent applicable, is (A) the most
recent annual report on the applicable form of the Form 5500 series filed with
the IRS with all the attachments filed, (B) such Bank Benefit Plan or Bank
Pension Plan, including all amendments thereto, (C) each trust agreement and
insurance contract relating to such plan, including amendments thereto, (D) the
most recent summary plan description for such plan, including amendments
thereto, if the plan is subject to Title I of ERISA, (E) the most recent
actuarial report or valuation if such plan is a pension plan and (F) the most
recent determination letter issued by the IRS if such plan is qualified under
Section 401(a) of the Code.
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Section 2.16. FIDELITY BONDS. Since December 31, 1992, Bank and each of
its subsidiaries has continuously maintained fidelity bonds insuring them
against acts of dishonesty in such amounts as are customary, usual and prudent
for organizations of its size and business. All material claims thereunder have
been filed in a due and timely fashion. Since December 31, 1992, 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 $50,000) 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 2.17. 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 in all
material respects with all other laws and regulations relating to the
employment of labor, including all such laws and regulations relating to Bank
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. No labor dispute, strike or other work stoppage has occurred
and is continuing or is to Bank's knowledge threatened with respect to Bank or
any of its subsidiaries. Since December 31, 1992, no employee of Bank or any of
its subsidiaries has been terminated, suspended, disciplined or dismissed under
circumstances which could constitute a material claim, suit, action, complaint
or proceeding likely to result in a material liability. No employees of Bank or
any of its subsidiaries are unionized nor has 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 2.18. 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 2.19. CONCENTRATIONS OF CREDIT. 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)
other than as disclosed in Bank's concentration report attached hereto as Bank
Schedule 2.19.
Section 2.20. 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 2.21. EQUITY INTERESTS. Neither Bank nor any of its subsidiaries
owns, directly or indirectly (except for the equity interests of Bank in Bank,
the equity interests disclosed on Bank Schedule 2.01(a), and the equity
interests disclosed on BANK SCHEDULE 2.21) 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. None of the investments reflected
in the consolidated balance sheet of Bank as of June 30, 1998, and none of such
investments made by it or any of its subsidiaries since June 30, 1998, is
subject to any restriction (contractual or statutory), other than applicable
securities laws, that would materially impair the ability of the entity holding
such investment freely to dispose of such investment at any time, except
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to the extent any such investments are pledged in the ordinary course of
business (including in connection with hedging arrangements or programs or
reverse repurchase arrangements) consistent with prudent banking practice to
secure obligations of Bank or any of its subsidiaries.
Section 2.22. ENVIRONMENTAL MATTERS.
(a) Except as disclosed on BANK SCHEDULE 2.22 or as may be disclosed in
the Forms 10-K and 10-Q of Bank referred to in Section 2.02 hereof:
(1) The Bank's actual knowledge, 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, leased or held or managed in a representative or
fiduciary capacity ("Present Property") by Bank or any of its
subsidiaries, (2) any property previously owned, occupied, leased or
held or managed in a representative or fiduciary capacity ("Former
Property") by Bank or any of its subsidiaries during the time of such
previous ownership, occupancy, lease, holding or management 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;
(2) 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;
(3) To Bank's actual knowledge, 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.
(b) Except as disclosed on Bank Schedule 2.22, neither Bank nor any
subsidiary (i) is aware of any investigations contemplated, pending or
completed by any environmental regulatory authority with respect to any Present
Property, Former Property, Loan Property or Participation Facility, (ii) has
received any information requests from any environmental regulatory authority,
or (iii) been named as a potentially responsible or liable party in any
Superfund, Resource Conservation and Recovery Act, Toxic Substances Control Act
or Clean Water Act proceeding or other equivalent state or federal proceeding.
(c) 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 $50,000 and (c) "Hazardous Substances" shall mean (i) any flammable
substances, explosives, radioactive materials, hazardous materials, hazardous
substances, hazardous wastes, toxic substances, pollutants, contaminants and
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-containing products and wastes.
Section 2.23. ACCOUNTING, TAX AND REGULATORY MATTERS. Neither Bank nor any
of its subsidiaries has taken or agreed to take any action or has any knowledge
of any fact or circumstance that would (i) prevent the transactions
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
approval referred to in Section 4.01 or the consummation of the transactions
contemplated by this Agreement.
Section 2.24. INTEREST OF MANAGEMENT AND AFFILIATES.
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(a) All loans presently on the books of Bank or any of its subsidiaries to
present or former directors or executive officers of Bank or any subsidiary of
Bank, or their 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.
(b) Except as set forth on BANK SCHEDULE 2.24(b), no present or former
officer or director of Bank or any of its subsidiaries or any Associated Person
(as defined in Section 2.24(d) below):
(1) 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;
(2) has an agreement, understanding, contract, commitment or pending
transaction relating to the purchase, sale or lease of real or
personal property, goods, materials, supplies or services, whether or
not in the ordinary course of business, with Bank or any of its
subsidiaries ("Insider Agreements");
(3) has received from Bank or any of its subsidiaries any commitment,
whether written or oral, to lend any funds to any such person;
(4) is owed any amounts by Bank or any of its subsidiaries 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
("Insider Indebtedness").
(c) Except as set forth on BANK SCHEDULE 2.24(c), 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) or provision of a benefit
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.
(d) "Associated Person" means (i) any holder of 10% or more of the
outstanding shares of Bank Stock, (ii) any relative or associate of a present
or former director or executive officer of Bank or any of its subsidiaries (as
"associate" is defined at Rule 14a-1(a) of the SEC under the Exchange Act),
(iii) any entity controlled, directly or indirectly, individually or in the
aggregate, by any present or former director or executive officer of Bank or
any of its subsidiaries or any relative or associate of any of such persons and
(iv) any entity 25% or more or the equity interests of which are owned
individually or in the aggregate by any present or former director or executive
officer of Bank or any of its subsidiaries or any relative or associate of any
of such persons.
Section 2.25 REGISTRATION OBLIGATIONS. Neither Bank nor any of its
subsidiaries is under any obligation, contingent or otherwise, to register any
of its securities under the Securities Act.
Section 2.26 CORPORATE DOCUMENTS. Bank Schedule 2.26 contains true and
complete copies of the articles or certificate of incorporation and by-laws, as
amended to date, which are currently in full force and effect, of Bank and of
each of its subsidiaries.
Section 2.27 COMMUNITY REINVESTMENT ACT COMPLIANCE. Bank and its
subsidiaries are in substantial compliance with the applicable provisions of
the Community Reinvestment Act of 1977 and the regulations promulgated
thereunder, and received a CRA rating of at least satisfactory as of its last
completed examination. As of the date of this Agreement, Bank has not been
advised of the existence of any fact or circumstance or set of facts or
circumstances which, if true, would cause Bank to fail to be in substantial
compliance with such provisions.
Section 2.28 BUSINESS OF BANK. Since June 30, 1998, Bank has conducted its
business only in the ordinary course. For purposes of the foregoing, Bank has
not, since March 31, 1998, controlled expenses through (i) elimination of
employee benefits, (ii) deferral of routine maintenance of real property or
leased premises, (iii) elimination of reserves where the liability related to
such reserve has remained, (iv) reduction of capital improvements from previous
levels, (v) failure to depreciate capital assets in accordance with past
practice or to eliminate capital assets which are no longer used in the
business of Bank, (vi) capitalized loan production expenses
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other than in accordance with Statement of Financial Accounting Standard No.
91, or (vii) extraordinary reduction or deferral of ordinary or necessary
expenses.
Section 2.29 INTEREST RATE RISK MANAGEMENT INSTRUMENTS.
(a) Set forth on BANK SCHEDULE 2.29(a) is a list as of the date hereof of
all interest rate swaps, caps, floors and option agreements, and other interest
rate risk management arrangements to which Bank or any of its subsidiaries is a
party or by which any of their properties or assets may be bound.
(b) All such interest rate swaps, caps, floors and option agreements and
other interest rate risk management arrangements to which Bank or any of its
subsidiaries is a party or by which any of their properties or assets may be
bound were entered into the ordinary course of business and, in accordance with
prudent banking practice and applicable rules, regulations and policies of
regulatory authorities and with counterparties believed, at the time entered
into and at the date of this Agreement, to be financially responsible and are
legal, valid and binding obligations of Bank or a subsidiary and are in full
force and effect. Bank and each of its subsidiaries has duly performed in all
material respects all of its obligations thereunder to the extent that such
obligations to perform have accrued, and there are no material breaches,
violations or defaults or allegations or assertions of such by any party
thereunder.
Section 2.30. YEAR 2000 COMPLIANT. Bank is in the process of taking all
reasonably necessary steps to be Year 2000 compliant, which, for purposes of
this Agreement, shall mean that the data outside the range 1900-1999 will be
correctly processed in any level of computer hardware or software including,
but not limited to, microcode, firmware, applications programs, files and
databases. Bank is in the process of taking all reasonably necessary steps
(including obtaining warranties from the vendors thereof in respect of
compliance) to ensure that all computer software will be designed to be used
prior to, during and that after the calendar year 2000 AD and such software
will be operated during each such time period, without error relating to date
data, specifically including any error relating to, or the product of, date
data that represents or references different centuries or more than one
century. Bank anticipates that it will be Year 2000 compliant within a
reasonable period prior to Year 2000.
ARTICLE III.
REPRESENTATIONS AND WARRANTIES OF SUMMIT
Summit represents and warrants to Bank as follows:
Section 3.01. ORGANIZATION, CAPITAL STOCK.
(a) Summit 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 (i) 390,000,000 shares of Common Stock, par value $.80 per
share, with the Summit Rights attached thereto pursuant to the Rights
Agreement, of which 173,805,211 shares were issued and outstanding as of July
31, 1998 and (ii) 6,000,000 shares of Preferred Stock, each without par value,
of which no shares were issued and outstanding and 1,500,000 shares of Series R
Preferred Stock were reserved for issuance as of the date hereof.
(b) Summit 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 (i) the business, results of operations,
assets or financial condition of Summit and its subsidiaries, on a consolidated
basis, or (ii) the ability of Summit to perform its obligations under, and to
consummate the transactions contemplated by, this Agreement (a "Summit Material
Adverse Effect"). However, a Summit Material Adverse Effect or Summit Material
Adverse Change (as defined at Section 3.03) will not include a change resulting
from a change in law, rule, regulation, generally accepted or regulatory
accounting principle or other matter affecting financial institutions or their
holding companies generally or from charges or expenses incident to the
Reorganization. The bank subsidiaries of Summit are duly organized, validly
existing and in good standing under the laws of their jurisdiction of
organization. Summit 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
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lease their respective properties, occupy their respective premises, and to
engage in their respective businesses and activities as presently engaged in.
Summit is duly registered as a bank holding company under the BHCA.
(c) All issued shares of the capital stock of Summit 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 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. Summit or one of its subsidiaries is
the holder and beneficial owner of all of the issued and outstanding Equity
Securities of its bank subsidiaries. There are no Equity Securities of Summit
outstanding, in existence, the subject of an agreement, or reserved for
issuance, except as set forth at Section 3.01(a) and except for Summit Stock
issuable upon the exercise of employee stock options granted under stock option
plans of Summit, Summit Stock issuable pursuant to Summit's Dividend
Reinvestment and Stock Purchase Plan, Savings Incentive Plan and 1993 Incentive
Stock and Option Plan and Series R Preferred Stock issuable pursuant to the
Rights Agreement.
(d) All Equity Securities of its direct and indirect subsidiaries
beneficially owned by Summit or a subsidiary of Summit are held free and clear
of any claims, liens, encumbrances or security interests.
Section 3.02. FINANCIAL STATEMENTS. The financial statements (and related
notes and schedules thereto) contained in or incorporated by reference into
Summit's (a) annual report to shareholders for the fiscal year ended December
31, 1997, (b) annual report on Form 10-K pursuant to the Exchange Act for the
fiscal year ended December 31, 1997 and (c) the quarterly reports on Form 10-Q
filed pursuant to the Exchange Act for the fiscal quarters ended March 31, 1998
and June 30, 1998 (the "Summit Financial Statements") are true and correct in
all material respects as of their respective dates and each fairly presents
(subject, in the case of unaudited statements, to recurring audit adjustments
normal in nature and amount), 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
Summit and its subsidiaries at its respective date and for the period to which
it relates, except as may otherwise be described therein and except that, in
the case of unaudited statements, no consolidated statements of changes in
stockholders' equity are included. The Summit 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 Summit Financial Statements, in light of the circumstances
under which they were made, misleading in any respect.
Section 3.03. NO CONFLICTS. Summit is not in violation or breach of or
default under, and has received no notice of violation, breach, revocation or
threatened or contemplated revocation of or default or denial of approval
under, nor will the execution, delivery and performance of this Agreement by
Summit, or the consummation of the Reorganization by Summit 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 Summit and its subsidiaries, on a consolidated basis, or upon any
of the capital stock of Summit, or constitute an event which could, with the
lapse of time, action or inaction by Summit, 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:
(i) the Restated Certificate of Incorporation or the By-Laws of Summit;
(ii) any law, statute, rule, ruling, determination, ordinance, or
regulation of any governmental or regulatory authority;
(iii) any judgment, order, writ, award, injunction, or decree of any court
or other governmental authority; or
(iv) any material note, bond, mortgage, indenture, lease, policy of
insurance or indemnity, license, contract, agreement, or other
instrument;
to which Summit is a party or by which Summit or any of its assets or
properties are bound or committed, the consequences of which would be a
material adverse change in the business, results of operations, assets or
financial
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condition of Summit and its subsidiaries, on a consolidated basis, from that
reflected in the Summit Financial Statements as of and for the six months ended
June 30, 1998 (a "Summit 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 Summit or its
subsidiaries which materially and adversely affects Summit and its
subsidiaries, on a consolidated basis, and there are no actions, arbitrations,
claims, charges, suits, investigations or proceedings (formal or informal)
material to Summit and its subsidiaries, on a consolidated basis, pending or,
to Summit's knowledge, threatened, against or involving Summit or their
officers or directors (in their capacity as such) in law or equity or before
any court, panel or governmental agency, except as may be disclosed in the
Forms 10-K and 10-Q of Summit referred to in Section 3.02. Neither Summit nor
any bank subsidiary of Summit 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 Summit nor
any bank subsidiary of Summit, 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.
Summit and the bank subsidiaries of Summit 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 Summit or such bank
subsidiary's business except for examinations, if any, received within the 30
days prior to the date hereof.
Section 3.05. REGULATORY FILINGS. At the time of filing, all filings made
by Summit and its subsidiaries after December 31, 1992 with the SEC and
appropriate bank regulatory authorities did not contain any untrue statement of
a material fact and 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. To the extent such filings were 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. Summit has since December 31, 1992 timely
made all filings required by the Securities Act and the Exchange Act. Each of
the financial statements (including related notes and schedules thereto)
contained in or incorporated by reference into such filings are true and
correct in all material respects as of their respective dates and each fairly
presents (subject, in the case of unaudited statements, to recurring audit
adjustments normal in nature and amount), in accordance with generally accepted
accounting principles, the consolidated statements of condition, income,
changes in stockholders' equity and cash flows of Summit and its subsidiaries
at its respective date and for the period to which it relates, except as may
otherwise be described therein and except that in the case of unaudited
statements, no consolidated statements of changes in stockholders equity is
included.
Section 3.06. CORPORATE ACTION.
(a) Assuming due execution and delivery by Bank, Summit 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 Summit has taken
all action required by law or by the Restated Certificate of Incorporation or
By-Laws of Summit or otherwise to authorize the execution and delivery of this
Agreement. Approval by the shareholders of Summit of this Agreement, the
Reorganization or the transactions contemplated by this Agreement are not
required by applicable law. Assuming due execution and delivery by Bank, this
Agreement is a valid and binding agreement of Summit enforceable in accordance
with its terms except as such enforcement may be limited by applicable
principles of equity, and by bankruptcy, insolvency, reorganization, fraudulent
transfer, moratorium or other laws of general applicability presently or
hereafter in effect affecting the enforcement of creditors' rights generally or
institutions, the deposits of which are insured by the Federal Deposit
Insurance Corporation, or the affiliates of such institutions.
(b) Upon the due and valid approval of this Agreement by the Board of
Directors and sole shareholder of the Designated Summit Bank Subsidiary and its
execution and delivery, assuming due execution and delivery
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by each of the other parties hereto, this Agreement will be a valid and binding
agreement of the Designated Summit Bank Subsidiary enforceable in accordance
with its terms except as such enforcement may be limited by applicable
principles of equity, and by bankruptcy, insolvency, reorganization, fraudulent
transfer, moratorium or other laws of general applicability presently or
hereafter in effect affecting the enforcement of creditors' rights generally or
institutions, the deposits of which are insured by the Federal Deposit
Insurance Corporation, or the affiliates of such institutions.
Section 3.07. ABSENCE OF CHANGES. There has not been, since June 30, 1998,
any Summit Material Adverse Change.
Section 3.08. NON-BANK SUBSIDIARIES. The non-bank subsidiaries of Summit
did not, taken in the aggregate, constitute a "significant subsidiary" of
Summit, as that term is defined in Rule 1-02(v) of Regulation S-X of the SEC
(17 CFR (section)210.1-02(v)), at June 30, 1998.
Section 3.09 ABSENCE OF UNDISCLOSED LIABILITIES. There are no liabilities,
whether contingent or absolute, direct or indirect, or loss contingencies (as
defined in Statement of Financial Accounting Standards No.5) other than (a)
disclosed in the Summit Financial Statements or disclosed in the notes thereto,
(b) commitments made by Summit or any of its subsidiaries in the ordinary
course of its business which are not in the aggregate material to Summit and
its subsidiaries, on a consolidated basis, and (c) liabilities arising in the
ordinary course of its business since June 30, 1998 which are not in the
aggregate material to Summit and its subsidiaries, on a consolidated basis.
Section 3.10. ALLOWANCE FOR LOAN AND LEASE LOSSES. At June 30, 1998 and
thereafter, the allowances for loan and lease losses of Summit and its
subsidiaries are adequate in all material respects to provide for all losses on
loans and leases outstanding, and to the best of Summit's knowledge, the loan
and lease portfolios of Summit and its subsidiaries in excess of such
allowances are collectible in the ordinary course of business.
Section 3.11. ACCOUNTING, TAX AND REGULATORY MATTERS. Neither Summit nor
any of its subsidiaries has taken or agreed to take any action or has any
knowledge of any fact or circumstance that would (i) prevent the transactions
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
approval referred to in Section 4.01 or the consummation of the transactions
contemplated by this Agreement.
Section 3.12. COMMUNITY REINVESTMENT ACT COMPLIANCE. Summit and its
subsidiaries are in substantial compliance with the applicable provisions of
the Community Reinvestment Act of 1977 and the regulations promulgated
thereunder, and received a CRA rating of at least satisfactory as of its last
completed examination. As of the date of this Agreement, Summit and its
subsidiaries have not been advised of the existence of any fact or circumstance
or set of facts or circumstances which, if true, would cause Summit to fail to
be in substantial compliance with such provisions.
ARTICLE IV.
COVENANTS OF BANK
Bank hereby covenants and agrees with Summit that:
Section 4.01. PREPARATION OF REGISTRATION STATEMENT AND APPLICATIONS FOR
REQUIRED CONSENTS. Bank will cooperate with Summit in the preparation of a
Registration Statement on Form S-4 (the "Registration Statement") to be filed
with the SEC under the Securities Act for the registration of the offering of
Summit Stock to be issued as Reorganization Consideration and the proxy
statement-prospectus constituting part of the Registration Statement
("Proxy-Prospectus") that will be used by Bank to solicit shareholders of Bank
for approval of the Reorganization. In connection therewith, Bank will use its
reasonable best efforts to furnish all financial or other information with
respect to Bank, including using reasonable best efforts to obtain customary
consents, certificates, opinions of counsel and other items concerning Bank,
reasonably deemed necessary by counsel to Summit for the filing or preparation
for filing under the Securities Act and the Exchange Act of the Registration
Statement (including the Proxy-Prospectus). Bank will cooperate with Summit and
provide such information as may be reasonably available to Bank in obtaining an
order of effectiveness for the Registration Statement,
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appropriate permits or approvals under state securities and "blue sky" laws,
the required approval under the BHCA of the Board of Governors of the Federal
Reserve System (the "Federal Reserve Board") and any other governmental or
regulatory consents or approvals, including the approval of the Commissioner of
Banking of Connecticut, or the taking of any other governmental or regulatory
action necessary to consummate the Reorganization that would not have a Summit
Material Adverse Effect following the Reorganization (the "Required Consents").
Summit, reasonably in advance of making such filings, will provide Bank and its
counsel a reasonable opportunity to comment on such filings and regulatory
applications and will give due consideration to any comments of Bank and its
counsel before making any such filing or application, and Summit will provide
Bank and its counsel with copies of all such filings and applications at the
time filed if such filings and applications are made at any time before the
Effective Time. Bank covenants and agrees that all information expressly
furnished by Bank in writing for inclusion in the Registration Statement, the
Proxy-Prospectus, all applications to appropriate regulatory agencies for
approval of the Reorganization 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 thereunder, together with all
information furnished by Bank to Summit pursuant to this Agreement or in
connection with obtaining Required Consents, 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 Brown Brothers such information as Brown
Brothers may reasonably request and as may be reasonably available to Bank for
purposes of the opinion referred to in Section 8.07.
Section 4.02. NOTICE OF ADVERSE CHANGES. Bank will promptly advise Summit
in writing, to the extent of its actual knowledge, 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 Document List (as defined in
Section 4.09), if made on or as of the date of such event or the Closing Date,
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 Bank Material Adverse Effect or an
adverse material effect on the ability of the parties to timely consummate the
Reorganization and the related transactions, (e) any governmental complaint,
investigation, hearing, or communication indicating that such litigation or
administrative proceeding is 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 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, on a consolidated basis,
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 Reorganization.
Bank agrees that the delivery of such notice shall not constitute a waiver by
Summit of any of the provisions of Articles VI or VII.
Section 4.03. MEETING OF SHAREHOLDERS. Bank will call a meeting of Bank
shareholders for the purpose of voting upon this Agreement, the Reorganization
and the other transactions contemplated hereby. The meeting of Bank
shareholders contemplated by this Section 4.03 will be held as promptly as
practicable and, in connection therewith, will comply with the Connecticut Law
and the Exchange Act and all regulations promulgated thereunder governing
shareholder meetings and proxy solicitations. In connection with such meeting,
Bank shall mail the Proxy-Prospectus to Bank shareholders and use, unless in
the written opinion of counsel such action would be a breach of their fiduciary
duties by the directors under applicable law, its best efforts to obtain
shareholder approval of this Agreement, the Reorganization and the other
transactions contemplated hereby and any other proposals requested by Summit
pursuant to this Section 4.03.
Section 4.04. COPIES OF FILINGS. Without limiting the provisions of
Section 4.01, Bank will deliver to Summit, at least 48 hours prior to an
anticipated date of filing or distribution, all documents to be filed with the
SEC or any bank regulatory authority or to be distributed in any manner to the
shareholders of Bank, or to the news media or to the public, other than the
press releases and other information subject to Section 10.01.
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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 Summit:
(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, set aside and pay a dividend
of $0.25 per quarter;
(b) declare or distribute any stock dividend or authorize or effect a
stock split;
(c) 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 the banking business;
(d) 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 (i) transactions in the ordinary course of
business or other transactions involving not more than $50,000, (ii) costs and
expenses incurred in connection with the Reorganization and other transactions
contemplated by this Agreement and (iii) as set forth in BANK SCHEDULE 4.05(d);
(e) subject any of its properties or assets to any lien, claim, charge,
option or encumbrance, except in the ordinary course of business and for
amounts not material in the aggregate to Bank and its subsidiaries, on a
consolidated basis;
(f) Except for the amounts and plans or employees expressly related to
such amounts set forth on BANK SCHEDULE 4.05(f), pay any employee bonuses or
increase or enter into any agreement to increase the rate of compensation of
any employee at the date hereof which is not consistent with past practices and
policies and which when considered with all such increases or agreements to
increase constitutes an average annualized rate not exceeding four percent
(4%), except that, on the date which follows the Closing Date (as defined in
Section 9.01) by six months, Bank may pay "stay bonuses" of up to $75,000 in
the aggregate to employees of the Bank designated by the Board of Directors of
Bank (after consultation with Summit) who continue to be employees of Bank or a
subsidiary or affiliate thereof on such payment date and who execute a release
of claims against Summit and its affiliates;
(g) except as set forth on BANK SCHEDULE 4.05(g), create, adopt or modify
any employment, termination, severance, pension, supplemental pension, profit
sharing, bonus, deferred compensation, death benefit, retirement, stock option,
stock award, stock purchase or other employee or director benefit or welfare
plan, arrangement or agreement of whatsoever nature, including without
limitation the Bank Pension Plans and the Bank Benefit Plans (collectively,
"Bank Plans"), or change the level of benefits, reduce eligibility, performance
or participation standards, or increase any payment or benefit under any Bank
Plan;
(h) distribute, issue, sell, award, grant, permit to become outstanding or
enter into any agreement respecting any Equity Securities or any Equity Based
Rights except pursuant to the Option Agreement or pursuant to the exercise of
director and employee stock options and warrants granted prior to the date
hereof under the Bank Stock Compensation Plans and exercisable and outstanding
under the terms of a Bank Stock Compensation Plan at the date of such exercise;
(i) 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 or Equity Based Rights, whether pursuant to the terms of
such Equity Securities or Equity Based Rights or otherwise, or enter into any
agreement providing for any of the foregoing transactions;
(j) amend its certificate or articles of incorporation, charter or
by-laws;
(k) Except as set forth on BANK SCHEDULE 4.05(k), 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 Boston or enter into any contract, agreement, lease or understanding,
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, on a consolidated basis;
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(l) create, amend, increase, enhance, accelerate the exerciseability of,
or release or waive any forfeitures, terminations or expirations of or
restrictions on any rights, awards, benefits, entitlements, options or warrants
under the Bank Plans including Equity Securities and Equity Based Rights
outstanding;
(m) Except as set forth on Bank Schedule 4.05(m), make any employer
contribution to a Bank Plan which under the terms of the particular plan is
voluntary and within the discretion of Bank to make;
(n) make any determination or take any action, discretionary or otherwise,
under or with respect to any Bank Plan other than routine administration in
accordance with past precedent;
(o) notwithstanding any other provision of this Agreement, enter into or
amend, renew, extend, give any notice or consent with respect to, waive any
provision under, or accept any new fees, rates or other costs or charges of
whatsoever nature, schedule, exhibit or other attachment under (whether through
an action or inaction) any Insider Agreement or any agreement, understanding,
contract, commitment or transaction relating to any Insider Indebtedness,
except to the extent permitted by Section 4.12 or disclosed in BANK SCHEDULE
2.24(b);
(p) enter into, increase or renew any loan or credit commitment (including
standby letters of credit) to any executive officer or director of Bank or any
of its subsidiaries, any holder of 10% of more of the outstanding shares of
Bank Stock, or any entity controlled, directly or indirectly, by any of the
foregoing or engage in any transaction with any of the foregoing which is of
the type or nature sought to be regulated in 12 U.S.C. (section)371c and 12
U.S.C. (section)371c-1. For purposes of this Section 4.05(p), "control" shall
have the meaning associated with that term under 12 U.S.C. (section)371c; or
(q) take any discretionary action or fail to take any discretionary action
under any plan or agreement affecting one or more directors or employees or any
affiliates of such where the effect of such act or failure to act is or would
be to give or confer a right or benefit not existing on the date hereof.
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 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 Summit 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; and
(f) will not change their methods of accounting in effect at June 30, 1998, 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 ended December 31, 1997, 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 Summit 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 Summit 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
Summit 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 relevant to this Agreement and
the Reorganization, will provide such information with respect to its business
affairs and properties as Summit from time to time may reasonably request, and
will cause its managerial employees, and will use its best efforts to cause its
counsel and independent certified public accountants, to be available on
reasonable request to answer questions of Summit'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 Summit all the documents, contracts, agreements, papers, and
writings referred to in the Bank Schedules or called for by the list attached
hereto as Exhibit B (the "Post-Signing Document 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
Reorganization and will promptly cooperate with and furnish information to
Summit in connection with any such requirements imposed upon Summit or on any
of its subsidiaries in connection with the Reorganization.
Section 4.11. AGREEMENTS OF AFFILIATED SHAREHOLDERS. Bank agrees to
furnish to Summit, not later than 10 business days prior to the date of mailing
of the Proxy-Prospectus, a writing setting forth the names of those persons
(which will include all individual and beneficial ownership of Bank Stock by
such persons and also identifies the manner in which all such beneficially
owned shares of Bank Stock are registered on the stock record books of Bank)
who in the written opinion of Rucci, Burnham, Carta & Edelberg, LLP, corporate
counsel to Bank, or of Bank's securities counsel, constitute all the affiliates
of Bank for the purposes of Rule 145 under the Securities Act ("Bank
Affiliate") and Bank shall use its best efforts to cause each Bank Affiliate to
enter into, prior to the date of mailing of the Proxy-Prospectus and effective
prior to that date, an agreement, satisfactory in form and substance to Summit,
substantially in the form of Exhibit C-1, with respect to Affiliates who are
directors or officers of Bank or a subsidiary of Bank, or substantially in the
form of Exhibit C-2, with respect to Affiliates who are not directors or
officers of Bank or a subsidiary of Bank (an "Affiliate Agreement"); provided,
however, that until an Affiliate executes and delivers an Affiliate Agreement
to Summit, Summit may refuse to exchange for the Reorganization Consideration
the Bank Certificates held by such Affiliate.
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 or executive officers or their respective related interests
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. CONFIDENTIALITY. All information furnished by Summit to Bank
or its representatives pursuant hereto shall be treated as the sole property of
Summit and, if the Reorganization shall not occur, Bank and its representatives
shall return to Summit 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
Reorganization 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
purposes other than the performance of this Agreement. The obligation to keep
such information confidential shall continue for five years from the date the
proposed Reorganization is abandoned and shall not apply to: (i) any
information which (x) was legally in Bank's possession prior to the disclosure
thereof by Summit, (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 Summit 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
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tribunal or governmental body or agency without liability hereunder and shall
so notify Summit. This Section 4.13 shall survive any termination of this
Agreement.
Section 4.14. DIVIDENDS. Bank will coordinate with Summit the declaration
of any dividends and the record and payment dates thereof so that the holders
of Bank Stock will not be paid two dividends for a single calendar quarter with
respect to their shares of Bank Stock and any shares of Summit Stock they
become entitled to receive in the Reorganization or fail to be paid one
dividend in each calendar quarter between the date hereof and the Effective
Time. Bank will notify Summit at least five business days prior to any proposed
dividend declaration date.
Section 4.15. ACQUISITION PROPOSALS. Bank agrees that neither Bank nor any
of its subsidiaries nor any of the respective officers and directors of Bank or
its subsidiaries shall, and Bank shall direct and use its best effort to cause
its employees, affiliates, agents and representatives (including, without
limitation, any investment banker, broker, financial or investment advisor,
attorney or accountant retained by Bank or any of its subsidiaries) not to,
initiate, solicit or encourage, directly or indirectly, any inquiries,
proposals or offers with respect to, or engage in any negotiations or
discussions with any person, provide any nonpublic information, or authorize or
enter into any agreement or agreement in principle concerning, or recommend,
endorse or otherwise facilitate any effort or attempt to induce or implement,
any Acquisition Proposal (as defined below). "Acquisition Proposal" is hereby
defined to be any offer, including an exchange offer or tender offer, or
proposal concerning a merger, consolidation, or other business combination or
takeover transaction involving Bank or any of its subsidiaries or the
acquisition of any assets (otherwise than as permitted by Section 4.05) or
securities of Bank or any of its subsidiaries. Bank will immediately cease and
cause to be terminated any existing activities, discussion or negotiations with
any parties conducted heretofore with respect to any of the foregoing. Bank
will take the necessary steps to inform the individuals or entities referred to
in the first sentence hereof of the obligations undertaken in this Section. In
addition, Bank will notify Summit by telephone to its chief executive officer
or general counsel promptly upon receipt of any communication with respect to a
proposed Acquisition Proposal 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 Summit officer notified as required
above a copy of any document relating thereto promptly after any such document
is received by Bank.
Section 4.16 TAX OPINION CERTIFICATES. Bank shall execute and deliver to
Thompson Coburn any tax opinion certificate reasonably required by Thompson
Coburn in connection with the issuance of the Tax Opinions (as defined at
Section 6.03), dated as of the date of effectiveness of the Registration
Statement and as of the Closing Date (and as of the date the Closing occurs if
different than the Closing Date), and Bank shall use reasonable 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 Coburn any tax opinion certificate reasonably
required by Thompson Coburn in connection with the issuance of one or more of
the Tax Opinions, dated as of the date of effectiveness of the Registration
Statement and as of the Closing Date (and as of the date the Closing occurs if
different than the Closing Date).
Section 4.17 DIRECTORS' AND OFFICERS' INSURANCE. Bank and each of its
subsidiaries has taken or will take all requisite action (including, without
limitation, the making of claims and the giving of notices) pursuant to its
directors' and officers' liability insurance policy or policies ("D&O
Insurance") in order to preserve all rights thereunder with respect to all
matters (other than matters arising in connection with this Agreement and the
transactions contemplated hereby) occurring prior to the Effective Time that
are known to Bank. Bank shall renew any existing D&O Insurance or purchase any
"discovery period" D&O Insurance provided for thereunder at Summit's request.
Section 4.18. CONFORMING ENTRIES.
(a) Notwithstanding that Bank believes that Bank and its subsidiaries have
established reserves and taken all provisions for possible loan and lease
losses required by generally accepted accounting principles and applicable
laws, rules and regulations, Bank recognizes that Summit may have adopted
different loan, accrual
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and reserve policies (including loan classification and levels of reserves for
possible loan and lease losses). From and after the date of this Agreement,
Bank and Summit shall consult and cooperate with each other with respect to
conforming the loan, accrual and reserve policies of Bank and its subsidiaries
to those policies of Summit, as specified in each case in writing to Bank,
based upon such consultation and as hereinafter provided.
(b) In addition, from and after the date of this Agreement, Bank and
Summit shall consult and cooperate with each other with respect to determining
appropriate accruals, reserves and charges for Bank to establish and take in
respect of excess equipment write-off or write-down of various assets and other
appropriate charges and accounting adjustments taking into account the parties'
business plan following the Reorganization, as specified in each case in
writing to Bank, based upon such consultation and as hereinafter provided.
(c) Bank and Summit shall consult and cooperate with each other with
respect to determining the amount and the timing for recognizing for financial
accounting purposes Bank's expenses of the Reorganization and the restructuring
charges, if any, related to or to be incurred in connection with the
Reorganization.
(d) With respect to clauses (a) through (c) of this Section 4.18, (i) it
is the objective of Bank and Summit that such reserves, accruals, charges and
divestitures, if any, to be taken shall be consistent with generally accepted
accounting principles, and (ii) Bank shall not be obligated to make a
particular conforming entry if the particular entry is not capable of being
reversed upon a termination of this Agreement or if the entry would have a
material adverse effect on the Bank's financial statements.
Section 4.19 COOPERATION WITH POLICIES AND PROCEDURES. Bank, prior to the
Effective Time, shall (i) consult and cooperate with Summit regarding the
implementation of those policies and procedures established by Summit for its
governance and that of its subsidiaries and not otherwise referenced in Section
4.18 of this Agreement, including, without limitation, policies and procedures
pertaining to the accounting, asset/liability management, audit, credit, human
resources, treasury and legal functions, and (ii) at the reasonable request of
Summit, conform Bank's existing policies and procedures in respect thereof,
provided that Bank shall not be required to conform a policy or procedure (x)
if such would cause Bank or any of its subsidiaries to be in violation of any
law, rule or regulation or requirement of any governmental regulatory authority
having jurisdiction over Bank or any of its subsidiaries affected thereby, or
(ii) if such conforming change is not capable of being reversed upon a
termination of this Agreement or if the conforming change would have a material
adverse effect on the Bank's financial statements.
Section 4.20 ENVIRONMENTAL REPORTS. Bank shall disclose to Summit all
matters of the types described in Section 2.22 above which Bank would have been
required to disclose to Summit on the date hereof if known to Bank on the date
hereof, as such become known to Bank between the date hereof and the Effective
Time. In addition, Summit may at its expense perform, or cause to be performed,
a phase one environmental investigation, an asbestos survey, or both of the
foregoing, (i) within 90 days following the date of this Agreement, on all real
property owned, leased or operated by Bank or any of its subsidiaries as of the
date of this Agreement (but excluding space in retail or similar establishments
leased by Bank for automatic teller machines or leased bank branch facilities
where the space leased by Bank comprises less than 20% of the total space
leased to all tenants of such property) subject to the terms (including any
prohibitions contained therein) contained in any lease agreement governing any
lease of real property by the Bank, and (ii) within 15 days after being
notified by Bank of the acquisition or lease of any real property by it or its
subsidiaries after the date of this Agreement, on the real property so acquired
or leased (but excluding space in retail or similar establishments leased by
Bank for automatic teller machines or leased bank branch facilities where the
space leased by Bank comprises less than 20% of the total space leased to all
tenants of such property) subject to the terms (including any prohibitions
contained therein) contained in any lease agreement governing any lease of real
property by the Bank. If the results of the phase one investigation indicate,
in the reasonable opinion of Summit, that additional investigation is
warranted, Summit may at its expense, within 15 days after receipt of the
particular phase one report, perform or cause to be performed a phase two
investigation on the property or properties deemed by Summit to warrant such
additional study or notify Bank and an environmental consulting firm within 15
days after the receipt of the particular phase one report that the
environmental consulting firm should promptly commence a phase two
investigation. If the cost of taking all remedial or other corrective actions
and measures (as required by applicable law, as recommended or suggested by
phase one or phase two investigation reports or as may be prudent in light of
serious life, health or safety concerns), if any, is in the aggregate
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in excess of $1,000,000, as reasonably estimated by an environmental expert
retained for such purpose by Summit at its sole expense, 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, Summit shall have
the right pursuant to Section 9.02(d)(2) of this Agreement to terminate this
Agreement.
Section 4.21 DISCONTINUANCE FEE.
(a) Following the occurrence of a Purchase Event (as defined in this
Section 4.21 below), Bank shall pay to Summit, and Summit shall be entitled to
receive, a discontinuance fee of $4,000,000 (the "Discontinuance Fee")
according to the terms of this Section 4.21.
(b) Bank's obligation to pay, and Summit's right to receive, the
Discontinuance Fee shall terminate and be of no further force or effect upon
the earliest to occur of (i) the Effective Time, (ii) the termination of this
Agreement in accordance with the terms hereof prior to the occurrence of an
Extension Event (as defined in this Section 4.21 below), other than a
termination of this Agreement by Summit pursuant to Section 9.02(a)(2) or
Sections 9.02(b), (c) or (d)(1) hereof, (iii) 15 months after the termination
of this Agreement following the occurrence of an Extension Event or the
termination of this Agreement by Summit pursuant to Section 9.02(a)(2) or
Sections 9.02(b), (c) or (d)(1) hereof or (iv) the termination of this
Agreement pursuant to Section 9.02(d)(2) or 9.02(e).
(c) The term "Extension Event" shall mean any of the following events or
transactions occurring without Summit's prior written consent after the date
hereof:
(i) Bank or any of its subsidiaries (each a "Bank Subsidiary"), 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 Summit or any of its
subsidiaries (each a "Summit 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
Summit or any Summit Subsidiary. For purposes of this Agreement,
"Acquisition Transaction" shall mean (w) a merger or consolidation,
or any similar transaction, involving Bank or any of Bank's banking
subsidiaries ("Bank Subsidiaries"), (x) a purchase, lease or other
acquisition of 10% or more of the aggregate value of the assets or
deposits of Bank or any Bank Subsidiary, (y) 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 a Bank Subsidiary, or (z) any substantially
similar transaction, provided, however, that in no event shall (i)
any merger, consolidation or similar transaction involving Bank or
any Bank Subsidiary in which the voting securities of Bank
outstanding immediately prior thereto continue to represent (either
by remaining outstanding or being converted into voting securities
of the surviving entity of any such transaction) at least 75% of the
combined voting power of the voting securities of the Bank or the
surviving entity outstanding after the consummation of such merger,
consolidation, or similar transaction, or (ii) any internal merger
or consolidation involving only Bank and/or Bank Subsidiaries, be
deemed to be an Acquisition Transaction, provided that any such
transaction is not entered into in violation of the terms of this
Agreement;
(ii) Any person (other than Summit or any Summit Subsidiary) shall have
acquired beneficial ownership or the right to acquire beneficial
ownership of securities representing 10% or more of the aggregate
voting power of Bank or any Bank Subsidiary (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);
(iii) Any person other than Summit or any Summit 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,
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without limitation, any situation in which any person other than
Summit or any Summit 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 securities representing 10% or more of
the aggregate voting power of Bank or any Bank Subsidiary);
(iv) After any person other than Summit or any Summit Subsidiary has
made or disclosed an intention to make a proposal to Bank or its
shareholders to engage in an Acquisition Transaction, Bank shall
have breached any covenant or obligation contained in this
Agreement and such breach (x) would entitle Summit to terminate
this Agreement and (y) shall not have been cured prior to the
Notice Date (as defined below);
(v) Any person other than Summit or any Summit Subsidiary shall have
filed an application with, or given a notice to, whether in draft
or final form, the Federal Reserve Board or other governmental
authority or regulatory or administrative agency or commission,
domestic or foreign (each, a "Governmental Authority"), for
approval to engage in an Acquisition Transaction; or
(vi) any Purchase Event (as defined below).
(d) 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 Summit or any Summit
Subsidiary of beneficial ownership of securities representing 25% or
more of the aggregate voting power of Bank or any Bank Subsidiary;
(ii) The occurrence of the event described in Section 4.21(c)(i),
except that for purposes of determining whether the event described
in Section 4.21(c)(i) has occurred for purposes of this subsection
(ii) the percentage referred to in clauses (x) and (y) of the
definition of Acquisition Transaction which is incorporated into
said Section 4.21(c)(i) shall be 25%; or
(iii) the holders of Common Stock shall not have approved this
Agreement at the meeting of such shareholders held for the purpose
of voting on this Agreement, such meeting shall not have been
called by the Board of Directors of Bank in accordance with Section
4.03 of this Agreement or such meeting shall not have been held or
shall have been canceled prior to termination of this Agreement or
Bank's Board of Directors shall have withdrawn or modified the
recommendation of Bank's Board of Directors in a manner adverse to
the consummation of the Reorganization with respect to this
Agreement, in each case after an Extension Event.
(e) Bank shall notify Summit promptly in writing of the occurrence of any
Extension Event or Purchase Event; provided however, that the giving of such
notice by Bank shall not be a condition to the rights of Summit under this
Section 4.21.
(f) In the event that Summit is entitled to and wishes to exercise its
right to receive the Discontinuance Fee, it shall send to Bank a written notice
of such (the date of which being herein referred to as the "Notice Date") no
later than 90 business days following the occurrence of the Purchase Event that
gave rise to Summit's right to receive the Discontinuance Fee, provided that on
the Notice Date Summit is not in material breach of any material covenant or
obligation contained in this Agreement and, if this Agreement has not
terminated prior thereto, such breach would entitle Bank to terminate this
Agreement. Bank shall pay the Discontinuance Fee within five business days of
the Notice Date in immediately available funds.
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ARTICLE V.
COVENANTS OF SUMMIT
Summit hereby covenants and agrees with Bank that:
Section 5.01. APPROVALS AND REGISTRATIONS. Based on such assistance and
cooperation of Bank as Summit shall reasonably request, Summit 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
Reorganization, (c) with the Connecticut Commissioner of Banking, an
application for approval of the Reorganization and the other transactions
contemplated hereby, and (d) with the NYSE, an application for the listing of
the shares of Summit Stock issuable upon the Reorganization, subject to
official notice of issuance, except that Summit shall have no obligation to
file a new registration statement or a post-effective amendment to the
Registration Statement covering any reoffering of Summit Stock by Bank
Affiliates. Summit covenants and agrees that all information furnished by
Summit for inclusion in the Registration Statement, the Proxy-Prospectus, 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
and the Federal Reserve Board 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. Summit will
use its reasonable best efforts to seek the effectiveness of the Registration
in a manner consistent under the circumstances with its efforts with respect to
registration statements in its prior acquisitions. Summit will furnish to Brown
Brothers such information reasonably available to it as Brown Brothers may
reasonably request for purposes of the opinion referred to in Section 8.07.
Section 5.02. NOTICE OF ADVERSE CHANGES. Summit will promptly advise Bank
in writing, to the extent of its actual knowledge, of (a) any event occurring
subsequent to the date of this Agreement which would render any representation
or warranty of Summit contained in this Agreement or the Summit 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 Summit Material Adverse Change, (c)
any inability or perceived inability of Summit to perform or comply with the
terms or conditions of this Agreement, (d) the institution or threat of
institution of litigation or administrative proceeding involving Summit or its
assets which, if determined adversely to Summit, would have a Summit Material
Adverse Effect or a material adverse effect on the Reorganization, (e) any
governmental complaint, investigation, or hearing or communication indicating
that such litigation or administrative proceeding is 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 Summit subsequent to the date hereof and prior to the Effective Time, under
any agreement, indenture or instrument to which Summit is a party or is subject
and which is material to the business, operation or condition (financial or
otherwise) of Summit and its subsidiaries, on a consolidated basis, 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 Reorganization.
Summit 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. Summit shall promptly provide to Bank and
its counsel copies of the application filed with the Federal Reserve Board, all
reports filed by it with the SEC on Forms 10-Q, 8-K and 10-K and all documents
to be distributed in any manner to the shareholders of Summit.
Section 5.04. FURTHER ACTIONS. Summit 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.
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Section 5.05. APPLICABLE LAWS. Summit will use its best efforts to comply
promptly with all requirements which federal or state law may impose on Summit
with respect to the Reorganization 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 Reorganization.
Section 5.06. UNPAID BANK DIVIDENDS. By virtue of the Reorganization and
without further action on anyone's part, Summit shall assume the obligation of
Bank to pay dividends, if any, on Bank Stock which have a record date prior to
the Effective Time but which are not payable until after the Effective Time.
Section 5.07. COOPERATION. Until the Effective Time, Summit 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 Summit or any of its subsidiaries. Summit shall use
its reasonable best efforts to cause one of its executive officers to answer
questions at the meeting of shareholders of the Bank called to approve the
Reorganization and shall, unless it determines in its discretion that such is
inadvisable for any reason, to furnish copies of its current Forms 10-K and
10-Q to the shareholders of the Bank in connection with the distribution of the
Proxy-Prospectus.
Section 5.08. CONFIDENTIALITY. All information furnished by Bank to Summit
or its representatives pursuant hereto shall be treated as the sole property of
Bank and, if the Reorganization shall not occur, Summit 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 Summit or any
committee thereof for the purpose of considering this Agreement, the
Reorganization and the related transactions may be kept and maintained by
Summit with other records of Board, and Board committee, meetings subject to a
continuing obligation of confidentiality. Summit 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 Reorganization is abandoned and shall not apply to: (i) any
information which (x) was legally in Summit's possession prior to the
disclosure thereof by Bank, (y) was then generally known to the public, or (z)
was disclosed to Summit 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, Summit 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, Summit 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. Summit 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 Summit
Stock. In addition, prior to the Effective Time, Summit may, depending on
market conditions and other factors, otherwise determine to issue Equity
Securities or other securities for financing purposes. Notwithstanding the
foregoing, Summit will not take any such action that would (i) prevent the
transactions 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 for more than 60 days.
Section 5.10. INDEMNIFICATION.
(a) Summit 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, including fees and disbursements
of counsel) 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 Restated Certificate of Incorporation and By-Laws of Summit
in
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effect on the date of this Agreement and applicable provisions of law to the
same extent as Summit 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 Summit; provided, however, that
during such time as Bank or any subsidiary of Bank shall remain a separate
corporate entity organized under the laws of the State of Connecticut, then the
indemnification and advancement of expenses provided for in this Section
5.01(a) for the directors and officers of such separate corporate entity shall
be made in accordance with and subject to the requirements of the certificate
of incorporation and by-laws of the particular separate corporate entity in
effect on the date of this Agreement and applicable provisions of Connecticut
Law.
(b) Subject to Bank's obligation set forth at Section 4.17: For a period
of six (6) years after the Effective Time, Summit 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 Summit 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 Summit
be required to expend more than 200% of the current amount expended by Bank on
an annual basis (the "Insurance Amount") to maintain or procure insurance
coverage pursuant hereto, and, further provided, that if Summit is unable to
maintain or obtain the insurance called for by this Section 5.10, Summit shall
use its best efforts to obtain as much comparable insurance as is available for
the Insurance Amount.
(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.
Section 5.11. EMPLOYEE MATTERS.
(a) After the Effective Time, Summit may in its discretion maintain,
terminate, merge or dispose of the Bank Plans; provided, however, that any
action taken by Summit shall comply with ERISA and any other applicable laws,
including laws regarding the preservation of employee pension benefit plan
benefits and, provided further, that if Summit maintains a defined contribution
plan, defined benefit plan or health and welfare plan available to all its
employees generally which is similar a Bank Plan which is, respectively, a
defined contribution plan, defined benefit plan or health and welfare plan
available to all Bank employees generally, then, if such Bank Plan is
terminated by Summit or is otherwise rendered inactive by Summit, Summit shall
offer to the former employees of Bank affected by such plan termination or
cessation of activity the opportunity to participate in the similar plan of
Summit.
(b) Any employee of Bank or a subsidiary of Bank at the Effective Time not
party to an employment, change of control, termination or similar agreement
with the Bank or a subsidiary of the Bank whose employment is terminated by
Summit, other than for cause, within twelve (12) months of the Effective Time
shall receive, upon executing a document (in form satisfactory to Summit in its
sole discretion) which releases Summit from all claims relating to such
employee's employment by Bank and Summit, a lump sum payment equal to the sum
of (i) and (ii), where:
(i) is the greater of (A) such employee's gross weekly salary
multiplied by four, or (B) the product obtained by multiplying such
employee's gross weekly salary multiplied by two times the number of
full years of service completed by such employee prior to the
termination of employment, and
(ii) is zero, unless less than 60 days advance notice is provided to a
particular terminated employee, in which case (ii) is the product
of (A) the difference obtained by subtracting from 60 the number of
days of advance notice of termination received by a particular
employee, and (B) such employee's annual salary or wage rate at the
time of the termination of employment divided by 365;
PROVIDED, HOWEVER, that no employee of Bank or a subsidiary of Bank shall be
eligible to receive the payment provided for above if such employee is offered
a position by Summit which is similar in job content to the position
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held by such employee with Bank or its subsidiary and is located at a
reasonably accessible location within the State of Connecticut. (The terms and
conditions governing severance in this Section 5.11(b) are sometimes referred
to herein as the "Severance Arrangement").
ARTICLE VI.
CONDITIONS PRECEDENT TO THE RESPECTIVE OBLIGATIONS OF
SUMMIT AND BANK
The respective obligations of Summit and Bank under this Agreement to
consummate the Reorganization are subject to the simultaneous 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 Summit and Bank in
accordance with Section 10.09:
Section 6.01. RECEIPT OF REQUIRED CONSENTS. Summit and Bank shall have
received the Required Consents; the Required Consents shall not, in the
reasonable opinion of Summit, contain restrictions or limitations which would
materially adversely affect the financial condition of Summit after
consummation of the Reorganization; the Required Consents and the transactions
contemplated hereby shall not be contested by any federal or state governmental
authority; and the Required Consents needed for the Reorganization 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; and no proceeding for that purpose shall have been initiated or, to
the knowledge of Summit or Bank, shall be contemplated or threatened by the
SEC.
Section 6.03. TAX MATTERS. At the time of effectiveness of the
Registration Statement and at the Closing Date (and at the date the Closing
occurs if different than the Closing Date), Summit and Bank shall have received
from Thompson Coburn an opinion (the "Tax Opinion"), reasonably satisfactory in
form and substance to them, to the effect that (a) the Reorganization will
constitute a tax-free 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 Summit Stock in the Reorganization will not recognize
gain or loss for federal income tax purposes, (c) the basis of such Summit
Stock (including any fractional share for which cash is received) will equal
the basis of the Bank Stock for which it is exchanged and (d) the holding
period of such Summit 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.
In addition, no condition or set of facts or circumstances shall exist 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 Opinion, as the
case may be, or (y) result in any of the factual assumptions contained in the
Tax Opinion being untrue.
Section 6.04. ABSENCE OF LITIGATION. 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 Summit or any of
its subsidiaries, or Bank or any of its subsidiaries, that is material to the
Reorganization or to the financial condition of Summit and its subsidiaries, on
a consolidated basis, or Bank and its subsidiaries, on a consolidated basis, as
the case may be. 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
Reorganization or on the financial condition of Summit and its subsidiaries, on
a consolidated basis, or Bank and its subsidiaries, on a consolidated basis, as
the case may be.
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Section 6.05. NYSE LISTING. The NYSE shall have indicated that the shares
of Summit Stock to be issued in the Reorganization are to be listed on the
NYSE, subject to official notice of issuance.
ARTICLE VII.
CONDITIONS PRECEDENT TO THE OBLIGATIONS OF SUMMIT
The obligation of Summit to consummate the Reorganization is subject to
the simultaneous satisfaction of all of the following conditions, compliance
with which or the occurrence of which may be waived in whole or in part by
Summit in writing in accordance with Section 10.09:
Section 7.01. NO ADVERSE CHANGES. There shall not have occurred at any
time after June 30, 1998 any Bank Material Adverse Change or any material loss
or damage to the properties of Bank or any of its subsidiaries, whether or not
insured, which materially affects the ability of Bank and its subsidiaries, on
a consolidated basis, 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
Document List shall be true and correct in all material respects on the date of
this Agreement and on the date the Closing occurs with the same force and
effect as if such representations and warranties were being made on such date.
Bank shall have complied in all material respects with all covenants and
agreements contained herein to be performed by Bank.
Section 7.03. SECRETARY'S CERTIFICATE. Bank shall have furnished to Summit
a certificate dated the date the Closing occurs to which shall be attached
copies of all resolutions adopted or minutes of actions taken by the Board of
Directors (including committees thereof) and shareholders of Bank relating to
this Agreement, the Option Agreement and the Reorganization and related
transactions, which such certificate shall be signed by the Secretary of Bank
and certify to the satisfaction of the condition set forth in Section 7.09 and
the trueness, correctness, completeness and continuing effectiveness of all
resolutions and actions contained or referenced in the aforementioned
attachments.
Section 7.04. OFFICER'S CERTIFICATE. Bank shall have furnished to Summit a
certificate signed by the Chief Executive Officer of Bank, dated the date the
Closing occurs, certifying to the satisfaction of the conditions set forth at
Sections 6.02 (last clause), 6.03 (last paragraph) and Section 6.04, as they
relate to Bank, and at Sections 7.01, 7.02, 7.07 and 7.10.
Section 7.05. OPINION OF BANK'S COUNSEL. Summit shall have received an
opinion of Rucci, Burnham, Carta & Edelberg, LLP, dated the date the Closing
occurs and reasonably satisfactory in form and substance to counsel for Summit,
substantially to the effect provided in Exhibit D.
Section 7.06. 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 Summit, 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 7.07. CONSENTS TO BANK CONTRACTS. All consents, approvals or
waivers, in form and substance reasonably satisfactory to Summit, required to
be obtained in connection with the Reorganization from other parties to each
mortgage, note, lease, permit, franchise, loan or other agreement or 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 or condition
(financial or otherwise) of Bank and its subsidiaries, on a consolidated basis,
shall have been obtained.
Section 7.08. FIRPT AFFIDAVIT. Bank shall have delivered to Summit an
affidavit of an executive officer of Bank dated the date the Closing occurs
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.
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Section 7.09. SHAREHOLDER APPROVAL. The shareholders of Bank, at the
meeting contemplated by this Agreement, shall have authorized and approved the
Reorganization 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 Certificate of Incorporation and By-Laws.
Section 7.10. 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 Reorganization or upon the
financial condition of Bank or of Bank and its subsidiaries, on a consolidated
basis, 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.
Section 7.11. AFFILIATE AGREEMENTS. After the Effective Time, Summit may
refuse to exchange for the Reorganization Consideration the Bank Certificates
of a Bank Affiliate who has failed to deliver an executed Affiliate Agreement
to Summit and Summit may treat such Bank Affiliate for all purposes as an
unexchanged Bank Shareholder until such time as the Bank Affiliate shall
deliver to it an executed Affiliate Agreement.
The receipt of the documents required by this Article VII by Summit shall in no
way constitute a waiver by Summit 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 Reorganization is subject to the
simultaneous 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 in accordance with Section 10.09:
Section 8.01. NO ADVERSE CHANGES. There shall not have occurred at any
time after March 31, 1998 any Summit Material Adverse Change or any material
loss or damage to the properties of Summit or its subsidiaries, whether or not
insured, which materially affects the ability of Summit and its subsidiaries,
on a consolidated basis, to conduct their business.
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 Summit in this Agreement
and in the Summit Schedules shall be true and correct in all material respects
on the date of this Agreement and on the date the Closing occurs with the same
force and effect as if such representations and warranties were made on such
date and Summit shall have complied in all material respects with all covenants
and agreements contained herein or therein to be performed by Summit; provided,
however, that no representation, warranty or covenant of Summit shall be
construed to limit or prohibit any business or financing activities of Summit
including by way of illustration and not limitation, the entry by Summit after
the date hereof into any agreement to acquire any assets or any company or
other entity, the issuance of up to $2 billion of debt or equity securities or
a combination of debt and equity securities in public or private offerings, the
issuance of Series R Preferred Stock pursuant to the Summit Rights Agreement,
the redemption or repurchase by Summit of its capital stock, the Summit Rights
or the Series R Preferred Stock issuable pursuant to the Rights Agreement, and
any transactions reasonably necessary or appropriate in connection therewith,
and no such business or financing activity shall constitute a breach of any
representation, warranty or covenant; provided further, however, that Summit
agrees that it will not permit any such transaction to cause any unreasonable
delay in the consummation of the Reorganization or other transactions
contemplated by this Agreement.
Section 8.03. SECRETARY'S CERTIFICATE.
(a) Summit shall have furnished to Bank a certificate dated the date the
Closing occurs to which shall be attached copies of all resolutions adopted or
minutes of actions taken by the Board of Directors (including
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committees thereof) of Summit relating to this Agreement, the Option Agreement
and the Reorganization and related transactions, which such certificate shall
be signed by the Secretary of Summit and certify to the trueness, correctness,
completeness and continuing effectiveness of all resolutions and actions
contained or referenced in the aforementioned attachments.
(b) In the event Summit has elected to effect the Reorganization as a
merger pursuant to Section 1.01(a)(2), the Designated Summit Bank Subsidiary
shall have furnished to Bank a certificate dated the date the Closing occurs to
which shall be attached copies of all resolutions adopted or minutes of actions
taken by the Board of Directors (including committees thereof) of the
Designated Summit Bank Subsidiary relating to this Agreement, the
Reorganization and related transactions, which such certificate shall be signed
by the Secretary of the Designated Summit Bank Subsidiary and certify to the
trueness, correctness, completeness and continuing effectiveness of all
resolutions and actions contained or referenced in the aforementioned
attachments.
Section 8.04. OFFICER'S CERTIFICATE. Summit shall have furnished to Bank a
certificate signed by the Chairman, Vice Chairman, President or an Executive
Vice President of Summit, dated the date the Closing occurs, certifying to the
satisfaction of the conditions set forth at Sections 6.01 and 6.02, the last
paragraph of Section 6.03, and Sections 6.04 and 6.05, as they relate to
Summit, and Sections 8.01, 8.02 and 8.08.
Section 8.05. OPINION OF SUMMIT COUNSEL. Bank shall have received an
opinion of the General Counsel of Summit, dated the date the Closing occurs and
reasonably satisfactory in form and substance to counsel for Bank,
substantially to the effect provided in Exhibit E.
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-Prospectus shall have contained
the favorable signed opinion of Brown Brothers, dated the date of the
Proxy-Prospectus or a date not more than five business days prior thereto,
regarding the fairness from a financial point of view of the Exchange Ratio to
the shareholders of Bank in the Reorganization.
Section 8.08. ABSENCE OF REGULATORY AGREEMENTS. Neither Summit 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 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 Summit's business or has a material adverse effect upon the Reorganization
or upon the financial condition of Summit and its subsidiaries taken as a
whole, and neither Summit 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. SHAREHOLDER APPROVAL. The shareholders of Bank, at the
meeting contemplated by this Agreement, shall have authorized and approved the
Reorganization 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 Certificate of Incorporation and By-Laws and the
sole shareholder of the Designated Summit Bank Subsidiary shall have authorized
and approved the Reorganization 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 the Designated Summit Bank
Subsidiary's certificate or articles 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.
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<PAGE>
ARTICLE IX
CLOSING; TERMINATION RIGHTS
Section 9.01. CLOSING. The closing of the Reorganization (the "Closing")
shall take place on the date which is 45 business days after the last to occur
of the following ("Scheduled Date"), unless Summit shall designate a date for
the Closing which is prior to the Scheduled Date in a writing ("Closing
Notice") designating a Determination Date in accordance with Section 9.02(e)(i)
below delivered to Bank at least five (5) business days prior to the date
designated therein for Closing, or unless prior to the Scheduled Date the
parties agree to a different date:
(i) the date of the approval of the Reorganization by the shareholders
of Bank in accordance with Section 7.09;
(ii) 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 Summit
and Bank, to the consummation of the transactions contemplated
herein or such prior date as Summit and Bank shall elect, whether or
not such proceeding has been brought to a conclusion; or
(iii) 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);
and the date of Closing determined in accordance with the foregoing provisions
is referred to herein as the "Closing Date". The Closing shall take place at
the office of Summit, 301 Carnegie Center, Princeton, New Jersey, commencing at
10:00 a.m. on the date the Closing is held, unless the parties agree to a
different place or commencement time. 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, Summit shall cause all certificates, articles or other
documents or instruments required to be filed for the effectiveness of the
Reorganization by Applicable Banking Laws to be filed as promptly as
practicable following the Closing, but in no event later than one business day
following the date the Closing shall occur. 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 Board of Directors of Bank or Summit may terminate this Agreement
in the event that:
(1) the shareholders of Bank at the meeting of shareholders contemplated
by Section 4.03, called for the purpose of approving the
Reorganization, this Agreement and the transactions contemplated by
this Agreement, upon voting, shall have failed to approve the
Reorganization, this Agreement and the transactions contemplated
hereby by the requisite vote;
(2) a material breach of a warranty, representation, covenant or agreement
made by the other party in this Agreement 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 (a "Material Breach") (provided
that the terminating party is not then in Material Breach of this
Agreement);
(3) Bank's investment banker is unable to deliver to Bank by December 31,
1998 the opinion required by Section 8.07; or
(4) the Closing is not consummated on or before June 1, 1999, unless the
failure of such occurrence shall be due solely to a Material Breach
by the party seeking to terminate this Agreement or the failure of
such party to fulfill a condition to Closing provided for herein.
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<PAGE>
(b) If either party shall refuse to close on the Closing Date because all
the conditions to its obligation to close set forth in Article VI shall not
have been met, the parties shall conduct the Closing as promptly as practicable
after all such conditions have been satisfied. In the event the failure of such
a condition is due to one or more Material Breaches, the Board of Directors of
a party not in breach may, during the period any breach remains uncured,
terminate this Agreement by giving written notice of such termination to the
other party.
(c) If either party shall refuse to close on the Closing Date because all
the conditions to its obligation to close set forth in Article VII or VIII
shall not have been met (other than a failure of the condition set forth at
Section 7.09 or 8.09 due to the circumstances set forth in Section 9.02(a)(1)
hereof, a failure of the condition set forth at Section 8.07 due to the
circumstances set forth at Section 9.02(a)(3) hereof or a refusal of Summit to
close due to a failure of the condition set forth at Section 7.11 hereof caused
by an act or omission of Summit): (i) the parties shall conduct the Closing as
promptly as practicable after all such conditions have been satisfied, and (ii)
the Board of Directors of such party may, during the period the failed
condition continues, terminate this Agreement by giving written notice of such
termination to the other party unless such party itself has failed to satisfy a
condition to the other party's Closing obligation or is in Material Breach.
(d) The Board of Directors of Summit may terminate this Agreement:
(1) at any time prior to the meeting of Bank shareholders contemplated by
Section 4.03, if the Board of Directors of Bank fails to recommend
approval of this Agreement and the Reorganization and other
transactions contemplated hereby in the Proxy-Prospectus
("Recommendation") or withdraws, modifies or changes, or votes to
withdraw, modify or change, its Recommendation or its intention to
make the Recommendation as represented and warranted at Section 2.08;
or
(2) as provided at Section 4.20.
(e) In the event the Summit Price is less than $32.60 and the quotient
obtained by dividing the Summit Price by $40.75 is more than .15 less than the
quotient obtained by dividing the Determination Date Index Price (as defined at
(iii) below) by the Starting Date Index Price (as defined at (iv) below), the
Board of Directors of Bank shall have the right, exercisable only until 11:59
p.m. on the fifth business day following the Determination Date (as defined at
Section 9.02(e)(i) below), to terminate this Agreement by giving Summit notice
of such termination, referring to this Section 9.02(e), and this Agreement
shall be terminated provided Summit receives such notice prior to 11:59 p.m. on
the fifth business day following the Determination Date. For purposes of this
Section 9.02(e):
(i) "Determination Date" means the date which is seven business days
prior to the Scheduled Date or, if Summit delivers a Closing Notice
to Bank pursuant to Section 9.01, the date specifically designated
by Summit as the Determination Date in such Closing Notice, which
date shall be not more than ten business days prior to the Closing
Date.
(ii) "Summit Price" means the average of the closing prices of a share
of Summit Stock on the NYSE Composite Transactions List (as
reported in The Wall Street Journal or, in the absence thereof, as
reported by another authoritative source mutually agreed upon by
Bank and Summit) for the 10 consecutive full trading days, ending
on the Determination Date, on which one share of Summit Stock is
traded.
(iii) "Determination Date Index Price" means the average of the closing
prices of the common stock of the companies in the Index Group (as
defined at (v) below) for the 10 consecutive full trading days
ending on the Determination Date.
(iv) "Starting Date Index Price" means the average of the closing
prices on the Starting Date (as defined at (vi) below) of the
common stock of the companies in the Index Group on the NYSE
Composite Transactions List (as reported in THE WALL STREET
JOURNAL) as of the Determination Date.
(v) "Index Group" means the bank holding companies listed below;
provided, however, that if between the Starting Date and the
Determination Date the common stock of any such company
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<PAGE>
ceases to be publicly traded, an announcement is made of a proposal
for such company to be acquired or an announcement is made of a
proposal by such company to acquire another company or companies in
transactions with a value exceeding 25% of such acquiror's market
capitalization as of the Starting Date, then, in such event, for
purposes of calculating the Index Price in all cases, such company
will be removed from the Index Group. If any company in the Index
Group or Summit declares or effects a stock dividend,
reclassification, recapitalization, split-up, combination, exchange
of shares or similar transaction between the Starting Date and the
Determination Date, the closing price of the common stock of such
company or Summit, as the case may be, on the Starting Date shall be
appropriately adjusted for the purposes of applying this Section
9.02(e). The bank holding companies in the Index Group are as
follows:
Bank Holding Companies
AmSouth Bancorp
BB&T Corporation
Comerica Incorporated
Fifth Third Bancorp
First Security Corp.
Huntington Bancshares, Inc.
Keystone Financial, Inc.
Marshall & Ilsley Corporation
Mellon Bank Corporation
Mercantile Bancorp
Old Kent Financial Corporation
Regions Financial Corporation
SouthTrust Corporation
Star Banc Corporation
(as such or as otherwise named following its merger with Firstar
Corporation)
Union Planters Corp.
Wilmington Trust Corporation
(vi) "Starting Date" means the date of the trading day ending before
the public announcement of this Agreement.
Section 9.03. Effects of a Termination; Certain Expenses.
(a) Upon a termination of this Agreement pursuant to this Section 9.02
hereof:
(1) the obligations of the parties under this Agreement (except for those
under this Section 9.03 and Sections 4.13 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, and
(2) 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-Prospectus
and the Registration Statement, and the filing fees of regulatory
authorities or self-regulatory organizations, shall be borne equally
by Summit and Bank; provided, however, that: (A) if Bank terminates
this Agreement pursuant to Section 9.02(a)(2) or Section 9.02(c),
Summit 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 Summit
terminates this Agreement pursuant to Section 9.02(a)(2), Section
9.02(c) or Section 9.02(d), Bank shall reimburse Summit 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.
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<PAGE>
(b) Notwithstanding any termination of this Agreement, (i) Bank shall
indemnify and hold Summit 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) Summit 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 Summit.
(c) 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 Reorganization, provided, however, that Summit shall pay all
printing expenses and filing fees associated with the Registration Statement,
the Proxy-Prospectus and regulatory applications.
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. (a) This Agreement, the Bank
Schedules, the Summit Schedules and the Exhibits 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 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 7.09 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.
(b) With respect to the representations and warranties made by any party
in this Agreement, (i) no relevant except is required to be set forth in any
schedule or in the body of this Agreement if its absence would not result in
the related representation or warranty being deemed untrue or incorrect, and
(ii) the mere inclusion of an exception shall not be deemed an admission by a
party that such exception represents a material fact, event or circumstance or
would result in a Bank Material Adverse Effect or a Summit Material Adverse
Effect, as the case may be. Each except set froth anywhere in this Agreement or
in any schedule hereto corresponding to any representation and warranty shall
be deemed an exception to any other representations and warranties of such
party; provided, that the exception or the schedule clearly and unambiguously
refers to the Section and any applicable subsection to which the exception is
applicable.
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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<PAGE>
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:
Summit: Summit Bancorp.
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.
Summit Bancorp.
301 Carnegie Center
P.O. Box 2066
Princeton, NJ 08543-2066
Telephone No.: 609-987-3430
Facsimile No.: 609-987-3435
Bank: Bank and Trust Company
Attn: Frederick R. Afragola
208 Elm Street,
P.O. Box 967
New Canaan, Connecticut 06840
Telephone No.: 203-972-4642
Facsimile No.: 203-966-2317
With a copy to: James C. Dempsey, Esq.
Rucci, Burnham, Carta & Edelberg, LLP
800 Post Road, P.O. Box 1107
Darien, Connecticut 06103
Telephone No.: 203-655-7695
Facsimile No.: 203-655-4302
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.
Section 10.06. ATTORNEYS FEES. In the event either party commences any
legal proceeding or takes any other action to enforce the term of this
Agreement, the prevailing party in any such proceeding should be entitled to
recover its costs of enforcement, including without limitation attorney's fees
and disbursements, if in a final unappealable decision a court of competent
jurisdiction finds that the party that did not prevail acted in bad faith.
Section 10.07. 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.
Section 10.08. 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 10.09. 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.
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<PAGE>
Section 10.10. 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.
IN WITNESS WHEREOF, the parties have caused this Agreement and Plan of
Merger between Summit Bancorp. and New Canaan Bank and Trust Company to be
executed in counterparts by their duly authorized officers on this 24 day of
August, 1998.
SUMMIT BANCORP.NEW CANAAN BANK AND TRUST COMPANY
<TABLE>
<S> <C>
By: /s/ John G. Collins By: /s/ Frederick R. Afragola
-------------------------------
-------------------------------
John G. Collins Frederick R. Afragola
Vice Chairman Director, President and Chief Executive
Officer
This Agreement having been previously executed by
more than a majority of The Board of Directors at New /s/ Richard L. Ahern
Canaan Bank and Trust Company more than a majority -------------------------------
Richard L. Ahern
of the Board of Directors of NSS Bank approve and
/s/ Emil F. Aysseh
execute this Agreement this 25th day of November, -------------------------------
Emil F. Aysseh
1998 by their signatures below.
/s/ George P. Bauer
NSS BANK -------------------------------
George P. Bauer
By: /s/ Robert T. Judson
----------------------------------
/s/ Robert W Cruickshank
Robert T. Judson -------------------------------
Robert W Cruickshank
Director, President and Chief
Executive Officer /s/ E. Clark Grimes
-------------------------------
/s/ Brian A. Fitzgerald E. Clark Grimes
----------------------------------
Brian A. Fitzgerald /s/ Hugh Halsell, III
-------------------------------
/s/ Charles F. Howell Hugh Halsell, III
----------------------------------
/s/ Michael D. Hobb
Charles F. Howell -------------------------------
Michael D. Hobbs
/s/ Herbert L. Jay
----------------------------------
/s/ Daniel S. Jones
Herbert L. Jay -------------------------------
Daniel S. Jones
/s/ Edward J. Kelley
----------------------------------
/s/ Frances Frost Overlock
Edward J. Kelley -------------------------------
Frances Frost Overlock
/s/ Donald St. John
----------------------------------
/s/ Joseph J. Rucci, Jr.
Donald St. John -------------------------------
Joseph J. Rucci, Jr.
/s/ John L. Segall
---------------------------------- /s/ T. Brock Saxe
John L. Segall -------------------------------
T. Brock Saxe
/s/ Alan R. Staack
---------------------------------- /s/ S. Van Zandt Schreiber
Alan R. Staack -------------------------------
S. Van Zandt Schreiber
</TABLE>
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<PAGE>
ATTACHMENT A
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
NSS BANK
I. NAME AND TYPE OF BANK. The name of the corporation is NSS Bank
("Bank"). The Bank shall be a capital stock savings bank.
II. LOCATION. The Bank shall be headquartered in Norwalk, Connecticut.
III. DURATION OF EXISTENCE. The Bank's existence shall be perpetual.
IV. POWERS OF BANK. The Bank shall transact a general banking business and
conduct all other activities allowed by law.
V. AUTHORIZED CAPITAL STOCK. There is one class of stock, denominated as
common stock. A total of SEVEN MILLION (7,000,000) shares are authorized. The
stock has a FIVE DOLLAR ($5.00) per share par value. Each share shall have one
vote. There shall be no cumulative voting rights in the election of directors.
VI. MINIMUM AMOUNT OF CAPITAL AND SURPLUS. The minimum amount of equity
capital with which the Bank shall commence business is FIVE MILLION
($5,000,000.00) DOLLARS or such other amount as the Banking Commissioner of the
State of Connecticut shall determine.
VII. PRE-EMPTIVE RIGHTS. No shareholder shall have any pre-emptive rights
to any stock or securities issued by the Bank.
VIII. BOARD OF DIRECTORS.
a. All the powers of the Bank, insofar as the same may be lawfully vested
by this Certificate of Incorporation in the Board of Directors, are hereby
conferred upon the Board of Directors of the Bank. In furtherance and not in
limitation of that power, the Board of Directors shall have the power to make,
adopt, alter, amend and repeal from time to time Bylaws of the Bank, subject to
the right of the shareholders entitled to vote with respect thereto to adopt,
alter, amend and repeal Bylaws, made by the Board of Directors.
b. The business, property and affairs of the Bank will be managed by, or
under the director of, its Board of Directors. The number of directorships will
be three (3) to twenty-five (25) as fixed from time to time by the Board of
Directors pursuant to the Bank's Bylaws, but in no event shall the number of
directorships exceed twenty-five (25). Directors shall serve for a one year
term, until their successors are elected or they themselves are re-elected.
c. The terms, classifications, qualifications, and election of the Board
of Directors, and the method of filling vacancies thereon shall be provided
herein and in the Bylaws.
d. The personal liability of any Director to the Bank or its Shareholders
for monetary damages for breach of duty as a Director is hereby limited to the
amount of the compensation received by the Director for serving the Bank during
the year of the violation if such breach did not (1) involve a knowing and
culpable violation of law by the Director, (2) enable the Director or an
associate, as defined in subdivision (3) of Section 33-843 of the Connecticut
General Statues, to receive an improper personal economic gain, (3) show a lack
of good faith and a conscious disregard for the duty of the Director to the
Bank under circumstances in which the Director was aware that his or her
conduct or omission created an unjustifiable risk of serious injury to the
Bank, (4) constitute a sustained and unexcused pattern of inattention that
amounted to an abdication of the Director's duty to the Bank, or (5) create
liability under Section 36a-58 of the Connecticut General Statutes. Any lawful
repeal or modification of this provision by the shareholders and the Board of
Directors of the Bank shall not adversely affect any right or protection of a
Director existing at or prior to the time of such repeal or modification.
IX. VACANCIES ON THE BOARD. Vacancies created by an increase in the number
of directorships may be filled by action of the Board of Directors. Vacancies
occurring by reasons other than by an increase in the number of directorships
may be filled by a concurring vote of a majority of the Directors remaining in
office,
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even though such remaining Directors may be less than a quorum, even though the
number of Directors at the meeting may be less than a quorum and even though
such majority may be less than a quorum. Any Director elected in accordance
with the preceding shall hold office until the next shareholders' meeting at
which directors are elected and, in any event, until such Director's successor
(which may be the same Director him or herself) shall have been elected and
qualified. No decrease in the number of Directors constituting the Board of
Directors shall shorten the term of any incumbent Director.
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<PAGE>
APPENDIX B
, 1999
THE BOARD OF DIRECTORS
NEW CANAAN BANK AND TRUST COMPANY
208 ELM STREET
P.O. BOX 967
NEW CANAAN, CT 06840
Ladies and Gentlemen:
New Canaan Bank and Trust Company ("New Canaan Bank") and Summit Bancorp.
("Summit") entered into an Agreement and Plan of Merger (the "Merger
Agreement") dated August 24, 1998 pursuant to which New Canaan Bank will be
merged with a direct or indirect wholly-owned subsidiary of Summit (the
"Merger"). Pursuant to the Merger Agreement, each holder's shares of common
stock of New Canaan Bank will be converted into the right to receive (i) a
certain number of shares of Summit common stock determined by multiplying the
aggregate number of such holder's shares of New Canaan Bank common stock by the
Exchange Ratio (as defined in the Merger Agreement) and (ii) cash in lieu of
fractional shares. As set forth more fully in the Merger Agreement, the
Exchange Ratio shall be the quotient obtained by dividing $135.00 by the
average closing price of one share of Summit common stock over the ten (10)
trading days before the Determination Date (as defined in the Merger
Agreement), except that if the average closing price for a share of Summit over
such defined period is greater than $45.84375, the Exchange Ratio shall be
2.9448 and if the closing price for a share of Summit over such defined period
is less than $36.65625, the Exchange Ratio shall be 3.7862.
You have asked us whether in our opinion the Exchange Ratio is fair, from
a financial point of view, to the shareholders of New Canaan Bank.
In connection with our analysis of the proposed Merger, New Canaan Bank
and Summit have furnished us with the Merger Agreement and information
concerning their respective businesses and operations, and we have reviewed
financial and operating data provided to us by New Canaan Bank and Summit, as
well as information contained in documents filed with regulatory authorities or
otherwise available from published sources. We have reviewed the Merger
Agreement and supporting documentation and have had discussions with management
personnel of New Canaan Bank and Summit with respect to the foregoing. In
arriving at our opinion we also reviewed the following:
1. certain audited and unaudited, publicly available, financial statements
and financial and statistical information for New Canaan Bank and Summit,
including comparative per share data and the pro forma financial effects
of the Merger;
2. certain financial statements and other financial and operating data
concerning New Canaan Bank, prepared by the management of New Canaan Bank;
3. certain financial projections for New Canaan Bank, prepared by the
management of New Canaan Bank; and certain earnings projections for Summit
prepared by third party analysts and consensus earnings projections of
third party analysts as reported by Institutional Brokers Estimate System,
Inc., which were discussed with Summit management;
4. the business, operations, financial position and general prospects of
New Canaan Bank and Summit as discussed by their respective managements
with us;
5. the reported share price ranges, trading activity and dividend
histories for the equity securities of New Canaan Bank and Summit;
6. comparative analyses of financial performance and stock market data of
New Canaan Bank and Summit with selected public companies in the same
industry deemed by us to be comparable to New Canaan Bank and Summit;
7. the terms and conditions of other business combinations in the U.S.
commercial banking industry, to the extent publicly available, which we
deemed to be comparable or otherwise relevant; and
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8. such other financial studies, analyses and investigations as we deemed
necessary or appropriate, including our assessment of general economic, market
and monetary conditions.
Brown Brothers Harriman & Co., in its capacity as financial advisor, is
regularly engaged in the evaluation of businesses and their securities in
connection with mergers and acquisitions, equity and debt financings, and
valuations for estate, corporate, and other purposes. In the course of our
normal trading activities, we may from time to time effect transactions and
hold securities, including derivative securities, of New Canaan Bank or Summit
for our own account or for the accounts of customers. We have advised New
Canaan Bank in its discussions and negotiations with Summit and, through our
participation in such discussions and our advice to New Canaan Bank, have
assisted in the development of the terms of the Merger Agreement.
In preparing our opinion, we have relied on and assumed the accuracy and
completeness (without independent verification) of the information supplied or
otherwise made available to us by New Canaan Bank and Summit. In that regard,
we have assumed, with your consent, that the financial projections prepared by
and provided to us by New Canaan Bank have been reasonably prepared on a basis
reflecting the best currently available judgments and estimates of the senior
management of New Canaan Bank and that such projections will be realized in the
amounts and at the times contemplated thereby. In arriving at our opinion, with
the assent of New Canaan Bank, we were not provided with and did not have
access to any financial projections prepared by the management of Summit as to
the projected stand-alone financial performance of Summit. Based on our review
and discussion with Summit's management of publicly available earnings
projections for Summit reported by Institutional Brokers Estimate System, Inc.,
we have also assumed, with your assent, that such publicly available
projections have been reasonably prepared and are based on reasonable
assumptions and that such projections will be realized in the amounts and at
the times contemplated thereby. In performing our analysis, we assumed that the
publicly available estimates of research analysts are a reasonable basis upon
which to evaluate and analyze the future stand-alone financial performance of
Summit. We have not conducted an independent evaluation or appraisal of the
assets or liabilities of New Canaan Bank, Summit or any subsidiaries of Summit
and we have not conducted a physical inspection of the properties or facilities
of New Canaan Bank or Summit. We have not made an independent evaluation of the
adequacy of the allowance for loan losses of New Canaan Bank or Summit nor have
we reviewed individual credit files of New Canaan Bank or Summit nor have we
been provided with any such evaluation or appraisal. We are not experts in the
evaluation of loan portfolios for the purposes of assessing the adequacy of the
allowances for losses with respect thereto and we have assumed that the
respective aggregate allowance for loan losses for Summit and New Canaan Bank
is adequate to cover such losses and will be adequate on a pro forma basis for
the combined entity. Our opinion is based on financial, economic, market,
monetary and other conditions as they exist on, and the information made
available to us as of, the date hereof. We have assumed that in the course of
obtaining the necessary regulatory and governmental approvals for the proposed
Merger, no restriction will be imposed on Summit that would have a material
adverse effect on the contemplated benefits of the Merger. We have assumed that
there would not occur any change in applicable law or regulation that would
cause a material adverse change in the prospects of Summit after the Merger. We
have also assumed that the Merger will qualify as a tax-free reorganization for
U.S. federal income tax purposes and that the Merger will be accounted for as a
purchase under generally accepted accounting principles. In addition, our
opinion does not address the relative merits of the Merger as compared to any
alternative business transaction that might be available to New Canaan Bank.
With your permission, we have made all of the above-mentioned assumptions
without any independent verification or investigation.
We have been retained by the Board of Directors of New Canaan Bank to act
as financial advisor to New Canaan Bank with respect to the Merger and will
receive a fee for our services, a significant portion of which is contingent
upon consummation of the Merger. In addition, New Canaan Bank has agreed to
indemnify us for certain liabilities arising out of our engagement.
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Our opinion is directed to the Board of Directors of New Canaan Bank. Our
opinion does not address the merits of the underlying decision by New Canaan
Bank to engage in the Merger and does not constitute a recommendation to any
shareholder of New Canaan Bank as to how such shareholder should vote at any
shareholder meeting of New Canaan Bank held in connection with the Merger.
Furthermore, we are not expressing any opinion herein as to the prices at which
shares of Summit will trade following the consummation of the Merger.
Based upon and subject to the foregoing and such other matters as we
consider relevant, it is our opinion that, as of the date hereof, the Exchange
Ratio is fair to the stockholders of New Canaan Bank from a financial point of
view.
Yours very truly,
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APPENDIX C
CONNECTICUT GENERAL STATUTES (section)36A-125(H) AND (section)(section)33-855
THROUGH 872
DISSENTERS RIGHTS
(A)
RIGHT TO DISSENT AND OBTAIN PAYMENT FOR SHARES
SEC. 36A-125(H). Upon the effectiveness of the agreement of merger or
consolidation, the shareholders, if any, of the constituent banks, except to
the extent that they have received cash, property or other securities of the
resulting bank or shares or other securities of any other corporation in
exchange for or upon conversion of their shares, shall be shareholders of a
capital stock resulting bank. Unless such agreement otherwise provides, the
resulting bank may require each shareholder to surrender such shareholder's
certificates of stock in the constituent bank and in that event no shareholder,
until such surrender of that shareholder's certificates, shall be entitled to
receive a certificate of stock of the resulting bank or to vote thereon or to
collect dividends declared thereon, or to receive cash, property or other
securities of the resulting bank, or shares or other securities of any other
corporation. Any shareholder of any such constituent bank who dissents from the
merger or consolidation is entitled to assert dissenters' rights under sections
33-855 to 33-872, inclusive. The rights and obligations of the objecting
shareholders and the bank shall be determined in accordance with said sections.
The stock of a capital stock resulting bank up to an amount of the combined
stock of the constituent banks shall be exempt from any franchise tax.
SEC. 33-855. DEFINITIONS. As used in sections 33-855 to 33-872, inclusive:
(1) "Corporation" means the issuer of the shares held by a dissenter before
the corporate action or the surviving or acquiring corporation by
merger or share exchange of that issuer.
(2) "Dissenter" means a shareholder who is entitled to dissent from
corporate action under section 33-856 and who exercises that right when
and in the manner required by sections 33-860 to 33-868, inclusive.
(3) "Fair value", with respect to a dissenter's shares, means the value of
the shares immediately before the effectuation of the corporate action
to which the dissenter objects, excluding any appreciation or
depreciation in anticipation of the corporate action.
(4) "Interest" means interest from the effective date of the corporate
action until the date of payment, at the average rate currently paid by
the corporation on its principal bank loans or, if none, at a rate that
is fair and equitable under all the circumstances.
(5) "Record shareholder" means the person in whose name shares are
registered in the records of a corporation or the beneficial owner of
shares to the extent of the rights granted by a nominee certificate on
file with a corporation.
(6) "Beneficial shareholder" means the person who is a beneficial owner of
shares held in a voting trust or by a nominee as the record
shareholder.
(7) "Shareholder" means the record shareholder or the beneficial
shareholder.
SEC. 33-856. RIGHT TO DISSENT.
(a) A shareholder is entitled to dissent from, and obtain payment of the
fair value of his shares in the event of, any of the following corporate
actions:
(1) Consummation of a plan of merger to which the corporation is a party
(A) if shareholder approval is required for the merger by section
33-817 or the certificate of incorporation and the shareholder is
entitled to vote on the merger or (B) if the corporation is a
subsidiary that is merged with its parent under section 33-818;
(2) Consummation of a plan of share exchange to which the corporation is a
party as the corporation whose shares will be acquired, if the
shareholder is entitled to vote on the plan;
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(3) Consummation of a sale or exchange of all, or substantially all, of the
property of the corporation other than in the usual and regular course
of business, if the shareholder is entitled to vote on the sale or
exchange, including a sale in dissolution, but not including a sale
pursuant to court order or a sale for cash pursuant to a plan by which
all or substantially all of the net proceeds of the sale will be
distributed to the shareholders within one year after the date of sale;
(4) An amendment of the certificate of incorporation that materially and
adversely affects rights in respect of a dissenter's shares because it:
(A) Alters or abolishes a preferential right of the shares; (B)
creates, alters or abolishes a right in respect of redemption,
including a provision respecting a sinking fund for the redemption or
repurchase, of the shares; (C) alters or abolishes a preemptive right
of the holder of the shares to acquire shares or other securities; (D)
excludes or limits the right of the shares to vote on any matter, or to
cumulate votes, other than a limitation by dilution through issuance of
shares or other securities with similar voting rights; or (E) reduces
the number of shares owned by the shareholder to a fraction of a share
if the fractional share so created is to be acquired for cash under
section 33- 668; or
(5) Any corporate action taken pursuant to a shareholder vote to the extent
the certificate of incorporation, bylaws or a resolution of the board
of directors provides that voting or nonvoting shareholders are
entitled to dissent and obtain payment for their shares.
(b) Where the right to be paid the value of shares is made available to a
shareholder by this section, such remedy shall be his exclusive remedy as
holder of such shares against the corporate transactions described in this
section, whether or not he proceeds as provided in sections 33-855 to 33-872,
inclusive.
SEC. 33-857. DISSENT BY NOMINEES AND BENEFICIAL OWNERS.
(a) A record shareholder may assert dissenters' rights as to fewer than
all the shares registered in his name only if he dissents with respect to all
shares beneficially owned by any one person and notifies the corporation in
writing of the name and address of each person on whose behalf he asserts
dissenters' rights. The rights of a partial dissenter under this subsection are
determined as if the shares as to which he dissents and his other shares were
registered in the names of different shareholders.
(b) A beneficial shareholder may assert dissenters' rights as to shares
held on his behalf only if: (1) He submits to the corporation the record
shareholder's written consent to the dissent not later than the time the
beneficial shareholder asserts dissenters' rights; and (2) he does so with
respect to all shares of which he is the beneficial shareholder or over which
he has power to direct the vote.
SEES. 33-858 AND 33-859. Reserved for future use.
(B)
PROCEDURE FOR EXERCISE OF DISSENTERS RIGHTS
SEC. 33-860. NOTICE OF DISSENTERS' RIGHTS.
(a) If proposed corporate action creating dissenters' rights under section
33-856 is submitted to a vote at a shareholders' meeting, the meeting notice
shall state that shareholders are or may be entitled to assert dissenters'
rights under sections 33-855 to 33-872, inclusive, and be accompanied by a copy
of said sections.
(b) If corporate action creating dissenters' rights under section 33-856
is taken without a vote of shareholders, the corporation shall notify in
writing all shareholders entitled to assert dissenters' rights that the action
was taken and send them the dissenters' notice described in section 33-862.
SEC. 33-861. NOTICE OF INTENT TO DEMAND PAYMENT.
(a) If proposed corporate action creating dissenters' rights under section
33-856 is submitted to a vote at a shareholders' meeting, a shareholder who
wishes to assert dissenters' rights (1) shall deliver to the corporation before
the vote is taken written notice of his intent to demand payment for his shares
if the proposed action is effectuated and (2) shall not vote his shares in
favor of the proposed action.
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(b) A shareholder who does not satisfy the requirements of subsection (a)
of this section is not entitled to payment for his shares under sections 33-855
to 33-872, inclusive.
SEC. 33-862. DISSENTERS' NOTICE.
(a) If proposed corporate action creating dissenters' rights under section
33-856 is authorized at a shareholders' meeting, the corporation shall deliver
a written dissenters' notice to all shareholders who satisfied the requirements
of section 33-861.
(b) The dissenters' notice shall be sent no later than ten days after the
corporate action was taken and shall:
(1) State where the payment demand must be sent and where and when
certificates for certificated shares must be deposited;
(2) Inform holders of uncertificated shares to what extent transfer of the
shares will be restricted after the payment demand is received;
(3) Supply a form for demanding payment that includes the date of the first
announcement to news media or to shareholders of the terms of the
proposed corporate action and requires that the person asserting
dissenters' rights certify whether or not he acquired beneficial
ownership of the shares before that date;
(4) Set a date by which the corporation must receive the payment demand,
which date may not be fewer than thirty nor more than sixty days after
the date the subsection (a) of this section notice is delivered; and
(5) Be accompanied by a copy of sections 33-855 to 33-872, inclusive.
SEC. 33-863. DUTY TO DEMAND PAYMENT.
(a) A shareholder sent a dissenters' notice described in section 33-862
must demand payment, certify whether he acquired beneficial ownership of the
shares before the date required to be set forth in the dissenters, notice
pursuant to subdivision (3) of subsection (b) of said section and deposit his
certificates in accordance with the terms of the notice.
(b) The shareholder who demands payment and deposits his share
certificates under subsection (a) of this section retains all other rights of a
shareholder until these rights are canceled or modified by the taking of the
proposed corporate action.
(c) A shareholder who does not demand payment or deposit his share
certificates where required, each by the date set in the dissenters' notice, is
not entitled to payment for his shares under sections 33-855 to 33-872,
inclusive.
SEC. 33-864. SHARE RESTRICTIONS.
(a) The corporation may restrict the transfer of uncertificated shares
from the date the demand for their payment is received until the proposed
corporate action is taken or the restrictions released under section 33-866.
(b) The person for whom dissenters' rights are asserted as to
uncertificated shares retains all other rights of a shareholder until these
rights are canceled or modified by the taking of the proposed corporate action.
SEC. 33-865. PAYMENT.
(a) Except as provided in section 33-867, as soon as the proposed
corporate action is taken, or upon receipt of a payment demand, the corporation
shall pay each dissenter who complied with section 33-863 the amount the
corporation estimates to be the fair value of his shares, plus accrued
interest.
(b) The payment shall be accompanied by: (1) the corporation's balance
sheet as of the end of a fiscal year ending not more than sixteen months before
the date of payment, an income statement for that year, a statement of changes
in shareholders' equity for that year and the latest available interim
financial statements, if any; (2) a statement of the corporation's estimate of
the fair value of the shares; (3) an explanation of how the interest was
calculated; (4) a statement of the dissenter's right to demand payment under
section 33-860; and (5) a copy of sections 33-855 to 33-872, inclusive.
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SEC. 33-866. FAILURE TO TAKE ACTION.
(a) If the corporation does not take the proposed action within sixty days
after the date set for demanding payment and depositing share certificates, the
corporation shall return the deposited certificates and release the transfer
restrictions imposed on uncertificated shares.
(b) If after returning deposited certificates and releasing transfer
restrictions, the corporation takes the proposed action, it must send a new
dissenters' notice under section 33- 862 and repeat the payment demand
procedure.
SEC. 33-867. AFTER-ACQUIRED SHARES.
(a) A corporation may elect to withhold payment required by section 33-865
from a dissenter unless he was the beneficial owner of the shares before the
date set forth in the dissenters' notice as the date of the first announcement
to news media or to shareholders of the terms of the proposed corporate action.
(b) To the extent the corporation elects to withhold payment under
subsection (a) of this section, after taking the proposed corporate action, it
shall estimate the fair value of the shares, plus accrued interest, and shall
pay this amount to each dissenter who agrees to accept it in full satisfaction
of his demand. The corporation shall send with its offer a statement of its
estimate of the fair value of the shares, an explanation of how the interest
was calculated and a statement of the dissenter's right to demand payment under
section 33-868.
SEC. 33-868. PROCEDURE IF SHAREHOLDER DISSATISFIED WITH PAYMENT OR OFFER.
(a) A dissenter may notify the corporation in writing of his own estimate
of the fair value of his shares and amount of interest due, and demand payment
of his estimate, less any payment under section 33-865, or reject the
corporation's offer under section 33-867 and demand payment of the fair value
of his shares and interest due, if:
(1) The dissenter believes that the amount paid under section 33-865 or
offered under section 33-867 is less than the fair value of his shares
or that the interest due is incorrectly calculated;
(2) The corporation fails to make payment under section 33-865 within sixty
days after the date set for demanding payment; or
(3) The corporation, having failed to take the proposed action, does not
return the deposited certificates or release the transfer restrictions
imposed on uncertificated shares within sixty days after the date set
for demanding payment.
(b) A dissenter waives his right to demand payment under this section
unless he notifies the corporation of his demand in writing under
subsection (a) of this section within thirty days after the corporation
made or offered payment for his shares.
SECS. 33-869 AND 33-870. Reserved for future use.
(C)
JUDICIAL APPRAISAL OF SHARES
SEC. 33-871. COURT ACTION.
(a) If a demand for payment under section 33-868 remains unsettled, the
corporation shall commence a proceeding within sixty days after receiving the
payment demand and petition the court to determine the fair value of the shares
and accrued interest. If the corporation does not commence the proceeding
within the sixty-day period, it shall pay each dissenter whose demand remains
unsettled the amount demanded.
(b) The corporation shall commence the proceeding in the superior court
for the judicial district where a corporation's principal office or, if none in
this state, its registered office is located. If the corporation is a foreign
corporation without a registered office in this state, it shall commence the
proceeding in the superior court
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for the judicial district where the registered office of the domestic
corporation merged with or whose shares were acquired by the foreign
corporation was located.
(c) The corporation shall make all dissenters, whether or not residents of
this state, whose demands remain unsettled parties to the proceeding as in an
action against their shares and all parties must be served with a copy ofthe
petition. Nonresidents may be served by registered or certified mail or by
publication as provided by law. (d) The jurisdiction of the court in which the
proceeding is commenced under subsection (b) of this section is plenary and
exclusive. The court may appoint one or more persons as appraisers to receive
evidence and recommend decision on the question of fair value. The appraisers
have the powers described in the order appointing them, or in any amendment to
it. The dissenters are entitled to the same discovery rights as parties in
other civil proceedings.
(e) Each dissenter made a party to the proceeding is entitled to judgment
(1) for the amount, if any, by which the court finds the fair value of his
shares, plus interest, exceeds the amount paid by the corporation, or (2) for
the fair value, plus accrued interest, of his after- acquired shares for which
the corporation elected to withhold payment under section 33-867.
SEC. 33-872. COURT COSTS AND COUNSEL FEES.
(a) The court in an appraisal proceeding commenced under section 33-871
shall determine all costs of the proceeding, including the reasonable
compensation and expenses of appraisers appointed by the court. The court shall
assess the costs against the corporation, except that the court may assess
costs against all or some of the dissenters, in amounts the court finds
equitable, to the extent the court finds the dissenters acted arbitrarily,
vexatiously or not in good faith in demanding payment under section 33-868.
(b) The court may also assess the fees and expenses of counsel and experts
for the respective parties, in amounts the court finds equitable: (I) Against
the corporation and in favor of any or all dissenters if the court finds the
corporation did not substantially comply with the requirements of sections
33-860 to 33-868, inclusive; or (2) against either the corporation or a
dissenter, in favor of any other party, if the court finds that the party
against whom the fees and expenses are assessed acted arbitrarily, vexatiously
or not in good faith with respect to the rights provided by sections 33-855 to
33-872, inclusive.
(c) If the court finds that the services of counsel for any dissenter were
of substantial benefit to other dissenters similarly situated, and that the
fees for those services should not be assessed against the corporation, the
court may award to these counsel reasonable fees to be paid out of the amounts
awarded the dissenters who were benefited.
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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 Summit Bancorp. 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 [000c]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.
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(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 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 an 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;
II-2
<PAGE>
(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;
(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 Summit'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.
Article 7 of Summit's Restated Certificate of Incorporation provides that:
Except to the extent prohibited by law, no Director or officer of the
Corporation shall be personally liable to the Corporation or its
shareholders for damages for breach of any duty owned to the Corporation or
its shareholders provided that a Director or officer shall not be relieved
from liability for any breach of duty based upon an act or omission (a) in
breach of such persons duty of loyalty to the Corporation or its
shareholders, (b) not in good faith or involving a knowing violation of law
or (c) resulting in receipt of an improper personal benefit. Neither the
amendment or repeal of this Article 7, nor the adoption of any provision of
this Restated Certificate of Incorporation inconsistent with this Article
7, nor the adoption of any provision of this Restated Certificate of
Incorporation inconsistent with this Article 7, shall eliminate or reduce
the effect of this Article 7 in respect of any matter which occurred, or
any cause of action, suit or claim which but for this Article 7 would have
accrued or arisen, prior to such amendment, repeal or adoption.
Summit carries officers' and directors' liability insurance policies which
provide coverage against judgments, settlements and legal costs incurred
because of actual or asserted acts or omissions of such officers and directors
of Summit 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 $50,000,000 in the aggregate.
II-3
<PAGE>
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(A) EXHIBITS
This Registration Statement includes the following exhibits:
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ------------- -----------------------------------------------------------------------------------------------------
<S> <C>
2 Agreement and Plan of Merger dated August 24, 1998 between New Canaan and Summit. (Included
without exhibits as Appendix A to the Proxy Statement-Prospectus included in this Registration
Statement; with Exhibit C-1 filed herewith).
3(a) Restated Certificate of Incorporation of Summit, as restated August 19, 1998 (incorporated by ref-
erence to Exhibit (3)A on Form 10-Q for the quarter ending September 30, 1998).
(b) By-Laws of Summit as amended through October 18, 1995 (incorporated by reference to Exhibit
(2)B on Form 10-K for the year ending December 31, 1995).
4(a) Rights Agreement, dated as of August 16, 1989, by and between Summit Bancorp. (under the former
name UJB Financial Corp.) and First Chicago Trust Company of New York, as Rights Agent
(incorporated by reference to Exhibit 2 to the Registration Statement on Form 8-A, filed August 28,
1989).
(b) Notice to Rights Agent dated August 20, 1997 (incorporated by reference to Exhibit (3)(A)(i) on
Form 10-Q for the quarter ended September 30, 1997).
*5 Opinion of Richard F. Ober, Jr., Esq. regarding legality of securities being issued.
*8 Opinion of Thompson Coburn, regarding tax matters.
23(a) Consent of KPMG Peat Marwick LLP.
(b) Consent of Wolf & Company, P.C.
* (c) Consent of Richard F. Ober, Jr., Esq. - included in his opinion filed as Exhibit 5 to this Registra-
tion Statement.
* (d) Consent of Thompson Coburn - included in its opinion filed as Exhibit 8 to this Registration State-
ment.
24 Power of Attorney - included on the signature page of this filing.
99(a) Form of New Canaan proxy.
(b) Opinion of Brown Brothers Harriman & Co. - Included as Appendix B to the Proxy Statement-
Prospectus included in this Registration Statement.
* (c) Consent of Brown Brothers Harriman & Co.
</TABLE>
- ----------
*To be filed by amendment.
(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.
II-4
<PAGE>
(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;
(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)(i) and (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 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.
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this to Registration Statement 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 this 16th day of December, 1998.
SUMMIT BANCORP.
By: /s/ T. Joseph Semrod
-------------------------------
T. Joseph Semrod
Chairman of the Board of Directors
and Chief Executive Officer
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 or 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 16TH DAY OF DECEMBER, 1998 BY THE
FOLLOWING PERSONS IN THE CAPACITIES INDICATED.
<TABLE>
<CAPTION>
SIGNATURES TITLES
- ---------------------------------- ---------------------------------------
<S> <C>
/s/ T. Joseph Semrod Chairman of the Board
- -------------------------------
T. Joseph Semrod of Directors (Chief Executive Officer)
/s/ Robert G. Cox President and Director
- -------------------------------
Robert G. Cox
/s/ John R. Haggerty Senior Executive Vice
- -------------------------------
President-Finance
John R. Haggerty
(Principal Financial Officer)
/s/ William J. Healy Executive Vice President
- -------------------------------
and Comptroller
William J. Healy
(Principal Accounting Officer)
/s/ S. Rodgers Benjamin Director
- -------------------------------
S. Rodgers Benjamin
/s/ Robert L. Boyle Director
- -------------------------------
Robert L. Boyle
</TABLE>
II-6
<PAGE>
<TABLE>
<CAPTION>
SIGNATURES TITLES
- --------------------------------- ---------
<S> <C>
/s/ James C. Brady Director
- -------------------------------
James C. Brady
/s/ John G. Collins Director
- -------------------------------
John G. Collins
/s/ T.J. Dermot Dunphy Director
- -------------------------------
T.J. Dermot Dunphy
/s/ Anne Evans Estabrook Director
- -------------------------------
Anne Evans Estabrook
/s/ Elinor J. Ferdon Director
- -------------------------------
Elinor J. Ferdon
/s/ Thomas H. Hamilton Director
- -------------------------------
Thomas H. Hamilton
/s/ Fred G. Harvey Director
- -------------------------------
Fred G. Harvey
/s/ Francis J. Mertz Director
- -------------------------------
Francis J. Mertz
/s/ George L. Miles, Jr. Director
- -------------------------------
George L. Miles, Jr.
/s/ William R. Miller Director
- -------------------------------
William R. Miller
/s/ Raymond Silverstein Director
- -------------------------------
Raymond Silverstein
/s/ Orin R. Smith Director
- -------------------------------
Orin R. Smith
/s/ Joseph M. Tabak Director
- -------------------------------
Joseph M. Tabak
/s/ Douglas G. Watson Director
- -------------------------------
Douglas G. Watson
</TABLE>
II-7
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
- ------------- -----------------------------------------------------------------------------------------------------
<S> <C>
2 Agreement and Plan of Merger dated August 24, 1998 between New Canaan and Summit. (Included
without exhibits as Appendix A to the Proxy Statement-Prospectus included in this Registration
Statement; with Exhibit C-1 filed herewith).
23(a) Consent of KPMG Peat Marwick LLP.
(b) Consent of Wolf & Company, P.C.
99(a) Form of New Canaan proxy.
</TABLE>
Exhibit 2
THE MERGER AGREEMENT, WITHOUT EXHIBITS, IS FILED AS APPENDIX A TO THE PROXY
STATEMENT-PROSPECTUS CONTAINED IN THIS REGISTRATION STATEMENT
EXHIBIT C-1 to EXHIBIT 2
Name of Affiliate:________________
Summit Bancorp.
301 Carnegie Center
P.O. Box 2066
Princeton, New Jersey 08543
Gentlemen:
This letter agreement is being entered into pursuant to the terms of the
Agreement and Plan of Merger, dated August __, 1998 (the "Merger Agreement"),
between Summit Bancorp. ("Summit") and New Canaan Bank and Trust Company ("New
Canaan"), which provides, among other things, for the merger of New Canaan with
and into Summit (the "Merger") or a subsidiary of Summit and the conversion at
the Exchange Ratio provided for in the Merger Agreement of shares of the common
stock, par value $.01 per share, of New Canaan ("New Canaan Common Stock")
outstanding at the Effective Time (as defined in the Merger Agreement) held in
the aggregate by each New Canaan Shareholder into whole shares of the Common
Stock, par value $.80 per share, of Summit (the "Summit Common Stock") and cash
in lieu of a fractional share of Summit Common Stock.
Shares of New Canaan Common Stock owned on the date hereof or at any
time hereafter solely, jointly or in a custodial or other representative
capacity by me, by a minor child of mine, by a relative sharing the same
household as me, or by an entity (for example, trusts, estates, partnerships,
corporations, charitable organizations, foundations) I control, whether such
shares are owned directly (of record) or indirectly (through a bank, broker or
other nominee), and any other shares of New Canaan Common Stock over which I or
such other persons or entities hold investment or voting powers, either alone or
with others, are referred to collectively herein as the "New Canaan Shares".
Shares of Summit Common Stock to be received in exchange for the New Canaan
Shares are referred to collectively herein as the "Summit Shares".
I have been advised that, in the opinion of counsel, I may be deemed to
be, at the time the Merger is submitted for a vote of the shareholders of New
Canaan, an "affiliate" of New Canaan as that term is defined for purposes of
paragraphs (c) and (d) of Rule 145 of the Rules and Regulations (the "Rules and
Regulations") of the Securities and Exchange Commission (the "SEC") under the
Securities Act of 1933, as amended (the "Act") and that the Merger Agreement
requires that persons so characterized make the representations, warranties,
covenants and agreements set forth below as a condition to Summit closing the
Merger.
Capitalized terms used herein but not specifically defined herein shall
have the meaning ascribed to them in the Merger Agreement.
In consideration of the premises, I represent, warrant, covenant and
agree as follows:
<PAGE>
A. I will not make or permit any sale, transfer or other disposition of
the Summit Shares, or make or permit any offer to sell, transfer or otherwise
dispose of the Summit Shares, in violation of the Act or the Rules and
Regulations.
B. I have been advised that the issuance of the Summit Shares
pursuant to the Merger has been or will be registered with the SEC pursuant to a
registration statement under the Act. However, I have also been advised that a
distribution of the Summit Shares has not been registered under the Act and
that, because I may be deemed to be, at the time the Merger is submitted for a
vote of the shareholders of New Canaan, an "affiliate" of New Canaan, I may not
make or permit any sale, transfer or other disposition of any of such Summit
Shares unless and until (i) an offer and sale of such Summit Shares has been
registered under the Act, (ii) such disposition of such Summit Shares is made in
conformity with Rule 145 under the Act, or (iii) an exemption from registration,
in the written opinion of counsel acceptable to Summit, is available with
respect to such disposition of such Summit Shares. In the event of a transfer of
Summit Shares permitted by this Agreement, I agree that I will obtain, and
deliver to you a copy of, an agreement substantially similar to this agreement
from each transferee of the Summit Shares who, in the written opinion of counsel
acceptable to Summit, may not under the Act dispose of the Summit Shares so
transferred without registration under the Act.
C. I understand that Summit is under no obligation to register the
sale, transfer or other disposition of the Summit Shares or to take any other
action necessary in order to make compliance with an exemption from registration
available.
D. I understand that stop transfer instructions may be given to
Summit's transfer agent with respect to the Summit Shares and that there may be
placed on the certificates for such Summit Shares, or any substitutions
therefor, a legend stating in substance:
The shares represented by this certificate were issued in a
transaction to which Rule 145 promulgated under the Securities
Act of 1933 applies. The shares represented by this certificate
may not be sold, transferred, or otherwise disposed of unless
pursuant to (i) an effective registration statement under the
Securities Act of 1933, (ii) Rule 145 or (iii) an exemption from
registration under the said Act which is available in the opinion
of counsel acceptable to Summit Bancorp.
The legend set forth above and any similar legend placed on any share
certificate issued upon the transfer of any of the Summit Shares will be removed
by delivery of substitute certificates without such legend if the undersigned,
or any person who acquired, directly or indirectly, such Summit Shares, shall
have delivered to Summit a copy of a letter from the staff of the SEC, or a
written opinion of counsel acceptable to Summit, to the effect that the
restrictions on sale, transfer or other disposition referred to in this letter
are no longer necessary under the Act or otherwise in order to effect such sale,
transfer or other disposition pursuant to law.
E. I will vote all of the New Canaan Shares I now own of record or
have voting control with respect to or hereafter acquire, in favor of the Merger
at the meeting of shareholders of New
2
<PAGE>
Canaan to be called for the purpose of approving the Merger (the "Meeting"). In
addition, I will not vote any of my New Canaan Shares in favor of any other
merger or sale of all or substantially all the assets of New Canaan to any
person other than Summit or its affiliates until the termination of the Merger
Agreement or abandonment of the Merger by the mutual agreement of New Canaan and
Summit, whichever comes first, nor will I transfer my New Canaan Shares unless
the transferee, prior to such transfer, executes a voting agreement with respect
to the transferred shares substantially to the effect of this agreement and
satisfactory to Summit.
F. By reason of my knowledge and experience in financial and business
matters and in my capacity as a director and/or executive officer of a financial
institution, I believe myself capable of evaluating the merits and risks of the
potential investment in Summit Common Stock contemplated by the Merger
Agreement. I further acknowledge having reviewed the Merger Agreement and its
attachments and that reports, proxy statements and other information with
respect to Summit filed with the Securities and Exchange Commission (the
"Commission") were, prior to my execution of this agreement, available for
inspection and copying at the Offices of the Commission and that Summit
delivered the following such documents to New Canaan:
(a) Summit's Annual Report on Form 10-K for the year ended December 31,
1997; and
(b) Summit's Quarterly Reports on Form 10-Q for the quarters ended
March 31, 1998, June 30, 1998 and September 30, 1998.
G. Summit agrees, by accepting this letter, (a) that for a period of
two years after the Effective Time (or such shorter period as may be permitted
by amendments to Rule 145) and thereafter until three months after I have ceased
to be an affiliate of Summit and so long as Summit has equity securities
registered pursuant to Section 12 of the Securities Exchange Act of 1934, as
amended, Summit will make available with respect to itself "adequate current
public information" as defined in paragraph (c) of Rule 144 of the Rules and
Regulations under the Act.
I have carefully read this letter and, to the extent I felt
necessary, discussed with my counsel the requirements of this letter and its
impact upon the ability to dispose of the New Canaan Shares and the Summit
Shares.
Accepted this day of _____________, 199__ Very truly yours,
by Summit Bancorp.
--------------------------
By: Signature
-----------------------------
Name:
---------------------------- --------------------------
Title: --------------------------
--------------------------- Printed Name
Dated as of ________, 199_
Exhibit 23(a)
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
Summit Bancorp.:
We consent to the use of our report dated January 20, 1998 relating to the
consolidated balance sheets of Summit Bancorp., and subsidiaries as of December
31, 1997 and 1996 and the related consolidated statements of income, changes in
shareholder's equity and cash flows for each of the years in the three-year
period ended December 31, 1997, which report appears in the December 31, 1997
Annual Report on Form 10-K of Summit Bancorp., incorporated by reference in the
Registration Statement on Form S-4 of Summit Bancorp. We also consent to the
reference to our Firm under the caption "Experts".
/s/ KPMG Peat Marwick, LLP
---------------------------------
KPMG Peat Marwick, LLP
Short Hills, New Jersey
December 16, 1998
Exhibit 23(b)
INDEPENDENT AUDITORS' CONSENT
The Board of Directors and Shareholders of
New Canaan Bank and Trust Company
We consent to the use of our Report dated January 22, 1998, except for Note 14
as to which the date is August 25, 1998, relating to the statements of condition
of New Canaan Bank and Trust Company as of December 31, 1997 and 1996 and the
related statements of income, changes in shareholders' equity and cash flows for
each of the years in the three-year period ended December 31, 1997, which Report
appears in the December 31, 1997 Annual Report on Form 10-K of New Canaan Bank
and Trust Company as filed with the Federal Deposit Insurance Corporation, and
which, together with the said financial statements, have been included in the
Registration Statement on Form S-4 filed by Summit Bancorp with the Securities
and Exchange Commission. We also consent to the reference to our Firm under the
caption "Experts".
/S/ Wolf & Company, P.C.
------------------------
Wolf & Company, P.C.
Boston, Massachusetts
December 16, 1998
EXHIBIT 99(a)
NEW CANAAN BANK AND TRUST COMPANY
208 ELM STREET, NEW CANAAN, CONNECTICUT 06840
PROXY SOLICITED BY THE NEW CANAAN BANK AND TRUST COMPANY BOARD OF DIRECTORS
FOR THE SPECIAL MEETING ON __________ , 1999
The undersigned hereby appoints Daniel S. Jones, Hugh Halsell, III and Michael
D. Hobbs, and each of them, with full power of substitution, as the proxies of
the undersigned, to vote all of the shares of Common Stock of New Canaan Bank
and Trust Company, held of record by the undersigned on ____________, 1999 at
the Special Meeting of Shareholders of New Canaan Bank and Trust Company to be
held on __________, 1999 at the New Canaan Library, 151 Main Street, New Canaan,
Connecticut or at any adjournment thereof;
When properly executed and timely returned, this proxy will be voted in the
manner directed by the undersigned shareholder. IF NO DIRECTION IS MADE THIS
PROXY WILL BE VOTED FOR THE PROPOSALS SET FORTH ON THE REVERSE SIDE OF THIS CARD
AND DESCRIBED IN THE ACCOMPANYING PROXY STATEMENT-PROSPECTUS.
SEE REVERSE
SIDE
<PAGE>
X PLEASE MARK YOUR
VOTES AS IN THIS
EXAMPLE.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTES "FOR" ITEMS 1 AND 2.
1. A proposal to approve and adopt the Merger Agreement dated August 24,
1998 (the "Merger Agreement") between New Canaan Bank and Trust Company
("New Canaan"), Summit Bancorp. ("Summit") and NSS Bank and the transactions
contemplated thereby, including the merger of New Cannan into NSS Bank,
pursuant to which shares of New Canaan Common Stock will be converted into
the right to receive whole shares of Summit Common Stock and cash in lieu of
fractional shares based upon an exchange ratio as fully described in the
accompanying Proxy Statement-Prospectus.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
2. A proposal to approve in advance an adjournment of the Special Meeting in
the event there are not sufficient votes to constitute a quorum or approve
the Merger Agreement at the scheduled time of the Special Meeting, in order
to permit further solicitation of proxies.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. To transact such other business as may properly come before the Special
Meeting.
Please check here if you plan on attending the special meeting. [ ]
Please sign exactly as your name appears on this ballot. When shares are held by
joint tenants, both should sign. When signing as attorney, executor,
administrator, trustee or guardian, please give full title as such. If a
corporation, please sign in full corporate name by President or other duly
authorized officer. If a partnership, please sign in partnership name by
authorized person. The undersigned acknowledges receipt of The Notice of the
Special Meeting of Shareholders and the accompanying Proxy Statement-Prospectus.
- -----------------------------------------------------
(Signature) (title)
- -----------------------------------------------------
(Signature if held jointly)
Date ----------------------- , 1999
Please mark, sign, date and return the proxy card promptly using the enclosed
envelope.
