As filed with the Securities and Exchange Commission on March __, 1996
Registration No. 33-___________
=============================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-------------------
FORM S-4
REGISTRATION STATEMENT
under
THE SECURITIES ACT OF 1933
--------------------
HUBCO, INC.
(Exact name of registrant as specified in its charter)
---------------------
New Jersey
(State or other Jurisdiction of Incorporation of Organization)
--------------------
6711
(Primary Standard Industrial Classification Code Number)
--------------------
22-2405746
(I.R.S. Employer Identification No.)
1000 MacArthur Boulevard
Mahwah, New Jersey 07430
(201) 236-2200
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)
Kenneth T. Neilson,
President and Chief Executive Officer
1000 MacArthur Boulevard
Mahwah, New Jersey 07430
(201) 236-2200
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
--------------------
Please send copies of all communications to:
RONALD H. JANIS, ESQ. PETER H. EHRENBERG, ESQ.
MICHAEL W. ZELENTY, ESQ. Lowenstein, Sandler, Kohl,
Pitney, Hardin, Kipp & Szuch Fisher & Boylan
P.O. Box 1945 65 Livingston Avenue
Morristown, New Jersey 07962 Roseland, New Jersey 07068
(201) 966-6300 (201) 992-8700
<PAGE>
Approximate date of commencement of proposed sale to the public:
At the Effective Date of the Merger, as defined in the Agreement and Plan of
Merger dated February 5, 1996 (the "Agreement"), between the Registrant and
Lafayette American Bank and Trust Company, attached as Appendix A to the
Joint Proxy Statement-Prospectus.
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
=============================================================================
Proposed
Title of each maximum
class of offering Proposed Maximum Amount of
securities to Amount to be price per aggregate registration
be registered registered unit<F1> offering price<F1> fee
Common Stock, 6,102,499 $18.92 $115,459,281 $39,813
No Par Value Shares<F2>
Warrants to 122,995 Warrants $6.725 $ 827,141 $ 285
Purchase to Purchase .588
Common Stock Shares at $4.40
Per Warrant
- -----------------------------------------------------------------------------
Total Fee $40,098
=============================================================================
[FN]
<F1> Estimated solely for the purpose of calculating the registration
fee pursuant to Rule 457(f) under the Securities Act based on the exchange
ratio of 0.588 and the last reported sales price ($11.125) for Lafayette
American Bank and Trust Company Common Stock as of March 15, 1996.
<F2> The Registrant also registers hereby the common stock issuable upon
exercise of the Warrants and also registers hereby such additional shares of
its common stock as may be issuable in the Merger pursuant to the anti-
dilution provisions of the Merger Agreement.
--------------------
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 Section 8(a), may determine.
=============================================================================
<PAGE>
PART I
INFORMATION REQUIRED IN PROSPECTUS
CROSS REFERENCE SHEET
Item 1. Cross Reference Sheet.
Pursuant to Item 501 of Regulation S-K, this cross-reference sheet
shows the location in the Joint Proxy Statement-Prospectus (the "Proxy
Statement") of responses to Items 1 through 19 of Part I of Form S-4:
Item Caption Location or Heading in
No. Prospectus/Proxy Statement
---- ------- --------------------------
A. INFORMATION ABOUT THE TRANSACTION
1. Forepart of Registration
Statement and Outside Front
Cover Page of Prospectus . . . . . Facing Page of
Registration
Statement; Cross
Reference Sheet;
Cover Page of Proxy
Statement
2. Inside Front and Outside Back
Cover Pages of Prospectus . . . . . AVAILABLE
INFORMATION;
INFORMATION DELIVERED
AND INCORPORATED BY
REFERENCE; TABLE OF
CONTENTS
3. Risk Factors, Ratio of
Earnings to Fixed Charges
and Other Information
Introduction (S-K 503) . . . . . . SUMMARY OF JOINT
PROXY STATEMENT-
PROSPECTUS
(a) . . . . . . . . . . . . . . . . SUMMARY OF JOINT
PROXY STATEMENT-
PROSPECTUS -- The
Companies
(b) . . . . . . . . . . . . . . . . SUMMARY OF JOINT
PROXY STATEMENT-
PROSPECTUS -- The
Companies
(c) . . . . . . . . . . . . . . . . SUMMARY OF JOINT
PROXY STATEMENT-
PROSPECTUS -- The
Merger
(d) . . . . . . . . . . . . . . . . SELECTED CONSOLIDATED
FINANCIAL DATA OF
HUBCO; SELECTED
CONSOLIDATED
FINANCIAL DATA OF
LAFAYETTE
(e) . . . . . . . . . . . . . . . . PRO FORMA CONDENSED
FINANCIAL
INFORMATION; PRO
FORMA FINANCIAL
INFORMATION
(f) . . . . . . . . . . . . . . . . ACTUAL AND PRO FORMA
PER SHARE DATA
(g) . . . . . . . . . . . . . . . . MARKET PRICE AND
DIVIDEND MATTERS
(h) . . . . . . . . . . . . . . . . SUMMARY OF JOINT
PROXY STATEMENT-
PROSPECTUS -- The
Meetings
(i) . . . . . . . . . . . . . . . . SUMMARY OF JOINT
PROXY STATEMENT-
PROSPECTUS -- The
Merger
(j) . . . . . . . . . . . . . . . . SUMMARY OF JOINT
PROXY STATEMENT-
PROSPECTUS -- The
Merger
(k) . . . . . . . . . . . . . . . . SUMMARY OF JOINT
PROXY STATEMENT-
PROSPECTUS -- The
Merger
4. Terms of the Transaction
(a) . . . . . . . . . . . . . . . . THE PROPOSED MERGER;
DESCRIPTION OF HUBCO
CAPITAL STOCK;
COMPARISON OF THE
RIGHTS OF
SHAREHOLDERS OF
LAFAYETTE AND HUBCO
(b) . . . . . . . . . . . . . . . . THE PROPOSED MERGER -
Opinions of Financial
Advisors
(c) . . . . . . . . . . . . . . . THE PROPOSED MERGER
(Introductory
Paragraph)
5. Pro Forma Financial Information PRO FORMA CONDENSED
FINANCIAL
INFORMATION; PRO
FORMA FINANCIAL
INFORMATION
6. Material Contacts with the
Company Being Acquired . . . . . . THE MERGER --
Interests of Certain
Persons in the
Merger; -- Conditions
to the Merger
7. Additional Information
Required for Reoffering
by Persons and Parties
Deemed to be Underwriters . . . . . NOT APPLICABLE
8. Interests of Named
Experts and Counsel . . . . . . . . LEGAL OPINION
9. Disclosure of Commission
Position on Indemnification
for Securities Act Liabilities . . NOT APPLICABLE
B. INFORMATION ABOUT THE REGISTRANT
10. Information with Respect to
S-3 Registrants . . . . . . . . . . NOT APPLICABLE
11. Incorporation of Certain
Information by Reference . . . . . INFORMATION DELIVERED
AND INCORPORATED BY
REFERENCE
12. Information with Respect to
S-2 or S-3 Registrants . . . . . . NOT APPLICABLE
13. Incorporation of Certain
Information by Reference . . . . . NOT APPLICABLE
14. Information with Respect to
Registrants other than S-3
or S-2 Registrants . . . . . . . . NOT APPLICABLE
C. INFORMATION ABOUT THE COMPANY BEING ACQUIRED
15. Information with Respect to
S-3 Companies . . . . . . . . . . . NOT APPLICABLE
16. Information with Respect
to S-2 or S-3 Companies . . . . . NOT APPLICABLE
17. Information with Respect
to Companies Other than
S-2 or S-3 Companies . . . . . . . CERTAIN INFORMATION
REGARDING LAFAYETTE;
MARKET PRICE AND
DIVIDEND MATTERS;
SELECTED CONSOLIDATED
FINANCIAL DATA OF
LAFAYETTE; FINANCIAL
STATEMENTS OF
LAFAYETTE
D. VOTING AND MANAGEMENT INFORMATION
18. Information if Proxies,
Consents or Authorizations
are to be Solicited . . . . . . . . SUMMARY OF JOINT
PROXY STATEMENT-
PROSPECTUS -- The
Meetings; Cover Page
of Prospectus;
SHAREHOLDER
PROPOSALS; THE
PROPOSED MERGER --
Dissenters' Rights of
Appraisal; --
Interests of Certain
Persons in the
Merger; HUBCO
MEETING; LAFAYETTE
MEETING; RIGHTS OF
DISSENTING LAFAYETTE
SHAREHOLDERS ELECTION
OF HUBCO DIRECTORS;
ELECTION OF LAFAYETTE
DIRECTORS
19. Information if Proxies,
Consents or Authorizations
Are Not to be Solicited
in an Exchange Offer . . . . . . . NOT APPLICABLE
<PAGE>
LAFAYETTE AMERICAN BANK AND TRUST COMPANY
To Our Shareholders:
The Annual Meeting of Shareholders (the "LAFAYETTE MEETING") of
Lafayette American Bank and Trust Company ("LAFAYETTE") will be held on May
29, 1996 at 11:00 a.m. at The Inn at Longshore, 260 South Compo Road,
Westport, Connecticut. In addition to the election of directors, you will be
asked to consider and approve an Agreement and Plan of Merger between
Lafayette and HUBCO, Inc. ("HUBCO"), under which an interim bank subsidiary
of HUBCO will be merged with and into Lafayette (the "MERGER"). Pursuant to
the Merger, shareholders of Lafayette will receive 0.588 of a share of
HUBCO's common stock, no par value ("HUBCO COMMON STOCK"), for each share of
Lafayette's common stock, no par value, held by them, subject to adjustment
in certain circumstances, as more fully described in the accompanying Joint
Proxy Statement and its annexes.
Just as Lafayette's shareholders will be voting upon the Merger at the
Lafayette Meeting, HUBCO's shareholders will be voting upon a proposal to
approve the issuance of shares of HUBCO Common Stock as consideration in the
proposed Merger at a meeting on June 11, 1996. Accordingly, the attached
Joint Proxy Statement-Prospectus is a joint proxy statement to be sent to
shareholders of both Lafayette and HUBCO, as well as a prospectus for the
HUBCO securities to be issued in the Merger. The Joint Proxy Statement-
Prospectus describes the material features of the Merger, the agreement
between the parties, the details of the exchange and other information about
the parties to the Merger.
YOUR BOARD OF DIRECTORS HAS APPROVED THE MERGER AND RECOMMENDS THAT YOU
VOTE FOR IT. YOUR BOARD ALSO RECOMMENDS A VOTE FOR ITS NOMINEES FOR
ELECTION TO LAFAYETTE'S BOARD OF DIRECTORS.
Consummation of the Merger is subject to certain conditions, including
approval of the Merger by the affirmative vote of the holders of two-thirds
of Lafayette's outstanding shares of Common Stock. A failure to vote your
shares will have the same effect as a vote against the Merger. Whether or
not you are planning to attend the meeting, it is important that your shares
be represented. Please complete, sign and date the enclosed proxy and mail
it at your earliest convenience in the return envelope provided.
Sincerely,
April __, 1996 ROBERT B. GOLDSTEIN
President and Chief Executive Officer
<PAGE>
LAFAYETTE AMERICAN BANK AND TRUST COMPANY
1087 Broad Street
Bridgeport, Connecticut 06604
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON MAY 29, 1996
_______________________________
To Our Shareholders:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Shareholders (the
"LAFAYETTE MEETING") of Lafayette American Bank and Trust Company
("LAFAYETTE") will be held at The Inn at Longshore, 260 South Compo Road,
Westport, Connecticut on May 29, 1996 at 11:00 a.m., for the purpose of
considering and voting upon the following matters:
1. A proposal to approve an Agreement and Plan of Merger, dated
February 5, 1996 (the "MERGER AGREEMENT"), between Lafayette and HUBCO,
Inc. ("HUBCO"), under which an interim bank subsidiary of HUBCO will be
merged with and into Lafayette and shareholders of Lafayette will
receive 0.588 of a share of HUBCO common stock, no par value, for each
share of Lafayette common stock, no par value, held by them, subject to
adjustment in certain circumstances, as more fully described in the
accompanying Proxy Statement and its annexes.
2. Election of the five persons named in the accompanying Proxy
Statement to serve as directors of Lafayette for the terms specified in
the Proxy Statement.
3. Such other business as may properly come before the Lafayette
Meeting or any adjournment thereof.
By Order of the Board of Directors,
MARILYN W. ALDERMAN
Secretary
Bridgeport, Connecticut
April __, 1996
THE ATTACHED JOINT PROXY STATEMENT-PROSPECTUS, AND THE ENCLOSED 1995
ANNUAL REPORT OF LAFAYETTE, SHOULD BE READ CAREFULLY. SHAREHOLDERS ARE URGED
TO SIGN, DATE AND MAIL THE ENCLOSED PROXY IN THE ACCOMPANYING ENVELOPE. YOU
MAY REVOKE YOUR PROXY AT ANY TIME BEFORE IT IS VOTED BY GIVING WRITTEN NOTICE
OF REVOCATION TO LAFAYETTE PRIOR TO THE LAFAYETTE MEETING, OR, IF YOU ATTEND
THE LAFAYETTE MEETING, YOU MAY REVOKE YOUR PROXY ONLY BY GIVING WRITTEN
NOTICE OF REVOCATION TO THE SECRETARY OF THE LAFAYETTE MEETING.
IMPORTANT--PLEASE MAIL YOUR PROXY PROMPTLY
<PAGE>
HUBCO, INC.
To Our Shareholders:
The Annual Meeting of Shareholders (the "HUBCO MEETING") of HUBCO, Inc.
("HUBCO") will be held on June 11, 1996 at 11:00 a.m. at the Sheraton
Crossroads, Crossroad Corporate Center, Route 17 North, Mahwah, New Jersey
07495. In addition to the election of directors and a proposal to amend the
Certificate of Incorporation of HUBCO to increase the authorized common and
preferred stock of HUBCO, you will be asked to consider and approve the
issuance of HUBCO's common stock, no par value ("HUBCO COMMON STOCK"), as
consideration under an Agreement and Plan of Merger between Lafayette
American Bank and Trust Company ("LAFAYETTE") and HUBCO, under which an
interim bank subsidiary of HUBCO will be merged with and into Lafayette (the
"MERGER"). Pursuant to the Merger, shareholders of Lafayette will receive
0.588 of a share of HUBCO Common Stock for each share of Lafayette's common
stock, no par value, held by them, subject to adjustment in certain
circumstances, and as more fully described in the accompanying Proxy
Statement-Prospectus and its annexes.
Shareholders of Lafayette will consider the Merger at a meeting on May
29, 1996. The Lafayette Board of Directors has approved the Merger and has
recommended it to Lafayette's shareholders.
Attached is a Notice of Annual Meeting of HUBCO and a Joint Proxy
Statement of HUBCO and Lafayette which also is a prospectus of HUBCO for the
shares of HUBCO Common Stock to be issued in the Merger. The Joint Proxy
Statement-Prospectus describes the material features of the Merger, the
agreement between the parties, the details of the exchange and other
information about the parties to the Merger.
YOUR BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED THE MERGER AND
UNANIMOUSLY RECOMMENDS THAT YOU VOTE FOR THE ISSUANCE OF THE HUBCO COMMON
STOCK IN CONNECTION WITH THE MERGER. YOUR BOARD ALSO UNANIMOUSLY RECOMMENDS
A VOTE FOR THE AMENDMENT TO INCREASE THE AUTHORIZED COMMON AND PREFERRED
STOCK AND FOR ITS NOMINEES FOR DIRECTOR.
Consummation of the Merger is subject to certain conditions, including
approval of the issuance of the HUBCO Common Stock by the affirmative vote of
at least a majority of the shares of HUBCO Common Stock voting at the HUBCO
Meeting, whether in person or by proxy. Election of directors is by the vote
of a plurality of the shares represented at the HUBCO Meeting. The proposed
amendment to the certificate of incorporation of HUBCO to increase the
authorized common and preferred stock also requires the affirmative vote of
at least a majority of the shares of HUBCO Common Stock voting at the HUBCO
Meeting. Whether or not you are planning to attend the meeting, it is
important that your shares be represented. Please complete, sign and date
the enclosed proxy and mail it at your earliest convenience in the return
envelope provided.
Sincerely,
KENNETH T. NEILSON
President and Chief Executive Officer
April __, 1996
<PAGE>
HUBCO, INC.
1000 MacArthur Boulevard
Mahwah, New Jersey 07430
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON JUNE 11, 1996
_______________________________
To Our Shareholders:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Shareholders (the
"HUBCO MEETING") of HUBCO, Inc. ("HUBCO") will be held at the Sheraton
Crossroads, Crossroad Corporate Center, Route 17 North, Mahwah, New Jersey
07495 on June 11, 1996 at 11:00 a.m., for the purpose of considering and
voting upon the following matters:
1. A proposal to approve the issuance of HUBCO Common Stock as
consideration in the proposed acquisition of Lafayette American Bank and
Trust Company ("LAFAYETTE") pursuant to an Agreement and Plan of Merger,
dated February 5, 1996 (the "MERGER AGREEMENT") between Lafayette and
HUBCO, under which an interim bank subsidiary of HUBCO will be merged
with and into Lafayette and shareholders of Lafayette will receive 0.588
of a share of HUBCO's common stock, no par value ("HUBCO COMMON STOCK"),
for each share of Lafayette's common stock, no par value, held by them,
subject to adjustment in certain circumstances, as more fully described
in the accompanying Proxy Statement and its annexes.
2. Election of the three persons named in the accompanying Proxy
Statement to serve as directors of HUBCO for the terms specified in the
Proxy Statement.
3. A proposal to amend the Certificate of Incorporation of HUBCO to
increase the authorized HUBCO Common Stock to 50,000,000 shares and to
increase the authorized preferred stock to 10,000,000 shares.
4. Such other business as may properly come before the HUBCO Meeting or
any adjournment thereof.
By Order of the Board of Directors
D. LYNN VAN BORKULO-NUZZO
Executive Vice President and
Corporate Secretary
Mahwah, New Jersey
April __, 1996
THE ATTACHED JOINT PROXY STATEMENT-PROSPECTUS, AND THE ENCLOSED 1995
ANNUAL REPORT OF HUBCO, SHOULD BE READ CAREFULLY. SHAREHOLDERS ARE URGED TO
SIGN, DATE AND MAIL THE ENCLOSED PROXY IN THE ACCOMPANYING ENVELOPE. YOU MAY
REVOKE YOUR PROXY AT ANY TIME BEFORE IT IS VOTED BY GIVING WRITTEN NOTICE OF
REVOCATION TO HUBCO PRIOR TO THE HUBCO MEETING, OR, IF YOU ATTEND THE HUBCO
MEETING, YOU MAY REVOKE YOUR PROXY ONLY BY GIVING WRITTEN NOTICE OF
REVOCATION TO THE SECRETARY OF THE HUBCO MEETING.
IMPORTANT--PLEASE MAIL YOUR PROXY PROMPTLY
<PAGE>
LAFAYETTE AMERICAN BANK AND TRUST COMPANY
PROXY STATEMENT
for
Annual Meeting of Shareholders
of Lafayette American Bank and Trust Company
to be held on
May 29, 1996
__________________________________________
HUBCO, INC.
PROXY STATEMENT
for
Annual Meeting of Shareholders
of HUBCO, Inc.
to be held on
June 11, 1996
__________________________________________
HUBCO, INC.
PROSPECTUS
for
Common Stock of HUBCO, Inc.
and Warrants to Purchase Common Stock
to be issued in connection with
the Merger of Lafayette American Bank and Trust Company
with a wholly-owned subsidiary of HUBCO, Inc.
__________________________________________
This Joint Proxy Statement-Prospectus (sometimes referred to as this
"PROXY STATEMENT") is first being furnished to the shareholders of Lafayette
American Bank and Trust Company ("LAFAYETTE") on or about April 22, 1996 in
connection with the solicitation of proxies by the Board of Directors of
Lafayette to be used at the Annual Meeting of its shareholders (the
"LAFAYETTE MEETING") to be held on Wednesday, May 29, 1996. The purposes of
the Lafayette Meeting are to elect Lafayette directors and to consider and
vote upon an Agreement and Plan of Merger, dated February 5, 1996 (the
"MERGER AGREEMENT"), between Lafayette and HUBCO, Inc. ("HUBCO"), pursuant to
which an interim bank subsidiary of HUBCO ("MERGER SUB") will be merged with
and into Lafayette. In connection with the Merger, each share of Lafayette
common stock, no par value (the "LAFAYETTE COMMON STOCK") issued and
outstanding immediately prior to the Effective Time (as hereinafter defined),
will be exchanged for 0.588 of a share (the "EXCHANGE RATIO") of HUBCO common
stock, no par value (the "HUBCO COMMON STOCK"), subject to adjustment in
certain circumstances, as more fully described in this Proxy Statement. A
copy of the Merger Agreement is attached as Appendix A to this Proxy
Statement.
This Proxy Statement is also first being furnished to the shareholders
of HUBCO on or about April ___, 1996 in connection with the solicitation of
proxies by the Board of Directors of HUBCO to be used at the Annual Meeting
of its shareholders (the "HUBCO MEETING") to be held on Tuesday, June 11,
1996. The purposes of the HUBCO Meeting are to elect directors, to consider
and vote upon the issuance of HUBCO Common Stock in connection with the
Merger Agreement, and to consider and vote on an amendment to the HUBCO
Certificate of Incorporation (the "HUBCO CERTIFICATE") to increase HUBCO's
authorized Common Stock and preferred stock.
In accordance with the terms of the Merger Agreement, upon approval of
the Merger Agreement by the shareholders of Lafayette and the approval of the
issuance of the HUBCO Common Stock by the shareholders of HUBCO, receipt of
all requisite regulatory approvals, and the satisfaction or waiver of all
other conditions, Merger Sub will be merged with and into Lafayette (the
"MERGER"). Lafayette will be the surviving entity in the Merger and will
operate thereafter as a wholly owned subsidiary of HUBCO. In connection with
the Merger, each share of Lafayette Common Stock issued and outstanding
immediately prior to the Effective Time will be exchanged for 0.588 of a
share of HUBCO Common Stock, subject to certain adjustments more fully
described in this Proxy Statement. In addition, (i) each vested option to
purchase Lafayette Common Stock pursuant to Lafayette's existing stock option
plans will be converted into the right to receive shares of HUBCO Common
Stock with a value equal to the difference between the option exercise price
and the value of the HUBCO Common Stock, (ii) each unvested Lafayette stock
option will be converted into a like stock option to purchase HUBCO Common
Stock, and (iii) each Lafayette Common Stock Purchase Warrant will be
converted into a like Warrant to purchase HUBCO Common Stock, all as more
fully described in this Proxy Statement.
HUBCO has filed a Registration Statement pursuant to the Securities Act
of 1933, as amended (the "SECURITIES ACT"), covering the shares of HUBCO
Common Stock and Warrants to purchase HUBCO Common Stock which will be issued
in connection with the Merger. In addition to constituting the Proxy
Statement for the Lafayette Meeting and the HUBCO Meeting (together, the
"MEETINGS"), this document constitutes a Prospectus of HUBCO with respect to
the HUBCO Common Stock and HUBCO Warrants to be issued if the Merger is
consummated.
Lafayette stock certificates and warrant agreements should not be
returned to Lafayette with the enclosed proxy and should not be forwarded to
HUBCO until after receipt of a letter of transmittal which will be provided
to Lafayette shareholders and Warrant holders upon consummation of the
Merger.
This Proxy Statement does not serve as a prospectus to cover any resales
of shares of HUBCO Common Stock to be received by shareholders of Lafayette
upon consummation of the Merger. Affiliates of Lafayette will be subject to
restrictions on their ability to resell the HUBCO Common Stock received by
them in the Merger. See "THE PROPOSED MERGER -- Resale Considerations with
Respect to the HUBCO Common Stock."
ALL INFORMATION AND STATEMENTS CONTAINED OR INCORPORATED BY REFERENCE
HEREIN WITH RESPECT TO LAFAYETTE WERE SUPPLIED BY LAFAYETTE. ALL INFORMATION
AND STATEMENTS CONTAINED OR INCORPORATED BY REFERENCE HEREIN WITH RESPECT TO
HUBCO WERE SUPPLIED BY HUBCO.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS JOINT PROXY STATEMENT-PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION OTHER THAN THOSE CONTAINED IN THIS JOINT PROXY STATEMENT-
PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED.
THIS JOINT PROXY STATEMENT-PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO
SELL, OR A SOLICITATION OF AN OFFER TO BUY, ANY SECURITIES OTHER THAN THE
REGISTERED SECURITIES TO WHICH IT RELATES OR AN OFFER TO SELL, OR A
SOLICITATION OF AN OFFER TO SELL, TO ANY PERSON IN ANY JURISDICTION IN WHICH
IT WOULD BE UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE
DELIVERY OF THIS JOINT PROXY STATEMENT-PROSPECTUS AT ANY TIME, NOR ANY
DISTRIBUTION OF SHARES OF HUBCO COMMON STOCK, SHALL UNDER ANY CIRCUMSTANCES
IMPLY THAT THE INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE
DATE HEREOF.
The date of this Joint Proxy Statement-Prospectus is April __, 1996.
<PAGE>
TABLE OF CONTENTS
Page
----
AVAILABLE INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
INFORMATION DELIVERED AND INCORPORATED BY REFERENCE . . . . . . . . . . . . 1
SUMMARY OF JOINT PROXY STATEMENT-PROSPECTUS . . . . . . . . . . . . . . . . 3
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
The Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
The Companies . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
The Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
SELECTED CONSOLIDATED FINANCIAL DATA OF HUBCO . . . . . . . . . . . . . 10
SELECTED CONSOLIDATED FINANCIAL DATA OF LAFAYETTE . . . . . . . . . . . . 11
MARKET PRICE AND DIVIDEND MATTERS . . . . . . . . . . . . . . . . . . . . 13
Market Price and Dividend History . . . . . . . . . . . . . . . . . 13
Limitations on Dividends Under the Merger Agreement . . . . . . . . 15
Dividend Limitations on HUBCO . . . . . . . . . . . . . . . . . . . 15
SUMMARY PRO FORMA FINANCIAL INFORMATION . . . . . . . . . . . . . . . . . 16
ACTUAL AND PRO FORMA PER SHARE DATA . . . . . . . . . . . . . . . . . . . 17
INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
CERTAIN INFORMATION REGARDING HUBCO . . . . . . . . . . . . . . . . . . 19
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Recent Developments . . . . . . . . . . . . . . . . . . . . . . . . 19
CERTAIN INFORMATION REGARDING LAFAYETTE . . . . . . . . . . . . . . . . . 23
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
HUBCO MEETING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Purpose of HUBCO Meeting . . . . . . . . . . . . . . . . . . . . . . 23
Vote Required; Shares Entitled to Vote at HUBCO Meeting . . . . . . 24
Solicitation, Voting and Revocation of Proxies at HUBCO Meeting . . 24
LAFAYETTE MEETING . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Purpose of Lafayette Meeting . . . . . . . . . . . . . . . . . . . . 24
Vote Required; Shares Entitled to Vote at Lafayette Meeting . . . . 25
Solicitation, Voting and Revocation of Proxies at Lafayette Meeting 25
I. THE PROPOSED MERGER AND RELATED MATTERS . . . . . . . . . . . . . . 26
THE PROPOSED MERGER . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
General Description . . . . . . . . . . . . . . . . . . . . . . . . 26
Consideration . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Conversion of Lafayette Stock Options . . . . . . . . . . . . . . . 26
Cash in Lieu of Fractional Shares . . . . . . . . . . . . . . . . . 27
Conversion of Lafayette Warrants . . . . . . . . . . . . . . . . . . 27
Dissenters' Rights of Appraisal . . . . . . . . . . . . . . . . . . 27
Background of and Reasons for the Merger . . . . . . . . . . . . . . 27
Interests of Certain Persons in the Merger . . . . . . . . . . . . 30
Opinions of Financial Advisors . . . . . . . . . . . . . . . . . . . 31
Resale Considerations with Respect to the HUBCO Common Stock . . . . 39
Conditions to the Merger . . . . . . . . . . . . . . . . . . . . . . 39
Conduct of Business Pending the Merger . . . . . . . . . . . . . . . 40
Customary Representations, Warranties and Covenants . . . . . . . . 41
Regulatory Approvals . . . . . . . . . . . . . . . . . . . . . . . . 41
Management and Operations After the Merger . . . . . . . . . . . . . 41
Exchange of Certificates, Issuance of Shares for Options . . . . . . 42
Effective Time; Amendments; Termination . . . . . . . . . . . . . . 42
Accounting Treatment of the Merger . . . . . . . . . . . . . . . . . 45
Federal Income Tax Consequences . . . . . . . . . . . . . . . . . . 46
Stock Option for Shares of Lafayette Common Stock . . . . . . . . . 47
PRO FORMA FINANCIAL INFORMATION . . . . . . . . . . . . . . . . . . . . . 49
RIGHTS OF DISSENTING LAFAYETTE SHAREHOLDERS . . . . . . . . . . . . . . 57
DESCRIPTION OF HUBCO CAPITAL STOCK . . . . . . . . . . . . . . . . . . . 59
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
Description of HUBCO Common Stock . . . . . . . . . . . . . . . . . 59
COMPARISON OF THE RIGHTS OF SHAREHOLDERS OF LAFAYETTE AND HUBCO . . . . . 61
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
Voting Requirements . . . . . . . . . . . . . . . . . . . . . . . . 61
Preferred Stock . . . . . . . . . . . . . . . . . . . . . . . . . . 62
Classified Board of Directors . . . . . . . . . . . . . . . . . . . 62
Rights of Dissenting Shareholders . . . . . . . . . . . . . . . . . 62
Shareholder Consent to Corporate Action . . . . . . . . . . . . . . 62
Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
By-laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
Preemptive Rights . . . . . . . . . . . . . . . . . . . . . . . . . 63
Shareholder Protection Legislation . . . . . . . . . . . . . . . . . 64
II. ELECTION OF HUBCO DIRECTORS . . . . . . . . . . . . . . . . . . . 65
Board of Directors' Meetings; Committees of the HUBCO Board . . . . 66
STOCK OWNERSHIP OF MANAGEMENT AND PRINCIPAL SHAREHOLDERS . . . . . . . . 67
EXECUTIVE COMPENSATION . . . . . . . . . . . . . . . . . . . . . . . . . 69
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
Summary Compensation Table . . . . . . . . . . . . . . . . . . . . . 69
Stock Grant Table . . . . . . . . . . . . . . . . . . . . . . . . . 71
Stock Exercise Table . . . . . . . . . . . . . . . . . . . . . . . . 72
Employment Contracts, Termination of Employment and Change-in-Control
Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73
Pension Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . 74
Directors' Compensation . . . . . . . . . . . . . . . . . . . . . . 75
BOARD COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION . . . . . . 76
PERFORMANCE GRAPH . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION . . . . . . . 80
Certain Transactions With Management . . . . . . . . . . . . . . . . 81
COMPLIANCE WITH SECTION 16 OF THE SECURITIES EXCHANGE ACT OF 1934 . . . . 81
RECOMMENDATION AND VOTE REQUIRED ON PROPOSAL 2 . . . . . . . . . . . . . 81
III. AMENDMENT TO CERTIFICATE OF INCORPORATION INCREASING THE NUMBER OF
COMMON AND PREFERRED SHARES AUTHORIZED TO BE ISSUED . . . . . . . . . . . 81
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81
Purpose of the Proposal . . . . . . . . . . . . . . . . . . . . . . . . . 82
Possible Adverse Effects of the Proposal . . . . . . . . . . . . . . . . 82
Possible Anti-Takeover Effects of the Proposal . . . . . . . . . . . . . 82
RECOMMENDATION AND VOTE REQUIRED FOR ADOPTION OF PROPOSAL 3 . . . . . . . 83
IV. ELECTION OF LAFAYETTE DIRECTORS . . . . . . . . . . . . . . . . . 84
Board of Directors' Meetings; Committees of the Board . . . . . . . 88
STOCK OWNERSHIP OF MANAGEMENT AND PRINCIPAL SHAREHOLDERS . . . . . . . . 88
EXECUTIVE COMPENSATION . . . . . . . . . . . . . . . . . . . . . . . . . 90
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 90
Summary Compensation Table . . . . . . . . . . . . . . . . . . . . . 91
Stock Options . . . . . . . . . . . . . . . . . . . . . . . . . . . 92
Stock Grant Table . . . . . . . . . . . . . . . . . . . . . . . . . 92
Stock Exercise Table . . . . . . . . . . . . . . . . . . . . . . . . 93
Employment Contracts, Termination of Employment and Change-in-Control
Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 94
Employee Benefit Plans . . . . . . . . . . . . . . . . . . . . . . . 96
Directors' Compensation . . . . . . . . . . . . . . . . . . . . . . 98
BOARD COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION . . . . . . 98
PERFORMANCE GRAPH . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION . . . . . . . 100
Certain Transactions with Management . . . . . . . . . . . . . . . . . . 100
Indebtedness of Management . . . . . . . . . . . . . . . . . . . . . . . 101
COMPLIANCE WITH SECTION 16 OF THE SECURITIES EXCHANGE ACT OF 1934 . . . . 102
RECOMMENDATION AND VOTE REQUIRED ON PROPOSAL 4 . . . . . . . . . . . . . 102
SHAREHOLDER PROPOSALS . . . . . . . . . . . . . . . . . . . . . . . . . . 102
LEGAL OPINION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 102
EXPERTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 102
SUBSEQUENT FILINGS INCORPORATED BY REFERENCE . . . . . . . . . . . . . . 103
APPENDIX A Agreement and Plan of Merger between HUBCO and
Lafayette dated as of February 5, 1996
APPENDIX B Stock Option Agreement between Lafayette and
HUBCO dated as of February 5, 1996
APPENDIX C Fairness Opinion of Goldman, Sachs & Co.
APPENDIX D Fairness Opinion of Keefe, Bruyette & Woods
APPENDIX E Sections 36a-125(h) and 33-374 of the General
Statutes of Connecticut
APPENDIX F Proposed Amendment to the Certificate of
Incorporation of HUBCO, Inc. to Increase its
Authorized Common and Preferred Stock
<PAGE>
AVAILABLE INFORMATION
HUBCO is subject to the information requirements of the Securities
Exchange Act of 1934, as amended (the "EXCHANGE ACT"), and in accordance
therewith files reports, proxy statements and other information with the
Securities and Exchange Commission (the "COMMISSION"). Such reports, proxy
statements and other information can be inspected and copied at the public
reference facilities maintained by the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549 and at the Commission's Regional Offices located at
Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661 and 7 World Trade Center, 13th Floor, New York, New York
10048. Copies of such materials can be obtained from the Public Reference
Section of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549,
at prescribed rates. In addition, HUBCO Common Stock, no par value ("HUBCO
COMMON STOCK"), is listed on The Nasdaq Stock Market, and certain material
as to HUBCO can be inspected at the offices of the National Association of
Securities Dealers, Inc., 1735 K Street, N.W., Washington, D.C. 20006.
Lafayette is also subject to the information requirements of the
Exchange Act and in accordance therewith files reports, proxy statements and
other information with the Federal Deposit Insurance Corporation (the
"FDIC"). Such reports, proxy statements and other information with respect
to Lafayette can be inspected and copied at the public reference facilities
maintained by the FDIC at 1776 F Street, N.W., Room F-640, Washington, D.C.
20006. Copies of such materials can be obtained from the public Registration
and Disclosure Section of the FDIC at 1776 F Street, N.W., Washington, D.C.
20006, at prescribed rates. In addition, Lafayette Common Stock, no par
value ("LAFAYETTE COMMON STOCK"), is listed on The Nasdaq Stock Market , and
certain material as to Lafayette can be inspected at the offices of the
National Association of Securities Dealers, Inc., 1735 K Street, N.W.,
Washington, D.C. 20006.
HUBCO has filed with the Commission a Registration Statement on Form S-4
under the Securities Act (together with all amendments and supplements
thereto, the "REGISTRATION STATEMENT"), with respect to the securities being
offered by this Joint Proxy Statement-Prospectus. As permitted by the rules
and regulations of the Commission, this Joint Proxy Statement-Prospectus
omits certain information, exhibits and undertakings contained in the
Registration Statement. For further information with respect to HUBCO and
the securities offered hereby, reference is made to the Registration
Statement, including the exhibits thereto.
Statements contained in this Joint Proxy Statement-Prospectus or in any
document incorporated by reference herein, as to the contents of any document
referred to herein or therein, are not necessarily complete, and in each
instance reference is made to the copy of such document filed as an exhibit
to the Registration Statement or such other document, each such statement
being qualified in all respects by such reference.
INFORMATION DELIVERED AND INCORPORATED BY REFERENCE
A copy of HUBCO's Annual Report to Shareholders for the year ended
December 31, 1995 ("HUBCO's 1995 ANNUAL REPORT") accompanies each copy of
this Joint Proxy Statement-Prospectus delivered to shareholders of HUBCO. A
copy of Lafayette's Annual Report to Shareholders for the year ended December
31, 1995 ("LAFAYETTE'S 1995 ANNUAL REPORT") accompanies each copy of this
Joint Proxy Statement-Prospectus delivered to shareholders of Lafayette.
Shareholders or Warrant Holders of Lafayette who desire a copy of HUBCO's
1995 Annual Report may request a copy by mail or telephone by contacting the
offices of the Corporate Secretary, D. Lynn Van Borkulo-Nuzzo, Esq., HUBCO,
Inc., 1000 MacArthur Boulevard, Mahwah, New Jersey 07430 (201-236-2640).
The following documents, or the portions thereof indicated, filed by
HUBCO with the Commission are incorporated herein by reference:
1. Annual Report on Form 10-K for the year ended December 31, 1995
("HUBCO's 10-K").
2. Current Reports on Form 8-K filed with the Commission on January
16, February 20, March 6, and March 7, 1996 and on Form 8-K/A filed
with the Commission on March 18, 1996.
3. Those portions of HUBCO's 1995 Annual Report incorporated by
reference into HUBCO's 10-K.
4. Form 8-A filed by HUBCO to register its Common and Preferred Stock
pursuant to Section 12(g) of the Exchange Act.
The following documents, or portions thereof indicated, initially filed
by Lafayette with the FDIC and subsequently filed by HUBCO with the
Commission are incorporated herein by reference:
1. Annual Report on Form F-2 for the year ended December 31, 1995.
2. Current Reports on Form F-3 filed with the FDIC on February 9, 1996
and February 16, 1996.
All documents filed by HUBCO pursuant to Sections 13(a), 13(c), 14, or
15(d) of the Exchange Act subsequent to the date hereof and prior to the
earlier of (i) the date of the last to be held of the Meetings or (ii) the
termination of the Merger Agreement, are hereby incorporated by reference
into this Proxy Statement and shall be deemed a part hereof from the date of
filing of such documents.
Any statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Proxy Statement to the extent that a statement contained
herein or in any other subsequently filed document which also is or is deemed
to be incorporated by reference herein modifies or supersedes such statement.
Any such statement so modified or superseded shall not be deemed, except as
so modified or superseded, to constitute a part of this Proxy Statement.
This Proxy Statement incorporates documents by reference which are not
presented herein or delivered herewith. Those documents (not including
exhibits thereto, unless such exhibits are specifically incorporated by
reference into the information incorporated herein), as well as additional
copies of HUBCO's 1995 Annual Report and Lafayette's 1995 Annual Report, are
available free of charge to any shareholder of HUBCO or Lafayette, including
any beneficial owner, upon written or oral request to the office of the HUBCO
Corporate Secretary, D. Lynn Van Borkulo-Nuzzo, Esq., HUBCO, Inc., 1000
MacArthur Boulevard, Mahwah, New Jersey 07430. Responses to any such request
will be made within one business day by sending the requested documents by
first class mail or other equally prompt means. In order to insure timely
delivery of the documents in advance of the Meetings to which this Proxy
Statement relates, any request should be made by one calendar week prior to
the respective Meetings (i.e., by May 22, 1996 for the Lafayette Meeting and
by June 4, 1996 for the HUBCO Meeting).
<PAGE>
SUMMARY OF JOINT PROXY STATEMENT-PROSPECTUS
The following is a summary of certain information regarding the matters
to be considered at the Meetings. This summary is necessarily incomplete and
is qualified by the more detailed information contained elsewhere in this
Proxy Statement. Shareholders of Lafayette and HUBCO should read carefully
the details of this Proxy Statement.
GENERAL
This Proxy Statement solicits, on behalf of the Board of Directors (the
"LAFAYETTE BOARD") of Lafayette American Bank and Trust Company
("LAFAYETTE"), the approval of the holders of shares of common stock of
Lafayette, no par value per share ("LAFAYETTE COMMON STOCK"), of the
Agreement and Plan of Merger, dated February 5, 1996 (the "MERGER
AGREEMENT"), between Lafayette and HUBCO, Inc. ("HUBCO"). This Proxy
Statement also solicits, on behalf of the Board of Directors of HUBCO (the
"HUBCO BOARD"), the approval of the issuance of the shares of HUBCO Common
Stock as consideration in the Merger Agreement by the holders of shares of
HUBCO Common Stock. Pursuant to the Merger Agreement, an interim bank
subsidiary of HUBCO ("MERGER SUB") will be merged with and into Lafayette
(the "MERGER"). In the Merger, each outstanding share of Lafayette Common
Stock, except for Excluded Shares (as defined below), will be converted into
the right to receive 0.588 of a share of HUBCO Common Stock, subject to
adjustment in certain circumstances and as more fully described elsewhere
herein. See "THE PROPOSED MERGER."
In addition, this Proxy Statement solicits, on behalf of the HUBCO
Board, proxies from the holders of HUBCO Common Stock in favor of the
election of three persons to serve as directors of HUBCO for three-year terms
and in favor of a proposal to amend the HUBCO Certificate to increase HUBCO's
authorized common stock to 50 million shares and preferred stock to 10
million shares, and solicits on behalf of the Lafayette Board, proxies from
the holders of Lafayette Common Stock in favor of the election of five
persons to serve as directors of Lafayette for three year terms or until the
consummation of the Merger. See "HUBCO MEETING" and "LAFAYETTE MEETING."
THE MEETINGS
The HUBCO Meeting
Time, Date, Place and Purpose. The Annual Meeting of Shareholders of
HUBCO (the "HUBCO MEETING") will be held on Tuesday, June 11, 1996 at 11:00
a.m. local time, at the Sheraton Crossroads, Crossroad Corporate Center,
Route 17 North, Mahwah, New Jersey 07495. At the HUBCO Meeting, holders of
HUBCO Common Stock will be asked to approve the issuance of HUBCO Common
Stock pursuant to the Merger, to elect three persons to serve as directors of
HUBCO and to approve the increase in authorized HUBCO Common Stock and
preferred stock. See "HUBCO MEETING" and "THE PROPOSED MERGER."
Record Date, Quorum, Vote Required. Only holders of record of HUBCO
Common Stock at the close of business on April 19, 1996 (the "HUBCO RECORD
DATE") are entitled to notice of and to vote at the HUBCO Meeting. At such
date, there were ________ shares of HUBCO Common Stock outstanding held by
approximately _____ holders of record. The presence, either in person or by
proxy, of the holders of a majority of the outstanding shares of HUBCO Common
Stock is necessary to constitute a quorum at the HUBCO Meeting. Approval of
the issuance of HUBCO Common Stock pursuant to the Merger and the amendment
to the Certificate of Incorporation of HUBCO (the "HUBCO CERTIFICATE")
requires the affirmative vote of at least a majority of the shares of HUBCO
Common Stock voting at the HUBCO Meeting, whether in person or by proxy. As
of February 29, 1996, HUBCO directors, executive officers and their
affiliates held, in the aggregate, 6.17% of the outstanding shares entitled
to vote on the issuance of HUBCO Common Stock pursuant to the Merger.
Election of directors is by the vote of a plurality of the shares represented
at the meeting. See "HUBCO MEETING."
Recommendations of the HUBCO Board. The HUBCO Board has unanimously
approved the Merger Agreement and recommends that the shareholders of HUBCO
vote FOR the issuance of HUBCO Common Stock pursuant to the Merger, FOR
management's nominees as directors of HUBCO and FOR the proposed amendment to
the HUBCO Certificate to increase HUBCO's authorized stock.
The Lafayette Meeting
Time, Date, Place and Purpose of Lafayette Meeting. The Annual Meeting
of Shareholders of Lafayette (the "LAFAYETTE MEETING") will be held on
Wednesday, May 29, 1996 at 11:00 a.m. local time, at The Inn at Longshore,
260 South Compo Road, Westport, Connecticut. At the Lafayette Meeting,
holders of shares of Lafayette Common Stock will be asked to approve the
Merger Agreement and elect five persons to serve as directors of Lafayette
for a term of three years. See "LAFAYETTE MEETING" and "THE PROPOSED
MERGER."
Record Date, Quorum, Vote Required at the Lafayette Meeting. Only
holders of record of Lafayette Common Stock at the close of business on April
15, 1996 (the "Lafayette Record Date") are entitled to notice of and to vote
at the Lafayette Meeting. At such date, there were [10,006,529] shares of
Lafayette Common Stock outstanding held by approximately [2,115] holders of
record. The presence, either in person or by proxy, of the holders of a
majority of the outstanding shares of Lafayette Common Stock is necessary to
constitute a quorum at the Lafayette Meeting. Approval of the Merger
requires the affirmative vote of two-thirds of the outstanding shares of
Lafayette Common Stock. As of February 29, 1996, Lafayette directors,
executive officers and their affiliates held, in the aggregate, 13.4% of the
outstanding shares entitled to vote on the Merger. HUBCO owns approximately
4.9% of Lafayette Common Stock. Election of directors is by the vote of a
plurality of the shares represented at the meeting. See "LAFAYETTE MEETING."
Recommendations of the Lafayette Board. The Lafayette Board has
approved the Merger and recommends that shareholders of Lafayette vote FOR
the Merger and FOR management's nominees for directors of Lafayette.
THE COMPANIES
HUBCO
HUBCO is a bank holding company whose principal operating subsidiary is
Hudson United Bank ("HUB"), a New Jersey-chartered commercial bank. HUBCO's
corporate headquarters are located at 1000 MacArthur Boulevard, Mahwah, New
Jersey 07430. HUB's corporate headquarters are located at 3100 Bergenline
Avenue, Union City, New Jersey 07087. The telephone number of HUBCO and HUB
is (201) 236-2200. HUB is a full-service commercial bank which primarily
serves small and mid-sized businesses and consumers through over 60 branches
in Northern New Jersey. As of December 31, 1995, HUBCO had consolidated
assets of $1.6 billion, consolidated deposits of $1.4 billion and
consolidated stockholders' equity of $130 million. Based on assets as of
December 31, 1995, HUBCO was the sixth largest commercial banking company
headquartered in New Jersey. HUBCO's strategy is to enhance profitability
and build market share through both internal growth and acquisitions. Since
October, 1990, HUBCO has added over 45 branches and approximately $1 billion
in assets through 13 acquisitions of financial institutions in both
government-assisted and private transactions. HUBCO expects to continue its
acquisition strategy. See "CERTAIN INFORMATION REGARDING HUBCO"; "AVAILABLE
INFORMATION"; and "INFORMATION DELIVERED AND INCORPORATED BY REFERENCE."
Lafayette
Lafayette is a Connecticut-chartered commercial bank which commenced
banking operations in 1965. Lafayette's corporate headquarters are located
at 1087 Broad Street, Bridgeport, Connecticut 06604. The telephone number of
Lafayette is (203) 336-6200. Lafayette is a full service commercial and
consumer bank which serves small-to-medium sized business firms as well as
individuals. It operates 19 banking offices located mainly in Fairfield and
New Haven counties in Connecticut. As of December 31, 1995, Lafayette had
consolidated assets of $735.4 million, consolidated deposits of $636.3
million and consolidated stockholders' equity of $59.5 million. Based on
assets as of December 31, 1995, Lafayette was the largest commercial bank
headquartered in Connecticut. See "CERTAIN INFORMATION REGARDING LAFAYETTE",
"AVAILABLE INFORMATION", AND "INFORMATION DELIVERED AND INCORPORATED BY
REFERENCE."
THE MERGER
Description of the Merger
At the time the Merger becomes effective (the "EFFECTIVE TIME"), Merger
Sub will be merged into Lafayette, with Lafayette as the surviving entity and
a wholly-owned subsidiary of HUBCO. See "THE PROPOSED MERGER -- General
Description". A COPY OF THE MERGER AGREEMENT IS ATTACHED AS APPENDIX A TO
THIS PROXY STATEMENT.
Consideration
In the Merger, each outstanding share of Lafayette Common Stock, except
for (i) Lafayette treasury shares, (ii) shares of Lafayette Common Stock as
to which dissenters' rights have been validly exercised ("DISSENTING SHARES")
pursuant to the provisions of the Banking Law of Connecticut (the "CBL"), and
(iii) shares held by HUBCO or any of its subsidiaries (other than shares held
as trustee or in a fiduciary capacity and shares held as collateral or in
lieu of a debt previously contracted) (the shares referred to in clauses (i),
(ii) and (iii) above are collectively referred to as the "EXCLUDED SHARES"),
will be converted into the right to receive 0.588 of a share of HUBCO Common
Stock. The Exchange Ratio is subject to adjustments in certain
circumstances, as more fully described in this Proxy Statement. See "THE
PROPOSED MERGER -- Consideration".
Conversion of Lafayette Stock Options
In the Merger, each outstanding option to purchase shares of Lafayette
Common Stock (a "LAFAYETTE OPTION") granted under Lafayette's existing stock
option plans which is or will be by virtue of the Merger vested ("VESTED
LAFAYETTE OPTIONS") will be assigned a value (the "OPTION VALUE") equal to
(a) the "MEDIAN PRE-CLOSING PRICE" of HUBCO Common Stock (a term defined in
the Merger Agreement generally as the median closing price of HUBCO Common
Stock during the first 20 of the last 25 trading days prior to the closing of
the Merger), multiplied by the Exchange Ratio (b) minus the stated exercise
price for the Lafayette Option, (c) such difference then being multiplied by
the number of shares of Lafayette Common Stock for which the option may be
exercised. At the Effective Time, each Lafayette Option will be converted
into that number of shares of HUBCO Common Stock equal to the Option Value
divided by the Median Pre-Closing Price of HUBCO Common Stock, as more fully
described elsewhere in this Proxy Statement.
Each outstanding Lafayette Option which is not vested before or by
virtue of the Merger ("UNVESTED LAFAYETTE OPTIONS") will be converted into
and become, pursuant to the Merger Agreement, an option to purchase HUBCO
Common Stock. Each such Unvested Lafayette Option which represented the
right to purchase one share of Lafayette Common Stock shall be converted at
the Effective Time into the right to purchase 0.588 (or such other fraction
as the Exchange Ratio may be adjusted to) of a share of HUBCO Common Stock
for the same purchase price and otherwise will remain subject to the same
terms and conditions as was the prior Lafayette Option. The Common Stock
issuable pursuant to the exercise of the new HUBCO Options will be registered
by HUBCO on a Form S-8 under the Securities Act of 1933, as amended (the
"SECURITIES ACT"). See "THE PROPOSED MERGER--Conversion of Lafayette Stock
Options".
Conversion of Lafayette Warrants
At the Effective Time, each outstanding Lafayette Common Stock Purchase
Warrant (a "LAFAYETTE WARRANT") will be converted automatically into a like
warrant to purchase for the same purchase price that number of shares of
HUBCO Common Stock which equals the number of shares of Lafayette Common
Stock which may be purchased under the Lafayette Warrant, multiplied by the
Exchange Ratio. See "THE PROPOSED MERGER -- Conversion of Lafayette
Warrants" and "--Federal Income Tax Consequences".
Cash in Lieu of Fractional Shares
No fractional shares of HUBCO Common Stock will be issued in exchange
for either Lafayette Common Stock or Vested Lafayette Options. Instead,
holders of such stock or options will receive cash equal to the fractional
share interest multiplied by the Median Pre-Closing Price of HUBCO Common
Stock, without interest. All shares of HUBCO Common Stock to be issued to
each Lafayette shareholder or option holder will be aggregated to constitute
as many whole shares as possible before determining such person's fractional
share interest. See "THE PROPOSED MERGER--Cash in Lieu of Fractional
Shares".
Dissenters' Rights of Appraisal
UNDER THE CBL, LAFAYETTE SHAREHOLDERS ARE ENTITLED TO DISSENTER'S RIGHTS
OF APPRAISAL IN CONNECTION WITH THE MERGER. HUBCO shareholders will not be
entitled to appraisal rights in connection with the Merger. SEE "RIGHTS OF
DISSENTING LAFAYETTE SHAREHOLDERS" AND APPENDIX E TO THIS PROXY STATEMENT,
WHICH SET FORTH THE STEPS TO BE TAKEN BY A LAFAYETTE SHAREHOLDER WHO WISHES
TO EXERCISE THE RIGHT TO DISSENT.
Certain Federal Income Tax Consequences
The Merger is conditioned upon the receipt of an opinion of counsel to
HUBCO to the effect that the Merger will qualify as a tax-free reorganization
as defined in Section 368 of the Internal Revenue Code of 1986, as amended
(the "CODE"). See "THE PROPOSED MERGER -- Federal Income Tax Consequences."
Accounting Treatment of the Merger
The Merger is expected to be accounted for as a pooling of interests for
financial reporting purposes and is conditioned upon the receipt of a letter
from HUBCO's independent accountants that the Merger will be so treated.
Under the pooling of interests method of accounting, Lafayette's historical
basis of assets, liabilities and shareholders' equity will be retained by
HUBCO as the surviving entity and the combined entity's consolidated
financial statements will be restated retroactively to reflect the combined
financial condition, results of operations and cash flows as if HUBCO and
Lafayette had been combined for all periods presented. See "PRO FORMA
COMBINED FINANCIAL INFORMATION" and "THE PROPOSED MERGER -- Accounting
Treatment of the Merger."
Required Regulatory Approvals
Consummation of the Merger is subject to prior receipt of the approval
of the Commissioner (the "COMMISSIONER") of the Connecticut Department of
Banking (the "CTDOB"), the FDIC and the Board of Governors of the Federal
Reserve System (the "FRB"). Applications for these approvals have been filed
and HUBCO and Lafayette anticipate receiving such approvals. However, there
can be no assurance that the approvals will be granted, that they will be
granted on a timely basis, or that they will be granted without conditions
unacceptable to HUBCO or Lafayette. See "THE PROPOSED MERGER -- Regulatory
Approvals".
Conditions to the Merger
Consummation of the Merger is contingent upon a number of conditions,
including the receipt of necessary regulatory approvals; the approval of the
Merger by the requisite vote of the shareholders of both Lafayette and HUBCO;
an opinion of Pitney, Hardin, Kipp & Szuch, counsel to HUBCO, that the Merger
will result in a tax-free reorganization; and a letter from HUBCO's
independent accountants that the Merger will be accounted for as a pooling of
interests. The obligation of HUBCO to consummate the Merger is also
conditioned on, among other things, receipt of consent from each holder of a
Vested Lafayette Option outstanding at the Closing Date to the conversion of
such person's Vested Lafayette Option in the manner described in this Proxy
Statement (see "THE PROPOSED MERGER -- Conversion of Lafayette Stock
Options"). The obligation of Lafayette to consummate the Merger is also
conditioned on, among other things, the appointment by the HUBCO Board of
three nominees, designated by Lafayette and reasonably acceptable to HUBCO,
to the HUBCO Board, effective at the Effective Time; and written
acknowledgment, acceptance and assumption by HUBCO of existing employment
agreements between Lafayette and certain of its officers. See "THE PROPOSED
MERGER -- Regulatory Approvals"; and "-- Conditions to the Merger."
Special Covenant
Pursuant to the Merger Agreement, HUBCO has agreed that without the
prior written consent of Lafayette, it will not between February 5, 1996 and
the Effective Time (i) enter into a definitive acquisition agreement to
acquire one or more financial institutions, the effect of which will be that
HUBCO's pro forma book value will be diluted by more than 10% or its tangible
book value will be diluted by more than 15%, or (ii) agree to an acquisition
which will result in (A) HUBCO's current directors constituting less than a
majority of the surviving corporation's Board of Directors, (B) the current
chief executive officer of HUBCO, Kenneth T. Neilson, not continuing as chief
executive officer, or (C) HUBCO's owning a company without a headquarters and
a substantial majority of its offices in New Jersey, New York or Connecticut.
See "THE PROPOSED MERGER--Conduct of Business Pending the Merger".
Termination Rights
The Merger Agreement may be terminated by either Lafayette or HUBCO if,
among other reasons, the Effective Time has not occurred by December
31, 1996. In addition, the Board of Directors of Lafayette may terminate the
Merger Agreement if (i) the HUBCO Common Stock Average Price (as defined
below) on the Determination Date (as defined below) is less than $18.25, or
if (ii) both (x) the HUBCO Common Stock Average Price on the Determination
Date is less than $19.25 and (y) the number obtained by dividing the HUBCO
Common Stock Average Price on the Determination Date by the HUBCO Common
Stock Closing Price on the Starting Date (as defined below) is less than the
number obtained by dividing the Index Price (as defined below) on the
Determination Date by the Index Price on the Starting Date and subtracting
.075 from the quotient. If the conditions in either (i) or (ii) above exist
(a "TERMINATION EVENT") and the Lafayette Board elects to terminate the
Merger Agreement, such termination will not occur if HUBCO elects to increase
the Exchange Ratio to a number calculated pursuant to the Merger Agreement.
The "DETERMINATION DATE" is the date on which FRB approval of the Merger is
received. The "STARTING DATE" is February 7, 1996, the day after public
announcement of the Merger Agreement. The "HUBCO COMMON STOCK AVERAGE PRICE"
is the average of the closing prices of HUBCO Common Stock during the 20
trading days immediately preceding the Determination Date. The "INDEX PRICE"
is the average of the closing prices of a selected group of bank holding
company common stocks. For a more complete description of the foregoing
termination rights, and for a description of other termination rights
available to Lafayette and HUBCO, see "THE PROPOSED MERGER -- Effective Time;
Amendments; Termination"; and "--Conditions to the Merger".
Effective Time
A closing under the Merger Agreement (the "CLOSING") will occur 10 days
after receipt of all necessary approvals and consents and the satisfaction or
waiver of the other conditions to consummation of the Merger, or on another
day mutually agreed to by HUBCO and Lafayette. The Effective Time is the
date and time specified in a certificate executed by HUBCO and Lafayette and
filed with the Commissioner. The Effective Time is dependent upon
satisfaction of all conditions precedent, some of which are not under the
control of HUBCO and/or Lafayette. See "THE PROPOSED MERGER--Effective Time;
Amendments; Termination"; and "-- Regulatory Approvals".
Fairness Opinions
The Lafayette Board has retained Keefe, Bruyette & Woods ("KBW") to
evaluate the terms of the Merger. KBW has delivered a written opinion to the
Lafayette Board to the effect that the consideration to be received by the
Lafayette shareholders pursuant to the Merger Agreement is, as of the date of
such opinion, fair to Lafayette shareholders from a financial point of view.
HOLDERS OF LAFAYETTE COMMON STOCK ARE URGED TO, AND SHOULD, READ SUCH OPINION
IN ITS ENTIRETY. For information concerning the matters reviewed,
assumptions made and factors considered by KBW, see "THE PROPOSED MERGER --
Opinions of Financial Advisors" and Appendix D to this Proxy Statement, which
sets forth KBW's fairness opinion in its entirety.
Goldman, Sachs & Co. ("GOLDMAN SACHS") has delivered its written opinion
to the HUBCO Board that, as of February 5, 1996, the Exchange Ratio pursuant
to the Agreement and Plan of Merger is fair to HUBCO. The full text of the
written opinion of Goldman Sachs, which sets forth assumptions made, matters
considered and limitations on the review undertaken in connection with the
opinion, is attached hereto as Appendix C and is incorporated herein by
reference. HOLDERS OF HUBCO COMMON STOCK ARE URGED TO, AND SHOULD, READ SUCH
OPINION IN ITS ENTIRETY. SEE "THE PROPOSED MERGER -- Opinions of Financial
Advisors -- HUBCO's Financial Advisor".
Stock Option to HUBCO for Lafayette Shares
HUBCO and Lafayette entered into a Stock Option Agreement dated February
5, 1996 (the "STOCK OPTION AGREEMENT") in connection with the negotiation by
HUBCO and Lafayette of the Merger Agreement. Pursuant to the Stock Option
Agreement, Lafayette has granted to HUBCO an option (the "OPTION"),
exercisable only under certain limited and specifically defined
circumstances, to purchase up to 2,400,000 authorized but unissued shares of
Lafayette Common Stock, representing upon issuance approximately 19.9% of the
shares of Lafayette Common Stock, for an exercise price of $10.75 per share.
HUBCO does not have any voting rights with respect to the shares of Lafayette
Common Stock subject to the Option prior to exercise of the Option.
The Stock Option Agreement is attached to this Proxy Statement as
Appendix B hereto. In the event that certain specifically enumerated
"Triggering Events" occur and the Merger is not consummated, HUBCO would
recognize a gain on the sale of the shares of Lafayette Common Stock received
pursuant to the exercise of the Option if such shares of Lafayette Common
Stock were sold at prices exceeding $10.75 per share. The ability of HUBCO
to exercise the Option and to cause up to an additional 2,400,000 shares of
Lafayette Common Stock to be issued may be considered a deterrent to other
potential acquisitions of control of Lafayette, as it is likely to increase
the cost of an acquisition of all of the shares of Lafayette Common Stock
which would then be outstanding. The exercise of the option by HUBCO may
also make pooling of interests accounting treatment unavailable to a
subsequent acquiror. See "THE PROPOSED MERGER -- Stock Option for Shares of
Lafayette Common Stock."
Interests of Certain Persons in the Merger
Five executive officers of Lafayette have employment agreements or
severance arrangements under which the officers may become entitled to
substantial payments as a consequence of the Merger if their employment is
terminated. Lafayette, with HUBCO's consent, has also agreed that certain
officers and other key employees may receive stay-on bonuses to assure their
continuation with Lafayette through the Effective Time and for a period of
time thereafter. See "CERTAIN INFORMATION ABOUT HUBCO--Recent Developments".
HUBCO has also engaged in discussions concerning arrangements that may be
made to assure the continued employment of Robert Goldstein, President and
CEO of Lafayette, after the Merger. New employment arrangements for Mr.
Goldstein and possibly other officers may be entered into after consummation
of the Merger.
Certain executive officers of Lafayette have stock options which will
become vested by virtue of the Merger. For information regarding the
treatment of vested Lafayette Options, see "THE PROPOSED MERGER--Conversion
of Lafayette Stock Options".
In addition to the foregoing, the Merger Agreement requires HUBCO to
indemnify each director, officer, employee or agent of Lafayette or any of
its subsidiaries to the fullest extent permitted under applicable law and
Lafayette's Certificate of Incorporation and By-laws, with respect to any
claims made against such person because he or she is or was serving in such
capacity. The Merger Agreement also requires HUBCO to provide Lafayette's
officers and directors with directors' and officers' liability insurance for
at least six years after the Effective Time. See "THE PROPOSED MERGER --
Interests of Certain Persons in the Merger."
Differences in Shareholders' Rights
Lafayette is a commercial bank organized under the CBL and HUBCO is a
business corporation incorporated under the New Jersey Business Corporation
Act (the "NJBCA"). The rights of Lafayette shareholders are currently
governed by the CBL and Lafayette's certificate of incorporation and by-laws.
At the Effective Time, each Lafayette shareholder will become a shareholder
of HUBCO. The rights of HUBCO shareholders are governed by the NJBCA and
HUBCO's certificate of incorporation and by-laws. The CBL and the NJBCA, and
the rights of shareholders thereunder, differ with respect to voting
requirements and various other matters. In addition, the New Jersey
Shareholders Protection Act, which is part of the NJBCA and has no
counterpart in the CBL, prohibits certain transactions involving an
"interested shareholder" and a "resident domestic corporation." See
"COMPARISON OF THE RIGHTS OF SHAREHOLDERS OF LAFAYETTE AND HUBCO."
<PAGE>
<TABLE>
<CAPTION>
SELECTED CONSOLIDATED FINANCIAL DATA OF HUBCO
Years Ended December 31,
-------------------------------------------------------------------------------------
1995 1994 1993 1992 1991
(Dollars in thousands, except for per share amounts)
<S>
EARNINGS SUMMARY: <C> <C> <C> <C> <C>
Interest income $120,711 $ 103,353 $ 86,550 $ 88,296 $ 76,887
Interest expense 39,609 32,257 27,511 35,361 38,844
-------- -------- -------- ------- -------
Net interest income 81,102 71,096 59,039 52,935 38,043
Provision for possible
loan losses 4,200 3,550 4,874 7,432 3,672
------- -------- -------- -------
Net interest income after
provision for possible
loan losses 76,902 67,546 54,165 45,503 34,371
Other income 17,791 11,828 10,579 10,717 7,570
Other expenses 60,164 51,050 42,313 46,612 33,017
------ -------- -------- ------- -------
Income before income taxes 34,529 28,324 22,431 9,608 8,924
Income tax provision 10,845 10,892 8,560 637 2,646
------ -------- -------- ------- -------
Net income $23,684 $ 17,432 $ 13,871 $ 8,971 $ 6,278
======= ======== ======== ======= =======
PER SHARE DATA:
Weighted average common
shares outstanding 13,251 13,098 13,109 11,881 10,177
Net income per share $ 1.79 $ 1.33 $ 1.06 $ 0.76 $ 0.62
Cash dividend per
common share 0.60 0.36 0.31 0.27 0.22
BALANCE SHEET SUMMARY:
Securities held to
maturity $265,703 $562,567 $499,479 $397,722 $198,843
Securities available
for sale 300,721 111,604 56,816 15,430 -
Loans 853,984 862,384 663,588 666,141 641,949
Total assets 1,613,194 1,709,384 1,363,674 1,233,910 981,297
Deposits 1,425,001 1,491,544 1,213,336 1,111,681 887,425
Stockholders' equity 129,966 115,551 97,654 87,585 61,154
PERFORMANCE RATIOS:
Return on average
assets 1.46% 1.11% 1.07% 0.74% 0.69%
Return on average
equity 19.49 16.57 14.95 11.90 10.66
Dividend payout 33.52 20.29 23.63 29.14 38.90
Average equity
to average assets 7.49 6.69 7.16 6.20 6.49
Net interest margin 5.46 4.96 4.99 4.88 4.73
ASSET QUALITY RATIOS:
Allowance for possible
loan losses to total
loans <F1> 1.99 1.92 2.13 1.70 1.43
Allowance for possible
loan losses to
non-performing loans <F2> 103.75 82.02 80.99 64.42 82.70
Non-performing loans to
total loans <F1><F2> 1.91 2.34 2.63 2.65 1.73
Non-performing assets to
total loans, plus
other real estate <F1><F2> 2.42 3.30 4.04 4.49 3.60
Net charge-offs to
average loans 0.45 0.80 0.38 1.09 0.53
</TABLE>
________
[FN]
<F1> Total loans are net of unearned income and deferred loan fees.
<F2> Non-performing loans and non-performing assets do not include loans past
due 90 days or more and still accruing.
<PAGE>
<TABLE>
<CAPTION>
SELECTED CONSOLIDATED FINANCIAL DATA OF LAFAYETTE
Years Ended December 31,
-------------------------------------------------------
1995 1994 1993 1992 1991
(Dollars in thousands, except for per share amounts)
<S> <C> <C> <C> <C> <C>
EARNINGS SUMMARY:
Interest income $ 52,423 $ 42,583 $ 41,415 $ 54,253 $ 66,543
Interest expense 20,981 13,759 15,434 22,167 36,573
----------- ---------- ---------- ----------
Net interest income 31,442 28,824 25,981 32,086 29,970
Provision for possible
loan losses 3,190 3,325 23,500 16,208 13,963
----------- ---------- ---------- ----------
Net interest income after
provision for possible
loan losses 28,252 25,499 2,481 15,878 16,007
Other income 6,078 6,337 8,306 9,597 12,861
Other expenses 26,230 28,423 36,789 33,036 29,657
---------- ---------- ---------- ----------
Income (loss) before income
taxes and cumulative effect
of change in accounting
principle 8,100 3,413 (26,002) (7,561) (789)
Provision (benefit) for
income taxes (10,827) (2,724) 16 260 94
----------- ---------- --------- ---------- ----------
Income (loss) before
cumulative effect of
change in accounting
principle 18,927 6,137 (26,018) (7,821) (883)
Cumulative effect of change
in accounting
principle <F1> -- -- (3,118) -- --
----------- ---------- ---------- ---------- ----------
Net income (loss) $ 18,927 $ 6,137 $ (29,136) $ (7,821) $ (883)
=========== ========== ========== ========== ==========
PER SHARE DATA:
Weighted average common
shares outstanding:
Primary 10,235,953 8,870,266 1,750,458 1,750,458 1,750,458
Fully diluted 10,269,618 8,870,266 1,750,458 1,750,458 1,750,458
Income (loss) before
cumulative effect of
change in accounting
principle <F1>:
Primary $ 1.85 $ .69 $ (14.86) $ (4.47) $ (.50)
Fully diluted 1.84 .69 (14.86) (4.47) (.50)
Net income (loss):
Primary 1.85 .69 (16.64) (4.47) (.50)
Fully diluted 1.84 .69 (16.64) (4.47) (.50)
Cash dividends
declared .05 -- -- -- --
BALANCE SHEET SUMMARY:
Securities held to
maturity $ 27,854 $ 109,736 $ 57,504 $ 34,965 $ 164,725
Securities available
for sale 113,615 65,466 66,528 -- --
Securities held for
sale -- -- -- 96,231 --
Loans, net 518,046 435,756 409,030 475,574 523,837
Total assets 735,405 673,751 599,494 662,463 759,354
Deposits 636,343 570,409 551,850 603,170 662,988
Stockholders' equity 59,509 37,870 2,541 30,958 37,209
PERFORMANCE RATIOS:
Return on average
assets 2.71% .98% (4.53)% (1.09)% (.12)%
Return on average
equity 39.60 19.86 (117.06) (23.57) (2.18)
Dividend payout 2.64 -- -- -- --
Average equity
to average assets 6.84 4.93 3.87 4.64 5.41
Net interest margin <F2> 4.92 5.00 4.36 4.89 4.45
ASSET QUALITY RATIOS:
Allowance for possible
loan losses to total
loans<F3> 1.65 2.21 3.75 3.48 2.71
Allowance for possible
loan losses to
non-performing loans <F4> 110.07% 80.51% 34.29% 38.16% 30.45%
Non-performing loans to
total loans <F3> 1.50 2.75 10.95 9.11 8.91
Non-performing assets to
total loans, plus
other real estate and
assets for sale<F3><F4><F5> 2.53 4.28 12.32 10.90 10.22
Net charge-offs to
average total loans .92 2.49 3.93 2.77 1.74
</TABLE>
________
[FN]
<F1> Represents the effect of a change in accounting method for purchased
mortgage servicing rights.
<F2> Represents net interest income, computed on a tax equivalent basis,
as a percentage of average interest earning assets.
<F3> Total loans are net of unearned income and deferred loan fees.
<F4> Non-performing loans and non-performing assets do not include
accruing loans past due 90 days or more.
<F5> Before related reserves for losses.
<PAGE>
MARKET PRICE AND DIVIDEND MATTERS
MARKET PRICE AND DIVIDEND HISTORY
HUBCO Common Stock and Lafayette Common Stock are quoted on the Nasdaq
National Market (formerly known as the "NASDAQ/NMS") under the symbols "HUBC"
and "LABK," respectively. The following tables set forth, for the periods
indicated, the high and low closing prices per share of HUBCO Common Stock
and Lafayette Common Stock, as reported by The Nasdaq Stock Market
("NASDAQ"), and quarterly dividends per share.
All stock prices shown in the tables below have been rounded to the
nearest cent and all stock prices and dividends shown in the tables below
have been adjusted for the 3-for-2 stock split (the "STOCK SPLIT") paid
January 14, 1995 to record holders of HUBCO Common Stock on January 3, 1995
and the 1-for-2 reverse stock split (the "REVERSE STOCK SPLIT") effected on
May 31, 1994 by Lafayette.
Market Market Equivalent Pro Forma
Price Per Share Price Per Share Market Price Per Share
of HUBCO of Lafayette of Lafayette
Common Stock Common Stock Common Stock<F1>
--------------- --------------- ----------------------
High Low High Low High Low
---- --- ---- --- ---- ---
1994:
First Quarter ....$15.83 $13.42 $ 9.00 $ 4.50 $ 9.30 $ 7.89
Second Quarter.... 15.00 13.33 6.75 5.00 8.82 7.84
Third Quarter .... 15.17 13.13 6.88 5.50 8.92 7.72
Fourth Quarter.... 15.00 12.50 6.63 4.88 8.82 7.35
1995:
First Quarter .... 17.38 14.67 8.00 5.63 10.22 8.63
Second Quarter.... 18.00 15.50 8.50 7.50 10.58 9.11
Third Quarter .... 21.13 17.25 10.25 8.13 12.42 10.14
Fourth Quarter.... 22.13 19.25 9.56 8.75 13.01 11.32
1996:
First Quarter.....
Second Quarter
(through April __,
1996)............
_____________
[FN]
<F1> Equivalent pro forma market price per share of Lafayette Common Stock
represents the high and low last reported sales prices per share of HUBCO
Common Stock, multiplied by the 0.588 Exchange Ratio.
<PAGE>
Equivalent
Pro Forma Cash
HUBCO Lafayette Dividend Per Share
Dividends Dividends of Lafayette
Per Share Per Share Common Stock<F1>
--------- --------- -----------------
1994
First Quarter....................$.08 $-- $.05
Second Quarter................... .08 -- .05
Third Quarter.................... .10 -- .06
Fourth Quarter................... .10 -- .06
1995
First Quarter.................... .15 -- .09
Second Quarter................... .15 -- .09
Third Quarter.................... .15 -- .09
Fourth Quarter................... .15 .05 .09
1996
First Quarter.................... .17 .05 .10
________
[FN]
<F1> Equivalent pro forma cash dividends paid per share of Lafayette Common
Stock represents HUBCO historical dividend rates per share, multiplied
by the 0.588 Exchange Ratio, rounded to the nearest cent. The current
annualized dividend rate per share of HUBCO Common Stock, based upon the
most recently declared quarterly dividend rate of $.17 per share of
HUBCO Common Stock payable on March 1, June 1, September 2 and December
1, would be $.68. On an equivalent pro forma basis, such current
annualized HUBCO dividend per share of Lafayette Common Stock would be
$.40, based on the 0.588 Exchange Ratio, rounded to the nearest cent.
No assurance can be given as to future HUBCO dividend rates. Future
HUBCO dividends are dependent upon the earnings and financial condition
of HUBCO, as well as government regulations and policies and other
factors.
The following table presents for (i) February 5, 1996, the last full
trading day before public announcement of the signing of the Merger
Agreement, and (ii) April __, 1996, a date shortly prior to the mailing of
this Proxy Statement, the reported closing price per share of HUBCO Common
Stock and Lafayette Common Stock on Nasdaq and the equivalent price per share
of Lafayette Common Stock computed by multiplying the closing price of HUBCO
Common Stock on each of the dates specified by the Exchange Ratio of 0.588.
Equivalent
Price Per Share
HUBCO Lafayette of Lafayette
Common Stock Common Stock Common Stock
------------ ------------ ---------------
February 5, 1996......... $ 22.50 $ 10.75 $ 13.23
April ___, 1996 .........
NO ASSURANCE CAN BE GIVEN AS TO WHAT THE MARKET PRICE OF HUBCO COMMON
STOCK WILL BE IF AND WHEN THE MERGER IS CONSUMMATED. BECAUSE THE EXCHANGE
RATIO IS FIXED AND BECAUSE THE MARKET PRICE OF HUBCO COMMON STOCK IS SUBJECT
TO FLUCTUATION, THE VALUE OF THE HUBCO COMMON STOCK THAT HOLDERS OF LAFAYETTE
COMMON STOCK WILL RECEIVE IN THE MERGER MAY INCREASE OR DECREASE PRIOR TO AND
FOLLOWING THE MERGER. HUBCO AND LAFAYETTE SHAREHOLDERS ARE URGED TO OBTAIN
CURRENT MARKET QUOTATIONS FOR THE HUBCO COMMON STOCK AND THE LAFAYETTE COMMON
STOCK. IN ADDITION, PAST DIVIDENDS PAID IN RESPECT OF HUBCO COMMON STOCK AND
LAFAYETTE COMMON STOCK ARE NOT NECESSARILY INDICATIVE OF FUTURE DIVIDENDS
WHICH MAY BE DECLARED AND PAID. NO ASSURANCE CAN BE GIVEN CONCERNING
DIVIDENDS TO BE DECLARED AND PAID IN RESPECT OF HUBCO COMMON STOCK OR
LAFAYETTE COMMON STOCK BEFORE OR AFTER THE EFFECTIVE TIME.
LIMITATIONS ON DIVIDENDS UNDER THE MERGER AGREEMENT
The Merger Agreement prohibits Lafayette from declaring, setting aside
or paying any dividend or other distribution in respect of its capital stock,
except that Lafayette may pay regular quarterly cash dividends equivalent to
the dividends of HUBCO (i.e., an amount determined by multiplying HUBCO's
dividends by the Exchange Ratio) on the same payment dates as HUBCO, which
means that Lafayette is expected to pay a dividend of $.10 per share, as of
June 1, and if the Merger has not been consummated or terminated, September 1
and December 1. Previously, Lafayette declared and paid a quarterly cash
dividend of $.05 per share on February 16, 1996 to shareholders of record on
February 5, 1996.
DIVIDEND LIMITATIONS ON HUBCO
The holders of HUBCO Common Stock are entitled to receive dividends when
and if declared by HUBCO's Board of Directors out of funds legally available
therefor. HUBCO has paid regular cash dividends since its inception in 1982.
The primary source for HUBCO's dividends is dividends from HUB to HUBCO, the
payment of which is regulated. Under the New Jersey Banking Act of 1948, as
amended (the "NJBA"), HUB may pay dividends only out of retained earnings,
and only out of surplus to the extent that surplus exceeds 50% of stated
capital. The FDIC has the authority to prohibit a state-chartered bank from
engaging in conduct which, in the FDIC's opinion, constitutes an unsafe or
unsound banking practice. Under certain circumstances, the FDIC could claim
that the payment of a dividend or other distribution by a bank to its sole
shareholder constitutes an unsafe or unsound practice.
<PAGE>
SUMMARY PRO FORMA FINANCIAL INFORMATION
The following table presents certain unaudited combined condensed
financial information from the Pro Forma Combined Condensed Statements of
Income for the years ended December 31, 1995, 1994 and 1993, and the Pro
Forma Combined Condensed Balance Sheet at December 31, 1995, in each case
giving effect to HUBCO's proposed acquisition of Lafayette and HUBCO's
recently completed acquisition of Growth Financial Corp. ("GROWTH") in
transactions accounted for as a pooling of interests, as if such transactions
had been consummated for statement of income purposes on the first day of the
applicable periods and for balance sheet purposes on December 31, 1995. See
"PRO FORMA FINANCIAL INFORMATION". The pro forma information is based on the
historical financial statements of HUBCO, Lafayette and Growth. See
"INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE". The pro forma financial
information assumes an Exchange Ratio of .588 shares of HUBCO Common Stock
for each share of Lafayette Common Stock outstanding.
The summary unaudited pro forma information should be read in
conjunction with the Pro Forma Financial Information and the related notes
thereto presented elsewhere in this Proxy Statement and the consolidated
financial statements and related notes incorporated by reference in this
Proxy Statement. The pro forma information is not necessarily indicative of
the results of operations which would have been achieved had the above
transactions been consummated as of the beginning of the periods for which
such data are presented and should not be construed as being representative
of future periods. Included in 1995 and 1994 earnings for Lafayette of
$18,927,000 and $6,137,000, respectively, was $11,935,000 and $3,439,000,
respectively, of deferred income tax benefits, primarily attributable to the
recognition of Lafayette's net operating loss carryforwards. As of December
31, 1995, substantially all of Lafayette's deferred income tax benefits had
been recognized. While Lafayette's net income for 1995 and 1994 were
positively impacted by the deferred income tax benefits, net income for
Lafayette in the future will not enjoy the same benefits. As a result, the
budgeted net income of Lafayette for 1996 is substantially less than
Lafayette's net income for 1995. For information about Lafayette's budgeted
net income, see "CERTAIN INFORMATION ABOUT HUBCO--Recent Developments".
PRO FORMA COMBINED UNAUDITED FINANCIAL INFORMATION
(In thousands, except per share data)
For the Years Ended
December 31,
------------------------
1995 1994 1993
---- ---- ----
RESULTS OF OPERATIONS:
Net interest income before
provisions for possible
loan losses....................... $118,513 $105,218 $88,732
Provision for possible loan
losses........................... 8,015 7,509 29,027
Net interest income after
provision for possible
loan losses...................... 110,498 97,709 59,705
Income (loss) before income
taxes............................ 43,255 32,857 (3,519)
Net income (loss) before
cumulative effect of change in
accounting principle............. $42,810 $24,689 $(11,835)
Earnings (loss) per common share
before cumulative effect of change
in accounting principle:
Primary.......................... $2.14 $1.24 $(.59)
Fully diluted.................... 2.11 1.23 (.59)
As of
December 31,
1995
------------
BALANCE SHEET:
Total assets...................... $2,460,589
Total deposits.................... 2,171,603
Total stockholders' equity........ 187,605
Book value per common and common
equivalent share.................. 9.31
ACTUAL AND PRO FORMA PER SHARE DATA
The following table sets forth per share data relating to dividends, net
income and book value of HUBCO Common Stock and Lafayette Common Stock, both
on an actual (historical) basis and on a pro forma combined basis, as
adjusted for the Stock Split and the Reverse Stock Split. The actual per
share data have been derived from the consolidated financial statements of
HUBCO and Lafayette incorporated by reference herein. See "INFORMATION
DELIVERED AND INCORPORATED BY REFERENCE".
The pro forma dividend and book value per share data for the year ended
December 31, 1995 and the pro forma net income per share data for the years
ended December 31, 1995, 1994 and 1993 have been derived from the pro forma
combined condensed financial statements of HUBCO and Lafayette, giving effect
to HUBCO's acquisition of Growth (the "GROWTH MERGER"), and giving effect to
the Merger, accounted for as a pooling of interests. Pro forma per share
amounts have been determined based on the assumptions set forth in the pro
forma combined condensed unaudited financial statements presented elsewhere
herein.
The actual, pro forma and pro forma equivalent per share data included
in the table below should be read in conjunction with the financial
statements of HUBCO and Lafayette incorporated by reference herein and the
pro forma combined condensed financial statements of HUBCO, Lafayette and
Growth presented elsewhere herein. See "INFORMATION DELIVERED AND
INCORPORATED BY REFERENCE" and "PRO FORMA FINANCIAL INFORMATION." The pro
forma data presented below is not necessarily indicative of the results that
would actually have been attained if the Merger had been consummated as of
the first day of the periods described below or results that may be attained
in the future. The data does not reflect the share repurchases, one-time
merger charges or cost savings anticipated by HUBCO. Included in 1995 and
1994 earnings for Lafayette of $18,927,000 and $6,137,000, respectively, was
$11,935,000 and $3,439,000, respectively, of deferred income tax benefits,
primarily attributable to the recognition of Lafayette's net operating loss
carryforwards. As of December 31, 1995, substantially all of Lafayette's
deferred income tax benefits had been recognized. While Lafayette's net
income for 1995 and 1994 were positively impacted by the deferred income tax
benefits, net income for Lafayette in the future will not enjoy the same
benefits. As a result, the budgeted net income of Lafayette for 1996 is
substantially less than Lafayette's net income for 1995. For information
about Lafayette's budgeted net income, see "CERTAIN INFORMATION ABOUT HUBCO--
Recent Developments".
For the Year Ended
December 31,
------------------
1995 1994 1993
---- ---- ----
CASH DIVIDENDS DECLARED PER COMMON SHARE:
HUBCO - Actual<F1> $ .60 $.36 $.31
Lafayette - Actual<F1> .05 .-- .--
Lafayette - pro forma equivalent .35 .21 .18
NET INCOME (LOSS) PER COMMON SHARE:
HUBCO - Actual:
Primary 1.82 1.36 1.06
Fully diluted 1.79 1.33 1.06
Lafayette - Actual:
Primary 1.85 .69 (16.64)
Fully diluted 1.84 .69 (16.64)
HUBCO, Growth and Lafayette, pro forma:
Primary<F2> 2.14 1.24 ( .59)
Fully diluted<F3> 2.11 1.23 ( .59)
Lafayette, pro forma equivalent:
Primary 1.26 .73 ( .35)
Fully diluted 1.24 .72 ( .35)
As of December 31,
1995
------------------
NET BOOK VALUE PER COMMON SHARE:
HUBCO - Actual $9.92
Lafayette - Actual 5.95
HUBCO, Growth and Lafayette, pro forma<F4> 9.31
Lafayette, pro forma equivalent 5.47
[FN]
<F1> For information regarding HUBCO's and Lafayette's dividends, and
the market price of HUBCO and Lafayette Common Stock, see "MARKET
PRICE AND DIVIDEND DATA."
<F2> Represents primary net income per share before cumulative effect of
change in accounting principle on a pro forma combined basis. Such
amounts have been determined by dividing such amounts by the sum of
(i) the weighted average number of shares of HUBCO Common Stock
outstanding during each period, (ii) 1,234,500 shares of HUBCO
Common Stock issued pursuant to the Growth Merger and (iii)
5,808,500 shares of HUBCO Common Stock assumed to be issued
pursuant to the Merger.
<F3> Represents fully diluted net income per common share before
cumulative effect of change in accounting principle on a pro forma
basis, taking into account the addition of 47,983 shares of HUBCO
Common Stock which will be issuable upon the exercise of the HUBCO
Warrants which will be exchanged in the Merger for the 122,994
Lafayette Warrants.
<F4> Represents the pro forma combined net book value of HUBCO and
Lafayette attributable to common shares, divided by the sum of (i)
the number of shares of HUBCO Common Stock outstanding, (ii)
1,234,500 shares of HUBCO Common Stock issued pursuant to the
Growth Merger and (iii) 5,808,500 shares of HUBCO Common Stock
assumed to be issued pursuant to the Merger.
<PAGE>
INTRODUCTION
This Proxy Statement solicits, on behalf of the Lafayette Board,
the approval of the Merger Agreement by the holders of shares of Lafayette
Common Stock. This Proxy Statement also solicits, on behalf of the HUBCO
Board, the approval of the Merger Agreement by the holders of shares of HUBCO
Common Stock. Pursuant to the Merger Agreement, the Merger Sub will be
merged with and into Lafayette. In the Merger, each outstanding share of
Lafayette Common Stock, except for Excluded Shares, will be converted into
the right to receive 0.588 of a share of HUBCO Common Stock, subject to
adjustment in certain circumstances. See "THE PROPOSED MERGER."
In addition, this Proxy Statement solicits, on behalf of the HUBCO
Board, proxies of the holders of HUBCO Common Stock in favor of the election
of three persons to serve as directors of HUBCO and approval of a proposal to
amend the HUBCO Certificate to increase HUBCO's authorized stock, and on
behalf of the Lafayette Board, proxies of the holders of Lafayette Common
Stock in favor of the election of five persons to serve as directors of
Lafayette for a three year term or until the Merger is consummated. See
"HUBCO MEETING" and "LAFAYETTE MEETING."
All information and statements contained or incorporated by
reference herein with respect to Lafayette was supplied by Lafayette and all
information and statements contained or incorporated by reference herein with
respect to HUBCO was supplied by HUBCO.
CERTAIN INFORMATION REGARDING HUBCO
GENERAL
HUBCO is a bank holding company whose principal operating
subsidiary is Hudson United Bank, a New Jersey-chartered commercial bank
("HUB"). HUBCO's corporate headquarters are located at 1000 MacArthur
Boulevard, Mahwah, New Jersey 07430. HUB's corporate headquarters are
located at 3100 Bergenline Avenue, Union City, New Jersey 07087. The
telephone number of HUBCO and HUB is (201) 236-2200. HUB is a full service
commercial bank which primarily serves small and mid-sized businesses and
consumers through over 60 branches in Northern New Jersey. As of December
31, 1995, HUBCO had consolidated assets of $1.6 billion, consolidated
deposits of $1.4 billion and consolidated stockholders' equity of $130
million. Based on assets as of December 31, 1995, HUBCO was among the six
largest commercial banking companies headquartered in New Jersey. HUBCO's
strategy is to enhance profitability and build market share through both
internal growth and acquisitions. Since October, 1990, HUBCO has added over
45 branches and approximately $1 billion in assets through 13 acquisitions of
financial institutions in both government-assisted and private transactions.
For additional information, see "AVAILABLE INFORMATION" and "INFORMATION
DELIVERED AND INCORPORATED BY REFERENCE."
HUBCO is continually evaluating acquisition opportunities and
frequently conducts discussions, certain financial analyses and sometimes
diligence activities in connection with possible acquisitions. As a result,
acquisition discussions and, in some cases, negotiations frequently take
place and future acquisitions involving cash, debt or equity securities can
be expected. Acquisitions typically involve the payment of a premium over
book and market values, and therefore some dilution of HUBCO's book value and
net income per common share may occur in connection with any future
transactions. See "PRO FORMA FINANCIAL INFORMATION".
RECENT DEVELOPMENTS
Recent Acquisitions
On January 12, 1996, HUBCO consummated its previously announced
acquisition of Growth Financial Corp ("GROWTH"). Growth was a one-bank
holding company with approximately $128 million in assets as of December 31,
1995 and three offices in Morris and Somerset Counties, New Jersey.
On February 29, 1996, HUBCO consummated its previously announced
acquisition of three branches with approximately $61 million in assets from
CrossLands Savings Bank. HUBCO paid a premium of approximately $3.1 million
for the deposits.
Estimated One-Time Charges, Cost Savings, Earnings Impact
HUBCO announced on March 5, 1996 that it estimates that the Merger
will result in one-time charges for Merger-related costs and restructuring
charges of $8.5 million on an after tax basis. The amounts included in the
charges are subject to change prior to the Effective Time.<F1>
In addition, HUBCO has reviewed with Lafayette various cost saving
possibilities and plans and HUBCO estimates that the Merger will permit pre-
tax cost savings of $9.0 million annually, representing about 34% of
Lafayette's non-interest expenses. HUBCO anticipates that it will be able to
implement these cost savings by September, 1996 if, as currently anticipated,
the transaction closes at approximately the end of the second quarter.<F2>
HUBCO expects to purchase or expects that Lafayette will repurchase
up to 1,000,000 shares of the outstanding Lafayette Common Stock prior to the
Effective Time, subject to the limitations of the pooling of interests
accounting treatment of the Merger. As of March 10, 1996, HUBCO had
purchased 500,000 shares of Lafayette Common Stock.<F3>
HUBCO believes that the one-time Merger charges would result in a
book value dilution to the combined companies of 4.2%.
HUBCO also estimates that as a consequence of the Merger its
earnings for 1996 will be diluted by 1% from the analysts' consensus estimate
of HUBCO's 1996 earnings of $2.00 per share. This estimate of core earnings
dilution excludes the effect of the one-time Merger charges and includes the
effect of the Lafayette share repurchases. Similarly, using the budgeted
earnings estimates of Lafayette, the anticipated cost savings and the
consensus analysts' estimate of HUBCO's earnings for 1997, HUBCO estimates
that the Merger will result in accretion of 6% over the analysts' consensus
estimates of $2.18 per share for HUBCO's earnings for 1997. The core
earnings estimates for 1996 or 1997 do not assume any financial benefits
which HUBCO may be able to realize by the delivery of HUBCO's broader product
line in the new Connecticut market area. While HUBCO anticipates some
positive effect from this revenue enhancement aspect of the Merger, it is
unable to specify such benefits with sufficient assurance to take them into
account in the estimates.
As with any earnings estimates, there are various factors both
within and beyond HUBCO's control that could influence HUBCO's actual
earnings results for 1996 and 1997, including but not limited to economic
factors, Lafayette's ability to meet its budgeted earnings, other
acquisitions by HUBCO, unanticipated costs or expenses, and other factors.
Consequently, the actual results could differ materially.<F4>
Set forth below are charts with respect to the anticipated one-time
charges, the cost savings and earning estimates.
_______________
[FN]
<F1> The statements concerning one-time charges and Table One below
setting out the components of the charges are forward looking
statements under the Private Securities Litigation Reform Act of
1995 (the "PSLRA"). The correctness of the estimate depends upon a
number of factors and the amount of the actual charge incurred may
vary from the estimate. While HUBCO has developed these estimated
charges after considering what it believes to be all relevant
factors and including all currently known amounts, the actual
amount of the restructuring charge may vary, depending upon a
number of factors, including but not limited to the timing of the
Closing, HUBCO's ability to retain and work with the officers of
Lafayette who have employment or severance contracts, as well as
those who do not, economic conditions, the resolution of various
contractual contingencies with third parties and other factors.
<F2> The statements concerning cost savings and Table Two below setting
out the components of the savings are forward looking statements
under the PSLRA. The correctness of the estimate depends upon a
number of factors including but not limited to the ability to
effectively centralize loan, credit, finance and data processing
functions without substantial cost increases, the ability to
terminate certain leases, the reduction of certain FDIC assessment
costs, economic conditions and other factors. The amount of the
cost savings may vary from the estimates.
<F3> The statement about purchases and repurchases of Lafayette shares
is a forward looking statement under the PSLRA. The ability of
HUBCO and Lafayette to purchase Lafayette shares prior to closing
depends upon a number of factors, including but not limited to the
availability and price of the shares, the tax-free nature of the
Merger, the pooling of interests accounting treatment of the
Merger, HUBCO's repurchases of its own shares and the extent and
timing of regulatory approval and other factors. HUBCO and
Lafayette may not be able to purchase the anticipated number of
Lafayette shares.
<F4> The estimates of book value dilution, recovery of such dilution and
estimated earnings for HUBCO and Lafayette for 1996 and 1997, as
well as Tables Three and Four below, which provide the basis for
the calculations, are forward looking statements under the PSLRA.
The ability of HUBCO to realize the core earnings is subject to a
number of factors, including but not limited to those set forth in
the text. As a result, the actual results of HUBCO could differ
materially from the estimates set forth.
TABLE ONE
ONE-TIME MERGER RELATED AND
RESTRUCTURING CHARGES
(In Millions)
Acquisition Restructuring
Costs Costs
----------- -------------
Investment banker fees $2.9
Legal and accounting fees .5
Facilities lease terminations $1.9
Data processing 1.5
Severance payments 1.2
Stay bonuses 1.3
Employment Agreements 2.6
---------------------------
Pre-Tax Total $3.4 $8.5
----------------------------
After-Tax Total $3.4 $5.1
============================
TABLE TWO
ESTIMATED COST SAVINGS OF
HUBCO/LAFAYETTE MERGER
(In Millions)
Annualized Anticipated
Amount Realization Date
------ ----------------
Centralization of:
- Loan and deposit operations $1.6
- Credit functions .6
- Finance .6
- Data processing 2.1
- Other support staff .6
----
5.5 (9/96)
Lease terminations 1.4 (7/96)
Directors fees, audit fees, legal
fees, marketing and consulting
expense 1.3 (7/96)
Other, including FDIC insurance .8 (7/96)
----
Total Cost Savings (Pre-Tax) $9.0
====
TABLE THREE
ANALYSTS CONSENSUS EARNINGS
FORECAST FOR HUBCO
AND LAFAYETTE BUDGET FORECAST
(In Millions, Except Per Share Amounts)
1Q96 2Q96 3Q96 4Q96 1996 1997
---- ---- ---- ---- ---- ----
Analysts consensus
earnings forecasts
for HUBCO $6.4 $6.5 $6.9 $7.4 $27.2 $29.6
Per Share $ .47 $ .48 $ .51 $ .54 $ 2.00 $ 2.18
Lafayette<F1> $1.6 $1.9 $2.1 $2.2 $7.8 $ 8.6
Per Lafayette Share $ .16 $ .19 $ .21 $ .24 $ .80 N/A
Per HUBCO Share $ .27 $ .32 $ .36 $ .41 $1.36 N/A
[FN]
<F1> Based upon Lafayette's internal budget. Per HUBCO Share amount
reflects the Lafayette per share amount multiplied by the Exchange Ratio
of .588 per share of HUBCO Common Stock for each share of Lafayette Common
Stock.
TABLE FOUR
CORE EARNINGS FORECASTS
(In Millions, Except Per Share Amounts)
1996 1997
---- ----
$mm EPS $mm EPS
--- --- --- ---
HUBCO-Analysts
Consensus $27.2 $2.00<F1> $29.6 $2.18<F1>
Lafayette-Budget
Projections 7.8 8.6
Expense Efficiencies
Estimates(after tax)<F1> 2.4 5.4
----- -----
Total $37.4 $1.98<F2> $43.6 $2.31<F2>
===== ===== ===== =====
(Dilution) Accretion -1% +6%
=== ====
[FN]
<F1> Analysts' Consensus Projections
<F2> Includes impact of Lafayette share repurchases and excludes impact of
one-time merger related charges.
CERTAIN INFORMATION REGARDING LAFAYETTE
GENERAL
Lafayette is a Connecticut-chartered commercial bank which commenced
banking operations in 1965. Lafayette's corporate headquarters are located
at 1087 Broad Street, Bridgeport, Connecticut 06604. The telephone number of
Lafayette is (203) 336-6200. Lafayette is a full service commercial and
consumer bank which serves small-to-medium sized business firms as well as
individuals. It operates 19 banking offices located mainly in Fairfield and
New Haven counties in Connecticut. As of December 31, 1995, Lafayette had
consolidated assets of $735.4 million, consolidated deposits of $636.3
million and consolidated stockholders' equity of $59.5 million. Based on
assets as of December 31, 1995, Lafayette was the largest commercial bank
headquartered in Connecticut. See "AVAILABLE INFORMATION", and "INFORMATION
DELIVERED AND INCORPORATED BY REFERENCE."
HUBCO MEETING
PURPOSE OF HUBCO MEETING
At the HUBCO Meeting, the HUBCO shareholders will consider and vote on a
proposal to approve the issuance of HUBCO Common Stock in connection with the
Merger and on the election of three persons to serve as directors of HUBCO
for three-year terms and thereafter until their successors shall have been
duly elected and shall have qualified. The approval of such issuance by the
holders of HUBCO Common Stock is one of a number of conditions to the
consummation of the Merger. The listing rules for The Nasdaq Stock Market,
on which HUBCO Common Stock is traded, require shareholder approval for the
issuance of Common Stock in connection with any acquisition in which the
listed company will issue a number of shares of its common stock equal to or
greater than 20% of its outstanding shares. Shareholder approval by HUBCO
was made a condition of the Merger based upon this consideration and to
insure that HUBCO's shareholders had the opportunity to consider this
substantial acquisition. Shareholders of HUBCO will also be asked to
consider and approve an amendment to the HUBCO Certificate to increase the
authorized common and preferred stock of HUBCO. Approval of such amendment
is not a condition to the consummation of the Merger. See "THE PROPOSED
MERGER AND RELATED MATTERS", "ELECTION OF DIRECTORS BY HUBCO SHAREHOLDERS"
and "AMENDMENT TO THE CERTIFICATE OF INCORPORATION OF HUBCO TO INCREASE ITS
AUTHORIZED STOCK".
THE BOARD OF DIRECTORS OF HUBCO HAS UNANIMOUSLY APPROVED THE MERGER AND
RECOMMENDS THAT THE SHAREHOLDERS OF HUBCO VOTE FOR THE ISSUANCE OF HUBCO
COMMON STOCK IN CONNECTION WITH THE MERGER, FOR MANAGEMENT'S NOMINEES FOR
DIRECTORS OF HUBCO AND FOR THE AMENDMENT TO THE HUBCO CERTIFICATE INCREASING
THE AUTHORIZED STOCK.
VOTE REQUIRED; SHARES ENTITLED TO VOTE AT HUBCO MEETING
Only holders of record of HUBCO Common Stock at the close of business on
April 19, 1996 are entitled to notice of and to vote at the HUBCO Meeting.
The number of shares of HUBCO Common Stock issued, outstanding and entitled
to vote at the close of business on the HUBCO Record Date was _______. The
issuance of HUBCO Common Stock in connection with the Merger and the
amendment to the HUBCO Certificate to increase the authorized stock must be
approved by the affirmative vote at the HUBCO Meeting, either in person or by
proxy, of the holders of at least a majority of the votes cast at the
meeting. Election of HUBCO directors is by the vote of a plurality of the
shares represented at the HUBCO Meeting. Under applicable state law and the
HUBCO Certificate and HUBCO Bylaws, abstentions and broker non-votes will be
counted for purposes of establishing a quorum but otherwise will not count at
the HUBCO Meeting.
SOLICITATION, VOTING AND REVOCATION OF PROXIES AT HUBCO MEETING
The enclosed HUBCO proxy is designed to permit each HUBCO shareholder of
record to vote on all matters to come before the HUBCO Meeting. This proxy
is solicited by the HUBCO Board. Any proxy may be revoked at any time before
its exercise by giving written notice of revocation to the Secretary of
HUBCO, D. Lynn Van Borkulo-Nuzzo, at 1000 MacArthur Boulevard, Mahwah, New
Jersey 07430. A subsequently dated and duly executed proxy, if properly
presented, will revoke a prior proxy. Any HUBCO shareholder entitled to vote
who has previously executed a proxy may attend the HUBCO Meeting and vote in
person, provided he has filed a written notice of revocation of such proxy
with the Secretary of the Meeting prior to the voting of such proxy. Where a
shareholder specifies a choice in the form of proxy with respect to a matter
being voted upon, the shares represented by the proxy will be voted in
accordance with such specification. If no such specification is made on a
properly executed proxy, the shares will be voted in favor of the issuance of
HUBCO Common Stock in connection with the Merger, in favor of management's
nominees for directors of HUBCO and in favor of the proposed amendment to the
HUBCO Certificate.
The cost of soliciting proxies for the HUBCO Meeting will be borne by
HUBCO. In addition to the use of the mails, proxies may be solicited
personally, by telephone or telegram, and by directors, officers and
employees of HUBCO and HUB acting without additional compensation.
Arrangements may also be made with brokers, dealers, nominees and other
custodians for the forwarding of solicitation material to the beneficial
owners of stock held of record by such persons, and such persons may be
reimbursed by HUBCO for reasonable out-of-pocket expenses.
LAFAYETTE MEETING
PURPOSE OF LAFAYETTE MEETING
At the Lafayette Meeting, the Lafayette shareholders will consider and
vote on a proposal to approve the Merger and on the election of five persons
to serve as directors of Lafayette until the expiration of their terms and
thereafter until their successors shall have been duly elected and shall have
qualified. If the Merger is consummated, it is contemplated that at the
Effective Time, five of Lafayette's 14 directors will resign. See "THE
PROPOSED MERGER AND RELATED MATTERS" and "ELECTION OF DIRECTORS BY LAFAYETTE
SHAREHOLDERS".
THE BOARD OF DIRECTORS OF LAFAYETTE HAS APPROVED THE MERGER AND
RECOMMENDS THAT THE SHAREHOLDERS OF LAFAYETTE VOTE FOR THE MERGER AND FOR
MANAGEMENT'S NOMINEES FOR DIRECTORS OF LAFAYETTE.
VOTE REQUIRED; SHARES ENTITLED TO VOTE AT LAFAYETTE MEETING
Only holders of record of Lafayette Common Stock at the close of
business on April 15, 1996 (the "LAFAYETTE RECORD DATE") are entitled to
notice of and to vote at the Lafayette Meeting. The number of shares of
Lafayette Common Stock outstanding and entitled to vote at the close of
business on the Lafayette Record Date was [10,006,529]. The Merger must be
approved by the affirmative vote of two-thirds of the outstanding Lafayette
Common Stock. Election of Lafayette directors is by the vote of a plurality
of the shares represented at the Lafayette Meeting. Under applicable
Connecticut law and Lafayette's Certificate of Incorporation and Bylaws, all
outstanding shares of Lafayette Common Stock present in person or represented
by proxy at the Lafayette Meeting (including, without limitation, abstentions
and broker non-votes) will be counted for purposes of establishing a quorum,
but will not count at the Lafayette Meeting for purposes of the election of
directors and will have the same effect as a negative vote for purposes of
the vote on the Merger.
SOLICITATION, VOTING AND REVOCATION OF PROXIES AT LAFAYETTE MEETING
The enclosed Lafayette proxy is designed to permit each Lafayette
shareholder of record to vote on all matters to come before the Lafayette
Meeting. This proxy is solicited by the Board of Directors of Lafayette.
Any proxy may be revoked at any time before its exercise by giving written
notice of revocation to the Secretary of Lafayette, Marilyn W. Alderman, at
Lafayette's executive offices, 2992 Dixwell Avenue, Hamden, Connecticut
06518. A subsequently dated and duly executed proxy, if properly presented,
will revoke a prior proxy. Any Lafayette shareholder entitled to vote who
has previously executed a proxy may attend the Lafayette Meeting and vote in
person, provided he has filed a written notice of revocation of such proxy
with the Secretary of the Meeting prior to the voting of such proxy. Where a
shareholder specifies a choice in the form of proxy with respect to a matter
being voted upon, the shares represented by the proxy will be voted in
accordance with such specification. If no such specification is made on a
duly executed proxy, the shares will be voted FOR the Merger and FOR
management's nominees for directors of Lafayette.
Shares held by the various benefit plans established by Lafayette will
be voted as follows: (i) all shares held by the Lafayette American Bank and
Trust Company Cash Balance Plan and Trust will be voted by the plan trustee
who has, pursuant to the terms of the Plan, sole discretion to vote the
shares; and (ii) shares held by the Lafayette American Bank and Trust Company
Employees' Savings and Profit Sharing Plan and Trust will be voted by the
individual plan participant to which such shares have been allocated,
provided that the plan trustee will vote any shares not so allocated.
The cost of soliciting proxies for the Lafayette Meeting will be borne
by Lafayette. Lafayette will use the mails to solicit proxies and, in
addition to the use of the mails, proxies may be solicited personally, by
telephone or telegram. MacKenzie Partners, Inc. will assist in the
solicitation of proxies by Lafayette for a fee not to exceed $5,000, plus
reasonable out-of-pocket costs and expenses. Directors, officers and
employees of Lafayette acting without additional compensation may also
solicit proxies personally or by telephone. Arrangements may also be made
with brokers, dealers, nominees and other custodians for the forwarding of
solicitation material to the beneficial owners of stock held of record by
such persons, and such persons may be reimbursed by Lafayette for reasonable
out-of-pocket expenses.
<PAGE>
I. THE PROPOSED MERGER AND RELATED MATTERS
THE PROPOSED MERGER
A copy of the Merger Agreement is attached as Appendix A to this Proxy
Statement and is incorporated by reference herein. Descriptions of the
Merger and the Merger Agreement are qualified in their entirety by reference
to the Merger Agreement.
GENERAL DESCRIPTION
The Merger Agreement provides that, at the Effective Time, Merger Sub
will be merged into Lafayette, with Lafayette as the surviving bank (the
"SURVIVING BANK"). The separate identity and existence of Merger Sub will
cease upon consummation of the Merger and all property, rights, powers and
franchises of each of Merger Sub and Lafayette will vest in the Surviving
Bank, which will thereafter operate as a wholly-owned subsidiary of HUBCO.
CONSIDERATION
At the Effective Time, each share of Lafayette Common Stock outstanding
immediately prior to the Effective Time, except for (i) Lafayette treasury
shares, (ii) Dissenting Shares, and (iii) shares held by HUBCO or any of its
subsidiaries (other than shares held as trustee or in a fiduciary capacity
and shares held as collateral or in lieu of a debt previously contracted)
will be converted into the right to receive 0.588 of a share of HUBCO Common
Stock. The Exchange Ratio is subject to adjustment to take into account any
stock split, stock dividend, stock combination, reclassification or similar
transaction by HUBCO with respect to the HUBCO Common Stock occurring
subsequent to February 5, 1996. The Exchange Ratio may also be subject to
adjustment in connection with provisions relating to the termination of the
Merger Agreement. See "--Effective Time; Amendments; Termination".
CONVERSION OF LAFAYETTE STOCK OPTIONS
In the Merger, each outstanding option to purchase shares of Lafayette
Common Stock (a "LAFAYETTE OPTION") granted under Lafayette's existing stock
option plan which is or will be by virtue of the Merger vested ("VESTED
LAFAYETTE OPTIONS") will be assigned a value (the "OPTION VALUE") equal to
(a) the "Median Pre-Closing Price" of HUBCO Common Stock (as defined below)
multiplied by the Exchange Ratio (b) minus the stated exercise price for the
Lafayette Option, (c) such difference then being multiplied by the number of
shares of Lafayette Common Stock for which the option may be exercised. At
the Effective Time, each vested Lafayette Option will be converted into that
number of shares of HUBCO Common Stock equal to the Option Value divided by
the Median Pre-Closing Price of HUBCO Common Stock.
The Merger Agreement defines the "MEDIAN PRE-CLOSING PRICE" of HUBCO
Common Stock as the Median Price, calculated based upon the Closing Price of
HUBCO Common Stock during the first 20 of the 25 consecutive trading days
immediately preceding the date of the closing of the Merger. The "CLOSING
PRICE" is defined as the closing price of HUBCO Common Stock, as supplied by
Nasdaq and published in The Wall Street Journal, during the first 20 of the
25 consecutive trading days immediately preceding the date of the closing of
the Merger. The "MEDIAN PRICE" is determined by taking the price halfway
between the Closing Prices left after discarding the nine lowest and nine
highest Closing Prices in the 20-day period. A trading date is defined as a
day for which a Closing Price is so supplied and published.
Each outstanding Lafayette Option which is not vested before or by
virtue of the Merger ("UNVESTED LAFAYETTE OPTIONS") will be converted into
and become pursuant to the Merger Agreement an option to purchase HUBCO
Common Stock. Each such Unvested Lafayette Option which represented the
right to purchase one share of Lafayette Common Stock shall be converted at
the Effective Time into the right to purchase 0.588 (or such other fraction
as the Exchange Ratio may be adjusted to) shares of HUBCO Common Stock for
the same purchase price and otherwise will remain subject to the same terms
and conditions as was the prior Lafayette Option. The Common Stock issuable
pursuant to the exercise of the new HUBCO Options will be registered by HUBCO
on a Form S-8 under the Securities Act. Lafayette currently has options
outstanding under two stock option plans, the 1984 Incentive Stock Option
Plan ("1984 PLAN") and the 1994 Stock Option Plan ("1994 PLAN"). As of
December 31, 1995, Lafayette had 11,250 options outstanding under the 1984
Plan, 209,167 options outstanding under the 1994 Plan and 250,000 options
outstanding pursuant to a stock option granted to Mr. Goldstein. See
"ELECTION OF LAFAYETTE DIRECTORS-EXECUTIVE COMPENSATION--Stock Options".
CASH IN LIEU OF FRACTIONAL SHARES
No fractional shares of HUBCO Common Stock will be issued in exchange
for either Lafayette Common Stock or Lafayette Options. Instead, holders of
such stock or options will receive cash equal to the fractional share
interest multiplied by the Median Pre-Closing Price of HUBCO Common Stock (as
defined above), without interest. All shares of HUBCO Common Stock to be
issued to each Lafayette shareholder or option holder will be aggregated to
constitute as many whole shares as possible before determining such person's
fractional share interest.
CONVERSION OF LAFAYETTE WARRANTS
The Lafayette Warrants were issued February 24, 1994 pursuant to a
Standby Purchase Agreement dated as of November 15, 1993 and are evidenced by
warrant agreements. At the Effective Time, each outstanding Lafayette
Warrant will be converted automatically into a like warrant to purchase for
the same purchase price that number of shares of HUBCO Common Stock which
equals the number of shares of Lafayette Common Stock which may be purchased
under the Lafayette Warrant, multiplied by the Exchange Ratio. Pursuant to
the terms of the Warrants, the HUBCO Warrants issued in exchange will be
immediately exercisable and transferable. The holders of the Warrants will
recognize taxable gain upon the conversion. See "Federal Income Tax
Consequences".
DISSENTERS' RIGHTS OF APPRAISAL
Holders of HUBCO Common Stock do not have dissenters' appraisal rights
in connection with the Merger.
Holders of Lafayette Common Stock who follow the procedures specified in
Section 36a-125(h) of the CBL and 33-374 of the Connecticut General Statutes
will be entitled to the rights and remedies of dissenting shareholders.
Pursuant to Section 36a-125(h), Lafayette shareholders have the right to
dissent from the Merger and to obtain payment of the fair value of their
shares of Lafayette Common Stock if the Merger is consummated. Necessary
procedural steps are set forth in 33-374 of the Connecticut General Statutes.
See "RIGHTS OF DISSENTING LAFAYETTE SHAREHOLDERS".
BACKGROUND OF AND REASONS FOR THE MERGER
Background of the Merger
The 1990's has been a period of rapid change in the banking industry,
characterized by accelerating, consolidation, intensifying competition from
domestic and foreign banks and from non-bank financial service organizations,
and increasing requirements for investments in technology in order to meet
customer needs on an efficient, competitive basis. During this period, the
management of HUBCO has invested in technology and undertaken a series of
acquisitions in order to enhance its long-term profitability in the face of
changing industry conditions. During the same period, management of
Lafayette dealt with a large volume of non-performing assets, reducing those
assets to more manageable levels and sought to enhance profitability, after
dealing with those problems, by growing as a local community bank.
The Merger is a strategic alliance between Lafayette, a Connecticut
headquartered commercial bank, and HUBCO, which has, until now, focused its
acquisitions within New Jersey.
Reasons for the Merger
Lafayette's Reasons
Calendar year 1994 was a watershed year for Lafayette. After several
years in which Lafayette and its predecessors recorded substantial losses
resulting primarily from troubled loans, Lafayette reported profits in each
quarter of 1994 (and has continued to do so in each quarter thereafter). On
February 24, 1994, Lafayette consummated a rights offering which resulted in
a capital infusion of approximately $34 million before expenses. That
capital infusion, together with Lafayette's profitable operations, enabled
Lafayette to meet an FDIC directive (reflected in a Cease and Desist Order
which subsequently has been terminated) to attain a leverage capital ratio of
at least 6% by September 30, 1994.
As profitable operations continued and as Lafayette built a cushion
above the 6% leverage ratio established as a minimum leverage requirement for
Lafayette, management of Lafayette focused upon approaches for growing
Lafayette's asset base in 1995. Without compromising underwriting standards
or over-paying for deposits and other funding sources, Lafayette was able to
increase its loans and total assets by $82.3 million and $61.7 million,
respectively, from December 31, 1994 to December 31, 1995. During 1995, the
Lafayette Board and management of Lafayette concluded that such internal
growth could and should be supplemented by acquisitions within Lafayette's
market area. Lafayette retained an investment banker with the express
purpose of seeking to expand Lafayette's banking franchise through
acquisitions in Connecticut. Given the expense involved in hostile
transactions, Lafayette's primary focus was upon Connecticut financial
institutions that would be willing to negotiate business combinations on
mutually satisfactory terms.
Despite several attempts to negotiate business combinations with
Connecticut institutions in 1995, Lafayette's management was unable to make
substantial progress in negotiating such transactions with potential merger
partners. By year-end, management was of the view that it would be difficult
to grow Lafayette's asset size by in-market acquisitions.
In December of 1995, a representative of Arthur Andersen LLP (which
serves as independent auditors to both Hubco and Lafayette) suggested to
Lafayette's executive management that they meet with HUBCO's management to
determine whether a business combination could be structured that would
provide value to Lafayette's shareholders while at the same time enable
Lafayette to continue operating as an autonomous banking institution. On
January 4, 1996, Kenneth Neilson, the President and Chief Executive Officer
of HUBCO, met with Robert Goldstein, the President and Chief Executive
Officer of Lafayette, to explore the possibility of such a transaction. At
that meeting, Messrs. Neilson and Goldstein agreed to execute confidentiality
agreements to enable an exchange of basic information regarding each other's
financial institution.
Messrs. Neilson and Goldstein met again on January 18, 1996, at which
point Mr. Neilson toured a number of Lafayette's branch offices. The two
executive officers also reviewed with Arthur Andersen LLP certain issues
relating to pooling of interests accounting treatment and due diligence.
After the meeting, Mr. Goldstein reviewed the points that he had discussed
with both Donald Calcagnini, the Chairman of the Lafayette Board, and John
Eggemeyer of Belle Plaine Partners, Inc., Lafayette's financial advisor
("BELLE PLAINE"). On January 22, 1996, Messrs. Neilson and Goldstein met
again, this time being joined by Mr. Calcagnini and HUBCO's Chief Financial
Officer, Richard Linhart. At this meeting, the parties discussed valuation
issues and the potential benefits arising from a business combination.
Lafayette's Executive Committee and Board of Directors met on January
25, 1996 to review the status of the discussions between Lafayette and HUBCO.
Robert Goldstein and Donald Calcagnini described the meetings that had been
held since early January. John Eggemeyer provided background information
regarding HUBCO and reviewed with the Board alternative business strategies.
The Board authorized management to continue negotiations with HUBCO.
On January 26, 1996, HUBCO's counsel provided Lafayette with draft
copies of the Merger Agreement and Stock Option Agreement. These draft
agreements were the subject of an all day negotiating session on January 29,
1996. Lafayette was represented at that meeting by Mr. Calcagnini, Mr.
Goldstein, Phillip Mucha (Lafayette's chief financial officer), Mr. Eggemeyer
and counsel. HUBCO was represented at that meeting by Mr. Neilson and
counsel. At that meeting, various modifications to the draft agreements were
proposed and negotiated. Subsequent to that meeting (and continuing through
February 4, 1996), numerous telephone conversations were conducted among the
parties in order to resolve open issues, including the precise amount of the
Exchange Ratio, Lafayette's rights to terminate the Merger Agreement in the
event of a reduction in the market price of HUBCO's Common Stock, HUBCO's
ability to increase the Exchange Ratio as a means of avoiding such
termination, Lafayette's concerns regarding the Option Agreement and HUBCO's
ability to negotiate other business combinations prior to the Effective Time.
At the same time that these issues were being negotiated, several drafts of
the Merger Agreement and Stock Option Agreement were circulated and
negotiated and the parties continued their due diligence efforts.
On February 5, 1996, the Boards of Directors of HUBCO and Lafayette each
met to review the agreements circulated during the prior week. Presentations
were made at Lafayette's meeting by management, Mr. Eggemeyer, counsel, a
representative of Arthur Andersen LLP and a representative of KBW. Such
presentations included a summary of the negotiations that had transpired
since the last meeting of the Lafayette Board, a review of the results of
management's due diligence investigations, an analysis of the Merger
Agreement and Stock Option Agreement, a review of business issues pertaining
to the proposed combination and a presentation by KBW in which KBW advised
the Lafayette Board that in its opinion, the Exchange Ratio was fair to
Lafayette's shareholders from a financial point of view.
From the perspective of the Lafayette Board, the Merger presents
Lafayette's shareholders with the opportunity of realizing the benefits of
Lafayette's relatively recent turn-around. While the alternative of
remaining fully independent was attractive to the Lafayette Board, the Board
concluded that the full independence approach presented greater risks to
Lafayette's shareholders, since no assurance can be given that Lafayette will
continue to perform as well as it has performed in recent years. Ultimately,
the Lafayette Board determined that shareholder value would be maximized by
consummation of the Merger. In making this determination, the Lafayette Board
focused upon HUBCO's record of performance and its concentration upon the
same retail and middle market franchises that Lafayette has targeted as its
primary market. Given HUBCO's commitment to community banking, the Lafayette
Board concluded that the Merger should enable the combined enterprise to
attain economies of scale, a broadened geographic market and customer base
and an expansion of services without sacrificing the personalized service
that Lafayette seeks to offer in competing with larger regional and money
center banks.
HUBCO's Reasons
HUBCO entered into the Merger Agreement with Lafayette as part of
HUBCO's ongoing strategy of growth through acquisitions.
HUBCO's acquisition strategy consists of identifying financial
institutions with business philosophies that are similar to HUBCO's, which
operate in markets that are geographically within or close to those of HUBCO,
and which provide an ability to enhance earnings per share over an acceptable
period after the acquisition, while providing acceptable rates of return.
Acquisitions are also evaluated in terms of asset quality, interest rate
risk, core deposit base stability, potential operating efficiencies and
management abilities.
In the view of the HUBCO Board, the Merger constitutes an acquisition
that is in line with HUBCO's strategy and provides a complement to its
existing franchise. Upon completion of the Merger, HUBCO will have a network
of 19 branch banking offices through southeastern Connecticut, which is
demographically similar to and geographically neighbors the northern New
Jersey market of HUBCO. The HUBCO Board believes that Lafayette's earnings
capacity will be enhanced as a result of the Merger--through cost savings
from HUBCO's provision of back-office and support services to Lafayette,
HUBCO's ability to offer expanded services to Lafayette customers and HUBCO's
financial strength--thereby positively contributing to HUBCO's earnings.
See, "CERTAIN INFORMATION ABOUT HUBCO--Recent Developments".
Both the Lafayette Board and the HUBCO Board approved the proposed
Merger after the market closed on February 5, 1996, subject to completion of
the applicable documentation. The Merger Agreement and the Stock Option
Agreement were executed, and the transaction was publicly announced, on
February 6, 1996, prior to the opening of the market.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
Certain members of the Board of Directors and management of Lafayette
may be deemed to have certain interests in the Merger in addition to their
interests generally as stockholders of Lafayette. All of such additional
interests are described below, to the extent material, and except as
described below such persons have, to the best knowledge of Lafayette, no
material interest in the Merger apart from those of stockholders generally.
The Lafayette Board of Directors was aware of these interests of its
directors and officers and considered them, among other matters, in approving
the Merger Agreement and the transactions contemplated thereby.
Indemnification and Board Membership
The Merger Agreement provides that three nominees designated by
Lafayette and acceptable to HUBCO, will be duly appointed by the Board of
Directors of HUBCO to HUBCO's Board, effective at the Effective Time. In
addition, at least nine directors of Lafayette will continue to serve as
directors of Lafayette after the Merger. Such persons would continue to
receive compensation as directors after the Merger.
In addition to the foregoing, the Merger Agreement requires HUBCO to
indemnify, defend and hold harmless each person who is, has been, or becomes
after the Effective Time, a director, officer, employee or agent of Lafayette
or any subsidiary of Lafayette or who serves or has served at the request of
Lafayette in any capacity with any other entity (collectively , the
"INDEMNITEES"), to the fullest extent permitted under applicable law and
Lafayette's Certificate of Incorporation and By-laws, with respect to any
claims made against such person because he or she is or was a director,
officer, employee or agent of Lafayette or any subsidiary of Lafayette or who
serves or has served at the request of Lafayette in any capacity with any
other entity. The Merger Agreement also requires HUBCO to cover Lafayette's
officers and directors under either Lafayette's existing directors' and
officers' liability insurance policy or a rider to HUBCO's then current
policy for a period of at least six years after the Effective Time.
Employment Agreements, Severance Agreements, Option Acceleration and
Bonuses
Prior to the execution of the Merger Agreement, five executive officers
of Lafayette were parties to employment or severance agreements. See
"ELECTION OF DIRECTORS OF LAFAYETTE--Employment Agreements". The employment
agreements for Robert Goldstein, Donald P. Calcagnini, Phillip Mucha and
Amanda Perkins (the "LAFAYETTE OFFICERS") and the severance pay agreement
with Kenneth Klieback provide certain payments and benefits in the event of a
change in control, resulting in a termination of employment. The employment
agreements for each of the Lafayette Officers also provides for reimbursement
for excise taxes payable (if any) as a result of benefits received upon a
Change in Control (as defined). Such reimbursement is designed to put the
officers in the same position as they would have been if such excise tax had
not been imposed. All or a portion of these costs may not be deductible by
HUBCO or Lafayette for federal income tax purposes. If, pursuant to the
provisions in the applicable employment agreement or severance agreements,
payments were required to be made to Messrs. Goldstein, Calcagnini, Mucha,
Perkins, and Klieback, and assuming the Effective Time is June 30, 1996, the
estimated amounts of such payments (and for these purposes disregarding the
reimbursement for any excise tax) would be $1,239,350, $544,219, $388,700,
$374,049 and $230,417, respectively. The estimated amount of such payments
to the Lafayette Officers and Mr. Klieback as a group would be $2,429,735.
The approval of the Merger Agreement and the closing of the Merger will be a
Change in Control for purposes of the agreements.
Furthermore, stock option grants to various executive officers include
provisions which accelerate the vesting of the options under a change-in-
control, as defined in the stock options. The Merger will constitute a
change-in-control which will accelerate those options. See "ELECTION OF
DIRECTORS OF LAFAYETTE--Executive Compensation--Stock Options" and "--
Conversion of Lafayette Stock Options".
As part of the Merger Agreement, Lafayette was given the right (but not
the obligation) to pay stay-on bonuses for officers of Lafayette, to
encourage them to stay on through the Merger and for a period of time
thereafter. HUBCO has estimated that Lafayette and HUBCO will incur $1.3
million for such stay-on bonuses. See "CERTAIN INFORMATION ABOUT HUBCO--
Recent Developments". All of the executive officers of Lafayette, including
its most highly compensated executives, are expected to receive substantial
stay-on bonuses in connection with the Merger.
HUBCO has also engaged in discussions concerning arrangements that may
be made to assure the continued employment of Robert Goldstein, President and
CEO of Lafayette, after the Merger. New employment arrangements for Mr.
Goldstein and other officers may be entered into after consummation of the
Merger.
OPINIONS OF FINANCIAL ADVISORS
Lafayette's Financial Advisor
PURSUANT TO AN ENGAGEMENT LETTER DATED AS OF JANUARY 30, 1996 (THE "KBW
ENGAGEMENT LETTER"), Lafayette retained KBW to render a fairness opinion to
Lafayette in connection with a possible business combination between
Lafayette and HUBCO.
KBW is a nationally recognized investment banking firm and, as part of
its investment banking business, is continually engaged in the valuation of
bank, bank holding company and thrift institution securities in connection
with acquisitions, negotiated underwritings, secondary distributions of
listed and unlisted securities, private placements and valuations for various
other purposes. As specialists in the securities of banking companies, KBW
has experience in, and knowledge of, the valuation of banking enterprises.
KBW was selected by Lafayette on the basis of its qualifications, its
previous experience in similar transactions and its reputation in the banking
and investment communities. KBW has acted exclusively for the Lafayette
Board in rendering its fairness opinion and will receive a fee from Lafayette
for its services.
In the ordinary course of its business as a broker-dealer, KBW may, from
time to time, purchase securities from, and sell securities to, Lafayette and
HUBCO, and as a market maker in securities, KBW may from time to time have a
long or short position in, and buy or sell, equity securities of Lafayette
and HUBCO for its own account and for the accounts of its customers. To the
extent that KBW has any such position as of the date of the fairness opinion
attached as Annex D hereto, it has been disclosed to Lafayette.
At the February 5, 1996 special meeting of the Lafayette Board, KBW
rendered its oral opinion to the Lafayette Board to the effect that, as of
such date, the Exchange Ratio was fair to the stockholders of Lafayette from
a financial point of view. KBW has also delivered a written opinion to the
Lafayette Board dated as of the date of this Proxy Statement to the effect
that, as of such date, the Exchange Ratio was fair to the shareholders of
Lafayette from a financial point of view.
THE FULL TEXT OF KBW'S OPINION IS ATTACHED AS APPENDIX D TO THIS PROXY
STATEMENT AND IS INCORPORATED HEREIN BY REFERENCE. THE DESCRIPTION OF THE
OPINION SET FORTH HEREIN IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO ANNEX
D. LAFAYETTE SHAREHOLDERS ARE URGED TO READ THE OPINION IN ITS ENTIRETY FOR
A DESCRIPTION OF THE PROCEDURES FOLLOWED, ASSUMPTIONS MADE, MATTERS
CONSIDERED AND QUALIFICATIONS AND LIMITATIONS ON THE REVIEW UNDERTAKEN BY KBW
IN CONNECTION THEREWITH. KBW's opinion is directed only to the Exchange
Ratio and does not constitute a recommendation to any Lafayette shareholder
as to how such shareholder should vote at the Lafayette Meeting.
In connection with its opinion, KBW reviewed, analyzed and relied upon
the following material relating to the financial and operating condition of
Lafayette and HUBCO: (i) the Merger Agreement; (ii) Annual Reports to
Shareholders for the three years ended December 31, 1994 for Lafayette and
HUBCO; (iii) certain interim reports to shareholders of Lafayette and HUBCO
and Quarterly Reports on Form 10-Q of Lafayette and HUBCO and certain other
communications from Lafayette and HUBCO to their respective shareholders;
(iv) other financial information concerning the businesses and operations of
Lafayette and HUBCO furnished to KBW by Lafayette and HUBCO for the purpose
of KBW's analysis, including certain internal financial analyses and
forecasts for Lafayette and HUBCO prepared by senior management of Lafayette
and HUBCO; (v) certain publicly available information concerning the trading
of, and the trading market for, Lafayette Common Stock and HUBCO Common
Stock; and (vi) certain publicly available information with respect to
banking companies and the nature and terms of certain other transactions that
KBW considered relevant to its inquiry. Additionally, in connection with its
written opinion attached as Annex D to this Proxy Statement, KBW reviewed a
draft of this Proxy Statement in substantially the form hereof. KBW also
held discussions with senior management of Lafayette and HUBCO concerning
their past and current operations, financial condition and prospects, as well
as the results of regulatory examinations. KBW also considered such
financial and other factors as it deemed appropriate under the circumstances
and took into account its assessment of general economic, market and
financial conditions and its experience in similar transactions, as well as
its experience in securities valuation and its knowledge of banks, bank
holding companies and thrift institutions generally. KBW's opinion was
necessarily based upon conditions as they existed and could be evaluated on
the date thereof and the information made available to KBW through the date
thereof.
In conducting its review and arriving at its opinion, KBW relied upon
and assumed the accuracy and completeness of all of the financial and other
information provided to it or publicly available, and KBW did not attempt to
verify such information independently. KBW relied upon the managements of
Lafayette and HUBCO as to the reasonableness and achievability of the
financial and operating forecasts (the assumptions and bases therefor)
provided to KBW and assumed that such forecasts reflected the best available
estimates and judgments of such managements and that such forecasts will be
realized in the amounts and in the time periods estimated by such
managements. KBW also assumed, without independent verification, that the
aggregate allowances for loan losses for Lafayette and HUBCO are adequate to
cover such losses. KBW did not make or obtain any evaluations or appraisals
of the property of Lafayette or HUBCO, nor did KBW examine any individual
loan credit files. KBW was informed by Lafayette, and assumed for purposes
of its opinion, that the Merger would be accounted for as a pooling of
interests under generally accepted accounting principles.
Prior to rendering the written opinion attached as Appendix D to this
Proxy Statement, KBW reviewed with the Lafayette Board financial aspects of
the proposed Merger and rendered an oral opinion as to the fairness of the
Exchange Ratio to the Lafayette Board on February 5, 1996. Set forth below
is a summary of the material factors considered by and valuation
methodologies presented by KBW to the Lafayette Board on February 5, 1996 and
utilized by KBW in connection with rendering its opinion as to the fairness,
from a financial point of view, of the Exchange Ratio to Lafayette's
Shareholders.
Analysis of the HUBCO Offer. KBW reviewed certain historical financial
information for Lafayette and HUBCO (pro forma for pending acquisitions) and
calculated the imputed value of the HUBCO offer to holders of Lafayette
Common Stock. KBW calculated the multiple which the Exchange Ratio
represents, based on an assumed per share purchase price of $13.00, when
compared to December 31, 1995 stated fully diluted book value of $5.77, and
its 1996 earnings estimate of $.76 per share. Based on these assumptions,
the price to stated fully diluted book value multiple was 2.25 times, and the
price to the 1996 earnings estimate per share multiple was 17.10 times.
Selected Peer Group Analysis. KBW compared the financial performance
and market performance of Lafayette, HUBCO, and the pro forma institution
based on various financial measures of earnings performance, operating
efficiency, capital adequacy and asset quality and various measures of market
performance, including market/book values, price to earnings and dividend
yields to those of a group of comparable companies. For purposes of such
analysis, the financial information used by KBW for Lafayette and HUBCO was
as of and for the quarter ended December 31, 1995. For all other companies
in the analysis data was as of and for the quarter ended September 30, 1995.
Market price information was as of February 4, 1996. The companies in the
peer group had total assets ranging from approximately $2.5 billion to $250
million, and included Trust Company of New Jersey, BSB Bancorp, United
National Bancorp, Merchants New York Bancorp, Evergreen Bancorp, Arrow
Financial Corporation, Sterling Bancorp, Hudson Chartered Bancorp, BMJ
Financial Corp, CNB Financial, Interchange Financial, Broad National Bancorp,
Westport Bancorp, and New Milford Bank & Trust.
KBW's analysis showed the following concerning the financial performance
of Lafayette, HUBCO and the pro forma institution: that the return on equity
on an annualized basis (assuming normalized earnings reflecting full taxation
for Lafayette) was 8.17%, 17.10% and 16.74%, respectively, compared with an
average of 14.78% for the peer group; that return on assets (assuming
normalized earnings reflecting full taxation for Lafayette) on an annualized
basis was .66%, 1.36%, 1.31%, respectively, compared with an average of 1.23%
for the group; that net interest margin on an annualized basis was 4.92%,
5.25%, 5.15%, respectively, compared with an average of 4.88%; that the
efficiency ratio on an annualized basis was 67.40%, 61.45%,and 63.67%,
respectively, compared with an average of 60.44%; that the equity to assets
ratio was 8.09%,7.94%, and 7.83%, respectively, compared to an average of
8.33%; that the tangible equity to assets ratio was 8.09%, 7.34%, and 7.40%,
respectively, compared to an average of 7.93%; that the ratio of net charge
offs to average loans was .92%, .45%, and .55%, respectively, compared to an
average of .62%; that the ratio of non-performing assets to total assets was
1.80%, 1.28%, and 1.43%, respectively, compared to an average of 1.42%; and
that the ratio of loan loss reserve to non-performing assets was 65%, 79%,
and 74%, respectively compared to an average of 112%.
KBW's analysis further showed, among other things, the following
concerning the market performance of Lafayette, HUBCO, and the pro forma
institution: that the price to earnings multiple based on 1996 estimated
earnings was 15.28, 11.19, and 13.98 times, respectively, compared to an
average of 11.08 times; that the price to book value multiple was 2.00, 2.26,
and 2.34 times compared to an average of 1.55 times; and that the dividend
yield was 1.82%, 3.04%, and 3.04%, respectively, compared to an average of
2.77%.
Analysis of Selected Merger Transactions. KBW reviewed certain
financial data related to a set of recent comparable bank acquisitions with
aggregate transaction values approximately between $40 million and $500
million which included the following transactions (identified by
acquirer/acquiree): CFX/Safety Fund, BT Financial Corp/Moxham Bank Corp, Dime
SB Williamsburg/Conestoga Bancorp, Peoples Heritage/Bank of New Hampshire,
Bank of Boston/Boston Bancorp, Republic New York/Brooklyn Bancorp, North Fork
Bancorp/Extebank, UJB Financial/Flemington National Bank, Reliance
Bancorp/Sunrise Bancorp, ALBANK/Marble Financial Corp, Summit Bancorp/Garden
State BancShares, Meridian Bancorp/United Counties, Independence
Community/Bay Ridge Bancorp, Crestar Financial/Loyola Capital Corp, Bank of
New York/Putnam Trust Co., PNC Bancorp/Chemical NJ Holdings, Valley National
Bancorp/Lakeland First Financial, UJB Financial/Bancorp NJ, and Staten Island
SB/Gateway Bancorp.
KBW calculated averages and medians (measured on February 4, 1996)
for the premium to the target's earnings (trailing 12 months) for all deals
(including both banks and thrifts), all bank deals and all thrift deals:
Average premium to earnings were 18x, 20x, and 16x, respectively. Median
premium to earnings were: 16x, 20x and 15x, respectively, compared with a
multiple of 29x (normalized earnings) associated with the HUBCO proposal;
an average premium to the target's stated book value of 183%, 211%, and 155%
for all deals, all banks, and all thrifts, respectively, and a median
premium to target stated book value of 167% 213% and 148%, respectively
compared with a multiple of 225% associated with the HUBCO proposal.
No company or transaction used as a comparison in the above analysis is
identical to Lafayette, HUBCO 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.
Affordability Analysis. KBW compared the financial ability of HUBCO to
acquire Lafayette relative to a selected group of other bank holding
companies including First Union, Fleet Financial Group, Bank of Boston, Bank
of New York, and Summit Bancorporation, as measured by earnings per share
("EPS") dilution. The analysis was based on 1996 earnings estimates, market
price data as of February 2, 1996 and financial data as of December 31, 1995.
Using a range of per share bid prices of $12.00 to $15.00, KBW calculated pro
forma EPS dilution. KBW's analysis showed that at the HUBCO offer price of
$13.00 per share (based on the February 2, 1995 HUBCO closing price), the EPS
dilution excluding any cost savings or revenue enhancements, incurred by
HUBCO would be approximately 10.0% compared to .4% - 1.59% for the selected
group. The pre-tax earnings created by additional cost savings or revenue
enhancements required by HUBCO to eliminate such dilution is approximately
$4.78 million compared to $4.75 - $7.16 million for the selected group.
Contribution Analysis. KBW analyzed the relative contribution of each
of Lafayette and HUBCO to certain balance sheet and income statement items,
including assets, deposits, shareholders' equity and estimated earnings. The
contribution analysis showed that under the HUBCO proposal, Lafayette would
contribute approximately 29% of the combined assets, 29% of the combined
deposits, 30% of the combined shareholders' equity and 21% of the estimated
1996 earnings of the two companies (before cost savings).
Pro Forma EPS and Book Value Per Share. KBW analyzed the pro forma
earnings per share and book value per share of the combined company assuming
an exchange ratio of 0.588 shares of HUBCO Common Stock for each share of
Lafayette Common Stock. Based on the 1996 EPS estimates of $.76 and $2.00
for Lafayette and HUBCO, respectively, the combined company's pro forma EPS
is estimated at $1.80 for 1996 excluding cost savings which represents 10 %
dilution to HUBCO, and pro forma EPS of $2.05 including cost savings which
represent 2.2% accretion to HUBCO.
Discounted Cash Flow Analysis. KBW estimated the present value of the
future streams of after-tax cash flows of Lafayette as a stand-alone,
independent entity through the year 2000 and then a subsequent sale to a
larger financial institution. The analysis was based on several assumptions,
including an earnings per share estimate of $.76 in 1996. A terminal value
was calculated for 2000 by multiplying Lafayette's projected 2000 earnings by
a price/earnings multiple of 8.00 - 14.00 times trailing earnings. The
terminal valuation and the estimated earnings were discounted at a rate of 8
- - 18%, producing present values of $6.16 - $13.43. KBW compared these values
to the potential value provided to Lafayette shareholders in the Merger.
The discounted cash flow analysis was based upon varying assumptions
concerning earnings growth rates, dividend rates and terminal values, which
assumptions are themselves based upon many factors and assumptions many of
which are beyond the control of Lafayette and HUBCO. As indicated below,
this analysis is not necessarily indicative of actual values or actual future
results and does not purport to reflect the prices at which any security may
trade at the present time or any time in the future.
The summary contained herein provides a description of the material
analyses prepared by KBW in connection with the rendering of its opinion.
The summary set forth above does not purport to be a complete description of
the analyses performed by KBW in connection with the rendering of its
opinion. The preparation of a fairness opinion is not necessarily
susceptible to partial analysis or summary description. KBW believes that
its analyses and the summary set forth above must be considered as a whole
and that selecting portions of its analyses without considering all analyses,
or selecting part of the above summary, without considering all factors and
analyses, would create an incomplete view of the processes underlying the
analyses set forth in KBW's presentations and opinion. The ranges of
valuations resulting from any particular analysis described above should not
be taken to be KBW's view of the actual value of Lafayette and HUBCO. The
fact that any specific analysis has been referred to in the summary above is
not meant to indicate that such analysis was given greater weight than any
other analyses.
In performing its analyses, KBW made numerous assumptions with respect
to industry performance, general business and economic conditions and other
matters, many of which are beyond the control of Lafayette and HUBCO. The
analyses performed by KBW are not necessarily indicative of actual values or
actual future results which may be significantly more or less favorable than
suggested by such analyses. Such analyses were prepared solely as part of
KBW's analysis of the fairness, from a financial point of view, of the
Exchange Ratio and were provided to the Lafayette Board in connection with
the delivery of KBW's opinion. The analyses do not purport to be appraisals
or to reflect the prices at which a company actually might be sold or the
prices at which any securities may trade at the present time or at any time
in the future. In addition, as described above, KBW's opinion, along with
its presentation to the Lafayette Board, was just one of many factors taken
into consideration by the Lafayette Board in approving the Merger Agreement.
Pursuant to the KBW Engagement Letter, Lafayette has agreed to pay KBW a
cash fee of $50,000 upon the execution of its fairness opinion, an additional
$100,000 upon the mailing of this Proxy Statement, and an additional $100,000
upon the consummation of the transaction. Lafayette has agreed to reimburse
KBW for its reasonable out-of-pocket expenses, including attorney's fees, and
to indemnify KBW against certain liabilities, including certain liabilities
under the federal securities laws.
HUBCO's Financial Advisor
Goldman Sachs delivered its written opinion to the HUBCO Board that, as
of February 5, 1996, the Exchange Ratio pursuant to the Merger Agreement is
fair to HUBCO.
THE FULL TEXT OF THE WRITTEN OPINION OF GOLDMAN SACHS DATED FEBRUARY 5,
1996, WHICH SETS FORTH ASSUMPTIONS MADE, MATTERS CONSIDERED AND LIMITATIONS
ON THE REVIEW UNDERTAKEN IN CONNECTION WITH THE OPINION, IS ATTACHED HERETO
AS APPENDIX C TO THIS PROXY STATEMENT AND IS INCORPORATED HEREIN BY
REFERENCE. SHAREHOLDERS OF HUBCO ARE URGED TO, AND SHOULD, READ SUCH OPINION
IN ITS ENTIRETY.
In connection with its opinion, Goldman Sachs reviewed, among other
things, (i) the Merger Agreement; (ii) Annual Reports to Shareholders and
Annual Reports on Form 10-K of HUBCO and Lafayette for the five fiscal years
ended December 31, 1994; (iii) certain interim reports to shareholders and
Quarterly Reports on Form 10-Q of HUBCO and Lafayette; (iv) certain other
communications from HUBCO and Lafayette to their respective shareholders; and
(v) certain internal financial analyses and forecasts for HUBCO and Lafayette
prepared by their respective managements. Goldman Sachs also held
discussions with members of the senior management of HUBCO and Lafayette
regarding their past and current business operations, regulatory
relationships, financial condition and future prospects of their respective
companies. In addition, Goldman Sachs reviewed the reported price and
trading activity for the HUBCO Common Stock and Lafayette Common Stock,
compared certain financial and stock market information for HUBCO and
Lafayette with similar information for certain other companies the securities
of which are publicly traded, reviewed the financial terms of certain recent
business combinations in the banking industry and performed such other
studies and analyses as Goldman Sachs considered appropriate.
Goldman Sachs relied without independent verification upon the accuracy
and completeness of all of the financial and other information reviewed by it
for purposes of its opinion. In that regard, Goldman Sachs assumed, with the
consent of the HUBCO Board, that the financial forecasts, including, without
limitation, cost savings projected by HUBCO to result from the Merger, were
reasonably prepared on a basis reflecting the best currently available
judgments and estimates of HUBCO and that such forecasts would be realized in
the amount and at the times contemplated thereby. Goldman Sachs is not an
expert in the evaluation of loan portfolios for purposes of assessing the
adequacy of the allowances for losses with respect thereto and assumed, with
the consent of the HUBCO Board, that such allowances for each of HUBCO and
Lafayette are adequate to cover all such losses. In addition, Goldman Sachs
did not review individual credit files nor make an independent evaluation or
appraisal of the assets and liabilities of HUBCO or Lafayette or any of their
respective subsidiaries and Goldman Sachs was not furnished with any such
evaluation or appraisal. Goldman Sachs assumed with the consent of the HUBCO
Board that the Merger will be accounted for as a pooling of interests under
generally accepted accounting principles.
The following is a summary of certain of the financial analyses used by
Goldman Sachs in connection with providing its written opinion to the HUBCO
Board dated February 5, 1996.
(i) Analysis of Purchase Price. Goldman Sachs calculated various
financial multiples based upon the stock consideration to be paid in the
Merger. Based on the number of shares and options of Lafayette Common
Stock outstanding as of December 31, 1995 and the closing price of the
HUBCO Common Stock on February 2, 1996 of $22.375, Goldman Sachs
calculated that the price per share of Lafayette Common Stock to be paid
in the Merger was $13.16. The multiples of the stock consideration for
EPS were as follows: 28.6x, 14.3x, 16.9x and 13.2x, for 1995 (assuming
a normalized tax rate for Lafayette of 41.5% in 1995), estimated 1996
(based on Institutional Broker Estimate System ("IBES") median
estimates) and estimated 1996 and 1997 (based on management of HUBCO
estimates), respectively. IBES is a data service which monitors and
publishes a compilation of earnings estimates produced by selected
research analysts on companies of interest to investors.
In addition, Goldman Sachs analyzed the consideration to be paid to
holders of shares of Lafayette Common Stock pursuant to the Merger
Agreement in relation to various information of Lafayette. Such analysis
indicated that the price per share of Lafayette Common Stock to be paid
pursuant to the Merger Agreement represented a premium of: (i) 19.6%,
based on the $11.00 closing price of the Lafayette Common Stock on
February 2, 1996; (ii) 221.2% based on the book value of Lafayette as of
December 31, 1995; (iii) 221.2% based on the tangible book value of
Lafayette as of December 31, 1995; and (iv) 12.6% based on core deposits
of Lafayette as of December 31, 1995.
(ii) Selected Transactions Analysis. Goldman Sachs analyzed
certain information relating to bank transactions involving acquisitions
over $100 million in Maine, Vermont, New Hampshire, New York,
Massachusetts, Connecticut, Rhode Island, New Jersey and Pennsylvania
since 1992 (the "SELECTED TRANSACTIONS"). Such analysis indicated that
for the Selected Transactions aggregate consideration as a multiple of
latest twelve months EPS had a median multiple of 15.3x, and as a
multiple of tangible book value had a median multiple of 2.15x. In
addition, such analysis indicated that for the Selected Transactions,
the median core deposits premium was 11.7%.
(iii) Pro Forma Merger Analysis. Goldman Sachs prepared pro forma
analyses of the financial impact of the Merger. For purposes of this
analysis, Goldman Sachs assumed: (a) a price of $22.375 per share of
HUBCO Common Stock; (b) a price of $11.00 per share of Lafayette Common
Stock; (c) 6.15 million shares of HUBCO Common Stock (including cash-out
options) would be issued in the Merger; (d) $8.4 million in pre-tax cost
savings, representing 32% of Lafayette's 1995 non-interest expenses
phased-in 50% in 1996 and 100% in 1997; (e) a $9.4 million after tax
restructuring charge and (f) an Exchange Ratio of 0.588. Using earnings
estimates for (a) HUBCO prepared by the management of HUBCO, and
(b) Lafayette (i) prepared by the management of Lafayette and
(ii) provided by IBES, for 1996 and 1997, Goldman Sachs compared the EPS
of the HUBCO Common Stock, on a stand alone basis, to the EPS of the
common stock of the combined company on a pro forma basis. Based on
such analyses, the proposed transaction would be dilutive to the
shareholders of HUBCO on an estimated earnings per share basis in 1996
(using both earnings estimates for Lafayette) and would be accretive to
the shareholders of HUBCO on an estimated earnings per share basis in
1997 (using both earnings estimates for Lafayette).
(iv) Selected Companies Analysis. Goldman Sachs reviewed and
compared certain financial information relating to HUBCO and Lafayette
to corresponding financial information, ratios and public market
multiples for publicly traded banking corporations that for purposes of
analysis were divided into two categories: (i) a Lafayette peer group;
and (ii) a HUBCO peer group. The Lafayette peer group consisted of the
following publicly traded banking corporations: Arrow Financial
Corporation, B.M.J. Financial Corp., Bank of New Hampshire Corporation,
BSB Bancorp, Inc., BT Financial Corporation, Community Bank System,
Inc., Evergreen Bancorp, Inc., NBT Bancorp Inc., Omega Financial
Corporation, Suffolk Bancorp, United National Bancorp and U.S. Bancorp,
Inc. (the "LAFAYETTE PEER GROUP"). The HUBCO peer group consisted of
the following publicly traded banking corporations: Broad National
Bancorporation, Interchange Financial Services Corporation, The Trust
Company of New Jersey, United National Bancorp and Valley National
Bancorp (the "HUBCO PEER GROUP", and together with the Lafayette Peer
Group, the "SELECTED COMPANIES"). The Selected Companies were chosen
because they are publicly-traded companies with operations, geographic
location and/or size that for purposes of analysis may be considered
similar to Lafayette and HUBCO, as the case may be. Goldman Sachs
calculated and compared various financial multiples and ratios. The
multiples of Lafayette were calculated using a price of $11.00 per share
of Lafayette Common Stock and the multiples of HUBCO were calculated
using a price of $22.38 per share of HUBCO Common Stock. The multiples
and ratios for Lafayette and HUBCO were based on information provided by
management of Lafayette and HUBCO, respectively. For purposes of the
following analysis, all financial data (other than for HUBCO and
Lafayette) is at or for the twelve months ended September 30, 1995 and
market data is as of February 2, 1996. Financial data for HUBCO and
Lafayette is as of December 31, 1995. Earnings estimates for the
Selected Companies are from IBES as of January 24, 1996.
Goldman Sachs considered price/earnings ratios for the Selected
Companies. With respect to the Lafayette Peer Group: (i) estimated 1996
price/earnings ratios ranged from a low of 8.6x to a high of 13.9x, with
a median of 11.1x, as compared to 12.0x for Lafayette; and
(ii) estimated 1997 price/earnings ratios ranged from a low of 7.8x to a
high of 12.7x, with a median of 10.1x, as compared to 10.8x for
Lafayette. With respect to the HUBCO Peer Group: (i) estimated 1996
price/earnings ratios ranged from a low of 9.2x to a high of 12.0x, with
a median of 9.9x, as compared to 11.2x for HUBCO; and (ii) estimated
1997 price/earnings ratios ranged from a low of 6.2x to a high of 11.1x,
with a median of 8.9x, as compared to 10.2x for HUBCO.
Goldman Sachs also considered for the Selected Companies the ratio
of Non-Performing Assets to Loans plus Other Real Estate Owned. With
respect to the Lafayette Peer Group, such ratios ranged from a low of
0.25% to a high of 3.69%, with a median of 1.37%, as compared to 2.57%
for Lafayette. With respect to the HUBCO Peer Group such ratios ranged
from a low of 1.10% to a high of 8.31%, with a median of 2.20%, as
compared to 2.47% for HUBCO. In addition, Goldman Sachs considered for
the Selected Companies the ratio of Reserves to Non-Performing Loans.
With respect to the Lafayette Peer Group, such ratios ranged from a low
of 117% to a high of 872%, with a median of 204%, as compared to 110%
for Lafayette. With respect to the HUBCO Peer Group such ratios ranged
from a low of 58% to a high of 222%, with a median of 75%, as compared
to 104% for HUBCO.
Goldman Sachs also considered price to book value per share
multiples and price to tangible book value per share multiples for the
Selected Companies. With respect to the Lafayette Peer Group, the price
to book value per share multiples ranged from a low of 1.2x to a high of
2.0x, with a median of 1.4x, as compared to 1.8x for Lafayette, and the
price to tangible book value per share multiples ranged from a low of
1.3x to a high of 2.0x, with a median of 1.6x, as compared to 1.8x for
Lafayette. With respect to the HUBCO Peer Group, the price to book
value per share multiples ranged from a low of 1.2x to a high of 2.3x,
with a median of 1.6x, as compared to 2.3x for HUBCO, and the price to
tangible book value per share multiples ranged from a low of 1.2x to a
high of 2.4x, with a median of 1.9x, as compared to 2.4x for HUBCO.
(v) Historical Stock Trading Analysis. Goldman Sachs reviewed the
historical trading prices and volumes for the Lafayette Common Stock and
the HUBCO Common Stock. Goldman Sachs also compared the daily indexed
stock price for the Lafayette Common Stock and the HUBCO Common Stock
against the S&P Regional Bank Index and a Peer Group Composite Index for
the period beginning February 2, 1995 and ended February 2, 1996. The
S&P Regional Bank Index is comprised of the following companies: Banc
One Corporation, Bank of Boston Corporation, The Bank of New York
Company, Inc., Barnett Banks, Inc., Boatmen's Bancshares, Inc., Comerica
Incorporated, CoreStates Financial Corp., First Bank System, Inc., First
Interstate Bancorp, First Union Corporation, Fleet Financial Group,
Inc., KeyCorp, Mellon Bank Corporation, National City Bancshares, Inc.,
NationsBank Corporation, Norwest Corporation, PNC Bank Corp., Republic
New York Corporation, Suntrust Banks, Inc., U.S. Bancorp, Wachovia
Corporation and Wells Fargo & Company. The Peer Group Composite Index
consisted of the following companies: Arrow Financial Corporation,
B.M.J. Financial Corp., BSB Bancorp, Inc., BT Financial Corporation,
Community Bank System, Inc., Evergreen Bancorp, Inc., NBT Bancorp Inc.,
Omega Financial Corporation, Suffolk Bancorp, United National Bancorp
and U.S. Bancorp, Inc. This comparison indicated that from the period
beginning February 2, 1995 and ended February 2, 1996, the Lafayette
Common Stock outperformed each of the HUBCO Common Stock, the S&P
Regional Bank Index and the Peer Group Composite Index. During that same
time period, the HUBCO Common Stock traded in line with the S&P Regional
Bank Index and the Peer Group Composite Index.
The preparation of a fairness opinion is a complex process and is not
necessarily susceptible to partial analysis or summary description.
Selecting portions of the analyses or of the summary set forth above, without
considering the analyses as a whole, could create an incomplete view of the
processes underlying Goldman Sachs' opinion. In arriving at its fairness
determination, Goldman Sachs considered the results of all such analyses. No
company or transaction used in the above analyses as a comparison is
identical to HUBCO or Lafayette or the contemplated transaction. The
analyses were prepared solely for purposes of Goldman Sachs' providing its
opinion as to the fairness of the Exchange Ratio pursuant to the Merger
Agreement to the HUBCO Board and do not purport to be appraisals or
necessarily reflect the prices at which businesses or securities actually may
be sold. Analyses based upon forecasts of future results are not necessarily
indicative of actual future results, which may be significantly more or less
favorable than suggested by such analyses. Because such analyses are
inherently subject to uncertainty, being based upon numerous factors or
events beyond the control of the parties or their respective advisors, none
of HUBCO, Lafayette, Goldman Sachs or any other person assumes responsibility
if future results are materially different from those forecast.
As described above, Goldman Sachs' opinion to the HUBCO Board was one of
many factors taken into consideration by the HUBCO Board in making its
determination to approve the Merger Agreement. The foregoing summary does not
purport to be a complete description of the analysis performed by Goldman
Sachs and is qualified by reference to the written opinion of Goldman Sachs
set forth in Appendix C hereto.
Goldman Sachs, as part of its investment banking business, is
continually engaged in the valuation of businesses and their securities in
connection with mergers and acquisitions, negotiated underwritings,
competitive biddings, secondary distributions of listed and unlisted
securities, private placements and valuations for estate, corporate and other
purposes. HUBCO selected Goldman Sachs because it is a nationally recognized
investment banking firm that has substantial experience in transactions
similar to the Merger. Goldman Sachs is familiar with HUBCO having provided
certain investment banking services to HUBCO from time to time. Goldman
Sachs has provided certain investment banking services to Lafayette from time
to time. Goldman Sachs is a full service securities firm and in the course
of its trading activities it may from time to time effect transactions and
hold positions in securities of HUBCO and Lafayette.
Pursuant to a letter agreement dated February 1, 1996 (the "GOLDMAN
SACHS ENGAGEMENT LETTER"), HUBCO engaged Goldman Sachs to undertake a study
to enable it to render an opinion with respect to the Exchange Ratio.
Pursuant to the terms of the Goldman Sachs Engagement Letter, HUBCO has
agreed to pay Goldman Sachs upon delivery of its opinion a fee of $200,000.
HUBCO has agreed to reimburse Goldman Sachs for its reasonable out-of-pocket
expenses, including attorney's fees, and to indemnify Goldman Sachs against
certain liabilities, including certain liabilities under the federal
securities laws.
RESALE CONSIDERATIONS WITH RESPECT TO THE HUBCO COMMON STOCK
The shares of HUBCO Common Stock that will be issued if the Merger is
consummated have been registered under the Securities Act and will be freely
transferable, except for shares received by persons, including directors and
executive officers of Lafayette, who may be deemed to be "affiliates" of
Lafayette under Rule 145 promulgated under the Securities Act. An
"AFFILIATE" of an issuer is defined generally as a person who "controls" the
issuer. Directors, executive officers and 10% shareholders may be deemed to
control the issuer. Affiliates may not sell their shares of HUBCO Common
Stock acquired pursuant to the Merger, except pursuant to an effective
registration statement under the Securities Act covering the HUBCO Common
Stock or in compliance with Rule 145 or another applicable exemption from the
registration requirements of the Securities Act.
Persons who may be deemed to be "affiliates" of Lafayette have delivered
letters to HUBCO in which they have agreed to certain restrictions on their
ability to sell, transfer or otherwise dispose of ("TRANSFER") any Lafayette
Common Stock owned by them and any HUBCO Common Stock acquired by them in the
Merger. Pursuant to the accounting rules governing a pooling of interests,
such persons have agreed not to transfer the shares during the period
beginning 30 days prior to the Effective Time and ending on the date on which
financial results covering at least 30 days of post-merger combined
operations of HUBCO and Lafayette have been published or filed by HUBCO.
Also, in connection with the pooling of interests rules, such persons have
agreed not to transfer their Lafayette Common Stock in the period prior to 30
days before the Effective Time without giving HUBCO advance notice and an
opportunity to object if the transfer would interfere with pooling of
interests accounting for the Merger. Pursuant to Rule 145, such persons have
also agreed to refrain from transferring HUBCO Common Stock acquired by them
in the Merger, except in compliance with certain restrictions imposed by Rule
145. Certificates representing the shares of HUBCO Common Stock acquired by
each such person pursuant to the Merger will bear a legend reflecting that
the shares are restricted in accordance with the letter signed by such person
and may not be transferred except in compliance with such restrictions.
Persons who may be deemed "affiliates" of HUBCO have also delivered
letters to HUBCO in which they have agreed not to transfer HUBCO Common Stock
beneficially owned by them in violation of the pooling of interests
restrictions set forth above with respect to Lafayette.
CONDITIONS TO THE MERGER
The obligation of each party to consummate the Merger is subject to
satisfaction or waiver of certain conditions, including (i) approval of the
Merger by the affirmative vote of two-thirds of the outstanding Lafayette
Common Stock and approval of the issuance of HUBCO Common Stock in connection
with the Merger by the affirmative vote of a majority of the shares of HUBCO
Common Stock voting at the HUBCO Meeting, whether in person or by proxy;
(ii) the receipt of all consents, approvals and authorizations of all
necessary federal and state government authorities and expiration of all
required waiting periods, necessary for the consummation of the Merger (see
"--Regulatory Approvals"); (iii) the effectiveness of the registration
statement covering the shares of HUBCO Common Stock to be issued to Lafayette
shareholders; (iv) the absence of any litigation that would restrain or
prohibit the consummation of the Merger; (v) qualification of the Merger to
be treated by HUBCO as a pooling of interests for accounting purposes; and
(vi) receipt by the parties of an opinion of Pitney, Hardin, Kipp & Szuch to
the effect that the exchange of Lafayette Common Stock for HUBCO Common Stock
is a tax-free reorganization within the meaning of Section 368 of the Code
(see "--Federal Income Tax Consequences").
The obligation of HUBCO to consummate the Merger is also conditioned on,
among other things, (i) the continued accuracy in all material respects of
the representations and warranties of Lafayette contained in the Merger
Agreement; (ii) the performance by Lafayette, in all material respects, of
all its obligations under the Merger Agreement; and (iii) receipt of consent
from each holder of a Vested Lafayette Option outstanding at the Closing Date
to the conversion of such person's Vested Lafayette Option in the manner
described in this Proxy Statement (see "-- Conversion of Lafayette Stock
Options").
The obligation of Lafayette to consummate the Merger is also conditioned
on, among other things, (i) the continued accuracy in all material respects
of the representations and warranties of HUBCO contained in the Merger
Agreement; (ii) the performance by HUBCO, in all material respects, of all
its obligations under the Merger Agreement; (iii) the appointment by the
HUBCO Board of three nominees, designated by Lafayette and reasonably
acceptable to HUBCO, to the HUBCO Board, effective at the Effective Time; and
(iv) written acknowledgment, acceptance and assumption by HUBCO of existing
employment agreements between Lafayette and certain of its officers.
CONDUCT OF BUSINESS PENDING THE MERGER
The Merger Agreement requires Lafayette to conduct its business and
engage in transactions permitted under the Merger Agreement prior to the
Effective Time only in the ordinary course of business consistent with
prudent banking practices, except as permitted under the Merger Agreement or
with the written consent of HUBCO. Under the Merger Agreement, Lafayette has
agreed not to take certain actions without the prior written consent of HUBCO
or unless permitted by the Merger Agreement, including, among other things,
the following: (a) change the number of shares of its authorized or issued
capital stock or issue or grant any option, warrant, call, commitment,
subscription, right to purchase or agreement of any character relating to the
authorized or issued capital stock of Lafayette, or any securities
convertible into shares of such stock, or split, combine or reclassify any
shares of its capital stock, or declare, set aside or pay any dividend or
other distribution (whether in cash, stock or property or any combination
thereof) in respect of its capital stock, except the equivalent cash dividend
of $.10 per share described under "MARKET PRICE AND DIVIDEND MATTERS--
Limitations on Dividends Under the Merger Agreement"; (b) grant any severance
or termination pay (other than pursuant to policies or contracts of Lafayette
in effect on the date of the Merger Agreement and disclosed to HUBCO) to, or
enter into or amend any employment or severance agreement with, any of its
directors, officers or employees; (c) adopt any new employee benefit plan or
arrangement of any type, or award any increase in compensation or benefits to
its directors, officers or employees or pay any stay-on bonuses, except as
set forth under "Interests of Certain Persons in the Merger" and employee
increases in the ordinary course of business and consistent with past
practices and policies; (d) sell or dispose of any substantial amount of
assets or incur any significant liabilities other than in the ordinary course
of business consistent with past practices and policies or in response to
substantial financial demands upon the business of Lafayette; (e) make any
capital expenditures other than capital expenditures provided to HUBCO prior
to the Merger Agreement, or which are either pursuant to binding commitments
existing on the date of the Merger Agreement or necessary to maintain
existing assets in good repair; (f) except as provided to HUBCO prior to the
Merger Agreement, file any applications or make any contracts with respect to
branching or site location or relocation; (g) agree to acquire in any manner
whatsoever (other than to realize upon collateral for a defaulted loan) any
business or entity; (h) make any material change in its accounting methods or
practices, other than changes required in accordance with generally accepted
accounting principles; (i) take any action that would result in any of
Lafayette's representations or warranties being untrue at the Effective Time
in any material respect; (j) change any provision of the Certificate of
Incorporation or By-laws of Lafayette; or (k) agree to do any of the
foregoing.
Under the Merger Agreement, Lafayette cannot, directly or indirectly,
encourage or solicit or hold discussions or negotiations with, or provide any
information to, any person, entity or group (other than HUBCO) concerning any
merger, sale of shares or sale of substantial assets or liabilities not in
the ordinary course of business or similar transactions (an "ACQUISITION
TRANSACTION"); provided, however, that notwithstanding the foregoing,
Lafayette may enter into discussions or negotiations or provide any
information in connection with an unsolicited possible Acquisition
Transaction if the Board of Directors of Lafayette, after consulting with
counsel, determines in the exercise of its fiduciary responsibilities that
such discussions or negotiations should be commenced or such information
should be furnished. Lafayette has agreed to promptly communicate to HUBCO
the terms of any proposal, whether written or oral, which it may receive with
respect to any such Acquisition Transaction, and the fact that it is having
discussions or negotiations with a third party about an Acquisition
Transaction.
As part of the Merger Agreement, HUBCO agreed that prior to the
Effective Time it will not without Lafayette's prior written consent, (i)
enter into a definitive acquisition agreement to acquire one or more
financial institutions if HUBCO's pro forma book value is diluted by more
than 10% or its tangible book value is diluted by more than 15%, or (ii)
agree to an acquisition which will result in (a) HUBCO's current directors
constituting less than a majority of the surviving corporation's Board of
Directors, or (b) the current chief executive officer of HUBCO, Kenneth T.
Neilson, not continuing as chief executive officer, or (c) the ownership of a
company without a headquarters and a substantial majority of its offices in
New Jersey, New York or Connecticut (any of the foregoing are referred to
herein as a "SIGNIFICANT ACQUISITION"). HUBCO may enter into acquisitions
that are not Significant Acquisitions without the consent of Lafayette.
Lafayette may have the right to terminate the Merger Agreement if it believes
that there has been a material adverse change in HUBCO's financial condition
as a result of acquisitions which are not Significant Acquisitions.
CUSTOMARY REPRESENTATIONS, WARRANTIES AND COVENANTS
The Merger Agreement contains customary mutual representations and
warranties, as well as covenants, relating to, among other things, (a)
corporate organization and similar corporate matters; (b) the capital
structures of each of HUBCO and Lafayette; (c) authorization, execution,
delivery, performance and enforceability of the Merger Agreement and related
matters; (d) documents filed by each of HUBCO and Lafayette with the
Commission and the FDIC, respectively and the accuracy of information
contained therein; (e) the accuracy of information supplied by each of HUBCO
and Lafayette in connection with the Registration Statement and this Proxy
Statement; (f) compliance with applicable laws; (g) the absence of material
litigation; (h) filing of tax returns and payment of taxes; (i) matters
relating to certain mutual contracts; (j) director and officer contracts and
retirement and other employee plans and matters relating to the Employee
Retirement Income Security Act of 1974, as amended; (k) insurance matters;
(l) certain bank regulatory matters; (m) absence of certain material changes
or events from September 30, 1995; (n) the absence of actions that would
prevent there being a tax-free reorganization or the use of the "pooling of
interests" method to account for the Merger; (o) title to properties; (p) the
adequacy of loan loss reserves; (q) environmental compliance; (r) brokers'
and finders' fees; and (s) cooperation on applications and filings.
REGULATORY APPROVALS
Consummation of the Merger is subject, among other things, to prior
receipt of all necessary regulatory approvals. Consummation of the Merger
requires the approval of the Commissioner under the CBL, the FDIC under the
Bank Merger Act (the "BANK MERGER ACT") and the Board of Governors of the
Federal Reserve System (the "FRB") under Regulation Y promulgated under the
Bank Holding Company Act of 1956, as amended (the "BHCA"). Approval by the
Commissioner, the FDIC or the FRB does not constitute an endorsement of the
Merger or a determination by any such regulator that the terms of the Merger
are fair to the shareholders of either Lafayette or HUBCO. Applications for
approval were filed on ___________, 1996 with the Commissioner, on
_________, 1996 with the FDIC and on _________, 1996 with the FRB. While
HUBCO and Lafayette anticipate receiving all such approvals, there can be no
assurance that they will be granted, or that they will be granted on a timely
basis or that they will be granted without conditions unacceptable to HUBCO
or Lafayette.
MANAGEMENT AND OPERATIONS AFTER THE MERGER
At the Effective Time, as a result of the Merger, Merger Sub will be
merged into Lafayette, with Lafayette as the Surviving Bank. Lafayette will
thereafter operate as a wholly-owned subsidiary of HUBCO. The location of
the principal office of Lafayette will remain unchanged -- 1087 Broad Street,
Bridgeport, Connecticut 06604. The branch offices of Lafayette will continue
to serve as branch offices of Lafayette. Although many support functions
will be centralized at HUBCO, Lafayette is expected to retain a management
team led by Robert B. Goldstein, as President and Chief Executive Officer.
HUBCO anticipates that following the Merger, it will enter into new or
supplemental arrangements to assure the continued employment of Mr. Goldstein
and other officers.
After the Merger, certain cost savings are anticipated. See
"INFORMATION ABOUT HUBCO--Recent Developments".
EXCHANGE OF CERTIFICATES, ISSUANCE OF SHARES FOR OPTIONS
At the Effective Time, holders of certificates formerly representing
shares of Lafayette Common Stock will cease to have any rights as Lafayette
shareholders and their certificates automatically will represent the shares
of HUBCO Common Stock into which their shares of Lafayette Common Stock will
have been converted by the Merger. As soon as practicable after the
Effective Time, HUBCO will send written instructions and a letter of
transmittal to each holder of Lafayette Common Stock and each holder of
Vested Lafayette Options, indicating the method for exchanging such holder's
stock certificates or Vested Lafayette Options for the certificates
representing those shares of HUBCO Common Stock into which such holder's
shares of Lafayette Common Stock or Vested Lafayette Options have been
exchanged. HOLDERS OF LAFAYETTE COMMON STOCK AND VESTED OPTIONS SHOULD NOT
SEND IN THEIR CERTIFICATES UNTIL THEY RECEIVE INSTRUCTIONS FROM HUBCO.
Each share of HUBCO Common Stock for which shares of Lafayette Common
Stock and Vested Lafayette Options are exchanged will be deemed to have been
issued at the Effective Time. Accordingly, Lafayette shareholders who
receive HUBCO Common Stock in the Merger will be entitled to receive any
dividend or other distribution which may be payable to holders of record of
HUBCO Common Stock as of dates on or after the Effective Time. However, no
dividend or other distribution will actually be paid with respect to any
shares of HUBCO Common Stock until the certificate or certificates formerly
representing shares of Lafayette Common Stock have been surrendered, at which
time any accrued dividends and other distributions on such shares of HUBCO
Common Stock will be paid without interest. See "--Consideration".
Holders of outstanding certificates for Lafayette Common Stock, upon
proper surrender of such certificates to HUBCO, will receive, promptly after
the Effective Time, a certificate representing the full number of shares of
HUBCO Common Stock into which the shares of Lafayette Common Stock previously
represented by the surrendered certificates have been converted. At the time
of issuance of the new stock certificate, each shareholder so entitled will
receive a check for the amount of the fractional share interest, if any, to
which the shareholder may be entitled.
Holders of Vested Lafayette Options, upon proper surrender of the
agreement with respect to the Vested Option to HUBCO, will receive, promptly
after the Effective Time, a certificate representing the full number of
shares of HUBCO Common Stock, into which the Unvested Options have been
converted. At the time of issuance of the stock certificates, each holder of
an Unvested Option will receive a check for the amount of the fractional
share of interest, if any, to which the holder of the Vested Option may be
entitled.
Immediately following the Closing HUBCO will provide holders of Unvested
Lafayette Options with a means to exchange the Option Grant Agreements with
new Grant Agreements for the HUBCO Common Stock.
HUBCO will also communicate with holders of Warrants concerning their
Warrant Agreements for HUBCO Common Stock.
EFFECTIVE TIME; AMENDMENTS; TERMINATION
The Closing will occur 10 days after receipt of all necessary approvals
and consents and the satisfaction or waiver of the other conditions to
consummation of the Merger, or on another day mutually agreed to by HUBCO and
Lafayette. At the Closing, documents required to satisfy the conditions to
the Merger of the respective parties will be exchanged. In connection with
the Closing, a Certificate of Merger will be executed by HUBCO and Lafayette
and filed with the Commissioner. The Effective Time will be the date and
time specified in the Certificate. The Effective Time is dependent upon
satisfaction of all conditions precedent, some of which are not under the
control of HUBCO and/or Lafayette. See "-- Conditions to the Merger" and "--
Regulatory Approvals".
The Merger Agreement may be amended, modified or supplemented with
respect to any of its terms by the mutual consent of HUBCO and Lafayette at
any time prior to the Effective Time. However, after approval of the Merger
Agreement by the shareholders of Lafayette, no amendment can be made which
reduces the amount or changes the form of consideration to be delivered to
the shareholders of Lafayette without the approval of such shareholders.
The Merger Agreement may be terminated by the mutual consent of
Lafayette and HUBCO. The Merger Agreement may also be terminated by
Lafayette or HUBCO (i) if the Merger does not close on or before December 31,
1996 unless the failure to close is due to the failure of the party seeking
to terminate to perform or observe its covenants in the Merger Agreement;
(ii) if a vote of the stockholders of Lafayette to approve the Merger
Agreement, or the stockholders of HUBCO to approve the issuance of the HUBCO
Common Stock, is taken and the stockholders of either Lafayette or HUBCO fail
to approve such action at their respective shareholder meetings; or (iii) if
any regulatory approvals necessary to consummate the transaction are not
provided or if an approval is given with conditions which materially impair
the value of Lafayette to HUBCO (but then only by HUBCO).
HUBCO may terminate the Merger Agreement if there has been a material
adverse change in the business, operations, assets or financial condition of
Lafayette from that disclosed by Lafayette to HUBCO for the nine months ended
September 30, 1995, or Lafayette breaches any representation, warranty or
covenant under the Merger Agreement and does not cure such breach within 30
days after receipt by Lafayette of a notice of breach. Lafayette may
terminate the Merger Agreement if there has been a material adverse change in
the business, operations, assets or financial condition of HUBCO from that
disclosed by HUBCO for the nine months ended September 30, 1995, or HUBCO
breaches any representation, warranty or covenant under the Merger Agreement
and does not cure such breach within 30 days after receipt by HUBCO of a
notice of breach. HUBCO may also terminate the Merger Agreement if the
conditions to HUBCO's obligations to close are not satisfied and Lafayette
may terminate the Merger Agreement if the conditions for Lafayette to close
are not satisfied.
Lafayette may terminate the Merger Agreement unilaterally if it
exercises its fiduciary responsibilities in connection with another
acquisition proposal and thereby or otherwise a Triggering Event occurs under
the Stock Option Agreement. See "--Stock Option for Shares of Lafayette
Common Stock."
In addition, the Merger Agreement may be terminated by the Board of
Lafayette, at its sole option, if either:
(i) both (a) the HUBCO Common Stock Average Price on the
Determination Date (i.e., the average closing price of HUBCO Common
Stock for the 20 trading days ending on the date the FRB approves the
Merger) is less than $19.25 and (b) the number obtained by dividing the
HUBCO Common Stock Average Price on the Determination Date by the HUBCO
Common Stock closing price on February 7, 1996, $20.25 (the "HUBCO
RATIO"), is less than the number obtained by dividing the closing price
per share of the common stocks of the Index Group on the Determination
Date by $27.94 (being the average closing price per share of the common
stocks of the Index Group on February 7, 1996) and subtracting .075 from
such latter number (after such subtraction, the "INDEX GROUP RATIO"); or
(ii) the HUBCO Common Stock Average Price on the Determination
Date is less than $18.25.
provided, however, that the Merger Agreement would not be so terminated if
HUBCO elects, at its sole option, to increase the Exchange Ratio as set forth
in the Merger Agreement and as illustrated below. There can be no assurance
that the Lafayette Board would exercise its right to terminate the Merger
Agreement if the conditions in either (i) or (ii) above (a "TERMINATION
EVENT") exists and if the Lafayette Board does elect to so terminate the
Merger Agreement, there can be no assurance that HUBCO will elect to increase
the Exchange Ratio as provided in the Merger Agreement and as illustrated
below.
Certain possible effects of the above provisions on the Exchange Ratio
may be illustrated by the following four scenarios:
(1) If the HUBCO Common Stock Average Price on the Determination
Date (i.e., the FRB approval date) is not less than $19.25, there would
be no Termination Event and no adjustment to the Exchange Ratio.
(2) If the HUBCO Common Stock Average Price on the Determination
Date is less than $19.25 and greater than $18.25, but the HUBCO Ratio is
equal to or greater than the Index Group Ratio, there would be no
Termination Event and no increase in the Exchange Ratio.
(3) If the HUBCO Common Stock Average Price on the Determination
Date is less than $19.25 and the HUBCO Ratio (i.e., generally the
percentage decline in HUBCO's stock price) is less than the Index Group
Ratio (i.e., generally the percentage change in the average peer group
common stock price less 7.5%), there would be a Termination Event and
the Lafayette Board could, at its sole option, elect to terminate the
Merger Agreement; provided that HUBCO could, at its sole option,
override such termination by electing to increase the Exchange Ratio to
equal the lesser of (i) a quotient (rounded to four decimals) the
numerator of which is $19.25 multiplied by the existing Exchange Ratio
and the denominator of which is the HUBCO Common Stock Average Price on
the Determination Date, or (ii) a quotient (rounded to four decimals),
the numerator of which is the Index Group Ratio multiplied by the
existing Exchange Ratio and the denominator of which is the HUBCO Ratio.
(4) If the HUBCO Common Stock Average Price on the Determination
Date is less than $18.25, there would be a Termination Event and the
Lafayette Board could, at its sole option, elect to terminate the Merger
Agreement, provided that HUBCO could, at its sole option, override such
termination by electing to increase the Exchange Ratio to equal the
quotient (rounded to four decimals) the numerator of which is $18.25
multiplied by the existing Exchange Ratio and the denominator of which
is the HUBCO Common Stock Average Price.
If there would be a Termination Event described in both paragraphs (3)
and (4) above, the Lafayette Board could elect which Termination Event to
assert. The above scenarios are for illustrative purposes only and are not
intended to, and do not, reflect the value of the HUBCO Common Stock that may
actually be received by holders of Lafayette Common Stock in the Merger, nor
do they reflect all possible termination/increase scenarios.
Lafayette stockholders should be aware that the HUBCO Common Stock
Average Price on the Determination Date on which the occurrence of a
Termination Event and the subsequent increase, if any, in the Exchange Ratio
may be determined, will be based on the average of the closing prices of
HUBCO Common Stock during a 20-day period ending on the day the FRB approves
the transaction. Accordingly, because the market price of HUBCO Common Stock
between the FRB approval date and the Effective Time, as well as on the date
certificates representing shares of HUBCO Common Stock are delivered in
exchange for shares of Lafayette Common Stock following consummation of the
Merger, will fluctuate and possibly decline, the value of the HUBCO Common
Stock actually received by holders of Lafayette Common Stock may be more or
less than (i) the HUBCO Common Stock Average Price on the FRB approval date,
or (ii) the value of the HUBCO Common Stock on the Effective Date resulting
from the Exchange Ratio or any possible adjustment to the Exchange Ratio as
illustrated above.
The Index Group consists of 11 bank holding companies selected by HUBCO
to reflect general changes in comparable companies. The 11 companies are:
Chittenden Corp. (CNDN); Citizen BancShares (CICS); Community Bank Systems
(CBSI); Commerce Bank Corp. (COBA); First Western Bancorp (FWBI); Fulton
Financial (FULT); North Fork Bancorp (NFB); Provident Bancorp., Inc. (PRBK);
S & T Bancorp (STBA); Trust Co. Bancorp (TRST); and Valley National Bancorp
(VLY). If HUBCO or any company belonging to the Index Group declares or
effects a stock dividend, reclassification, recapitalization, split-up,
combination, exchange of shares or similar transaction between February 6,
1996 and the FRB approval date, the prices of HUBCO Common Stock or such
other common stocks shall be appropriately adjusted for all purposes,
including determining whether there is a Termination Event or determining any
possible increase in the Exchange Ratio as illustrated above (and, in the
case of any such transaction by HUBCO, the Exchange Ratio also shall be
appropriately adjusted). In the event the common stock of any such company
ceases to be publicly traded or there has been an announcement of a proposal
for the acquisition or sale of such company, such company will be removed
from the Index Group.
It is not possible to know whether a Termination Event will occur until
after the FRB approval date. The Lafayette Board has made no decision as to
whether it would exercise its right to terminate the Merger Agreement if
there is a Termination Event. In considering whether to exercise its
termination right in such situation, the Lafayette Board would, consistent
with its fiduciary duties, take into account all relevant facts and
circumstances that exist at such time and would consult with its financial
advisors and legal counsel. Approval of the Merger Agreement by the
stockholders of Lafayette at the Lafayette Meeting will confer on the
Lafayette Board the power, consistent with its fiduciary duties, to elect to
consummate the Merger in the event of a Termination Event whether or not
there is any increase in the Exchange Ratio and without any further action
by, or resolicitation of, the stockholders of Lafayette. If the Lafayette
Board elects to exercise its termination right, Lafayette must give HUBCO
prompt notice of that decision during a ten-day period beginning on the FRB
approval date, but the Lafayette Board may withdraw such notice, at its sole
option, at any time during such ten-day period. During a seven-day period
commencing with receipt of such notice, HUBCO has the option, in its sole
discretion, to increase the Exchange Ratio in the manner set forth in the
Merger Agreement and as illustrated above and thereby avoid such termination
of the Merger Agreement. HUBCO is under no obligation to increase the
Exchange Ratio, and there can be no assurance that HUBCO would elect to
increase the Exchange Ratio if the Lafayette Board were to exercise its right
to terminate the Merger Agreement as set forth above. Any such decision
would be made by HUBCO in light of the circumstances existing at the time
HUBCO has the opportunity to make such an election. If HUBCO elects to
increase the Exchange Ratio as set forth in the Merger Agreement and as
illustrated above, it must give Lafayette notice of that election within
seven days after receipt of the notice of termination from Lafayette and
notice of the increased Exchange Ratio, in which case no termination of the
Merger Agreement would occur as a result of a Termination Event.
The foregoing discussion is qualified in its entirety by reference to
the applicable provisions in the Merger Agreement (a copy of which is set
forth as ANNEX A to this Proxy Statement/Prospectus) relating to a possible
increase of the Exchange Ratio as the result of a Termination Event.
In the event of a termination, each party will retain all rights and
remedies it may have at law or equity under the Merger Agreement. Upon a
termination of the Merger Agreement, the transactions contemplated thereby
will be abandoned without further action by any party and each party will
bear its own expenses. However, Lafayette has agreed to reimburse HUBCO for
certain expenses incurred by HUBCO in connection with the Merger Agreement if
HUBCO enters into an acquisition agreement, which is not a Significant
Acquisition, and Lafayette terminates the Merger Agreement because it
believes the acquisition has a material adverse effect on HUBCO.
ACCOUNTING TREATMENT OF THE MERGER
The Merger is expected to be accounted for by HUBCO under the pooling of
interests method of accounting in accordance with generally accepted
accounting principles. The Merger is conditioned upon the receipt by HUBCO
of a letter from its independent public accountants, Arthur Andersen LLP,
that the Merger will be so treated. As required by generally accepted
accounting principles, under pooling of interests accounting, as of the
Effective Time the assets and liabilities of Lafayette would be added to
those of HUBCO at their recorded book values and the stockholders' equity
accounts of HUBCO and Lafayette would be combined on HUBCO's consolidated
balance sheet. On a pooling of interests accounting basis, income and other
financial statements of HUBCO issued after consummation of the Merger would
be restated retroactively to reflect the consolidated combined financial
position and results of operations of HUBCO and Lafayette as if the Merger
had taken place prior to the periods covered by such financial statements.
The pro forma financial information contained in this Proxy Statement has
been prepared using the pooling of interests accounting basis to account for
the Merger. See "PRO FORMA FINANCIAL INFORMATION."
FEDERAL INCOME TAX CONSEQUENCES
THE FEDERAL INCOME TAX DISCUSSION SET FORTH BELOW IS INCLUDED FOR
GENERAL INFORMATION ONLY. IT MAY NOT BE APPLICABLE TO CERTAIN CLASSES OF
TAXPAYERS, INCLUDING INSURANCE COMPANIES, SECURITIES DEALERS, FINANCIAL
INSTITUTIONS, FOREIGN PERSONS AND PERSONS WHO ACQUIRED SHARES OF LAFAYETTE
COMMON STOCK PURSUANT TO THE EXERCISE OF EMPLOYEE STOCK OPTIONS OR RIGHTS OR
OTHERWISE AS COMPENSATION. LAFAYETTE SHAREHOLDERS ARE URGED TO CONSULT THEIR
OWN TAX ADVISERS AS TO THE SPECIFIC TAX CONSEQUENCES TO THEM OF THE MERGER,
INCLUDING THE APPLICABILITY AND EFFECT OF FEDERAL, STATE, LOCAL AND OTHER TAX
LAWS.
General. It is intended that the Merger will be treated as a tax-free
reorganization as defined in Sections 368(a)(1)(A) and 368(a)(2)(E) of the
Code and that, accordingly, no gain or loss will be recognized by HUBCO,
Merger Sub or Lafayette or by the shareholders of Lafayette upon the exchange
of their shares of Lafayette Common Stock solely for shares of HUBCO Common
Stock pursuant to the Merger (except with respect to cash received in lieu of
a fractional share interest in HUBCO Common Stock). Counsel to HUBCO is
required, as a condition of Closing, to provide an opinion to HUBCO and to
Lafayette, with respect to the matter covered by the foregoing sentence.
With respect to this Proxy Statement, Pitney, Hardin, Kipp & Szuch, counsel
to HUBCO, has provided an opinion that, based upon the circumstances as they
presently exist, it expects to be able to render the required opinion.
Consequences of Receipt of Cash in Lieu of Fractional Shares. Cash
received by a Lafayette shareholder in lieu of any fractional share interest
will be treated as having been received in payment in exchange for such
fractional share interest, and, provided the fractional share would have
constituted a capital asset in the hands of such shareholder, the shareholder
should in general recognize capital gain or loss in an amount equal to the
difference between the amount of cash received and the portion of the
adjusted basis in Lafayette Common Stock allocable to the fractional share
interest.
Basis of HUBCO Common Stock. The basis of HUBCO Common Stock received
by a Lafayette shareholder who receives solely HUBCO Common Stock will be the
same as the basis of such shareholder's Lafayette Common Stock surrendered in
exchange therefor.
Holding Period. The holding period of shares of HUBCO Common Stock
received in the Merger by holders of Lafayette Common Stock will include the
period during which such shares of Lafayette Common Stock surrendered in
exchange therefor were held by the holder thereof, provided such shares of
Lafayette Common Stock were held as capital assets.
Holders of Lafayette Options. HOLDERS OF VESTED LAFAYETTE OPTIONS WILL
RECEIVE HUBCO COMMON STOCK AND CASH IN LIEU OF FRACTIONAL SHARES IN
CANCELLATION OF THEIR VESTED LAFAYETTE OPTIONS. SUCH PERSONS WILL BE TREATED
AS HAVING RECEIVED COMPENSATION TAXABLE AS ORDINARY INCOME IN AN AMOUNT EQUAL
TO THE SUM OF THE CASH AND THE VALUE OF THE HUBCO COMMON STOCK RECEIVED BY
THEM IN EXCHANGE FOR THEIR VESTED LAFAYETTE OPTIONS. HOLDERS OF VESTED
LAFAYETTE OPTIONS WILL BE REQUIRED TO DEPOSIT AN AMOUNT FOR WITHHOLDING TAXES
WITH HUBCO UPON RECEIPT OF THE HUBCO COMMON STOCK. Holders of Unvested
Lafayette Options will receive like options to purchase HUBCO Common Stock
and will not be subject to tax on the conversion of their Unvested Lafayette
Options.
Holders of Lafayette Warrants. Holders of Lafayette Warrants will
receive like Warrants to purchase HUBCO Common Stock, except that, pursuant
to the terms of the Warrants, the HUBCO Warrants will be immediately
exercisable and transferable. THE HOLDERS OF WARRANTS WILL AT THE EFFECTIVE
TIME RECOGNIZE GAIN (OR LOSS) FOR FEDERAL INCOME TAX PURPOSES MEASURED BY THE
DIFFERENCE BETWEEN THEIR TAX BASIS IN THE WARRANTS AND THE MARKET VALUE OF
THE WARRANTS AT THE EFFECTIVE TIME. HUBCO MAY BE REQUIRED TO FILE A FORM
1099 WITH THE INTERNAL REVENUE SERVICE TO REPORT THE GROSS PROCEEDS OF THIS
EXCHANGE. THE GAIN (OR LOSS) WILL BE CHARACTERIZED AS CAPITAL GAIN (OR LOSS)
OR AS ORDINARY INCOME (OR LOSS) DEPENDING UPON WHETHER THE HOLDER HOLDS THE
WARRANTS AS A CAPITAL ASSET.
Consequences to Dissenting Lafayette Shareholders. Lafayette
shareholders who perfect their dissenters' rights will receive only cash for
their shares of Lafayette Common Stock and should in general recognize
capital gain or loss equal to the difference, if any, between the amount of
cash received and the shareholder's basis in the Lafayette Common Stock
surrendered therefor. The gain or loss will be characterized as a capital
gain or loss if (a) the holder's shares of Lafayette Common Stock are held as
capital assets and (b) the holder receives cash with respect to all shares of
Lafayette Common Stock which the holder owns actually and constructively
(pursuant to Section 318 of the Code). If a shareholder is not considered as
having disposed of all his stock by reason of the attribution rules, the
distribution of cash may be determined to have the "effect of the
distribution of a dividend," in which case the distribution will be taxed as
a dividend. The determination is made on a shareholder-by-shareholder basis.
STOCK OPTION FOR SHARES OF LAFAYETTE COMMON STOCK
HUBCO and Lafayette entered into the Stock Option Agreement in
connection with the execution of the Merger Agreement. Pursuant to the Stock
Option Agreement, Lafayette has granted to HUBCO an option (the "OPTION") to
purchase up to 2,400,000 authorized but unissued shares of Lafayette Common
Stock, representing upon issuance approximately 19.4% of the shares of
Lafayette Common Stock, at a price of $10.75 per share. HUBCO does not have
any voting rights with respect to shares of Lafayette Common Stock subject to
the Option prior to exercise of the Option. The Stock Option Agreement is
set forth in Appendix B hereto.
In the event that certain specifically enumerated "Triggering Events"
occur, as defined below, including but not limited to the acquisition of
beneficial ownership of at least 20% of the outstanding Lafayette shares by a
person or group other than HUBCO or an affiliate of HUBCO, HUBCO may exercise
the Option in whole or in part. The ability of HUBCO to exercise the Option
and to cause up to an additional 2,400,000 shares of Lafayette Common Stock
to be issued may be considered a deterrent to other potential acquisitions of
control of Lafayette because it is likely to increase the cost of an
acquisition of all of the shares of Lafayette Common Stock that would be
outstanding. The exercise of the Option by HUBCO may make "pooling of
interests" accounting treatment unavailable to a subsequent acquiror of
Lafayette. In the event that a Triggering Event occurs and the Merger is not
consummated, HUBCO would recognize a gain on the sale of the shares of
Lafayette Common Stock received pursuant to the exercise of the Option if
such shares of Lafayette Common Stock were sold at prices exceeding $10.75
per share.
Upon or after the occurrence of certain "Triggering Events" (as
hereinafter defined), the Option may be exercised by HUBCO in whole or in
part. The term "TRIGGERING EVENT" is defined to mean the occurrence of any
of the following events: a person or group, as such terms are defined in the
Exchange Act and the rules and regulations thereunder, other than HUBCO or an
affiliate of HUBCO: (a) acquires beneficial ownership (as such term is
defined in Rule 13d-3 promulgated under the Exchange Act) of at least 20% of
the then outstanding shares of Lafayette Common Stock; (b) enters into a
letter of intent or an agreement with Lafayette pursuant to which such person
would (i) merge or consolidate, or enter into any similar transaction, with
Lafayette, (ii) acquire all or a significant portion of the assets or
liabilities of Lafayette, or (iii) acquire beneficial ownership of securities
representing, or the right to acquire the beneficial ownership or to vote
securities representing, 20% or more of the then outstanding shares of
Lafayette Common Stock; or (c) makes a filing with any bank or thrift
regulatory authorities or publicly announces a bona fide proposal for: (i)
any merger with, consolidation with or acquisition of all or a significant
portion of all the assets or liabilities of Lafayette or any other business
combination involving Lafayette, or (ii) a transaction involving the transfer
of beneficial ownership of securities representing, or the right to acquire
beneficial ownership or to vote securities representing, 20% or more of the
outstanding shares of Lafayette Common Stock (a "PROPOSAL"), and thereafter,
if such Proposal has not been publicly withdrawn (as defined in the Stock
Option Agreement) at least 15 days prior to the Lafayette Meeting called to
vote on the Merger and Lafayette's shareholders fail to approve the Merger by
the vote required by applicable law at the Lafayette Meeting; or (d) makes a
bona fide Proposal and thereafter, but before such Proposal has been publicly
withdrawn, Lafayette willfully breaches any of its covenants contained in the
Merger Agreement in a manner that would materially interfere with its ability
to consummate the Merger or materially reduce the value of the transaction to
HUBCO. The definition of "TRIGGERING EVENT" also means the taking of any
direct or indirect action by Lafayette or any of its directors, officers or
agents to invite, encourage or solicit any proposal which has as its purpose
a tender offer for the shares of Lafayette Common Stock, a merger,
consolidation, plan of acquisition or reorganization of Lafayette, or a sale
of shares of Lafayette Common stock or any significant portion of its assets
or liabilities. Under the Stock Option Agreement, a "SIGNIFICANT PORTION"
means 25% of the assets or liabilities of Lafayette. "PUBLICLY WITHDRAWN"
for purposes of the Stock Option Agreement means an unconditional bona fide
withdrawal of the Proposal coupled with a public announcement of no further
interest in pursuing such Proposal or acquiring any controlling influence
over Lafayette or in soliciting or inducing any other person (other than
HUBCO or any affiliate) to do so.
HUBCO may not sell, assign or otherwise transfer its rights and
obligations under the Stock Option Agreement in whole or in part to any
person or any group of persons other than to an affiliate of HUBCO, except
upon or after the occurrence of a Triggering Event. Lafayette is not
obligated to issue shares of Lafayette Common Stock upon exercise of the
Option (i) in the absence of any required governmental or regulatory approval
or consent necessary for Lafayette to issue the Lafayette Common Stock
subject to the Option or HUBCO to exercise the Option or prior to the
expiration or termination of any waiting period required by law, or (ii) so
long as any injunction or other order, decree or ruling issued by any federal
or state court of competent jurisdiction is in effect which prohibits the
sale or delivery of the Lafayette Common Stock subject to the Option.
Solely for purposes of Section 36a-184 of the CBL, the Option is not
considered effective unless and until it is approved by the Commissioner.
Under certain circumstances, if the Commissioner fails to approve the
exercise of the Option, a Triggering Event has occurred and Lafayette is
acquired by a third party, Lafayette must pay HUBCO a termination fee of
$5,000,000 in lieu of the Option.
<PAGE>
PRO FORMA FINANCIAL INFORMATION
Unaudited Pro Forma Combined Balance Sheet
of Lafayette and HUBCO
The following unaudited pro forma combined condensed balance sheet
combines the historical consolidated balance sheets of HUBCO and Lafayette
giving effect to the Merger which will be accounted for as a pooling of
interests, as if the Merger had been effective on December 31, 1995, and also
takes into account HUBCO's recently completed acquisition of Growth Financial
Corp. (the "GROWTH MERGER") which was consummated on January 12, 1996 and was
accounted for as a pooling of interests. The information set forth below
should be read in conjunction with the historical consolidated financial
statements of HUBCO and Lafayette, including their respective notes thereto,
which are incorporated by reference in this Proxy Statement (see
"Incorporation of Certain Documents by Reference"), and in conjunction with
the condensed consolidated historical financial information, including the
notes thereto, appearing elsewhere in this Proxy Statement. The effect of
the estimated $8.5 million restructuring charge expected to be taken in
connection with the Merger has been reflected in the pro forma combined
balance sheets; however, since the proposed restructuring charge is
nonrecurring, it has not been reflected in the pro forma combined statements
of income. The pro forma financial data do not give effect to the
anticipated cost savings in connection with the Merger. The pro forma
financial data are not necessarily indicative of the actual financial
position that would have occurred had the Merger been consummated on December
31, 1995 or that may be obtained in the future.
<PAGE>
Pro forma Unaudited Combined Condensed Balance Sheet
As of December 31, 1995
(In thousands, except per share data)
<TABLE>
<CAPTION>
Assets Combined
------ Pro Forma HUBCO/ Pro Forma Pro Forma
HUBCO Growth Adjustment Growth Lafayette Adjustment Combined
------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Cash and due from banks $ 85,670 $ 4,913 $ - $ 90,583 $ 42,195 $ - $ 132,778
Federal funds sold 46,700 3,000 49,700 - (8,500) 41,200
Securities available 300,721 13,232 (1,444) 312,509 113,615 (5,761) 420,363
for sale
Securities held to 265,703 770 266,473 27,854 294,327
maturity
Loans 853,984 101,940 955,924 518,046 1,473,970
Less Allowance for loan (16,951) (1,738) (18,689) (8,562) (27,251)
losses
------------------------------------------------------------------------------------------
837,033 100,202 937,235 509,484 - 1,446,719
------------------------------------------------------------------------------------------
Other assets 69,795 5,578 75,373 40,593 117,630
Intangibles, net of 7,572 0 7,572 1,664 7,572
amortization
------------------------------------------------------------------------------------------
Total Assets $1,613,194 $ 127,695 $ (1,444) $1,739,445 $ 735,405 $ (14,261) $2,460,589
==========================================================================================
Liabilities and
---------------
Stockholders' Equity
--------------------
Deposits:
Non-interest bearing $ 310,588 $ 19,232 $ - $ 329,820 $ 147,687 $ - $ 477,507
Interest bearing 1,114,413 91,027 1,205,440 488,656 - 1,694,096
------------------------------------------------------------------------------------------
Total deposits 1,425,001 110,259 1,535,260 636,343 - 2,171,603
------------------------------------------------------------------------------------------
Borrowings 21,654 - 21,654 33,595 55,249
Other liabilities 11,573 3,601 15,174 5,958 21,132
------------------------------------------------------------------------------------------
Total Liabilities 1,458,228 113,860 1,572,088 675,896 - 2,247,984
Subordinated debt 25,000 - 25,000 - 25,000
Stockholders' Equity
Preferred stock - - - -
Common stock 23,372 1,773 422 25,567 200 10,043 35,810
Additional paid in 49,741 15,141 (1,866) 63,016 50,213 (15,804) 97,425
capital
Retained earnings 55,716 (2,976) 52,740 9,148 (8,500) 53,388
Other 1,137 (103) 1,034 (52) 982
------------------------------------------------------------------------------------------
Total Capital 129,966 13,835 (1,444) 142,357 59,509 (14,261) 187,605
------------------------------------------------------------------------------------------
Total Liabilities and $1,613,194 $127,695 $(1,444) $1,739,445 $ 735,405 $ (14,261) $2,460,589
Stockholders Equity
------------------------------------------------------------------------------------------
Common and common
equivalent shares 13,106 14,340 20,149
Book value per common $ 9.92 $ 9.93 $ 9.31
and common equivalent
share
</TABLE>
UNAUDITED PRO FORMA COMBINED STATEMENT OF INCOME SUMMARY
OF HUBCO AND LAFAYETTE
The following unaudited pro forma combined condensed statements of income
combined the historical consolidated statements of income of HUBCO and
Lafayette giving effect to the Merger which will be accounted for as a
pooling of interests, as if the Merger had occurred on the dates indicated
herein, after giving effect to the pro forma adjustments described in the
notes to the pro forma combined financial statements and also takes into
account HUBCO's recently completed acquisition of Growth which was accounted
for as a pooling of interests. The information set forth below should be
read in conjunction with the condensed consolidated historical and other pro
forma financial information, including the notes thereto, incorporated by
reference or appearing elsewhere in this Proxy Statement. The effect of the
estimated $8.5 million restructuring charge expected to be taken in
connection with the Merger has been reflected in the pro forma combined
balance sheet, however, since the proposed restructuring charge is
nonrecurring, it has not been reflected in the pro forma combined statements
of income. The pro forma financial data do not give effect to the
anticipated cost savings in connection with the Merger. The pro forma
financial data are not necessarily indicative of the results that actually
would have occurred had the Merger been consummated on the dates indicated or
that may be obtained in the future.
Included in 1995 and 1994 earnings for Lafayette of $18,927,000 and
$6,137,000, respectively, was $11,935,000 and $3,439,000, respectively, of
deferred income tax benefits, primarily attributable to the recognition of
Lafayette's net operating loss carryforwards. As of December 31, 1995,
substantially all of Lafayette's deferred income tax benefits had been
recognized. While Lafayette's net income for 1995 and 1994 were positively
impacted by the deferred income tax benefits, net income for Lafayette in the
future will not enjoy the same benefits. As a result, the budgeted net
income of Lafayette for 1996 is substantially less than Lafayette's net
income for 1995. For information about Lafayette's budgeted net income, see
"CERTAIN INFORMATION ABOUT HUBCO--Recent Developments".
<PAGE>
PRO FORMA UNAUDITED COMBINED CONDENSED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1995
(In thousands, except per share data)
<TABLE>
<CAPTION>
HUBCO/
Growth Pro
Forma Pro Forma
HUBCO Growth Combined Lafayette Combined
--------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Interest on loans $ 80,503 $ 8,437 $ 88,940 $ 41,947 $ 130,887
Interest on securities 39,065 1,185 40,250 10,313 50,563
Other interest income 1,143 170 1,313 163 1,476
--------------------------------------------------------------------
Total interest income 120,711 9,792 130,503 52,423 182,926
--------------------------------------------------------------------
Interest on deposits 35,557 3,821 39,378 17,189 56,567
Interest on borrowings 4,052 2 4,054 3,792 7,846
--------------------------------------------------------------------
Total Interest Expense 39,609 3,823 43,432 20,981 64,413
--------------------------------------------------------------------
Net Interest Income 81,102 5,969 87,071 31,442 118,513
Provision for possible loan 4,200 625 4,825 3,190 8,015
losses
Non-interest income 17,791 351 18,142 6,078 24,220
Non-interest expense 60,164 5,069 65,233 26,230 91,463
--------------------------------------------------------------------
Income before income taxes 34,529 626 35,155 8,100 43,255
Income tax provision (benefit) 10,845 427 11,272 (10,827) 445
--------------------------------------------------------------------
Net Income $ 23,684 $ 199 $ 23,883 $ 18,927 $ 42,810
====================================================================
Earnings per common share:
Primary $ 1.82 $ 1.67 $ 2.14
Fully Diluted $ 1.79 $ 1.65 $ 2.11
Weighted Average Shares
Outstanding:
Primary 12,743 13,977 19,786
Fully Diluted 13,251 14,485 20,294
</TABLE>
<PAGE>
PRO FORMA UNAUDITED COMBINED CONDENSED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1994
(In thousands, except per share data)
<TABLE>
<CAPTION>
HUBCO/
Growth
Pro Forma Pro Forma
HUBCO Growth Combined Lafayette Combined
-------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Interest on loans $ 62,031 $ 6,697 $ 68,728 $ 34,136 $ 102,864
Interest on securities 39,958 810 40,768 8,236 49,004
Other interest income 1,364 152 1,516 211 1,727
-------------------------------------------------------------------
Total interest income 103,353 7,659 111,012 42,583 153,595
-------------------------------------------------------------------
Interest on deposits 29,268 2,352 31,620 11,790 43,410
Interest on borrowings 2,989 9 2,998 1,969 4,967
-------------------------------------------------------------------
Total Interest Expense 32,257 2,361 34,618 13,759 48,377
-------------------------------------------------------------------
Net Interest Income 71,096 5,298 76,394 28,824 105,218
Provision for possible loan 3,550 634 4,184 3,325 7,509
losses
Non-interest income 11,828 327 12,155 6,337 18,492
Non-interest expense 51,050 3,871 54,921 28,423 83,344
-------------------------------------------------------------------
Income before income taxes 28,324 1,120 29,444 3,413 32,857
Income tax provision (benefit) 10,892 - 10,892 (2,724) 8,168
-------------------------------------------------------------------
Net Income $ 17,432 $ 1,120 $ 18,552 $ 6,137 $ 24,689
===================================================================
Earnings per common share:
Primary $ 1.36 $ 1.32 $ 1.24
Fully Diluted $ 1.33 $ 1.29 $ 1.23
Weighted Average Shares
Outstanding:
Primary 12,496 13,730 19,539
Fully Diluted 13,098 14,332 20,141
</TABLE>
<PAGE>
PRO FORMA UNAUDITED COMBINED CONDENSED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1993
(In thousands, except per share data)
<TABLE>
<CAPTION>
HUBCO/
Growth Pro
Forma Pro Forma
HUBCO Growth Combined Lafayette Combined
--------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Interest on loans $ 56,140 $ 4,472 $ 60,612 $ 34,798 $ 95,410
Interest on securities 28,734 1,219 29,953 6,306 36,259
Other interest income 1,676 163 1,839 311 2,150
--------------------------------------------------------------
Total interest income 86,550 5,854 92,404 41,415 133,819
--------------------------------------------------------------
Interest on deposits 26,604 2,142 28,746 13,809 42,555
Interest on borrowings 907 - 907 1,625 2,532
--------------------------------------------------------------
Total Interest Expense 27,511 2,142 29,653 15,434 45,087
--------------------------------------------------------------
Net Interest Income 59,039 3,712 62,751 25,981 88,732
Provision for possible loan 4,874 653 5,527 23,500 29,027
losses
Non-interest income 10,579 302 10,881 8,306 19,187
Non-interest expense 42,313 3,309 45,622 36,789 82,411
--------------------------------------------------------------
Income (loss) before 22,431 52 22,483 (26,002) (3,519)
income taxes
Income tax provision 8,560 (260) 8,300 16 8,316
(benefit)
--------------------------------------------------------------
Income (loss) before
cumulative effect of change
in accounting principle 13,871 312 14,183 (26,018) (11,835)
Cumulative effect of change
in accounting principle - - - (3,118) (3,118)
--------------------------------------------------------------
Net Income (loss) $ 13,871 $ 312 $ 14,183 $(29,136) $(14,953)
==============================================================
Earnings (loss) per share
before cumulative effect of
change in accounting
principle:
Primary $ 1.06 $ .99 $ (0.59)
Fully Diluted $ 1.06 $ .99 $ (0.59)
Earnings (loss) per share
after cumulative effect of
change in accounting
principle:
Primary $ 1.06 $ .99 $ (0.74)
Fully Diluted $ 1.06 $ .99 $ (0.74)
Weighted Average Shares
Outstanding:
Primary 13,109 14,343 20,152
Fully Diluted 13,109 14,343 20,152
</TABLE>
NOTES TO PRO FORMA FINANCIAL INFORMATION
(1) Pro forma financial information assumes that both the Growth Merger and
the Merger were consummated as of the beginning of each of the periods
indicated. The pro forma information presented is not necessarily
indicative of the results of operations or the combined financial
position that would have resulted had the Growth Merger and the Merger
been consummated at the beginning of the applicable periods indicated,
nor is it necessarily indicative of the results of operations in future
periods or the future financial position of the combined entities.
(2) It is assumed that the Merger will be accounted for on a pooling of
interests accounting basis, and, accordingly, the related pro forma
adjustments herein reflect, where applicable, an exchange ratio of .588
shares of HUBCO Common Stock for each of the 10,006,529 shares of
Lafayette Common Stock which were outstanding at December 31, 1995.
The pro forma financial information presented herein gives effect to the
cancellation of 294,000 shares of HUBCO Common Stock. This adjustment
is the result of HUBCO's ownership as of March 10, 1996, of 500,000
shares of Lafayette Common Stock at a cost of $5,760,938 which will be
exchanged (at the 0.588 Exchange Ratio) for 294,000 shares of HUBCO
Common Stock. The pro forma financial information presented herein does
not give effect to the possible purchase by HUBCO or repurchase by
Lafayette of up to another approximately 500,000 shares of Lafayette
Common Stock prior to consummation of the Merger, which would be
undertaken only if such transaction would not violate the pooling of
interests accounting rules expected to be followed for the Merger. See
"CERTAIN INFORMATION ABOUT HUBCO--Recent Developments".
As a result, the pro forma information was adjusted for the Merger by
the (i) addition of 5,883,839 shares of HUBCO Common Stock with a stated
value of $1.778 per share, amounting to $10,461,466; (ii) elimination of
10,006,529 shares of Lafayette Common Stock with a stated value of $.02
per share, amounting to $200,131; (iii) cancellation of 294,000 shares
of HUBCO Common Stock amounting to $522,732; (iv) addition of 170,678
shares of HUBCO Common Stock amounting to $303,465 in exchange for
470,000 shares representing Lafayette's total outstanding stock options;
and (v) recording of the remaining net amount of $15,804,000 as a
reduction of additional paid in capital at December 31, 1995.
The effect of the estimated $8.5 million restructuring charge expected
to be taken in connection with the Merger has been reflected in the pro
forma combined balance sheet as a reduction to Federal Funds Sold and a
reduction to retained earnings. The charge has not been reflected in
the pro forma combined statement of income since it is non-recurring.
The pro forma financial information does not give effect to the
anticipated cost savings in connection with the Merger.
(3) On January 12, 1996, HUBCO completed its purchase of Growth Financial
Corp. with assets of $127.7 million, for 1.2 million shares of HUBCO
Common Stock valued at approximately $27 million, in a transaction
accounted for as a pooling of interest. The pro forma financials
presented herein reflect the effect of this acquisition. The pro forma
financial information does not give effect to the acquisition of three
branches with $61 million in deposits from CrossLands Savings Bank on
February 28, 1996. Those assets do not represent the acquisition of a
business and are not material to HUBCO.
(4) Earnings per share data has been computed based on the combined
historical net income applicable to common stockholders of HUBCO,
Lafayette and Growth, using the historical weighted average shares
outstanding of HUBCO Common Stock and the weighted average outstanding
shares, adjusted to equivalent shares of HUBCO Common Stock, as of the
earliest applicable period presented.
Primary and fully diluted weighted average shares outstanding includes
the addition of 47,982 shares of HUBCO Common Stock which will be
issuable upon the exercise of the HUBCO Warrants which will be exchanged
in the Merger for the existing 122,994 Lafayette Warrants.
(5) Certain insignificant reclassifications have been included herein to
conform statement presentations.
<PAGE>
RIGHTS OF DISSENTING LAFAYETTE SHAREHOLDERS
Holders of HUBCO Common Stock do not have dissenters' appraisal rights
in connection with the Merger.
Holders of Lafayette Common Stock who follow the procedures specified in
Section 36a-125(h) of the CBL and 33-374 of the Connecticut General Statutes
will be entitled to the rights and remedies of dissenting shareholders.
Pursuant to Section 36a-125(h), Lafayette shareholders have the right to
dissent from the Merger and to obtain payment of the fair value of their
shares of Lafayette Common Stock if the Merger is consummated. Necessary
procedural steps are set forth in 33-374 of the Connecticut General Statutes.
SHAREHOLDERS OF LAFAYETTE WHO CONTEMPLATE EXERCISING THEIR RIGHT TO
DISSENT ARE URGED TO READ CAREFULLY THE APPLICABLE PROVISIONS OF SECTIONS
36A-125(H) OF THE CBL AND 33-374 OF THE CONNECTICUT GENERAL STATUTES, WHICH
ARE ATTACHED AS APPENDIX E TO THIS PROXY STATEMENT (COLLECTIVELY, THE
"DISSENTERS STATUTES").
The following is a summary of the steps to be taken if the right to
dissent is to be exercised. This summary is qualified in its entirety by the
full text of Appendix E to this Proxy Statement. Each step must be taken in
the indicated order and in strict compliance with the applicable provisions
of the Dissenters' Statutes in order to perfect dissenters' appraisal rights.
Any deviation from such steps may result in the forfeiture of dissenters'
appraisal rights. For purposes of this discussion, the term "Lafayette"
refers, where applicable, to the entity resulting from consummation of the
Merger.
Any holder of Lafayette Common Stock who wishes to dissent from the
Merger and obtain payment of the fair value of such holder's shares must,
prior to the Lafayette Meeting, (i) file written notice of such holder's
objection to the Merger with the Secretary of Lafayette, Marilyn W. Alderman,
Lafayette American Bank and Trust Company, 2992 Dixwell Avenue, Hamden,
Connecticut 06518 and (ii) refrain from voting such holder's shares in favor
of approval of the Merger. Merely voting against or abstaining from voting
on the Merger will not constitute an adequate written objection required to
be filed by a dissenting shareholder.
If the Merger is approved at the Lafayette Meeting, any Lafayette
shareholder who wishes to exercise dissenters' appraisal rights (and who
properly objected to the Merger) must file with the Secretary of Lafayette,
at the above-mentioned address, a written demand for payment of the fair
value of such holder's shares within 10 days after the date of the Lafayette
Meeting. Such demand must state the number of shares of Lafayette Common
Stock held by the shareholder making the demand. Upon filing the written
demand, the shareholder will cease to have any of the rights of a Lafayette
shareholder, except the right to be paid the fair value of such holder's
shares and such other rights as are granted under the Dissenters' Statutes.
Withdrawal of any such demand will require the consent of Lafayette.
Not later than 10 days after the later of receipt by Lafayette of proper
written demand of Lafayette shareholders to be paid fair value for their
shares or the Effective Time, Lafayette must mail to each holder that has
properly exercised dissenters' appraisal rights under the Dissenters'
Statutes (a "DISSENTING HOLDER") a written offer to pay for such holder's
shares at a specified price deemed by Lafayette to be the fair value of such
holder's shares as of the day prior to the date of this Proxy Statement,
excluding any appreciation resulting from the Merger.
Not later than 20 days after filing the written demand for payment of
the fair value of his or her shares, a dissenting holder must submit the
certificate(s) representing such holder's shares to the Secretary of
Lafayette, at the above-mentioned address, for placement of an appropriate
legend/notation thereon. FAILURE BY A DISSENTING HOLDER TO SUBMIT SUCH
HOLDER'S CERTIFICATE(S) FOR SUCH NOTATION MAY RESULT IN THE LOSS OF SUCH
HOLDER'S DISSENTERS' APPRAISAL RIGHTS.
If Lafayette and any dissenting holder agree in writing on the price to
be paid for such holder's shares, Lafayette will make payment for the agreed
upon price upon the surrender by the dissenting holder of the certificate(s)
representing such shares, duly endorsed for transfer.
At any time during the period of 60 days after the date on which
Lafayette is required to make the offer to pay, Lafayette, or any dissenting
holder who has not accepted Lafayette's offer, may, in the name of Lafayette,
institute a special court proceeding to determine the fair value of the
dissenting holders' shares. The court will assess the costs and expenses of
such proceeding against Lafayette, but it may assess all or any part of such
costs and expenses against any or all dissenting holders who are part of such
proceeding if the court finds that such dissenting holders' actions in
failing to accept the offer actions were not in good faith.
<PAGE>
DESCRIPTION OF HUBCO CAPITAL STOCK
GENERAL
The authorized capital stock of HUBCO presently consists of 25 million
shares of HUBCO Common Stock and 4.5 million shares of preferred stock. If
the amendment to the HUBCO Certificate is approved, the authorized capital
stock of HUBCO will consist of 50 million shares of HUBCO Common Stock and 10
million shares of preferred stock. As of December 31, 1995, 13,145,059
shares of HUBCO Common Stock were issued, 13,105,627 shares of HUBCO Common
Stock were outstanding, and no shares of HUBCO preferred stock were
outstanding. Of the authorized but unissued shares of HUBCO Common Stock,
236,750 shares are reserved for issuance under HUBCO's Restricted Stock Plan,
750,000 shares are reserved for issuance pursuant to HUBCO's 1995 Stock
Option Plan and 21,700 shares are reserved for issuance pursuant to the
option granted to Robert F. Mangano in connection with the acquisition of
Urban National Bank.
Under the terms of HUBCO's Certificate of Incorporation, the Board of
Directors has authority at any time (i) to divide any or all of the
authorized but unissued shares of preferred stock into series and determine
the designations, number of shares, relative rights, preferences and
limitations of any such series and (ii) to increase the number of shares of
any such series previously determined by it and to decrease such previously
determined number of shares to a number not less than that of the shares of
such series then outstanding. HUBCO Series A Preferred Stock was issued
pursuant to such authority in connection with HUBCO's acquisition of
Washington Bancorp, Inc. ("WASHINGTON") on July 1, 1994; no HUBCO Series A
Preferred Stock remains outstanding as of December 31, 1995.
DESCRIPTION OF HUBCO COMMON STOCK
THE FOLLOWING DESCRIPTION OF THE HUBCO COMMON STOCK SETS FORTH CERTAIN
GENERAL TERMS OF THE HUBCO COMMON STOCK. FOR AN ADDITIONAL DESCRIPTION
RELATING TO THE HUBCO COMMON STOCK, SEE "COMPARISON OF RIGHTS OF LAFAYETTE
AND HUBCO SHAREHOLDERS."
Dividend Rights
The holders of HUBCO Common Stock are entitled to receive dividends,
when, as and if declared by the Board of Directors of HUBCO out of funds
legally available therefore subject to the preferential dividend rights of
any preferred stock that may be outstanding. The only statutory limitation is
that such dividends may not be paid when HUBCO is insolvent. Because funds
for the payment of dividends by HUBCO come primarily from the earnings of
HUBCO's bank subsidiary, as a practical matter, restrictions on the ability
of HUB to pay dividends act as restrictions on the amount of funds available
for the payment of dividends by HUBCO.
As a New Jersey chartered commercial bank, HUB is subject to the
restrictions on the payment of dividends contained in the NJBA. Under the
NJBA, HUB may pay dividends only out of retained earnings, and out of surplus
to the extent that surplus exceeds 50% of stated capital. Under the
Financial Institutions Supervisory Act, the FDIC has the authority to
prohibit a state-chartered bank from engaging in conduct which, in the FDIC's
opinion, constitutes an unsafe or unsound banking practice. Under certain
circumstances, the FDIC could claim that the payment of a dividend or other
distribution by HUB to HUBCO constitutes an unsafe or unsound practice.
HUBCO is also subject to certain FRB policies which may, in certain
circumstances, limit its ability to pay dividends. The FRB policies require,
among other things, that a bank holding company maintain a minimum capital
base. The FRB would most likely seek to prohibit any dividend payment which
would reduce a holding company's capital below these minimum amounts.
At December 31, 1995, HUB had $107.5 million available for the payment
of dividends to HUBCO. At December 31, 1995, HUBCO had $65.0 million
available for shareholder dividends, the payment of which would not reduce
any of its capital ratios below the minimum regulatory requirements.
Voting Rights
At meetings of shareholders, holders of HUBCO Common Stock are entitled
to one vote per share. The quorum for shareholders' meetings is a majority of
the outstanding shares entitled to vote represented in person or by proxy.
Except as indicated below, all actions and authorizations to be taken or
given by shareholders require the approval of a majority of the votes cast by
holders of HUBCO Common Stock at a meeting at which a quorum is present.
The Board of Directors is divided into three classes of directors, each
class being as nearly equal in number of directors as possible.
Approximately one-third of the entire Board of Directors is elected each year
and the directors serve for terms of up to three years, and, in all cases,
until their respective successors are duly elected and qualified.
The exact number of directors and the number constituting each class is
fixed from time to time by resolution adopted by a majority of the entire
Board of Directors. Shareholders may remove any director from office for
cause. The affirmative vote of at least three-quarters of the shares of
HUBCO entitled to vote thereon is required to amend or repeal the provisions
of HUBCO's Certificate of Incorporation relating to the classification of the
Board of Directors and the removal of directors.
HUBCO's Certificate of Incorporation contains a "minimum price"
provision. In the event a "related person" (defined in the Certificate of
Incorporation to include persons who, together with their affiliate, own 10%
or more of HUBCO's Common Stock) proposes to enter into a Business
Combination (as defined in the Certificate of Incorporation) with HUBCO, the
proposed transaction will require the affirmative vote of at least three-
quarters of the outstanding shares entitled to vote on the transaction,
unless either (i) the proposed transaction is first approved by a majority of
HUBCO's Board of Directors, or (ii) the shareholders of HUBCO are offered
consideration in an amount equal to or in excess of an amount determined in
accordance with a formula contained in the Certificate of Incorporation. If
either of these tests are met, the proposed transaction need only be approved
by the vote otherwise required by law, the Certificate of Incorporation and
any agreement with a national securities exchange.
Liquidation Rights
In the event of liquidation, holders of HUBCO Common Stock are entitled
to receive ratably any assets distributed to shareholders, except that if
shares of preferred stock of HUBCO are outstanding at the time of
liquidation, such shares of preferred stock may have prior rights upon
liquidation.
Assessment and Redemption
All outstanding shares of HUBCO Common Stock are fully paid and
nonassessable. HUBCO Common Stock is not redeemable at the option of the
issuer or the holders thereof.
Preemptive and Conversion Rights
Holders of HUBCO Common Stock do not have conversion rights or
preemptive rights with respect to any securities of HUBCO.
Other Matters
HUBCO can (except in connection with certain business combinations)
issue new shares of authorized but unissued Common Stock or preferred stock
without shareholder approval.
COMPARISON OF THE RIGHTS OF SHAREHOLDERS
OF LAFAYETTE AND HUBCO
GENERAL
Lafayette is a Connecticut bank incorporated under the CBL and HUBCO is
a business corporation incorporated in New Jersey under the NJBCA. The
rights of Lafayette shareholders are currently governed by Connecticut
banking law and, to the extent incorporated by such banking law, Connecticut
corporate law. At the Effective Time, each Lafayette shareholder will become
a shareholder of HUBCO and the rights of shareholders of HUBCO are governed
by New Jersey corporate law. The following is a comparison of certain
provisions of New Jersey corporate law and Connecticut law and the respective
certificates of incorporation and by-laws of each of Lafayette and HUBCO.
This summary does not purport to be complete and is qualified in its entirety
by reference to the CBL, the Connecticut Stock Corporation Act (the "CCA")
and the NJBCA, which statutes may change from time to time, and the
respective certificates of incorporation and by-laws of HUBCO and Lafayette,
which also may be changed.
VOTING REQUIREMENTS
Under the New Jersey Business Corporation Act, unless a greater vote is
specified in the certificate of incorporation, any amendment to a New Jersey
corporation's certificate of incorporation, the voluntary dissolution of the
corporation, or the sale or other disposition of all or substantially all of
its assets other than in the ordinary course of business or the merger or
consolidation of the corporation with another corporation, requires in each
case the affirmative vote of a majority of the votes cast by shareholders of
the corporation entitled to vote thereon. The HUBCO Certificate contains a
"minimum price" provision which requires the affirmative vote of 75% of the
outstanding shares entitled to vote on certain transactions involving
"related persons" unless the proposed transaction is either first approved by
a majority of the HUBCO Board or the shareholders of HUBCO are offered
consideration in an amount equal to or in excess of an amount determined in
accordance with a formula contained in the HUBCO Certificate. (See
"DESCRIPTION OF HUBCO CAPITAL STOCK -- Description of HUBCO Common Stock;
Voting Rights.")
Applicable Connecticut law provides that a capital stock Connecticut
bank having at least one hundred shareholders of record may have its
certificate of incorporation amended by resolution by its board of directors
and by the affirmative vote of a majority of the voting power of shares, or
of each class of shares, entitled to vote thereon. Such law also provides
that the voluntary dissolution, sale or disposition of all or substantially
all assets other than in the ordinary course of business, or merger or
consolidation, of a capital stock Connecticut bank generally requires, in
each case, the approval of the bank's board of directors and the affirmative
vote of at least two-thirds of the voting power of shares, or of each class
of shares, entitled to vote thereon. The proportional shareholder vote
required by such law for approval of the foregoing transactions may, within
limits, be varied by the bank's certificate of incorporation; however,
Lafayette's Certificate of Incorporation presently contains no such
variations.
All shareholder voting rights of Lafayette presently are vested in the
holders of Lafayette Common Stock. All shareholder voting rights of HUBCO
presently are vested in the holders of the HUBCO Common Stock.
PREFERRED STOCK
The authorized capital stock of HUBCO includes 4.5 million shares of
preferred stock. If the amendment to the HUBCO Certificate is approved, the
authorized capital stock of HUBCO will consist of 50 million shares of HUBCO
Common Stock and 10 million shares of preferred stock. As of December 31,
1995, 13,145,059 shares of HUBCO Common Stock were issued, 13,105,627 shares
of HUBCO Common Stock were outstanding, and no shares of HUBCO preferred
stock were outstanding. Under the terms of the HUBCO Certificate, the HUBCO
Board has authority at any time to divide any or all of the authorized but
unissued shares of preferred stock into series, determine the designations,
number of shares, relative rights, preferences, and limitations of any such
series and authorize the issuance of such series. (See "DESCRIPTION OF HUBCO
CAPITAL STOCK -- General.")
The authorized capital stock of Lafayette includes 275,000 shares of
preferred stock. As of December 31, 1995, no shares of Lafayette preferred
stock were outstanding. Under the terms of Lafayette's Certificate of
Incorporation, the Board of Directors has the authority at any time to issue
any or all of the then authorized but unissued shares of preferred stock in
one or more series and, with respect to each such series, to establish the
number of shares to be included and to fix the designations, voting powers,
preferences, rights, qualifications, limitations and restrictions.
CLASSIFIED BOARD OF DIRECTORS
The NJBCA permits a New Jersey corporation to provide for a classified
board. HUBCO currently has a classified Board of Directors. The Board is
divided into three classes, with one class of directors generally elected for
a three-year term at each annual meeting. [ADD X-REFERENCE]
Applicable Connecticut law permits a capital stock Connecticut bank to
provide for the classification of directors in its certificate of
incorporation. Lafayette's Certificate of Incorporation contains such a
provision and divides the Lafayette Board into three classes, to be as nearly
equal in number of directors as possible, and with one class of directors
generally elected for a three-year term at each annual meeting.
RIGHTS OF DISSENTING SHAREHOLDERS
Shareholders of a New Jersey corporation who dissent from a merger,
consolidation, sale of all or substantially all of the corporation's assets
or certain other corporate transactions are generally entitled to appraisal
rights. No statutory right of appraisal exists, however, where the stock of
the New Jersey corporation is (i) listed on a national securities exchange,
(ii) is held of record by not less than 1,000 holders, or (iii) where the
consideration to be received pursuant to the merger, consolidation or sale
consists of cash or securities or other obligations which, after the
transaction, will be listed on a national securities exchange or held of
record by not less than 1,000 holders. HUBCO's shares are presently held by
more than 1,000 holders.
Generally, shareholders of a Connecticut state-chartered bank who
dissent from a conversion, merger or consolidation of the bank are entitled
to appraisal rights. The shareholders of Lafayette have statutory rights of
appraisal with respect to the Merger. See "RIGHTS OF DISSENTING LAFAYETTE
SHAREHOLDERS."
SHAREHOLDER CONSENT TO CORPORATE ACTION
Except as otherwise provided by the certificate of incorporation (and
the HUBCO Certificate presently is silent on this issue), the NJBCA permits
any action required or permitted to be taken at any meeting of a
corporation's shareholders, other than the annual election of directors, to
be taken without a meeting upon the written consent of shareholders who would
have been entitled to cast the minimum number of votes necessary to authorize
such action at a meeting of shareholders at which all shareholders entitled
to vote were present and voting. The annual election of directors, if not
conducted at a shareholders' meeting, may only be effected by unanimous
written consent. Under the NJBCA, a shareholder vote on a plan of merger or
consolidation, 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 issue with advance notice to any other shareholders,
or (ii) 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.
Lafayette's Certificate of Incorporation provides that no action shall
be taken by shareholders of Lafayette except at an annual or special meeting
of such shareholders.
DIVIDENDS
The Banking Act provides that a New Jersey state chartered bank may
declare and pay dividends on its outstanding stock so long as, following the
payment of such dividend, the capital stock of the bank will be unimpaired
and the bank will have a surplus of not less than 50% of its capital stock
or, if not, the payment of such dividend will not reduce the surplus of the
bank.
Unless there are other restrictions contained in its certificate of
incorporation (and the HUBCO Certificate presently contains none), the NJBCA
generally provides that a New Jersey corporation may declare and pay
dividends on its outstanding stock so long as the corporation is not
insolvent and would not become insolvent as a consequence of the dividend
payment. Because funds for the payment of dividends by HUBCO come primarily
from the earnings of HUBCO's bank subsidiary, as a practical matter,
restrictions on the ability of HUB to pay dividends act as restrictions on
the amount of funds available for the payment of dividends by HUBCO. At
December 31, 1995, HUBCO had approximately $65.0 million available for
shareholder dividends. For a description of the regulatory restrictions on
dividend payments by HUB, see "DESCRIPTION OF HUBCO CAPITAL STOCK --
Description of HUBCO Common Stock; Dividend Rights."
LAFAYETTE
BY-LAWS
Under the NJBCA, the board of directors of a New Jersey corporation has
the power to adopt, amend, or repeal the corporation's by-laws, unless such
powers are reserved in the certificate of incorporation to the shareholders
(which the HUBCO Certificate presently does not do).
Under applicable Connecticut law and Lafayette's Certificate of
Incorporation and By-Laws, Lafayette's By-Laws may be amended or repealed and
new by-laws may be adopted (subject to limited exceptions) by either the vote
of a majority of the Lafayette Board or the vote of two-thirds of the
outstanding shares of Lafayette entitled to vote thereon.
PREEMPTIVE RIGHTS
Under the NJBCA, shareholders of New Jersey corporations have only such
preemptive rights as may be provided in the certificate of incorporation.
The HUBCO Certificate does not provide shareholders with preemptive rights.
Under applicable Connecticut law, shareholders of a capital stock
Connecticut bank have certain specified preemptive rights unless the same are
expanded, limited or denied by the bank's certificate of incorporation.
Lafayette's Certificate of Incorporation denies preemptive rights to
shareholders in all situations other than where expressly approved by the
Lafayette Board.
SHAREHOLDER PROTECTION LEGISLATION
The New Jersey Shareholders Protection Act (the "NJSPA") limits certain
transactions involving an "interested shareholder" and a "resident domestic
corporation." An "interested shareholder" is one that is directly or
indirectly a beneficial owner of 10% or more of the voting power of the
outstanding voting stock of a resident domestic corporation. The NJSPA
prohibits certain business combinations between an interested shareholder and
a resident domestic corporation for a period of five years after the date the
interested shareholder acquired its stock, unless the business combination
was approved by the resident domestic corporation's board of directors prior
to the interested shareholder's stock acquisition date. After the five-year
period expires, the prohibition on certain business combinations continues
unless the combination is approved by the affirmative vote of two-thirds of
the voting stock not beneficially owned by the interested shareholder, the
combination is approved by the board prior to the interested shareholder's
stock acquisition date or certain fair price provisions are satisfied.
Under applicable Connecticut law, certain "business combinations"
between a "resident domestic corporation" and an "interested shareholder" are
prohibited. An "interested shareholder" is any person that is the beneficial
owner, directly or indirectly, of 10% or more of the voting power of the
outstanding shares of a resident domestic corporation or is an affiliate or
associate of a resident domestic corporation and, at any time within the
previous five years, has been a beneficial owner of 10% of the voting shares
of such corporation. Such business combinations are prohibited for a period
of five years from the date on which the shareholder became an interested
shareholder of the resident domestic corporation in question, unless such
combination was approved both by the board of directors of such resident
domestic corporation and by the majority of nonemployee directors (at least
two such nonemployee directors are required to comply with the exception)
prior to the date on which the interested shareholder acquired beneficial
ownership. Lafayette's Certificate of Incorporation specifically provides
that "business combinations" between Lafayette and any interested shareholder
of Lafayette be governed by the provisions of Connecticut law described
above.
<PAGE>
II. ELECTION OF HUBCO DIRECTORS
HUBCO's Certificate of Incorporation and By-laws authorize a minimum of
5 and a maximum of 25 directors, but leave the exact number to be fixed by
resolution of the HUBCO Board of Directors. The HUBCO Board is presently
comprised of 10 members and, by Resolution of the HUBCO Board, the number of
HUBCO Directors will be 9 effective upon the date of the Meeting.
Pursuant to the HUBCO Certificate of Incorporation, the directors of
HUBCO are divided into three classes and each class is elected to serve for a
staggered three-year term.
Messrs. McBride, Malcolm and Schierloh are each being nominated for a
three-year term extending to the 1999 Annual Meeting. If, for any reason,
any of the nominees become unavailable for election, the proxy solicited by
the HUBCO Board will be voted for a substitute nominee selected by the HUBCO
Board. The HUBCO Board has no reason to believe that any of the named
nominees is not available or will not serve if elected.
The names of the nominees for election, the directors whose terms extend
beyond the HUBCO Meeting and certain information about each of them are set
forth in the tables below. Years of service on the HUBCO Board includes
prior service on the Board of Directors of HUB prior to the formation of the
holding company.
Table I--Nominees for 1996 Annual Meeting
Name, Age &
Position with Principal Occupation Director Term
HUBCO During Past Five Years Since Expiring
------------- ---------------------- -------- --------
James E. Chairman of the Board 1972 1999
Schierloh, 66, of HUBCO and HUB since
Chairman September 1990;
formerly self-employed
Certified Public
Accountant.
W. Peter President and CEO of 1995 1999
McBride,50 McBride Enterprises,
Inc. and President and
CEO of Growth Farms,
Inc. (real estate
development and
investment companies)
Bryant President, B.D. 1995 1999
Malcolm, 61 Malcolm Company, Inc.
(general contractors)
Table II--Directors Whose Terms Continue
Beyond This Annual Meeting
Name, Age &
Position with Principal Occupation Director Term
HUBCO During Past Five Years Since Expiring
------------- ---------------------- -------- --------
Robert J. President and Chief 1979 1997
Burke, 62 Operating Officer, Union
Dry Dock and Repair Co.,
Hoboken, N.J. (ship repair
facility).
Joan David, Teacher, Board of 1994 1998
57 Cooperative Educational
Services of Rockland County
(1989 to present).
Thomas R. Retired February 1995, 1994 1997
Farley, 69 formerly a Partner in the
law firm of Farley & Isles
(1980 - 1995).
Kenneth T. President and CEO of HUBCO 1989 1998
Neilson, 47, and HUB.
President &
CEO
Charles F.X. President and Chief 1973 1997
Poggi, 65 Operating Officer, The
Poggi Press (general
printing business).
Sister Grace Chairperson, Franciscan 1979 1998
Frances Health System of N.J. (1991
Strauber, 68 - 1993), Member (1991 -
present); Administrative
Post on the Leadership Team
for the U.S. region of the
Franciscan Sisters of the
Poor (1993 - present);
Management Consultant,
Health System, Inc.,
Brooklyn, N.Y., Franciscan
Sisters of the Poor (1986 -
present).
No director of HUBCO is also a director of any other company registered
pursuant to Section 12 of the Exchange Act or subject to the requirements of
Section 15(d) of the Exchange Act or any company registered as an investment
company under the Investment Company Act of 1940.
During the past year Mr. Henry G. Hugelheim retired from the HUBCO Board
due to ill health. Mr. Edwin Wachtel retired upon relocation to Florida.
Effective upon the date of the HUBCO Meeting, Mr. Harry J. Leber will retire
having attained the mandatory retirement age.
BOARD OF DIRECTORS' MEETINGS; COMMITTEES OF THE HUBCO BOARD
The HUBCO Board held 8 board meetings during 1995 and 26 board committee
meetings. The HUBCO Board holds regularly-scheduled meetings each quarter
and special meetings as circumstances require. At present, all of the
directors of HUBCO also serve as directors of HUB.
HUBCO has a standing Audit Committee of the Board of Directors. This
committee arranges for HUB's directors' examinations through its independent
public accountants, reviews and evaluates the recommendations of the
directors' examiners, receives all reports of examination of HUBCO and HUB by
bank regulatory agencies, analyzes such regulatory reports, and reports to
HUB's Board the results of its analysis of the regulatory reports. This
committee also receives reports directly from HUBCO's internal auditing
department and recommends any action to be taken in connection therewith.
The Audit Committee met seven times during 1995. During 1995, Sr. Grace
Frances Strauber served as Chairperson of the Audit Committee. The other
HUBCO member of the Audit Committee is Mr. Farley. Messrs. Joseph Pfeiffer
and Joseph A. Tighe, Directors of HUB, also serve on the Audit Committee.
During 1995, HUBCO established a Nominating Committee consisting of
Messrs. McBride, Neilson, Poggi and Schierloh. The committee does not
consider recommendations from shareholders, but rather reviews qualifications
of and recommends to the Board as potential candidates for election as
directors business people from within the community served by HUB who are
willing to commit time and dedicate effort to the success of HUBCO and HUB.
During 1995, the committee met one time.
HUBCO also created its Compensation Committee during 1995. The members
are Mrs. David and Messrs. Burke, McBride and Poggi. The committee met five
times during 1995. The Compensation Committee replaced the former Personnel
Committee of HUB. During 1995, the Personnel Committee met one time. The
Personnel Committee consisted of Mrs. David, Sister Grace Francis Strauber
and Messrs. Burke and Poggi.
During 1995, no incumbent director of HUBCO attended fewer than 75% of
the total meetings of the HUBCO Board and meetings of committees of the HUBCO
Board on which such director served.
STOCK OWNERSHIP OF MANAGEMENT AND PRINCIPAL SHAREHOLDERS
The following table furnishes information known by HUBCO as to the
beneficial owners of more than 5% of HUBCO Common Stock as of December 31,
1995.
Name and Amount and Nature Percent of Class
Address of of Beneficial Ownership
Beneficial
Owner
FMR Corp.; Fidelity 672,170 <F1> 5.13
Management &
Research Company;
Edward C. Johnson 3d
and Abigail P.
Johnson, 82
Devonshire Street,
Boston, MA 02109
- -------------------------------------
NOTES:
[FN]
<F1> Fidelity Management & Research Company ("Fidelity"), 82 Devonshire
Street, Boston, Massachusetts 02109, a wholly-owned subsidiary of FMR
Corp. and an investment adviser registered under Section 203 of the
Investment Advisers Act of 1940, is the beneficial owner of 495,220
shares or 3.78% of the outstanding shares of HUBCO Common Stock as a
result of acting as investment adviser to various investment companies
registered under the Investment Company Act of 1940.
Fidelity Management Trust Company, 82 Devonshire Street, Boston,
Massachusetts 02109, a wholly-owned subsidiary of FMR Corp. is the
beneficial owner of 176,950 shares or 1.35% of the outstanding shares of
HUBCO Common Stock as a result of serving as investment manager of
certain institutional accounts.
HUBCO obtained all information set forth herein with respect to
Fidelity's, FMR Corp's, Mr. Johnson's and Ms. Johnson's beneficial
ownership from a Schedule 13G filing made by them on February 14, 1996.
The following table sets forth information concerning the beneficial
ownership of HUBCO Common Stock as of February 29, 1996, by each executive
officer of HUBCO for whom individual information is required to be set forth
in this Proxy Statement pursuant to the rules of the Commission (the "HUBCO
NAMED OFFICERS"), by each director, and by all directors and executive
officers as a group.
No. of Common Shares Percent
Name of Beneficial Owner Beneficially Owned<F1> of Class
------------------------ ---------------------
Robert J. Burke 72,680 <F2> .52%
Joan David 154,174 <F3> 1.10%
Thomas R. Farley 42,721 <F4> .30%
Richard Linhart -0- -0-
Bryant Malcolm 17,937 <F5> .13%
Robert Mangano 34,772 <F6> .25%
W. Peter McBride 3,906 .03%
Kenneth T. Neilson 169,681 <F7> 1.21%
Charles F. X. Poggi 212,653 1.52%
James E. Schierloh 81,047 <F8> .58%
Thomas Shara 44,282 <F9> .32%
Sister Grace Frances Strauber 986 .01%
D. Lynn Van Borkulo-Nuzzo 28,659 <F10> .20%
Directors and Executive Officers of
HUBCO as a group (13 persons) 863,498 <F11> 6.17%
_____________
NOTES:
[FN]
<F1> Beneficially owned shares include shares over which the named person
exercises either sole or shared voting power or sole or shared
investment power. It also includes shares owned (i) by a spouse, minor
children or by relatives sharing the same home, (ii) by entities owned
or controlled by the named person, and (iii) by other persons if the
named person has the right to acquire such shares within 60 days by the
exercise of any right or option. Unless otherwise noted, all shares are
owned of record and beneficially by the named person, either directly or
through the HUBCO dividend reinvestment plan.
<F2> Of this total, 12,249 shares are held by Mr. Burke's wife, and 22,500
are held by Union Dry Dock & Repair Co. Mr. Burke disclaims beneficial
ownership of the shares held by his wife.
<F3> Of this total 9,715 are held in an IRA and 27,843 are held by Mrs. David
and Mr. Lawrence David as trustees for The David Foundation.
<F4> Of this total, 1,125 shares are held by Mr. Farley's wife. Mr. Farley
disclaims beneficial ownership of the shares owned by his wife.
<F5> Of this total, 889 shares are held by Mr. Malcolm's wife. Mr. Malcolm
disclaims beneficial ownership of the shares held by his wife.
<F6> Of this total, 21,700 shares represent vested options.
<F7> Of this total, 20,746 shares are held in Mr. Neilson's account in
HUBCO's 401(k) plan, which he directs, 23,250 shares are held for Mr.
Neilson under HUBCO's restricted stock plan, 3,589 shares are held in an
IRA, 2,550 shares are held by Mr. Neilson's wife, and 67,500 shares
represent vested options. 11,556 shares are held for minor children.
Mr. Neilson disclaims beneficial ownership of the shares owned by his
wife.
<F8> Of this total, 4,936 shares are held by Mr. Schierloh's wife
individually, and 13,500 shares are held for Mr. Schierloh under HUBCO's
restricted stock plan.
<F9> Of this total, 12,554 shares are held in Mr. Shara's account in HUBCO's
401(k) plan, which he directs, 11,782 shares are held for Mr. Shara
under HUBCO's restricted stock plan, and 7,500 shares represent vested
options.
<F10>Of this total, 10,460 shares are held in Ms. Van Borkulo-Nuzzo's account
in HUBCO's 401(k) plan, which she directs, 7,882 shares are held for Ms.
Van Borkulo-Nuzzo under HUBCO's restricted stock plan, and 7,500 shares
represent vested options.
<F11>Of this total, 43,760 shares are held in HUBCO's 401(k) plans for
specified individuals, 42,914 shares are held for executive officers
under HUBCO's restricted stock plan, and 104,200 shares represent vested
options. Excluded from the shares reported in the Table are 39,600
shares held by HUB's Trust Department as trustee for HUB's two pension
plans. These additional shares held by HUB's Trust Department are not
reported as beneficially owned by HUBCO's directors or executive
officers, although by virtue of the officers' and directors' service on
HUB's Trust Committee it may be asserted that the directors and officers
have beneficial ownership of such shares. The directors and executive
officers disclaim beneficial ownership of such shares.
EXECUTIVE COMPENSATION
GENERAL
Executive compensation is described below in the tabular format mandated
by the Commission. The letters in parentheses above each column heading are
the letters designated by the Commission for such columns, and are provided
to make inter-company comparisons easier.
SUMMARY COMPENSATION TABLE
The following table summarizes all compensation earned in the past three
years for services performed in all capacities for HUBCO and its subsidiaries
with respect to the HUBCO Named Officers.
<PAGE>
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Annual Compensation Long Term Compensation Awards
------------------- -----------------------------
(a) (b) (c) (d) (f) (g) (l)
Name Restricted Securities All Other
and Principal Stock Underlying Compensation
Position Year Salary ($) Bonus ($) Award(s)<F1>($) Options/SARs # <F2> ($)
-------- ---- ---------- --------- -------------- -------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Kenneth T. Neilson, President 1995 250,000 250,000 -0-<F3> -0- 7,446
and CEO 1994 250,000 250,000 217,000<F4> 135,000 4,500
HUBCO & HUB 1993 250,000 187,500 92,250<F5> n/a 7,500
D. Lynn Van Borkulo-Nuzzo, 1995 145,000 72,500 -0-<F6> -0- 7,446
Executive Vice President and 1994 130,000 67,000<F7> 20,750<F8> 52,500 3,443
Corporate Secretary 1993 100,000 53,000 38,500<F9> n/a 3,000
HUBCO & HUB
Richard Linhart, Executive 1995 36,250<F10> 10,000<F11> -0- 20,000 192
Vice President and Chief 1994 n/a n/a n/a n/a n/a
Financial Officer 1993 n/a n/a n/a n/a n/a
HUBCO & HUB
Robert Mangano, Executive 1995 173,280<F12> 30,000<F13> -0- 32,550 3,962
Vice President-Branch 1994 n/a n/a n/a n/a n/a
Administration 1993 n/a n/a n/a n/a n/a
HUB
Thomas Shara, Executive Vice 1995 145,000 72,500<F14> -0- -0- 7,014
President-Senior Lending 1994 135,000 69,500<F15> 51,875<F16> 52,500 5,210
Officer 1993 124,000 62,000 38,500<F17> -0- 4,754
HUB
</TABLE>
______________
NOTES:
[FN]
<F1> The dollar amounts listed represent the number of shares of restricted
stock granted, multiplied by the fair market value of each share of
stock on the date of the grant. Dividends are paid on all shares of
restricted stock. Cash dividends are paid directly to the officer
holding the restricted stock. Stock dividends are added to the
restricted stock and are subject to the same restrictions. Restricted
stock has been awarded with various vesting schedules described below.
The number of shares reflected in the footnotes below have been adjusted
for the 3 for 2 stock split effected January 15, 1995.
<F2> All amounts in this column represent employer contributions to 401(k)
plans on behalf of the HUBCO Named Officers and premiums for life
insurance in excess of $50,000.
<F3> At December 31, 1995, Mr. Neilson held a total of 23,250 shares of
restricted stock with an aggregate value of $309,250. None of these
shares were awarded in 1995.
<F4> Includes 3,000 shares awarded on June 16, 1994 to vest on June 16, 1996
and 13,500 shares awarded on November 14, 1994 to vest on November 14,
1996.
<F5> Includes 4,500 shares awarded on June 9, 1993 to vest on June 9, 1996
and 2,250 shares awarded on December 13, 1993 to vest on December 13,
1996.
<F6> At December 31, 1995, Ms. Van Borkulo-Nuzzo held a total of 7,882 shares
of restricted stock with an aggregate value of $83,440. None of these
shares were awarded in 1995.
<F7> Of this amount, $2,000 represents a special performance bonus paid in
connection with specific projects.
<F8> Includes 1,500 shares awarded on June 16, 1994 to vest on June 16, 1996.
<F9> Includes 3,000 shares awarded on June 9, 1993 to vest on June 9, 1996.
<F10> This amount is from the date of hire on October 2, 1995 through December
31, 1995. Mr. Linhart's annualized compensation would have been
$145,000.
<F11> This amount represents a special performance bonus paid in connection
with specific projects
<F12> Of this total, $85,780 represents the amount paid by Urban National Bank
("Urban") for the period of January 1, 1995 through June 30, 1995 and
$87,500 represents the amount paid by HUB for the period July 1, 1995
through December 31, 1995.
<F13> This amount represents a bonus paid by Urban.
<F14> Of this amount, $500 represents a special performance bonus paid in
connection with specific projects.
<F15> Of this amount, $2,000 represents a special performance bonus paid in
connection with specific projects.
<F16> Includes 3,750 shares awarded on June 16, 1994 to vest on June 16, 1996.
<F17> Includes 3,000 shares awarded on June 9, 1993 to vest on June 9, 1996.
STOCK GRANT TABLE
The following table provides certain information about options awarded
to HUBCO Named Officers in the last fiscal year. HUBCO does not utilize stock
appreciation rights ("SARs") in its compensation package, although the
Commission rules require that SARs be reflected in Table headings.
<PAGE>
<TABLE>
<CAPTION>
Option/SAR Grants in Last Fiscal Year
Individual Grants
-----------------
Number of % of Total
Securities Options/SARs
Underlying Granted to Exercise Grant Date
Options/SARs Employees In or Base Expiration Present
Name Granted (#) Fiscal Year Price ($/SH) Date Value($)<F1>
---- ----------- ------------- ------------ --------- -----------
<S> <C> <C> <C> <C> <C>
(a) (b) (c) (d) (e) (f)
Richard I. Linhart 20,000 21.84 19.625 12/12/04 $114,740
Robert Mangano<F2> 10,850<F2> 11.85 4.608<F2> 6/1/02 $142,591
21,700<F2> 23.70 4.147<F2> 9/13/03 $295,185
</TABLE>
_________________
NOTES:
[FN]
<F1> The Black-Scholes option pricing model was chosen to estimate the grant
date present value of the options set forth in this table. HUBCO's use
of this model should not be construed as an endorsement of its accuracy
at valuing options. All stock option valuation models, including the
Black-Scholes model, require a prediction about the future movement of
the stock price. The following assumptions were made for purposes of
calculating the grant date present value:
Interest
Days to Expiration Volatility Dividend Yield Rate
------------------ ---------- -------------- ----
Richard Linhart 2,557 29.80% 3.46% 6.10%
Robert Mangano(10,850) 2,557 29.18% 3.83% 6.22%
(21,700) 2,922 29.18% 3.83% 6.30%
In addition, the present value calculated pursuant to the Black-Scholes
model was discounted at 5% per vesting year under risk of forfeiture
to the extent applicable. The real value of the options in this table
depends upon the actual performance of HUBCO Common Stock during the
applicable period.
<F2> These options were originally granted several years ago to Mr. Mangano
by Urban. These non-qualified options were then issued by HUBCO in
connection with HUBCO's acquisition of Urban in 1995 to replace
earlier awards made by Urban. The terms of the HUBCO option awards
are those established by Urban when the awards originally were made.
STOCK EXERCISE TABLE
The following table is intended to show options exercised during the
last fiscal year and the value of unexercised options held at year-end
1995 by the HUBCO Named Officers. HUBCO does not use SARs as part of its
compensation package.
<PAGE>
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL AND FY-END OPTION/SAR VALUES
Number of
Securities Value of
Underlying Unexercised
Unexercised In-The-Money
Options/SAR at Options/SARs at
FY-End(#) FY-End ($)<F1>
-------------- ---------------
Shares
Acquired on Value Exercisable/ Exercisable/
Name Exercise (#) Realized ($) Unexercisable Unexercisable
- ---- ------------ ------------ ------------- -------------
Kenneth T. Neilson -0- -0- 67,500/67,500 $627,412/$627,413
D. Lynn Van -0- -0- 7,500/45,000 $69,713/$418,275
Borkulo-Nuzzo
Richard I. Linhart -0- -0- -0-/20,000 $ -0-/$50,000
Robert Mangano<F2> -0- -0- 32,550/-0- $580,182/$-0-
Thomas Shara -0- -0- 7,500/45,000 $69,713/$418,275
_________________
NOTES:
[FN]
<F1> Options are "in the money" if the fair market value of the underlying
security exceeds the exercise price of the option at year end.
<F2> Mr. Mangano's options were issued by HUBCO as part of the acquisition of
Urban and replaced grants made by Urban.
EMPLOYMENT CONTRACTS, TERMINATION OF EMPLOYMENT AND CHANGE-IN-CONTROL
ARRANGEMENTS
HUBCO and HUB jointly entered into an employment agreement with Mr.
Neilson upon his appointment as President in 1989. The agreement continues
Mr. Neilson's salary as in effect on September 5, 1989 and provides annual
increases to be decided by the HUBCO Board. For 1996, Mr. Neilson's annual
base salary is $325,000. If HUBCO changes Mr. Neilson's title to a lesser
position, reduces his compensation, forces him to relocate, or materially
alters his duties, responsibilities or authority, Mr. Neilson can resign and
continue to receive his compensation under the agreement. After a change-in-
control, if Mr. Neilson's employment is terminated by HUBCO (except for cause
or as a result of his death or disability), or if Mr. Neilson resigns for any
reason whatsoever after giving 60 days' notice of his intent to do so, he is
entitled to receive two times his highest W-2 compensation in effect during
the three years preceding the termination or resignation in a lump sum. The
employment agreement, as amended, will expire on the date of HUBCO's 1998
annual meeting.
HUBCO and HUB jointly have entered into Change-in-Control Employment
Agreements with each of Ms. Van Borkulo-Nuzzo, Mr. Linhart and Mr. Shara.
After a change-in-control (as defined in the Agreements), if the executive's
employment is terminated by HUBCO or HUB (except for cause or as a result of
death or disability), or if HUBCO or HUB changes the executive's title,
position, duties or responsibilities, and the executive resigns as a result
of the change, the executive is entitled to receive a lump sum payment equal
to the executive's highest W-2 compensation in effect during the three years
preceding the termination or resignation. Each agreement will expire on
December 31, 1998 unless a change-in-control occurs prior to that date.
Upon the merger of Urban into HUB, Mr. Mangano, Executive Vice President
of HUB (formerly President of Urban) entered into an Employment Agreement
with HUBCO and HUB as of July 1, 1995. The contract is for a term of 3
years, expiring June 30, 1998, and provides Mr. Mangano with a base salary of
$175,000 per year, 4 weeks vacation per year, country club membership, use of
a company car and such other benefits and perquisites as other senior
officers may be entitled to receive. Upon a termination by HUBCO of Mr.
Mangano other than for cause (as defined in the Agreement) or if Mr. Mangano
terminates his employment for good reason (as defined in the Agreement),
which includes a change-in-control of HUBCO, Mr. Mangano will receive 36
months salary reduced by the number of months elapsing since July 1, 1995,
but in any event, not less then 24 months salary. In addition, Mr. Mangano
would receive Special Retirement Benefits including full vesting in all
pension, savings, retirement and other benefit plans and an additional 36
months of credited service. If an excise tax under the provisions of Section
280G of the Internal Revenue Code is imposed on Mr. Mangano by virtue of such
compensation, HUBCO will pay Mr. Mangano an additional amount that is
generally intended to cover the excise tax payable by Mr. Mangano plus the
additional federal and state taxes due on that amount.
Under HUBCO's restricted stock plan, each share of stock awarded is
subject to a "Restricted Period" of from two to ten years, as determined by
the committee administering the plan when it awards the shares. Effective
upon the date of grant, the officer or employee is entitled to all the rights
of a shareholder with respect to the shares, including dividend and voting
rights. However, if a share recipient leaves the employment of HUBCO or its
subsidiaries during the Restricted Period for any reason, his or her shares
may be forfeited to HUBCO. Upon the occurrence of a change in control of
HUBCO, every Restricted Period then in existence of five years or less will
automatically expire.
Under the HUBCO, Inc. 1995 Stock Option Plan, options are granted with a
term not to exceed ten years from the grant date. Each option is granted
with a vesting schedule as determined by the Stock Committee. In the event
of a change in control, as defined in the Plan, any option which has not, as
of the date of the change in control, become exercisable, becomes fully
vested.
PENSION PLANS
Pension Plans. HUBCO has two non-contributory, defined benefit pension
plans: The Employees' Retirement Plan of HUBCO, Inc. (the "BASE PLAN") and
the Retirement Plan for Non-Bargaining Employees of HUBCO, Inc. (the
"NON-BARGAINING RETIREMENT PLAN"), both of which apply to employees of HUBCO
and its designated subsidiaries. The Board has authorized the consolidation
of these plans into one plan; this consolidation is expected to be finalized
during the second quarter of 1996.
Base Plan. The Base Plan covers any employee of HUBCO or it
subsidiaries who works over 1,000 hours per year, is over age 20 and has
completed 6 months of service. The annual retirement benefit for the HUBCO
Named Officers is the sum of (i) 1.25% of the employee's base year-end
compensation during the year he or she joins the Base Plan multiplied by the
number of years of service with HUBCO or HUB prior to joining the Base Plan;
plus (ii) 1.25% of the employee's base year-end compensation during each year
of a participant's service after joining the Base Plan. Retirement
benefits normally commence when an employee reaches age 65.
Non-Bargaining Retirement Plan. The Non-Bargaining Retirement Plan
provides additional retirement benefits for non-bargaining employees of HUBCO
and its subsidiaries. It covers each non-bargaining employee who works over
1,000 hours per year, is over age 20 and has completed 6 months of service.
The annual retirement benefit for covered employees is calculated by taking
1% of an employee's base average annual earnings (determined by averaging the
highest five continuous years of credited service, excluding the last year of
service) multiplied by the years of credited service under the Non-Bargaining
Retirement Plan, adding % of an employee's base average annual earnings in
excess of the average Social Security Wage Base (calculated based upon the
year of birth) multiplied by the years of credited service, and subtracting
the pension benefit the employee will receive from the Base Plan. Retirement
benefits normally commence when an employee reaches age 65. The
Non-Bargaining Retirement Plan also provides for disability pension benefits.
In each of the above plans, compensation in the form of a bonus is
excluded from benefit calculations. Thus, for each Named Officer, only the
amounts which are shown each year under the heading "Salary" in the Summary
Compensation Table in this Proxy Statement are covered.
The table below shows an employee's estimated annual retirement benefits
from both pension plans, assuming retirement at age 65 for an individual
reaching such age before January 1, 1995 and assuming a straight life annuity
benefit, for the specified compensation levels and years of service. The
benefits listed in the table are not subject to any deduction for social
security or other offset amounts. Mr. Neilson has approximately 12 years
of credited service under the pension plans as of January 1, 1996 and, at age
65, would have 30 years of credited service. Ms. Van Borkulo-Nuzzo has
approximately 29 years of credited service under the pension plans as of
January 1, 1996, and, at age 65, would have approximately 48 years of
credited service. Mr. Shara has approximately 14 years of credited service
under the pension plans as of January 1, 1996 and, at age 65, would have
approximately 42 years of credited service.
Neither Mr. Linhart nor Mr. Mangano had any credited service in the
pension plans as of January 1, 1996. At age 65, their anticipated credited
service would be approximately 13 years and 15 years respectively.
PENSION PLAN TABLE
Years of Service
Salary 15 20 25 30 35
------- ------- ------- -------- -------
$125,000 $26,181 $34,907 $43,634 $52,361 $61,088
$150,000 $31,806 $42,407 $53,009 $63,611 $74,213
For the current plan year, the compensation for computing benefits under
the pension plans cannot exceed $150,000, which is indexed for inflation as
limited by Congress.
The HUBCO Board has authorized the purchase of a supplemental benefit
in the form of Corporate Owned Life Insurance to offset the effect of the IRS
imposed limitations on pension benefits for Mr. Neilson.
DIRECTORS' COMPENSATION
The HUBCO Board has established directors retainer and fees effective
January 1, 1995 as follows:
(1) Chairman's Retainer $26,000
Chairman of Audit Committee, Retainer $ 5,000
Chairman of Personnel Committee, Retainer $ 5,000
(2) Annual Director's Retainer $12,000
(3) HUBCO, HUB and subsidiary Board Meetings $ 500
(4) Committee Meetings $ 400
The President and CEO does not receive any retainer or Board fees.
Retirement. Non-employee directors with at least 36 months of service
upon retirement will receive a retirement benefit each year for life (but not
to exceed 10 years) equal to 10% of the director's retainer in effect at the
date of his or her retirement, multiplied by the number of years of service
as a director (not to exceed 10 years). At present, the maximum benefit
payable per director is $12,000 per year for 10 years. This plan was
terminated in early 1996.
Deferred Compensation. The HUBCO Board adopted a nonqualified Deferred
Compensation Plan for directors covering the retainer and committee fees
effective January 1, 1995. Participation is optional. Interest is paid on
deferred fees at the highest rate paid by HUB on passbook savings. The
provisions of the Deferred Compensation Plan are designed to comply with
certain rulings of the Internal Revenue Service under which the deferred
amounts are not taxed until received. Under the Deferred Compensation Plan,
the directors who elect to defer their fees will receive the fees over time
after they retire.
BOARD COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The compensation payable to executive officers of HUBCO and of HUB is
determined by the Compensation Committee, except that restricted stock awards
and stock option grants are determined by HUBCO's Stock Committee (the "STOCK
COMMITTEE") and bonuses are based upon parameters established by the full
HUBCO Board. All actions of the Compensation Committee are subject to review
and ratification by the Boards of Directors of HUBCO and HUB. Thus, this
report is being issued over the names of all the directors of HUBCO and is
concurred in by all members of the relevant committees.
The Committee members are: Compensation Committee: Charles F.X. Poggi
(Chairman), Robert Burke, Joan David and W. Peter McBride; Stock Committee:
Robert Burke (Chairman), Sister Grace Frances Strauber and Bryant Malcolm.
This report shall not be deemed incorporated by reference by any general
statement incorporating by reference this Proxy Statement into any filing
under the Securities Act, or under the Exchange Act, except to the extent
that HUBCO specifically incorporates this information by reference, and shall
not otherwise be deemed filed under such Acts.
Executive Compensation Policy
HUBCO's policy is to compensate its executives fairly and adequately for
the responsibility assume, for the success and direction of HUBCO, for the
effort expended in discharging that responsibility, and for the results
achieved directly or indirectly from each executive's performance. "Fair and
adequate compensation" is established after careful review of:
1. HUBCO's earnings;
2. HUBCO's performance as compared to other companies of similar size
and market area; and
3. Comparison of what the market demands for compensation of similarly
situated experienced executives.
Total compensation takes into consideration a mix of base salary, bonus,
perquisites, restricted stock awards and stock options. The particular mix
is established in order to competitively attract competent professionals,
retain those professionals, and reward extraordinary achievement.
The Compensation Committee also considers net income for the year and
earnings per share of HUBCO Common Stock before finalizing officer increases
for the coming year.
Based upon its current levels of compensation, HUBCO is not affected by
the provisions of the Code which limit the deductibility to a company of
compensation in excess of $1 million paid to any of its top five executives.
Since the grant of options under the 1995 Stock Option Plan may, in
subsequent years, result in total compensation to an officer in excess of $1
million, the 1995 Stock Option Plan has been designed so that compensation
payable under the Option Plan conforms to the Code requirements and will be
deductible by HUBCO.
In certain instances, compensation decisions take into account
contractual commitments assumed by or agreed to by HUBCO as a result of an
acquisition.
Base Salary
Subject to HUBCO Board review and ratification, the responsibility for
establishing base salary for executives is delegated to the Compensation
Committee.
Salary is minimum compensation for any particular position and is not
tied to any performance formula or standard. However, that is not to say
that poor performance will not result in termination. Superior performance
is expected of all executive officers.
To establish salary, the following criteria are used:
1. Position description.
2. Direct responsibility assumed.
3. Comparative studies of peer group compensation. Special weight is
given to local factors as opposed to national averages.
4. Earnings performance of HUBCO resulting in availability of funds
for payment of salary expense.
5. Competitive level of salary to attract and retain qualified and
experienced executives.
Annual Bonuses
Each year the HUBCO Board establishes the parameters for the award of
bonuses. The current parameters involve HUBCO's performance specifically
related to return on equity and minimum loan loss reserve levels.
Under the bonus program the bonus pool may not exceed 10% of after tax
profits of HUBCO and the creation of the bonus pool may not cause the year-
end results to fall below the targeted return on equity or the loan loss
reserve to fall below the targeted loan loss reserve percentage. If the
targeted results are not achieved, no bonuses will be paid under the program.
Even if the targeted level is achieved, each department must meet its budget
in order to be eligible for a bonus and each employee must achieve key goals
established for him or her in order to be personally eligible.
Restricted Stock
The responsibility for establishing restricted stock awards is delegated
to the Stock Committee.
Twice annually the Stock Committee meets to evaluate meritorious
performance of all officers and employees for consideration to receive
restricted stock awards.
The Stock Committee makes awards based upon the following criteria:
1. Position of the officer or employee in HUBCO and/or HUB.
2. The benefit which HUBCO or HUB has derived as a result of the
efforts of the award candidate under consideration.
3. HUBCO's desire to encourage long term employment of the award
candidate.
Stock Options
The 1995 Stock Option Plan was approved by HUBCO's shareholders at the
1995 Annual Meeting.
The responsibility for recommending awards of stock options to the full
HUBCO Board rests with the Stock Committee.
The Stock Committee makes recommendations for awards based upon the
following criteria:
1. Position of the officer or employee in HUBCO and/or HUB.
2. The benefit which HUBCO or HUB has derived as a result of the
efforts of the award candidate under consideration.
3. HUBCO's desire to encourage long term employment of the award
candidate.
Perquisites
Perks, such as company automobiles and their related expenses, country
club memberships, auxiliary insurance benefits and other perks which the
HUBCO Board may approve from time to time are determined and awarded pursuant
to evaluation under the same criteria used to establish base salary or, in
certain circumstances pursuant to contractual commitments assumed by or
agreed to by HUBCO as a result of an acquisition.
* * * * *
HUBCO has long believed that a strong, explicit link should exist
between executive compensation and the value delivered to shareholders. The
bonus program, restricted stock awards and stock option awards all provide
competitive compensation which increase based on HUBCO's performance. Since
each bonus is based on a direct, explicit link to HUBCO's performance, it is
directly and explicitly linked to the value received by shareholders. HUBCO's
profitability inures to the benefit of shareholders, and is a direct result
of the direction established by management. The general compensation
philosophy is that base salary for executives should place compensation at
the twenty-fifth percentile of the peer group but that total compensation
(including bonus, restricted stock and options) should place compensation
over the seventy-fifth percentile in line with HUBCO's performance.
IN 1995 THE COMMITTEES RESPONSIBLE FOR THE VARIOUS COMPONENTS OF
EXECUTIVE COMPENSATION UTILIZED TWO SALARY SURVEYS TO ESTABLISH EXECUTIVE
COMPENSATION. THE FIRST REPORT, "N.J. BANKERS' SALARY SURVEY", PREPARED BY
KPMG PEAT MARWICK, IDENTIFIED COMPENSATION IN INSTITUTIONS IN THE $1 TO $3
BILLION CATEGORY IN THE NEW YORK, NEW JERSEY, PENNSYLVANIA TRI-STATE AREA.
THE SECOND SURVEY, CONDUCTED BY WYATT DATA SERVICES, ENTITLED FINANCIAL
INSTITUTIONS BENCHMARK COMPENSATION REPORT , WAS NATIONWIDE FOR THE FINANCIAL
INDUSTRY.
MR. NEILSON, THE PRESIDENT OF HUBCO, DID NOT RECEIVE AN INCREASE IN BASE
PAY FOR 1993, 1994, OR 1995 BUT RECEIVED AN INCREASE OF $75,000 EFFECTIVE FOR
1996. HE IS ELIGIBLE FOR BONUSES EQUAL TO 100% OF HIS BASE SALARY. MR.
NEILSON'S BASE SALARY IS $325,000. THE HUBCO BOARD BELIEVES THAT THIS
PACKAGE REPRESENTS FAIR COMPENSATION IN VIEW OF HUBCO'S 1995 PERFORMANCE AND
PEER GROUP COMPARISONS.
For 1995, Mr. Schierloh, Chairman of HUBCO, received a base salary of
$36,000 and was eligible for a 50% bonus. In addition, he was paid a
quarterly retainer of $6,500 as director and Chairman. Mr. Schierloh is
retiring as Chairman after the HUBCO Meeting although he will continue as a
director of HUBCO. The HUBCO Board has elected Mr. Neilson as Chairman
effective immediately following the HUBCO Meeting.
THE BOARD OF DIRECTORS OF HUBCO
Robert J. Burke
Joan David
Thomas R. Farley
Harry J. Leber
Bryant Malcolm
W. Peter McBride
Kenneth T. Neilson
Charles F.X. Poggi
James E. Schierloh
Sister Grace Frances Strauber
PERFORMANCE GRAPH
The following graph compares the cumulative total return on a
hypothetical $100 investment made at the close of business on December 31,
1990 in: (a) HUBCO Common Stock; (b) the Standard & Poor's ("S&P") 500 Index;
and (c) an index of peer group performance. The graph is calculated assuming
that all dividends are reinvested during the relevant periods. The graph
shows how a $100 investment would increase or decrease in value over time,
based on dividends (stock or cash) and increases or decreases in the market
price of the stock.
[Insert Graph]
1990 1991 1992 1993 1994 1995
---- ---- ---- ---- ---- ----
HUBCO Inc. 100 196.50 400.76 562.90 567.54 879.82
S&P 500 Index 100 130.47 140.41 154.56 146.60 215.45
Peer Group 100 172.49 283.69 311.20 330.06 574.77
Four of HUBCO's "peer group" have been acquired. While their
performance is included in the above graph, it should be noted that the fact
of acquisition has, in all likelihood, resulted in improved investment
results for those institutions which were acquired.
PEER GROUP POPULATION:
Commerce Bancorp Inc. N.J.
First Fidelity Bancorporation
Midlantic Corp.
Summit Bancorporation
Trust Co. N.J. Jersey City - Name change from Trustcompany Bancorporation
UJB Financial Corp.
United Counties Bancorp
United National Bancorp N.J.
Valley National Bancorp
Prepared from data supplied by Standard & Poor's Compustat Services.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
As noted above under the caption "Board Compensation Committee Report on
Executive Compensation," various aspects of the compensation of the HUBCO
Named Officers are determined by the Compensation Committee and the Stock
Committee. The Compensation Committee members are: Charles F.X. Poggi
(Chairman), Robert Burke, Joan David and W. Peter McBride. The Stock
Committee members are: Robert Burke (Chairman), Sister Grace Frances
Strauber and Bryant D. Malcolm.
Mr. Schierloh and Mr. Neilson, each of whom serves on the Board of
Directors of both HUBCO and HUB, are officers of HUBCO and HUB. Each of
Messrs. Schierloh and Neilson absented themselves from all discussions, and
abstained from all voting, on the Boards on which they served with respect to
their own compensation.
Charles F.X. Poggi, who serves on the Board of Directors of both HUBCO
and HUB, and who is the Chairman of the Compensation Committee and is
involved in setting executive compensation, is President of Poggi Press, a
general printing company. During 1995, Poggi Press was paid $343,145.51 for
printing work for HUBCO and its subsidiaries.
W. Peter McBride, a Director of HUBCO and HUB serves on the Compensation
Committee. Various companies with which Mr. McBride is affiliated have
business relationships with HUBCO or HUB. The Franklin Lakes office of HUB
(obtained through merger with Urban) is leased from Urban Farms Shopping
Center, Inc., a New Jersey corporation of which W. Peter McBride is the
President and a shareholder. The lease was originally executed in 1979 and
extended on November 1, 1994 to December 31, 1999. Contiguous space is also
leased from Urban Farms Shopping Center, Inc. for the term February 1, 1993
to January 31, 1996. Management believes the terms and conditions of these
leases to be equivalent to terms available from an independent third party.
The annual aggregate lease payments through December 31, 1995 were
$75,365.61. Urban Farms, Inc., a McBride-owned company, does landscape work
for HUB. In 1995, $7,600.81 was paid for such services. Albert P. Schmidt
Construction Co., a McBride-owned company, does renovations and repairs at
1000 MacArthur Blvd., Mahwah, New Jersey. In 1995, $319,078.58 was paid for
such services. Independent Electric Co. does subcontracting work at 1000
MacArthur Blvd., Mahwah. Any amounts due to this subcontractor were included
in amounts paid to Albert P. Schmidt Construction Co. reflected above. F.A.
McBride Co. does heating and air conditioning work at various locations
previously a part of Urban. In 1995, this company was paid $49,911.62 for
such services. Urban Planing and Engineering Associates, a McBride-owned
company, was paid $600.00 by HUB in 1995 for excavation work at the Ringwood
office which was formerly a part of Urban.
CERTAIN TRANSACTIONS WITH MANAGEMENT
HUB has made in the past and, assuming continued satisfaction of gener-
ally applicable credit standards, expects to continue to make, loans to
directors, executive officers and their associates (i.e. corporations or
organizations for which they serve as officers or directors or in which they
have beneficial ownership interests of 10% or more). These loans have all
been made in the ordinary course of the banking business on substantially the
same terms, including interest rates and collateral, as those prevailing at
the time for comparable transactions with other persons, and do not involve
more than the normal risk of collectability or present other unfavorable
features.
COMPLIANCE WITH SECTION 16 OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Exchange Act requires HUBCO's directors, principal
officers, and persons who own more than 10% of HUBCO's equity securities to
file with the Commission initial reports of ownership and reports of changes
in ownership of such securities. To HUBCO's knowledge, based solely on a
review of the copies of such reports furnished to it, during the fiscal year
ended December 31, 1995, Section 16(a) filing requirements with respect to
HUBCO's equity securities were complied with.
RECOMMENDATION AND VOTE REQUIRED ON PROPOSAL 2
HUBCO directors will be elected by a plurality of the votes cast at the
HUBCO Meeting, whether in person or by proxy. THE HUBCO BOARD UNANIMOUSLY
RECOMMENDS A VOTE "FOR" THE NOMINATED SLATE OF DIRECTORS INCLUDED IN PROPOSAL
2.
III. AMENDMENT TO CERTIFICATE OF INCORPORATION
INCREASING THE NUMBER OF COMMON AND PREFERRED SHARES
AUTHORIZED TO BE ISSUED
GENERAL
On March 19, 1996, the HUBCO Board unanimously approved an amendment
(the "AMENDMENT") to paragraph (A) of Article V of the HUBCO Certificate of
Incorporation to increase the authorized capital stock of HUBCO to 60 million
shares from the presently authorized 29.5 million shares, including an
increase in the authorized HUBCO Common Stock to 50 million shares from the
presently authorized 25 million shares and an increase in the authorized
preferred stock of HUBCO to 10 million shares from the presently authorized
4.5 million shares.
As of April 19, 1996, _______________ shares of HUBCO Common Stock were
issued and outstanding. Of the authorized but unissued shares of HUBCO
Common Stock, (i) 236,750 were reserved for issuance under HUBCO's Restricted
Stock Plan, (ii) 750,000 shares (less ______ shares issued under the
Restricted Stock Plan since December 1, 1994) were reserved for issuance
under HUBCO'S 1995 Stock Option Plan, (iii) 32,450 shares were reserved for
issuance in conjunction with options granted to Robert F. Mangano in
connection with the acquisition of Urban, and (iv) _______________ shares
were reserved for issuance in conjunction with the proposed acquisition of
Lafayette pursuant to the Merger Agreement (all of the foregoing are
hereinafter referred to as "RESERVED SHARES"). HUBCO has 4,500,000
authorized shares of preferred stock. HUBCO Series A Preferred Stock was
issued in connection with HUBCO's acquisition of Washington Bancorp, Inc. on
July 1, 1994, but those shares were called for redemption. No preferred
stock is presently outstanding.
The purpose of the Amendment is to maximize HUBCO's ability to expand
its capital base. The full text of the proposed Amendment is attached to
this Proxy Statement as Appendix F. The following description of the
Amendment is qualified in its entirety by reference to Appendix F.
PURPOSE OF THE PROPOSAL
Except for the Reserved Shares, HUBCO has no specific agreements,
commitments or plans at this time for the sale or other use of additional
shares of common or preferred stock. The HUBCO Board believes that the
proposed authorization to issue more common or preferred stock may assist in
achieving future acquisitions and in meeting its corporate needs. If the
issuance of shares is deemed advisable in connection with raising additional
capital, or future acquisitions, having the authority to issue the additional
shares would avoid the time, delay and expense of a special shareholders'
meeting to authorize the issuance of common or preferred stock. No further
action or authorization by HUBCO's shareholders would be necessary prior to
issuance of such stock, except as may be required for a particular
transaction by applicable law or regulation, including but not limited to,
the listing regulations of the National Association of Securities Dealers,
Inc., which may require approval under certain circumstances.
One circumstance which could cause HUBCO to issue shares in the
foreseeable future is the need for additional capital in acquisitions of
financial institutions. Since 1990, HUBCO and HUB have been actively
involved in acquiring financial institutions. In the past, many of HUBCO's
acquisitions involved the issuance of shares of common or preferred stock to
the shareholders of the acquired institutions. In addition, the acquisition
of a significant amount of assets for cash could reduce the leverage ratio of
HUBCO and HUB. Thus, HUBCO may raise capital following a proposed
acquisition to maintain compliance with regulatory capital requirements and
provide a cushion of additional capital. Because the acquisition process is
often fast-paced, complex and unpredictable, HUBCO cannot predict when and if
stock issuance to target shareholders or for capital-raising purposes will be
deemed appropriate by management or will be required as a commitment in
connection with a specific acquisition. HUBCO currently believes that if
securities are issued to target shareholders, HUBCO would most likely use
common stock but may also issue preferred stock.
The additional shares of HUBCO Common Stock to be authorized by the
proposed Amendment will be identical to the shares of HUBCO Common Stock now
authorized and outstanding, and the Amendment will not affect the terms and
rights of the holders of those shares.
The additional shares of preferred stock will increase the number of
authorized preferred shares, all of which are "blank check" shares. "Blank
Check" preferred stock is preferred stock that may be issued with such terms
and conditions as the HUBCO Board determines at the time of issuance.
POSSIBLE ADVERSE EFFECTS OF THE PROPOSAL
The issuance of the additional common or preferred stock may have
certain effects upon the holders of HUBCO Common Stock. Holders of HUBCO
Common Stock will not have preemptive rights with respect to the common or
preferred stock. The issuance of further HUBCO Common Stock would increase
the number of shares of HUBCO Common Stock outstanding, thereby diluting
percentage ownership of existing shareholders. The issuance of more common
or preferred stock could possibly dilute book value per share or earnings per
share for the then existing holders of HUBCO Common Stock.
POSSIBLE ANTI-TAKEOVER EFFECTS OF THE PROPOSAL
The authorization or issuance of common stock or blank check preferred
stock may be viewed as being an "anti-takeover" device. In the event of a
proposed merger, tender offer or other attempt to gain control of HUBCO which
the HUBCO Board does not believe to be in the best interests of HUBCO or its
shareholders, the HUBCO Board could issue additional common or preferred
stock that could make any such takeover attempt more difficult to complete.
Except for the Reserved Shares, the HUBCO Board has no specific plans to
issue any common or preferred stock and does not intend to issue any common
or preferred stock except on terms that the HUBCO Board deems to be in the
best interest of HUBCO and its shareholders.
RECOMMENDATION AND VOTE REQUIRED FOR ADOPTION OF PROPOSAL 3
In accordance with the New Jersey Business Corporation Act and HUBCO's
Certificate of Incorporation, the affirmative vote of a majority of those
shares of common stock voting on this proposal is required to adopt the
Amendment. THE BOARD OF DIRECTORS OF HUBCO UNANIMOUSLY RECOMMENDS A VOTE
"FOR" PROPOSAL 3.
<PAGE>
IV. ELECTION OF LAFAYETTE DIRECTORS
Lafayette's By-laws authorize a minimum of 4 and a maximum of 24
directors but leave the exact number to be fixed by resolution of the Board
of Directors (the "LAFAYETTE BOARD"). The Lafayette Board has fixed the
number of directors at 14.
Pursuant to the Articles of Incorporation, the directors of Lafayette
are divided into three classes and each class is elected to serve for a
staggered three-year term.
Ms. Bynoe and Messrs. McNeil, Montesi, Tagliatela and Tatigian are each
being nominated for a three-year term extending to the 1999 Annual Meeting.
If, for any reason, any of the nominees becomes unavailable for election, the
proxy solicited by the Board of Directors will be voted for a substitute
nominee selected by the Board of Directors. The Lafayette Board has no
reason to believe that any of the named nominees is not available or will not
serve if elected.
The names of the nominees for election and the directors whose terms
extend beyond this Annual Meeting, and certain information about each of them
as of the Lafayette Record Date, are set forth in the tables below.
TABLE I--NOMINEES FOR 1996 ANNUAL MEETING
Name, Age &
Position with Principal Occupation Director Term
Lafayette During Past Five Years Since Expiring
---------- ---------------------- -------- --------
Linda President and Chief 1994 1999
Walker Operating Officer, for
Bynoe, 43 more than five years,
Telemat Ltd. (a private
investment, project
management and financial
services firm); Vice
President - Capital
Markets Department of
Morgan Stanley & Co.,
1978 to 1989; Director
of American Odyssey
Funds, Inc. (a mutual
fund) since April 1993;
Director of Walden
Residential Properties,
Inc. (a REIT) since
February, 1994.
Roderick C. President, for more than 1993 1999
McNeil III, five years, McNeil
54 Brothers, Inc.
(construction hauler);
Director, 1987 to
February 1994, Lafayette
American Bancorp., Inc.
("Bancorp"); Director,
1969 to March 1993,
Lafayette Bank and Trust
Company ("Lafayette
Bank"); Director, 1984
to 1988, Lafayette
Bancorp, Inc.
("Lafayette Bancorp").
Enzo R. President, for more than
Montesi, 68 five years, Montesi 1993 1999
Motors, Inc. (auto
dealership); Director,
May 1993 to February
1994, Bancorp; Director,
1975 to March 1993,
American National Bank
("American"); Director,
1985 to 1988, American
Bancorp, Inc. ("American
Bancorp").
Louis F. President, for more than 1993 1999
Tagliatela, five years, Franklin
76 Construction Co., Inc.
(construction company-
development); Director,
1987 to February 1994,
Bancorp; Director, 1965
to March 1993, American;
Director, 1985 to 1988,
American Bancorp.
John H. Senior Vice President, 1993 1999
Tatigian, for more than five
Jr., 59 years, Peter Paul-
Hershey (confection
company); Director, 1987
to February 1994,
Bancorp; Director, 1965
to March 1993, American;
Director, 1985 to 1988,
American Bancorp.
TABLE II--DIRECTORS WHOSE TERMS CONTINUE
BEYOND THIS ANNUAL MEETING
Name, Age &
Position with Principal Occupation Director Term
Lafayette During Past Five Years Since Expiring
----------- ---------------------- -------- --------
Steven Chairman and Chief 1993 1998
Bangert, 39 Executive Officer of
Colorado Business
Bankshares, Inc.
(formerly Equitable
Bankshares of Colorado,
Inc.), September 1994 to
present; Chairman and
Director of River Valley
Bank, FSB of Weslaco,
Texas, January 1994 to
present and Vice
Chairman and Director,
1991 to January 1994;
Director of River Valley
Holdings, Inc., 1991 to
January 1995; President
of Western Capital
Holdings, Inc., August
1993 to present and
Director, 1991 to
present; President of
Hawthorne Financial
Group, Inc., 1993 to
present; Vice Chairman
of River Valley Savings
Bank, FSB of Peoria,
Illinois, 1987 to
January 1995.
Donald P. Chairman of the Board of 1993 1997
Calcagnini, Directors of Lafayette
60, since March 1993; Chief
Chairman of Executive Officer of
the Board Lafayette from March
1993 to April 1994;
Chairman of the Board of
Directors, March 1992 to
February 1994,
President, 1986 to 1992,
and Chief Executive
Officer, 1986 to
February 1994, Bancorp;
Chairman of the Board of
Directors and President,
1965 to March 1993,
American; Chairman of
the Board of Directors
and President, 1985 to
1988, American Bancorp.
Bertram Director, for more than 1993 1997
Frankenberg five years, Sheffield
er, Jr., 63 Management Company and
Sheffield Investments,
Inc. (advisor to
Blanchard Group of Funds
from July 1986-July
1995); consultant and
private investor;
Director, 1987 to
February 1994, Bancorp;
Director, 1985 to March
1993, American;
Director, 1985 to 1988,
American Bancorp.
Gary R. Attorney, Ginsberg & 1993 1997
Ginsberg, Palumbo, P.C. (senior
62 attorney in law firm);
Attorney, for more than
five years, Gary R.
Ginsberg, P.C.; Co-
Chairman of the Board of
Directors, 1986 to March
1992, Vice Chairman of
the Board of Directors,
1992 to December 1993,
and Director, December
1993 to February 1994,
Bancorp; Director, 1985
to March 1993, American;
Director, 1985 to 1988,
American Bancorp.
Robert B. President since December 1993 1998
Goldstein, 1993, Chief Executive
55, Officer since April,
President & 1994, Chief Operating
CEO Officer, December 1993
to April, 1994,
Lafayette; Vice
Chairman, National
Community Banks, Inc.,
West Paterson, N.J.,
January 1992 to November
1993; President and
Chief Operating Officer
of Crossland Savings
Bank, Brooklyn, N.Y.,
1991 to January 1992;
Executive Officer of
First Interstate Bank of
Texas, 1985 to 1991.
Donald W. Consultant, for more 1993 1998
Harrison, than five years,
70 Connecticut
Distributors, Inc.
(wholesale liquor
distributor); Director,
1990 to February 1994,
Bancorp; Director, 1965
to March 1993, Lafayette
Bank; Director, 1984 to
1988, Lafayette Bancorp.
Leonard R. President, for more than 1993 1998
Meyers, 61 five years, Connecticut
Jai Alai, Inc. (jai alai
fronton); Director, 1987
to February 1994,
Bancorp; Director, 1965
to March 1993, Lafayette
Bank; Director, 1988 to
1991, Lafayette Bank
Corp. Investment;
Director, 1984 to 1988,
Lafayette Bancorp.
Leif H. President for more than 1995 1997
Olsen, 70 five years, Leif H.
Olsen Investments, Inc.
(an economic consulting
and investment
management firm);
Director of Interpublic
Group of Companies,
Inc., 1972 to present;
Director of Atlantic
Mutual Insurance
Company, 1973 to
present; Director of
Bank of New York
Hamilton Funds, 1992 to
present; Director of
Capital Markets
Assurance Corporation,
1994 to present;
Director of the DeKalb
Fund sponsored by Dime
Savings Bank, 1992 to
December 1995; Director
of Mechanics and Farmers
Savings Bank, FSB of
Bridgeport, Connecticut,
1989 to 1991.
John W. President of McAllen 1993 1998
Rose, 46 Capital Partners, Inc.,
1992 to present;
Executive Vice President
of FNB Corporation of
Hermitage, Pennsylvania,
April, 1995 to present;
Director of Bucktail
Bank & Trust, January
1996 to present;Director
of Monarch Bancorp,
August 1995 to present;
Director of First County
Bank, December 1995 to
present; Director of
River Valley Bank, FSB
of Weslaco, Texas, 1992
to present; Director of
Life Line Shelters,
Inc., June 1991 to
present; Senior Vice
President of River
Valley Savings Bank, FSB
of Peoria, Illinois,
1992 to January 1994;
President of Livingston
& Company, Southwest,
L.P., 1988 to 1992;
Senior Vice President of
ABN Lasalle North
America, 1984 to 1988.
BOARD OF DIRECTORS' MEETINGS; COMMITTEES OF THE BOARD
The Board of Directors of Lafayette held 12 meetings during 1995. The
Board of Directors generally holds regularly-scheduled meetings each month
and special meetings as circumstances require.
Lafayette has a standing Audit Committee of the Board of Directors. The
Audit Committee monitors the internal controls of Lafayette and the
objectivity of its financial reporting. It meets with appropriate bank
financial personnel, its internal auditor and independent public accountants
in connection with these reviews. It also evaluates the performance of
external firms engaged to perform the internal audit function for Lafayette
(currently Arthur Andersen LLP). The Audit Committee recommends to the Board
of Directors the appointment of independent public accountants to serve as
auditors for the following year in examining Lafayette's accounts. Both the
internal auditor and the independent public accountants meet alone with the
Audit Committee and have free access to the Audit Committee at any time. The
Audit Committee met 4 times during 1995. During 1995, John W. Rose served as
Chairperson of the Audit Committee. The other members of the Audit Committee
are Ms. Bynoe and Messrs. Meyers and Tagliatela.
Lafayette currently does not have a nominating committee. As detailed
more fully under the caption "Board Compensation Committee, Report on
Executive Compensation," the various elements of compensation for the
executive officers of Lafayette are set by the Personnel Committee.
During 1995, no director of Lafayette attended fewer than 75% of the
total meetings of the Board of Directors of Lafayette and meetings of
committees of Lafayette's Board on which such director served.
STOCK OWNERSHIP OF MANAGEMENT AND PRINCIPAL SHAREHOLDERS
The following table sets forth information concerning the beneficial
ownership of Lafayette Common Stock as of February 29, 1996, by each
executive officer of Lafayette for whom individual information is required to
be set forth in this Proxy Statement (the "LAFAYETTE NAMED OFFICERS"), by
each director and by all directors and executive officers as a group.
Name of Director or No. of Common Shares Percent
Executive Officer Beneficially Owned<F1> of Class
----------------------- ---------------------- --------
Steven Bangert 100,000 1.0%
Linda Walker Bynoe 10,800 *
Donald P. Calcagnini 186,569<F2> 1.9
Bertram Frankenberger, Jr. 65,937<F3> *
Gary R. Ginsberg 108,603<F4> 1.1
Robert B. Goldstein 234,769<F5> 2.3
Donald W. Harrison 63,420<F6> *
Roderick C. McNeil, III 109,223<F7> 1.1
Leonard R. Meyers 26,751<F8> *
Enzo R. Montesi 109,896<F9> 1.1
Phillip J. Mucha 12,661<F10> *
Leif H. Olsen - -
Raymond J. Peach 30,731<F11> *
Amanda V. Perkins 8,333 *
John W. Rose 55,000 *
Louis F. Tagliatela 179,990<F12> 1.8
John H. Tatigian, Jr. 54,477<F13> *
All directors and executive
officers as a group
(18 persons) 1,371,414 13.4
The following table furnishes information known by Lafayette as to the
beneficial owners of more than five percent of Lafayette Common Stock as of
December 31, 1995
Name and Address of Percent
Beneficial Owner Number of Shares of Class
----------------------- ---------------- --------
Keefe Managers, Inc. 805,000 8.1
375 Park Avenue
New York, New York 10152
Heine Securities Corporation 573,513 5.7
51 JFK Parkway
Short Hills, New Jersey 07078
___________________
* Indicates ownership of less than 1% of the class.
___________
NOTES:
[FN]
<F1> Beneficially owned shares include shares over which the named person
exercises either sole or shared voting power or sole or shared
investment power. It also includes shares owned (i) by a spouse, minor
children or by relatives sharing the same home, (ii) by entities owned
or controlled by the named person, and (iii) by other persons if the
named person has the right to acquire such shares within 60 days by the
exercise of any right or option. Unless otherwise noted, all shares are
owned directly of record and beneficially by the named person, with sole
voting and investment power.
<F2> Includes 125,546 shares held jointly with Mrs. Calcagnini.
<F3> Includes (i) 4,541 shares held in trust by Mrs. Frankenberger for the
couple's grandchildren as to which beneficial ownership is disclaimed by
Mr. Frankenberger and (ii) 41,834 shares held in an Individual
Retirement Account.
<F4> Includes (i) 1,030 shares held in the name of Mr. Ginsberg's
granddaughter's trust and (ii) 56,057 shares owned by Mrs. Ginsberg, as
to which beneficial ownership is disclaimed by Mr. Ginsberg.
<F5> Includes (i) 65,000 shares held jointly with Mrs. Goldstein and (ii)
2,106 shares owned by Mrs. Goldstein.
<F6> Includes 31,164 shares owned by Mrs. Harrison, as to which beneficial
ownership is disclaimed by Mr. Harrison.
<F7> Includes (i) 22,019 shares held by the Roderick C. McNeil II Marital
Trust, (ii) 25,887 shares held by McNeil Brothers, Inc., (iii) 211
shares owned by Mrs. McNeil, as to which beneficial ownership is
disclaimed by Mr. McNeil, (iv) 10,210 shares held in the name of Mr.
McNeil's children, (v) 3,886 shares held in Mr. McNeil's Individual
Retirement Account, and (vi) 10,050 shares held in the name of Mr.
McNeil's mother.
<F8> Includes (i) 542 shares held by Mr. and Mrs. Meyers as Trustees, (ii)
109 shares owned by Mrs. Meyers, as to which beneficial ownership is
disclaimed by Mr. Meyers, (iii) 531 shares held in Mr. Meyers'
Individual Retirement Account, and (iv) 433 shares held in Mrs. Meyers'
Individual Retirement Account, as to which beneficial ownership is
disclaimed by Mr. Meyers.
<F9> Includes (i) 3,482 shares owned by Mrs. Montesi, (ii) 63,777 shares held
jointly with Mrs. Montesi, (iii) 2,423 shares held in trust for Mr.
Montesi's children, (iv) 11,230 shares held in the Montesi Motors Inc.
Pension and Profit Sharing Plan, and (v) 25,568 shares held in the name
of En-Lou Realty Company, a partnership for which Mr. Montesi is agent
and which is comprised of various trusts for the respective benefit of
Mr. Montesi's children and wife.
<F10> Includes 4,000 shares held jointly with Mrs. Mucha.
<F11> Includes (i) 6,063 shares held jointly with Mrs. Peach and (ii) 515
shares owned individually by Mrs. Peach.
<F12> Includes (i) 13,898 shares held jointly with Mrs. Tagliatela, (ii) 8,658
shares held by Mr. Tagliatela's children, (iii) 5,770 shares held in the
name of a company controlled by Mr. Tagliatela, (iv) 142,527 shares held
in the name of LPS Investment Partnership, a partnership including Mr.
Tagliatela's children as partners, and (v) 8,522 shares held in the name
of The Mary A. Tagliatela Spray Trust.
<F13> Includes 34,090 shares held in an Individual Retirement Account.
EXECUTIVE COMPENSATION
GENERAL
Executive compensation is described below in the tabular format mandated
by the FDIC. The letters in parentheses above each column heading are the
letters designated by the FDIC for such columns, and are provided to make
inter-company comparisons easier.
SUMMARY COMPENSATION TABLE
The following table summarizes all compensation earned in the past three
years for services performed in all capacities for Lafayette with respect to
the Lafayette Named Officers.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Annual Compensation
-------------------
(a) (b) (c) (d) (g) (i)
Name Securities All Other
and Principal Underlying Compensation
Position Year Salary ($) Bonus ($) Options/SARs # ($)
------------- ---- ---------- --------- -------------- ------------
<S> <C> <C> <C> <C> <C>
Donald P. 1995 182,013 - 27,787
Calcagnini, 1994 180,211 37,500 52,944
Chairman 1993 168,643 - 42,034
Robert B. 1995 233,320 132,500<FA> - 6,536
Goldstein, 1994 202,885 150,000<FB> 250,000 5,683
President and CEO 1993 20,000<FD> - -
Raymond J. Peach 1995 121,652 7,500 20,395
Executive Vice 1994 112,882 12,000 15,179
President/Director 1993 106,212 - 20,160
of Business
Banking
Phillip J. Mucha 1995 115,031 - 7,500 2,955
Executive Vice 1994 114,808 16,600<FC> 12,000 2,192
President and 1993 113,402 - - -
Chief Financial
Officer
Amanda V. Perkins 1995 107,216 32,808<FE> - 692
Executive Vice 1994 104,053 35,000<FB> 25,000 949
President/Chief 1993 18,962<FD> - -
Credit Policy
Officer
</TABLE>
____________
NOTES:
[FN]
<FA> Bonus paid in 1996 for services rendered during 1995.
<FB> Bonus paid in 1995 for services rendered during 1994.
<FC> Includes $12,000 bonus paid in 1995 for services rendered during 1994.
<FD> Amount shown for 1993 reflects less than a full year of compensation for
Mr. Goldstein and Ms. Perkins, whose employment by Lafayette commenced
on November 11, 1993 and December 13, 1993, respectively, at annual
salaries of $200,000 and $103,000, respectively. Ms. Perkins' amount
includes a hiring bonus of $15,000.
<FE> Represents non-cash compensation earned upon exercise of non-statutory
stock options.
<FF> While each officer's annual compensation includes the incremental
cost to Lafayette for certain executive perquisite programs, such
perquisites do not exceed the lesser of $50,000 or 10% of such officer's
salary and bonus.
<FG> Amounts reported in this column for 1995 are comprised of the following
items:
<TABLE>
<CAPTION> Value of
Accrual for Accrual for Long-Term Split-Dollar
Match-Savings Deferred Post-Retirement Disability Life Insurance
Plan Compensation Medical Benefits Policy Premium Premium
------------- ------------ ---------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
Donald P. Calcagnini $3,080 $8,739 $10,020 $4,513 $1,435
Robert B. Goldstein 3,106 ---- ---- 3,430 ----
Raymond J. Peach 1,384 17,860 ---- 3,726 ----
Phillip J. Mucha 1,858 ---- ---- 1,097 ----
Amanda V. Perkins ---- ---- ---- 692 ----
</TABLE>
STOCK OPTIONS
In addition to 250,000 stock options granted to Mr. Goldstein, Lafayette
currently has options outstanding under two stock option plans. These plans
and certain option activity are described below.
1984 Incentive Stock Option Plan. Under the 1984 Incentive Stock Option
Plan (the "1984 PLAN"), options were granted at exercise prices which were
not less than the fair market value of the shares on the date that the
options were granted. No option granted under the 1984 Plan could be
exercised more than five years after the grant and no option could be granted
more than ten years after the April 1984 adoption of the 1984 Plan by the
shareholders. Thus, options may no longer be granted under the 1984 Plan.
1994 Stock Option Plan. The 1994 Stock Option Plan (the "1994 PLAN")
was adopted by Lafayette's shareholders in May 1994, and provides for the
grant of non-statutory stock options and "incentive stock options" within the
meaning of Section 422 of the Code. The determination of whether a
particular option granted under the 1994 Plan is an incentive option or a
non-statutory option is made by the Personnel Committee at the time of grant.
All options granted in 1995 were non-statutory options. No option may be
granted pursuant to the 1994 Plan after April 18, 2004, ten years after the
date on which the 1994 Plan was initially adopted by the Board of Directors.
No incentive options may be exercised more than ten years after the date of
grant. Incentive options granted to 10% shareholders may only be exercised
for a period of five years after the grant date. Although the 1994 Plan does
not limit the term of non-statutory options, all options reflected in the
table below (all of which are non-statutory) have a term that expires 10
years after their respective grant dates. All options granted in 1995 were
granted at an exercise price of $5.00 per share, a price below the then
current market price. In contrast, the exercise price of an incentive option
cannot be less than the "fair market value" of a share of Common Stock on the
date of grant. The 1994 Plan provides that each option shall become
exercisable at such time or times and in such amount or amounts during its
term as the Personnel Committee may determine at the time of grant. Certain
options granted pursuant to the 1994 Plan were subject to provisions that
result in full vesting upon a change in control (such as the Merger).
STOCK GRANT TABLE
The following table provides certain information about options awarded
to Lafayette Named Officers in the last fiscal year. Lafayette does not use
SARs in its compensation package.
<TABLE>
<CAPTION>
OPTION/SAR GRANTS IN LAST FISCAL YEAR
Individual Grants
-----------------
Number of % of Total
Securities Options/SARs
Name Underlying Granted to Exercise Grant Date
---- Options/SARs Employees In or Base Expiration Present
Granted (#) Fiscal Year Price ($/SH) Date Value($)<F1>
----------- ------------- ------------ --------- -----------
<S> <C> <C> <C> <C> <C>
(a) (b) (c) (d) (e) (f)
Phillip J. Mucha 7,500<F2> 13.39% $5.00 7/26/05 $54,278
Raymond J. Peach 7,500<F2> 13.39 5.00 7/26/05 $54,278
</TABLE>
- --------------------------------
[FN]
<F1> In accordance with FDIC rules, the Black-Scholes option pricing model
was chosen to estimate the grant date present value of the options set
forth in this table. Lafayette's use of this model should not be
construed as an endorsement of its accuracy at valuing options. All
stock option valuation models, including the Black Scholes model,
require a prediction about the future movement of the stock price. The
following assumptions were made for purposes of calculating the grant
date present value: an option term of 10 years, volatility at 24.30%, no
dividend yield, and an interest rate at 6.63%. In addition, the present
value calculated pursuant to the Black-Scholes model was discounted at
5% per vesting year under risk of forfeiture. The real value of the
options in this table depends upon the actual performance of the Common
Stock during the applicable period.
<F2> These options vest over 32 months and become exercisable at the rate of
2,500 options on each of April 1, 1996, 1997 and 1998.
STOCK EXERCISE TABLE
The following table is intended to show options exercised during the
last fiscal year and the value of unexercised options held at year-end 1995
by the Lafayette Named Officers.
<PAGE>
<TABLE>
<CAPTION>
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL AND FY-END OPTION/SAR VALUES
Number of
Securities Value of
Underlying Unexercised
Unexercised In-The-Money
Options/SAR at Options/SARs at
FY-End(#) FY-End ($)<F2>
-------------- ---------------
Shares
Acquired on Value Exercisable/ Exercisable/
Name Exercise (#) Realized ($) Unexercisable Unexercisable
- ---- ------------ ------------ ------------- ---------------
<S> <C> <C> <C> <C>
Robert B. Goldstein<F1> - - 166,666/83,334 $708,331/354,169
Donald P. Calcagnini - - 20,000/25,000 53,125/106,250
Phillip J. Mucha - - 1,875/21,375 6,094/88,969
Raymond J. Peach - - -0-/19,500 -0-/82,875
Amanda V. Perkins 8,333 32,808 8,333/8,334 35,415/35,420
</TABLE>
- -------------------
NOTES:
[FN]
<F1> Does not include 10,000 exercisable options in the name of Mrs.
Goldstein.
<F2> Options are "in the money" if the fair market value of the underlying
security exceeds the exercise price of the option at year end.
EMPLOYMENT CONTRACTS, TERMINATION OF EMPLOYMENT AND CHANGE-IN-CONTROL
ARRANGEMENTS
Lafayette has from time to time entered into or assumed existing
employment agreements with executive officers. Presently, Lafayette is party
to employment agreements with Donald Calcagnini, Robert B. Goldstein, Phillip
J. Mucha and Amanda V. Perkins. Each such agreement has certain unique terms
and conditions, which are described below. However, Lafayette's agreement
with Messrs. Calcagnini, Goldstein and Mucha and Ms. Perkins also have the
following features in common. Each such executive officer is entitled (i) to
the use of an automobile at Lafayette's expense, (ii) to all rights, benefits
and privileges of all employees of Lafayette under any retirement, pension,
profit sharing, insurance, major medical, hospital, group life insurance or
other plans in existence or adopted at any time during the term of such
officer's employment agreement, and (iii) to a severance payment equal to
2.99 times the respective executive officer's annual salary and any bonus
awarded during the prior year, plus reimbursement for any excise taxes
payable as a result of such severance payment in the event that the
respective executive officer is terminated within a specified period before
or after an actual or proposed Change-in-Control Event (as defined in each
agreement). In addition, Lafayette's agreements with Messrs. Calcagnini,
Goldstein and Ms. Perkins also entitle each such person to (i) reimbursement
for professional fees incurred in connection with negotiating his or her
employment agreement, and (ii) reimbursement for membership fees and annual
dues with respect to certain clubs.
The following are brief summaries of the more specific terms of
Lafayette's employment agreements with Messrs. Calcagnini and Goldstein and
Ms. Perkins, as well as the terms of Lafayette's employment agreement with
Mr. Mucha.
Donald P. Calcagnini entered into an employment agreement with
Lafayette, dated as of April 25, 1994 (the "Calcagnini Agreement"), which
supersedes all prior employment agreements between Mr. Calcagnini and
Lafayette or any of its predecessors. Pursuant to the terms of the
Calcagnini Agreement, Mr. Calcagnini will be employed for an initial term
which expires on April 24, 1997. Unless the Calcagnini Agreement is
terminated, the term will automatically extend for successive one year
periods. The Calcagnini Agreement provides that Mr. Calcagnini will serve as
Chairman of the Board of Directors at a base salary of $182,000 per annum.
Commencing with the year ending April 24, 1995, the Executive Committee of
the Board of Directors will determine whether Mr. Calcagnini is entitled to a
bonus. Pursuant to the Calcagnini Agreement, Mr. Calcagnini received an
option to purchase a total of 37,500 shares of the Lafayette Common Stock at
an exercise price of $5.00 per share. A total of 12,500 shares vest on each
of April 24, 1995, April 24, 1996 and April 24, 1997. All of the options
will become fully vested in the event of a Change-in-Control Event (as
defined), a termination by Lafayette without cause or a termination by Mr.
Calcagnini for "Good Reason" (which includes failure by Lafayette to make any
required payment under the Calcagnini Agreement, relocation of Lafayette's
principal offices and the occurrence of a Change-in-Control Event). The
options expire 10 years after the date of grant. During the term of the
Calcagnini Agreement, Lafayette also will, at its expense, name Mr.
Calcagnini as a beneficiary for one half of the proceeds on a split dollar
life insurance policy currently maintained by Lafayette in the face amount of
$1 million. In addition, pursuant to letter agreement dated June 15, 1994
between Lafayette and Mr. Calcagnini, Lafayette will provide, at its own
expense, additional hospitalization, health and medical reimbursement
coverage to Mr. Calcagnini and his wife, both during and after termination of
his employment with Lafayette.
As of December 1993, Robert B. Goldstein began to serve as President and
Chief Operating Officer and a director of Lafayette. On February 24, 1994,
Lafayette entered into an employment agreement with Mr. Goldstein, which was
amended on October 28, 1994 (the "Goldstein Agreement"). The Goldstein
Agreement provides for an initial term ending on December 31, 1996 at an
annual base salary of $200,000 through November 18, 1994, $230,000 from
November 19, 1994 to November 18, 1995, and thereafter an amount (presently
$_____) equal to the previous year's salary as adjusted on a yearly basis by
a cost of living factor. Unless the Goldstein Agreement is terminated, the
term will automatically extend for successive one year periods. The
Goldstein Agreement also provides for a bonus of between $50,000 and $150,000
in the first year, which bonus equalled $_________. For each subsequent
period, Mr. Goldstein's bonus will equal up to 50% of the base salary for
such period. Mr. Goldstein received an option to purchase 250,000 shares of
Lafayette Common Stock, vesting in three equal annual installments commencing
in December 1994, and exercisable through February 24, 2004, at $5.00 per
share. All such options will vest immediately upon a Change-in-Control Event
(as defined), a termination by Lafayette without cause or a termination by
Mr. Goldstein for Good Reason (as defined). The Goldstein Agreement provided
that Mr. Goldstein is entitled to reimbursement for certain expenses
attendant on moving to Connecticut.
Amanda V. Perkins and Lafayette entered into an employment agreement
dated as of December 20, 1994 (the "Perkins Agreement"), which provides that
Ms. Perkins will serve as Senior Vice President and Chief Credit Policy
Officer of Lafayette. The Perkins Agreement provides for an initial term
ending on December 31, 1996 at an annual base salary of $103,000 through
December 31, 1994 and thereafter at an annual salary (presently $_____) equal
to the previous year's salary as adjusted on a yearly basis by a cost of
living factor. Unless the Perkins Agreement is terminated, the term will
automatically extend for successive one year periods. The Perkins Agreement
provides that the Executive Committee will conduct an annual incentive bonus
review, and the amount of any bonus will be set at the discretion of the
Executive Committee. Ms. Perkins also received an option to purchase 25,000
shares of Lafayette Common Stock, vesting in three equal annual installments
commencing in December 1994, and exercisable through May 24, 2004, at $5.00
per share. All such options will vest immediately upon a Change-in-Control
Event (as defined).
Phillip J. Mucha entered into an employment agreement with Lafayette,
dated as of March 23, 1995 (the "MUCHA AGREEMENT"), which supersedes all
prior employment agreements between Mr. Mucha and Lafayette or any of its
predecessors, except with respect to stock options granted to Mr. Mucha as
described below. The Mucha Agreement provides that Mr. Mucha will serve as
senior vice president and chief financial officer of Lafayette for an initial
term ending on December 31, 1996 at an annual base salary of $115,000.
Unless the Mucha Agreement is terminated, the term will automatically extend
for successive one year periods. The Mucha Agreement provides that the
Executive Committee will conduct an annual incentive bonus review, and the
amount of any bonus will be set at the discretion of the Executive Committee.
Mr. Mucha previously was granted options to purchase 3,750 shares of
Lafayette Common Stock, vesting in six equal annual installments commencing
in September 1993 and exercisable through August 31, 1999, at $6.00 per
share.
Lafayette has also entered into an employee severance pay agreement with
Kenneth M. Klieback, Senior Vice President-Support Services Division, which
provides for a lump sum severance payment to be made to Mr. Klieback in the
event that his job is eliminated within 12 months after a merger, business
combination or divestiture involving Lafayette. The lump sum payment, which
is due on the date of cessation of Mr. Klieback's employment, would be equal
to three times his regular annual compensation, not including bonuses or
extraordinary items. If Mr. Klieback is employed by Lafayette for more than
12 months following such an event, the severance pay obligation will cease
entirely.
EMPLOYEE BENEFIT PLANS
Employee benefit plans that were in place for the benefit of the
employees of Lafayette, its predecessors and Lafayette's former parent,
Bancorp, at the time of the reorganization and merger of Bancorp with and
into Lafayette in February 1994 have been continued and assumed by Lafayette.
Lafayette's employee benefit programs currently are as follows:
Cash Balance Plan and Trust. Lafayette maintains a qualified non-
contributory defined benefit plan (the "Benefit Plan"). Upon effectiveness
of the merger of Bancorp with and into Lafayette, Lafayette became the
Benefit Plan sponsor and the Benefit Plan was renamed the "Lafayette American
Bank and Trust Company Cash Balance Plan and Trust." Employees (subject to
certain limitations) may participate after they have completed one Year of
Service (generally, 1,000 hours of service in any 12 month period) and have
attained age 21. Past service credited under the prior version of the
Benefit Plan is counted for eligibility, vesting and benefit accrual
purposes. A participant is fully vested in his or her benefits after five
years of service or, if earlier, retirement at age 65 or termination of
employment because of death or total disability. The Benefit Plan conforms
to the vesting provisions prescribed by the Code.
A participant's benefit is his or her actuarially calculated accrued
lump sum benefit as of December 31, 1989 (using a prior benefit formula),
plus a benefit calculated pursuant to the current Benefit Plan formula, which
provides the benefit for all service on or after January 1, 1990. The
current benefit formula provides a benefit that is the actuarial equivalent
of the amount credited to a bookkeeping account maintained under the Benefit
Plan for each participant. For each Plan Year (calendar year) in which a
participant has completed at least 1,000 hours of service, the participant's
account is credited with a percentage of the participant's annual
compensation (up to $150,000 of compensation, for Plan Years beginning on or
after January 1, 1994), determined as follows:
Years of Service Percentage
---------------- ----------
Less than 5 4
5 or more, but less than 10 5
10 or more, but less than 15 6
15 or more 7
Each participant's account is also increased monthly, until benefits
begin, by an amount equal to one twelfth of a percentage of the participant's
account balance as of the beginning of the Plan Year. That percentage is
equal to the greater of (i) 4% or (ii) the average of the rates for five-year
U.S. Treasury notes for each week of December of the preceding year.
Benefits at retirement can be paid either as a monthly annuity, with a
variety of optional payment forms, or as a lump sum. Benefits are payable in
the event of death, total or permanent disability and retirement. In the
event of a participant's separation from service, his or her vested benefit
is paid as soon as practicable after the earlier of age 65 or the end of the
fifth Plan Year following the Plan Year in which the termination occurs. If
a participant becomes disabled, dies or retires, he or she (or his or her
beneficiary) will begin receiving benefits as soon as practicable. No
participant's accrued benefit is less than his or her accrued benefit as of
December 31, 1990.
The following table sets forth the annual benefit based on a payment
option of a level single life annuity that the Lafayette Named Officers might
expect to be paid if they remain employed until age 65. As of December 31,
1995, such persons had the following credited years of service: Mr.
Calcagnini, 6 years; Mr. Goldstein, 2 years; Mr. Mucha, 3 years; Mr. Peach, 6
years; Ms. Perkins, 2 years. Annual contributions for Messrs. Calcagnini and
Peach began in 1990 and do not reflect their respective employment with
Bancorp, however, determination of annual contribution percentages for such
individuals do reflect prior years of service with Bancorp in accordance with
the Benefit Plan.
Projected Annual
Benefit Payable
Officer At Age 65
------- ----------------
Donald P. Calcagnini $17,139
Robert B. Goldstein 9,075
Phillip J. Mucha 21,794
Raymond J. Peach 13,978
Amanda V. Perkins 33,502
The pension contribution is determined on an annual basis by Lafayette's
pension actuary. Lafayette's funding policy is to contribute annually
amounts at least equal to the minimum contributions required under the
Employee Retirement Income Security Act of 1974, as amended. Pension expense
amounted to $181,512 for the year ended December 31, 1995.
Senior Management Deferred Compensation Plan. In 1987, American
established a deferred compensation plan for senior management which has been
assumed by Lafayette (the "MANAGEMENT PLAN"). Five of the officers initially
covered under the Management Plan are currently employed by Lafayette,
including Messrs. Calcagnini and Peach. The Management Plan consists of
individual agreements, as amended, for each of the officers. Four of the
five agreements provide for a benefit amount the vested portion of which is
payable upon retirement at or after age 65, upon attaining the age of 65
following termination of employment for any reason other than retirement or
death, or upon death before retirement or total disability. The full benefit
amount vests on retirement at or after age 65, or upon termination of
employment due to total disability or death. A participant whose employment
terminates for any reason other than retirement at or after age 65, total
disability or death, vests in a percentage of this benefit based on years of
service. Retirement, disability and severance benefits are payable over a
period of 15 years from commencement of payment, and death benefits are
payable over a period of 10 years from commencement of payment. Benefits are
payable at a reduced rate if a participant elects to commence receiving
benefits between the ages of 60 and 64. Under the fifth agreement, Mr.
Calcagnini is fully vested in his benefit upon termination of employment for
any reason. Such benefit is payable in one lump sum, unless he elects to
receive it instead in the form of an insured annuity. The annual retirement
benefit for Mr. Calcagnini pursuant to the Management Plan is $85,000 less an
amount equal to the annual benefit provided by converting the balance vested
in Mr. Calcagnini's account in the Benefit Plan upon his retirement into an
annuity paying fixed monthly benefits for life, 100% of which monthly
benefits would be payable to Mr. Calcagnini's surviving spouse for life. The
annual retirement benefit for Mr. Peach pursuant to the Management Plan is
$52,000, less an amount equal to annual benefits provided by converting the
balance vested in Mr. Peach's account in the Benefit Plan upon his retirement
into a fifteen year certain annuity with full survivor rights. Under the
other agreements, the employee is immediately 100% vested in a fixed dollar
benefit payable as a lump sum upon termination of employment for any reason.
Lafayette is the beneficiary and sole owner of life insurance policies on the
lives of the eight original participating bank officers. The Management Plan
is structured with the objective that insurance proceeds to be received by
Lafayette, together with earnings thereon, will ultimately repay Lafayette in
full for any payments to be made under this plan. Net expenses under the
Management Plan for the year ended December 31, 1995 was $1,493.
Health Care Coverage. In 1994, Lafayette entered into an agreement with
Mr. Calcagnini which provides medical and health insurance and medical
reimbursement coverage to Mr. Calcagnini and his wife from the date of Mr.
Calcagnini's termination until the date of his death, subject to certain cost
limitations. From the date of Mr. Calcagnini's termination until the date of
his 65th birthday, the maximum aggregate expense to Lafayette under this
agreement is $42,789. From the date of Mr. Calcagnini's 65th birthday until
the date of his death, the maximum aggregate expense to Lafayette is
$184,799.
Performance Plus Incentive Plan. In 1995, Lafayette established the
Performance Plus Incentive Plan (the "Performance Plan"). Under the terms of
the Performance Plan, employees designated by the Personnel Committee are
eligible to receive awards if goals established for both Lafayette and the
individuals are achieved. Awards (if any) may be in the form of merit
raises, cash bonuses, stock options (which would be granted under Lafayette's
1994 Stock Option Plan) and/or a combination of the foregoing. There were no
awards payable under the Performance Plan for 1995.
DIRECTORS' COMPENSATION
During 1995, each director of Lafayette (except Messrs. Calcagnini and
Goldstein) received fees, in addition to an annual retainer of $7,500, for
services as a director. Such fees are $450 per Board of Directors meeting
attended. In addition, all directors, except Messrs. Calcagnini and
Goldstein, are paid for attending meetings of committees of the Board of
Directors. With the exception of the Executive Committee, the fees paid for
attending committee meetings are $200 per meeting plus $100 per month for the
committee chairman. Executive Committee members receive a fee of $2,000 per
month. Additionally, out-of-state directors are entitled to reimbursement
for reasonable travel and lodging expenses related to their meeting
attendance.
Directors' Deferred Compensation Plan. Lafayette has established a
deferred compensation plan for its directors, consisting of individual
agreements with each director. Under the plan, a portion of the annual
directors' fees payable to them by Lafayette is deferred. The amount of the
deferrals under such agreements ranges from $7,500 to $37,500 for each
director per year. The directors are not currently taxed on the amount of
the deferred compensation. Commencing on each director's normal retirement
date (age 65 for contract purposes) or death, the director or his or her
estate or named beneficiaries will be paid annual compensation for a period
of ten years. The amount of payment will vary, depending on the age of the
director at the time the plan commenced and the amount of the annual
deferral. Lafayette has purchased life insurance policies on the lives of
its directors, the aggregate annual premiums for which are paid out of
Lafayette's general assets and are approximately equal to the amount of
annually deferred directors' fees. Lafayette is the beneficiary and sole
owner of the life insurance policies on the lives of the directors. The plan
is structured with the objective that insurance proceeds, together with
earnings thereon, will ultimately repay Lafayette in full for any payments to
be made to the directors under the plan. Lafayette also has established non-
contributory defined benefit retirement income plans covering certain
directors that have been modified by individual supplemental compensation
agreements, which reduced the amount of deferred compensation benefits
otherwise payable under the plan. The aggregate retirement plan expense was
$169,853 and the aggregate net deferred compensation plan expense was
$103,446 for the year ended December 31, 1995.
BOARD COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The compensation payable to Lafayette's executive officers is determined
by the Personnel Committee. The Personnel Committee establishes personnel
policies and reviews the performance of all officers of Lafayette. The
Personnel Committee reviews and recommends to the Lafayette Board the levels
of compensation and other benefits paid or to be paid to Lafayette's
officers.
This report shall not be deemed incorporated by reference by any general
statement incorporating by reference this proxy statement into any filing
under the Securities Act, or under the Exchange Act, except to the extent
that Lafayette specifically incorporates this information by reference, and
shall not otherwise be deemed filed under such Acts.
Executive Compensation Policy
The Personnel Committee (the "COMMITTEE") recommends to the full Board
of Directors the salaries of Lafayette's executive officers and other key
management employees and administers Lafayette's Incentive Stock Option Plan.
The Committee's executive compensation program is designed to meet the
following objectives:
* To connect the interests of the executives' compensation program
with overall corporate performance and increases in shareholder
value by tying a portion of their total compensation to meeting
specific short-term and long-term performance goals of Lafayette.
* To provide a balanced total compensation package that recognizes
the individual contributions of the executives and the overall
results of Lafayette.
Periodically, the Committee conducts a full review of Lafayette's
executive compensation program. This review includes analyzing market survey
data prepared by an independent consulting firm comparing Lafayette's salary
ranges with a peer group composed of banks ranging in size from $500 million
to $2 billion in assets.
The Committee's policies with respect to each of the elements of the
executive compensation program are discussed below. In addition, while the
elements of compensation described below are considered separately, the
Committee considers the total compensation package afforded by Lafayette to
each executive, including perquisites, insurance and other benefits.
Base Salary
Base salaries for executive officers are determined by evaluating the
responsibilities of the position, qualifications, and experience of the
individual, and by reference to the competitive marketplace for comparable
positions at other similar sized banks. This is necessary to attract and
retain quality talent which is critical to both the short term and long range
success of Lafayette.
Salary reviews are conducted every 12 months and salary adjustments are
made based upon the performance of the company and of each executive officer.
Base salaries for executive officers and all other salaried employees are set
within salary ranges established for the position as determined through
periodic competitive salary surveys.
Annual Discretionary Bonus
Lafayette's executive officers, as well as other key managerial
employees, are eligible for an annual discretional bonus award under a plan
administered by the Committee. Individual short-term (annual) performance
objectives are established at the beginning of each year. For the senior
executive officers, the corporate performance measures for award payments are
based on financial measures including income, return on assets, return on
equity and management of certain administrative costs. For executive
officers other than the Chief Executive Officer, a balance is struck between
overall corporate performance and the performance of the specific areas under
each executive officer's direct control. This balance supports the
accomplishment of overall objectives and rewards individual contributions by
each executive officer.
Stock Options
The Committee is responsible for recommending awards of stock options to
the full Board.
These awards are intended to maintain a sharp focus on the achievements
of long term results, and also to more closely align the interests of the
executive to the interests of the shareholders.
Stock options can also be used as a retention device for key individuals
due to the vesting restrictions imposed.
Chief Executive Officer Compensation for 1995
Robert B. Goldstein, the President and CEO, received an increase in base
pay for 1995 of $35,000. He also received a bonus of $132,500, which was
based on Lafayette's improved performance, including improved operating
ratios, loan growth, increased income and the expansion of Lafayette through
new branch openings in strategic markets.
THE BOARD OF DIRECTORS OF LAFAYETTE
Donald W. Harrison
Louis F. Tagliatela
John H. Tatigian, Jr.
PERFORMANCE GRAPH
The following chart compares the cumulative total return on a
hypothetical $100 investment made at the close of business on December 31,
1990 in: (a) Lafayette's Common Stock; (b) the CRSP (Center for Research in
Securities Prices at the University of Chicago) Total Return Index for the
Nasdaq Stock Market (U.S. Companies); and (c) CRSP Total Return Index for
Nasdaq Bank Stocks. The information in the chart is calculated assuming that
all dividends are reinvested during the relevant periods. The chart shows
how a $100 investment would increase or decrease in value over time, based on
dividends (stock or cash) and increases or decreases in the market price of
the stock.
1990 1991 1992 1993 1994 1995
---- ---- ---- ---- ---- ----
Nasdaq Stock Market (U.S.) 100 161 187 215 210 296
Nasdaq Bank Stocks 100 164 239 272 271 404
Lafayette 100 93 100 100 80 133
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The members of the Personnel Committee are John H. Tatigian, Jr., Donald
W. Harrison and Louis F. Tagliatela. No member of the Personnel Committee
is, or has been, an officer of Lafayette. The only members of the Board who
are officers of Lafayette are Messrs. Calcagnini and Goldstein.
CERTAIN TRANSACTIONS WITH MANAGEMENT
Director Louis F.Tagliatela owns a 66% interest in a partnership that
entered into a lease on October 1, 1992 with Lafayette at a fair market
rental for its operations center premises in Hamden, Connecticut
(approximately 26,400 square feet). The remaining 34% partnership interest
is owned by members of Mr. Tagliatela's immediate family. This lease was a
two year net lease at an annual rental of $218,962 ($8.30 per square foot),
with options to renew. At the expiration of the lease term, Lafayette
entered into a net lease extension commencing October 1, 1994 covering 28,825
square feet at a fair market rental. The term of the lease is for five years
at an annual rental of $172,950 ($6.00 per square foot) for the first two
years and $249,336 ($8.65 per square foot) for the last three years, with no
renewal options.
Director Bertram Frankenberger, Jr. owns a 3.33% interest in a
partnership that entered into a sale and leaseback transaction in 1972
(before he became a director) with respect to Lafayette's 2992 Dixwell Avenue
branch office in Hamden, Connecticut (approximately 11,500 square feet). In
1972, in order to enhance its liquidity, Lafayette sold to the partnership
the real estate used for this branch office and leased the property back
under a 25-year net lease of $62,500 per year ($5.43 per square foot). The
rental was established by an independent real estate expert at that time.
Lafayette has the option to renew the lease for three additional 10-year
terms at a fair market rental, and has an option to purchase the property at
fair market value at the end of the initial lease term or any renewal term.
Neither of the directors involved in the above-described leases
participated in the vote by Lafayette's Board of Directors to approve any
such leases. Management believes that these leases are on similar terms and
conditions that would have been available at the time from unrelated parties.
Lafayette and its predecessors have followed a policy of primarily leasing
their banking premises in order to conserve liquidity and to keep their
assets free to support banking growth.
During 1995, the law firm of Ginsberg and Palumbo, P.C., of which
Director Gary R. Ginsberg is the senior attorney, received fee compensation
for legal services performed on behalf of Lafayette, paid at the law firm's
usual and customary billing rates, which were understood by Lafayette to be
comparable to the rates charged by other law firms in Lafayette's business
area for similar services. For 1995, the law firm of Ginsberg and Palumbo,
P.C. was paid $112,118 for these services. Some such fees were paid in
connection with foreclosures, loan workouts and loan collection efforts, and
are partially recoverable from debtors as their debts are repaid or judgments
against them are satisfied.
INDEBTEDNESS OF MANAGEMENT
Lafayette's directors and principal officers as a group (who, together
with their associates, during the period from January 1, 1995 to January 31,
1996, borrowed from Lafayette an aggregate amount in excess of 20% of
Lafayette's equity capital) had, in the aggregate, $8,544,760 of credit
extensions from Lafayette as of January 1, 1996 (which amount represents the
highest amount of credit outstanding, as a percentage of equity capital, to
such group during the period from January 1, 1995 to January 31, 1996).
Lafayette has had, and expects to have in the future, banking
transactions in the ordinary course of its business with directors, officers
and shareholders holding more than 5% of the outstanding Common Stock, and
their associates, on substantially the same terms, including interest rates
and collateral on loans, as those prevailing at the same time for comparable
transactions with other, unrelated parties. The banking transactions with
such directors, officers and principal shareholders did not, at the time they
were entered into, involve more than the usual risk of collectability or
present other unfavorable features. If and when loans to directors, officers
or principal shareholders develop collectability or other problems, Lafayette
deals with such borrowers in the same manner as it does with its other
borrowers on loans presenting similar problems.
On November 25, 1988, Lafayette approved a $1,000,000 unsecured credit
line to Director Gary R. Ginsberg. The line of credit carried an interest
rate of Lafayette's prime. The interest rate was subsequently increased on
April 17, 1990 to Lafayette's prime plus %. Mr. Ginsberg secured the note
on August 23, 1990 with the assignment of his partnership interest in a real
estate venture. During 1994, the note was further secured by a third
mortgage on a commercial building, a pledge of Lafayette Common Stock and the
assignment of a term life insurance policy. The outstanding balance on the
loan was classified as a substandard asset by Lafayette as of June 30, 1993.
As of January 31, 1996, the outstanding balance of the Note of $842,494 was
classified by Lafayette as substandard. All payments have been and continue
to be made in accordance with the loan's terms.
COMPLIANCE WITH SECTION 16 OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Exchange Act requires Lafayette's directors,
principal officers, and persons who own more than 10% of Lafayette's equity
securities to file with the FDIC initial reports of ownership and reports of
changes in ownership of such securities. Directors, principal officers and
greater-than-ten-percent shareholders are required by FDIC regulations to
furnish Lafayette with copies of all Section 16(a) reports filed by them.
To Lafayette's knowledge, based solely on a review of the copies of such
reports furnished to it, during the fiscal year ended December 31, 1995,
Section 16(a) filing requirements applicable to its directors, principal
officers and greater-than-ten-percent shareholders with respect to
Lafayette's equity securities were complied with, except as follows: (i) Mr.
Bangert failed to report on a timely basis the sale of 10,000 shares of
Lafayette Common Stock; (ii) Mr. Harrison failed to report on a timely basis
the sales of 10,000 and 5,000 shares of Lafayette Common Stock, respectively;
(iii) Mr. Rose failed to report on a timely basis the sale of 60,000 shares
of Lafayette Common Stock; and (iv) Mr. Olsen failed to file on a timely
basis his initial statement of beneficial ownership of Lafayette Common Stock
upon becoming a director of Lafayette. Each of the foregoing filings were
made with the FDIC as soon as the respective failures to file were
discovered.
RECOMMENDATION AND VOTE REQUIRED ON PROPOSAL 4
Lafayette directors will be elected by a plurality of the votes cast at
the Annual Meeting, whether in person or by proxy. THE LAFAYETTE BOARD OF
DIRECTORS RECOMMENDS A VOTE "FOR" THE NOMINATED SLATE OF DIRECTORS INCLUDED
IN PROPOSAL 4.
SHAREHOLDER PROPOSALS
Any proposal which a HUBCO shareholder wishes to have included in the
proxy solicitation materials of HUBCO to be used in connection with the 1997
Annual Meeting must be presented to HUBCO no later than _____________, 1996.
Any proposal which a Lafayette shareholder wishes to have included in
the proxy materials of Lafayette if Lafayette has a 1997 Annual Meeting must
be presented to Lafayette no later than __________, 1996.
LEGAL OPINION
Certain legal matters relating to the issuance of the shares of HUBCO
Common Stock offered hereby will be passed upon by Pitney, Hardin, Kipp &
Szuch, counsel to HUBCO. Attorneys in the law firm of Pitney, Hardin, Kipp &
Szuch, beneficially owned ______ shares of HUBCO Common Stock as of
____________, 1996.
EXPERTS
The consolidated financial statements of Lafayette as of December 31,
1995 and 1994 and for each of the years in the three year period ended
December 31, 1995 included herein have been audited by Arthur Andersen LLP,
independent public accountants, as indicated in their report with respect
thereto, and are incorporated by reference herein in reliance upon the
authority of said firm as experts in giving said reports.
The consolidated financial statements of HUBCO as of December 31, 1995
and 1994 and for each of the years in the three year period ended December
31, 1995, incorporated by reference herein, have been audited by Arthur
Andersen LLP, independent public accountants, as indicated in their report
with respect thereto, and are incorporated by reference herein in reliance
upon the authority of said firm as experts in giving said reports.
Arthur Andersen LLP will have a representative at both the Lafayette
Meeting and the HUBCO Meeting who will have an opportunity to make a
statement if such representative desires, and who will be available to
respond to appropriate questions.
SUBSEQUENT FILINGS INCORPORATED BY REFERENCE
All documents filed by HUBCO or Lafayette pursuant to Sections 13(a),
13(c), 14, or 15(d) of the Exchange Act subsequent to the date hereof and
prior to the earlier of (i) the date of the last to be held of the Meetings
or (ii) the termination of the Merger Agreement, are hereby incorporated by
reference into this Proxy Statement and shall be deemed a part hereof from
the date of filing of such documents.
<PAGE>
APPENDIX A
AGREEMENT AND PLAN OF MERGER
BETWEEN HUBCO AND LAFAYETTE
DATED FEBRUARY 5, 1996
THIS AGREEMENT AND PLAN OF MERGER, dated as of February
5, 1996 ("Agreement"), between HUBCO, INC. ("HUBCO"), a New
Jersey corporation and registered bank holding company, and
LAFAYETTE AMERICAN BANK AND TRUST COMPANY, a commercial bank
organized under the laws of Connecticut ("Lafayette").
WHEREAS, the respective Boards of Directors of HUBCO
and Lafayette, by the requisite vote required under applicable
law, have each determined that it is in the best interests of
HUBCO and Lafayette and their respective stockholders for HUBCO
to acquire Lafayette (i) by HUBCO organizing an interim
commercial bank under the laws of Connecticut ("Merger Sub") and
(ii) merging Merger Sub with and into Lafayette upon the terms
and subject to the conditions set forth herein;
WHEREAS, the respective Boards of Directors of HUBCO
and Lafayette, by the requisite vote required under applicable
law, have each approved this Agreement upon the terms and subject
to the conditions set forth herein;
WHEREAS, the Boards of Directors of Lafayette and HUBCO
have directed that this Agreement be submitted to HUBCO's and
Lafayette's shareholders for approval;
WHEREAS, upon the demand of and as an inducement for
HUBCO to enter into this transaction, Lafayette has entered into
a Stock Option Agreement, dated as of the date hereof (the "HUBCO
Stock Option");
NOW, THEREFORE, intending to be legally bound, the
parties hereto hereby agree as follows:
ARTICLE I - THE MERGER
1.1. THE MERGER. Subject to the terms and conditions
of this Agreement, at the Effective Time (as hereinafter
defined), Merger Sub shall be merged with and into Lafayette (the
"Merger") in accordance with Section 36a-125 of the Banking Law
of Connecticut (the "Connecticut Banking Act") and Lafayette
shall be the surviving bank (the "Surviving Corporation"), the
name of which shall continue to be Lafayette American Bank and
Trust Company. Exhibit 1 to this Agreement lists (i) the
locations of the main office of and branch offices of Lafayette
which shall be the main office and branch offices of the
Surviving Corporation; and (ii) the amount of the capital stock,
the number of shares, the par value and the amount of surplus of
the Surviving Corporation which shall be the same amounts as
Lafayette.
1.2. EFFECT OF THE MERGER. At the Effective Time, the
Surviving Corporation shall be considered the same business and
corporate entity as each of the Merger Sub and Lafayette and
thereupon and thereafter, all the property, rights, privileges,
powers and franchises of each of the Merger Sub and Lafayette
shall vest in the Surviving Corporation and the Surviving
Corporation shall be subject to and be deemed to have assumed all
of the debts, liabilities, obligations and duties of each of the
Merger Sub and Lafayette and shall have succeeded to all of each
of their relationships, as fully and to the same extent as if
such property, rights, privileges, powers, franchises, debts,
liabilities, obligations, duties and relationships had been
originally acquired, incurred or entered into by the Surviving
Corporation. In addition, any reference to either of the Merger
Sub or Lafayette in any contract or document, whether executed or
taking effect before or after the Effective Time, shall be
considered a reference to the Surviving Corporation if not
inconsistent with the other provisions of the contract or
document; and any pending action or other judicial proceeding to
which either of the Merger Sub or Lafayette is a party, shall not
be deemed to have abated or to have discontinued by reason of the
Merger, but may be prosecuted to final judgment, order or decree
in the same manner as if the Merger had not been made, or the
Surviving Corporation may be substituted as a party to such
action or proceeding, and any judgment, order or decree may be
rendered for or against it that might have been rendered for or
against either of the Merger Sub or Lafayette as if the Merger
had not occurred.
1.3. CERTIFICATE OF INCORPORATION. As of the
Effective Time, the certificate of incorporation of Lafayette as
it exists at the Effective Time shall be the certificate of
incorporation of the Surviving Corporation and shall not be
amended by this Agreement or the Merger but may be amended as
provided by law thereafter.
1.4. BY-LAWS. As of the Effective Time, the By-laws
of Lafayette shall be the By-laws of the Surviving Corporation
until otherwise amended as provided by law.
1.5. DIRECTORS AND OFFICERS. There shall be not more
than fifteen or less than twelve directors of the Surviving
Corporation as of the Effective Time. As of the Effective Time,
the directors of the Surviving Corporation shall consist of three
officers of HUBCO selected by HUBCO and not fewer than nine
directors of Lafayette nominated by Lafayette and acceptable to
HUBCO. As of the Effective Time, the officers of Lafayette shall
become the officers of the Surviving Corporation, subject to any
changes which HUBCO shall specify on or before the Closing.
1.6. EFFECTIVE TIME AND CLOSING. The Merger shall
become effective (and be consummated) upon the date specified in
a certificate executed by HUBCO and Lafayette filed with the
Connecticut Secretary of State after the approval of the
Connecticut Commissioner of Banking (the "Commissioner").
Lafayette shall not unreasonably withhold its approval of the
Effective Time, which shall be consistent with this section. A
closing (the "Closing") shall take place prior to the Effective
Time at 10:00 a.m., 10 days (or the first business day
thereafter) following the receipt of all necessary regulatory and
governmental approvals and consents and the expiration of all
statutory waiting periods in respect thereof and the satisfaction
or waiver of all of the conditions to the consummation of the
Merger specified in Article VI hereof (other than the delivery of
certificates, opinions and other instruments and documents to be
delivered at the Closing), at the offices of Pitney, Hardin, Kipp
& Szuch, 200 Campus Drive, Florham Park, New Jersey, or at such
other place, time or date as HUBCO and Lafayette may mutually
agree upon. The certificate filed with the Secretary of State
shall specify as the Effective Time of the Merger a date,
immediately following the Closing, agreed to by HUBCO and
Lafayette. Following the execution of this Agreement, HUBCO and
Lafayette shall, if required or advised to do so by applicable
regulatory authorities, execute and deliver a simplified or
supplemental merger agreement, both in form and substance
reasonably satisfactory to the parties hereto and consistent with
the terms hereof, for delivery to the Secretary of State and the
Commissioner in connection with the approval of the Merger by the
regulatory authorities.
1.7. ASSURANCE BY HUBCO. HUBCO shall provide the
Commissioner with such assurances as the Commissioner reasonably
shall require that after the Effective Time, Lafayette will
comply with applicable minimum capital requirements.
ARTICLE II - CONVERSION OF LAFAYETTE SHARES AND OPTIONS
2.1. CONVERSION OF LAFAYETTE COMMON STOCK. Each share
of common stock, no par value, of Lafayette ("Lafayette Common
Stock"), issued and outstanding immediately prior to the
Effective Time (other than Dissenting Shares as defined in
Section 2.4) shall, by virtue of the Merger and without any
action on the part of the holder thereof, be converted as
follows:
(a) EXCHANGE RATIO. Subject to the provisions of this
Section 2.1, each share of Lafayette Common Stock issued and
outstanding immediately prior to the Effective Time (excluding
any treasury shares, shares held by HUBCO and Dissenting Shares)
shall be converted at the Effective Time into the right to
receive 0.5880 of a share (the "Exchange Ratio") of common stock,
no par value, of HUBCO ("HUBCO Common Stock").
(b) CANCELLATION OF LAFAYETTE CERTIFICATES. After the
Effective Time, all such shares of Lafayette Common Stock (other
than those cancelled pursuant to Section 2.1(d)) shall no longer
be outstanding and shall automatically be cancelled and retired
and shall cease to exist, and each certificate previously
evidencing any such shares (other than Dissenting Shares and
those cancelled pursuant to Section 2.1(d)) shall thereafter
represent the right to receive the Merger Consideration (as
defined in Section 2.2(b)). The holders of such certificates
previously evidencing such shares of Lafayette Common Stock
outstanding immediately prior to the Effective Time shall cease
to have any rights with respect to such shares of Lafayette
Common Stock except as otherwise provided herein or by law. Such
certificates previously evidencing such shares of Lafayette
Common Stock (other than Dissenting Shares and those cancelled
pursuant to Section 2.1(d)) shall be exchanged for certificates
evidencing shares of HUBCO Common Stock issued pursuant to this
Article II, upon the surrender of such certificates in accordance
with this Article II. No fractional shares of HUBCO Common Stock
shall be issued, and, in lieu thereof, a cash payment shall be
made pursuant to Section 2.2(e).
(c) CAPITAL CHANGES. If between the date hereof and
the Effective Time the outstanding shares of HUBCO Common Stock
shall have been changed into a different number of shares or a
different class, by reason of any stock dividend, stock split,
reclassification, recapitalization, merger, combination or
exchange of shares, the Exchange Ratio and the definition of
Closing Price (as set forth in Section 2.2(e)) shall be
correspondingly adjusted to reflect such stock dividend, stock
split, reclassification, recapitalization, merger, combination or
exchange of shares.
(d) TREASURY SHARES. All shares of Lafayette Common
Stock held by Lafayette in its treasury or owned by HUBCO or
Hudson United Bank (the "Bank") (other than shares held as
trustee or in a fiduciary capacity and shares held as collateral
on or in lieu of a debt previously contracted) immediately prior
to the Effective Time shall be cancelled.
2.2. EXCHANGE OF CERTIFICATES.
(a) EXCHANGE AGENT. As of the Effective Time, HUBCO
shall deposit, or shall cause to be deposited, with a bank or
trust company designated by HUBCO (the "Exchange Agent"), which
may be Hudson United Bank, Trust Department, for the benefit of
the holders of shares of Lafayette Common Stock, for exchange in
accordance with this Article II, through the Exchange Agent,
certificates evidencing shares of HUBCO Common Stock and cash in
such amount such that the Exchange Agent possesses such number of
shares of HUBCO Common Stock and such amount of cash as are
required to provide all of the consideration required to be
exchanged by HUBCO pursuant to the provisions of this Article II
(such certificates for shares of HUBCO Common Stock, together
with any dividends or distributions with respect thereto, and
cash being hereinafter referred to as the "Exchange Fund"). The
Exchange Agent shall, pursuant to irrevocable instructions,
deliver the HUBCO Common Stock and cash out of the Exchange Fund
in accordance with Section 2.1. Except as contemplated by
Section 2.2(f) hereof, the Exchange Fund shall not be used for
any other purpose.
(b) EXCHANGE PROCEDURES. As soon as reasonably
practicable either before or after the Effective Time, Earth will
instruct the Exchange Agent to mail to each holder of record of a
certificate or certificates which immediately prior to the
Effective Time evidenced outstanding shares of Lafayette Common
Stock (other than Dissenting Shares) (the "Certificates"), (i) a
letter of transmittal (the form and substance of which is
reasonably agreed to by HUBCO and Lafayette prior to the
Effective Time and which shall specify that delivery shall be
effected, and risk of loss and title to the Certificates shall
pass, only upon proper delivery of the Certificates to the
Exchange Agent and which shall have such other provisions as
HUBCO may reasonably specify) and (ii) instructions for effecting
the surrender of the Certificates in exchange for certificates
evidencing shares of HUBCO Common Stock. Upon surrender of a
Certificate for cancellation to the Exchange Agent together with
such letter of transmittal, duly executed, and such other
customary documents as may be required pursuant to such
instructions, the holder of such Certificate shall be entitled to
receive in exchange therefor (A) certificates evidencing that
number of whole shares of HUBCO Common Stock which such holder
has the right to receive in respect of the shares of Lafayette
Common Stock formerly evidenced by such Certificate in accordance
with Section 2.1 and (B) cash in lieu of fractional shares of
HUBCO Common Stock to which such holder may be entitled pursuant
to Section 2.2(e) (the shares of HUBCO Common Stock and cash
described in clauses (A) and (B) being collectively, the "Merger
Consideration") and the Certificate so surrendered shall
forthwith be cancelled. In the event of a transfer of ownership
of shares of Lafayette Common Stock which is not registered in
the transfer records of Lafayette, a certificate evidencing the
proper number of shares of HUBCO Common Stock and/or cash may be
issued and/or paid in accordance with this Article II to a
transferee if the Certificate evidencing such shares of Lafayette
Common Stock is presented to the Exchange Agent, accompanied by
all documents required to evidence and effect such transfer and
by evidence that any applicable stock transfer taxes have been
paid. Until surrendered as contemplated by this Section 2.2,
each Certificate shall be deemed at any time after the Effective
Time to evidence only the right to receive upon such surrender
the Merger Consideration. HUBCO shall establish appropriate
procedures that will enable holders of unexchanged stock
certificates of Lafayette's predecessors (which certificates
represent shares of, or the right to receive shares of, Lafayette
Common Stock) to directly exchange such certificates for the
Merger Consideration.
(c) DISTRIBUTIONS WITH RESPECT TO UNEXCHANGED SHARES
OF HUBCO COMMON STOCK. No dividends or other distributions
declared or made after the Effective Time with respect to HUBCO
Common Stock with a record date after the Effective Time shall be
paid to the holder of any unsurrendered Certificate with respect
to the shares of HUBCO Common Stock evidenced thereby, and no
other part of the Merger Consideration shall be paid to any such
holder, until the holder of such Certificate shall surrender such
Certificate (or a suitable affidavit of loss and customary bond).
Subject to the effect of applicable laws, following surrender of
any such Certificate, there shall be paid to the holder of the
certificates evidencing shares of HUBCO Common Stock issued in
exchange therefor, without interest, (i) promptly, the amount of
any cash payable with respect to a fractional share of HUBCO
Common Stock to which such holder may have been entitled pursuant
to Section 2.2(e) and the amount of dividends or other
distributions with a record date on or after the Effective Time
theretofore paid with respect to such shares of HUBCO Common
Stock, and (ii) at the appropriate payment date, the amount of
dividends or other distributions, with a record date on or after
the Effective Time but prior to surrender and a payment date
occurring after surrender, payable with respect to such shares of
HUBCO Common Stock.
(d) NO FURTHER RIGHTS IN LAFAYETTE COMMON STOCK. All
shares of HUBCO Common Stock issued and cash paid upon conversion
of the shares of Lafayette Common Stock in accordance with the
terms hereof shall be deemed to have been issued or paid in full
satisfaction of all rights pertaining to such shares of Lafayette
Common Stock.
(e) NO FRACTIONAL SHARES. No certificates or scrip
evidencing fractional shares of HUBCO Common Stock shall be
issued upon the surrender for exchange of Certificates and such
fractional share interests will not entitle the owner thereof to
vote or to any rights of a stockholder of HUBCO. Cash shall be
paid in lieu of fractional shares of HUBCO Common Stock, based
upon the Median Pre-Closing Price (as hereinafter defined) of
HUBCO Common Stock.
The "Median Pre-Closing Price" of HUBCO Common Stock
shall mean the Median Price (as hereinafter defined) calculated
based upon the Closing Price (as hereinafter defined) of HUBCO
Common Stock during the first 20 of the 25 consecutive trading
days immediately preceding the date of the Closing. The "Closing
Price" shall mean the closing price of HUBCO Common Stock as
supplied by the National Association of Securities Dealers
Automated Quotation System ("NASDAQ") and published in THE WALL
STREET JOURNAL during the first 20 of the 25 consecutive trading
days immediately preceding the date of the Closing. The Median
Price shall be determined by taking the price half-way between
the Closing Prices left after discarding the 9 lowest and 9
highest Closing Prices in the 20 day period. A trading day shall
mean a day for which a Closing Price is so supplied and
published.
(f) TERMINATION OF EXCHANGE FUND. Any portion of the
Exchange Fund which remains undistributed to the holders of
Lafayette Common Stock for two years after the Effective Time
shall be delivered to HUBCO, upon demand, and any holders of
Lafayette Common Stock who have not theretofore complied with
this Article II shall thereafter look only to HUBCO for the
Merger Consideration, dividends and distributions to which they
are entitled.
(g) NO LIABILITY. Neither HUBCO nor the Bank shall be
liable to any holder of shares of Lafayette Common Stock for any
such shares of HUBCO Common Stock or cash (or dividends or
distributions with respect thereto) delivered to a public
official pursuant to any applicable abandoned property, escheat
or similar law.
(h) WITHHOLDING RIGHTS. HUBCO shall be entitled to
deduct and withhold, or cause the Exchange Agent to deduct and
withhold, from funds provided by the holder or from the
consideration otherwise payable pursuant to this Agreement to any
holder of Lafayette Stock Options (as defined in Section 3.2),
the minimum amounts (if any) that HUBCO is required to deduct and
withhold with respect to the making of such payment under the
Code (as defined in Section 3.8), or any provision of state,
local or foreign tax law. To the extent that amounts are so
withheld by HUBCO, such withheld amounts shall be treated for all
purposes of this Agreement as having been paid to the holder of
the Lafayette Stock Options in respect of which such deduction
and withholding was made by HUBCO.
2.3. STOCK TRANSFER BOOKS. At the Effective Time, the
stock transfer books of Lafayette shall be closed and there shall
be no further registration of transfers of shares of Lafayette
Common Stock thereafter on the records of Lafayette. On or after
the Effective Time, any Certificates presented to the Exchange
Agent or HUBCO for transfer shall be converted into the Merger
Consideration.
2.4. DISSENTING SHARES. Notwithstanding anything in
this Agreement to the contrary, any holder of Lafayette Common
Stock shall have the right to dissent in the manner provided in
the Connecticut Banking Act, and if all necessary requirements of
the Connecticut Banking Act are met, such shares shall be
entitled to payment in cash from Lafayette of the fair value of
such shares as determined in accordance with the Connecticut
Banking Act. All shares of Lafayette Common Stock as to which
the holder thereof properly exercises dissenters' rights in
accordance with the Connecticut Banking Act shall constitute
"Dissenting Shares" unless and until such rights are waived by
the party initially seeking to exercise such rights.
2.5. MERGER SUB COMMON STOCK. The shares of common
stock of the Merger Sub outstanding immediately prior to the
Effective Time shall be converted by the Merger into the number
of shares of the Surviving Corporation which shall equal the
number of shares of Lafayette Common Stock outstanding at the
Effective Time.
2.6 LAFAYETTE STOCK OPTIONS.
(a) VESTED OPTIONS. To the extent permitted under the
Lafayette Stock Option Plans (as defined in Section 3.2),
Lafayette shall cause all Stock Options (as defined in Section
3.2), which, as of the Effective Time, would be vested (a "Vested
Stock Option"), to be terminated at the Effective Time unless the
holder consents to the provisions hereof. At the Effective Time,
each outstanding Vested Stock Option shall be converted into
HUBCO Common Stock in accordance with the following formula:
(i) Each outstanding Vested Stock Option shall
be valued on the basis of the Median Pre-Closing Price of
HUBCO Common Stock (as defined in Section 2.2(e)) multiplied
by the Exchange Ratio and subtracting the stated exercise
price for each Vested Stock Option from the product
therefrom (the "Option Value"), and
(ii) Each holder of Vested Stock Options shall
receive at the Effective Time, a number of shares of HUBCO
Common Stock equal to the aggregate Option Value for all of
such holder's Vested Stock Options, divided by the Median
Pre-Closing Price of HUBCO Common Stock.
(iii) Cash shall be paid in lieu of fractional
shares, based upon the Median Pre-Closing Price of HUBCO
Common Stock.
(b) UNVESTED OPTIONS. Each Stock Option not fully
vested at the Effective Time (an "Unvested Stock Option") shall
be converted into an option to purchase HUBCO Common Stock,
wherein (i) the right to purchase shares of Lafayette Common
Stock pursuant to the Unvested Stock Option shall be converted
into the right to purchase that same number of shares of HUBCO
Common Stock multiplied by the Exchange Ratio, (ii) the option
exercise price per share of HUBCO Common Stock shall be the
previous option exercise price per share of the Lafayette Common
Stock divided by the Exchange Ratio, and (iii) in all other
material respects the option shall be subject to the same terms
and conditions as governed the Unvested Stock Option on which it
was based, including the length of time within which the option
may be exercised (which shall not be extended) and for all
Unvested Stock Options, such adjustments shall be and are
intended to be effected in a manner which is consistent with
Section 424(a) of the Code (as defined in Section 3.2). Shares
of HUBCO Common Stock issuable upon exercise of Unvested Stock
Options shall be covered by an effective registration statement
on Form S-8.
2.7. LAFAYETTE WARRANTS. Each Lafayette Warrant (as
defined in Section 3.2) which evidences the right to purchase a
number of shares of Lafayette Common Stock and which is
outstanding at the Effective Time automatically shall be
converted, without further action on the part of the holder, into
a like warrant to purchase for the same aggregate purchase price
that number of shares of HUBCO Common Stock which equals the
number of shares of Lafayette Common Stock which may be purchased
under the Lafayette Warrant multiplied by the Exchange Ratio
(each an "HUBCO Warrant") and such HUBCO Warrant shall, in
conformity with Section 3 of the Lafayette Warrant, thereafter be
subject to the same terms and conditions as specified in the
Lafayette Warrant, except that such HUBCO Warrant shall be
immediately exercisable. Prior to the Closing, HUBCO shall
comply with the provisions of Section 3.2 of the Lafayette
Warrant and Lafayette shall comply with the provisions of Section
1.5(b) of the Lafayette Warrant. Following the Effective Time,
any transferee of the Warrant Certificate shall receive in
exchange for any old Warrant Certificate a new HUBCO Warrant
Certificate evidencing the right to purchase HUBCO Common Stock.
Unless requested by a holder of an outstanding Lafayette Warrant,
HUBCO shall not be required to issue new Certificates evidencing
the Warrant to purchase HUBCO Common Stock but the old Lafayette
Warrant certificates shall continue to evidence such rights until
exchanged, transferred or exercised.
ARTICLE III - REPRESENTATIONS AND WARRANTIES OF LAFAYETTE
References herein to the "Lafayette Disclosure
Schedule" shall mean all of the disclosure schedules required by
this Article III, dated as of the date hereof and referenced to
the specific sections and subsections of Article III of this
Agreement, which have been delivered on the date hereof by
Lafayette to HUBCO. Lafayette hereby represents and warrants to
HUBCO as follows:
3.1. CORPORATE ORGANIZATION.
(a) Lafayette is a banking corporation duly organized,
validly existing and in good standing under the laws of the State
of Connecticut. Lafayette has the corporate power and authority
to own or lease all of its properties and assets and to carry on
its business as it is now being conducted, and is duly licensed
or qualified to do business and is in good standing in each
jurisdiction in which the nature of the business conducted by it
or the character or location of the properties and assets owned
or leased by it makes such licensing or qualification necessary,
except where the failure to be so licensed, qualified or in good
standing would not have a material adverse effect on the
business, operations, assets or financial condition of Lafayette.
Lafayette is a state-chartered commercial bank whose deposits are
insured by the Bank Insurance Fund of the Federal Deposit
Insurance Corporation ("FDIC") to the fullest extent permitted by
law. The Lafayette Disclosure Schedule sets forth true and
complete copies of the Certificate of Incorporation and By-laws
of Lafayette, as in effect on the date hereof.
(b) Except as set forth in Lafayette Disclosure
Schedule, Lafayette has no Subsidiaries. When used with
reference to Lafayette, the term "Subsidiary" means any
corporation, partnership, joint venture or other legal entity in
which Lafayette, directly or indirectly, owns at least a 50
percent stock or other equity interest or for which Lafayette,
directly or indirectly, acts as a general partner. Each
Subsidiary is a corporation incorporated under the laws of the
State of Connecticut. Each subsidiary has the corporate power
and authority to own or lease all of its properties and assets
and to carry on its business as it is now being conducted and is
duly licensed or qualified to do business and is in good standing
in each jurisdiction in which the nature of the business
conducted by it or the character or location of the properties
and assets owned or leased by it makes such licensing or
qualification necessary, except where the failure to be so
licensed, qualified or in good standing would not have a material
adverse effect on the business, operations, assets or financial
condition of Lafayette and its Subsidiaries, taken as a whole.
The Lafayette Disclosure Schedule sets forth true and complete
copies of the certificate of incorporation and by-laws of each
Subsidiary as in effect on the date hereof.
3.2. CAPITALIZATION. The authorized capital stock of
Lafayette consists of 15,000,000 shares of Lafayette Common
Stock, no par value, and 275,000 shares of Preferred Stock, par
value $1.00 per share. As of the date hereof, there are
10,006,529 shares of Lafayette Common Stock issued and
outstanding (excluding 7,000 shares held in treasury). All
issued and outstanding shares of Lafayette Common Stock have been
duly authorized and validly issued, are fully paid and non-
assessable and free of preemptive rights. No shares of Lafayette
Preferred Stock have been issued. Except for 11,250 shares
issuable upon exercise of outstanding stock options granted under
the 1984 Incentive Stock Option Plan, 209,167 shares issuable
upon exercise of outstanding options granted under the 1994
Incentive Stock Option Plan and 250,000 shares issuable upon
exercise of stock options granted to Robert Goldstein pursuant to
his employment agreement with Lafayette (collectively all of such
options are referred to herein as "Stock Options" and the plans
or terms under which they are granted are referred to herein as
the "Lafayette Stock Option Plans") and except for 122,980 shares
issuable upon exercise of the Common Stock Purchase Warrants (the
"Lafayette Warrants") issued February 24, 1994 pursuant to a
Standby Purchase Agreement, dated as of November 15, 1993, and
evidenced by Warrant Certificates (the "Warrant Certificates"),
as of the date hereof there are no shares of Lafayette Common
Stock issuable upon the exercise of outstanding stock options or
otherwise, and except for the Stock Options, the Lafayette
Warrants and the HUBCO Stock Option, Lafayette has not granted
and is not bound by any outstanding subscriptions, options,
warrants, calls, commitments or agreements of any character
calling for the transfer, purchase, subscription or issuance of
any shares of capital stock of Lafayette or any securities
representing the right to purchase, subscribe or otherwise
receive any shares of such capital stock or any securities
convertible into any such shares, and there are no agreements or
understandings with respect to voting of any such shares. All
outstanding shares of capital stock of Lafayette's Subsidiaries,
have been duly authorized and validly issued, are fully paid,
non-assessable and free of preemptive rights, and are owned by
Lafayette free and clear of all liens, encumbrances, charges,
restrictions or rights of third parties. True and correct copies
of each Stock Option grant, each Stock Option Plan and each
Lafayette Warrant are set forth in the Lafayette Disclosure
Schedule.
3.3. AUTHORITY; NO VIOLATION.
(a) Subject to the approval of this Agreement and the
transactions contemplated hereby by the stockholders of
Lafayette, the receipt of all necessary governmental approvals,
and the consent of any Vested Stock Option holder necessary to
exchange their option as provided in Section 2.6(a), Lafayette
has the full corporate power and authority to execute and deliver
this Agreement and to consummate the transactions contemplated
hereby in accordance with the terms hereof. The execution and
delivery of this Agreement and the consummation of the
transactions contemplated hereby have been duly and validly
approved by the Board of Directors of Lafayette in accordance
with the Certificate of Incorporation of Lafayette and applicable
laws and regulations. Except for such approval, no other
corporate proceedings on the part of Lafayette are necessary to
consummate the transactions so contemplated. This Agreement has
been duly and validly executed and delivered by Lafayette and
constitutes the valid and binding obligation of Lafayette,
enforceable against Lafayette in accordance with its terms.
(b) Neither the execution and delivery of this
Agreement by Lafayette, nor the consummation by Lafayette of the
transactions contemplated hereby in accordance with the terms
hereof, or compliance by Lafayette with any of the terms or
provisions hereof, will (i) violate any provision of Lafayette's
Certificate of Incorporation or By-laws, (ii) assuming that the
consents and approvals set forth below are duly obtained, violate
any statute, code, ordinance, rule, regulation, judgment, order,
writ, decree or injunction applicable to Lafayette or any of its
properties or assets or those of any Subsidiary, or (iii) except
as set forth in the Lafayette Disclosure Schedule, violate,
conflict with, result in a breach of any provision of, constitute
a default (or an event which, with notice or lapse of time, or
both, would constitute a default) under, result in the
termination of, accelerate the performance required by, or result
in the creation of any lien, security interest, charge or other
encumbrance upon any of the properties or assets of Lafayette or
its Subsidiaries under, any of the terms, conditions or
provisions of any note, bond, mortgage, indenture, deed of trust,
license, lease, agreement or other instrument or obligation to
which Lafayette is a party, or by which it or any of its
properties or assets may be bound or affected, except, with
respect to (ii) and (iii) above, such as individually or in the
aggregate will not have a material adverse effect on the
business, operations, assets or financial condition of Lafayette
and which will not prevent or delay the consummation of the
transactions contemplated hereby. Except for consents and
approvals of or filings or registrations with or notices to or
required by the FDIC, the Commissioner, the Connecticut
Department of Banking (the "Department"), the Connecticut
Department of Environmental Protection ("DEP"), state blue sky
authorities or other applicable governmental authorities, the
stockholders of Lafayette, the holders of Lafayette Warrants and
the holders of Stock Options, no consents or approvals of or
filings or registrations with or notices to any third party or
any public body or authority are necessary on behalf of Lafayette
or its Subsidiaries in connection with (x) the execution and
delivery by Lafayette of this Agreement and (y) the consummation
by Lafayette of the Merger and the other transactions
contemplated hereby, except (i) such as are listed in the
Lafayette Disclosure Schedule and (ii) such as individually or in
the aggregate will not (if not obtained) have a material adverse
effect on the business, operations, assets or financial condition
of Lafayette and its Subsidiaries taken as a whole or prevent or
delay the consummation of the transactions contemplated hereby.
To the best of Lafayette's knowledge, no fact or condition exists
which Lafayette has reason to believe will prevent it from
obtaining the aforementioned consents and approvals.
3.4. FINANCIAL STATEMENTS.
(a) The Lafayette Disclosure Schedule sets forth
copies of the consolidated statements of condition of Lafayette
as of December 31, 1994 and 1993, the related statements of
operations, changes in shareholders' equity and cash flows for
the periods ended December 31, in each of the three fiscal years
1992 through 1994, accompanied by the audit report (which report
includes explanatory paragraphs relating to certain regulatory
matters) of Arthur Andersen LLP, independent public accountants
with respect to Lafayette, and the unaudited consolidated
statement of condition of Lafayette as of September 30, 1995 and
the related unaudited statements of income and cash flows for the
nine months then ended as reported in Lafayette's Quarterly
Report on Form F-4, filed with the FDIC (collectively, the
"Lafayette Financial Statements"). The Lafayette Financial
Statements (including the related notes) have been prepared in
accordance with generally accepted accounting principles ("GAAP")
consistently applied during the periods involved (except as may
be indicated therein or in the notes thereto and except for the
omission of notes from interim financial statements), and fairly
present the financial position of Lafayette as of the respective
dates set forth therein, and the related statements of
operations, changes in shareholders' equity and cash flows fairly
present the results of operations, changes in stockholders'
equity and cash flows of Lafayette for the respective fiscal
periods set forth therein.
(b) The books and records of Lafayette and its
Subsidiaries are being maintained in material compliance with
applicable legal and accounting requirements, and reflect only
actual transactions.
(c) Except as and to the extent reflected, disclosed
or reserved against in Lafayette Financial Statements (including
the notes thereto) or as specified in any of the Lafayette
Disclosure Schedules, as of September 30, 1995, neither Lafayette
nor any of its Subsidiaries had any liabilities, whether
absolute, accrued, contingent or otherwise, material to the
business, operations, assets or financial condition of Lafayette
and its Subsidiaries taken as a whole which were required by GAAP
(consistently applied) to be disclosed in Lafayette's
consolidated statement of condition or the notes thereto as of
September 30, 1995. Since September 30, 1995, Lafayette has not
incurred any liabilities except in the ordinary course of
business and consistent with prudent banking practice, except as
related to the transactions contemplated by this Agreement or as
set forth in the Lafayette Disclosure Schedule.
3.5. BROKER'S AND OTHER FEES. Except for Belle Plaine
Partners, LLC ("Belle Plaine") or as set forth in the Lafayette
Disclosure Schedule, neither Lafayette (or its Subsidiaries) nor
any of its directors or officers has employed any broker or
finder or incurred any liability for any broker's or finder's
fees or commissions in connection with any of the transactions
contemplated by this Agreement. The agreements with Belle Plaine
are set forth in the Lafayette Disclosure Schedule. Except as
set forth in the Lafayette Disclosure Schedule, there are no fees
(other than time charges billed at usual and customary rates)
payable to any consultants, including lawyers and accountants, in
connection with this transaction or which would be triggered by
consummation of this transaction or the termination of the
services of such consultants by Lafayette.
3.6. ABSENCE OF CERTAIN CHANGES OR EVENTS.
(a) Except as set forth in the Lafayette Disclosure
Schedule, there has not been any material adverse change in the
business, operations, assets or financial condition of Lafayette
or its Subsidiaries since September 30, 1995 and to the best of
Lafayette's knowledge, no facts or condition exists which
Lafayette believes will cause such a material adverse change in
the future.
(b) Except as set forth in the Lafayette Disclosure
Schedule, (i) each of Lafayette and its Subsidiaries has not
taken or permitted any of the actions set forth in Section 5.2
hereof between September 30, 1995 and the date hereof, and (ii)
except for execution of this Agreement, the HUBCO Stock Option,
and the agreements described in Section 3.5, each of Lafayette
and its Subsidiaries has conducted its business only in the
ordinary course, consistent with past practice since September
30, 1995.
3.7. LEGAL PROCEEDINGS. Except as disclosed in the
Lafayette Disclosure Schedule, and except for ordinary routine
litigation incidental to the business of Lafayette, each of
Lafayette and its Subsidiaries is not a party to any, and there
are no pending or, to the best of Lafayette's knowledge,
threatened legal, administrative, arbitral or other proceedings,
claims, actions or governmental investigations of any nature
against Lafayette or its Subsidiaries which, if decided adversely
to Lafayette or its Subsidiaries, are reasonably likely to have a
material adverse effect on the business, operations, assets or
financial condition of Lafayette and its Subsidiaries taken as a
whole. Except as disclosed in the Lafayette Disclosure Schedule,
neither Lafayette or its Subsidiaries is a party to any order,
judgment or decree entered in any lawsuit or proceeding.
3.8. TAXES AND TAX RETURNS.
(a) Each of Lafayette and its Subsidiaries has duly
filed (and until the Effective Time will so file) all returns,
declarations, reports, information returns and statements
("Returns") required to be filed by it in respect of any federal,
state and local taxes (including withholding taxes, penalties or
other payments required) and has duly paid (and until the
Effective Time will so pay) all such taxes due and payable, other
than taxes or other charges which are being contested in good
faith (and disclosed to HUBCO in writing) or against which
reserves have been established. Lafayette has established (and
until the Effective Time will establish) on its consolidated
books and records reserves that are adequate for the payment of
all federal, state and local taxes not yet due and payable, but
are incurred in respect of Lafayette and its Subsidiaries through
such date. The Lafayette Disclosure Schedule identifies the
federal income tax returns of Lafayette which have been examined
by the Internal Revenue Service (the "IRS") within the past six
years. Except as set forth in the Lafayette Disclosure Schedule,
no deficiencies were asserted as a result of such examinations
which have not been resolved and paid in full. The Lafayette
Disclosure Schedule identifies the applicable state income tax
returns of Lafayette which have been examined by the applicable
authorities within the past six years. No deficiencies were
asserted as a result of such examinations which have not been
resolved and paid in full. To the best knowledge of Lafayette,
there are no audits or other administrative or court proceedings
presently pending nor any other disputes pending with respect to,
or claims asserted for, taxes or assessments upon Lafayette or
its Subsidiaries, nor, except as set forth in the Lafayette
Disclosure Schedule, has Lafayette or its Subsidiaries given any
currently outstanding waivers or comparable consents regarding
the application of the statute of limitations with respect to any
taxes or Returns.
(b) Neither Lafayette nor its Subsidiaries (i) except
as set forth in the Lafayette Disclosure Schedule, has requested
any extension of time within which to file any Return which
Return has not since been filed, (ii) is a party to any agreement
providing for the allocation or sharing of taxes, (iii) is
required to include in income any adjustment pursuant to Section
481(a) of the Internal Revenue Code of 1986, as amended (the
"Code"), by reason of a voluntary change in accounting method
initiated by Lafayette (nor does Lafayette have any knowledge
that the IRS has proposed any such adjustment or change of
accounting method) or (iv) has filed a consent pursuant to
Section 341(f) of the Code or agreed to have Section 341(f)(2) of
the Code apply.
(c) From January 1, 1992 until the date hereof, to the
best of Lafayette's knowledge, there has been no "ownership
change" of Lafayette as defined in Section 382(g) of the Code.
3.9. DIRECTOR, OFFICER AND EMPLOYEE BENEFIT PLANS.
(a) Except for plans disclosed in any of the Lafayette
Disclosure Schedules and Stock Option Plans referenced elsewhere
herein, neither Lafayette or its Subsidiaries maintains or
contributes to any "employee pension benefit plan" (the
"Lafayette Pension Plans"), within the meaning of Section 3(2)(A)
of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA"), "employee welfare benefit plan" within the
meaning of Section 3(1) of ERISA (the "Lafayette Welfare Plans"),
stock option plan, stock purchase plan (other than the Dividend
Reinvestment and Stock Purchase Plan referenced in the Lafayette
Disclosure Schedule for Section 3.6 hereof), deferred
compensation plan, severance plan, bonus plan, employment
agreement or other similar plan, program or arrangement.
Lafayette has not, since September 2, 1974, contributed to any
"Multiemployer Plan", as such term is defined in Section 3(37) of
ERISA.
(b) Except as disclosed in the Lafayette Disclosure
Schedule, Lafayette has delivered to HUBCO in Lafayette's
Disclosure Schedule a complete and accurate copy of each of the
following with respect to each of the Lafayette Pension Plans and
Lafayette Welfare Plans, if any: (1) plan document, summary plan
description, and summary of material modifications (if not
available, a detailed description of the foregoing); (ii) trust
agreement or insurance contract, if any; (iii) most recent IRS
determination letter, if any; (iv) most recent actuarial report,
if any; and (v) most recent annual report on Form 5500.
(c) The present value of all accrued benefits, both
vested and non-vested, under each of the Lafayette Pension Plans
subject to Title IV of ERISA, based upon the actuarial
assumptions used for funding purposes in the most recent
actuarial valuation prepared by such Lafayette Pension Plan's
actuary, did not exceed the then current value of the assets of
such plans allocable to such accrued benefits. The actuarial
assumptions then utilized for such plans were reasonable and
appropriate as of the last valuation date and reflect then
current market conditions.
(d) During the last six years, the Pension Benefit
Guaranty Corporation ("PBGC") has not asserted any claim for
liability against Lafayette or any of its Subsidiaries which has
not been paid in full.
(e) All premiums (and interest charges and penalties
for late payment, if applicable) due to the PBGC with respect to
each Lafayette Pension Plan have been paid. All contributions
required to be made to each Lafayette Pension Plan under the
terms thereof, ERISA or other applicable law have been timely
made, and all amounts properly accrued to date as liabilities of
Lafayette which have not been paid have been properly recorded on
the books of Lafayette.
(f) Except as disclosed in the Lafayette Disclosure
Schedule, each of the Lafayette Pension Plans, Lafayette Welfare
Plans and each other employee benefit plan and arrangement
identified on the Lafayette Disclosure Schedule has, since
January 1, 1990, been operated in compliance in all material
respects with any applicable provisions of ERISA, the Code, all
regulations, rulings and announcements promulgated or issued
thereunder, and all other applicable governmental laws and
regulations. Furthermore, if Lafayette maintains any Lafayette
Pension Plan, Lafayette has received a favorable determination
letter from the IRS which takes into account the Tax Reform Act
of 1986 and, except as set forth in the Lafayette Disclosure
Schedule, subsequent legislation and, except as disclosed in the
Lafayette Disclosure Schedule, Lafayette is not aware of any fact
or circumstance which would disqualify any plan.
(g) To the best knowledge of Lafayette, no non-exempt
prohibited transaction, within the meaning of Section 4975 of the
Code or Section 406 of ERISA, has occurred with respect to any of
Lafayette Welfare Plans or Lafayette Pension Plans.
(h) No Lafayette Pension Plan or any trust created
thereunder has been terminated, nor have there been any
"reportable events" (notice of which has not been waived by the
PBGC), within the meaning of Section 4034(b) of ERISA, with
respect to any of the Lafayette Pension Plans.
(i) No "accumulated funding deficiency", within the
meaning of Section 412 of the Code, has been incurred with
respect to any of the Lafayette Pension Plans.
(j) There are no material pending or, to the best
knowledge of Lafayette, material threatened claims (other than
routine claims for benefits) by, on behalf of or against any of
the Lafayette Pension Plans or Lafayette Welfare Plans, any
trusts created thereunder or any other plan or arrangement
identified in the Lafayette Disclosure Schedule.
(k) Except as disclosed in the Lafayette Disclosure
Schedule and in the employment agreement with Donald Calcagnini,
no Lafayette Pension Plan or Lafayette Welfare Plan provides
medical or death benefits (whether or not insured) beyond an
employee's retirement or other termination of service, other than
(i) coverage mandated by law, or (ii) death benefits under any
Lafayette Pension Plan.
(l) Except with respect to customary health, life and
disability benefits or as disclosed in the Lafayette Disclosure
Schedule, there are no unfunded benefit obligations which are not
accounted for by reserves shown on the Lafayette Financial
Statements and established under GAAP or otherwise noted on such
Financial Statements.
(m) With respect to each Lafayette Pension Plan and
Lafayette Welfare Plan that is funded wholly or partially through
an insurance policy, there will be no liability of Lafayette or
its Subsidiaries as of the Effective Time under any such
insurance policy or ancillary agreement with respect to such
insurance policy in the nature of a retroactive rate adjustment,
loss sharing arrangement or other actual or contingent liability
arising wholly or partially out of events occurring prior to the
Effective Time.
(n) Except for benefits due pursuant to the employment
agreements included within the Lafayette Disclosure Schedule and
as set forth in the Lafayette Disclosure Schedule or as agreed to
by HUBCO in writing either pursuant to this Agreement or
otherwise, the consummation of the transactions contemplated by
this Agreement will not (i) entitle any current or former
employee of Lafayette or its Subsidiaries to severance pay,
unemployment compensation or any similar payment or (ii)
accelerate the time of payment, vesting, or increase the amount,
of any compensation or benefits due to any current employee or
former employee under any Lafayette Pension Plan or Lafayette
Welfare Plan.
(o) Except for the Lafayette Pension Plans and
Lafayette Welfare Plans, and except as set forth on the Lafayette
Disclosure Schedule, Lafayette has no deferred compensation
agreements, understandings or obligations for payments or
benefits to any current or former director, officer or employee
of Lafayette or any Subsidiary or any predecessor. The Lafayette
Disclosure Schedule sets forth (i) true and complete copies of
the agreements, understandings or obligations listed with respect
to each such current or former director, officer or employee, and
(ii) the most recent actuarial or other calculation of the
present value of such payments or benefits.
(p) Except as set forth on the Lafayette Disclosure
Schedule, Lafayette maintains or otherwise pays for no life
insurance policies (other than group term life policies on
employees) with respect to any director, officer or employee.
The Lafayette Disclosure Schedule lists each such insurance
policy and any agreement with a party other than the insurer with
respect to the payment, funding or assignment of such policy.
Except as set forth in the Lafayette Disclosure Schedule, to the
best of Lafayette's knowledge, neither Lafayette nor any
Lafayette Pension Plan or Lafayette Welfare Plan own any
individual or group insurance policies issued by an insurer which
has been found to be insolvent or is in rehabilitation pursuant
to a state proceeding.
3.10. REPORTS.
(a) The Lafayette Disclosure Schedule lists, and
Lafayette has previously delivered to HUBCO a complete copy of,
each communication (other than general advertising materials and
press releases) mailed by Lafayette to its stockholders as a
class since November 1, 1993, and each such communication, as of
its date, complied in all material respects with all applicable
statutes, rules and regulations and did not contain any untrue
statement of a material fact or omit to state any material fact
required to be stated therein or necessary in order to make the
statements made therein, in light of the circumstances under
which they were made, not misleading; provided that information
as of a later date shall be deemed to modify information as of an
earlier date.
(b) Lafayette has, since November 1, 1993, duly filed
with the FDIC in form which was correct in all material respects
the monthly, quarterly and annual financial reports required to
be filed under applicable laws and regulations (provided that
information as of a later date shall be deemed to modify
information as of an earlier date), and, subject to permission
from such regulatory authorities, Lafayette promptly will deliver
or make available to HUBCO accurate and complete copies of such
reports. The Lafayette Disclosure Schedule lists all
examinations of Lafayette conducted by either the Department or
the FDIC since January 1, 1993 and the dates of any responses
thereto submitted by Lafayette.
3.11. LAFAYETTE INFORMATION. The information relating
to Lafayette or its Subsidiaries to be contained in the Proxy
Statement/Prospectus (as defined in Section 5.6(a) hereof) to be
delivered to stockholders of Lafayette in connection with the
solicitation of their approval of the Merger and to be delivered
to the stockholders of HUBCO in connection with their approval of
the issuance of HUBCO Common Stock in connection with the Merger,
as of the date the Proxy Statement/Prospectus is mailed to
stockholders of Lafayette and HUBCO, and up to and including the
date of the meeting of stockholders to which such Proxy
Statement/Prospectus relates, will not contain any untrue
statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were
made, not misleading.
3.12. COMPLIANCE WITH APPLICABLE LAW.
(a) Since February 28, 1994, Lafayette has filed all
reports that it was required to file with the FDIC under the
Securities Exchange Act of 1934, as amended (the "1934 Act"), all
of which complied in all material respects with all applicable
requirements of the 1934 Act and the rules and regulations
adopted thereunder. As of their respective dates, each such
report and each registration statement, proxy statement, form or
other document filed by Lafayette with the FDIC, including
without limitation, any financial statements or schedules
included therein, did not contain any untrue statement of a
material fact or omit to state a material fact required to be
stated therein or necessary to make the statements made therein,
in light of the circumstances under which they were made, not
misleading, provided that information as of a later date shall be
deemed to modify information as of an earlier date. Since
February 28, 1994, Lafayette and its Subsidiaries have duly filed
all material forms, reports and documents which they were
required to file with each other agency charged with regulating
any aspect of their business.
(b) Except as set forth in Lafayette Disclosure
Schedule for Section 3.7 hereof, each of Lafayette and its
Subsidiaries holds all material licenses, franchises, permits and
authorizations necessary for the lawful conduct of their business
and since January 1, 1993 has complied with and is not in default
in any respect under any applicable law, statute, order, rule,
regulation, policy and/or guideline of any federal, state or
local governmental authority relating to Lafayette (including
without limitation consumer, community and fair lending laws)
(other than where such default or noncompliance will not result
in a material adverse effect on the business, operations, assets
or financial condition of Lafayette) and Lafayette has not
received notice of violation of, and does not know of any
violations of, any of the above.
3.13. CERTAIN CONTRACTS.
(a) Except under plans referenced in Section 3.2 or
3.9 hereof, contracts described in Section 3.5 hereof,
arrangements described in Section 5.12 hereof and plans
referenced in the Lafayette Disclosure Schedule, (i) Lafayette
and its Subsidiaries is not a party to or bound by any written
contract or understanding (whether written or oral) with respect
to the employment of any officers, employees, directors or
consultants, and (ii) the consummation of the transactions
contemplated by this Agreement will not (either alone or upon the
occurrence of any additional acts or events) result in any
payment (whether of severance pay or otherwise) becoming due from
Lafayette and its Subsidiaries to any officer, employee, director
or consultant thereof. The Lafayette Disclosure Schedule (either
in reference to this Section 3.13 or in reference to Sections 3.2
or 3.9 hereof) sets forth true and correct copies of any
severance or employment agreements with officers, directors,
employees, agents or consultants to which Lafayette and its
Subsidiaries is a party.
(b) Except as disclosed in the Lafayette Disclosure
Schedule and except for loan agreements made and loan commitments
issued in the ordinary course of business, (i) as of the date of
this Agreement, Lafayette and its Subsidiaries is not a party to
or bound by any commitment, agreement or other instrument which
is material to the business, operations, assets or financial
condition of Lafayette and its Subsidiaries as a whole (but in no
event shall a contract for less than $100,000 a year be deemed
material under this paragraph), (ii) no commitment, agreement or
other instrument to which Lafayette and its Subsidiaries is a
party or by which it is bound limits the freedom of Lafayette or
its Subsidiaries to compete in any line of business or with any
person, and (iii) Lafayette is not a party to any collective
bargaining agreement.
(c) Neither Lafayette (including its Subsidiaries)
nor, to the best knowledge of Lafayette, any other party thereto,
is in default in any material respect under any material lease,
contract, mortgage, promissory note, deed of trust, loan or other
commitment (except those under which Lafayette is or will be the
creditor) or arrangement, except for defaults which individually
or in the aggregate would not have a material adverse effect on
the business, operations, assets or financial condition of
Lafayette.
3.14. PROPERTIES AND INSURANCE.
(a) Lafayette and its Subsidiaries has good and, as to
owned real property, marketable title to all material assets and
properties, whether real or personal, tangible or intangible,
reflected in Lafayette's statement of condition as of September
30, 1995, or owned and acquired subsequent thereto (except to the
extent that such assets and properties have been disposed of for
fair value in the ordinary course of business since September 30,
1995), subject to no encumbrances, liens, mortgages, security
interests or pledges, except (i) those items that secure
liabilities that are reflected in said statement of condition or
the notes thereto or that secure liabilities incurred in the
ordinary course of business after the date of such statement of
condition, (ii) statutory liens for amounts not yet delinquent or
which are being contested in good faith, (iii) such encumbrances,
liens, mortgages, security interests, pledges and title
imperfections that are not in the aggregate material to the
business, operations, assets, and financial condition of
Lafayette and (iv) with respect to owned real property, title
imperfections noted in title reports delivered to HUBCO promptly
after the date hereof. Except as affected by the transactions
contemplated hereby, Lafayette and its Subsidiaries as lessee has
the right under valid and subsisting leases to occupy, use,
possess and control all real property leased by Lafayette in all
material respects as presently occupied, used, possessed and
controlled by Lafayette and its Subsidiaries.
(b) The business operations and all insurable
properties and assets of Lafayette and its Subsidiaries are
insured for its benefit against all risks which, in the
reasonable judgment of the management of Lafayette, should be
insured against, in each case under policies or bonds issued by
insurers of recognized responsibility, in such amounts with such
deductibles and against such risks and losses as are in the
opinion of the management of Lafayette adequate for the business
engaged in by Lafayette. As of the date hereof, Lafayette has
not received any notice of cancellation or notice of a material
amendment of any such insurance policy or bond and, to the best
of its knowledge, is not in default under any such policy or
bond, no coverage thereunder is being disputed and all material
claims thereunder have been filed in a timely fashion. The
Lafayette Disclosure Schedule sets forth in summary form a list
of all insurance policies of Lafayette and its Subsidiaries.
3.15. MINUTE BOOKS. The minute books of Lafayette and
its Subsidiaries contain accurate records of all meetings and
other corporate action held of the stockholders and Board of
Directors (including committees of the Board of Directors) held
since January 1, 1990, except where the failure to so maintain
such records would not have a material adverse effect on the
business, operations, assets or financial condition of Lafayette
and its Subsidiaries taken as a whole.
3.16. ENVIRONMENTAL MATTERS.
(a) Except as disclosed in the Lafayette Disclosure
Schedule, Lafayette and its Subsidiaries have not received any
written notice, citation, claim, assessment, proposed assessment
or demand for abatement alleging that Lafayette or its
Subsidiaries (either directly or, as a trustee or fiduciary, or
as a successor-in-interest in connection with the enforcement of
remedies to realize the value of properties serving as collateral
for outstanding loans) is responsible for the correction or
cleanup of any condition resulting from the violation of any law,
ordinance or other governmental regulation regarding
environmental matters which correction or cleanup would be
material to the business, operations, assets or financial
condition of Lafayette. Except as disclosed in the Lafayette
Disclosure Schedule, Lafayette has no knowledge that any toxic or
hazardous substances or materials have been emitted, generated,
disposed of or stored on any Properties (as hereinafter defined)
in any manner that violates any presently existing federal, state
or local law or regulation governing or pertaining to any toxic
or hazardous substances and materials, the violation of which
would have a material adverse effect on the business, operations,
or assets or financial condition of Lafayette.
(b) Lafayette has no knowledge that any of the
Properties has been operated in any manner in the three years
prior to the date of this Agreement that violated any applicable
federal, state or local law or regulation governing or pertaining
to such substances and materials, the violation of which would
have a material adverse effect on the business, operations,
assets or financial condition of Lafayette and its Subsidiaries
taken as a whole.
(c) Except as set forth on the Lafayette Disclosure
Schedule, (i) Lafayette has no knowledge that any of the real
property owned or leased by Lafayette or its Subsidiaries, as
OREO or otherwise, or owned or controlled by Lafayette or its
Subsidiaries as a trustee or fiduciary (the "Properties"), meets
the statutory criteria of an "Establishment" as that term is
defined pursuant to the Connecticut Transfer of Establishments
Act, P.A. 95-183 (the "Connecticut Transfer Act"), and (ii) to
the best of Lafayette's knowledge, Lafayette, its Subsidiaries
and any and all of their tenants or subtenants have all necessary
permits and have filed all necessary registrations material to
permit the operation of the Properties in the manner in which the
operations are currently conducted under all applicable federal,
state or local environmental laws, excepting only those permits
and registrations the absence of which would not have a material
adverse effect upon the operations requiring the permit or
registration.
(d) Except as set forth in the Lafayette Disclosure
Schedule, to the knowledge of Lafayette, there are no underground
storage tanks on, in or under any of the Properties and no
underground storage tanks have been closed or removed from any of
the Properties while the property was owned, operated or
controlled by Lafayette or its Subsidiaries.
3.17. RESERVES. As of September 30, 1995, the
allowance for possible loan losses in the Lafayette Financial
Statements was adequate based upon all factors required to be
considered by Lafayette at that time in determining the amount of
such allowance. Except as set forth in the Lafayette Disclosure
Schedule, the methodology used to compute the allowance for
possible loan losses complies in all material respects with all
applicable policies of the FDIC and the Department. As of
September 30, 1995, the valuation allowance for OREO properties
in the Lafayette Financial Statements was adequate based upon all
factors required to be considered by Lafayette at that time in
determining the amount of such allowance.
3.18. NO PARACHUTE PAYMENTS. Except as set forth in
the Lafayette Disclosure Schedule and except for benefits
resulting from the acceleration of Stock Options, no officer,
director, employee or agent (or former officer, director,
employee or agent) of Lafayette is entitled now, or will or may
be entitled to as a consequence of this Agreement or the Merger,
to any payment or benefit from Lafayette, HUBCO or the Bank which
if paid or provided would constitute an "excess parachute
payment", as defined in Section 280G of the Code or regulations
promulgated thereunder.
3.19. AGREEMENTS WITH BANK REGULATORS. Except as set
forth in Lafayette Disclosure Schedule, neither Lafayette or any
of its Subsidiaries is a party to any commitment letter, board
resolution submitted to a regulatory authority or similar
undertaking to, or is subject to any order or directive by, or is
a recipient of any extraordinary supervisory letter from, any
court, governmental authority or other regulatory or
administrative agency or commission, domestic or foreign
("Governmental Entity") 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, nor has
Lafayette been advised by any Governmental Entity that it is
contemplating issuing or requesting (or is considering the
appropriateness of issuing or requesting) any such order, decree,
agreement, memorandum of understanding, extraordinary supervisory
letter, commitment letter or similar submission. Lafayette is
not required by Section 32 of the Federal Deposit Insurance Act
to give prior notice to a Federal banking agency of the proposed
addition of an individual to its board of directors or the
employment of an individual as a senior executive officer.
3.20. DISCLOSURE. No representation or warranty
contained in Article III of this Agreement contains any untrue
statement of a material fact or omits to state a material fact
necessary to make the statements herein not misleading.
ARTICLE IV - REPRESENTATIONS AND WARRANTIES OF HUBCO
References herein to the "HUBCO Disclosure Schedule"
shall mean all of the disclosure schedules required by this
Article IV, dated as of the date hereof and referenced to the
specific sections and subsections of Article IV of this
Agreement, which have been delivered on the date hereof by HUBCO
to Lafayette. HUBCO hereby represents and warrants to Lafayette
as follows:
4.1. CORPORATE ORGANIZATION.
(a) HUBCO is a corporation duly organized and validly
existing and in good standing under the laws of the State of New
Jersey. HUBCO has the corporate power and authority to own or
lease all of its properties and assets and to carry on its
business as it is now being conducted, and is duly licensed or
qualified to do business and is in good standing in each
jurisdiction in which the nature of the business conducted by it
or the character or location of the properties and assets owned
or leased by it makes such licensing or qualification necessary,
except where the failure to be so licensed, qualified or in good
standing would not have a material adverse effect on the
business, operations, assets or financial condition of HUBCO or
its subsidiaries (defined below), taken as a whole. HUBCO is
registered as a bank holding company under the Bank Holding
Company Act of 1956, as amended.
(b) Each of the Subsidiaries of HUBCO are listed in
the HUBCO Disclosure Schedule. The term "Subsidiary", when used
with reference to HUBCO, means any corporation, partnership,
joint venture or other legal entity in which HUBCO directly or
indirectly, owns at least a 50 percent stock or other equity
interest or for which HUBCO, directly or indirectly, acts as a
general partner. Each Subsidiary of HUBCO is duly organized and
validly existing and in good standing under the laws of the
jurisdiction of its incorporation. The Bank is a state-chartered
commercial bank whose deposits are insured by the FDIC to the
fullest extent permitted by law. Each Subsidiary has the
corporate power and authority to own or lease all of its
properties and assets and to carry on its business as it is now
being conducted and is duly licensed or qualified to do business
and is in good standing in each jurisdiction in which the nature
of the business conducted by it or the character or location of
the properties and assets owned or leased by it makes such
licensing or qualification necessary, except where the failure to
be so licensed, qualified or in good standing would not have a
material adverse effect on the business, operations, assets or
financial condition of HUBCO and its subsidiaries, taken as a
whole. The HUBCO Disclosure Schedule sets forth true and
complete copies of the certificate of incorporation and by-laws
of HUBCO as in effect on the date hereof.
4.2. CAPITALIZATION. The authorized capital stock of
HUBCO consists solely of 25,000,000 shares of HUBCO Common Stock
and 4,500,000 shares of preferred stock ("HUBCO Authorized
Preferred Stock"). As of January 15, 1996, there were 13,105,627
shares of HUBCO Common Stock issued and outstanding, excluding
39,432 shares of treasury stock. Since such date, and from time
to time hereafter, HUBCO may sell or repurchase shares of HUBCO
Common Stock subject to the covenant in Section 5.18. There are
no shares of HUBCO Authorized Preferred Stock outstanding.
Except for shares issuable under the HUBCO 1995 Stock Option Plan
(the "HUBCO Stock Option Plan"), there are no shares of HUBCO
Common Stock issuable upon the exercise of outstanding stock
options or otherwise. All issued and outstanding shares of HUBCO
Common Stock, and all issued and outstanding shares of capital
stock of HUBCO's Subsidiaries, have been duly authorized and
validly issued, are fully paid, nonassessable and free of
preemptive rights, and are free and clear of all liens,
encumbrances, charges, restrictions or rights of third parties.
All of the outstanding shares of capital stock of HUBCO's
Subsidiaries are owned by HUBCO free and clear of any liens,
encumbrances, charges, restrictions or rights of third parties.
Except for the shares issuable under the HUBCO Stock Option Plan,
neither HUBCO nor HUBCO's Subsidiaries has granted or is bound by
any outstanding subscriptions, options, warrants, calls,
commitments or agreements of any character calling for the
transfer, purchase or issuance of any shares of capital stock of
HUBCO or HUBCO's Subsidiaries or any securities representing the
right to purchase, subscribe or otherwise receive any shares of
such capital stock or any securities convertible into any such
shares, and there are no agreements or understandings with
respect to voting of any such shares. Neither HUBCO nor any of
HUBCO's Subsidiaries is, as of the date hereof, the owner of any
shares of Lafayette Common Stock.
4.3. AUTHORITY; NO VIOLATION.
(a) HUBCO has the full corporate power and authority
to execute and deliver this Agreement and to consummate the
transactions contemplated hereby in accordance with the terms
hereof. The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby have been
duly and validly approved by the Board of Directors of HUBCO in
accordance with its certificate of incorporation and applicable
laws and regulations. Except for the approval of the issuance of
the HUBCO Common Stock pursuant to the Merger by the requisite
vote of HUBCO's shareholders and the creation of Merger Sub, no
other corporate proceedings on the part of HUBCO are necessary to
consummate the transactions so contemplated. This Agreement has
been duly and validly executed and delivered by HUBCO and
constitutes the valid and binding obligations of HUBCO,
enforceable against HUBCO in accordance with its terms.
(b) Neither the execution or delivery of this
Agreement by HUBCO, nor the consummation by HUBCO of the
transactions contemplated hereby in accordance with the terms
hereof or compliance by HUBCO with any of the terms or provisions
hereof will (i) violate any provision of the Certificate of
Incorporation or By-laws of HUBCO, (ii) assuming that the
consents and approvals set forth below are duly obtained, violate
any statute, code, ordinance, rule, regulation, judgment, order,
writ, decree or injunction applicable to HUBCO or any of its
respective properties or assets, or (iii) violate, conflict with,
result in a breach of any provision of, constitute a default (or
an event which, with notice or lapse of time, or both, would
constitute a default) under, result in the termination of,
accelerate the performance required by, or result in the creation
of any lien, security interest, charge or other encumbrance upon
any of the respective properties or assets of HUBCO under any of
the terms, conditions or provisions of any note, bond, mortgage,
indenture, deed of trust, license, lease, agreement or other
instrument or obligation to which HUBCO is a party, or by which
HUBCO or any of its properties or assets may be bound or
affected, except, with respect to (ii) and (iii) above, such as
individually or in the aggregate will not have a material adverse
effect on the business, operations, assets or financial condition
of HUBCO and HUBCO's Subsidiaries, taken as a whole, and which
will not prevent or delay the consummation of the transactions
contemplated hereby. Except for consents and approvals of or
filings or registrations with or notices to the Board of
Governors of the Federal Reserve System ("FRB"), the
Commissioner, the Department, the Securities and Exchange
Commission ("SEC"), state blue sky authorities or other
applicable governmental authorities, no consents or approvals of
or filings or registrations with or notices to any third party or
any public body or authority are necessary on behalf of HUBCO in
connection with (x) the execution and delivery by HUBCO of this
Agreement, and (y) the consummation by HUBCO and Lafayette of the
Merger and the other transactions contemplated hereby except such
as are listed in the HUBCO Disclosure Schedule or in the
aggregate will not (if not obtained) have a material adverse
effect on the business, operations, assets or financial condition
of HUBCO. To the best of HUBCO's knowledge, no fact or condition
exists which HUBCO has reason to believe will prevent it from
obtaining the aforementioned consents and approvals.
4.4. FINANCIAL STATEMENTS.
(a) The HUBCO Disclosure Schedule sets forth copies of
the consolidated statements of financial condition of HUBCO as of
December 31, 1994 and 1993, the related consolidated statements
of income, changes in stockholders' equity and cash flows for the
periods ended December 31, in each of the three fiscal years 1992
through 1994, in each case accompanied by the audit report of
Arthur Andersen LLP, independent public accountants with respect
to HUBCO, and the unaudited consolidated statement of condition
of HUBCO as of September 30, 1995 and the related unaudited
consolidated statements of income and cash flows for the nine
months ended September 30, 1995 and 1994, as reported in HUBCO's
Quarterly Report on Form 10-Q, filed with the SEC under the 1934
Act (collectively, the "HUBCO Financial Statements"). The HUBCO
Financial Statements (including the related notes) have been
prepared in accordance with GAAP consistently applied during the
periods involved (except as may be indicated therein or in the
notes thereto), and fairly present the consolidated financial
position of HUBCO as of the respective dates set forth therein,
and the related consolidated statements of income, changes in
stockholders' equity and cash flows (including the related notes,
where applicable) fairly present the consolidated results of
operations, changes in stockholders' equity and cash flows of
HUBCO for the respective fiscal periods set forth therein.
(b) The books and records of HUBCO and the Bank are
being maintained in material compliance with applicable legal and
accounting requirements, and reflect only actual transactions.
(c) Except as and to the extent reflected, disclosed
or reserved against in the HUBCO Financial Statements (including
the notes thereto), as of September 30, 1995 neither HUBCO nor
any of its subsidiaries had any obligation or liability, whether
absolute, accrued, contingent or otherwise, material to the
business, operations, assets or financial condition of HUBCO or
any of its Subsidiaries which were required by GAAP (consistently
applied) to be disclosed in HUBCO's consolidated statement of
condition as of September 30, 1995 or the notes thereto. Except
for the acquisition of Growth Financial Corp. and other proposed
acquisitions by HUBCO since September 30, 1995 reflected in any
Form 8-K filed by HUBCO with the SEC, neither HUBCO nor any of
its Subsidiaries have incurred any liabilities since September
30, 1995, except in the ordinary course of business and
consistent with prudent banking practice.
4.5. BROKERAGE FEES. Neither HUBCO nor any of its
directors or officers has employed any broker or finder or
incurred any liability for any broker's or finder's fees or
commissions in connection with any of the transactions
contemplated by this Agreement.
4.6. ABSENCE OF CERTAIN CHANGES OR EVENTS. There has
not been any material adverse change in the business, operations,
assets or financial condition of HUBCO and HUBCO's Subsidiaries
taken as a whole since September 30, 1995 and to the best of
HUBCO's knowledge, no facts or condition exists which HUBCO
believes will cause such a material adverse change in the future.
4.7. LEGAL PROCEEDINGS. Except for ordinary routine
litigation incidental to the business of HUBCO or its
Subsidiaries, neither HUBCO nor any of its Subsidiaries is a
party to any, and there are no pending or, to the best of HUBCO's
knowledge, threatened legal, administrative, arbitral or other
proceedings, claims, actions or governmental investigations of
any nature against HUBCO or any of its Subsidiaries which, if
decided adversely to HUBCO or its Subsidiaries, would have a
material adverse effect on the business, operations, assets or
financial condition of HUBCO or its Subsidiaries. Except as
disclosed in the HUBCO Disclosure Schedule, neither HUBCO nor
HUBCO's Subsidiaries is a party to any order, judgment or decree
entered in any lawsuit or proceeding which is material to HUBCO
or its Subsidiaries.
4.8. COMPLIANCE WITH APPLICABLE LAW.
(a) Since January 1, 1993, HUBCO has filed all reports
that it was required to file with the SEC under the 1934 Act, all
of which complied in all material respects with all applicable
requirements of the 1934 Act and the rules and regulations
adopted thereunder. As of their respective dates, each such
report and each registration statement, proxy statement, form or
other document filed by HUBCO with the SEC, including without
limitation, any financial statements or schedules included
therein, did not contain any untrue statement of a material fact
or omit to state a material fact required to be stated therein or
necessary to make the statements made therein, in light of the
circumstances under which they were made, not misleading,
provided that information as of a later date shall be deemed to
modify information as of an earlier date. Since January 1, 1993,
HUBCO and the Bank have duly filed all material forms, reports
and documents which they were required to file with each agency
charged with regulating any aspect of their business.
(b) Except as set forth in the HUBCO Disclosure
Schedule, each of HUBCO and HUBCO's Subsidiaries holds all
material licenses, franchises, permits and authorizations
necessary for the lawful conduct of its business, and has
complied with and is not in default in any respect under any
applicable law, statute, order, rule, regulation, policy and/or
guideline of any federal, state or local governmental authority
relating to HUBCO or HUBCO's Subsidiaries (including without
limitation consumer, community and fair lending laws) (other than
where such default or noncompliance will not result in a material
adverse effect on the business, operations, assets or financial
condition of HUBCO and HUBCO's Subsidiaries taken as a whole) and
HUBCO has not received notice of violation of, and does not know
of any violations of, any of the above.
4.9. HUBCO INFORMATION. The information relating to
HUBCO and its Subsidiaries (including, without limitation,
information regarding other transactions which HUBCO is required
to disclose), this Agreement and the transactions contemplated
hereby in the Registration Statement and Proxy
Statement/Prospectus (as defined in Section 5.6(a) hereof), as of
the date of the mailing of the Proxy Statement/Prospectus, and up
to and including the date of the meeting of stockholders of
Lafayette and HUBCO to which such Proxy Statement/Prospectus
relates, will not contain any untrue statement of a material fact
or omit to state a material fact required to be stated therein or
necessary in order to make the statements therein, in light of
the circumstances under which they are made, not misleading. The
Registration Statement shall comply as to form in all material
respects with the provisions of the Securities Act of 1933, as
amended (the "1933 Act"), the 1934 Act and the rules and
regulations promulgated thereunder.
4.10. FUNDING AND CAPITAL ADEQUACY. At the Effective
Time, after giving pro forma effect to the Merger and any other
acquisition which HUBCO or its Subsidiaries have agreed to
consummate, HUBCO will have sufficient capital to satisfy all
applicable regulatory capital requirements.
4.11. HUBCO COMMON STOCK. At the Effective Time, the
HUBCO Common Stock issued hereunder will be duly authorized and
validly issued, fully paid, nonassessable, free of preemptive
rights and free and clear of all liens, encumbrances or
restrictions created by or through HUBCO, with no personal
liability attaching to the ownership thereof. The HUBCO Common
Stock to be issued pursuant to the Merger (including the shares
issued pursuant to Section 2.6 and shares issued upon the
exercise of HUBCO Warrants) will be registered under the 1933 Act
and issued in accordance with all applicable state and federal
laws, rules and regulations.
4.12. TAXES AND TAX RETURNS.
(a) HUBCO and HUBCO's Subsidiaries have duly filed all
Returns required to be filed by them in respect of any federal,
state and local taxes (including withholding taxes, penalties or
other payments required) and have duly paid all such taxes due
and payable, other than taxes or other charges which are being
contested in good faith (and disclosed to Lafayette in writing).
HUBCO and HUBCO's Subsidiaries have established on their books
and records reserves that are adequate for the payment of all
federal, state and local taxes not yet due and payable, but are
incurred in respect of HUBCO or the Bank through such date. The
HUBCO Disclosure Schedule identifies the federal income tax
returns of HUBCO and HUBCO's Subsidiaries which have been
examined by the IRS within the past six years. No deficiencies
were asserted as a result of such examinations which have not
been resolved and paid in full. The HUBCO Disclosure Schedule
identifies the applicable state income tax returns of HUBCO and
HUBCO's Subsidiaries which have been examined by the applicable
authorities. No deficiencies were asserted as a result of such
examinations which have not been resolved and paid in full. To
the best knowledge of HUBCO, there are no audits or other
administrative or court proceedings presently pending nor any
other disputes pending with respect to, or claims asserted for,
taxes or assessments upon HUBCO or HUBCO's Subsidiaries, nor has
HUBCO or HUBCO's Subsidiaries given any currently outstanding
waivers or comparable consents regarding the application of the
statute of limitations with respect to any taxes or Returns.
(b) Except as set forth in the HUBCO Disclosure
Schedule, neither HUBCO nor any Subsidiary of HUBCO (i) has
requested any extension of time within which to file any Return
which Return has not since been filed, (ii) is a party to any
agreement providing for the allocation or sharing of taxes with
third parties, (iii) is required to include in income any
adjustment pursuant to Section 481(a) of the Code, by reason of a
voluntary change in accounting method initiated by HUBCO (nor
does HUBCO have any knowledge that the IRS has proposed any such
adjustment or change of accounting method) or (iv) has filed a
consent pursuant to Section 341(f) of the Code or agreed to have
Section 341(f)(2) of the Code apply.
4.13. EMPLOYEE BENEFIT PLANS.
(a) Except as disclosed in the HUBCO Disclosure
Schedule and the HUBCO Stock Option Plan, neither HUBCO or its
Subsidiaries maintains or contributes to any "employee pension
benefit plan" (the "HUBCO Pension Plans"), within the meaning of
Section 3(2)(A) of ERISA, "employee welfare benefit plan" within
the meaning of Section 3(1) of ERISA (the "HUBCO Welfare Plans"),
stock option plan, stock purchase plan, deferred compensation
plan, severance plan, bonus plan, employment agreement or other
similar plan, program or arrangement. HUBCO has not, since
September 2, 1974, contributed to any "Multiemployer Plan", as
such term is defined in Section 3(37) of ERISA.
(b) The present value of all accrued benefits, both
vested and non-vested, under each of HUBCO's Pension Plans
subject to Title IV of ERISA, based upon the actuarial
assumptions used for funding purposes in the most recent
actuarial valuation prepared by such HUBCO Pension Plan's
actuary, did not exceed the then current value of the assets of
such plans allocable to such accrued benefits. The actuarial
assumptions then utilized for such plans were reasonable and
appropriate as of the last valuation date and reflect then
current market conditions.
(c) During the last six years, the PBGC has not
asserted any claim for liability against HUBCO or any of its
Subsidiaries which has not been paid in full.
(d) All premiums (and interest charges and penalties
for late payment, if applicable) due to the PBGC with respect to
each HUBCO Pension Plan have been paid. All contributions
required to be made to each HUBCO Pension Plan under the terms
thereof, ERISA or other applicable law have been timely made, and
all amounts properly accrued to date as liabilities of HUBCO
which have not been paid have been properly recorded on the books
of HUBCO.
(e) Except as disclosed in the HUBCO Disclosure
Schedule, each of the HUBCO Pension Plans, HUBCO Welfare Plans
and each other employee benefit plan and arrangement identified
on the HUBCO Disclosure Schedule has, since January 1, 1990, been
operated in compliance in all material respects with any
applicable provisions of ERISA, the Code, all regulations,
rulings and announcements promulgated or issued thereunder, and
all other applicable governmental laws and regulations.
Furthermore, if HUBCO maintains any HUBCO Pension Plan, HUBCO has
received a favorable determination letter from the IRS which
takes into account the Tax Reform Act of 1986 and subsequent
legislation and, except as disclosed in the HUBCO Disclosure
Schedule, HUBCO is not aware of any fact or circumstance which
would disqualify any plan.
(f) To the best knowledge of HUBCO, no non-exempt
prohibited transaction, within the meaning of Section 4975 of the
Code or Section 406 of ERISA, has occurred with respect to any of
the HUBCO Welfare Plans or HUBCO Pension Plans.
(g) No HUBCO Pension Plan or any trust created
thereunder has been terminated, nor have there been any
"reportable events" (notice of which has not been waived by the
PBGC), within the meaning of Section 4034(b) of ERISA, with
respect to any of the HUBCO Pension Plans.
(h) No "accumulated funding deficiency", within the
meaning of Section 412 of the Code, has been incurred with
respect to any of the HUBCO Pension Plans.
(i) There are no material pending or, to the best
knowledge of HUBCO, material threatened claims (other than
routine claims for benefits) by, on behalf of, or against any of
the HUBCO Pension Plans or HUBCO Welfare Plans, any trusts
created thereunder or any other plan or arrangement identified in
the HUBCO Disclosure Schedule.
(j) Except with respect to customary health, life and
disability benefits or as disclosed in the HUBCO Disclosure
Schedule, there are no unfunded benefit obligations which are not
accounted for by reserves shown on the HUBCO Financial Statements
and established under GAAP or otherwise noted on such Financial
Statements.
(k) With respect to each HUBCO Pension Plan and HUBCO
Welfare Plan that is funded wholly or partially through an
insurance policy, there will be no liability of HUBCO or its
Subsidiaries as of the Effective Time under any such insurance
policy or ancillary agreement with respect to such insurance
policy in the nature of a retroactive rate adjustment, loss
sharing arrangement or other actual or contingent liability
arising wholly or partially out of events occurring prior to the
Effective Time.
4.14. CONTRACTS. Except as disclosed in the HUBCO
Disclosure Schedule, neither HUBCO nor its Subsidiaries, or to
the best knowledge of HUBCO, any party thereto, is in default in
any material respect under any material lease, contract,
mortgage, promissory note, deed of trust, loan or other
commitment (except those under which the Bank is or will be the
creditor) or arrangement, except for defaults which individually
or in the aggregate would not have a material adverse effect on
the business, operations, assets or financial condition of HUBCO
and the Bank, taken as a whole.
4.15. PROPERTIES AND INSURANCE.
(a) HUBCO and the Bank have good and, as to owned real
property, marketable title to all material assets and properties,
whether real or personal, tangible or intangible, reflected in
HUBCO's consolidated balance sheet as of September 30, 1995, or
owned and acquired subsequent thereto (except to the extent that
such assets and properties have been disposed of for fair value
in the ordinary course of business since September 30, 1995),
subject to no encumbrances, liens, mortgages, security interests
or pledges, except (i) those items that secure liabilities that
are reflected in said balance sheet or the notes thereto or that
secure liabilities incurred in the ordinary course of business
after the date of such balance sheet, (ii) statutory liens for
amounts not yet delinquent or which are being contested in good
faith, (iii) such encumbrances, liens, mortgages, security
interests, pledges and title imperfections that are not in the
aggregate material to the business, operations, assets, and
financial condition of HUBCO and the Bank taken as a whole and
(iv) with respect to owned real property, title imperfections
noted in title reports. Except as disclosed in the HUBCO
Disclosure Schedule, HUBCO and the Bank as lessees have the right
under valid and subsisting leases to occupy, use, possess and
control all property leased by HUBCO or the Bank in all material
respects as presently occupied, used, possessed and controlled by
HUBCO and the Bank.
(b) The business operations and all insurable
properties and assets of HUBCO and the Bank are insured for their
benefit against all risks which, in the reasonable judgment of
the management of HUBCO, should be insured against, in each case
under policies or bonds issued by insurers of recognized
responsibility, in such amounts with such deductibles and against
such risks and losses as are in the opinion of the management of
HUBCO adequate for the business engaged in by HUBCO and the Bank.
As of the date hereof, neither HUBCO nor the Bank has received
any notice of cancellation or notice of a material amendment of
any such insurance policy or bond or is in default under any such
policy or bond, no coverage thereunder is being disputed and all
material claims thereunder have been filed in a timely fashion.
4.16. ENVIRONMENTAL MATTERS. Except as disclosed in
the HUBCO Disclosure Schedule, neither HUBCO nor the Bank has
received any written notice, citation, claim, assessment,
proposed assessment or demand for abatement alleging that HUBCO,
the Bank or any other Subsidiary of HUBCO (either directly, or as
a trustee or fiduciary, or as a successor-in-interest in
connection with the enforcement of remedies to realize the value
of properties serving as collateral for outstanding loans) is
responsible for the correction or cleanup of any condition
resulting from the violation of any law, ordinance or other
governmental regulation regarding environmental matters which
correction or cleanup would be material to the business,
operations, assets or financial condition of HUBCO and the Bank
taken as a whole. Except as disclosed in the HUBCO Disclosure
Schedule, HUBCO has no knowledge that any toxic or hazardous
substances or materials have been emitted, generated, disposed of
or stored on any property currently owned or leased by HUBCO or
the Bank or any other Subsidiary in any manner that violates any
presently existing federal, state or local law or regulation
governing or pertaining to such substances and materials, the
violation of which would have a material adverse effect on the
business, operations, assets or financial condition of HUBCO and
the Bank, taken as a whole.
4.17. RESERVES. As of September 30, 1995, the
allowance for possible loan losses in the HUBCO Financial
Statements was adequate based upon all factors required to be
considered by HUBCO at that time in determining the amount of
such allowance. The methodology used to compute the allowance
for possible loan losses complies in all material respects with
all applicable FDIC and New Jersey Department of Banking
policies. As of September 30, 1995, the valuation allowance for
OREO properties in the HUBCO Financial Statements was adequate
based upon all factors required to be considered by HUBCO at that
time in determining the amount of such allowance.
4.18. AGREEMENTS WITH BANK REGULATORS. Neither HUBCO
nor the Bank is a party to any agreement or memorandum of
understanding with, or a party to any commitment letter, board
resolution submitted to a regulatory authority or similar
undertaking to, or is subject to any order or directive by, or is
a recipient of any extraordinary supervisory letter from, any
Government Entity 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, except for those
the existence of which has been disclosed in writing to Lafayette
by HUBCO prior to the date of this Agreement, nor has HUBCO been
advised by any Governmental Entity that it is contemplating
issuing or requesting (or is considering the appropriateness of
issuing or requesting) any such order, decree, agreement,
memorandum of understanding, extraordinary supervisory letter,
commitment letter or similar submission, except as disclosed in
writing to Lafayette by HUBCO prior to the date of this
Agreement. Neither HUBCO nor the Bank is required by Section 32
of the Federal Deposit Insurance Act to give prior notice to a
Federal banking agency of the proposed addition of an individual
to its board of directors or the employment of an individual as a
senior executive officer, except as disclosed in writing to
Lafayette by HUBCO prior to the date of this Agreement.
4.19. DISCLOSURES. No representation or warranty
contained in Article IV of this Agreement contains any untrue
statement of a material fact or omits to state a material fact
necessary to make the statements herein not misleading.
ARTICLE V - COVENANTS OF THE PARTIES
5.1. CONDUCT OF THE BUSINESS OF LAFAYETTE . During
the period from the date of this Agreement to the Effective Time,
Lafayette shall conduct its business only in the ordinary course
and consistent with prudent banking practice, except for
transactions permitted hereunder or with the prior written
consent of HUBCO, which consent will not be unreasonably
withheld. Lafayette also shall use all reasonable efforts to (i)
preserve its business organization intact, (ii) keep available to
itself the present services of its employees and (iii) preserve
for itself and HUBCO the goodwill of its customers and others
with whom business relationships exist.
5.2. NEGATIVE COVENANTS.
(a) Lafayette agrees that from the date hereof to the
Effective Time, except as otherwise approved by HUBCO in writing
or as permitted or required by this Agreement, neither it or its
Subsidiaries will:
(i) change any provision of its Certificate of
Incorporation or By-laws or any similar governing documents
of Lafayette;
(ii) change the number of shares of its
authorized or issued capital stock (other than upon the
issuance of Lafayette Common Stock upon exercise of Stock
Options or Lafayette Warrants) or issue or grant any
subscription, option, warrant, call, commitment, right to
purchase or agreement of any character relating to the
authorized or issued capital stock of Lafayette or any
securities convertible into shares of such stock, or split,
combine or reclassify any shares of its capital stock, or
declare, set aside or pay any dividend, or other
distribution (whether in cash, stock or property or any
combination thereof) in respect of its capital stock;
PROVIDED, HOWEVER, from the date hereof to the Effective
Time, Lafayette may declare, set aside or pay cash dividends
per share of Lafayette Common Stock equivalent to the cash
dividends per share (I.E., at the same rate as that paid by
HUBCO multiplied by the Exchange Ratio) declared, set aside
or paid by HUBCO during such period, except that commencing
with the June 1, 1996 dividend Lafayette shall pay such
dividends on March 1, June 1, September 1, and December 1 of
each year and shall use the same record date as that used by
HUBCO; AND PROVIDED FURTHER that Lafayette may continue to
operate its Dividend Reinvestment and Stock Purchase Plan,
in the manner described in Lafayette's prospectus relating
thereto, only in respect of the dividend paid and cash
contributions made through February 15, 1996 and thereafter
the Plan shall cease.
(iii) grant any severance or termination pay
(other than pursuant to policies or contracts of Lafayette
in effect on the date hereof or disclosed to HUBCO pursuant
hereto) to, or enter into or amend any employment or
severance agreement with, any of its directors, officers or
employees, except as specified in Lafayette Disclosure
Schedule; adopt or approve any new employee benefit plan or
arrangement of any type or amend any existing employee
benefit plan or arrangement of any type; or award any
increase in compensation or benefits to its directors,
officers or employees except with respect to employee and
officer increases in the ordinary course of business and
consistent with past practices and policies and the stay-on
bonuses set forth in the Lafayette Disclosure Schedule;
(iv) sell or dispose of any substantial amount of
assets or voluntarily incur any significant liabilities
other than in the ordinary course of business consistent
with past practices and policies or in response to
substantial financial demands upon the business of
Lafayette;
(v) except as set forth in Lafayette Disclosure
Schedule, make any capital expenditures other than pursuant
to binding commitments existing on the date hereof,
expenditures described in business plans or budgets
furnished to HUBCO prior to the date hereof and other than
expenditures necessary to maintain existing assets in good
repair;
(vi) except as set forth in Lafayette Disclosure
Schedule, file any applications or make any contract with
respect to branching or site location or relocation;
(vii) agree to acquire in any manner whatsoever
(other than to realize upon collateral for a defaulted loan)
any business or entity;
(viii) make any material change in its accounting
methods or practices, other than changes required in
accordance with generally accepted accounting principles;
(ix) take any action that would result in any of
its representations and warranties contained in Article III
of this Agreement not being true and correct in any material
respect at the Effective Time or that would cause any of its
conditions to Closing not to be satisfied; or
(x) agree to do any of the foregoing.
5.3. NO SOLICITATION. Lafayette shall not, directly
or indirectly, encourage or solicit or hold discussions or
negotiations with, or provide any information to, any person,
entity or group (other than HUBCO) concerning any merger or sale
of shares of capital stock or sale of substantial assets or
liabilities not in the ordinary course of business, or similar
transactions involving Lafayette (an "Acquisition Transaction").
Notwithstanding the foregoing, Lafayette may enter into
discussions or negotiations or provide information in connection
with an unsolicited possible Acquisition Transaction if the Board
of Directors of Lafayette, after consulting with counsel,
determines in the exercise of its fiduciary responsibilities that
such discussions or negotiations should be commenced or such
information should be furnished. Lafayette will promptly
communicate to HUBCO the material terms of any proposal, whether
written or oral, which it may receive in respect of any such
Acquisition Transaction and the fact that it is having
discussions or negotiations with a third party about an
Acquisition Transaction.
5.4. CURRENT INFORMATION. During the period from the
date of this Agreement to the Effective Time, each of Lafayette
and HUBCO will cause one or more of its designated
representatives to confer with representatives of the other party
on a monthly or more frequent basis regarding its business,
operations, properties, assets and financial condition and
matters relating to the completion of the transactions
contemplated herein. On a monthly basis, Lafayette agrees to
provide HUBCO, and HUBCO agrees to provide Lafayette, with
internally prepared profit and loss statements no later than 15
days after the close of each calendar month. As soon as
reasonably available, but in no event more than 45 days after the
end of each fiscal quarter (other than the last fiscal quarter of
each fiscal year) ending on or after March 31, 1996, Lafayette
will deliver to HUBCO and HUBCO will deliver to Lafayette their
respective quarterly reports. As soon as reasonably available,
but in no event more than 90 days after the end of each calendar
year, Lafayette will deliver to HUBCO and HUBCO will deliver to
Lafayette their respective Annual Reports.
5.5. ACCESS TO PROPERTIES AND RECORDS;
CONFIDENTIALITY.
(a) Lafayette shall permit HUBCO and its
representatives, and HUBCO and the Bank shall permit Lafayette
and its representatives, reasonable access to their respective
properties, and shall disclose and make available to HUBCO and
its representatives, or Lafayette and its representatives, as the
case may be, all books, papers and records relating to its
assets, stock ownership, properties, operations, obligations and
liabilities, including, but not limited to, all books of account
(including the general ledger), tax records, minute books of
directors' and stockholders' meetings, organizational documents,
by-laws, material contracts and agreements, filings with any
regulatory authority, accountants' work papers, litigation files,
plans affecting employees, and any other business activities or
prospects in which HUBCO and its representatives, or Lafayette
and its representatives, may have a reasonable interest. Neither
party shall be required to provide access to or to disclose
information where such access or disclosure would violate or
prejudice the rights of any customer, would contravene any law,
rule, regulation, order or judgment or would waive any privilege.
The parties will use their best efforts to obtain waivers of any
such restriction (other than waivers of the attorney-client
privilege) and in any event make appropriate substitute
disclosure arrangements under circumstances in which the
restrictions of the preceding sentence apply. Notwithstanding
the foregoing, Lafayette acknowledges that HUBCO may be involved
in discussions concerning other potential acquisitions and HUBCO
shall not be obligated to disclose such information to Lafayette
except as provided in Section 5.8 hereof.
(b) All information furnished by the parties hereto
previously in connection with transactions contemplated by this
Agreement or pursuant hereto shall be used solely for the purpose
of evaluating the Merger contemplated hereby and shall be treated
as the sole property of the party delivering the information
until consummation of the Merger contemplated hereby and, if such
Merger shall not occur, each party and each party's advisors
shall return to the other party all documents or other materials
containing, reflecting or referring to such information, will not
retain any copies of such information, shall use its best efforts
to keep confidential all such information, and shall not directly
or indirectly use such information for any competitive or other
commercial purposes. In the event that the Merger contemplated
hereby does not occur, all documents, notes and other writings
prepared by a party hereto or its advisors based on information
furnished by the other party shall be promptly destroyed. The
obligation to keep such information confidential shall continue
for five years from the date the proposed Merger is abandoned but
shall not apply to (i) any information which (A) the party
receiving the information can establish by convincing evidence
was already in its possession prior to the disclosure thereof to
it by the other party; (B) was then generally known to the
public; (C) became known to the public through no fault of the
party receiving such information; or (D) was disclosed to the
party receiving such information by a third party not bound by an
obligation of confidentiality; or (ii) disclosures pursuant to a
legal requirement or in accordance with an order of a court of
competent jurisdiction.
5.6. REGULATORY MATTERS.
(a) For the purposes of holding the Stockholders'
Meetings referred to in Section 5.7 hereof and qualifying under
applicable federal and state securities laws the HUBCO Common
Stock to be issued to Lafayette stockholders in connection with
the Merger, the parties hereto shall cooperate in the preparation
and filing by HUBCO or Lafayette (as applicable) of a
Registration Statement with the SEC and a proxy statement with
the FDIC which shall include an appropriate joint proxy statement
and prospectus satisfying all applicable requirements of
applicable state and federal laws, including the 1933 Act, the
1934 Act and applicable state securities laws and the rules and
regulations thereunder, and the rules and regulations of the FDIC
and SEC (such proxy statement and prospectus in the form mailed
by Lafayette and HUBCO to their respective shareholders together
with any and all amendments or supplements thereto, being herein
referred to as the "Proxy Statement/Prospectus" and the various
documents to be filed by HUBCO under the 1933 Act with the SEC to
register the HUBCO Common Stock for sale, including the Proxy
Statement/Prospectus, are referred to herein as the "Registration
Statement").
(b) HUBCO shall furnish Lafayette with such
information concerning HUBCO and its Subsidiaries (including,
without limitation, information regarding other transactions
which HUBCO is required to disclose) as is necessary in order to
cause the Proxy Statement/Prospectus, insofar as it relates to
such corporations, to comply with Section 5.6(a) hereof. HUBCO
agrees promptly to advise Lafayette if at any time prior to
HUBCO's or Lafayette's shareholders meeting referred to in
Section 5.7 hereof, any information provided by HUBCO in the
Proxy Statement/Prospectus becomes incorrect or incomplete in
any material respect and to provide Lafayette with the
information needed to correct such inaccuracy or omission. HUBCO
shall furnish Lafayette with such supplemental information as may
be necessary in order to cause the Proxy Statement/Prospectus,
insofar as it relates to HUBCO and its subsidiaries, to comply
with Section 5.6(a) after the mailing thereof to Lafayette
shareholders.
(c) Lafayette shall furnish HUBCO with such
information concerning Lafayette as is necessary in order to
cause the Proxy Statement/Prospectus, insofar as it relates to
Lafayette, to comply with Section 5.6(a) hereof. Lafayette
agrees promptly to advise HUBCO if at any time prior to HUBCO's
or Lafayette's shareholders meeting referred to in Section 5.6(a)
hereof, any information provided by Lafayette in the Proxy
Statement/Prospectus becomes incorrect or incomplete in any
material respect and to provide HUBCO with the information needed
to correct such inaccuracy or omission. Lafayette shall furnish
HUBCO with such supplemental information as may be necessary in
order to cause the Proxy Statement/Prospectus, insofar as it
relates to Lafayette, to comply with Section 5.6(a) after the
mailing thereof to Lafayette shareholders.
(d) HUBCO shall as promptly as practicable make such
filings as are necessary in connection with the offering of the
HUBCO Common Stock with applicable state securities agencies and
shall use all reasonable efforts to qualify the offering of such
stock under applicable state securities laws at the earliest
practicable date. Lafayette shall promptly furnish HUBCO with
such information regarding Lafayette shareholders as HUBCO
requires to enable it to determine what filings are required
hereunder. Lafayette authorizes HUBCO to utilize in such filings
the information concerning Lafayette provided to HUBCO in
connection with, or contained in, the Proxy Statement/Prospectus.
HUBCO shall furnish Lafayette's counsel with copies of all such
filings and keep Lafayette advised of the status thereof. HUBCO
shall as promptly as practicable file the Registration Statement
containing the Proxy Statement/Prospectus with the SEC, Lafayette
shall as promptly as practicable file the Proxy
Statement/Prospectus with the FDIC, and each of HUBCO and
Lafayette shall promptly notify the other of all communications,
oral or written, with the SEC and the FDIC concerning the
Registration Statement and the Proxy Statement/Prospectus.
(e) HUBCO shall cause the HUBCO Common Stock issuable
pursuant to the Merger (including, without limitation, shares
issuable pursuant to Section 2.6 and upon exercise of HUBCO
Warrants) to be listed on the National Association of Securities
Dealers Automated Quotation ("NASDAQ") System at the Effective
Time.
(f) The parties hereto will cooperate with each other
and use their reasonable efforts to prepare all necessary
documentation, to effect all necessary filings and to obtain all
necessary permits, consents, approvals and authorizations of all
third parties and governmental bodies necessary to consummate the
transactions contemplated by this Agreement as soon as possible,
including, without limitation, those required by the FRB, the
FDIC and the Department and those required to form the Merger Sub
and perform the Merger. The parties shall each have the right to
review in advance (and shall do so promptly) all proposed filings
with, including all information relating to the other, as the
case may be, and any of their respective Subsidiaries, if any,
which appears in any filing made with, or written material
submitted to, any third party or governmental body in connection
with the transactions contemplated by this Agreement.
(g) Each of the parties will promptly furnish each
other with copies of written communications received by them or
any of their respective Subsidiaries, if any, from, or delivered
by any of the foregoing to, any governmental body in respect of
the transactions contemplated hereby with respect to the Merger.
(h) Lafayette acknowledges that HUBCO is in or may be
in the process of acquiring other banks and financial
institutions and that in connection with such acquisitions,
information concerning Lafayette may be required to be included
in the registration statements, if any, for the sale of
securities of HUBCO or in SEC reports in connection with such
acquisitions. Lafayette acknowledges that, except as set forth
in Section 5.8(b) hereof, prior to the public disclosure of any
such acquisition HUBCO shall be under no obligation to disclose
to Lafayette its acquisition plans or proposals formulated
subsequent to the date hereof. Lafayette agrees to provide HUBCO
with any information, certificates, documents or other materials
about Lafayette as are reasonably necessary to be included in
such other SEC reports or registration statements, including
registration statements which may be filed by HUBCO prior to the
Effective Time. Lafayette shall use its reasonable efforts to
cause its attorneys and accountants to provide HUBCO and any
underwriters for HUBCO with any consents, comfort letters,
opinion letters, reports or information which are necessary to
complete the registration statements and applications or any such
acquisition or issuance of securities. HUBCO shall reimburse
Lafayette for expenses thus incurred by Lafayette should this
transaction be terminated for any reason other than Section
7.1(h). HUBCO shall not file with the SEC any registration
statement or amendment thereto or supplement thereof containing
information regarding Lafayette unless Lafayette shall have
consented to such filing. Lafayette shall not unreasonably delay
or withhold any such consent.
(i) The parties shall use all reasonable efforts to
cause the filings with the SEC and FDIC of the Proxy
Statement/Prospectus, and all regulatory filings with the
Commissioner and the FRB, to be made by April 2, 1996.
5.7. APPROVAL OF STOCKHOLDERS. Lafayette and HUBCO
each will (a) take all steps necessary duly to call, give notice
of, convene and hold a meeting of its stockholders (the
"Stockholders' Meeting") for the purpose of securing the approval
of stockholders of this Agreement in the case of Lafayette and
the issuance of HUBCO Common Stock in the case of HUBCO, (b)
subject to the qualification set forth in Section 5.3 hereof with
respect to Lafayette and the right of Lafayette not to make a
recommendation or to withdraw a recommendation if its investment
banker withdraws its fairness opinion prior to the Stockholders'
Meeting, recommend to their respective stockholders the approval
by Lafayette shareholders of this Agreement and the transactions
contemplated hereby and the approval of HUBCO shareholders of the
issuance of HUBCO Common Stock hereunder and use its reasonable
efforts to obtain, as promptly as practicable, such approvals,
and (c) cooperate and consult with each other with respect to
each of the foregoing matters.
5.8. FURTHER ASSURANCES.
(a) Subject to the terms and conditions herein
provided, each of the parties hereto agrees to use all reasonable
efforts to take, or cause to be taken, all actions and to do, or
cause to be done, all things necessary, proper or advisable under
applicable laws and regulations to satisfy the conditions to
Closing and to consummate and make effective the transactions
contemplated by this Agreement, including, without limitation,
using reasonable efforts to lift or rescind any injunction or
restraining order or other order adversely affecting the ability
of the parties to consummate the transactions contemplated by
this Agreement and using its reasonable efforts to prevent the
breach of any representation, warranty, covenant or agreement of
such party contained or referred to in this Agreement and to
promptly remedy the same. In case at any time after the
Effective Time any further action is necessary or desirable to
carry out the purposes of this Agreement, the proper officers and
directors of each party to this Agreement shall take all such
necessary action. Nothing in this section shall be construed to
require any party to participate in any threatened or actual
legal, administrative or other proceedings (other than
proceedings, actions or investigations to which it is a party or
subject or threatened to be made a party or subject) in
connection with consummation of the transactions contemplated by
this Agreement unless such party shall consent in advance and in
writing to such participation and the other party agrees to
reimburse and indemnify such party for and against any and all
costs and damages related thereto.
(b) Except as set forth in the paragraph below, HUBCO
agrees that from the date hereof to the Effective Time, except as
otherwise approved by Lafayette in writing or as permitted or
required by this Agreement, it will not, nor will it permit its
Subsidiaries to take any action that would result in any of its
representations and warranties contained in Article IV of this
Agreement not being true and correct in any material respect at
the Effective Time or that would cause any of its conditions to
Closing not to be satisfied.
Notwithstanding anything in this section or elsewhere
in this Agreement, HUBCO and its Subsidiaries may enter into one
or more definitive acquisition agreements to acquire another
bank, thrift or financial institution or the assets and/or
liabilities of such an institution (each of which is a "HUBCO
Acquisition") prior to the Effective Time without the prior
written consent of Lafayette if, and only if, upon the
consummation of the acquisition or merger, (i) HUBCO's Board of
Directors continues to constitute a majority of the continuing
Board of Directors of the surviving company (disregarding the
effect of this Merger); (ii) Kenneth T. Neilson continues to
serve as the Chief Executive Officer of the surviving company;
(iii) the acquisition or merger involves the acquisition or
merger with a financial company which has its headquarters and a
substantial majority of its offices in New Jersey, New York or
Connecticut; and (iv) HUBCO's pro forma book value is diluted by
10% or less and HUBCO's pro forma tangible book value is diluted
by 15% or less as a result of the HUBCO Acquisition or a series
of HUBCO Acquisitions entered into after the date hereof and
before the Effective Time. If HUBCO enters into a definitive
agreement for any HUBCO Acquisition which does not require the
prior written consent of Lafayette, and such HUBCO Acquisition
constitutes, in the reasonable opinion of a majority of the
entire Lafayette Board of Directors, a material adverse change in
the business, operations, assets or financial condition of HUBCO
and its Subsidiaries taken as a whole, as specified under Section
7.1(e)(i) of this Agreement, then such action shall entitle
Lafayette to terminate this Agreement pursuant to Section
7.1(e)(i). In the event of any termination of this Agreement
under the prior sentence, Lafayette shall reimburse HUBCO for its
legal, accounting and advisory expenses incurred by HUBCO
hereunder. For purposes of the warranties and representations
set forth in Article IV hereof, the entity being acquired in an
HUBCO Acquisition shall not be deemed to be a subsidiary or
otherwise a part of HUBCO until the consummation of such HUBCO
Acquisition.
5.9. PUBLIC ANNOUNCEMENTS. HUBCO and Lafayette shall
cooperate with each other in the development and distribution of
all news releases and other public filings and disclosures with
respect to this Agreement or the Merger transaction contemplated
hereby, and HUBCO and Lafayette agree that unless approved
mutually by them IN ADVANCE, they will not issue any press
release or written statement for general circulation relating
primarily to the transaction contemplated hereby, except as may
be otherwise required by law or regulation in the opinion of
counsel.
5.10. FAILURE TO FULFILL CONDITIONS. In the event
that HUBCO or Lafayette determines that a material condition to
its obligation to consummate the transactions contemplated hereby
cannot be fulfilled on or prior to December 31, 1996 and that it
will not waive that condition, it will promptly notify the other
party. Except for any acquisition or merger discussions HUBCO
may enter into with other parties, Lafayette and HUBCO will
promptly inform the other of any facts applicable to Lafayette or
HUBCO, respectively, or their respective directors or officers,
that would be likely to prevent or materially delay approval of
the Merger by any governmental authority or which would otherwise
prevent or materially delay completion of the Merger.
5.11. INDEMNIFICATION AND INSURANCE.
(a) For a period of six years after the Effective
Time, HUBCO shall indemnify, defend and hold harmless each person
who is now, or has been at any time prior to the date hereof or
who becomes prior to the Effective Time, a director, officer,
employee or agent of Lafayette or any Subsidiary of Lafayette or
serves or has served at the request of Lafayette in any capacity
with any other person (collectively, the "Indemnitees") against
any and all claims, damages, liabilities, losses, costs, charges,
expenses (including, without limitation, reasonable costs of
investigation, and the reasonable fees and disbursements of legal
counsel and other advisers and experts as incurred), judgments,
fines, penalties and amounts paid in settlement, asserted
against, incurred by or imposed upon any Indemnitee by reason of
the fact that he or she is or was a director, officer, employee
or agent of Lafayette or any subsidiary of Lafayette or serves or
has served at the request of Lafayette in any capacity with any
other person, (i) in connection with, arising out of or relating
to any threatened, pending or completed claim, action, suit or
proceeding (whether civil, criminal, administrative or
investigative), including, without limitation, any and all
claims, actions, suits, proceedings or investigations by or on
behalf of or in the right of or against Lafayette, or by any
present or former shareholder of Lafayette (collectively,
"Claims"), including, without limitation, any Claim which is
based upon, arises out of or in any way relates to the Merger,
the Proxy Statement/Prospectus mailed to Lafayette's stockholders
to vote on the Merger, this Agreement, any of the transactions
contemplated by this Agreement, the Indemnitee's service as a
member of Lafayette's Board of Directors or any committee of
Lafayette's Board of Directors, the events leading up to the
execution of this Agreement, any statement, recommendation or
solicitation made in connection therewith or related thereto and
any breach of any duty in connection with any of the foregoing,
and (ii) in connection with, arising out of or relating to the
enforcement of the obligations of HUBCO set forth in this Section
5.11, in each case to the fullest extent permitted under any of
(a) any applicable law (including without limitation, N.J.S.A.
14A:3-5(8)), (b) Lafayette's Certificate of Incorporation or (c)
its By-Laws (and HUBCO shall also advance expenses as incurred to
the fullest extent permitted under any thereof).
(b) From and after the Effective Time, HUBCO shall
assume and honor any obligation of Lafayette immediately prior to
the Effective Time with respect to the indemnification of the
Indemnitees arising out of Lafayette's Certificate of
Incorporation or By-Laws as if such obligations were pursuant to
a contract or arrangement between HUBCO and such Indemnitees.
(c) In the event HUBCO or any of its successors or
assigns (i) reorganizes or consolidates with or merges into or
enters into another business combination transaction with any
other person or entity and is not the resulting, continuing or
surviving corporation or entity of such consolidation, merger or
transaction, or (ii) liquidates, dissolves or transfers all or
substantially all of its properties and assets to any person or
entity, then, and in each such case, proper provision shall be
made so that the successors and assigns of HUBCO assume the
obligations set forth in this Section 5.11.
(d) HUBCO shall have Lafayette's officers and
directors covered under either Lafayette's existing officers' and
directors' liability insurance policy or a rider to HUBCO's then
current officers' and directors' liability insurance ("D&O
Insurance") policy for periods of at least six years after the
Effective Time. However, HUBCO only shall be required to insure
such persons upon terms and for coverages substantially similar
to Lafayette's existing D&O insurance.
(e) Any Indemnitee wishing to claim indemnification
under Section 5.11, upon learning of any such claim, action, suit
or proceeding, shall promptly notify HUBCO thereof, but the
failure to so notify shall not relieve HUBCO of any liability it
may have to such Indemnitee if such failure does not materially
prejudice HUBCO. In the event of any such claim, action, suit or
proceeding (whether arising before or after the Effective Time)
as to which indemnification under this Section 5.11 is
applicable, (a) HUBCO shall have the right to assume the defense
thereof and HUBCO shall not be liable to such Indemnitees for any
legal expenses of other counsel or any other expenses
subsequently incurred by such Indemnitees in connection with the
defense thereof, except that if HUBCO elects not to assume such
defense or counsel for the Indemnitees advises that there are
issues which raise conflicts of interest between HUBCO and the
Indemnitees, the Indemnitees may retain counsel satisfactory to
them, and HUBCO shall pay the reasonable fees and expenses of
such counsel for the Indemnitees as statements therefor are
received; PROVIDED HOWEVER, that HUBCO shall be obligated
pursuant to this paragraph (e) to pay for only one firm of
counsel for all Indemnitees in any jurisdiction with respect to a
matter unless the use of one counsel for such Indemnitees would
present such counsel with a conflict of interest that is not
waived and (b) the Indemnitees will cooperate in the defense of
any such matter. HUBCO shall not be liable for settlement of any
claim, action or proceeding hereunder unless such settlement is
effected with its prior written consent; PROVIDED HOWEVER, that
HUBCO shall not have any obligation hereunder to any Indemnitee
when and if a court of competent jurisdiction shall ultimately
determine, and such determination shall have become final and
nonappealable, that the indemnification of such Indemnitee in the
manner contemplated hereby is prohibited by applicable law or
public policy.
5.12. EMPLOYEE MATTERS.
(a) Following consummation of the Merger, to the
extent practical HUBCO will seek to retain the existing employees
of Lafayette in their same or similar positions (but this
paragraph shall not apply to any employee with a contract).
(b) To the extent any officer or employee of Lafayette
is terminated following consummation of the Merger, such officer
or employee shall be covered by HUBCO's severance policy as
described in the HUBCO Disclosure Schedule with respect to
retrenchment or reduction in force and be given credit under such
policy for their years of service with Lafayette, provided,
however, no officer or employee with a written contract of
employment shall be entitled to any additional severance pay
beyond that to which he or she is entitled pursuant to such
contract.
(c) Following consummation of the Merger, HUBCO
intends to make available to all employees and officers of
Lafayette coverage under the benefit plans generally available to
HUBCO's employees and officers (including pension and health and
hospitalization) on the terms and conditions available to HUBCO's
employees and officers. For purposes of determining eligibility
to participate in such plans, eligibility for benefit forms and
subsidies and vesting of benefits under such plans (including,
but not limited to, any pension, severance, 401(K), vacation and
sick pay), HUBCO shall give effect to years of service with
Lafayette or its Subsidiaries, as the case may be, as if they
were with HUBCO or its Subsidiaries. Additionally, for purposes
of calculation of benefits under vacation, medical, sick leave
and disability plans with respect to such employees and officers
of Lafayette, HUBCO shall give effect to years of service with
Lafayette or its Subsidiaries, as the case may be, as if they
were with HUBCO or its Subsidiaries. No employee of Lafayette
who becomes an employee of HUBCO and who was covered by
Lafayette's medical insurance plans shall be excluded from
coverage under HUBCO's medical insurance plan (for such employee
or any other covered person) and no medical conditions of such
employee or covered person shall be excluded from coverage on the
basis of a pre-existing condition unless the employee or covered
person was excluded from coverage or such medical condition was
excluded from coverage under Lafayette's medical insurance plans.
5.13. DISCLOSURE SUPPLEMENTS. From time to time prior
to the Effective Time, each party hereto will promptly supplement
or amend (by written notice to the other) its respective
Disclosure Schedule delivered pursuant hereto with respect to any
matter hereafter arising which, if existing, occurring or known
at the date of this Agreement, would have been required to be set
forth or described in such Disclosure Schedule or which is
necessary to correct any information in such Disclosure Schedule
which has been rendered materially inaccurate thereby. For the
purpose of determining satisfaction of the conditions set forth
in Article VI, no supplement or amendment to such Disclosure
Schedule shall correct or cure any warranty which was untrue when
made, but shall enable the disclosure of subsequent facts or
events to maintain the truthfulness of any warranty.
5.14. EXPENSES OF LAFAYETTE.
(a) For planning purposes Lafayette shall within 15
days from the date hereof, provide HUBCO with its estimated
budget of transaction-related expenses reasonably anticipated to
be payable by Lafayette in connection with this transaction.
Lafayette shall promptly notify HUBCO if or when it determines
that it will expect to exceed its budget; PROVIDED, HOWEVER, that
HUBCO acknowledges that Lafayette shall not be deemed to have
breached this Agreement by virtue of its exceeding such budget.
(b) Promptly after the execution of this Agreement,
Lafayette shall ask all of its attorneys and other professionals
to render current and correct invoices for all unbilled time and
disbursements. Lafayette shall accrue and/or pay all of such
amounts as soon as possible.
(c) Lafayette shall advise HUBCO monthly of all out-
of-pocket expenses which Lafayette has incurred in connection
with this transaction. Lafayette shall mutually agree with HUBCO
about printing arrangements for the Proxy Statement/Prospectus
before entering into any binding contract for such expenses.
5.15. COMPLIANCE WITH ANTITRUST LAWS. Each of HUBCO
and Lafayette shall use its best efforts to resolve such
objections, if any, which may be asserted with respect to the
Merger under antitrust laws, including, without limitation, the
Hart-Scott-Rodino Act. In the event a suit is threatened or
instituted challenging the Merger as violative of antitrust laws,
each of HUBCO and Lafayette shall use its best efforts to avoid
the filing of, resist or resolve such suit. HUBCO and Lafayette
shall use their best efforts to take such action as may be
required: (a) by the Antitrust Division of the Department of
Justice or the Federal Trade Commission in order to resolve such
objections as either of them may have to the Merger under
antitrust laws, or (b) by any federal or state court of the
United States, in any suit brought by a private party or
governmental entity challenging the Merger as violative of
antitrust laws, in order to avoid the entry of, or to effect the
dissolution of, any injunction, temporary restraining order, or
other order which has the effect of preventing the consummation
of the Merger. Best efforts shall include, but not be limited
to, the proffer by HUBCO of its willingness to accept an order
agreeing to the divestiture, or the holding separate, of any
assets of HUBCO or Lafayette, except to the extent that any such
divestitures or holding separate arrangement would have a
material adverse effect on HUBCO. The entry by a court, in any
suit brought by a private party or governmental entity
challenging the Merger as violative of antitrust laws, of an
order or decree permitting the Merger, but requiring that any of
the businesses, product lines or assets of HUBCO or Lafayette be
divested or held separate thereafter shall not be deemed a
failure to satisfy the conditions specified in Section 6.1 hereof
except to the extent that any divestitures or holding separate
arrangement would have a material adverse effect on HUBCO and
HUBCO shall not have voluntarily consented to such divestitures
or holding separate arrangements. For the purposes of this
Section 5.15, the divestiture or the holding separate of a branch
of the Bank or Lafayette with less than $20 million in assets
shall not be considered to have a material adverse effect on
HUBCO.
5.16. COMFORT LETTERS. HUBCO shall cause Arthur
Andersen LLP, its independent public accountants, to deliver to
Lafayette, and Lafayette shall cause Arthur Andersen LLP, its
independent public accountants, to deliver to HUBCO and to its
officers and directors who sign the Registration Statement for
this transaction, a short-form "comfort letter" or "agreed upon
procedures" letter, dated the date of the mailing of the Proxy
Statement/Prospectus for the Stockholders Meeting of Lafayette,
in the form customarily issued by such accountants at such time
in transactions of this type.
5.17. AFFILIATES. Promptly, but in any event within
two weeks, after the execution and delivery of this Agreement,
Lafayette shall deliver to HUBCO (a) a letter identifying all
persons who, to the knowledge of Lafayette, may be deemed to be
affiliates of Lafayette under Rule 145 of the 1933 Act and the
pooling-of-interests accounting rules, including, without
limitation, all directors and executive officers of Lafayette and
(b) copies of letter agreements, each substantially in the form
of Exhibit 5.17, executed by each such person so identified as an
affiliate of Lafayette agreeing to comply with Rule 145 and to
refrain from transferring shares as required by the pooling-of-
interests accounting rules. Within two weeks after the date
hereof, HUBCO shall cause its directors and executive officers to
enter into letter agreements in the form of Exhibit 5.17-2 with
HUBCO concerning the pooling-of-interests accounting rules.
HUBCO hereby agrees to publish, or file a Form 8-K, Form 10-K or
Form 10-Q containing financial results covering at least 30 days
of post-Merger combined operations of HUBCO and Lafayette as soon
as practicable (but in no event later than 30 days) following the
close of the first calendar month ending 30 days after the
Effective Time, in form and substance sufficient to remove the
restrictions set forth in paragraph "B" of Exhibit 5.17.
5.18. POOLING AND TAX-FREE REORGANIZATION TREATMENT.
Prior to the date hereof, neither HUBCO or Lafayette has taken
any action or failed to take any action which would disqualify
the Merger for pooling of interests accounting treatment. Before
the Effective Time, neither HUBCO nor Lafayette shall
intentionally take, fail to take, or cause to be taken or not
taken any action within its control, which would disqualify the
Merger as a "pooling-of-interests" for accounting purposes or as
a "reorganization" within the meaning of Section 368(a) of the
Code. HUBCO shall organize Merger Sub as a first-tier subsidiary
of HUBCO. Subsequent to the Effective Time, HUBCO shall not take
and shall cause the Surviving Corporation not to take any action
within their control that would disqualify the Merger as such a
"reorganization" under the Code.
ARTICLE VI - CLOSING CONDITIONS
6.1. CONDITIONS OF EACH PARTY'S OBLIGATIONS UNDER THIS
AGREEMENT. The respective obligations of each party under this
Agreement to consummate the Merger shall be subject to the
satisfaction, or, where permissible under applicable law, waiver
at or prior to the Effective Time of the following conditions:
(a) APPROVAL OF LAFAYETTE STOCKHOLDERS; SEC
REGISTRATION. This Agreement and the transactions contemplated
hereby shall have been approved by the requisite vote of the
stockholders of Lafayette and the issuance of the HUBCO Common
Stock (including without limitation the shares issuable pursuant
to Section 2.6 hereof and upon exercise of the HUBCO Warrants)
pursuant to this Agreement shall have been approved by the
requisite vote of the stockholders of HUBCO. The Lafayette Proxy
Statement/Prospectus shall have been cleared for distribution by
the FDIC. The HUBCO Registration Statement and Proxy
Statement/Prospectus shall have been declared effective by the
SEC and shall not be subject to a stop order or any threatened
stop order, and the issuance of the HUBCO Common Stock (including
without limitation the shares issuable pursuant to Section 2.6
hereof and upon exercise of the HUBCO Warrants) shall have been
qualified in every state where such qualification is required
under the applicable state securities laws.
(b) REGULATORY FILINGS. All necessary regulatory or
governmental approvals and consents (including without limitation
any required approval of the FRB, the Department and the FDIC)
required to consummate the transactions contemplated hereby shall
have been obtained without any term or condition which would
materially impair the value of Lafayette to HUBCO. All
conditions required to be satisfied prior to the Effective Time
by the terms of such approvals and consents shall have been
satisfied; and all statutory waiting periods in respect thereof
(including the Bank Merger Act and, if applicable, the Hart-
Scott-Rodino waiting period) shall have expired.
(c) SUITS AND PROCEEDINGS. No order, judgment or
decree shall be outstanding against a party hereto or a third
party that would have the effect of preventing completion of the
Merger; no suit, action or other proceeding shall be pending or
threatened by any governmental body in which it is sought to
restrain or prohibit the Merger; and no suit, action or other
proceeding shall be pending before any court or governmental
agency in which it is sought to restrain or prohibit the Merger
or obtain other substantial monetary or other relief against one
or more parties hereto in connection with this Agreement and
which HUBCO or Lafayette determines in good faith, based upon
the advice of their respective counsel, makes it inadvisable to
proceed with the Merger because any such suit, action or
proceeding has a significant potential to be resolved in such a
way as to deprive the party electing not to proceed of any of the
material benefits to it of the Merger.
(d) TAX OPINION. HUBCO and Lafayette shall each have
received an opinion, dated as of the Effective Time, of Pitney,
Hardin, Kipp & Szuch, reasonably satisfactory in form and
substance to Lafayette and its counsel Lowenstein, Sandler, Kohl,
Fisher & Boylan and to HUBCO, based upon representation letters
reasonably required by Pitney, Hardin, Kipp & Szuch, dated on or
about the date of such opinion, and such other facts and
representations as counsel may reasonably deem relevant, to the
effect that
(i) the Merger will be treated for federal income tax
purposes as a reorganization qualifying under the
provisions of Sections 368(a)(1)(A) and 368(a)(2)(E) of
the Code; (ii) no gain or loss will be recognized by
Lafayette; (iii) no gain or loss shall be recognized
upon the exchange of Lafayette Common Stock solely for
HUBCO Common Stock; (iv) the basis of any HUBCO Common
Stock received in exchange for Lafayette Common Stock
shall equal the basis of the recipient's Lafayette
Common Stock surrendered on the exchange, reduced by
the amount of cash received, if any, on the exchange,
and increased by the amount of the gain recognized, if
any, on the exchange (whether characterized as dividend
or capital gain income); and (v) the holding period for
any HUBCO Common Stock received in exchange for
Lafayette Common Stock will include the period during
which Lafayette Common Stock surrendered on the
exchange was held, provided such stock was held as a
capital asset on the date of the exchange.
(e) POOLING OF INTERESTS. HUBCO shall have received a
letter, dated the Closing Date, from its accountants, Arthur
Andersen LLP, reasonably satisfactory to HUBCO and Lafayette, to
the effect that the Merger shall be qualified to be treated by
HUBCO as a pooling-of-interests for accounting purposes.
6.2. CONDITIONS TO THE OBLIGATIONS OF HUBCO UNDER THIS
AGREEMENT. The obligations of HUBCO under this Agreement shall
be further subject to the satisfaction or waiver, at or prior to
the Effective Time, of the following conditions:
(a) REPRESENTATIONS AND WARRANTIES; PERFORMANCE OF
OBLIGATIONS OF LAFAYETTE. Except for those representations which
are made as of a particular date, the representations and
warranties of Lafayette contained in this Agreement shall be true
and correct in all material respects on the date of the Closing
("Closing Date") as though made on and as of the Closing Date.
Lafayette shall have performed in all material respects the
agreements, covenants and obligations to be performed by it prior
to the Closing Date. With respect to any representation or
warranty which as of the Closing Date has required a supplement
or amendment to Lafayette Disclosure Schedule to render such
representation or warranty true and correct in all material
respects as of the Closing Date, the representation and warranty
shall be deemed true and correct as of the Closing Date only if
(i) the information contained in the supplement or amendment to
Lafayette Disclosure Schedule related to events occurring
following the execution of this Agreement and (ii) the facts
disclosed in such supplement or amendment would not either alone,
or together with any other supplements or amendments to Lafayette
Disclosure Schedule, materially adversely affect the
representation as to which the supplement or amendment relates.
(b) OPINION OF COUNSEL TO LAFAYETTE. HUBCO shall have
received an opinion of counsel to Lafayette, dated the Closing
Date, in form and substance reasonably satisfactory to HUBCO,
covering matters customarily covered in opinions of counsel in
transactions of this type.
(c) CONSENT OF HOLDERS OF STOCK OPTIONS. Each holder
of a Vested Stock Option whose Vested Stock Option is outstanding
at the Closing shall consent to the conversion and cancellation
of his Vested Stock Options for the consideration set forth
herein in Section 2.6(a).
(d) CONNECTICUT DEP COMPLIANCE. With respect to any
Properties which are Establishments under the Connecticut
Transfer Act, prior to the Closing Lafayette shall have delivered
to HUBCO a Form in form and content acceptable to the Connecticut
DEP and prior to the Closing shall have fully accrued on
Lafayette's books and disclosed to HUBCO the entire anticipated
costs associated with any requested or reasonably anticipated
clean-up.
(e) RESIGNATIONS AND ELECTIONS. HUBCO shall have
received from any person who will not continue as a director of
the Surviving Corporation under Section 1.5 a written
resignation, effective at the Effective Time, in form and
substance acceptable to HUBCO; provided, however, that no such
resignation shall result in any person's forfeiting any benefits
under any contractual arrangement. Lafayette shall have taken
action, acceptable to HUBCO, to elect HUBCO's nominees as
directors at the Effective Time, as provided in Section 1.5.
(f) NO OWNERSHIP CHANGE. From January 1, 1992 until
the date upon which this Agreement is publicly announced, there
has been no "ownership change" of Lafayette as defined in Section
382(g) of the Code.
(g) CERTIFICATES. Lafayette shall have furnished
HUBCO with such certificates of its officers or other documents
to evidence fulfillment of the conditions set forth in this
Section 6.2 as HUBCO may reasonably request.
6.3. CONDITIONS TO THE OBLIGATIONS OF LAFAYETTE UNDER
THIS AGREEMENT. The obligations of Lafayette under this
Agreement shall be further subject to the satisfaction or waiver,
at or prior to the Effective Time, of the following conditions:
(a) REPRESENTATIONS AND WARRANTIES; PERFORMANCE OF
OBLIGATIONS OF HUBCO. Except for those representations which are
made as of a particular date, the representations and warranties
of HUBCO contained in this Agreement shall be true and correct in
all material respects on the Closing Date as though made on and
as of the Closing Date. HUBCO and the Bank shall have performed
in all material respects, the agreements, covenants and
obligations to be performed by it prior to the Closing Date.
With respect to any representation or warranty which as of the
Closing Date has required a supplement or amendment to the HUBCO
Disclosure Schedule to render such representation or warranty
true and correct in all material respects as of the Closing Date,
the representation and warranty shall be deemed true and correct
as of the Closing Date only if (i) the information contained in
the supplement or amendment to the HUBCO Disclosure Schedule
related to events occurring following the execution of this
Agreement and (ii) the facts disclosed in such supplement or
amendment would not either alone, or together with any other
supplements or amendments to the HUBCO Disclosure Schedule,
materially adversely affect the representation as to which the
supplement or amendment relates.
(b) OPINION OF COUNSEL TO HUBCO. Lafayette shall have
received an opinion of counsel to HUBCO, dated the Closing Date,
in form and substance reasonably satisfactory to Lafayette ,
covering matters customarily covered in opinions of counsel in
transactions of this type.
(c) FAIRNESS OPINION. Lafayette shall have received
an updated opinion from Keefe, Bruyette & Woods, dated as of the
date the Proxy Statement/Prospectus is mailed to Lafayette's
stockholders (and, if it shall become necessary to resolicit
proxies thereafter, the date of any substantive amendment to the
Proxy Statement/Prospectus), to the effect that, in its opinion,
the Merger Consideration to be received by the holders of
Lafayette Common Stock is fair to the stockholders of Lafayette
from a financial point of view ("Fairness Opinion").
(d) CERTAIN CONTRACTS. HUBCO shall have specifically
acknowledged, accepted and assumed (in a document in form and
substance reasonably satisfactory to Lafayette) any written
employment, severance and other compensation contracts between
Lafayette and its officers and directors (including former
officers and directors) contained in the Lafayette Disclosure
Schedules in a writing delivered to the officers and directors
covered thereby, unless the employment contract is terminated or,
if applicable, the employment of the officer by Lafayette is
terminated for any reason prior to the Closing.
(e) DIRECTORS. Three nominees, designated by
Lafayette and acceptable to HUBCO, shall be duly appointed by the
Board of Directors of HUBCO to HUBCO's Board of Directors,
effective at the Effective Time.
(f) CERTIFICATES. HUBCO shall have furnished
Lafayette with such certificates of its officers or others and
such other documents to evidence fulfillment of the conditions
set forth in this Section 6.3 as Lafayette may reasonably
request.
ARTICLE VII - TERMINATION, AMENDMENT AND WAIVER
7.1. TERMINATION. This Agreement may be terminated
prior to the Effective Time, whether before or after approval of
this Agreement by the stockholders of Lafayette:
(a) by mutual written consent of the parties hereto;
(b) (i) by Lafayette or HUBCO if the Effective Time
shall not have occurred on or prior to December 31, 1996 unless
the failure of such occurrence shall be due to the failure of the
party seeking to terminate this Agreement to perform or observe
its agreements set forth herein to be performed or observed by
such party at or before the Effective Time, or (ii) by HUBCO or
Lafayette if a vote of the stockholders of Lafayette to approve
this Agreement, or the stockholders of HUBCO to approve the
issuance of HUBCO Common Stock under this Agreement, is taken and
the stockholders of either Lafayette or HUBCO fail to approve
such action at the meeting (or any adjournment thereof) held for
such purpose;
(c) by HUBCO or Lafayette upon written notice to the
other if any application for regulatory or governmental approval
necessary to consummate the Merger and the other transactions
contemplated hereby shall have been denied or withdrawn at the
request or recommendation of the applicable regulatory agency or
governmental authority or by HUBCO upon written notice to
Lafayette if any such application is approved with conditions
which materially impair the value of Lafayette to HUBCO;
(d) by HUBCO if (i) there shall have occurred a
material adverse change in the business, operations, assets, or
financial condition of Lafayette and its Subsidiaries taken as a
whole from that disclosed by Lafayette in Lafayette's Quarterly
Report on Form F-4 for the nine months ended September 30, 1995;
or (ii) there was a material breach in any representation,
warranty, covenant, agreement or obligation of Lafayette
hereunder and such breach shall not have been remedied within 30
days after receipt by Lafayette of notice in writing from HUBCO
to Lafayette specifying the nature of such breach and requesting
that it be remedied;
(e) by Lafayette, if (i) there shall have occurred a
material adverse change in the business, operations, assets or
financial condition of HUBCO and its Subsidiaries taken as a
whole from that disclosed by HUBCO in HUBCO's Quarterly Report on
Form 10-Q for the nine months ended September 30, 1995; or (ii)
there was a material breach in any representation, warranty,
covenant, agreement or obligation of HUBCO hereunder and such
breach shall not have been remedied within 30 days after receipt
by HUBCO of notice in writing from Lafayette specifying the
nature of such breach and requesting that it be remedied;
(f) by HUBCO if the conditions set forth in Section
6.2 are not satisfied;
(g) by Lafayette if the conditions set forth in
Section 6.3 are not satisfied;
(h) by Lafayette, if Lafayette's Board of Directors
shall have approved an Acquisition Transaction after determining,
upon advice of counsel, that such approval was necessary in the
exercise of its fiduciary obligations under applicable laws; and
(i) by Lafayette, if (either before or after its
approval by the stockholders of Lafayette) its Board of Directors
so determines by a vote of a majority of the members of its
entire Board, at any time during the ten-day period commencing
with the Determination Date, if either (x) both of the following
conditions are satisfied:
(1) the HUBCO Common Stock Average Price on the
Determination Date shall be less than $19.25; and
(2) (i) the number obtained by dividing the HUBCO
Common Stock Average Price on such Determination Date by the
Starting Date Closing Price (the "HUBCO Ratio") shall be
less than (ii) the number obtained by dividing the Index
Price on the Determination Date by the Index Price on the
Starting Date and subtracting .075 from the quotient in this
clause (2)(ii) (such number being referred to herein as the
"Index Ratio");
or (y) the HUBCO Common Stock Average Price on the Determination
Date of shares of HUBCO Common Stock shall be less than $18.25.
Notwithstanding the foregoing, if Lafayette elects to exercise
its termination right pursuant either to clause (x) or (y) of
this subsection (i), it shall give prompt written notice to HUBCO
(which notice shall specifically reference which of clause (x) or
(y) is applicable (provided that such notice of election to
terminate may be withdrawn at any time within the aforementioned
ten-day period)). During the seven-day period commencing with
its receipt of such notice, HUBCO shall have the option, in the
case of a failure to fulfill any condition in clause (x), of
increasing the consideration to be received by the holders of
Lafayette Common Stock hereunder by increasing the Exchange Ratio
to equal the lesser of (i) a number (rounded to four decimals)
equal to a quotient, the numerator of which is $19.25 multiplied
by the Exchange Ratio (as then in effect) and the denominator of
which is the HUBCO Common Stock Average Price, and (ii) a number
equal to a quotient, the numerator of which is the Index Ratio
multiplied by the Exchange Ratio (as then in effect) and the
denominator of which is the HUBCO Ratio. During such seven-day
period, HUBCO shall have the option, in the case of a failure to
fulfill clause (y), of increasing the consideration to be
received by holders of Lafayette Common Stock hereunder by
increasing the Exchange Ratio to equal a number (rounded to four
decimals) equal to a quotient, the numerator of which is $18.25
multiplied by the Exchange Ratio (as then in effect) and the
denominator of which is the HUBCO Common Stock Average Price. If
HUBCO makes an election contemplated by the two preceding
sentences, within such seven-day period, it shall give prompt
written notice to Lafayette of such election and the revised
Exchange Ratio, whereupon no termination shall have occurred
pursuant to this subsection (i) and this Agreement shall remain
in effect in accordance with its terms (except as the Exchange
Ratio shall have been so modified), and any references in this
Agreement to "Exchange Ratio" shall thereafter be deemed to refer
to the Exchange Ratio as adjusted pursuant to this subsection
(i).
For purposes of this subsection (i), the following
terms shall have the meanings indicated:
"HUBCO Common Stock Average Price" means the average of
the daily closing sales prices of HUBCO Common Stock as reported
on the NASDAQ National Market System (as reported in THE WALL
STREET JOURNAL or, if not reported thereby, another authoritative
source as chosen by HUBCO) for the 20 consecutive full trading
days in which such shares are quoted on the NASDAQ National
Market ending at the close of trading on the Determination Date.
"Determination Date" means the date on which the
approval of the FRB required for consummation of the Merger shall
be received.
"Index Group" means the 11 bank holding companies
listed below, the common stock of all of which shall be publicly
traded and as to which there shall not have been a publicly
announced proposal since the Starting Date and before the
Determination Date for any such company to be acquired. In the
event that the common stock of any such company ceases to be
publicly traded or a proposal to acquire any such company is
announced after the Starting Date and before the Determination
Date, such company will be removed from the Index Group. The 11
bank holding companies are as follows:
BANK HOLDING COMPANIES
Chittenden Corp. (CNDN)
Citizen BancShares (CICS)
Community Bank Systems (CBSI)
Commerce Bank Corp. (COBA)
First Western Bancorp (FWBI)
Fulton Financial (FULT)
North Fork Bancorp (NFB)
Provident Bancorp., Inc. (PRBK)
S & T Bancorp (STBA)
Trust Co. Bancorp (TRST)
Valley National Bancorp (VLY)
"Index Price" on a given date means the average of the
closing prices of the companies composing the Index Group.
"Starting Date" means the first NASDAQ trading day
immediately following the date of the first public announcement
of the entry into this Agreement.
If any company belonging to the Index Group or HUBCO
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 prices for such company or HUBCO shall be
appropriately adjusted for the purposes of applying this
subsection (i).
7.2. EFFECT OF TERMINATION. In the event of the
termination and abandonment of this Agreement by either HUBCO or
Lafayette pursuant to Section 7.1, this Agreement (other than
Section 5.5(b), the third from the last sentence of Section
5.6(h), the second from the last sentence of Section 5.8(b), this
Section 7.2 and Section 8.1) shall forthwith become void and have
no effect, without any liability on the part of any party or its
officers, directors or stockholders. Nothing contained herein,
however, shall relieve any party from any liability for any
breach of this Agreement.
7.3. AMENDMENT. This Agreement may be amended by
action taken by the parties hereto at any time before or after
adoption of this Agreement by the stockholders of Lafayette but,
after any such adoption, no amendment shall be made which reduces
the amount or changes the form of the consideration to be
delivered to the stockholders of Lafayette without the approval
of such stockholders. This Agreement may not be amended except
by an instrument in writing signed on behalf of all the parties
hereto.
7.4. EXTENSION; WAIVER. The parties may, at any time
prior to the Effective Time of the Merger, (i) extend the time
for the performance of any of the obligations or other acts of
the other parties hereto; (ii) waive any inaccuracies in the
representations and warranties contained herein or in any
document delivered pursuant thereto; or (iii) waive compliance
with any of the agreements or conditions contained herein. Any
agreement on the part of any party to any such extension or
waiver shall be valid only if set forth in an instrument in
writing signed on behalf of such party against which the waiver
is sought to be enforced.
ARTICLE VIII - MISCELLANEOUS
8.1. EXPENSES.
(a) Subject to Section 5.6(h) and Section 5.8(b)
hereof, all costs and expenses incurred in connection with this
Agreement and the transactions contemplated hereby (including
legal, accounting and investment banking fees and expenses) shall
be borne by the party incurring such costs and expenses.
(b) Notwithstanding any provision in this Agreement to
the contrary, in the event that either of the parties shall
willfully default in its obligations hereunder, the non-
defaulting party may pursue any remedy available at law or in
equity to enforce its rights and shall be paid by the willfully
defaulting party for all damages, costs and expenses, including
without limitation legal, accounting, investment banking and
printing expenses, incurred or suffered by the non-defaulting
party in connection herewith or in the enforcement of its rights
hereunder if such non-defaulting party prevails.
8.2. SURVIVAL. Except for the provisions of Article
II, Section 5.8, Section 5.11, Section 5.17 and the last sentence
of Section 5.18 hereof, the respective representations,
warranties, covenants and agreements of the parties to this
Agreement shall not survive the Effective Time, but shall
terminate as of the Effective Time.
8.3. NOTICES. All notices or other communications
which are required or permitted hereunder shall be in writing and
sufficient if delivered personally or sent by registered or
certified mail, postage prepaid, as follows:
(a) If to HUBCO, to:
HUBCO, Inc.
1000 MacArthur Boulevard
Mahwah, New Jersey 07430_
Attn.: Mr.Kenneth T. Neilson, President and
Chief Executive Officer
Copy to:
Ronald H. Janis, Esq.
Pitney, Hardin, Kipp & Szuch
200 Campus Drive
Florham Park, New Jersey 07932-0950
(b) If to Lafayette, to:
Lafayette American Bank and Trust Company
2321 Whitney Avenue
Hamden, Connecticut 06518
Attn.: Mr. Robert B. Goldstein, President and
Chief Executive Officer
Copy to:
Peter H. Ehrenberg, Esq.
Lowenstein, Sandler, Kohl, Fisher & Boylan
65 Livingston Avenue
Roseland, New Jersey 07068
or such other addresses as shall be furnished in writing by any
party, and any such notice or communications shall be deemed to
have been given as of the date so mailed.
8.4. PARTIES IN INTEREST. This Agreement shall be
binding upon and shall inure to the benefit of the parties hereto
and their respective successors and assigns. Nothing in this
Agreement is intended to confer, expressly or by implication,
upon any other person any rights or remedies under or by reason
of this Agreement, except for the Indemnitees covered by Section
5.11 hereof.
8.5. ENTIRE AGREEMENT. This Agreement, which includes
the Disclosure Schedules hereto and the other documents,
agreements and instruments executed and delivered pursuant to or
in connection with this Agreement, contains the entire Agreement
between the parties hereto with respect to the transactions
contemplated by this Agreement and supersedes all prior
negotiations, arrangements or understandings, written or oral,
with respect thereto.
8.6. COUNTERPARTS. This Agreement may be executed in
one or more counterparts, all of which shall be considered one
and the same agreement and each of which shall be deemed an
original.
8.7. GOVERNING LAW. This Agreement shall be governed
by the laws of the State of New Jersey, without giving effect to
the principles of conflicts of laws thereof.
8.8. DESCRIPTIVE HEADINGS. The descriptive headings
of this Agreement are for convenience only and shall not control
or affect the meaning or construction of any provision of this
Agreement.
8.9. KNOWLEDGE. Representations made herein which are
qualified by the phrase to the best of Lafayette's knowledge or
similar phrases, refer as of the date hereof to the best
knowledge of the Chairman of the Board, the Chief Executive
Officer, the Chief Financial Officer and the Comptroller of
Lafayette and thereafter refer to the best knowledge of any
senior officer of Lafayette or its Subsidiaries. Representations
made herein which are qualified by the phrase to the best of
HUBCO's knowledge or similar phrases, refer as of the date hereof
to the best of the knowledge of the President and Chief Executive
Officer, the Executive Vice President/Legal and the Chief
Financial Officer of HUBCO and thereafter refer to the best
knowledge of any senior officer of HUBCO or its Subsidiaries.
IN WITNESS WHEREOF, HUBCO and LAFAYETTE, pursuant to
resolutions adopted by its Board of Directors, have caused this
Agreement and Plan of Merger to be executed by their duly
authorized officers as of the day and year first above written.
HUBCO, INC.
By: /s/ KENNETH T. NEILSON
------------------------------
Kenneth T. Neilson,
President and Chief Executive
Officer
LAFAYETTE AMERICAN BANK AND TRUST
COMPANY
By: /s/ ROBERT B. GOLDSTEIN
------------------------------
Robert B. Goldstein,
President and Chief Executive
Officer
<PAGE>
APPENDIX B
STOCK OPTION AGREEMENT
BETWEEN LAFAYETTE AND HUBCO
DATED FEBRUARY 5, 1996
THIS STOCK OPTION AGREEMENT ("Agreement") dated as of
February 5, 1996, is by and between HUBCO, Inc., a New Jersey
corporation and registered bank holding company ("HUBCO"), and
Lafayette American Bank and Trust Company, a commercial bank
organized under the laws of Connecticut ("Lafayette").
BACKGROUND
----------
1. HUBCO and Lafayette, as of the date hereof, are
prepared to execute a definitive agreement and plan of merger
(the "Merger Agreement") pursuant to which HUBCO will acquire
Lafayette through a merger of Lafayette with and into an interim
Connecticut-chartered commercial bank (the "Merger").
2. HUBCO has advised Lafayette that it will not
execute the Merger Agreement unless Lafayette executes this
Agreement.
3. The Board of Directors of Lafayette has determined
that the Merger Agreement provides substantial benefits to the
shareholders of Lafayette.
4. As an inducement to HUBCO to enter into the Merger
Agreement and in consideration for such entry, Lafayette desires
to grant to HUBCO an option to purchase authorized but unissued
shares of common stock of Lafayette in an amount and on the terms
and conditions hereinafter set forth.
AGREEMENT
---------
In consideration of the foregoing and the mutual
covenants and agreements set forth herein and in the Merger
Agreement, HUBCO and Lafayette, intending to be legally bound
hereby, agree:
1. GRANT OF OPTION. Lafayette hereby grants to HUBCO
the option to purchase 2,400,000 shares of common stock, no par
value, of Lafayette (the "Common Stock") at a price of $10.75 per
share (the "Option Price"), on the terms and conditions set forth
herein (the "Option").
2. EXERCISE OF OPTION. This Option shall not be
exercisable until the occurrence of a Triggering Event (as such
term is hereinafter defined). Upon or after the occurrence of a
Triggering Event (as such term is hereinafter defined), HUBCO may
exercise the Option, in whole or in part, at any time or from
time to time, subject to the termination provisions of Section 19
of this Agreement and subject to Section 20 of this Agreement.
The term "Triggering Event" means the occurrence of any
of the following events:
A person or group (as such terms are defined in the
Securities Exchange Act of 1934, as amended (the "Exchange Act"),
and the rules and regulations thereunder) other than HUBCO or an
affiliate of HUBCO:
a. acquires beneficial ownership (as such term
is defined in Rule 13d-3 as promulgated under the Exchange Act)
of at least 20% of the then outstanding shares of Common Stock;
or
b. enters into a letter of intent or an
agreement, whether oral or written, with Lafayette pursuant to
which such person or any affiliate of such person would (i) merge
or consolidate, or enter into any similar transaction, with
Lafayette, (ii) acquire all or a significant portion of the
assets or liabilities of Lafayette, or (iii) acquire beneficial
ownership of securities representing, or the right to acquire
beneficial ownership or to vote securities representing, 20% or
more of the then outstanding shares of Common Stock; or
c. makes a filing with any bank or thrift
regulatory authorities or publicly announces a bona fide proposal
(a "Proposal") for (i) any merger with, consolidation with or
acquisition of all or a significant portion of all the assets or
liabilities of, Lafayette or any other business combination
involving Lafayette, or (ii) a transaction involving the transfer
of beneficial ownership of securities representing, or the right
to acquire beneficial ownership or to vote securities
representing, 20% or more of the outstanding shares of Common
Stock, and thereafter, if such Proposal has not been Publicly
Withdrawn (as such term is hereinafter defined) at least 15 days
prior to the meeting of stockholders of Lafayette called to vote
on the Merger and Lafayette's stockholders fail to approve the
Merger by the vote required by applicable law at the meeting of
stockholders called for such purpose; or
d. makes a bona fide Proposal and thereafter,
but before such Proposal has been Publicly Withdrawn, Lafayette
willfully takes any action in any manner which would materially
interfere with its ability to consummate the Merger or materially
reduce the value of the transaction to HUBCO.
The term "Triggering Event" also means the taking of
any material direct or indirect action by Lafayette or any of its
directors, officers or agents with the intention of inviting,
encouraging or soliciting any proposal which has as its purpose a
tender offer for the shares of Common Stock, a merger,
consolidation, plan of exchange, plan of acquisition or
reorganization of Lafayette, or a sale of a significant number of
shares of Common Stock or any significant portion of its assets
or liabilities.
The term "significant portion" means 25% of the assets
or liabilities of Lafayette. The term "significant number" means
10% of the outstanding shares of Common Stock.
"Publicly Withdrawn", for purposes of clauses (c) and
(d) above, shall mean an unconditional bona fide withdrawal of
the Proposal coupled with a public announcement of no further
interest in pursuing such Proposal or in acquiring any
controlling influence over Lafayette or in soliciting or inducing
any other person (other than HUBCO or any affiliate) to do so.
Notwithstanding the foregoing, the Option may not be
exercised at any time (i) in the absence of any required
governmental or regulatory approval or consent necessary for
Lafayette to issue the shares of Common Stock covered by the
Option (the "Option Shares") or HUBCO to exercise the Option or
prior to the expiration or termination of any waiting period
required by law, or (ii) so long as any injunction or other
order, decree or ruling issued by any federal or state court of
competent jurisdiction is in effect which prohibits the sale or
delivery of the Option Shares.
Lafayette shall notify HUBCO promptly in writing of the
occurrence of any Triggering Event known to it, it being
understood that the giving of such notice by Lafayette shall not
be a condition to the right of HUBCO to exercise the Option.
Lafayette will not take any action which would have the effect of
preventing or disabling Lafayette from delivering the Option
Shares to HUBCO upon exercise of the Option or otherwise
performing its obligations under this Agreement.
In the event HUBCO wishes to exercise the Option, HUBCO
shall send a written notice to Lafayette (the date of which is
hereinafter referred to as the "Notice Date") specifying the
total number of Option Shares it wishes to purchase and a place
and date for the closing of such a purchase (a "Closing");
PROVIDED, HOWEVER, that a Closing shall not occur prior to two
days after the later of receipt of any necessary regulatory
approvals and the expiration of any legally required notice or
waiting period, if any.
3. PAYMENT AND DELIVERY OF CERTIFICATES. At any
Closing hereunder (a) HUBCO will make payment to Lafayette of the
aggregate price for the Option Shares so purchased by wire
transfer of immediately available funds to an account designated
by Lafayette; (b) Lafayette will deliver to HUBCO a stock
certificate or certificates representing the number of Option
Shares so purchased, free and clear of all liens, claims, charges
and encumbrances of any kind or nature whatsoever created by or
through Lafayette, registered in the name of HUBCO or its
designee, in such denominations as were specified by HUBCO in its
notice of exercise and, if necessary, bearing a legend as set
forth below; and (c) HUBCO shall pay any transfer or other taxes
required by reason of the issuance of the Option Shares so
purchased.
If required under applicable federal securities laws, a
legend will be placed on each stock certificate evidencing Option
Shares issued pursuant to this Agreement, which legend will read
substantially as follows:
The shares of stock evidenced by this certificate have
not been registered for sale under the Securities Act of
1933 (the "1933 Act"). These shares may not be sold,
transferred or otherwise disposed of unless a registration
statement with respect to the sale of such shares has been
filed under the 1933 Act and declared effective or, in the
opinion of counsel reasonably acceptable to Lafayette
American Bank and Trust Company, said transfer would be
exempt from registration under the provisions of the 1933
Act and the regulations promulgated thereunder.
No such legend shall be required if a registration statement is
filed and declared effective under Section 4 hereof.
4. REGISTRATION RIGHTS. Upon or after the occurrence
of a Triggering Event and upon receipt of a written request from
HUBCO, Lafayette shall, if necessary for the resale of the Option
or the Option Shares by HUBCO, prepare and file a registration
statement with the Securities and Exchange Commission, the
Federal Deposit Insurance Corporation and any state securities
bureau covering the Option and such number of Option Shares as
HUBCO shall specify in its request, and Lafayette shall use its
best efforts to cause such registration statement to be declared
effective in order to permit the sale or other disposition of the
Option and the Option Shares, provided that HUBCO shall in no
event have the right to have more than one such registration
statement become effective.
In connection with such filing, Lafayette shall use its
best efforts to cause to be delivered to HUBCO such certificates,
opinions, accountant's letters and other documents as HUBCO shall
reasonably request and as are customarily provided in connection
with registrations of securities under the Securities Act of
1933, as amended. All expenses incurred by Lafayette in
complying with the provisions of this Section 4, including
without limitation, all registration and filing fees, printing
expenses, fees and disbursements of counsel for Lafayette and
blue sky fees and expenses shall be paid by Lafayette.
Underwriting discounts and commissions to brokers and dealers
relating to the Option Shares, fees and disbursements of counsel
to HUBCO and any other expenses incurred by HUBCO in connection
with such registration shall be borne by HUBCO. In connection
with such filing, Lafayette shall indemnify and hold harmless
HUBCO against any losses, claims, damages or liabilities, joint
or several, to which HUBCO may become subject, insofar as such
losses, claims, damages or liabilities (or actions in respect
thereof) arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained in any
preliminary or final registration statement or any amendment or
supplement thereto, or arise out of a material fact required to
be stated therein or necessary to make the statements herein not
misleading; and Lafayette will reimburse HUBCO for any legal or
other expense reasonably incurred by HUBCO in connection with
investigating or defending any such loss, claim, damage,
liability or action; PROVIDED, HOWEVER, that Lafayette will not
be liable in any case to the extent that any such loss, claim,
damage or liability arises out of or is based upon an untrue
statement or alleged untrue statement of omission or alleged
omission made in such preliminary or final registration statement
or such amendment or supplement thereto in reliance upon and in
conformity with written information furnished by or on behalf of
HUBCO specifically for use in the preparation thereof. HUBCO
will indemnify and hold harmless Lafayette to the same extent as
set forth in the immediately preceding sentence but only with
reference to written information specifically furnished by or on
behalf of HUBCO for use in the preparation of such preliminary or
final registration statement or such amendment or supplement
thereto; and HUBCO will reimburse Lafayette for any legal or
other expense reasonably incurred by Lafayette in connection with
investigating or defending any such loss, claim, damage,
liability or action.
5. ADJUSTMENT UPON CHANGES IN CAPITALIZATION. In the
event of any change in the Common Stock by reason of stock
dividends, split-ups, mergers, recapitalizations, combinations,
conversions, exchanges of shares or the like, then the number and
kind of Option Shares and the Option Price shall be appropriately
adjusted.
In the event any capital reorganization or
reclassification of the Common Stock, or any consolidation,
merger or similar transaction of Lafayette with another entity,
or any sale of all or substantially all of the assets of
Lafayette, shall be effected in such a way that the holders of
Common Stock shall be entitled to receive stock, securities or
assets with respect to or in exchange for Common Stock, then, as
a condition of such reorganization, reclassification,
consolidation, merger or sale, lawful and adequate provisions (in
form reasonably satisfactory to the holder hereof) shall be made
whereby the holder hereof shall thereafter have the right to
purchase and receive upon the basis and upon the terms and
conditions specified herein and in lieu of the Common Stock
immediately theretofore purchasable and receivable upon exercise
of the rights represented by this Option, such shares of stock,
securities or assets as may be issued or payable with respect to
or in exchange for the number of shares of Common Stock
immediately theretofore purchasable and receivable upon exercise
of the rights represented by this Option had such reorganization,
reclassification, consolidation, merger or sale not taken place;
PROVIDED, HOWEVER, that if such transaction results in the
holders of Common Stock receiving only cash, the holder hereof
shall be paid the difference between the Option Price and such
cash consideration without the need to exercise the Option.
6. FILINGS AND CONSENTS. Each of HUBCO and Lafayette
will use its best efforts to make all filings with, and to obtain
consents of, all third parties and governmental authorities
necessary to the consummation of the transactions contemplated by
this Agreement.
Exercise of the Option herein provided shall be subject
to compliance with all applicable laws including, in the event
HUBCO is the holder hereof, approval of the Board of Governors of
the Federal Reserve System, the Federal Deposit Insurance
Corporation and the Connecticut Department of Banking, and
Lafayette agrees to cooperate with and furnish to the holder
hereof such information and documents as may be reasonably
required to secure such approvals.
7. REPRESENTATIONS AND WARRANTIES OF LAFAYETTE.
Lafayette hereby represents and warrants to HUBCO as follows:
a. DUE AUTHORIZATION. Lafayette has full
corporate power and authority to execute, deliver and perform
this Agreement and all corporate action necessary for execution,
delivery and performance of this Agreement has been duly taken by
Lafayette.
b. AUTHORIZED SHARES. Lafayette has taken and,
as long as the Option is outstanding, will take all necessary
corporate action to authorize and reserve for issuance all shares
of Common Stock that may be issued pursuant to any exercise of
the Option.
c. NO CONFLICTS. Neither the execution and
delivery of this Agreement nor consummation of the transactions
contemplated hereby (assuming all appropriate regulatory
approvals) will violate or result in any violation or default of
or be in conflict with or constitute a default under any term of
the Certificate of Incorporation or By-laws of Lafayette or any
agreement, instrument, judgment, decree, statute, rule or order
applicable to Lafayette.
8. SPECIFIC PERFORMANCE. The parties hereto
acknowledge that damages would be an inadequate remedy for a
breach of this Agreement and that the obligations of the parties
hereto shall be specifically enforceable. Notwithstanding the
foregoing, HUBCO shall have the right to seek money damages
against Lafayette for a breach of this Agreement.
9. ENTIRE AGREEMENT. This Agreement constitutes the
entire agreement between the parties with respect to the subject
matter hereof and supersedes all other prior agreements and
understandings, both written and oral, among the parties or any
of them with respect to the subject matter hereof.
10. ASSIGNMENT OR TRANSFER. HUBCO may not sell,
assign or otherwise transfer its rights and obligations
hereunder, in whole or in part, to any person or group of persons
other than to an affiliate of HUBCO, except upon or after the
occurrence of a Triggering Event. HUBCO represents that it is
acquiring the Option for HUBCO's own account and not with a view
to or for sale in connection with any distribution of the Option
or the Option Shares. HUBCO shall have the right to assign this
Agreement to any party it selects after the occurrence of a
Triggering Event.
11. AMENDMENT OF AGREEMENT. Upon mutual consent of
the parties hereto, this Agreement may be amended in writing at
any time, for the purpose of facilitating performance hereunder
or to comply with any applicable regulation of any governmental
authority or any applicable order of any court or for any other
purpose.
12. VALIDITY. The invalidity or unenforceability of
any provision of this Agreement shall not affect the validity or
enforceability of any other provisions of this Agreement, which
shall remain in full force and effect.
13. NOTICES. All notices, requests, consents and
other communications required or permitted hereunder shall be in
writing and shall be deemed to have been duly given when
delivered personally, by express service, cable, telegram or
telex, or by registered or certified mail (postage prepaid,
return receipt requested) to the respective parties as follows:
If to HUBCO:
HUBCO, Inc.
1000 MacArthur Boulevard
Mahwah, New Jersey 07430
Attn.: Mr. Kenneth T. Neilson, President and
Chief Executive Officer
With a copy to:
Pitney, Hardin, Kipp & Szuch
200 Campus Drive
Florham Park, New Jersey 07932-0950
P.O. Box 1945
Morristown, New Jersey 07962-1945
Attn.: Ronald H. Janis, Esq.
If to Lafayette:
Lafayette American Bank and Trust Company
2321 Whitney Avenue
Hamden, Connecticut 06518
Attn.: Mr. Robert B. Goldstein, President and
Chief Executive Officer
With a copy to:
Lowenstein, Sandler, Kohl, Fisher & Boylan
65 Livingston Avenue
Roseland, New Jersey 07068
Attn.: Peter H. Ehrenberg, Esq.
or to such other address as the person to whom notice is to be
given may have previously furnished to the others in writing in
the manner set forth above (provided that notice of any change of
address shall be effective only upon receipt thereof).
14. GOVERNING LAW. This Agreement shall be governed
by and construed in accordance with the laws of the State of New
Jersey.
15. CAPTIONS. The captions in the Agreement are
inserted for convenience and reference purposes, and shall not
limit or otherwise affect any of the terms or provisions hereof.
16. WAIVERS AND EXTENSIONS. The parties hereto may,
by mutual consent, extend the time for performance of any of the
obligations or acts of either party hereto. Each party may waive
(a) compliance with any of the covenants of the other party
contained in this Agreement and/or (b) the other party's
performance of any of its obligations set forth in this
Agreement.
17. PARTIES IN INTEREST. This Agreement shall be
binding upon and inure solely to the benefit of each party
hereto, and nothing in this Agreement, express or implied, is
intended to confer upon any other person any rights or remedies
of any nature whatsoever under or by reason of this Agreement,
except as provided in Section 10 permitting HUBCO to assign its
rights and obligations hereunder.
18. COUNTERPARTS. This Agreement may be executed in
two or more counterparts, each of which shall be deemed to be an
original, but all of which shall constitute one and the same
agreement.
19. TERMINATION. This Agreement shall terminate upon
either the termination of the Merger Agreement as provided
therein or the consummation of the transactions contemplated by
the Merger Agreement; PROVIDED, HOWEVER, that if termination of
the Merger Agreement occurs after the occurrence of a Triggering
Event (as defined in Section 2 hereof), this Agreement shall not
terminate until the later of 18 months following the date of the
termination of the Merger Agreement or the consummation of any
proposed transactions which constitute the Triggering Event.
20. EFFECTIVENESS AND TERMINATION FEE. Solely for the
purposes of the Connecticut Banking Laws, Section 36a-184, this
Agreement shall not be considered effective until and unless it
is submitted to and approved by the Commissioner of the
Connecticut Department of Banking (the "Commissioner").
Lafayette shall pay HUBCO a termination fee of $5,000,000 (the
"Termination Fee"), forthwith on demand, in lieu of all its other
rights hereunder, if each of the following conditions are met:
(a) the Option never becomes effective due to a failure by the
Commissioner to make a determination that the Option may be
exercised, after a request for approval by HUBCO to do so is
submitted by HUBCO to the Commissioner, and either the
Commissioner makes a determination that the Option may not be
exercised or a period of five months elapses from the date the
request is submitted by HUBCO; (b) a Triggering Event has
occurred, which would allow HUBCO to exercise the Option; and (c)
Lafayette is merged or acquired by another financial institution
within 18 months following the Triggering Event. In the event
that HUBCO is due the Termination Fee hereunder and Lafayette
fails to pay such Fee on demand by HUBCO, Lafayette shall in
addition reimburse HUBCO for the legal fees and expenses
incurred by HUBCO in seeking to enforce and in collecting the
Termination Fee.
IN WITNESS WHEREOF, each of the parties hereto,
pursuant to resolutions adopted by its Board of Directors, has
caused this Stock Option Agreement to be executed by its duly
authorized officer, all as of the day and year first above
written.
LAFAYETTE AMERICAN BANK AND TRUST
COMPANY
By: /s/ ROBERT B. GOLDSTEIN
-----------------------------
Robert B. Goldstein,
President & Chief Executive
Officer
HUBCO, INC.
By: /s/ KENNETH T. NEILSON
-----------------------------
Kenneth T. Neilson,
President & Chief Executive
Officer
<PAGE>
APPENDIX C
[GOLDMAN, SACHS & CO.]
[February 5, 1996]
Board of Directors
HUBCO, Inc.
1000 MacArthur Blvd.
Mahwah, NJ 07430
Gentlemen and Mesdames:
You have requested our opinion as to the fairness to HUBCO, Inc. (the
"Company") of the exchange ratio of 0.588 shares (the "Exchange Ratio") of
common stock, no par value, of the Company (the "Shares") to be paid by the
Company for each share of common stock, no par value, of Lafayette American
Bank and Trust Company ("Lafayette") pursuant to the merger (the "Merger")
contemplated by the Agreement and Plan of Merger dated February 5, 1996
between Lafayette and the Company (the "Agreement").
Goldman, Sachs & Co., as part of its investment banking business, is
continually engaged in the valuation of businesses and their securities in
connection with mergers and acquisitions, negotiated underwritings,
competitive biddings, secondary distributions of listed and unlisted
securities, private placements and valuations for estate, corporate and other
purposes. We are familiar with the Company having provided certain
investment banking services to the Company from time to time. We also have
provided certain investment banking services to Lafayette from time to time.
Goldman, Sachs & Co. is a full service securities firm and in the course of
its trading activities it may from time to time effect transactions and hold
positions in securities of the Company and Lafayette.
In connection with this opinion, we have reviewed, among other things, the
Agreement; Annual Reports to Stockholders and Annual Reports on Form 10-K of
the Company and Lafayette for the five fiscal years ended December 31, 1994;
certain interim reports to stockholders and Quarterly Reports on Form 10-Q of
the Company and Lafayette; certain other communications from the Company and
Lafayette to their respective stockholders; and certain internal financial
analyses and forecasts for the Company and Lafayette prepared by their
respective managements. We also have held discussions with members of the
senior management of the Company and Lafayette regarding their past and
current business operations, regulatory relationships, financial condition
and future prospects of their respective companies. In addition, we have
reviewed the reported price and trading activity for the Shares and
Lafayette's Common Stock, compared certain financial and stock market
information for the Company and Lafayette with similar information for
certain other companies the securities of which are publicly traded, reviewed
the financial terms of certain recent business combinations in the banking
industry and performed such other studies and analyses as we considered
appropriate.
We have relied without independent verification upon the accuracy and
completeness of all of the financial and other information reviewed by us for
purposes of this opinion. In that regard, we have assumed, with your
consent, that the financial forecasts, including, without limitation, cost
savings projected by the Company to result from the Merger, have been
reasonably prepared on a basis reflecting the best currently available
judgments and estimates of the Company and that such forecasts will be
realized in the amount and at the times contemplated thereby. We are not
experts in the evaluation of loan portfolios for purposes of assessing the
adequacy of the allowances for losses with respect thereto and have assumed,
with your consent, that such allowances for each of the Company and Lafayette
are adequate to cover all such losses. In addition, we have not reviewed
individual credit files nor have we made an independent evaluation or
appraisal of the assets and liabilities of the Company or Lafayette or any of
their respective subsidiaries and we have not been furnished with any such
evaluation or appraisal. We have assumed with your consent that the Merger
will be accounted for as a pooling of interests under generally accepted
accounting principles.
Based upon and subject to the foregoing and based upon such other matters as
we consider relevant, it is our opinion that as of the date hereof the
Exchange Ratio pursuant to the Agreement is fair to the Company.
<PAGE>
APPENDIX D
[Keefe, Bruyette & Woods, Inc.]
[April __, 1996]
Board of Directors
Lafayette American Bank & Trust Company
1087 Broad Street
Bridgeport, CT 06604
Gentlemen:
You have requested our opinion as investment bankers as to the fairness,
from a financial point of view, to the shareholders of Lafayette American
Bank & Trust Company ("Lafayette") of the exchange ratio in the proposed
merger (the "Merger") of Lafayette with and into HUBCO, Inc. ("HUBCO"),
pursuant to the Agreement and Plan of Merger dated as of February 5, 1996
between Lafayette and HUBCO (the "Agreement"). Under the terms of the
Merger, each outstanding share of common stock of Lafayette will be exchanged
for .5880 shares of common stock of HUBCO (the "Exchange Ratio"). It is our
understanding that the Merger will be structured as a pooling-of-interest
accounting transaction under generally accepted accounting practices.
Keefe, Bruyette & Woods, Inc. as part of its investment banking
business, is continually engaged in the valuation of banking businesses and
their securities in connection with mergers and acquisitions, negotiated
underwritings, competitive biddings, secondary distributions of listed and
unlisted securities, private placements and valuations for estate, corporate
and other purposes. As specialists in the securities of banking companies, we
have experience in, and knowledge of, the valuation of banking enterprises.
In the ordinary course of our business as a broker-dealer, we may, from time
to time, purchase securities from, and sell securities to, Lafayette and
HUBCO and as a market maker in securities we may from time to time have a
long or short position in, and buy or sell, debt or equity securities of
Lafayette and HUBCO for our own account and for the accounts of our
customers. To the extent we have any such position as of the date of this
opinion it has been disclosed to Lafayette. We have acted exclusively for
the Board of Directors of Lafayette in rendering this fairness opinion and
will receive a fee from Lafayette for our services.
In connection with this opinion, we have reviewed, among other things,
the Agreement; the Registration Statement on Form S-4, including the Proxy
Statement-Prospectus relating to the Meeting of Lafayette Stockholders at
which holders of the Shares will be asked to approve the Merger; Annual
Reports to Stockholders of HUBCO and Lafayette for the three years ended
December 31, 1994; certain interim reports to stockholders and Quarterly
Reports on Form 10-Q of Lafayette and HUBCO, and certain internal financial
analyses and forecasts for Lafayette prepared by management. We also have
held discussions with members of the senior management of Lafayette and HUBCO
regarding the past and current business operations, regulatory relationships,
financial condition and future prospects of their respective companies. In
addition, we have compared certain financial and stock market information for
Lafayette and HUBCO with similar information for certain other companies the
securities of which are publicly traded, reviewed the financial terms of
certain recent business combinations in the banking industry and performed
such other studies and analyses as we considered appropriate.
In conducting our review and arriving at our opinion, we have relied
upon and assumed the accuracy and completeness of all of the financial and
other information provided to us or publicly available and we have not
assumed any responsibility for independently verifying any of such
information. We have relied upon the management of Lafayette as to the
reasonableness and achievability of the financial and operating forecasts and
projections (and the assumptions and bases therefor) provided to us, and we
have assumed that such forecasts and projections reflect the best currently
available estimates and judgments of Lafayette and that such forecasts and
projections will be realized in the amounts and in the time periods currently
estimated by such management. We have also assumed that the aggregate
allowances for loan losses for Lafayette and HUBCO are adequate to cover such
losses. In rendering our opinion, we have not made or obtained any
evaluations or appraisals of the property of Lafayette or HUBCO, nor have we
examined any individual credit files.
We have considered such financial and other factors as we have deemed
appropriate under the circumstances, including among others the following:
(i) the historical and current financial position and results of operations
of Lafayette and HUBCO; (ii) the assets and liabilities of Lafayette and
HUBCO; and (iii) the nature and terms of certain other merger transactions
involving banks and bank holding companies. We have also taken into account
our assessment of general economic, market and financial conditions and our
experience in other transactions, as well as our experience in securities
valuation and our knowledge of the banking industry generally. Our opinion
is necessarily based upon conditions as they exist and can be evaluated on
the date hereof and the information made available to us through the date
hereof.
Based upon and subject to the foregoing, it is our opinion that, as of
the date hereof, the exchange ratio in the Merger is fair, from a financial
point of view, to the Common Stockholders of Lafayette.
Very truly yours,
[KEEFE, BRUYETTE & WOODS, INC.]
<PAGE>
APPENDIX E
SECTIONS 36a-125(h) AND 33-374 OF
THE GENERAL STATUTES OF CONNECTICUT
SEC. 36A-125. MERGER AND CONSOLIDATION OF CONNECTICUT BANKS
(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 the 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 of such constituent banks who, on or before the date of
such meeting of shareholders of the constituent bank of which that
shareholder holds shares, gave written notice to the secretary of the
constituent bank of objection thereto may, provided none of that
shareholder's shares shall have been voted in favor of the merger or
consolidation, require the constituent bank to purchase that shareholder's
shares at fair value by delivering to the secretary of such constituent bank
a demand to that effect in writing within ten days after the date of such
meeting. Any such demand shall comply with the requirements of section 33-
374 and, after the delivery of such demand, it shall be deemed for all
purposes to have been delivered pursuant to section 33-374, and the effect of
such demand and the rights and obligations of the objecting shareholders and
the bank shall be determined in accordance with section 33-374. The stock of
the resulting bank up to an amount of the combined stock of the constituent
banks shall be exempt from any franchise tax.
SEC. 33-374. PROCEDURE FOR OBJECTING SHAREHOLDER
(a) As used in this section, the term (1) "corporation" includes, if
the context so indicates, the successor, surviving or new corporation which
acquires the property of a predecessor corporation upon a sale of assets for
securities, merger or consolidation; (2) "the date on which the exchange was
effective" means the date on which the corporation first actually consummated
an exchange of shares or, if it reserved the right to postpone the operation
or effectiveness of all acceptances of its offer of exchange, the date on
which it declared the acceptance operative or effective; (3) "sale of assets
for securities" means a sale of assets entitling objecting shareholders to be
paid the value of shares pursuant to subsection (d) of section 33-373;
(4) "shares" of a shareholder means those shares owned by him as to which he
is entitled to be paid the value pursuant to the provisions of section
33-373.
(b) Any shareholder designated in section 33-373 as having the right to
be paid the value of shares as provided in this section may elect to exercise
such right by giving notice to the corporation, in writing, objecting to the
proposed corporate transaction giving rise to such right. (1) In the case of
a shareholder so designated in subsections (a), (c) and (d) of section 33-373
such notice shall be delivered to the corporation prior to the meeting of
shareholders called for the purpose of voting on such transactions, or at
such meeting prior to voting on such transaction, or prior to the time action
taken by consents as provided in section 33-330 shall become effective. If
such transaction is approved, any such shareholders so notifying the
corporation, provided none of his shares shall have been voted in favor
thereof, may require the corporation to purchase his shares at fair value by
delivering to the corporation a demand to that effect in writing, within ten
days after the date on which the vote was taken or action taken by consents
as provided in section 33-330 became effective. (2) In the case of a
shareholder so designated in subsection (b) of section 33-373, such notice
shall be delivered to the corporation within fifteen days after the date of
mailing the offer. If an exchange is effected with any shareholder, any such
shareholder so notifying the corporation, provided none of his shares shall
have been so exchanged, may require the corporation to purchase his shares at
fair value by delivering to the corporation a demand to that effect in
writing, within ten days after the date on which the exchange was effective
if the corporation shall give notice of such date to such shareholder or
within sixty days after delivering the written notice to the corporation,
whichever is the earlier. (3) A shareholder so designated in subsection (e)
of section 33-373 may require the corporation to purchase his shares at fair
value by delivering such notice to the corporation within fifteen days after
the date of mailing the distribution or any notice thereof from the
corporation, whichever is earlier, accompanied by a demand to that effect in
writing, provided such shareholder shall not have accepted such distribution.
(4) In the case of a shareholder so designated in subsection (c) of section
33-373, where a merger has been effected as provided in section 33-370, such
notice shall be delivered to the corporation within fifteen days after the
date of mailing the plan of merger, and be accompanied by a demand in writing
that the corporation purchase his shares at fair value.
(c) Any demand to purchase shares under subsection (b) of this section
shall state the number and classes of shares of the shareholder making the
demand. Except as provided in subsection (i) of this section, any
shareholder making such demand shall thereafter be entitled only to payment
as in this section provided and shall not be entitled to vote, to receive
dividends or to exercise any other rights of a shareholder in respect of such
shares. No such demand may be withdrawn unless the corporation consents
thereto. Any shareholder failing to make demand as provided in subsection
(b) of this section shall be bound by the corporate transaction involved in
accordance with its terms.
(d) At any time after the receipt of a notice by a shareholder
objecting to the proposed corporate transaction giving rise to rights under
this section, but not later than ten days after receipt of a demand to
purchase shares or ten days after the corporate transaction is effective,
whichever is later, the corporation shall make a written offer, to each
shareholder who makes demand as provided in this section, to pay for his
shares at a specified price deemed by such corporation to be the fair value
thereof as of the day prior to the date on which notice of the proposed
corporate transaction was mailed, exclusive of any element of value arising
from the expectation or accomplishment of such corporate transaction.
(e) Within twenty days after demanding the purchase of his shares, each
shareholder so demanding shall submit the certificate or certificates
representing his shares to the corporation for notation thereon that such
demand has been made. His failure to do so shall, at the option of the
corporation, terminate his rights under this section unless a court of
competent jurisdiction, for good and sufficient cause shown, otherwise
directs. If shares represented by a certificate on which notation has been
so made are transferred, each new certificate issued therefor shall bear
similar notation, together with the name of the shareholder of such shares
who made such demand, and a transferee of such shares shall acquire by such
transfer no rights in the corporation other than those which such shareholder
had after making such demand.
(f) If the corporation and any shareholder making a demand to purchase
shares under subsection (b) of this section agree in writing as to the value
of the shares, the corporation shall pay such shareholder such value upon and
concurrently with the surrender to the corporation of the certificate or
certificates representing such shares duly endorsed for transfer. If the
corporation defaults in or refuses to make such payment, such shareholder may
file a petition in the superior court for the judicial district where the
principal office of the corporation is located, praying that judgment be
entered for such amount, and such shareholder shall be entitled to judgment
for such amount. If any such shareholder should be a party to a proceeding
under subsection (g) of this section, the court in such proceeding shall upon
motion of either the corporation or such shareholder dismiss the proceeding
with respect to such shareholder.
(g) At any time during the period of sixty days after the date the
corporation is obliged to make an offer under subsection (d) of this section,
the corporation, or any shareholder who has made a demand to purchase shares
under subsection (b) of this section and who has not accepted the offer made
by the corporation and acting in the name of the corporation, may file a
petition in the superior court for the judicial district where its principal
office is located, or before any judge thereof, praying that the value of the
shares of such shareholders be found and determined. All shareholders making
demand under subsection (b) of this section who have not accepted the offer
made by the corporation, wherever residing, shall be made parties to the
proceeding as an action against their shares quasi in rem. A copy of the
petition shall be served on each such shareholder who is a resident of this
state and shall be served by registered or certified mail on each such
shareholder who is a nonresident. Service on nonresidents shall also be made
by publication as provided by law. The jurisdiction of the court shall be
plenary and exclusive. All shareholders who are parties to the proceeding
shall be entitled to judgment against the corporation for the amount of the
fair value of their shares as of the day prior to the date on which notice of
the proposed corporate transaction was mailed, exclusive of any element of
value arising from the expectation or accomplishment of such corporate
transaction. The court may, if it so elects, appoint one or more persons as
appraisers to receive evidence and recommend a decision on the question of
fair value. The appraisers shall have such power and authority as shall be
specified in the order of their appointment or an amendment thereof. The
court shall by its judgment determine the fair value of the shares of the
shareholders entitled to payment therefor and shall direct the payment of
such value, together with interest, if any, as hereinafter provided, to the
shareholders entitled thereto. The judgment may include an allowance for
interest at such rate as the court may find to be fair and equitable in all
the circumstances, from the date notice of the proposed corporate transaction
was mailed to the date of payment. The costs and expenses of any such
proceeding shall be determined by the court and shall be assessed against the
corporation, but all or any part of such costs and expenses may be
apportioned and assessed as the court may deem equitable against any or all
shareholders who are parties to the proceeding to whom the corporation has
made an offer to pay for the shares if the court finds that the action of
such shareholders in failing to accept such offer was arbitrary or vexatious
or not in good faith. Such expenses shall include reasonable compensation
for and reasonable expenses of the appraisers, but shall exclude the fees and
expenses of counsel for and experts employed by any party; but if the fair
value of the shares as determined materially exceeds the amount which the
corporation offered to pay therefor, or if no offer was made, the court in
its discretion may award to any shareholder who is a party to the proceeding
such sum as the court may determine to be reasonable compensation to any
expert or experts employed by the shareholder in the proceeding.
(h) Any judgment entered under subsection (f) or (g) of this section
shall be enforceable as other decrees of the superior court may be enforced
and shall be payable only upon and concurrently with the surrender to the
corporation of the certificate or certificates representing the shares for
which payment is due, duly endorsed for transfer. Upon payment of any such
judgment, the shareholder shall cease to have any interest in such shares.
The liability to pay for shares or to pay damages imposed by this section on
a corporation extends to the successor corporation which acquires the assets
of the predecessor, whether by merger, consolidation or sale of assets for
securities. Shares acquired by a corporation pursuant to payment of the
agreed value therefor or to payment of the judgment entered therefor, as in
this section provided, may be held and disposed of by such corporation as in
the case of other treasury shares, unless in the case of a merger or
consolidation the plan of merger or consolidation otherwise provides.
(i) If a demand to purchase shares under subsection (b) of this section
is withdrawn upon consent, or if the proposed corporate action is abandoned
or rescinded or the shareholders revoke the authority to effect such action,
or if no demand or petition for the determination of fair value by a court
has been made or filed within the time provided in this section, or if a
court of competent jurisdiction determines that such shareholder is not
entitled to the relief provided by this section, then the right of such
shareholder to be paid the fair value of his shares shall cease and his
status as a shareholder shall thereupon be restored.
<PAGE>
APPENDIX F
PROPOSED AMENDMENT TO THE CERTIFICATE OF INCORPORATION
OF HUBCO, INC. TO INCREASE ITS
AUTHORIZED COMMON AND PREFERRED STOCK
The following is proposed to become Paragraph (A) of Article V of
HUBCO's Certificate of Incorporation. The language to be deleted is shown
[in brackets].
"(A) The total authorized stock of the Corporation shall be 60,000,000
[29,500,000] shares, consisting of 50,000,000 [25,000,000] shares of
common stock and 10,000,000 [4,500,000] shares of Preferred Stock, which
may be issued in one or more classes or series. The shares of common
stock shall constitute a single class and shall be without nominal or
par value, except that the amendment authorizing the initial issuance of
any class or series adopted by the Board of Directors, as provided
herein, may provide that shares of any class or series shall have a
specific par value per share, in which event all of the shares of such
class or series shall have the par value so specified."
<PAGE>
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
(i) LIMITATION OF LIABILITY OF DIRECTORS AND OFFICERS. Section 14A:2-
7(3) of the New Jersey Business Corporation Act permits a corporation to
provide in its Certificate of Incorporation that a director or officer shall
not be personally liable to the corporation or its shareholders for breach of
any duty owed to the corporation or its shareholders, except that such
provision shall not relieve a director or officer 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 by such
person of any improper personal benefit. HUBCO's Certificate of
Incorporation includes limitations on the liability of officers and directors
to the fullest extent permitted by New Jersey law.
(ii) INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES AND AGENTS.
Under Article X of its Certificate of Incorporation, HUBCO must, to the
fullest extent permitted by law, indemnify its directors, officers, employees
and agents. Section 14A:3-5 of the New Jersey Business Corporation Act
provides that a corporation may indemnify its directors, officers, employees
and agents against judgments, fines, penalties, amounts paid in settlement
and expenses, including attorneys' fees, resulting from various types of
legal actions or proceedings if the actions of the party being indemnified
meet the standards of conduct specified therein. Determinations concerning
whether or not the applicable standard of conduct has been met can be made by
(a) a disinterested majority of the Board of Directors, (b) independent legal
counsel, or (c) an affirmative vote of a majority of shares held by the
shareholders. No indemnification is permitted to be made to or on behalf of a
corporate director, officer, employee or agent if a judgment or other final
adjudication adverse to such person establishes that his acts or omissions
(A) were in breach of his duty of loyalty to the corporation or its
shareholders, (B) were not in good faith or involved a knowing violation of
law or (C) resulted in receipt by such person of an improper personal
benefit.
(iii) INSURANCE. HUBCO's directors and officers are insured against
losses arising from any claim against them such as wrongful acts or
omissions, subject to certain limitations.
ITEM 21.
A. Exhibits
Exhibit
Number Description
- ------- -----------
2(a)<F1> Agreement and Plan of Merger, dated February 5, 1996, between HUBCO,
Inc. ("HUBCO") and Lafayette American Bank and Trust Company
("LAFAYETTE") (included as Appendix A to the Proxy Statement).
2(b)<F1> Stock Option Agreement, dated February 5, 1996, between HUBCO and
Lafayette (included as Appendix B to the Proxy Statement).
5 Opinion of Pitney, Hardin, Kipp & Szuch as to the legality of the
securities to be registered.
8 Form of Opinion of Pitney, Hardin, Kipp & Szuch as to certain tax
consequences of the Merger.
13.1(a) Annual Report of Lafayette on Form F-2 for the year ended December
31, 1995.
13.1(b) Current Report of Lafayette on Form F-3 filed with the FDIC on
February 9, 1996.
13.1(c) Current Report of Lafayette on Form F-3 filed with the FDIC on
February 16, 1996.
23(a) Consent of Arthur Andersen LLP.
23(b) Consent of Arthur Andersen LLP.
23(c)<F2> Consent of Goldman, Sachs & Co.
23(d)<F2> Consent of Keefe, Bruyette & Woods.
23(e) Consent of Pitney, Hardin, Kipp & Szuch (included in Exhibits 5 and
8 hereto).
24<F2> Powers of Attorney of directors of HUBCO, in favor of Kenneth T.
Neilson.
99(a) Form of Proxy Card to be utilized by the Board of Directors of
HUBCO.
99(b) Form of Proxy Card to be utilized by the Board of Directors of
Lafayette.
[FN]
<F1> Included elsewhere in this registration statement.
<F2> To be filed by amendment.
B. Financial Schedules
All schedules have been omitted because they are not applicable or the
required information is included in the financial statements or notes thereto
or incorporated by reference therein.
C. Reports, Opinions or Appraisals
Form of Fairness Opinion of Goldman, Sachs & Co. is included as Appendix
C to Proxy Statement-Prospectus.
Form of Fairness Opinion of Keefe, Bruyette & Woods is included as
Appendix D to Proxy Statement-Prospectus.
ITEM 22. UNDERTAKINGS
1. The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the
registrant's annual report pursuant to Section 13(a) or 15(d) of the Exchange
Act (and, where applicable, each filing of an employee benefit plan's annual
report pursuant to Section 15(d) of the Exchange Act) 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.
2. The undersigned registrant hereby undertakes as follows: that prior to
any public reoffering of the securities registered hereunder through use of a
prospectus which is a part of this registration statement, by any person or
party who is deemed to be an underwriter within the meaning of Rule 145(c),
the issuer undertakes that such reoffering prospectus will contain the infor-
mation called for by the applicable registration form with respect to
reofferings by persons who may be deemed underwriters, in addition to the
information called for by the other items of the applicable form.
3. The registrant undertakes that every prospectus (i) that is filed
pursuant to paragraph 2 immediately preceding, or (ii) that purports to meet
the requirements of Section 10(a) (3) of the Act and is used in connection
with an offering of securities subject to Rule 415, will be filed as a part
of an amendment to the registration statement and will not be used until such
amendment is effective, and that, for purposes of determining any liability
under the Securities Act, 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.
4. Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, 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 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.
5. 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.
6. Subject to appropriate interpretation, 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 becomes effective.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets
all the requirements for filing on Form S-4 and has duly caused this
registration statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the Township of Mahwah, State of New Jersey, on
the 19th day of March, 1996.
HUBCO, Inc.
By:/s/ KENNETH T. NEILSON
-----------------------
Kenneth T. Neilson,
President and
Chief Executive Officer
<PAGE>
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
JAMES E. SCHIERLOH Chairman of the March 19, 1996
------------------------- Board and Director
(James E. Schierloh)
KENNETH T. NEILSON President and March 19, 1996
-------------------------
(Kenneth T. Neilson) Director (Chief
Executive Officer)
ROBERT J. BURKE Director March 19, 1996
-------------------------
(Robert J. Burke)
JOAN DAVID Director March 19, 1996
-------------------------
(Joan David)
THOMAS R. FARLEY Director March 19, 19966
-------------------------
(Thomas R. Farley)
BRYANT MALCOLM
-------------------------
(Bryant Malcolm) Director March 19, 1996
W. PETER MCBRIDE Director March 19, 1996
-------------------------
(W. Peter McBride)
HARRY J. LEBER Director March 19, 1996
-------------------------
(Harry J. Leber)
CHARLES F.X. POGGI Director March 19, 1996
-------------------------
(Charles F.X. Poggi)
SR. GRACE FRANCES STRAUBER Director March 19, 1996
-------------------------
(Sister Grace Frances
Strauber)
RICHARD LINHART Treasurer and Chief March 19, 1996
------------------------- Financial Officer
(Richard Linhart) (Principal Financial
Officer)
CHRISTINA L. MAIER Assistant Treasurer March 19, 1996
------------------------- (Principal
(Christina L. Maier) Accounting Officer)
<PAGE>
INDEX TO EXHIBITS
Exhibit
Number Description Page
------ ----------- ----
2(a) Agreement and Plan of Merger, <F1>
dated February 5, 1996, between
HUBCO, Inc. ("HUBCO") and
Lafayette American Bank and Trust
Company ("Lafayette") (included
as Appendix A to the Proxy
Statement).
2(b) Stock Option Agreement, dated <F1>
February 5, 1996, between HUBCO
and Lafayette (included as
Appendix B to the Proxy State-
ment).
5 Opinion of Pitney, Hardin, Kipp &
Szuch as to the legality of the
securities to be registered.
8 Form of Opinion of Pitney,
Hardin, Kipp & Szuch as to
certain tax consequences of the
Merger.
13.1(a) Annual Report of Lafayette on
Form F-2 for the year ended
December 31, 1995.
13.1(b) Current Report of Lafayette on
Form F-3 filed with the FDIC on
February 9, 1996.
13.1(c) Current Report of Lafayette on
Form F-3 filed with the FDIC on
February 16, 1996.
23(a) Consent of Arthur Andersen LLP.
23(b) Consent of Arthur Andersen LLP.
23(c) Consent of Goldman, Sachs & Co. <F2>
23(d) Consent of Keefe, Bruyette & <F2>
Woods.
23(e) Consent of Pitney, Hardin, Kipp &
Szuch (included in Exhibits 5 and
8 hereto).
24 Powers of Attorney of directors <F2>
of HUBCO, in favor of Kenneth T.
Neilson.
99(a) Form of Proxy Card to be utilized
by the Board of Directors of
HUBCO.
99(b) Form of Proxy Card to be utilized
by the Board of Directors of
Lafayette.
_________________________________
[FN]
<F1> Included elsewhere in this registration statement.
<F2> To be filed by Amendment.
EXHIBIT 5
---------
[PHKS LETTERHEAD]
April __, 1996
HUBCO, Inc.
1000 MacArthur Blvd.
Mahwah, New Jersey 07430
Attn.: Kenneth T. Neilson, President
and Chief Executive Officer
We have acted as special counsel to HUBCO, Inc. ("HUBCO") in connection
with its proposed issuance of common stock, no par value (the "Common
Stock"), and Warrants (the "Warrants") pursuant to an Agreement and Plan of
Merger between HUBCO and Lafayette American Bank and Trust Company, which
Common Stock and Warrants are being registered pursuant to a Registration
Statement on Form S-4 (the "Registration Statement") being filed with the
Securities and Exchange Commission on the date hereof.
We have examined originals, or copies certified or otherwise identified
to our satisfaction, of the Certificate of Incorporation and By-laws of
HUBCO, as currently in effect, and relevant resolutions of the Board of
Directors of HUBCO and committees of the Board of Directors; and we have
examined such other documents as we deemed necessary or appropriate in order
to express the opinion hereinafter set forth.
Based on the foregoing and assuming the Registration Statement has been
declared effective under the Securities Act of 1933, as amended, we are of
the opinion that when issued as described in the Registration Statement,
including the Prospectus relating to the Common Stock (the "Prospectus"), the
Common Stock will be legally issued, fully paid and non-assessable, the
Warrants will be legally issued and the Common Stock to be issued pursuant to
the Warrants will be legally issued, fully paid and non-assessable.
We hereby consent to the use of this opinion as an Exhibit to the
Registration Statement and to the reference to this firm under the heading
"Legal Opinion" in the Prospectus.
Very truly yours,
PITNEY, HARDIN, KIPP & SZUCH
EXHIBIT 8
---------
March 11, 1996
HUBCO, Inc.
1000 MacArthur Blvd.
Mahwah, New Jersey 07430
Attn.: Kenneth T. Neilson, President and Chief Executive Officer
Lafayette American Bank and Trust Company
2321 Whitney Avenue
Hamden, Connecticut 06518
Attn.: Robert B. Goldstein, President
and Chief Executive Officer
Re: Merger of Merger Sub with and into
Lafayette American Bank and Trust Company
-----------------------------------------
We have represented HUBCO, Inc. ("HUBCO"), a New Jersey
corporation which is a registered bank holding company, and Merger Sub, a
Connecticut chartered commercial banking corporation which is a wholly-owned
subsidiary of HUBCO, in connection with the proposed merger of Merger Sub
with and into Lafayette American Bank and Trust Company ("Lafayette") which
is a Connecticut-chartered commercial bank (the "Merger"). The Merger shall
be effected pursuant to the provisions of an Agreement and Plan of Merger
(the "Merger Agreement") dated as of February 5, 1996, between HUBCO and
Lafayette. This opinion is delivered pursuant to Section 6.1(d) of the
Merger Agreement. Capitalized terms used herein not otherwise defined shall
have the meanings ascribed to such terms in the Merger Agreement.
In connection with such representation, we have reviewed the
Registration Statement to be filed with the Securities and Exchange
Commission pertaining to the Merger (the "Registration Statement"), and, in
our opinion, the information included in the section of the Registration
Statement captioned "Federal Income Tax Consequences" accurately describes
the material federal income tax consequences of the Merger. In addition,
annexed hereto is a form of opinion of this firm regarding federal income tax
matters applicable to the Merger (the "Closing Tax Opinion"), the delivery of
which is a condition precedent to the consummation of the Merger pursuant to
the Merger Agreement. At this time, we expect to deliver such opinion
substantially in the form attached at the closing of the Merger.
We hereby consent to our being designated as an expert in the
Registration Statement with respect to the federal income tax consequences of
the Merger and to the inclusion of this letter as an exhibit to the
Registration Statement.
Very truly yours,
PITNEY, HARDIN, KIPP & SZUCH
<PAGE>
[Effective Date of the Merger]
HUBCO, Inc.
1000 MacArthur Blvd.
Mahwah, New Jersey 07430
Attn.: Kenneth T. Neilson, President
and Chief Executive Officer
Lafayette American Bank and Trust Company
2321 Whitney Avenue
Hamden, Connecticut 06518
Attn.: Robert B. Goldstein, President
and Chief Executive Officer
Re: Merger of Merger Sub with and into
Lafayette American Bank and Trust Company
-----------------------------------------
We have represented HUBCO, Inc. ("HUBCO"), a New Jersey
corporation which is a registered bank holding company, and Merger Sub, a
Connecticut chartered commercial banking corporation which is a wholly-owned
subsidiary of HUBCO, in connection with the proposed merger of Merger Sub
with and into Lafayette American Bank and Trust Company ("Lafayette") which
is a Connecticut-chartered commercial bank (the "Merger"). The Merger shall
be effected pursuant to the provisions of an Agreement and Plan of Merger
(the "Merger Agreement") dated as of February 5, 1996, among HUBCO, Merger
Sub and Lafayette. This opinion is delivered pursuant to Section 6.1(d) of
the Merger Agreement. Capitalized terms used herein not otherwise defined
shall have the meanings ascribed to such terms in the Merger Agreement.
Pursuant to the Merger Agreement, at the Effective Time
the Merger shall be effected by the merger of Merger Sub into Lafayette,
pursuant to Connecticut state law, with Lafayette surviving.
Pursuant to the Merger Agreement, at the Effective Time,
each outstanding share of Lafayette Common Stock (other than shares owned by
HUBCO (other than shares held in a fiduciary capacity or as collateral on or
in lieu of a debt previously contracted and shares held by Lafayette in its
treasury) shall be converted into the right to receive and be exchangeable
for 0.5880 shares (the "Exchange Ratio") of HUBCO Common Stock. In addition,
each outstanding Lafayette Vested Stock Option will be converted into that
number of shares of HUBCO Common Stock equal to the Option Value divided by
the Median Pre-Closing Price of HUBCO Common Stock. The "Option Value"
equals (a) the Median Pre-Closing Price of HUBCO Common Stock multiplied by
the Exchange Ratio (b) minus the stated exercise price for the Vested Stock
Option. No fractional shares of HUBCO Common Stock will be issued in
exchange for either Lafayette Common Stock or Lafayette Vested Stock Options.
Instead, holders of Lafayette Common Stock or Lafayette Vested Stock Options
will receive cash equal to the fractional share interest multiplied by the
Median Pre-Closing Price of HUBCO Common Stock, without interest.
In addition, each Lafayette Unvested Stock Option shall
be converted into an option to purchase the same number of shares of HUBCO
Common Stock multiplied by the Exchange Ratio at an option exercise price per
share of HUBCO Common Stock equal to the previous option exercise price per
share of the Lafayette Common Stock divided by the Exchange Ratio. In
addition, each Lafayette Warrant shall be converted into a like warrant to
purchase for the same aggregate purchase price that number of shares of HUBCO
Common Stock which equals the number of shares of Lafayette Common Stock
which may be purchased under the Lafayette warrant multiplied by the Exchange
Ratio.
In addition to the foregoing facts, on the date hereof,
you have delivered certificates in which you have made the following
additional representations in regard to the Merger and have authorized us to
rely on such representations in expressing the within opinions:
1. The fair market value of HUBCO Common Stock and
other consideration received by each Lafayette stockholder will be
approximately equal to the fair market value of the Lafayette Common Stock
surrendered in the exchange.
2. In the Merger, shares of Lafayette Common Stock
representing control of Lafayette as defined in Section 368(c) of the
Internal Revenue Code of 1986, as amended (the "Code") will be exchanged
solely for voting stock of HUBCO. For purposes of this representation,
shares of Lafayette Common Stock exchanged for cash or other property
originating with HUBCO will be treated as outstanding Lafayette Common Stock
on the date of the Merger.
3. None of the compensation received by any
stockholder-employees of Lafayette will be separate consideration for, or
allocable to, any of their shares of Lafayette Common Stock; none of the
shares of HUBCO Common Stock received by any shareholder-employee will be
separate consideration for, or allocable to, any employment agreement; and
the compensation paid to any shareholder-employees will be for services
actually rendered and will be commensurate with amounts paid to third parties
bargaining at arm's-length for similar services.
4. HUBCO has no plan or intention to redeem or
otherwise reacquire any of its stock issued in the Merger.
5. The payment of cash in lieu of fractional shares of
HUBCO Common Stock is solely for the purpose of avoiding the expense and
inconvenience to HUBCO of issuing fractional shares of HUBCO Common Stock and
does not represent separately bargained-for consideration.
6. Following the Merger, Lafayette will continue its
historic business or use a significant portion of its historic business
assets in a business.
7. There is no intercorporate indebtedness existing
between HUBCO and Lafayette, or between Merger Sub and Lafayette, that was
issued, acquired, or will be settled at a discount.
8. None of HUBCO, Merger Sub or Lafayette are
investment companies as defined in Section 368(a)(2)(F)(iii) and (iv) of the
Code. 9. HUBCO has no plan or intention to liquidate, to
merge Lafayette with or into another corporation, to sell or otherwise
dispose of the stock of Lafayette except for transfers of stock to
corporations controlled by HUBCO or to cause Lafayette to sell or otherwise
dispose of any of its assets or of any of the assets acquired from Merger
Sub, except for dispositions made in the ordinary course of business, or
transfers described in Section 368(a)(2)(C) of the Code.
10. Following the transaction, Lafayette will hold at
least 90 percent of the fair market value of its net assets and at least 70
percent of the fair market value of its gross assets and at least 90 percent
of the fair market value of Merger Sub's net assets and at least 70 percent
of the fair market value of Merger Sub's gross assets held immediately prior
to the Merger. For purposes of this representation, amounts paid by
Lafayette or Merger Sub to shareholders who receive cash or other property,
amounts used by Lafayette or Merger Sub to pay reorganization expenses, and
all redemptions and distributions (except for regular, normal dividends) made
by Lafayette will be included as assets of Lafayette or Merger Sub,
respectively, immediately prior to the Merger.
11. Prior to the Merger, HUBCO will be in control of
Merger Sub within the meaning of Section 368(c) of the Code.
12. Lafayette will not issue additional shares of its
stock that would result in HUBCO losing control of Lafayette within the
meaning of Section 368(c) of the Code.
13. HUBCO, Merger Sub and Lafayette and the stockholders
of Lafayette will pay their respective expenses, if any, incurred in
connection with the Merger.
14. HUBCO does not own, nor has it owned during the past
five years, any shares of Lafayette, other than the 500,000 shares of
Lafayette Common Stock purchased since the announcement of the Merger.
15. Lafayette is not under the jurisdiction of a court
in a Title 11 or similar case within the meaning of Section 368 (a)(3)(A) of
the Code.
16. To the best knowledge of the management of
Lafayette, there is no plan or intention on the part of the stockholders of
Lafayette on the date hereof to sell, exchange or otherwise dispose of a
number of shares of HUBCO Common Stock received in the Merger that would
reduce such stockholders' ownership of HUBCO Common Stock to a number of
shares having a value, as of the date of the Merger, of less than 50% of the
value of all of the formerly outstanding Lafayette Common Stock as of the
same date. For purposes of this representation, shares of Lafayette Common
Stock exchanged for cash or other property, surrendered by dissenters or
exchanged for cash in lieu of fractional shares of HUBCO Common Stock will be
treated as outstanding Lafayette Common Stock on the date of the Merger.
Moreover, shares of Lafayette Common Stock and shares of HUBCO Common Stock
held by Lafayette shareholders and otherwise sold, redeemed, or disposed of
prior or subsequent to the transaction will be considered in making this
representation.
17. The liabilities of Merger Sub to be assumed by
Lafayette and the liabilities to which the transferred assets of Merger Sub
are subject were incurred by Merger Sub in the ordinary course of its
business.
18. On the date of the Merger, the fair market value of
the assets of Lafayette will exceed the sum of its liabilities, plus the
amount of liabilities, if any, to which the assets are subject.
19. At the time of the Merger, Lafayette will not have
outstanding any warrants, options, convertible securities, or any other type
of right pursuant to which any person could acquire stock in Lafayette that,
if exercised or converted, would affect HUBCO's acquisition or retention of
control of Lafayette, as defined in Section 368(c) of the Code.
As counsel to HUBCO and Merger Sub, we have examined the
Merger Agreement and copies of ancillary agreements, certificates,
instruments and documents pertaining to the Merger delivered by the parties
thereto. In such examination, we have assumed the genuineness of all
signatures and the authenticity of all documents submitted to us. As to any
facts material to our opinions expressed herein, we have relied on
representations of the parties to the Merger without undertaking to verify
the same by independent investigation. The within opinions are based on our
analysis of the Code, Treasury Regulations promulgated thereunder, and
relevant interpretive authorities as in effect on the date hereof.
Based on the foregoing, we are of the opinion that:
1. The Merger qualifies as a "reorganization" within
the meaning of Sections 368(a)(1)(A) and 368(a)(2)(E). HUBCO, Merger Sub and
Lafayette are each a "party to a reorganization" within the meaning of
Section 368(b)(2).
2. No gain or loss will be recognized for federal
income tax purposes by [HUBCO, MERGER SUB OR] Lafayette in connection with
the Merger. Sections 361(a) and 1032.
3. No gain or loss will be recognized for federal
income tax purposes by the stockholders of Lafayette upon the exchange in the
Merger of shares of Lafayette Common Stock solely for HUBCO Common Stock.
Section 354(a).
4. The basis of HUBCO Common Stock received in the
Merger by Lafayette stockholders will be the same as the basis of the shares
of Lafayette Common Stock surrendered in exchange therefor.
5. The holding period of the HUBCO Common Stock
received in the Merger by Lafayette stockholders will include the period
during which the shares of Lafayette Common Stock surrendered in exchange
therefor were held by the Lafayette stockholder, provided such shares of
Lafayette stock were held as capital assets. Section 1223(1).
Very truly yours,
PITNEY, HARDIN, KIPP & SZUCH
EXHIBIT 13.1(a)
---------------
FEDERAL DEPOSIT INSURANCE CORPORATION
Washington, D.C. 20006
FORM F-2
----------------
Annual Report Under Section 13 of the Securities Exchange Act of 1934
For the fiscal year ended December 31, 1995 FDIC Certificate Number 19353
----------------- -----
Lafayette American Bank and Trust Company
- --------------------------------------------------------------------------------
(Exact name of bank as specified in its charter)
Connecticut 06-0795235
- ----------------------------------- ----------------------------------
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
1087 Broad Street, Bridgeport, Connecticut 06604
- --------------------------------------------------------------------------------
(Address of principal office) (Zip code)
Bank's telephone number, including area code (203) 336-6200
--------------
Securities registered under Section 12(b) of the Act: None
Securities registered under Section 12(g) of the Act:
Common Stock, no par value
- --------------------------------------------------------------------------------
(Title of class)
Nasdaq National Market
- --------------------------------------------------------------------------------
(Name of each exchange on which registered)
Indicate by check mark if the Bank, as a "small business issuer" as defined
under 17 CFR 240.12b-2, is providing alternative disclosures as permitted for
small business issuers in this Form F-2. { }
Indicate by check mark if disclosure of delinquent filers pursuant to Item 10 is
not contained herein, and will not be contained, to the best of Bank's
knowledge, in definitive proxy or information statements incorporated by
reference in Part III of this Form F-2 or any amendment to this Form F-2. { }
Indicate by check mark whether the Bank (1) has filed all reports required to be
filed by Section 13 of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the Bank was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days. Yes X No
----- -----
The aggregate market value of the voting common stock held by nonaffiliates of
the Bank was $103,043,872 on March 5, 1996. On that date, 10,006,529 shares of
Bank common stock were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Certain portions of the Bank's proxy statement, which will be dated on or before
April 26, 1996, for the annual meeting of shareholders to be held on May 29,
1996 are incorporated by reference into Parts I and III of this Form F-2 Report.
This document contains 95 pages.
1
<PAGE>
1995 Form F-2 Contents
Page
Part I
Item 1. Business............................................. 3
Item 2. Properties........................................... 23
Item 3. Legal Proceedings.................................... 25
Item 4. Security Ownership of Certain Beneficial Owners
and Management..................................... 25
Part II
Item 5. Market for the Bank's Common Stock and
Related Security Holder Matters.................... 26
Item 6. Selected Financial Data.............................. 27
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations................ 31
Item 8. Financial Statements and Supplementary Data.......... 51
Part III
Item 9. Directors and Principal Officers of the Bank......... 83
Item 10. Management Compensation and Transactions............. 85
Part IV
Item 11. Exhibits, Financial Statement Schedules and
Reports on Form F-3................................ 85
Signatures......................................................... 93
2
<PAGE>
PART I
ITEM 1. BUSINESS
PROPOSED MERGER
On February 6, 1996, Lafayette American Bank and Trust Company (the "Bank")
announced a strategic alliance, through merger, with HUBCO, Inc. ("HUBCO"), a
New Jersey based bank holding company. Under the proposed merger, which is
subject to various conditions including regulatory approvals and approval by the
shareholders of both the Bank and HUBCO, each share of the Bank's common stock
will convert into 0.588 of a share of HUBCO common stock. In connection with the
merger agreement, the Bank and HUBCO entered into a stock option agreement dated
February 5, 1996 pursuant to which HUBCO will have an option to purchase
2,400,000 shares of the Bank's common stock at $10.75 per share, which option is
exercisable in certain circumstances. The proposed transaction is expected to
close in the second or third quarter of 1996. Certain merger costs and related
restructuring charges will be incurred by the Bank in 1996.
GENERAL
The Bank is a state bank organized under the Laws of the State of Connecticut
and subject to regulation by the State of Connecticut Department of Banking (the
"State") and by the Federal Deposit Insurance Corporation (the "FDIC"). The Bank
was incorporated in 1964 and commenced banking operations in January 1965. Based
in Bridgeport, Connecticut the Bank operates nineteen (19) banking offices,
located mainly in Fairfield and New Haven counties and is the largest commercial
bank headquartered in Connecticut.
In May 1995, the Bank entered into a strategic alliance with Sachem Trust
National Association (Sachem) whereby the Bank agreed to sell its trust business
to Sachem. In September 1995, the Bank closed on this transaction and will share
in a portion of future revenues to be derived by Sachem, if any, for a period of
six years. For further information regarding this transaction, see ITEM 7,
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS."
The Bank is engaged in the full service commercial and consumer banking
business. It emphasizes personalized banking services for small- to medium-sized
business firms and, accordingly, stresses such activities as short and long-term
business lending. It also offers general services to the public, including
checking, savings, club and money market accounts, certificates of deposit,
personal loans, residential mortgage loans, education loans and other
consumer-oriented financial services, as well as safe deposit facilities.
Individual retirement accounts are also offered to its customers.
Deposits are insured up to prescribed limits by the FDIC.
The Bank's retail service area is presently concentrated in the Connecticut
cities and towns of Bridgeport, Cheshire, Fairfield, Hamden, Meriden,
Middlefield, New Haven, North Haven, Norwalk, Stratford, Trumbull, West Haven
and Westport, but it also serves other surrounding communities. Industrial,
retail, professional service and manufacturing organizations of all sizes are
situated within its service area as well as homes and service businesses for the
employees of these industries and the residents thereof.
3
<PAGE>
AMBA Realty Corporation and AMBA II Realty Corporation are wholly-owned
subsidiaries of the Bank which were incorporated in Connecticut on March 27,
1974 and October 31, 1994, respectively. The companies are utilized for the
purpose of holding, developing and disposing of properties obtained through
foreclosure proceedings. LAI Company, the Bank's third wholly-owned subsidiary,
was incorporated in Connecticut on November 22, 1995 for the purpose of
investing in the common stock of other Connecticut based financial institutions.
The Bank is not presently a member bank of the Federal Reserve System. As of
December 31, 1995, the Bank was a temporary shareholder in the Federal Home Loan
Bank of Boston and on February 5, 1996 its application for membership was
approved. Federal Home Loan Bank membership provides the Bank with an additional
credit facility by way of access to fixed and variable rate advances available
under various optional terms.
As of December 31, 1995, the Bank had total assets of $735,405,000, loans of
$518,046,000, deposits of $636,343,000 and shareholders' equity of $59,509,000.
For more detailed information concerning the Bank's financial condition, see
ITEM 7, "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS" and ITEM 8 "FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA."
EMPLOYEES
As of December 31, 1995, the Bank and its subsidiaries employed 285 persons on a
full-time equivalent basis, all of whom were employees of the Bank. Relations
with employees are considered to be satisfactory.
COMPETITION
Competition for consumer services and deposits within the Bank's market area is
intense among commercial banks and other financial service institutions. The
Bank must compete with many other institutions, some of which are substantially
larger and have resources substantially greater than the Bank, for obtaining
deposits and making loans. Branches of many other commercial banks are located
in the cities and towns within which the Bank does business.
The Bank also competes directly with savings banks, savings and loan
associations, credit unions and other financial institutions in its market area
for savings deposits, money market deposits, time deposits and commercial,
mortgage and consumer loans. Moreover, Connecticut thrift institutions are
permitted to offer some personal and business banking services in competition
with the Bank. Competition is heightened by the effect of state laws and
regulations which permit statewide branching and interstate banking.
The Bank is one of three depository institutions headquartered in Bridgeport.
The largest of these institutions had approximately $6.9 billion in assets
reported as of December 31, 1995, the Bank had approximately $735,400,000 in
assets and the third institution had approximately $109,700,000 in assets at
that date. In addition to these three Bridgeport-based institutions, three other
depository institutions
4
<PAGE>
currently maintain banking offices in Bridgeport. The Bank stresses its local
identity and community orientation in developing and marketing its products and
services. In addition, the Bank focuses on the small- to medium-sized commercial
customers, where it emphasizes personal, responsive and efficient services. The
Bank supplements this market focus by seeking to demonstrate that it has the
capacity and willingness to understand these customers' financial needs and
objectives. The Bank's market strategy includes expanding this focus to its
retail banking efforts.
REGULATION AND SUPERVISION
FIRREA
The Financial Institution Reform, Recovery and Enforcement Act of 1989
("FIRREA") restructured the regulation, supervision and deposit insurance of
savings and loan associations and federal savings banks whose deposits were
formerly insured by the Federal Savings and Loan Insurance Corporation
("FSLIC"). FSLIC was replaced by the Savings Association Insurance Fund ("SAIF")
administered by the FDIC. A separate fund, the Bank Insurance Fund ("BIF"),
which was essentially a continuation of the FDIC's then existing fund, was
established for banks and state savings banks.
The FDIC has developed a risk-based assessment system, under which the
assessment rate for an insured depository institution varies according to its
level of risk. An institution's risk category is based upon whether the
institution is well capitalized, adequately capitalized or less than adequately
capitalized and the institution's "supervisory subgroups": Subgroup A, B or C.
Subgroup A institutions are financially sound institutions with a few minor
weaknesses; Subgroup B institutions are institutions that demonstrate weaknesses
which, if not corrected, could result in significant deterioration; and Subgroup
C institutions are institutions for which there is a substantial probability
that the FDIC will suffer a loss in connection with the institution unless
effective action is taken to correct the areas of weakness. Based on its capital
and supervisory subgroups, each BIF or SAIF member institution is assigned an
annual FDIC assessment rate per $100 of insured deposits varying between 0.23%
per annum (for well capitalized Subgroup A institutions) and 0.31% per annum
(for undercapitalized Subgroup C institutions). Well capitalized Subgroup B and
Subgroup C institutions will be assigned assessment rates per $100 of insured
deposits of 0.26% per annum and 0.29% per annum, respectively. On August 8,
1995, the FDIC approved an amendment to its regulation on assessments
establishing a new assessment rate schedule which would range from 0.04% to
0.31% for members of BIF. The new rate schedule took effect September 29, 1995.
On November 14, 1995 the FDIC voted to establish a new assessment rate schedule
which would range from zero to .27% for members of BIF, subject to certain
minimums. The new assessment rate schedule is effective January 1, 1996. As a
result of these changes, the Bank expects that its FDIC insurance expense in
1996 will be significantly less than in 1995.
FIRREA and the Crime Control Act of 1990 expanded the enforcement powers
available to federal banking regulators, including providing greater flexibility
to impose enforcement actions, expanding the persons dealing with a bank who are
subject to enforcement actions, and increasing the potential civil and criminal
penalties.
Under FIRREA, failure to meet capital guidelines could subject a banking
institution to a variety of enforcement remedies available to federal regulatory
authorities,
5
<PAGE>
including the imposition of a cease and desist order which, depending on its
terms, could severely restrict the institution's activities or cause the
termination of deposit insurance by the FDIC.
FDICIA
Enacted in December 1991, the Federal Deposit Insurance Corporation Improvement
Act of 1991 ("FDICIA") substantially revised the bank regulatory provisions of
the Federal Deposit Insurance Act and several other federal banking statutes.
Among other things, FDICIA required federal banking agencies to broaden the
scope of regulatory corrective action taken with respect to banks that do not
meet minimum capital requirements and to take such actions promptly in order to
minimize losses to the FDIC. Under FDICIA, federal banking agencies were
required to establish minimum levels of capital (including both a leverage limit
and risk-based capital requirements) and specify for each capital measure the
levels at which depository institutions will be considered "well capitalized,"
"adequately capitalized," "undercapitalized," "significantly undercapitalized"
or "critically undercapitalized." These minimum capital levels became effective
on December 19, 1992.
Under regulations adopted under these provisions, for an institution to be well
capitalized it must have a total risk-based capital ratio of at least 10%, a
Tier 1 risk-based capital ratio of at least 6% and a Tier 1 leverage ratio of at
least 5% and not be subject to any specific capital order or directive. For an
institution to be adequately capitalized, it must have a total risk-based
capital ratio of at least 8%, a Tier 1 risk-based capital ratio of at least 4%
and a Tier 1 leverage ratio of at least 4% (or in some cases 3%). Under the
regulations, an institution will be deemed to be undercapitalized if the bank
has a total risk-based capital ratio that is less than 8%, a Tier 1 risk-based
capital ratio that is less than 4% or a Tier 1 leverage ratio of less than 4%
(or in some cases 3%). An institution will be deemed to be significantly
undercapitalized if the bank has a total risk-based capital ratio that is less
than 6%, a Tier 1 risk-based capital ratio that is less than 3% or a Tier 1
leverage ratio of less than 3% and will be deemed to be critically
undercapitalized if it has a ratio of tangible equity to total assets that is
equal to or less than 2%.
The FDIC has adopted a rule to implement the FDICIA requirement that risk-based
capital rules take account of interest rate risk. The rule focuses on
institutions having relatively high levels of measured interest rate risk and
considers the effect that changing interest rates would have upon the value of
an institution's assets, liabilities and off balance sheet positions.
FDICIA generally prohibits a depository institution from making any capital
distribution (including payment of a dividend) or paying any management fee to
its holding company if the depository institution would thereafter be
undercapitalized. Undercapitalized depository institutions are subject to growth
limitations and prohibitions on the payment of interest rates on deposits in
excess of 75 basis points above the average market yields for comparable
deposits. In addition, such institutions must submit a capital restoration plan
which is acceptable to applicable federal banking agencies and which must
include a guarantee from the parent holding company that the institution will
comply with such plan.
Significantly undercapitalized depository institutions may be subject to a
number of requirements and restrictions, including orders to sell sufficient
voting stock to
6
<PAGE>
become adequately capitalized, requirements to reduce total assets or to cease
accepting deposits from correspondent banks and restrictions on senior executive
compensation and on inter-affiliate transactions. Critically undercapitalized
institutions are subject to a number of additional restrictions, including the
appointment of a receiver or conservator.
Regulations promulgated under FDICIA also require that an institution monitor
its capital levels closely and notify its appropriate federal banking regulators
within 15 days of any material events that affect the capital position of the
institution. FDICIA also contains a variety of other provisions that affect the
operations of the Bank, including certain reporting requirements, regulatory
standards and guidelines for real estate lending, "truth in savings" provisions,
the requirement that a depository institution give 90 days prior notice to
customers and regulatory authorities before closing any branch, certain
restrictions on investments and activities of state-chartered insured banks and
their subsidiaries, limitations on credit exposure between banks, restrictions
on loans to a bank's insiders, guidelines governing regulatory examinations and
a prohibition on the acceptance or renewal of brokered deposits by depository
institutions that are not well capitalized or are adequately capitalized and
have not received a waiver from the FDIC.
FDICIA directs that each federal banking agency prescribe standards for
depository institutions and depository institution holding companies relating to
internal controls, information systems, internal audit systems, loan
documentation, credit underwriting, interest rate exposure, asset growth and
quality, a maximum ratio of classified assets to capital, minimum earnings
sufficient to absorb losses, a minimum ratio of market value to book value for
publicly traded shares (if feasible) and such other standards as the agency
deems appropriate.
Finally, FDICIA limits the discretion of the FDIC with respect to deposit
insurance coverage by requiring that, except in very limited circumstances, the
FDIC's course of action in resolving a problem bank must constitute the "least
costly resolution" for BIF or SAIF, as the case may be. The FDIC has interpreted
this standard as requiring it not to protect deposits exceeding the $100,000
insurance limit in more situations than was previously the case.
For additional information regarding the capital ratios of the Bank, see ITEM 7,
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS - Capital Resources" and ITEM 1, "BUSINESS - Regulatory Order" below.
Regulatory Order
During the second quarter of 1995, the State and the FDIC concluded concurrent
full "safety and soundness" examinations of the Bank. Subsequent to June 30,
1995, the Bank was formally notified by the FDIC that the FDIC and State were in
agreement that the June 25, 1992 Stipulation and Consent to a Cease and Desist
Order (the "FDIC Order") under which the Bank had been operating, should be
terminated upon their receipt of an acceptable Board of Directors' resolution.
In compliance with their request, on July 26, 1995, the Bank's Board of
Directors adopted a resolution which included, among other matters, a commitment
that the Bank maintain a Tier 1 leverage capital ratio at a minimum of 6%. On
July 31, 1995, the FDIC terminated the FDIC Order.
7
<PAGE>
Dividend Capability
In accordance with a Board of Director resolution and regulatory approval,
during the third quarter of 1995 a transfer from the Bank's capital surplus
account to retained earnings was recorded in the amount of $13,028,000. Such
transfer eliminated the Bank's accumulated deficit as of June 30, 1995 and
certain technical requirements regarding dividend payments which apply while an
accumulated deficit exists.
On October 11, 1995, the Board of Directors of the Bank declared its first cash
dividend since the second quarter of 1990. The dividend amounted to $.05 per
common share payable on November 3, 1995 to shareholders of record on October
23, 1995.
Under Connecticut law, the Bank may declare and pay cash dividends only from the
current year's and the prior two year's retained net profits as defined.
STATISTICAL INFORMATION
The following supplementary statistical information required under Guide 3
should be read in conjunction with the related consolidated financial statements
and notes thereto under ITEM 8 of this Form F-2 Report and ITEM 7, "MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS."
Certain reclassifications have been made to the 1991 through 1994 statistical
information to conform with the 1995 presentation. The average balances
presented in the statistical information are based upon average daily amounts.
I. Distribution of Assets, Liabilities and Shareholders' Equity; Interest
Rates and Interest Differential
See Part II, ITEM 7, "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS" under the caption "Net Interest Income" for
the information required under this item.
8
<PAGE>
II. Investment Portfolio
The following table presents the carrying value of securities available for sale
(at fair value) and held to maturity (at amortized cost), by type, at year-end
for each of the last three years.
December 31,
------------------------------------
1995 1994 1993
-------- -------- -------
(in thousands)
Available for Sale:
- -------------------
U.S. Treasury ........................ $ 3,514 $ 21,061 $13,119
U.S. Government agencies ............. 14,977 9,761 5,002
Mortgage-backed securities ........... 86,324 31,604 46,969
Obligations of states and
political subdivisions ............. 125 125 125
Other debt securities ................ 5,366 2,216 1,000
Marketable equity securities ......... 3,309 699 313
-------- -------- -------
Total ............................ $113,615 $ 65,466 $66,528
======== ======== =======
Held to Maturity:
- -----------------
U.S. Government agencies ............. $ -- $ 27,908 $27,911
Mortgage-backed securities ........... 27,854 78,821 28,077
Other debt securities ................ -- 3,007 1,516
-------- -------- -------
Total ............................ $ 27,854 $109,736 $57,504
======== ======== =======
During the fourth quarter of 1995, the Financial Accounting Standards Board
announced that it was suspending the transfer provisions of Statement of
Financial Accounting Standards No. 115 "Accounting for Certain Investments in
Debt and Equity Securities" for the period beginning on November 15, 1995 and
ending December 31, 1995 to allow for the transfer of debt securities from the
held to maturity category to the available for sale category without forcing the
entire held to maturity portfolio to be revalued. During this period, the Bank
transferred held to maturity securities in the amount of $87,518,000 to the
available for sale category. In conjunction with this transfer, the Bank
reported a loss of $249,000 in 1995 on the disposition of certain securities
classified as available for sale. Reinvestment of these proceeds is expected to
enhance future earnings.
For information regarding the fair value and unrealized gains and losses of the
Bank's investment portfolio, see Note 3 of Notes to Consolidated Financial
Statements.
The following table shows the maturities and weighted average tax equivalent
yields of the Bank's securities available for sale and held to maturity as of
December 31, 1995. The weighted average yields on income from tax-exempt
obligations of states and political subdivisions have been adjusted to a tax
equivalent basis using a Federal income tax rate of 34% and an 11.25% State
income tax rate.
9
`<PAGE>
<TABLE>
<CAPTION>
Maturity
---------------------------------------------------------------------------------------------
After One Year After Five Years
But Within Five But Within Ten
Within One Year Years Years After Ten Years
------------------ ------------------ ------------------ -------------------
Amount Yield Amount Yield Amount Yield Amount Yield
------- ----- ------- ----- ------ ----- ------ -----
(dollars in thousands)
Available for Sale:
- -------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Treasury .................. $ 1,501 3.95% $ 2,019 5.13% $ -- -- % $ -- -- %
U.S. Government agencies ....... -- -- 14,935 5.99 -- -- -- --
Mortgage-backed
securities (1) ............... -- -- 12,273 5.37 12,086 5.56 61,999 6.64
Obligations of states
and political
subdivisions ................. -- -- -- -- -- -- 125 3.50
Other debt securities .......... 250 8.50 5,007 5.80 150 6.44 -- --
Marketable equity
securities ................... -- -- -- -- -- -- 3,290 .88
------ ------- ------- -------
Total ...................... $1,751 4.60 $34,234 5.65 $12,236 6.97 $65,414 6.17
====== ======= ======= =======
Held to Maturity:
- -----------------
Mortgage-backed
securities ..................... $ -- -- % $ 1,431 9.00% $ 5,830 6.14% $20,593 6.97%
====== ======= ======= =======
(1) Based upon final maturity of the individual loans in the mortgage-backed pools.
</TABLE>
10
<PAGE>
III. Loan Portfolio
The amounts of loans outstanding and the percent of the total represented by
each type on the dates indicated were as follows:
<TABLE>
<CAPTION>
December 31,
--------------------------------------------------------------------------------------------------------
1995 1994 1993 1992 1991
---------------- ---------------- ---------------- ---------------- -----------------
Amount % Amount % Amount % Amount % Amount %
-------- --- -------- --- -------- --- -------- --- -------- ---
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial
loans .............. $112,422 22 $ 98,913 23 $101,371 25 $138,958 29 $159,029 30
Loans secured by
real estate:
Commercial and
other ............ 202,849 39 183,272 42 171,460 42 180,120 38 187,075 37
1-4 Family
residential ...... 179,437 35 131,535 30 110,231 27 120,757 26 132,859 25
Construction ....... 6,575 1 6,599 1 8,606 2 15,323 3 16,792 3
Loans to
individuals ........ 16,763 3 15,437 4 17,362 4 20,416 4 28,082 5
-------- --- -------- --- -------- --- -------- --- -------- ---
Total ............ 518,046 100 435,756 100 409,030 100 475,574 100 523,837 100
=== === === === ===
Less - Reserve for
possible loan
losses........... 8,562 9,631 15,353 16,540 14,209
-------- -------- -------- -------- --------
Loans, net..... $509,484 $426,125 $393,677 $459,034 $509,628
======== ======== ======== ======== ========
</TABLE>
11
<PAGE>
The following table reflects the maturity of loans (excluding real estate
mortgage and installment loans) outstanding as of December 31, 1995. The table
also reflects the amounts due after one year classified according to the
sensitivity to changes in interest rates:
After
One Year
Within But Within After
One Year Five Years Five Years Total
-------- ---------- ---------- -------
(in thousands)
Commercial loans ................... $101,683 $10,571 $168 $112,422
Loans secured by real
estate:
Construction loans ............... 6,575 -- -- 6,575
-------- ------- ---- --------
Total .......................... $108,258 $10,571 $168 $118,997
======== ======= ==== ========
Loans maturing after one year with:
Fixed interest rates.............. $ 3,515 $168 $ 3,683
Variable interest rates........... 7,056 -- 7,056
------- ---- --------
Total........................... $10,571 $168 $ 10,739
======= ==== ========
Commitments and Lines of Credit
Letters of credit represent extensions of credit granted in the normal course of
business which are not reflected in the Bank's consolidated financial
statements. As of December 31, 1995, the Bank was contingently liable for
letters of credit of $5,448,000 of which $5,438,000 represented standby letters
of credit. In addition, the Bank has issued lines of credit to customers.
Borrowing under such lines of credit are usually for the working capital needs
of the borrower. As of December 31, 1995, the Bank had extended commitments on
lines of credit in the aggregate amount of $63,835,000. Such amounts represent
the portion of total commitments which had not been used by customers as of
December 31, 1995.
Loan to a Director
On November 25, 1988, the Bank approved a $1,000,000 unsecured credit line to a
certain Director. The line of credit carried an interest rate of the Bank's
prime. The interest rate was subsequently increased on April 17, 1990 to the
Bank's prime plus 1/2%. The Director secured the note on August 23, 1990 with
the assignment of his partnership interest in a real estate venture. During
1994, the note was further secured by a third mortgage on a commercial building,
a pledge of shares of the Bank's common stock and the assignment of a term life
insurance policy. The outstanding balance on the loan was classified as a
substandard asset as of June 30, 1993. As of January 31, 1996, the outstanding
balance on the note of $842,494 was classified by the Bank as substandard. All
payments have been and continue to be made in accordance with the loan's terms.
12
<PAGE>
Nonperforming Assets and Accruing Loans Past Due 90 Days or More
Certain risks are inherent in the Bank's lending activities. One measurement of
the amount of risk in the Bank's loan portfolio is the level of nonperforming
assets. Nonperforming assets include nonaccrual loans, restructured loans and
other real estate owned.
Generally, a loan (including a loan impaired under Statement of Financial
Accounting Standards No. 114, "Accounting by Creditors for Impairment of a Loan"
(SFAS 114)) is classified as nonaccrual and the accrual of interest on such loan
is discontinued when the contractual payment of principal or interest has become
90 days past due or management has serious doubts about further collectibility
of principal or interest, even though the loan currently is performing. Interest
previously accrued on these loans and not yet paid is reversed and charged
against income during the period in which the loan is placed on a nonaccrual
status, except where the Bank has determined that such loans are well secured as
to principal and interest and are in the process of collection. Interest earned
thereafter is only included in income to the extent that it is actually
collected. Loans are removed from nonaccrual status when they become current as
to both principal and interest and when future payments are estimated to be
fully collectible.
Restructured loans are loans the terms of which have been restructured to
provide a reduction, forgiveness or deferral of interest or principal because of
deterioration in the financial position of the borrower. Interest on
restructured loans is only recognized in current income at the renegotiated
reduced rate and then only to the extent such interest is deemed collectible and
the borrower has demonstrated repayment performance.
Other real estate owned, comprised of real estate acquired through foreclosure
or acceptance of a deed in lieu of foreclosure, is stated at the lower of cost
or fair value minus estimated costs to sell (i.e., market). Property is
transferred to other real estate owned at the lower of cost or estimated market
value, with any cost over market value amount at the date of transfer charged to
the reserve for possible loan losses. Any further diminution in value based on
changes to estimated market value is charged to the reserve for foreclosed
property losses. Holding costs are charged to foreclosed property expense in the
period in which they are incurred. In order to facilitate the sale and ultimate
disposition of other real estate owned, the Bank may finance the sale of the
property at market rates to qualified, creditworthy borrowers.
As part of management's determination of nonperforming assets, management
reviews and identifies certain other assets which may be impaired based upon
current collateral and financial conditions. The accrual of interest on such
assets is discontinued at the judgement of management.
The Bank's nonperforming assets and accruing loans past due 90 days or more
(included in loans, assets held for sale and other real estate owned in the
consolidated balance sheets) were as follows on the dates indicated:
13
<PAGE>
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------------------------------------
1995 1994 1993 1992 1991
-------- -------- -------- -------- --------
(dollars in thousands)
<S> <C> <C> <C> <C> <C>
Nonaccrual loans............................... $ 7,103 $ 8,893 $ 34,703 $ 36,781 $ 43,872
Restructured loans............................. 676 3,070 10,071 6,558 2,792
-------- -------- -------- -------- --------
Total nonperforming loans.................... 7,779 11,963 44,774 43,339 46,664
Other real estate owned
including properties
held for sale................................ 5,460 6,966 10,100 9,549 7,678
-------- -------- -------- -------- --------
Total nonperforming assets................... $ 13,239 $ 18,929 $ 54,874 $ 52,888 $ 54,342
======== ======== ======== ======== ========
Accruing loans past due 90
days or more as to
principal or interest........................ $ 1 $ 24 $ 1,068 $ 439 $ 1,969
======== ======== ======== ======== ========
Year-end loans, other
real estate owned and
assets held for sale (1)..................... $523,506 $442,722 $445,453 $485,123 $531,515
======== ======== ======== ======== ========
Nonperforming assets as a
percentage of year-end
loans, other real estate
owned and assets held
for sale (1)................................. 2.53% 4.28% 12.32% 10.90% 10.22%
======== ======== ======== ======== ========
Reserve for possible loan
losses (2) as a percentage
of nonperforming loans....................... 110.07% 80.51% 34.29% 38.16% 30.45%
======== ======== ======== ======== ========
Reserve for possible loan
and foreclosed property
losses (2) as a percentage
of nonperforming assets...................... 64.67% 50.88% 27.98% 31.78% 26.76%
======== ======== ======== ======== ========
Reserves for possible loan,
foreclosed property and
assets held for sale
losses as a percentage of
nonperforming assets......................... 64.67% 50.88% 42.47% 31.78% 26.76%
======== ======== ======== ======== ========
(1) Before related reserves for losses.
(2) Before reserve for losses with respect to accelerated disposition of assets
held for sale.
</TABLE>
Included on the consolidated balance sheets as of December 31, 1995 and 1994 is
$5,347,000 and $5,581,000, respectively, of net cash surrender value (net of
insurance premium loans in the amount of $1,521,000 and $585,000, respectively)
pertaining to life insurance policies issued by a company (affiliated with
Confederation Life Insurance Company of Canada) which was placed in
rehabilitation during the third quarter of 1994. On October 17, 1995 it was
announced that Pacific Mutual Life Insurance Company (Pacific Mutual) was the
winning bidder for the corporate-owned life insurance business. Although
uncertainties exist as a result of the rehabilitation process and although the
Bank has ceased accruing interest on this asset, the
14
<PAGE>
information available to the Bank does not indicate that this asset (which is
not included in the nonperforming asset table above) is impaired.
The Bank did not have any loans where there was serious doubt (based on
information available to management at year-end) as to the borrowers' ability to
perform in accordance with loan terms which were not included in nonperforming
assets as of December 31, 1995.
For the year ended December 31, 1995, nonperforming asset activity was as
follows (in thousands):
Balance, December 31, 1994........... $18,929
Additions.......................... 8,926
Resolutions........................ (8,907)
Charge-offs/write-downs............ (5,709)
-------
Balance, December 31, 1995........... $13,239
=======
The following table sets forth the types of properties, dollar amounts and
number of units by type of property which constitute the Bank's other real
estate owned as of December 31, 1995 (dollars in thousands):
Types of Carrying
Properties Units Value
- ---------- ----- --------
Single family........................... 4 $ 186
Multi-family (more than five units)..... 1 250
Commercial.............................. 7 5,024
-- ------
Total................................. 12 $5,460
== ======
The review and evaluation of nonperforming loans and the carrying value of other
real estate owned are performed quarterly. The following table summarizes the
Bank's collateral position on nonperforming assets as of December 31, 1995.
Asset Net Realizable
Carrying Value of Unsecured
Value Collateral(1) Position
-------- ------------- --------
(in thousands)
Nonaccrual loans................... $ 7,103 $ 6,974 $129
Restructured loans................. 676 676 --
------- ------- ----
Total nonperforming loans........ 7,779 7,650 129
Other real estate owned............ 5,460 5,460 --
------- ------- ----
Total nonperforming assets....... $13,239 $13,110 $129
======= ======= ====
(1) Represents the lesser of fair market value or the asset carrying value.
15
<PAGE>
The Bank attempts to maintain an excess of the reserve for possible loan losses
over the unsecured portion of nonperforming assets to cover uncertainties in the
loan portfolio of a general or specific nature as a result of the Bank's credit
review function.
The significant decline in nonperforming assets from $54,874,000 as of December
31, 1993 to $18,929,000 as of December 31, 1994 to $13,239,000 as of year-end
1995 is indicative of the success of management's focused efforts on their
resolution. The decline is a direct result of management's altered problem asset
workout strategy adopted in the fourth quarter of 1993 to accelerate the
disposition of certain problem loans and foreclosed properties at approximate
liquidation values through a "bulk sale" and "sealed-bid sale" which was
completed during the first quarter of 1994 as well as additional resolutions and
charge-offs/write-downs of nonperforming assets on an individual basis during
1994 and 1995.
The Bank operates principally in Fairfield and New Haven counties in
Connecticut. During the period 1989 through 1993, Connecticut experienced a
severe decline in economic conditions and deterioration of real estate values
which is reflected in the Bank's high level of nonperforming assets during the
years 1991 to 1993. The economic deterioration, which began in large part as the
result of overbuilt real estate facilities causing declines in values, expanded
to a much more broadly based economic downturn, including a decline in defense
spending, business closings and relocation of manufacturing operations out of
state, all of which have had an adverse economic effect on many companies doing
business in the Bank's market area and on the Bank. While certain economic
statistics for 1995 indicate the Connecticut economy is recovering and real
estate values are leveling, the prospects as to the extent and timing of future
improvement in the economy remain uncertain. The Connecticut economy remains
sluggish and does not appear to be recovering at the rate of the national and
New England recoveries. However, economic statistics indicate that Fairfield
County has rebounded more rapidly than, and its recovery is outpacing, other
sectors within the state.
Although the Bank makes loans on an unsecured basis, it should be noted that the
Bank prefers not to lend to even its most creditworthy borrowers on an unsecured
basis. Accordingly, the Bank accepts residential and commercial real estate as
collateral on commercial loans. The source of collateral does not always
correlate with the borrower's use of the loan proceeds. To this extent, serious
declines in real estate values in the Bank's market area would negatively affect
the collateral securing its commercial and real estate loans but not necessarily
impact the borrower's ability to meet the terms of these loans. The Bank has not
made loans to borrowers outside the United States.
For the year ended December 31, 1995, income recognized on nonaccrual and
restructured loans outstanding was $290,000. Income that would have been
recognized during 1995 on such loans if such loans had been current in
accordance with their original terms and had been outstanding throughout the
year (or since origination if held for part of the year) was $1,130,000.
16
<PAGE>
IV. Summary of Loan Loss Experience and Charge-off Procedures;
The Reserve for Possible Loan Losses
As a financial institution which assumes lending and credit risks as a principal
element in its business, the Bank anticipates that credit losses will be
experienced in the normal course of business. Accordingly, management of the
Bank regularly monitors the adequacy of the reserve for possible loan losses.
Management has a formal credit review function to evaluate the credit and market
risk of loans on a periodic basis, which includes obtaining appraisals of assets
securing loans reflecting current market conditions. The Bank utilizes a loan
grading system methodology as well as evaluating impaired loans in accordance
with the standards of SFAS 114 to determine the appropriate level of the reserve
for possible loan losses. The loan grading system involves a review of the
commercial, real estate and consumer loan portfolios with added emphasis on the
Bank's larger commercial credits. Various factors are involved in determining
the loan grading, including the cash flow and financial status of the borrower,
the existence and nature of collateral, and economic conditions and their impact
on the borrower's industry. These reviews are dependent upon estimates,
appraisals and judgments which can change quickly due to economic conditions and
the Bank's perceptions as to how these conditions affect the debtor's economic
prospects. In accordance with the standards of SFAS 114 impaired loans within
their scope are measured based on the present value of expected future cash
flows discounted at the loan's original effective interest rate, or the
observable market price of the impaired loan or the fair value of the collateral
if the loan is collateral dependent. Any valuation reserve necessary under the
standards is considered in determining the level of the Bank's overall reserve
for possible loan losses. Quarterly, the reserve for possible loan losses is
reviewed based on the most recent loan data and is adjusted, in management's
judgment, to the amount necessary to maintain adequate reserve levels.
Loan losses or recoveries are charged or credited directly to the reserve. When
management decides that a loan has a substantial risk of noncollectability, that
portion of the principal of the asset deemed to be uncollectible is charged
against the reserve.
17
<PAGE>
The following table summarizes loan balances at the end of each year and daily
averages; changes in the reserve for possible loan losses arising from loans
charged-off and recoveries on loans previously charged-off, by loan category;
and additions to the reserve which have been charged to expense.
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------------------------------------------
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
(dollars in thousands)
<S> <C> <C> <C> <C> <C>
Loans at end of year........... $518,046 $435,756 $409,030 $475,574 $523,837
======== ======== ======== ======== ========
Average amount of loans
outstanding during
the year..................... $464,629 $420,226 $455,698 $500,199 $536,408
======== ======== ======== ======== ========
Reserve at beginning
of year...................... $ 9,631 $ 15,353 $ 16,540 $ 14,209 $ 9,560
Loans charged-off:
Commercial................... 1,489 5,528 4,359 9,057 2,788
Loans secured by real estate:
Commercial and other....... 2,594 4,358 11,433 2,925 5,201
1-4 family residential..... 777 975 1,392 1,367 616
Construction............... 75 474 482 62 137
Loans to individuals......... 132 128 1,039 846 874
-------- -------- -------- -------- --------
Total loans charged-off.... 5,067 11,463 18,705 14,257 9,616
-------- -------- -------- -------- --------
Recoveries on loans
previously charged-off:
Commercial................. 407 662 349 153 107
Loans secured by real
estate:
Commercial and other..... 254 152 1 12 65
1-4 family residential... 82 111 332 46 42
Construction............. 40 17 -- -- --
Loans to individuals....... 25 39 118 169 88
-------- -------- -------- -------- --------
Total recoveries........ 808 981 800 380 302
-------- -------- -------- -------- --------
Net loans charged-off.......... 4,259 10,482 17,905 13,877 9,314
-------- -------- -------- -------- --------
Additions to the reserve
charged to expense........... 3,190 3,325 23,500 16,208 13,963
Transfer from (to) assets
held for sale................ -- 1,362 (6,782) -- --
Transferred from reserve for
foreclosed property losses... -- 73 -- -- --
-------- -------- -------- -------- --------
Reserve at end of year......... $ 8,562 $ 9,631 $ 15,353 $ 16,540 $ 14,209
======== ======== ======== ======== ========
Net loans charged-off as
a percentage of average
loans........................ .92% 2.49% 3.93% 2.77% 1.74%
==== ==== ==== ==== ====
Reserve as a percentage
of year-end loans (1)........ 1.65% 2.21% 3.75% 3.48% 2.71%
==== ==== ==== ==== ====
(1) Excludes assets held for sale.
</TABLE>
18
<PAGE>
See Note 5 of Notes to Consolidated Financial Statements for an analysis of the
changes in the reserve for foreclosed property losses.
The years 1995 and 1994 reflected significantly lower provisions for possible
loan losses as a result of the accelerated disposition of certain problem loans
through the "bulk sale" and "sealed-bid sale" completed during the first quarter
of 1994 as well as additional resolutions of nonperforming assets on an
individual basis during the period. The accelerated disposition strategy reduced
nonperforming loans by approximately $8,430,000 and resulted in net charge-offs
of $5,613,000 of loans held for sale. In anticipation of the completion of the
Bank's common stock rights offering in February 1994, management altered its
problem asset workout strategy in the fourth quarter of 1993 to accelerate the
disposition of approximately $17,000,000 of problem loans and $3,000,000 of
foreclosed properties at approximate liquidation values, a significant change
from its former workout strategy. During the fourth quarter of 1993 this
accelerated workout strategy resulted in an additional provision for possible
loan losses of $6,300,000. During the three year period ended December 31, 1993,
the Bank added significantly to its reserve for possible loan losses in each
year in response to weakening economic conditions and declining real estate
values in the Bank's market area which resulted in substantial levels of
nonperforming loans and other real estate owned.
As of December 31, 1995, the reserve for possible loan losses was deemed
adequate by management based on its estimate of the amounts required to absorb
losses in the Bank's loan portfolio and the value of the collateral securing the
loans based on known economic and real estate market conditions. This evaluation
is inherently subjective as it requires material estimates including the amounts
and timing of future cash flows expected to be received on impaired loans that
may be susceptible to significant change.
19
<PAGE>
Components of Reserve for Possible Loan Losses
The following table presents the allocation of the reserve for possible loan
losses by loan categories:
<TABLE>
<CAPTION>
December 31,
----------------------------------------------------------------------------------------------------
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
% of % of % of % of % of
Loans Loans Loans Loans Loans
Amount to Amount to Amount to Amount to Amount to
of Total of Total of Total of Total of Total
Reserve Loans Reserve Loans Reserve Loans Reserve Loans Reserve Loans
------ --- ------ --- ------- --- ------- --- ------- ---
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial
loans................. $2,799 22% $3,268 23% $ 5,244 25% $ NA 29% $ NA 30%
Loans secured by
real estate:
Commercial and
other............... 3,911 39 4,160 42 6,561 42 NA 38 NA 37
------ --- ------ --- ------- --- ------- --- ------- ---
6,710 61 7,428 65 11,805 67 12,215 67 10,395 67
1-4 Family
residential......... 1,217 35 1,008 30 1,156 27 1,241 26 1,066 25
Construction.......... 120 1 248 1 793 2 802 3 755 3
Loans to individuals.... 186 3 172 4 273 4 298 4 256 5
Unallocated............. 329 -- 775 -- 1,326 -- 1,984 -- 1,737 --
------ --- ------ --- ------- --- ------- --- ------- ---
Total............... $8,562 100% $9,631 100% $15,353 100% $16,540 100% $14,209 100%
====== === ====== === ======= === ======= === ======= ===
NA = Not available for 1991 and 1992.
</TABLE>
V. Deposits
Deposits obtained through offices of the Bank have traditionally been the
principal source of the Bank's funds for use in lending and other general
business purposes. The Bank's current deposit products offered include savings
accounts, personal and business demand accounts, NOW accounts, club accounts,
money market deposit accounts and certificates of deposit ranging in terms from
30 days to four years. Included among these deposit products are Individual
Retirement Accounts and Keogh retirement accounts, as well as certificates of
deposit with balances of $100,000 or more. The Bank's deposits are obtained
primarily from residents of and businesses located in its market area. In
addition, the banking relationship of the principals of the businesses are an
additional source of deposits. The Bank attracts deposit accounts primarily by
offering a wide variety of services and accounts, competitive interest rates,
and convenient office locations and service hours. It is not anticipated that
the Bank will use brokered deposits as a source of funds in the foreseeable
future.
20
<PAGE>
The following table sets forth the average balances of and average rates paid on
deposits for the years indicated:
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------------------------------
1995 1994 1993
------------------ ------------------ ------------------
Average Average Average Average Average Average
Balance Rate Balance Rate Balance Rate
------- ---- ------- ---- ------- ----
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Demand............ $127,649 -- % $120,970 -- % $113,508 -- %
NOW............... 52,883 1.90 56,047 1.66 56,497 2.04
Savings........... 150,607 2.59 182,461 2.32 205,835 2.88
Money market...... 22,005 2.51 22,579 2.28 25,376 2.80
Time.............. 228,545 5.13 162,679 3.76 160,573 3.75
-------- -------- --------
Total deposits.. $581,689 2.96 $544,736 2.16 $561,789 2.46
======== ======== ========
</TABLE>
The increase in average deposits in 1995 compared to 1994 reflects the Bank's
renewed growth strategy while the reduction in average deposits in 1994 compared
to 1993 reflected the downsizing strategy in effect from early 1992 until
year-end 1994.
Interest rates paid on deposits by the Bank are competitive with rates paid by
its competitors in its market area with the exception of lead products which are
offered at premium rates and target terms that best suit the asset/liability
needs of the Bank. The ability of the Bank to attract and maintain deposits and
the Bank's cost of funds on these deposits, have been and will continue to be,
significantly affected by economic and competitive conditions as well as the
Bank's financial condition.
The decrease in average rates from 1993 to 1994 for NOW, savings and money
market accounts reflects rate adjustments made in 1993 in response to declining
market rates and remaining in effect for the full year in 1994. There was
relatively no change in the rate on time deposits from 1993 to 1994 because
rates were reduced aggressively during 1993 as the Bank shed $63 million in
assets. The increases in average rate from 1994 to 1995 in each deposit category
reflects the Bank's effort to retain and grow deposits in a market where prime
rate increased 250 basis points.
Maturities of time deposits of $100,000 or more as of December 31, 1995 (in
thousands) were:
Three months or less..................... $11,266
Over three months to six months.......... 14,911
Over six months to twelve months......... 8,658
Over twelve months....................... 659
-------
Total.................................. $35,494
=======
VI. Return on Equity and Assets
See Part II, ITEM 6, "SELECTED FINANCIAL DATA."
VII. Short-Term Borrowings
A summary of certain information regarding securities sold under agreements to
repurchase is presented below. Such transactions represent securities sold to
customers or brokers, subject to an agreement to repurchase such securities on a
short-term basis.
21
<PAGE>
Year Ended December 31,
--------------------------------
1995 1994 1993
---- ---- ----
(dollars in thousands)
Average for the year:
Amount outstanding.................... $47,062 $14,301 $19,481
Weighted average interest rate........ 5.82% 4.29% 2.99%
At year-end:
Amount outstanding.................... $18,459 $27,453 $ 6,150
Weighted average interest rate........ 5.12% 5.70% 2.56%
Maximum amount outstanding at any
month-end during the year............. $68,175 $29,704 $38,056
A summary of certain information regarding other short-term borrowings is
presented below:
Year Ended December 31,
--------------------------------
1995 1994 1993
---- ---- ----
(dollars in thousands)
Treasury Tax and Loan Note:
Average for the year:
Amount outstanding.................. $ 2,503 $ 2,404 $ 2,990
Weighted average interest rate...... 5.71% 3.70% 2.51%
At year-end:
Amount outstanding.................. $ 3,500 $ 3,500 $ --
Weighted average interest rate...... 5.03% 4.61% -- %
Maximum amount outstanding at any
month-end during the year........... $ 4,169 $ 4,918 $ 4,559
Federal Funds Purchased:
Average for the year:
Amount outstanding.................. $ 2,263 $ 1,800 $ 1,944
Weighted average interest rate...... 6.30% 4.57% 3.35%
At year-end:
Amount outstanding.................. $ 1,800 $ 3,100 $ --
Weighted average interest rate...... 6.19% 5.89% -- %
Maximum amount outstanding at any
month-end during the year........... $11,000 $ 8,400 $11,000
Federal Home Loan Bank Advances:
Average for the year:
Amount outstanding.................. $10,996 $25,438 $ 915
Weighted average interest rate...... 6.11% 4.50% 3.34%
At year-end:
Amount outstanding.................. $ 8,315 $24,315 $ --
Weighted average interest rate...... 5.99% 6.15% -- %
Maximum amount outstanding at any
month-end during the year........... $24,315 $30,315 $15,000
22
<PAGE>
ITEM 2. PROPERTIES
The table below sets forth information concerning leases for the Bank's office
locations as of December 31, 1995.
Lease
Year Square Expiration
Offices Opened Feet Date
------- ------ ------ ----------
Main Office
1087 Broad Street, Bridgeport(C) 1985 15,000 12/31/98
Bridgeport
1640 Barnum Avenue 1970 3,193 07/31/00
300 Boston Avenue(A) 1984 2,000 12/31/03
975 Madison Avenue 1967 8,000 06/30/05
Cheshire
1699 Highland Avenue (Rt. 10) 1986 3,078 06/30/02
Fairfield
1838 Black Rock Turnpike 1991 2,693 04/30/06
1643 Post Road 1971 2,780 11/30/05
Hamden
Quinnipiac College 1975 500 Monthly
1225 Dixwell Avenue(C) 1969 5,863 07/14/00
2992 Dixwell Avenue 1965 11,500 09/30/97
Meriden
30 East Main Street 1976 5,184 10/31/05
Middlefield
500 Main Street 1976 2,278 08/31/99
New Haven
2 Whitney Avenue 1986 1,841 12/31/96
North Haven
2 Broadway Square 1987 2,400 03/31/97
Norwalk
184 Main Street 1995 3,586 08/31/05
23
<PAGE>
Lease
Year Square Expiration
Offices Opened Feet Date
------- ------ ------ ----------
Stratford
951 Stratford Avenue 1994 1,650 08/31/99
2 Research Drive(B) 1984 2,600 09/30/97
Trumbull
Trumbull Shopping Park,
5065 Main Street 1973 1,532 01/31/97
West Haven
100 Elm Street 1976 4,800 09/25/96
Westport
420 Post Road West 1994 3,396 08/31/04
244 Post Road East(C)(D) 1995 8,079 01/31/05
Executive and Lending Offices
2321 Whitney Avenue, Hamden 1987 4,183 12/31/99
Operations Center
2 Skiff Street, Hamden 1986 28,825 09/30/99
Loan Administration
1057 Broad Street, Bridgeport 1990 8,880 12/31/98
(A) Office space subleased.
(B) Office space vacant.
(C) Office space partially subleased.
(D) Branch office relocated in 1995 from previous, temporary, location
opened in 1994.
As of December 31, 1995, the Bank provided traditional services from each of its
19 full-service branches. All offices are located in commercial or retail
business areas, and have parking facilities for customers. Drive-in teller
facilities are available at 15 of the branch locations and automated teller
machines are available at 4 branch locations. The majority of the Bank's support
and data processing operations are located in its Operations Center in Hamden,
Connecticut.
The Bank owns a contiguous paved parcel of land used as a parking lot in
connection with its Barnum Avenue branch in Bridgeport. It owns no other real
property, except for temporary ownership of foreclosed properties while awaiting
sale or other disposition. Rental expense for leased premises and equipment with
an average
24
<PAGE>
remaining term of approximately five and one-half years was $1,750,000 for the
year ended December 31, 1995, net of sublease income and amortization of a
deferred gain on a sale-leaseback transaction totaling $118,000.
In order to improve the operating results of the Bank, management closed three
branches in the first quarter of 1994. Since alternative uses could not be found
for the vacated branch facilities, the Bank recognized a loss of approximately
$1,470,000 in the fourth quarter of 1993, due to the abandonment of leasehold
improvements and other associated costs. Subsequently, during the fourth quarter
of 1994, the Bank reduced this abandonment loss by $337,000 as a result of the
sublease of the former Boston Avenue branch and recognized a $50,000 gain on the
sale of the former West End branch building.
The Bank leases certain facilities at rates which management believes were
market rates as they existed at lease inception or lease renewal from related
parties, including in some instances directors and partnerships which include
directors and officers as partners. The leases expire at various dates through
1999. Generally, independent appraisals were used to determine the annual
rentals contained in the leases. Rental expense under leases with related
parties was approximately $235,000, $270,000 and $583,000 for the years ended
December 31, 1995, 1994 and 1993, respectively.
ITEM 3. LEGAL PROCEEDINGS
Certain claims, suits and complaints arising in the ordinary course of business
have been filed or are pending against the Bank and its subsidiaries. In the
opinion of management, based on opinions of legal counsel, adequate reserves, if
deemed necessary, have been established for these matters and their outcome is
not expected to result in a significant adverse effect on the financial
condition or future operating results of the Bank and its subsidiaries.
On February 2,1996, the Bank was named a defendant in a suit commenced by
Amplicon, Inc. in the Superior Court of the State of California regarding the
termination of a computer hardware and software lease. The complaint seeks
monetary damages in excess of $1 million. Management believes, after
consultation with legal counsel, that the Bank has substantial defenses to the
claim. Although outcomes of legal proceedings cannot be assured, the Bank does
not believe that this matter will result in a material adverse effect on the
financial condition or future operating results of the Bank.
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required under this item will be provided in the Bank's proxy
statement which will be dated and filed with the FDIC on or before April 26,
1996 for the 1996 annual meeting of shareholders and is incorporated by
reference. See information in the Bank's proxy statement under the caption,
"STOCK OWNERSHIP OF MANAGEMENT AND PRINCIPAL SHAREHOLDERS."
25
<PAGE>
PART II
ITEM 5. MARKET FOR THE BANK'S COMMON STOCK AND RELATED
SECURITY HOLDER MATTERS
The Bank's common stock is traded over-the-counter on the Nasdaq National Market
under the symbol "LABK". The range of high and low sales prices (as reported by
Nasdaq) for 1994 and 1995 is shown below.
Dividends
High Low Declared
----- ----- ----------
Year Ended December 31, 1994:
First Quarter......................... $ 9.00 $4.50 $ -
Second Quarter........................ 6.75 5.00 -
Third Quarter......................... 6.88 5.50 -
Fourth Quarter........................ 6.63 4.88 -
Year Ended December 31, 1995:
First Quarter......................... $ 8.00 $5.63 $ -
Second Quarter........................ 8.50 7.50 -
Third Quarter......................... 10.25 8.13 -
Fourth Quarter........................ 9.56 8.75 .05
In accordance with a Board of Director resolution and regulatory approval,
during the third quarter of 1995 a transfer from the Bank's capital surplus
account to retained earnings was recorded in the amount of $13,028,000. Such
transfer eliminated the Bank's accumulated deficit as of June 30, 1995 and
certain technical requirements regarding dividend payments which apply while an
accumulated deficit exists.
On October 11, 1995, the Board of Directors of the Bank declared its first cash
dividend since the second quarter of 1990. The dividend amounted to $.05 per
common share payable on November 3, 1995 to shareholders of record on October
23, 1995. A comparable dividend was declared by the Board of Directors during
the first quarter of 1996. The Bank's merger agreement with HUBCO permits the
Bank to increase its dividend level to a level consistent with HUBCO's quarterly
dividend.
Holders of the Bank's common stock are entitled to dividends as and when
declared by the Bank's Board of Directors out of funds legally available for the
payment of dividends. The amount of future cash dividends, if any, will depend
on an analysis of the Bank's earnings, financial condition and capital
requirements, on any statutory and regulatory constraints that might be
applicable to the Bank, and on such other factors as the Board of Directors may
deem relevant. The Bank's ability to pay dividends is governed by Federal and
state law and depends upon the maintenance of minimum regulatory capital levels
and general business conditions. Under Connecticut law, the amount of dividends
that the Bank may pay is limited to the current year's and the prior two years'
retained net profits, as defined. In addition, dividends may not be paid by the
Bank unless minimum regulatory capital levels are maintained and other
regulatory requirements are satisfied.
26
<PAGE>
The common stock of the Bank was held by 2,115 shareholders of record as of
December 31, 1995. Although exact information is not available, the Bank
believes that there are approximately an additional 2,450 beneficial owners.
ITEM 6. SELECTED FINANCIAL DATA
The following tables set forth, in summary form, certain financial data for each
of the years in the five year period ended December 31, 1995 and is qualified in
its entirety by the detailed information and consolidated financial statements
presented elsewhere herein.
<TABLE>
<CAPTION>
For the Year Ended December 31,
----------------------------------------------------------------------
1995 1994 1993 1992 1991
------ ------- ------ ------ ------
(in thousands)
<S> <C> <C> <C> <C> <C>
Consolidated Statements
of Income Data:
Interest income.............. $ 52,423 $42,583 $ 41,415 $ 54,253 $66,543
Interest expense............. 20,981 13,759 15,434 22,167 36,573
-------- ------- -------- ------- -------
Net interest income........ 31,442 28,824 25,981 32,086 29,970
Provision for possible
loan losses................ 3,190 3,325 23,500 16,208 13,963
-------- ------- -------- ------- -------
Net interest income
after provision
for possible loan
losses................... 28,252 25,499 2,481 15,878 16,007
Noninterest income:
Securities gains, net...... 279 -- 1,505 2,870 7,200
Other...................... 5,799 6,337 6,801 6,727 5,661
Noninterest expense:
Branch closure and
restructuring costs...... -- -- 2,370 -- --
Other...................... 26,230 28,423 34,419 33,036 29,657
-------- ------- -------- ------- -------
Income (loss) before income
taxes and cumulative
effect of change in
accounting principle....... 8,100 3,413 (26,002) (7,561) (789)
Provision (benefit) for
income taxes............... (10,827) (2,724) 16 260 94
-------- ------- -------- ------- -------
Income (loss) before
cumulative effect of
change in accounting
principle.................. 18,927 6,137 (26,018) (7,821) (883)
Cumulative effect of change
in accounting
principle (1).............. -- -- (3,118) -- --
-------- ------- -------- ------- -------
Net income (loss)............ $ 18,927 $ 6,137 $(29,136) $(7,821) $ (883)
======== ======= ======== ======= =======
</TABLE>
27
<PAGE>
<TABLE>
<CAPTION>
As of or for the Year Ended December 31,
------------------------------------------------------------
1995 1994 1993 1992 1991
------- ------- -------- ------- -------
(dollars in thousands)
<S> <C> <C> <C> <C> <C>
Consolidated Year-End
Balance Sheet Data:
Total assets................. $735,405 $673,751 $599,494 $662,463 $759,354
Securities................... 141,469 175,202 124,032 131,196 164,725
Loans........................ 518,046 435,756 409,030 475,574 523,837
Reserve for possible
loan losses................ 8,562 9,631 15,353 16,540 14,209
Assets held for sale, net.... -- -- 25,607 -- --
Deferred income taxes........ 15,382 3,439 767 1,019 --
Other real estate owned, net. 5,460 6,966 2,866 9,281 7,343
Deposits..................... 636,343 570,409 551,850 603,170 662,988
Funds Borrowed:
Short-term................. 33,280 50,638 6,150 22,230 46,197
Long-term.................. 315 8,315 30,315 -- --
Shareholders' equity......... 59,509 37,870 2,541 30,958 37,209
Nonperforming assets (2)..... 13,239 18,929 54,874 52,888 54,342
Financial Ratios:
Return on average
shareholders' equity....... 39.60% 19.86% (117.06)% (23.57)% (2.18)%
Return on average
total assets............... 2.71 .98 (4.53) (1.09) (.12)
Interest rate spread (3)..... 4.14 4.44 3.85 4.31 3.60
Interest rate margin (4)..... 4.92 5.00 4.36 4.89 4.45
Efficiency ratio (5)......... 67.44 76.16 88.36 71.78 76.86
Average shareholders'
equity as a percen-
tage of average
total assets............... 6.84 4.93 3.87 4.64 5.41
Total shareholders'
equity as a percen-
tage of total assets
at year-end................ 8.09 5.62 .42 4.67 4.90
Tier 1 leverage capital
ratio (6).................. 6.79 6.02 .27 4.35 4.87
Total capital as a
percentage of risk-
weighted assets at
year-end................... 10.53 10.06 1.70 7.38 7.80
Loans as a percentage
of deposits at
year-end................... 81.41 76.39 74.12 78.85 79.01
Nonperforming assets
as a percentage of
loans, other real
estate owned and
assets held for sale
at year-end (2)............ 2.53 4.28 12.32 10.90 10.22
</TABLE>
28
<PAGE>
<TABLE>
<CAPTION>
As of or for the Year Ended December 31,
---------------------------------------------------------------
1995 1994 1993 1992 1991
------ ------ ------ ------ ------
(dollars in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Financial Ratios Continued:
Reserve for possible loan losses as a
percentage of loans at year-end......... 1.65 2.21 3.75 3.48 2.71
Reserve for possible loan and foreclosed
property losses (7) as a percentage of
nonperforming assets at year-end........ 64.67 50.88 27.98 31.78 26.76
Reserve for possible loan,
foreclosed property and assets held for
sale losses as a percentage of
nonperforming assets at year-end........ 64.67 50.88 42.47 31.78 26.76
Net charge-offs as a percentage of
average loans .......................... .92 2.49 3.93 2.77 1.74
Per Common Share Data (8):
Income (loss) before cumulative effect
of change in accounting principle(1):
Primary .............................. $1.85 $ .69 $(14.86) $(4.47) $ (.50)
Fully diluted ........................ 1.84 .69 (14.86) (4.47) (.50)
Net income (loss):
Primary ................................ 1.85 .69 (16.64) (4.47) (.50)
Fully diluted .......................... 1.84 .69 (16.64) (4.47) (.50)
Cash dividends declared................... .05 -- -- -- --
Cash dividend pay out ratio............... 2.64% -- -- -- --
Book value (9) ........................... 5.95 3.79 .20 16.80 21.26
Other Data:
Average common shares outstanding:
Primary .............................. 10,235,953 8,870,266 1,750,458 1,750,458 1,750,458
Fully diluted ........................ 10,269,618 8,870,266 1,750,458 1,750,458 1,750,458
Number of full-time equivalent employees.. 285 310 320 350 371
Number of shareholders of record:
Common ............................... 2,115 2,219 2,142 2,191 2,247
Preferred ............................ -- -- 50 33 --
</TABLE>
29
<PAGE>
(1) Represents the effect of a change in accounting method for purchased
mortgage servicing rights.
(2) Nonperforming assets consist of nonaccrual loans, certain restructured loans
and other real estate owned.
(3) Represents the average rate earned on interest earning assets, computed on a
tax equivalent basis, less the average rate incurred on interest bearing
liabilities.
(4) Represents net interest income, computed on a tax equivalent basis, as a
percentage of average interest earning assets.
(5) Total noninterest expense (excluding foreclosed properties expense, net)
divided by net interest income (on a tax equivalent basis) plus noninterest
income (excluding security gains and losses).
(6) Represents common equity less certain intangible assets and the disallowed
portion of deferred tax assets as a percentage of average assets, less
certain intangible assets and the disallowed portion of deferred tax assets.
(7) Before reserve for losses with respect to accelerated disposition of assets
held for sale.
(8) All prior period per share amounts and average outstanding common shares
presented have been retroactively adjusted for the one-for-two reverse stock
split which was effected as of the close of business on May 31, 1994.
(9) Book value per share of common stock is determined by dividing shareholders'
equity at year-end less the liquidation value ($30.00 per share and
accumulated dividend preferences) of the cumulative convertible perpetual
preferred stock, if applicable, by the outstanding common stock at year-end.
30
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion and analysis presents a review of the consolidated
financial condition and results of operations of Lafayette American Bank and
Trust Company (the "Bank"). This review should be read in conjunction with the
consolidated financial statements and other financial data presented elsewhere
herein.
On February 6, 1996, the Bank announced a strategic alliance, through merger,
with HUBCO, Inc. ("HUBCO"), a New Jersey based bank holding company. Under the
proposed merger, which is subject to various conditions including regulatory
approvals and approval by the shareholders of both the Bank and HUBCO, each
share of the Bank's common stock will convert into 0.588 of a share of HUBCO
common stock. In connection with the merger agreement, the Bank and HUBCO
entered into a stock option agreement dated February 5, 1996 pursuant to which
HUBCO will have an option to purchase 2,400,000 shares of the Bank's common
stock at $10.75 per share, which option is exercisable in certain circumstances.
The proposed transaction is expected to close in the second or third quarter of
1996. Certain merger costs and related restructuring charges will be incurred by
the Bank in 1996.
Summary
For the year 1995 the Bank reported net income of $18,927,000 compared to net
income of $6,137,000 in 1994 and a net loss of $29,136,000 in 1993. On a
fully-diluted per common share basis, the Bank earned $1.84 per share in 1995
and $.69 per share in 1994 compared to a per share loss of $16.64 in 1993.
Included in 1995 and 1994 earnings was $11,935,000 and $3,439,000, respectively,
of deferred income tax benefits, primarily attributable to the recognition of
the Bank's net operating loss carryforwards through the reduction of the
valuation allowance for its deferred tax asset. As of December 31, 1995,
substantially all of the Bank's deferred income tax benefits have been
recognized.
On February 24, 1994, the Bank completed a common stock rights offering
resulting in the raising of $34,000,000, before expenses, in additional capital.
This additional capital enabled the Bank to achieve the capital ratio minimums
specified in its capital restoration plan and assisted the Bank in returning to
profitability in 1994.
Net interest income on a tax equivalent basis increased $2,613,000 and
$2,830,000 for 1995 and 1994, or 9.1% and 10.9%, respectively. The increase in
1995 primarily reflects the higher average volume of the Bank's loan and
invested funds portfolios while the investment of net proceeds from the Bank's
common stock rights offering and "bulk-sale" and "sealed-bid sale" (discussed
below) mainly account for the increase in 1994.
The operating results for the years ended December 31, 1995 and 1994 compared to
1993 reflect a significant reduction in provisions for possible loan and
foreclosed property losses as well as a reduction in foregone interest income
and other costs associated with the previously higher levels of nonperforming
assets. This is a direct result of management's problem asset workout strategy
adopted in the fourth quarter of 1993 to accelerate the disposition of certain
problem loans and foreclosed properties at approximate liquidation values
through a "bulk sale" and "sealed-bid sale" which was completed during the first
quarter of 1994 as well as additional
31
<PAGE>
resolutions of nonperforming assets on an individual basis during 1994 and 1995.
This accelerated workout strategy resulted in $6,300,000 and $1,200,000 of
additional provisions for possible loan and foreclosed property losses,
respectively, in the fourth quarter of 1993.
The amounts provided by the Bank as provisions for possible loan losses were
$3,190,000 for 1995, $3,325,000 for 1994 and $23,500,000 for 1993. In addition,
the Bank provided $316,000, $1,137,000 and $4,401,000 in 1995, 1994 and 1993,
respectively, as provisions for loss on foreclosed properties.
Asset quality continued to improve as nonperforming loans and foreclosed
properties were $13,239,000 as of December 31, 1995, or 1.8% of total assets,
reflecting decreases of 30.1% and 75.9% compared to December 31, 1994 and 1993
levels of $18,929,000 and $54,874,000, respectively. This decline was primarily
attributable to the "bulk sale" and "sealed-bid sale" in 1994 as well as
management's focused efforts on the resolution of nonperforming assets on an
individual basis during both 1994 and 1995. The "bulk sale" and "sealed-bid
sale" resulted in the disposition of nonperforming assets with a carrying value
of $11,882,000. Loan and assets held for sale charge-offs and other real estate
owned write-downs for 1995, 1994 and 1993 were $5,383,000, $19,170,000 and
$22,233,000, respectively.
The first quarter of 1993 included a $3,118,000 charge to expense in connection
with a change in accounting with respect to the valuation of purchased mortgage
servicing rights. Also, during the fourth quarter of 1993, the Bank recorded
additional accruals for costs associated with planned branch closures in 1994
and restructuring costs in the amount of approximately $2,370,000.
Average assets for the year ended December 31, 1995 were $699,242,000, an
increase of $71,937,000 or 11.5% compared to average assets of $627,305,000 for
1994, reflecting the Bank's renewed growth strategy. Average interest earning
assets increased by $62,851,000 in 1995 compared to 1994, as a result of the
higher average volume of the Bank's loan and invested funds portfolios of
$44,403,000 and $18,448,000, respectively. Average assets for the year ended
December 31, 1994 were $627,305,000, a decrease of $16,575,000 or 2.6% compared
to average assets of $643,880,000 for 1993, primarily as a result of downsizing
the Bank's balance sheet in light of existing and anticipated capital ratio
requirements. Average interest earning assets decreased by $19,934,000 in 1994
compared to 1993, principally as a result of lower loan balances partially
offset by an increased securities portfolio, while noninterest earning assets
increased by $3,359,000 mainly due to a decreased reserve for possible loan
losses. Average loans for the year ended December 31, 1994 were $420,226,000
down from $455,698,000 for 1993 as a result of the "bulk sale" and "sealed-bid
sale" of problem loans during the first quarter of 1994, charge-offs and
management's planned downsizing of the Bank's balance sheet.
The per share market value of the Bank's common stock as of December 31, 1995
was $9.25 or 155% of its book value of $5.95 per share. As of December 31, 1994,
the per share market value was $5.63 or 148% of its book value of $3.79 per
share. The common stock closed at $11.38 per share on February 29, 1996.
32
<PAGE>
During the second quarter of 1995, the State of Connecticut Department of
Banking (the "State") and the Federal Deposit Insurance Corporation (the "FDIC")
concluded concurrent full "safety and soundness" examinations of the Bank.
Subsequent to June 30, 1995, the Bank was formally notified by the FDIC that the
FDIC and State were in agreement that the June 25, 1992 Stipulation and Consent
to a Cease and Desist Order (the "FDIC Order") under which the Bank had been
operating, should be terminated upon their receipt of an acceptable Board of
Directors' resolution. In compliance with their request, on July 26, 1995, the
Bank's Board of Directors adopted a resolution which included, among other
matters, a commitment that the Bank maintain a Tier 1 leverage capital ratio at
a minimum of 6%. On July 31, 1995, the FDIC terminated the FDIC Order.
In accordance with a Board of Director resolution and regulatory approval,
during the third quarter of 1995 a transfer from the Bank's capital surplus
account to retained earnings was recorded in the amount of $13,028,000. Such
transfer eliminated the Bank's accumulated deficit as of June 30, 1995 and
certain technical requirements regarding dividend payments which apply while an
accumulated deficit exists.
On October 11, 1995, the Board of Directors of the Bank declared its first cash
dividend since the second quarter of 1990. The dividend amounted to $.05 per
common share payable on November 3, 1995 to shareholders of record on October
23, 1995.
On February 23, 1994, Lafayette American Bancorp, Inc. (the "Company"), the
holding company for the Bank, merged with and into the Bank. The merger has been
accounted for as a pooling of interests.
The Bank received shareholder approval at its annual meeting on May 24, 1994 and
subsequently received regulatory approval, to effect a one-for-two reverse stock
split with respect to the Bank's common stock. As a result of the stock split,
each two shares of the Bank's common stock automatically converted into one
share of Bank common stock as of the close of business on May 31, 1994, the
effective date. All per share data of the Bank prior to May 31, 1994 has been
restated to give effect to the reverse stock split as if it had occurred on the
first day of the period presented.
Economy
The Bank operates primarily in Fairfield and New Haven counties of Connecticut.
The Connecticut economy is recovering and real estate values are stabilizing as
compared to the severe decline in economic conditions and deterioration of real
estate values experienced during the period 1989 through 1993. However, the
prospects as to the extent and timing of future improvement in the economy
remain uncertain. The Connecticut economy remains sluggish and does not appear
to be returning at the rate of the national and New England recoveries. However,
as reflected in the table below, economic statistics indicate that Fairfield
County has rebounded more rapidly than, and its recovery is outpacing, other
sectors within the state. The average commercial vacancy rate has dropped more
rapidly in Fairfield County and at 15.4% is at its lowest since 1989. Although
the average commercial vacancy rate in Greater New Haven was the highest in the
country in 1993, hitting 30.2% in the fourth quarter, the market has since
improved and the vacancy rate dropped 5.3 percentage points to 24.9% as of
December 31, 1995.
33
<PAGE>
Listed below are certain economic indicators for the Bank's primary market areas
as of or for the years ended December 31, 1995, 1994 and 1993.
December 31,
----------------------------
1995 1994 1993
------ ----- ------
Unemployment Rate<F1>:
Bridgeport Labor Market Area......... 5.3% 5.2% 6.3%
New Haven Labor Market Area.......... 4.7 4.6 5.6
Average Commercial Vacancy Rate<F2>:
Fairfield County..................... 15.4% 17.7% 21.0%
New Haven County..................... 24.9 27.5 30.2
Average Per Square Foot Commercial
Rental Space<F2>:
Fairfield County................... $20.48 $19.29 $19.54
New Haven County................... 17.67 15.89 15.50
New Housing Units (Permits)<F3>:
Fairfield County..................... 2,199 2,327 1,878
New Haven County..................... 1,878 1,968 2,240
[FN]
<F1> Source: State of Connecticut Labor Department, Labor Force Data
<F2> Source: Cushman & Wakefield, Market Report
<F3> Source: State of Connecticut Department of Housing, News Release
Asset Quality
The Bank grants commercial, residential and consumer loans principally in
Fairfield and New Haven counties in Connecticut. Although the Bank has a
diversified loan portfolio, a significant portion of its borrowers' ability to
honor their contracts is dependent upon the real estate sector of the economy in
its market area. Real estate values, although reflecting a leveling since the
end of 1993, have declined substantially since 1989 within the counties in which
the Bank operates, and the level of real estate sales has decreased
significantly.
The continued decline in nonperforming assets from $18,929,000 as of December
31, 1994 to $13,239,000 as of year-end 1995 reflects management's focused
efforts on their resolution and, as discussed in the preceding "Summary"
section, the significant decline in 1994 from $54,874,000 as of December 31,
1993 is primarily reflective of the "bulk sale" and "sealed-bid sale" of problem
loans and foreclosed properties completed during the first quarter of 1994.
Loans outstanding for which the primary source of repayment is the sale of real
estate collateral or cash flow from income producing properties were
approximately $209,424,000 as of December 31, 1995. Commercial loans
collateralized by real estate generally are underwritten with loan to value
ratios not exceeding 80% although more stringent standards are being employed in
many cases due to increased regulation and a slowly recovering economy.
34
<PAGE>
The nonperforming loan and asset loss reserve coverage ratio is dependent upon
several factors including the quality and estimated value of underlying
collateral held on nonperforming assets. The Bank's policy is to record other
real estate owned at the lower of cost or fair value minus costs to sell (i.e.,
market). Property is transferred to other real estate owned at the lower of cost
or estimated market value, with any cost over market value amount at the date of
transfer charged to the reserve for possible loan losses. Any further diminution
in value based on changes to estimated market value is charged to the reserve
for foreclosed property losses. The review and evaluation of nonperforming loans
and the carrying value of other real estate owned are performed quarterly. The
following table summarizes the Bank's collateral position on nonperforming
assets as of December 31, 1995:
Asset Net Realizable
Carrying Value of Unsecured
Value Collateral(1) Position
-------- ---------------- ---------
(dollars in thousands)
Nonaccrual loans.................. $ 7,103 $ 6,974 $129
Restructured loans................ 676 676 --
------- ------- ----
Total nonperforming loans....... 7,779 7,650 129
Other real estate owned........... 5,460 5,460 --
------- ------- ----
Total nonperforming assets...... $13,239 $13,110 $129
======= ======= ====
Reserve for possible loan losses.. $ 8,562
=======
Reserve for possible loan losses:
As a percentage of nonperforming
loans............. 110.1%
=====
As a percentage of
nonperforming assets........... 64.7%
====
(1) Represents the lesser of fair market value or the asset carrying value.
The Bank attempts to maintain an excess of the reserve for possible loan losses
over the unsecured portion of nonperforming assets to cover uncertainties in the
loan portfolio of a general or specific nature as a result of the Bank's credit
review function. Management believes, based upon its analysis of the loan
portfolio, the financial condition of specific borrowers and guarantors, the
collateral values securing its loans, current economic and real estate market
conditions, the level of nonperforming assets and loan charge-offs and other
related factors, that the reserve for possible loan losses is adequate as of
December 31, 1995.
Included on the consolidated balance sheet as of December 31, 1995 is $5,347,000
of net cash surrender value (net of insurance premium loans in the amount of
$1,521,000) pertaining to life insurance policies issued by a company
(affiliated with Confederation Life Insurance Company of Canada) which was
placed in rehabilitation during the third quarter of 1994. On October 17, 1995
it was announced that Pacific Mutual Life Insurance Company (Pacific Mutual) was
the winning bidder for the corporate-owned life insurance business. Although
uncertainties exist as a result of the rehabilitation process and although the
Bank has ceased accruing interest on this asset, the information available to
the Bank does not indicate that this asset (which
35
<PAGE>
is not included in the preceding nonperforming asset table) is impaired. The
effect of placing this cash surrender value on nonaccrual status reduced pre-tax
income by approximately $368,000 for the year ended December 31, 1995. Unless
and until this situation is resolved, it is anticipated that future pre-tax
income will be reduced by approximately $92,000 per quarter.
Net Interest Income
Net interest income, the difference between interest earned on interest earning
assets and interest expense incurred on interest bearing liabilities, is a
significant component of the Bank's income statement. Net interest income is
affected by changes in the volumes and rates of interest earning assets and
interest bearing liabilities, the volume of interest earning assets funded with
low cost deposits, noninterest bearing deposits and shareholders' equity, and
the level of nonperforming assets.
The following table reflects the components of the Bank's net interest income,
setting forth, for the three years ended December 31, 1995, (i) average assets,
liabilities and shareholders' equity, (ii) interest income earned on interest
earning assets and interest expense incurred on interest bearing liabilities,
(iii) average yields earned on interest earning assets and average rates
incurred on interest bearing liabilities, (iv) interest rate spread (i.e., the
average yield earned on interest earning assets less the average rate incurred
on interest bearing liabilities) and (v) interest rate margin (i.e., net
interest income divided by average interest earning assets). Rates are computed
on a tax equivalent basis using a Federal income tax rate of 34% and state
income tax rates of 11.25%, 11.5% and 11.5%, respectively, for the three years
ended December 31, 1995. Nonaccrual loans have been included in the average
balances, thereby reducing the rates reflected in the following table.
36
<PAGE>
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------------------------------------------
1995 1994
---------------------------------- ----------------------------------
Average Average Average Average
Balance Interest Rates Balance Interest Rates
-------- -------- ------- -------- -------- -------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Interest earning assets:
Interest bearing deposits with banks... $ 1,123 $ 44 3.92% $ 1,477 $ 43 2.91%
Federal funds sold..................... 2,077 119 5.73 4,478 168 3.75
Securities............................. 172,056 10,317 6.00 150,853 8,238 5.46
Loans.................................. 464,629 41,956 9.03 420,226 34,152 8.13
-------- ------- -------- -------
Total interest earning assets........ 639,885 52,436 8.19 577,034 42,601 7.38
-------- ------- -------- -------
Noninterest earning assets:
Cash and due from banks................ 32,357 30,523
Premises and equipment................. 4,946 4,865
Other real estate owned, net........... 6,393 8,453
Other assets........................... 25,356 20,798
Reserve for possible loan losses....... (9,695) (14,368)
-------- --------
Total noninterest earning assets..... 59,357 50,271
-------- --------
Total assets....................... $699,242 $627,305
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest bearing liabilities:
Deposits:
NOW.................................. $ 52,883 1,005 1.90 $ 56,047 930 1.66
Savings.............................. 150,607 3,908 2.59 182,461 4,224 2.32
Money Market......................... 22,005 553 2.51 22,579 515 2.28
Time................................. 228,545 11,723 5.13 162,679 6,121 3.76
-------- ------- -------- -------
Total interest bearing deposits.... 454,040 17,189 3.79 423,766 11,790 2.78
Short-term funds....................... 61,908 3,699 5.98 32,026 1,463 4.57
Long-term funds........................ 1,707 93 5.42 11,970 506 4.23
-------- ------- -------- -------
Total interest bearing liabilities. 517,655 20,981 4.05 467,762 13,759 2.94
-------- ------- -------- -------
Noninterest bearing liabilities:
Demand Deposits........................ 127,649 120,970
Other liabilities...................... 6,143 7,668
-------- --------
Total noninterest bearing
liabilities...................... 133,792 128,638
-------- --------
Shareholders' equity..................... 47,795 30,905
-------- --------
Total liabilities and
shareholders' equity............. $699,242 $627,305
======== ========
Net interest income (tax equivalent
basis)................................. 31,455
Reversal of tax equivalent adjustment.... (13) (18)
------- -------
Net interest income...................... $31,442 $28,824
======= =======
Interest rate spread (tax equivalent
basis)................................. 4.14% 4.44%
==== ====
Interest rate margin (net interest
income as a percentage of interest
earning assets - tax equivalent basis). 4.92% 5.00%
==== ====
</TABLE>
Year Ended December 31,
---------------------------------
1993
---------------------------------
Average Average
Balance Interest Rates
--------- -------- -------
(dollars in thousands)
ASSETS
Interest earning assets:
Interest bearing deposits with banks... $ 4,246 $ 115 2.71%
Federal funds sold..................... 6,704 196 2.92
Securities............................. 130,320 6,321 4.85
Loans.................................. 455,698 34,814 7.64
-------- -------
Total interest earning assets........ 596,968 41,446 6.94
-------- -------
Noninterest earning assets:
Cash and due from banks................ 30,162
Premises and equipment................. 5,926
Other real estate owned, net........... 11,224
Other assets........................... 19,010
Reserve for possible loan losses....... (19,410)
--------
Total noninterest earning assets..... 46,912
--------
Total assets....................... $643,880
========
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest bearing liabilities:
Deposits:
NOW.................................. $ 56,497 1,155 2.04
Savings.............................. 205,835 5,929 2.88
Money Market......................... 25,376 710 2.80
Time................................. 160,573 6,015 3.75
-------- -------
Total interest bearing deposits.... 448,281 13,809 3.08
Short-term funds....................... 25,330 751 2.96
Long-term funds........................ 25,202 874 3.47
-------- -------
Total interest bearing liabilities. 498,813 15,434 3.09
-------- -------
Noninterest bearing liabilities:
Demand Deposits........................ 113,508
Other liabilities...................... 6,669
--------
Total noninterest bearing
liabilities...................... 120,177
--------
Shareholders' equity..................... 24,890
--------
Total liabilities and
shareholders' equity............. $643,880
========
Net interest income (tax equivalent
basis)................................. 26,012
Reversal of tax equivalent adjustment.... (31)
-------
Net interest income...................... $25,981
=======
Interest rate spread (tax equivalent
basis)................................. 3.85%
====
Interest rate margin (net interest
income as a percentage of interest
earning assets - tax equivalent basis). 4.36%
====
37
<PAGE>
The following table presents an analysis of increases and decreases in interest
income and expense in terms of changes in volume and interest rates for the
three years ended December 31, 1995. The changes in interest due to both rate
and volume have been allocated to changes due to volume and changes due to rate
in proportion to the relationship of the absolute dollar amounts of the changes
in each. The table is presented on a tax equivalent basis using a Federal tax
rate of 34% and state tax rates of 11.25%, 11.5% and 11.5%, respectively, for
the three years ended December 31, 1995.
<TABLE>
<CAPTION>
1995 vs. 1994 1994 vs. 1993
---------------------------- --------------------------------
Increase (Decrease) Increase (Decrease)
Due to Change in Due to Change in
------------------ -------------------
Total Total
Average Average Increase Average Average Increase
Volume Rate (Decrease) Volume Rate (Decrease)
------- ------- ---------- ------- ------- ----------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest Income:
Loans, including fees .......... $3,804 $4,000 $7,804 $(2,805) $2,143 $ (662)
Securities ..................... 1,225 854 2,079 1,066 851 1,917
Interest bearing deposits
with banks ................... (12) 13 1 (80) 8 (72)
Federal funds sold ............. (114) 65 (49) (75) 47 (28)
------ ------ ------ ------- ------ ------
Total interest income ........ 4,903 4,932 9,835 (1,894) 3,049 1,155
------ ------ ------ ------- ------ ------
Interest Expense:
Interest bearing deposits:
NOW .......................... (55) 130 75 (9) (216) (225)
Savings ...................... (790) 474 (316) (625) (1,080) (1,705)
Money market ................. (13) 51 38 (73) (122) (195)
Time ......................... 2,953 2,649 5,602 79 27 106
------ ------ ------ ------- ------ ------
Total ...................... 2,095 3,304 5,399 (628) (1,391) (2,019)
Short-term funds ............... 1,681 555 2,236 234 478 712
Long-term funds ................ (526) 113 (413) (530) 162 (368)
------ ------ ------ ------- ------ ------
Total interest expense ....... 3,250 3,972 7,222 (924) (751) (1,675)
------ ------ ------ ------- ------ ------
Change in net interest income .... $1,653 $ 960 $2,613 $ (970) $3,800 $2,830
====== ====== ====== ======= ====== ======
</TABLE>
38
<PAGE>
Average interest earning assets were $639,885,000, $577,034,000 and $596,968,000
for the years ended December 31, 1995, 1994 and 1993, respectively. The increase
in average interest earning assets from 1994 to 1995 reflects the Bank's renewed
growth strategy while the decrease from 1993 to 1994 was a result of downsizing
the Bank's balance sheet in light of existing and anticipated capital ratio
requirements. Average nonaccrual loans outstanding totaling $8,645,000,
$19,866,000 and $40,064,000 for 1995, 1994 and 1993, respectively, are reflected
in these amounts. Income lost from the inability to earn on nonaccrual loans
during 1995, 1994 and 1993 was $840,000, $1,079,000 and $2,097,000,
respectively. The ratio of average interest earning assets to average total
assets for the year was 91.5% in 1995 compared to 92.0% in 1994 and 92.7% in
1993.
The Bank's interest rate spread, on a tax equivalent basis, was 4.14% for the
year ended December 31, 1995 compared to 4.44% for 1994 and 3.85% for 1993. The
ratio of net interest income, on a tax equivalent basis, to average interest
earning assets for the year was 4.92% in 1995 compared to 5.00% in 1994 and
4.36% in 1993. The decrease in the Bank's interest rate spread and the ratio of
net interest income to average earning assets in 1995 compared to 1994 is
primarily attributable to a proportionately greater increase in the average
interest rate of funds compared with the average yield on earning assets. This
increase, in turn, is attributable in part to a shift of interest bearing
deposits to higher cost funds. These factors were partially offset by a decrease
in average nonaccrual loans of $11,221,000 or 56.5%, coupled with a decrease in
average other real estate owned in the amount of $2,060,000 or 24.4%, after
charge-offs and write-downs, during 1995 compared to 1994.
The increase in net interest income in 1995 compared to 1994 of $2,613,000, or
9.1%, reflects the higher average volume of the Bank's loan and invested funds
portfolios of $44,403,000 and $18,448,000, respectively, as well as the effect
of rate increases during the period on the Bank's net asset sensitive position.
Average noninterest bearing demand deposits increased by $6,679,000 or 5.5%
during 1995 compared to 1994 which helped to reduce the effect of the shift of
interest bearing deposits to higher cost funds.
The improvement in the Bank's interest rate spread and ratio of net interest
income to average earnings assets in 1994 compared to 1993 is primarily due to
the decrease in average nonaccrual loans and other real estate owned as well as
the effect of rate increases during 1994 on the Bank's net asset sensitive
position. Average nonaccrual loans decreased $20,198,000 or 50.4% while other
real estate owned decreased $2,771,000 or 24.7%, after charge-offs and
write-downs, during 1994 compared to 1993 and the prime interest rate increased
250 basis points.
The increase in net interest income in 1994 compared to 1993 of $2,830,000, or
10.9%, is primarily due to the investment of proceeds from the "bulk sale" and
"sealed-bid sale" in the amount of $9,834,000 of which $8,216,000 related to
nonperforming assets, increased yields on earning assets and a net decline in
interest rates on sources of funds. These factors were partially offset by the
decline in the average volume of the loan portfolio of $35,472,000. The decrease
in the loan portfolio reflects management's planned downsizing through December
31, 1993 along with loan charge-offs during 1994 and the completion of the "bulk
sale and "sealed-bid sale" during the first quarter of 1994.
39
<PAGE>
Average noninterest bearing demand deposits increased by $7,462,000 or 6.6%
during 1994 compared to 1993. This increase, in addition to the net proceeds of
the Bank's common stock rights offering, had a positive effect on the Bank's net
interest income in 1994 by helping to reduce the Bank's cost of funds.
Provision for Possible Loan Losses
For the years ended December 31, 1995, 1994 and 1993, the provisions for
possible loan losses were $3,190,000, $3,325,000 and $23,500,000, respectively.
Net charge-offs, totaled $4,259,000 for the year 1995 compared to $10,482,000
for 1994 (exclusive of charge-offs for loans held for sale)and $17,905,000 for
1993. The reserve for possible loan losses was $8,562,000, $9,631,000 and
$15,353,000 as of December 31, 1995, 1994 and 1993, respectively, representing
1.65%, 2.21% and 3.75% of year-end loans. Nonperforming loans were $7,779,000,
$11,963,000 and $44,774,000 as of December 31, 1995, 1994 and 1993,
respectively, representing 1.50%, 2.75% and 10.95%, respectively, of outstanding
loans. The reserve coverage on nonperforming loans increased to 110.07% as of
December 31, 1995 from 80.51% in 1994 and 34.29% as of year-end 1993.
The 1995 provision reflects an additional charge of $500,000 to enhance the
unallocated portion of the loan loss reserve. The year 1994 reflected
significantly lower provisions for possible loan losses as compared to 1993 as a
result of the accelerated disposition of certain problem loans through the "bulk
sale" and "sealed-bid sale" completed during the first quarter of 1994, which
reduced nonperforming loans by approximately $8,430,000 and resulted in net
charge-offs of $5,613,000. During the fourth quarter of 1993 this accelerated
workout strategy resulted in an additional provision for possible loan losses of
$6,300,000. In 1993, the Bank added significantly to its reserve for possible
loan losses in response to weakening economic conditions and declining real
estate values in the Bank's market area which resulted in substantial levels of
nonperforming loans and other real estate owned.
The reserve for possible loan losses is established by management. Its adequacy
is monitored based on internal credit review and analysis of the loan portfolio
through an independent credit review function which considers current economic
conditions and their probable effect on borrowers, the amount of nonperforming
loans and related collateral, the amount of charge-offs during the period and
other relevant factors. This evaluation is inherently subjective as it requires
material estimates including the amounts and timing of future cash flows
expected to be received on impaired loans that may be susceptible to significant
change.
As of January 1, 1995, the Bank adopted, prospectively, Statement of Financial
Accounting Standards No. 114 "Accounting by Creditors for Impairment of a Loan"
(SFAS 114) and Statement of Financial Accounting Standards No. 118, "Accounting
by Creditors for Impairment of a Loan -- Income Recognition and Disclosures"
which amends certain aspects of SFAS 114. A loan is impaired when, based on
current information and events, it is probable that the Bank will be unable to
collect all amounts due according to the contractual terms of the loan
agreement. In accordance with these standards impaired loans within their scope
are measured based on the present value of expected future cash flows discounted
at the loan's original effective interest rate, or the observable market price
of the impaired loan or the fair value of the collateral if the loan is
collateral dependent. Any valuation reserve necessary under the standards are to
be considered in determining the adequacy of the Bank's overall
40
<PAGE>
reserve for possible loan losses. As a result of adopting these standards, no
additional valuation reserve was required as of January 1, 1995. As of December
31, 1995, the recorded investment in loans that are considered to be impaired
under SFAS 114 was $9,032,000 (of which $7,103,000 were on a nonaccrual basis).
Included in this amount is $244,000 of impaired loans for which the related
reserve for possible loan losses is $39,000 and $8,788,000 of impaired loans
that as a result of write-downs do not have a reserve for possible loan losses.
Noninterest Income
Total noninterest income was $6,078,000 in 1995 compared to $6,337,000 in 1994
and $8,306,000 in 1993, representing a decrease of $259,000 or 4.1% in 1995 and
a decrease of $1,969,000 or 23.7% in 1994. The decrease for 1995 resulted
primarily from reduced trust income due to the sale of the Bank's trust business
in May 1995 and the decrease for 1994 was mainly due to differences in the
amount of net securities gains from year to year, as described below.
Service charges on deposit accounts increased $293,000 or 9.1% in 1995 compared
to 1994 and decreased $260,000 or 7.5% in 1994 compared to 1993. The increase in
1995 is mainly the result of increased collection efforts implemented in
connection with management's initiative to improve the Bank's overall fee
income. The 1994 decrease is primarily as a result of decreased insufficient
funds activity charges and demand deposit service charges as a result of a
change in the mix of deposit account balances including the resolution of
certain problem account relationships.
Trust income was $938,000 in 1995 compared to $1,395,000 in 1994 representing a
decrease of $457,000 or 32.8%. This decrease reflects management's decision to
sell its trust assets. In May 1995, the Bank entered into a strategic alliance
with Sachem Trust National Association (Sachem) whereby the Bank agreed to sell
its trust business to Sachem. In September 1995, the Bank closed on this
transaction and will share in a portion of future revenues to be derived by
Sachem, if any, for a period of six years. Partially offsetting the decrease in
trust income noted above was a net gain on this sale totaling $276,000,
reflecting the recognition of $500,000 in fees, net of allocable disposition
costs. Gross trust income was $1,395,000 in 1994 compared to $1,515,000 in 1993
representing a decrease of $120,000 or 7.9%. This decrease reflects net declines
in the trust portfolio primarily resulting from account run-off and depreciation
in the market value of Professionally Managed Investment Accounts (PMIA).
Gains on sales of loans were $308,000 in 1995 compared to $681,000 in 1994 and
$566,000 in 1993, representing a decrease of $373,000 or 54.8% in 1995 and an
increase of $115,000 or 20.3% in 1994. The fluctuation in gains on sales of
loans from year to year is due to the volume of activity in secondary market
sales of Small Business Administration loans.
Total net securities gains were $279,000 in 1995. During the first quarter the
Bank realized a securities gain of $528,000 on the sale of its investment in
Webster Financial Corporation common stock. This realized gain was partially
offset by $249,000 of losses recognized on the sale of certain investments in
conjunction with the Bank's overall restructuring of its investment portfolio
undertaken in accordance with the provisions of a special report issued by the
Financial Accounting Standards
41
<PAGE>
Board "A Guide to Implementation of Financial Accounting Standards No. 115 on
Accounting for Certain Investments in Debt and Equity Securities" (SFAS 115)
during December, 1995. The realignment of the Bank's securities portfolio
resulted in approximately 80% of its securities being classified as available
for sale which will provide enhanced flexibility with respect to asset/liability
management and the maximization of future profitability. There were no net
securities gains in 1994. Total net securities gains were $1,505,000 in 1993. To
assist in bolstering its capital ratios in 1993, the Bank sold investments held
for sale generating gains of $1,515,000 in the first quarter of 1993.
The Bank's aggregate fair value of securities held to maturity was more than
carrying value by $329,000 as of December 31, 1995 and less than carrying value
by $6,810,000 as of December 31, 1994. Pursuant to SFAS 115, securities
available for sale are carried at fair value and, therefore, carrying value
includes net unrealized losses of $20,000 and $2,998,000 as of December 31, 1995
and 1994, respectively, which are reflected as a direct reduction to
shareholders' equity (net of taxes in 1995).
Net interest rate swap gains (losses) decreased to a loss of $5,000 in 1994 from
gains of $219,000 in 1993 primarily due to changes in unrealized profits on such
swaps as a result of changes in market value. There were no outstanding rate
swaps in 1995.
For additional information regarding the Bank's securities portfolio, see Notes
1 and 3 of Notes to Consolidated Financial Statements.
Noninterest Expense
Operating expenses decreased $2,193,000 or 7.7% to $26,230,000 in 1995 from
$28,423,000 in 1994. The following table presents a comparison of the components
of noninterest expense.
Year Ended Increase
December 31, (Decrease)
----------------- ------------------
1995 1994 Amount Percent
------- ------- ------- -------
(dollars in thousands)
Salaries and employee benefits ......... $12,027 $12,415 $ (388) (3.1)%
Net occupancy .......................... 3,373 3,136 237 7.6
Furniture and equipment ................ 1,930 2,102 (172) (8.2)
Marketing .............................. 1,234 894 340 38.0
Supply and communication ............... 1,108 1,224 (116) (9.5)
Foreclosed properties expense, net ..... 1,107 1,642 (535) (32.6)
FDIC insurance ......................... 937 1,624 (687) (42.3)
Legal fees ............................. 564 898 (334) (37.2)
Contract services ...................... 491 487 4 .8
Other .................................. 3,459 4,001 (542) (13.5)
------- ------- -------
Total noninterest expense ......... $26,230 $28,423 $(2,193) (7.7)
======= ======= =======
Salaries and employee benefits were $388,000 or 3.1% lower in 1995 compared to
1994 primarily as a result of reduced staffing levels in 1995 and decreased
group insurance expense. Average employees on a full-time equivalent basis were
18 persons lower for the year ended December 31, 1995 compared to the same
period in 1994 due in part to the aforementioned sale of the Bank's trust
business. Assets per full time equivalent
42
<PAGE>
employee were $2.6 million as of December 31, 1995, up from $2.2 million as of
December 31, 1994.
Marketing expense increased $340,000 or 38.0%, primarily as a result of budgeted
increases in advertising expenditures to promote the Bank and its products.
The expenses related to foreclosed properties decreased by $535,000 or 32.6%,
principally as a result of lower provisions for losses.
FDIC insurance expense decreased $687,000 or 42.3% for 1995 compared to 1994 as
increased deposit levels in 1995 were more than offset by a lower premium rate.
During the third quarter of 1995, the FDIC announced substantially reduced
premium rates for most banks effective June 1, 1995 and during the fourth
quarter of 1995 the FDIC instituted a further premium rate reduction effective
January 1, 1996.
Legal fees decreased $334,000 or 37.2% mainly as a result of reduced expenses
related to problem loan workout activity.
The decrease in other noninterest expenses reflects a net decline in a number of
miscellaneous expense categories. The most significant of these categories
related to a $192,000 reduction in loan workout expenses due to the lower level
of nonperforming assets in 1995 and a $214,000 loss of income as a result of
placing certain cash surrender value on a nonaccrual status (see "Asset Quality"
section, preceding).
Operating expenses decreased $8,366,000 or 22.7% to $28,423,000 in 1994 from
$36,789,000 in 1993. The following table presents a comparison of the components
of noninterest expense.
Year Ended Increase
December 31, (Decrease)
----------------- --------------------
1994 1993 Amount Percent
------- ------- ------- -------
(dollars in thousands)
Salaries and employee benefits ....... $12,415 $12,272 $ 143 1.2 %
Net occupancy ........................ 3,136 3,608 (472) (13.1)
Furniture and equipment .............. 2,102 2,156 (54) (2.5)
Foreclosed properties expense, net ... 1,642 5,425 (3,783) (69.7)
FDIC insurance ....................... 1,624 1,698 (74) (4.4)
Supply and communication ............. 1,224 1,430 (206) (14.4)
Legal fees ........................... 898 1,376 (478) (34.7)
Marketing ............................ 894 757 137 18.1
Contract services .................... 487 724 (237) (32.7)
Directors deferred compensation ...... 225 1,006 (781) (77.6)
Branch closure and restructuring
costs .............................. -- 2,370 (2,370) (100.0)
Other ................................ 3,776 3,967 (191) (4.8)
------- ------- -------
Total noninterest expense ....... $28,423 $36,789 $(8,366) (22.7)
======= ======= =======
The increase in salaries and employee benefits of $143,000 or 1.2% was mainly
due to the reinstitution of employee scheduled annual salary increases in 1994
which were discontinued in January 1992 and increased incentive and option
compensation expense.
43
<PAGE>
These increases were partially offset by reduced average staffing levels of 30
persons, on a full time equivalent basis, in 1994 compared to 1993.
The reduction of net occupancy expense of $472,000 or 13.1% primarily resulted
from the closing of three branch offices effective March 15, 1994 and the
sublease of one of the Bank's former branch locations during 1994.
The reduced expenses related to foreclosed properties reflects management's
altered problem asset workout strategy provided for in the fourth quarter of
1993 resulting in the disposition of approximately $3,452,000 of foreclosed
properties in the "sealed-bid sale" completed in the first quarter of 1994.
Supply and communication expense decreased $206,000 or 14.4% mainly due to the
write-off of approximately $141,000 of operating supplies related to the merger
of the Company's two subsidiary banks into the Bank in the first quarter of
1993.
Legal fees decreased $478,000 or 34.7% mainly as a result of reduced expenses
related to problem loan workout activity.
The decrease in contract services from $724,000 in 1993 to $487,000 in 1994
reflects the lower level of outside services contracted for the internal
operations of the Bank, particularly in the area of problem loan review.
Directors deferred compensation expense decreased $781,000 in 1994 compared to
1993 primarily as a result of director termination and death benefit accrual
adjustments relating to the plan which occurred in 1993.
Branch closure and restructuring costs of $1,470,000 and $900,000, respectively,
were recognized in 1993. In order to improve the operating results of the Bank,
management closed three branches in the first quarter of 1994. Since alternative
uses could not be found for the vacated branch facilities, the Bank recognized a
loss of approximately $1,470,000 in the fourth quarter of 1993, due to the
abandonment of leasehold improvements and other associated costs. In addition,
several changes occurred as part of the Bank's effort to restructure and
revitalize its management and operations which resulted in a severance accrual
of approximately $900,000 during the fourth quarter of 1993.
The decrease in other noninterest expenses reflects declines in a number of
miscellaneous expense categories.
Provision (Benefit) for Income Taxes
The provision (benefit) for income taxes for the years ended December 31, 1995,
1994 and 1993 was $(10,827,000), $(2,724,000) and $16,000, respectively. The
effective tax (benefit) rates were (133.7)%,(79.8)% and .1% for the years ended
December 31, 1995, 1994 and 1993, respectively. Deferred income tax benefits of
$11,935,000 and $3,439,000 were recorded in 1995 and 1994, respectively, as a
result of the Bank's recognition of certain net operating loss carryforwards
through the reduction of the valuation allowance for its deferred tax asset.
Such net operating loss carryforward recognition is based upon management's
estimate of the amount of taxable income to be
44
<PAGE>
generated in future periods which can be offset by the net operating loss
carryforwards. As of December 31, 1995, substantially all of the Bank's deferred
income tax benefits have been recognized. No Federal income tax benefit was
recorded for 1993 as a result of deferred tax asset limitations. As of December
31, 1995, the Bank had net deferred tax asset attributes totaling approximately
$16,506,000 with a valuation allowance of $1,124,000 representing management's
estimate of state operating loss carryforwards which may not be fully
realizable. The tax asset attributes are primarily a result of Federal and state
operating loss carryforwards and differences in financial reporting and tax
accounting for (1) loan and foreclosed property losses, (2) purchased mortgage
servicing rights and (3) director and officer compensation plans. The net
deferred tax asset of $15,382,000 as of December 31, 1995 is realizable
primarily based upon deferred income tax benefits to be derived from future
projected taxable income. The Bank estimates that it will need to generate
future taxable income of approximately $37,500,000 in order to realize all of
the net deferred tax asset recorded as of year-end 1995.
Liquidity
The liquidity of a banking institution reflects its ability to provide funds to
meet loan requests, to accommodate possible outflows in deposits and to take
advantage of interest rate market opportunities. Funding of loan requests,
providing for liability outflows and management of interest rate fluctuations
require continuous analysis in order to match the maturities of specific
categories of short-term loans and investments with specific types of deposits
and borrowings. Bank liquidity is thus normally considered in terms of the
nature and mix of a banking institution's sources and uses of funds. The Bank's
Asset and Liability Committee is responsible for implementing the Board of
Directors' policies and guidelines for the maintenance of prudent levels of
liquidity.
The Bank's principal sources of funds for operations are cash flows generated
from earnings, deposits, loan repayments, sales of loans, borrowings from
correspondent banks and securities sold under repurchase agreements. Such
sources are supplemented by interest bearing deposits with banks, Federal funds
sold and unencumbered securities available for sale. Brokered deposits were not
utilized as a source of funds during 1995 and none were outstanding as of
year-end.
Loans (including demand loans) and securities maturing or repricing within one
year aggregated approximately $428,303,000 as of December 31, 1995 as reflected
in the table at the end of this section. These amounts are supplemented by
interest bearing deposits in other banks which totaled $649,000 as of December
31, 1995. As of December 31, 1994, loans (including demand loans) and securities
maturing or repricing within one year were $421,585,000 and interest bearing
deposits in other banks amounted to $1,279,000.
As of December 31, 1995, the Bank had $12,200,000 of unused unsecured Federal
funds lines and $106,566,000 of excess security collateral available for
repurchase agreements ($156,200,000 in authorized lines). Comparable amounts as
of December 31, 1994 were $7,900,000 of unused secured Federal funds lines and
$123,856,000 of excess security collateral available for repurchase agreements
($142,200,000 in authorized lines).
45
<PAGE>
The inflow and outflow of funds is detailed in the Bank's consolidated
statements of cash flows for the years ended December 31, 1995, 1994 and 1993
and is summarized below.
Net cash provided by operating activities was $17,433,000, $6,245,000 and
$7,142,000 for the years ended December 31, 1995, 1994 and 1993, respectively,
reflecting increasing net interest income and reduced cash expenditures in 1995.
Net cash used for investing activities, which reflects the redeployment of funds
into the securities and loan portfolios, was $51,872,000 and $73,677,000 for
1995 and 1994, respectively, as compared to net cash provided by investing
activities in the amount of $24,631,000 for 1993, which reflects the planned
downsizing of the Bank. During 1995, the Bank experienced net originations of
loans totaling $87,185,000 partially offset by its reduced investment in
securities of $36,974,000. During 1994, the Bank realized $9,834,000 in proceeds
from sales of assets held for sale offset by its increased investment in
securities of $54,540,000 and net originations of loans totaling $27,009,000.
During 1993, the Bank experienced a net repayment of loans of $19,547,000 and
reduced its investment in securities by $6,000,000.
The cash provided by financing activities of $40,117,000 for 1995 primarily
reflected a net increase in time deposits of $67,073,000 partially offset by a
net decrease in borrowed funds in the amount of $25,358,000. Net cash provided
by financing activities was $73,428,000 for 1994 reflecting net proceeds from
the issuance of common stock in the amount of $32,317,000, a net inflow of
deposits of $18,559,000 as well as an increase of $22,488,000 in borrowed funds.
In 1994, the Bank actively sought funds through various deposit gathering
programs to assist in the Bank's balance sheet growth. Net cash used for
financing activities was $36,581,000 for 1993. A substantial managed net outflow
of deposits of $51,320,000 was part of the Bank's planned downsizing. Also, the
Bank increased its Federal Home Loan Bank ("FHLB") advances in the amount of
$30,315,000 to maximize its available borrowing capacity at the FHLB.
The Bank's "regulatory liquidity" ratio, which measures liquidity over a one
year time horizon and is defined as net cash and short-term and marketable
assets as a percent of net deposits and short-term liabilities, was 23.89% as of
December 31, 1995. This ratio was 29.08% and 24.27% as of December 31, 1994 and
1993, respectively. Management believes the current regulatory liquidity ratio
indicates that the Bank has an adequate level of liquidity to meet its current
and long-term funding needs.
Closely related to the concept of liquidity is the management of interest
earning assets and interest bearing liabilities, which focuses on maintaining
stability in the interest rate spread, an important factor in earnings growth
and stability. Emphasis is placed on maintaining a controlled rate sensitivity
position to avoid wide swings in interest rate spreads and to minimize risk due
to changes in interest rates.
An asset or liability is considered rate sensitive within a specified period
when it matures or could be repriced within such period in accordance with its
contractual terms.
Interest rate risk of the Bank is managed by an Asset Liability Committee which
meets quarterly.
46
<PAGE>
The following table sets forth the cumulative maturity distribution of the
Bank's interest earning assets and interest bearing liabilities as of December
31, 1995, the Bank's interest rate sensitivity gap (i.e., interest rate
sensitive assets less interest rate sensitive liabilities),the Bank's cumulative
interest rate sensitivity gap, the Bank's interest rate sensitivity gap ratio
(i.e., interest rate sensitive assets divided by interest rate sensitive
liabilities) and the Bank's cumulative interest rate sensitivity gap ratio.
<TABLE>
<CAPTION>
Maturity or Repricing Interval
--------------------------------------------------------------------------
After After After
Three Six One
Months Months Year
But But But
Within Within Within Within After
Three Six One Five Five
Months Months Year Years Years Total
--------- --------- -------- -------- -------- --------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest earning assets:
Loans ......................... $ 217,169 $ 50,454 $ 88,391 $132,963 $ 29,069 $518,046
Securities .................... 20,282 21,684 30,323 45,923 23,257 141,469
Interest bearing deposits
with banks .................. 649 -- -- -- -- 649
--------- --------- -------- -------- -------- --------
Total ..................... 238,100 72,138 118,714 178,886 52,326 $660,164
--------- --------- -------- -------- -------- ========
Interest bearing liabilities:
Interest bearing deposits ..... 315,998 88,247 70,055 14,305 51 $488,656
Short-term borrowings ......... 33,280 -- -- -- -- 33,280
Long-term borrowings .......... -- -- -- -- 315 315
--------- --------- -------- -------- -------- --------
Total ....................... 349,278 88,247 70,055 14,305 366 $522,251
--------- --------- -------- -------- -------- ========
Interest rate sensitivity gap ... $(111,178) $ (16,109) $ 48,659 $164,581 $ 51,960
========= ========= ======== ======== ========
Cumulative interest rate
sensitivity gap ............... $(111,178) $(127,287) $(78,628) $ 85,953 $137,913
========= ========= ======== ======== ========
Interest rate sensitivity
gap ratio ..................... .68X .82X 1.69X 12.51X 142.97X
Cumulative interest rate
sensitivity gap ratio ......... .68X .71X .85X 1.16X 1.26X
</TABLE>
The preceding table indicates the time periods in which interest earning assets
and interest bearing liabilities will mature or may reprice in accordance with
their contractual terms. However, as explained below, this table does not
necessarily indicate the impact of general interest rate movements on the Bank's
net interest yield because the repricing of various categories of assets and
liabilities is discretionary and is subject to competitive and other pressures.
As a result, various assets and liabilities indicated as repricing within the
same period may, in fact, reprice at different times and at different rate
levels. It also should be noted that this table reflects certain assumptions
regarding the categorization of assets and liabilities and represents a one-day
position; in fact, variations occur daily as the Bank adjusts its interest rate
sensitivity throughout the year.
Interest rate risk is controlled by projecting the response of net interest
income to changes in market interest rates. Management's objective is to
minimize the annual change in net interest income resulting from changes in the
Bank's prime interest rate. This exposure is measured by simulating the
repricing of assets and liabilities shown in the Bank's interest rate
sensitivity gap position. This simulation takes
47
<PAGE>
into account the fact that various assets and liabilities indicated as repricing
within the same period may actually reprice at different times and at different
rate levels. The Bank's interest rate risk profile at December 31, 1995
indicates that over a one year time horizon, for a 200 basis point parallel
shift in interest rates spread evenly over the year, there is a positive effect
to the Bank in a rising interest rate environment and a negative effect in a
falling interest rate environment, the amounts of which are similar and within
the Bank's established guidelines.
Another method of measuring interest rate risk is by simulating asset and
liability market value sensitivity resulting from changes in interest rates. As
of December 31, 1995, the Bank's market value analysis indicates that for a 200
basis point immediate change in interest rates, there is a more significant
negative effect to the Bank in a falling versus a rising interest rate
environment, both of which are within the Bank's established policy limits.
Capital Resources
The Bank is subject to capital adequacy guidelines issued by the FDIC. The FDIC
has risk-based capital guidelines for financial institutions, such as the Bank.
The minimum ratio of risk-based capital to risk-adjusted assets (including
certain off-balance sheet items such as standby letters of credit) is 4% and 8%
for Tier 1 and total capital, respectively. At least half of the total capital
is to be comprised of common equity and qualifying perpetual preferred stock,
less certain intangible assets and the disallowed portion of deferred tax assets
("Tier 1 capital"). The remainder ("Tier 2 capital") may consist of mandatory
convertible debt securities, qualifying subordinated debt, other preferred stock
and a portion of the reserve for possible loan losses.
In addition, the FDIC has minimum "leverage" ratio guidelines (Tier 1 capital as
of quarter-end to total quarterly average assets) for financial institutions.
These guidelines provide for a minimum leverage ratio of 3% for financial
institutions that meet certain specified criteria. Most financial institutions
(including the Bank) are required to maintain a leverage ratio of at least 100
to 200 basis points above the minimum ratio. As discussed under Note 2 of Notes
to Consolidated Financial Statements, the Bank is required by Board of Director
resolution to maintain a Tier 1 leverage capital ratio at a minimum of 6%.
Information regarding the capital ratios of the Bank as of December 31, 1995,
calculated using the standards provided in the risk-based and minimum "leverage"
ratio capital guidelines, are presented on the following page:
48
<PAGE>
As of December 31, 1995
-----------------------
(dollars in thousands)
Risk-Based Capital
- ------------------
Tier 1 capital................................. $ 48,822
Total capital.................................. 55,425
Risk-weighted assets........................... 526,251
Tier 1 risk-based capital ratio:
Actual....................................... 9.28%
Regulatory requirement....................... 4.00
Total risk-based capital ratio:
Actual....................................... 10.53
Regulatory requirement....................... 8.00
Leverage Capital
- ----------------
Total shareholders' equity..................... $ 59,509
Add - Net unrealized loss on available
for sale securities.................... 11
Less - Net deferred tax asset disallowance..... (10,492)
- Other................................... (206)
--------
Total adjusted shareholders' equity.......... $ 48,822
========
Total average assets........................... $727,910
Add - Net unrealized loss on available
for sale securities.................... 470
Less - Net deferred tax asset disallowance..... (8,971)
--------
Total adjusted average assets (1)............ $719,409
========
Leverage capital ratio:
Actual....................................... 6.79%
Minimum established by Board resolution...... 6.00
(1) Based upon average adjusted assets for the fourth quarter.
For further information regarding regulatory examinations and other regulatory
matters see Note 2 of Notes to Consolidated Financial Statements.
Effects of Inflation
The impact of inflation on banks differs from the impact on nonfinancial
institutions. Banks, as financial intermediaries, have assets and liabilities
which may move in concert with inflation. This is especially true for banks with
a high percent of rate sensitive interest earning assets and interest bearing
liabilities. A bank can reduce the impact of inflation if it can manage its rate
sensitivity gap. The Bank attempts to structure its assets and liabilities and
manage its gap in a manner which will minimize the potential adverse effects of
inflation or other market forces on its profitability and capital position.
49
<PAGE>
A large proportion of the Bank's assets and liabilities, as well as off-balance
sheet assets and commitments, are financial instruments. The Bank's estimates of
the fair values of financial instruments are included in Note 14 of Notes to
Consolidated Financial Statements, as required by Statement of Financial
Accounting Standards No. 107 (SFAS 107). However, due to the wide range of
acceptable valuation techniques, numerous estimates required and the exclusion
by SFAS 107 of certain financial instruments and all nonfinancial instruments
from reporting, the fair values presented do not purport to present the
underlying value of the Bank.
50
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
(a) The following financial statements and related documents are filed as part
of this annual report on Form F-2 on the following pages:
Page
-----
Management's Report on Financial Statements................ 52
Report of Independent Public Accountants................... 53
Consolidated Balance Sheets as of
December 31, 1995 and 1994................................. 54
Consolidated Statements of Operations for the years ended
December 31, 1995, 1994 and 1993 .......................... 55
Consolidated Statements of Changes in Shareholders'
Equity for the years ended December 31, 1995,
1994 and 1993.............................................. 56
Consolidated Statements of Cash Flows for the years
ended December 31, 1995, 1994, and 1993.................... 57
Notes to Consolidated Financial Statements................. 58
(b) The following supplementary data are set forth in this
annual report on Form F-2 on the following pages:
Quarterly Results of Operations............................ 82
51
<PAGE>
MANAGEMENT'S REPORT ON FINANCIAL STATEMENTS
The accompanying financial statements and the related financial information in
this Annual Report were prepared by the management of Lafayette American Bank
and Trust Company in accordance with generally accepted accounting principles
and where appropriate reflect management's best estimates and judgment.
Management is responsible for the integrity, objectivity, consistency and fair
presentation of the financial statements and all financial information contained
in this Annual Report.
Management has in place an internal accounting control system designed to
provide reasonable assurance that assets are safeguarded, that transactions are
executed in accordance with the Bank authorizations and policies, and that
transactions are properly recorded so as to permit preparation of financial
statements that fairly present financial position and results of operations in
conformity with generally accepted accounting principles. The internal control
system is augmented by a structure that provides appropriate division of duties
and the communication of written policies and procedures to the Bank's operating
departments.
The Audit Committee of the Board of Directors, composed solely of outside
directors, meets periodically with the Bank's management, internal auditors and
independent public accountants to review matters relating to financial
reporting, internal control structure and the nature, extent and results of the
audit effort. The independent public accountants and the internal auditor have
access to the Audit Committee with or without management present.
The accompanying financial statements have been audited by Arthur Andersen LLP,
independent public accountants. Their audits include a study and evaluation of
the Bank's internal control system as required by generally accepted auditing
standards. Under these standards, the purpose of such evaluations is to
establish a basis for reliance on the internal control system in determining the
nature, timing and extent of other auditing procedures required to support their
opinion on the financial statements.
/s/ Robert B. Goldstein /s/ Phillip J. Mucha
------------------------ -------------------------
Robert B. Goldstein Phillip J. Mucha
President and Chief Executive Vice President
Executive Officer and Chief Financial Officer
52
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders and Board of Directors of
Lafayette American Bank and Trust Company:
We have audited the consolidated balance sheets of Lafayette American Bank and
Trust Company and subsidiaries as of December 31, 1995 and 1994, and the related
consolidated statements of operations, changes in shareholders' equity and cash
flows for each of the three years in the period ended December 31, 1995. 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 Lafayette American Bank and
Trust Company and subsidiaries as of December 31, 1995 and 1994, and the results
of their operations and their cash flows for each of the three years in the
period ended December 31, 1995, in conformity with generally accepted accounting
principles.
ARTHUR ANDERSEN LLP
New York, New York
January 17, 1996 (except with respect to
the matter discussed in Note 1, as to
which the date is February 6, 1996 and the
matter discussed in Note 13, as to which the
date is February 2, 1996)
53
<PAGE>
CONSOLIDATED BALANCE SHEETS
Lafayette American Bank and Trust Company and Subsidiaries
As of December 31,
----------------------
(dollars in thousands) 1995 1994
- ---------------------- ---- ----
Assets
Cash and Due from Banks........................... $ 41,546 $ 35,238
Interest Bearing Deposits with Banks.............. 649 1,279
Securities:
Available for Sale - at fair value.............. 113,615 65,466
Held to Maturity - at amortized cost (market
value of $28,183 in 1995 and $102,926
in 1994)...................................... 27,854 109,736
-------- --------
Total Securities.......................... 141,469 175,202
-------- --------
Loans............................................. 518,046 435,756
Less Reserve for Possible Loan Losses........... (8,562) (9,631)
-------- --------
Net Loans..................................... 509,484 426,125
Deferred Income Taxes............................. 15,382 3,439
Cash Surrender Value.............................. 8,487 7,592
Other Real Estate Owned........................... 5,460 6,966
Premises and Equipment............................ 4,803 4,722
Accrued Interest Receivable....................... 4,641 4,432
Other Assets...................................... 3,484 8,756
-------- --------
Total Assets................................ $735,405 $673,751
======== ========
Liabilities and Shareholders' Equity
Liabilities:
Deposits:
Noninterest Bearing........................... $147,687 $138,722
Interest Bearing.............................. 488,656 431,687
-------- --------
Total Deposits.............................. 636,343 570,409
Funds Borrowed.................................. 33,595 58,953
Other Liabilities............................... 5,958 6,519
-------- --------
Total Liabilities........................... 675,896 635,881
-------- --------
Commitments and Contingencies (Notes 2, 7,
10, 12 and 13)
Shareholders' Equity:
Preferred Stock - par value $1 per share:
Authorized shares - 275,000................... -- --
Common Stock - no par value; stated value
$.02 per share:
Authorized shares - 15,000,000
Issued shares - 10,013,529 in 1995 and
10,005,196 in 1994........................ 200 200
Capital Surplus................................. 50,213 63,016
Net Unrealized Losses on Available
for Sale Securities, Net of Taxes in 1995..... (11) (2,998)
Retained Earnings (Deficit) .................... 9,148 (22,307)
Treasury Stock - at cost (7,000 common shares).. (41) (41)
-------- --------
Total Shareholders' Equity.................... 59,509 37,870
-------- --------
Total Liabilities and
Shareholders' Equity...................... $735,405 $673,751
======== ========
The accompanying notes are an integral part of these financial statements.
54
<PAGE>
CONSOLIDATED STATEMENTS OF OPERATIONS
Lafayette American Bank and Trust Company and Subsidiaries
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------
(dollars in thousands, except per share data) 1995 1994 1993
- --------------------------------------------- ------- ------- -------
<S> <C> <C> <C>
Interest Income:
Loans, Including Fees............................. $ 41,947 $34,136 $ 34,798
Securities........................................ 10,313 8,236 6,306
Interest Bearing Deposits with Banks.............. 44 43 115
Federal Funds Sold................................ 119 168 196
-------- ------- --------
Total Interest Income........................... 52,423 42,583 41,415
-------- ------- --------
Interest Expense:
Deposits.......................................... 17,189 11,790 13,809
Short-Term Borrowings............................. 3,699 1,463 751
Long-Term Borrowings.............................. 93 506 874
-------- ------- --------
Total Interest Expense.......................... 20,981 13,759 15,434
-------- ------- --------
Net Interest Income................................. 31,442 28,824 25,981
Provision for Possible Loan Losses.................. 3,190 3,325 23,500
-------- ------- --------
Net Interest Income after
Provision for Possible Loan Losses................ 28,252 25,499 2,481
-------- ------- --------
Noninterest Income:
Service Charges on Deposit Accounts............... 3,502 3,209 3,469
Trust Income, Net................................. 938 1,395 1,515
Commissions and Fees.............................. 487 457 537
Mortgage Servicing Fees........................... 355 257 192
Gains on Sales of Loans........................... 308 681 566
Securities Gains, Net............................. 279 -- 1,505
Other............................................. 209 338 522
-------- ------- --------
Total Noninterest Income........................ 6,078 6,337 8,306
-------- ------- --------
Noninterest Expense:
Salaries.......................................... 9,893 10,161 9,962
Employee Benefits................................. 2,134 2,254 2,310
Net Occupancy..................................... 3,373 3,136 3,608
Furniture and Equipment........................... 1,930 2,102 2,156
Marketing......................................... 1,234 894 757
Foreclosed Properties Expense, Net................ 1,107 1,642 5,425
FDIC Insurance.................................... 937 1,624 1,698
Branch Closure and Restructuring Costs............ -- -- 2,370
Other............................................. 5,622 6,610 8,503
-------- ------- --------
Total Noninterest Expense....................... 26,230 28,423 36,789
-------- ------- --------
Income (Loss) Before Income Taxes and Cumulative
Effect of Change in Accounting Principle.......... 8,100 3,413 (26,002)
Provision (Benefit) for Income Taxes................ (10,827) (2,724) 16
-------- ------- --------
Income (Loss) Before Cumulative Effect of Change in
Accounting Principle.............................. 18,927 6,137 (26,018)
Cumulative Effect of Change in Accounting
Principle......................................... -- -- (3,118)
-------- ------- --------
Net Income (Loss)................................... $ 18,927 $ 6,137 $(29,136)
======== ======= ========
Average Common Shares Outstanding:
Primary........................................... 10,235,953 8,870,266 1,750,458
Fully Diluted..................................... 10,269,618 8,870,266 1,750,458
Per Common Share:
Primary:
Income (Loss) Before Cumulative Effect of
Change in Accounting Principle................. $ 1.85 $.69 $(14.86)
Cumulative Effect of Change in
Accounting Principle.......................... -- -- (1.78)
------ ---- -------
Net Income (Loss)............................... $ 1.85 $.69 $(16.64)
====== ==== =======
Fully Diluted:
Income (Loss) Before Cumulative Effect of
Change in Accounting Principle................. $ 1.84 $.69 $(14.86)
Cumulative Effect of Change in
Accounting Principle.......................... -- -- (1.78)
------ ---- -------
Net Income (Loss)............................... $ 1.84 $.69 $(16.64)
====== ==== =======
Dividends Declared................................ $ .05 $ -- $ --
====== ==== =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
55
<PAGE>
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
Lafayette American Bank and Trust Company and Subsidiaries
<TABLE>
<CAPTION>
Net
Unrealized
Gains (Losses)
on Available Retained
Preferred Common Capital for Sale Earnings Treasury
(dollars in thousands, except per share data) Stock Stock Surplus Securities (Deficit) Stock Total
- -------------------------------------------- --------- ------ ------- -------------- --------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1992.................... $ 52 $ 35 $30,178 $ - $ 693 $ - $ 30,958
Net Loss...................................... - - - - (29,136) - (29,136)
Issuance of 16,811 Shares of Preferred Stock.. 17 - 487 - - - 504
Net Unrealized Gains on Available for
Sale Securities............................. - - - 215 - - 215
---- ---- ------- -------- -------- ----- --------
Balance, December 31, 1993.................... 69 35 30,665 215 (28,443) - 2,541
Net Income.................................... - - - - 6,137 - 6,137
Issuance of 7,787,407 Shares of Common Stock
at $4.40 Per Share in Connection with
Rights Offering, Net of Related Expenses
of $1,948,000............................... - 156 32,161 - - - 32,317
Conversion of 68,635 Shares of Preferred
Stock into 467,953 Shares of Common Stock... (69) 9 60 - - - -
Issue and Retirement of Treasury Stock in
Connection with One-For-Two Reverse
Stock Split................................. - - (2) - (1) - (3)
Acquisition of Common Stock in Lieu of Debt
(17,000 shares)............................. - - - - - (100) (100)
Sale of Treasury Common Stock (10,000 shares). - - 5 - - 59 64
Retirement of 2,005.5 Warrants at $1.25
Per Warrant................................. - - (3) - - - (3)
Effect of Compensation Plans.................. - - 130 - - - 130
Increase in Net Unrealized Losses on
Available for Sale Securities............... - - - (3,213) - - (3,213)
---- ---- ------- -------- -------- ----- --------
Balance, December 31, 1994.................... - 200 63,016 (2,998) (22,307) (41) 37,870
Net Income.................................... - - - - 18,927 - 18,927
Transfer...................................... - - (13,028) - 13,028 - -
Common Stock Cash Dividends ($.05 per share).. - - - - (500) - (500)
Effect of Compensation Plans.................. - - 184 - - - 184
Exercise of Stock Options (8,333 shares)...... - - 41 - - - 41
Decrease in Net Unrealized Losses on
Available for Sale Securities, Net of Taxes. - - - 2,987 - - 2,987
---- ---- ------- -------- -------- ----- --------
Balance, December 31, 1995.................... $ - $200 $50,213 $ (11) $ 9,148 $ (41) $ 59,509
==== ==== ======= ======== ======== ===== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
56
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
Lafayette American Bank and Trust Company and Subsidiaries
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------
(dollars in thousands) 1995 1994 1993
- --------------------- -------- -------- --------
<S> <C> <C> <C>
Operating Activities:
Net Income (Loss)................................... $ 18,927 $ 6,137 $(29,136)
Adjustments to Reconcile Net Income (Loss) to Net
Cash Provided by Operating Activities:
Cumulative Effect of Change in Accounting
for Purchased Mortgage Servicing Rights....... - - 3,118
Provision for Possible Loan Losses.............. 3,190 3,325 23,500
Provision for Loss on Foreclosed Properties..... 316 1,137 4,401
Depreciation and Amortization................... 1,679 2,069 4,415
Deferred Income Tax Provision (Benefit)......... (11,935) (3,439) 248
Branch Closure and Restructuring Costs.......... - - 2,370
Securities Gains, Net........................... (279) - (1,505)
Gains on Sales of Loans......................... (308) (681) (566)
Loans Originated for Sale....................... (6,961) (12,409) (8,439)
Proceeds from Sales of Loans.................... 5,882 11,514 7,422
Net Change in Interest Receivables and Payables. (128) (337) 806
Other, Net...................................... 7,050 (1,071) 508
-------- -------- --------
Net Cash Provided by Operating Activities..... 17,433 6,245 7,142
-------- -------- --------
Investing Activities:
Securities Available for Sale:
Proceeds from Maturities of Securities............ 21,599 13,077 32,773
Proceeds from Sales of Securities................. 25,590 5 105,429
Purchases of Securities........................... (4,527) (13,789) (134,421)
Securities Held to Maturity:
Proceeds from Sales of Securities................. - - 9,615
Proceeds from Maturities of Securities............ 9,717 10,789 11,736
Purchases of Securities........................... (15,405) (64,622) (19,132)
Repayments (Originations) of Loans, Net............. (87,185) (27,009) 19,547
Proceeds from Sales of Assets Held for Sale......... - 9,834 -
Purchases of Premises and Equipment................. (1,661) (1,962) (916)
-------- -------- --------
Net Cash Provided by (Used for)
Investing Activities........................ (51,872) (73,677) 24,631
-------- -------- --------
Financing Activities:
Net Decrease in Demand, NOW,
Savings and Money Market Accounts................. (1,139) (17,123) (41,025)
Net Increase (Decrease) in Time Deposits............ 67,073 35,682 (10,295)
Increase (Decrease) in Federal Home Loan Bank
Advances.......................................... (16,000) (6,000) 30,315
Net Increase (Decrease) in Federal Funds Purchased
and Securities Sold Under Repurchase Agreements... (10,295) 24,403 (13,382)
Net Increase (Decrease) in Other Borrowed Funds..... 937 4,085 (2,698)
Net Proceeds from Issuance of Common Stock.......... - 32,317 -
Net Proceeds from Sale of Treasury Common Stock..... - 64 -
Net Proceeds from Issuance of Preferred Stock....... - - 504
Proceeds from Exercise of Stock Options............. 41 - -
Cash Dividends Paid................................. (500) - -
-------- -------- --------
Net Cash Provided by (Used for)
Financing Activities........................ 40,117 73,428 (36,581)
-------- -------- --------
Net Increase (Decrease) in Cash and Cash
Equivalents................................. 5,678 5,996 (4,808)
Cash and Cash Equivalents at Beginning of Year........ 36,517 30,521 35,329
-------- -------- --------
Cash and Cash Equivalents at End of Year.............. $ 42,195 $ 36,517 $ 30,521
======== ======== ========
Supplemental Information on Cash Paid For:
Interest............................................ $ 20,900 $ 13,626 $ 15,393
Income Taxes Paid (Refunded), Net................... (454) (472) 460
Noncash Investing and Financing Activities:
Transfer of Held to Maturity Securities
to Securities Available for Sale.................. 87,518 1,216 3,208
Transfer of Securities Held for Sale to
Securities Held for Investment.................... - - 27,583
Transfer from Loans to Other Real Estate Owned...... 1,215 5,560 5,183
Transfer of Loans and Other Real Estate
Owned to Assets Held for Sale..................... - - 33,557
Transfer of Assets Held for Sale to Loans and
Other Real Estate Owned........................... - 19,046 -
Loans to Facilitate Sale of Other Real
Estate Owned...................................... 1,135 1,747 1,631
Transfer from Loans to Treasury Stock............... - 100 -
Decrease (Increase) in Unrealized Loss on
Available for Sale Securities..................... 2,979 (3,213) 215
The accompanying notes are an integral part of these financial statements.
</TABLE>
57
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Lafayette American Bank and Trust Company and Subsidiaries
1. Summary of Significant Accounting Policies
Nature of Operations
Lafayette American Bank and Trust Company (the "Bank") is a state bank organized
under the laws of the State of Connecticut engaged in the commercial banking
business. The Bank operates nineteen branches mainly in Fairfield and New Haven
counties. Its primary source of revenue is providing loans to customers, who are
predominately small-to-mid-sized businesses as well as individuals.
The Bank has three wholly-owned subsidiaries two of which are utilized for the
purpose of holding, developing, and disposing of properties obtained through
foreclosure proceedings and the third for the purpose of investing in the common
stock of other Connecticut based financial institutions.
On February 6, 1996, the Bank announced a strategic alliance, through merger,
with HUBCO, Inc. ("HUBCO"), a New Jersey based bank holding company. Under the
proposed merger, which is subject to various conditions including regulatory
approvals and approval by the shareholders of both the Bank and HUBCO, each
share of the Bank's common stock will convert into 0.588 of a share of HUBCO
common stock. In connection with the merger agreement, the Bank and HUBCO
entered into a stock option agreement dated February 5, 1996 pursuant to which
HUBCO will have an option to purchase 2,400,000 shares of the Bank's common
stock at $10.75 per share, which option is exercisable in certain circumstances.
The proposed transaction is expected to close in the second or third quarter of
1996. Certain merger costs and related restructuring charges will be incurred by
the Bank in 1996.
Basis of Presentation
The consolidated financial statements include the accounts of the Bank and its
subsidiaries. All material intercompany accounts and transactions have been
eliminated. Certain amounts for prior years have been reclassified to conform to
the current year presentation.
The accounting and reporting policies of the Bank conform to generally accepted
accounting principles and prevailing practices within the banking industry.
Use of Estimates
These consolidated financial statements have been prepared in conformity with
generally accepted accounting principles which requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. The more significant estimates with regard to these
financial statements relates to the reserve for possible loan losses,
58
<PAGE>
the carrying values of other real estate, the deferred tax valuation reserve and
the fair value of financial instruments disclosure. Actual results could differ
from management's estimates.
Securities
Debt securities held to maturity are stated at cost, adjusted for amortization
of premiums and accretion of discounts, because management has the intent and
the ability to hold these investments in debt securities to maturity. The
initial determination to include debt securities as held to maturity is made at
the time of acquisition. Certain estimates are made involving assumed
prepayments for mortgage-backed securities in recording amortization of premiums
and accretion of discounts. These estimates are based on facts and circumstances
existing at the date of the financial statements and are particularly sensitive
to change in the future depending upon changes in interest rates.
Securities available for sale, including marketable equity securities, are
recorded at fair value with any valuation adjustments reflected in shareholders'
equity. Included as available for sale securities are securities that are
purchased in connection with the Bank's asset/liability risk management strategy
and that may be sold in response to changes in interest rates, resultant
prepayment risk or other factors.
Assets acquired for subsequent sale are classified as trading account securities
and stated at fair value. As of December 31, 1995 and 1994, there were no
securities classified as trading account securities.
The specific asset identification method is used to determine the cost of
securities sold on the trade date. Losses deemed not recoverable and considered
other than temporary declines in value are charged to noninterest income as a
security loss.
Loans
Interest on undiscounted loans is credited to income utilizing the simple
interest method based upon the principal amount outstanding. Interest on
discounted loans is credited to income on a basis which results in approximate
level rates of return over the terms of the loans. Loan origination and
commitment fees, net of certain direct origination costs, are deferred and
amortized to income as an adjustment to the related loan's yield over the
contractual life of the loan on a basis which approximates the interest method,
except for origination and commitment fees on demand loans which are amortized
on a straight-line basis over the expected life of the loan. When loans are
prepaid, sold or participated out, the unamortized portion of fees is recognized
as income at that time.
59
<PAGE>
Nonperforming assets
Nonperforming assets include nonaccrual loans, restructured loans and other real
estate owned. Generally, a loan (including a loan impaired under Statement of
Financial Accounting Standards No. 114, "Accounting by Creditors for Impairment
of a Loan" (SFAS 114)) is classified as nonaccrual and the accrual of interest
on such loan is discontinued when the contractual payment of principal or
interest has become 90 days past due or management has serious doubts about
further collectibility of principal or interest, even though the loan currently
is performing; however, loans that are well secured and in the process of
collection may not have the accrual of interest discontinued, at the judgment of
management. When a loan is placed on nonaccrual status, interest previously
accrued but not collected is reversed against current period interest income,
except where the Bank has determined that such loans are well secured as to
principal and interest and are in the process of collection. Interest earned
thereafter is only included in income to the extent that it is actually
collected. Loans are removed from nonaccrual status when they become current as
to both principal and interest and when future payments are estimated to be
fully collectible.
Restructured loans are loans the terms of which have been restructured to
provide a reduction, forgiveness or deferral of interest or principal because of
deterioration in the financial position of the borrower. Interest is only
recognized in current income at the renegotiated reduced rate and then only to
the extent such interest is deemed collectible and the borrower has demonstrated
repayment performance.
Other real estate owned, comprised of real estate acquired through foreclosure
or acceptance of deed in lieu of foreclosure, is stated at the lower of cost or
fair value minus estimated costs to sell (i.e., market). Property is transferred
to other real estate owned at the lower of cost or estimated market value, with
any cost over market value amount at the date of transfer charged to the reserve
for possible loan losses. Any further diminution in value based on changes to
estimated market value is charged to the reserve for foreclosed property losses.
As part of management's determination of nonperforming assets, management
reviews and identifies certain other assets which may be impaired based upon
current collateral and financial conditions. The accrual of interest on such
assets is discontinued at the judgement of management.
Reserve for possible loan losses
The reserve for possible loan losses is established through provisions for
possible loan losses charged against income. When management decides that a loan
has a substantial risk of noncollectibility, that portion of the principal of
the asset deemed to be uncollectible is charged against the reserve and
subsequent recoveries, if any, are credited to the reserve.
As of January 1, 1995, the Bank adopted, prospectively, SFAS 114 and Statement
of Financial Accounting Standards No. 118, "Accounting by Creditors for
Impairment of a Loan - Income Recognition and Disclosures" which amends certain
aspects of SFAS 114. A loan is impaired when, based on current information and
events, it is probable that the Bank will be
60
<PAGE>
unable to collect all amounts due according to the contractual terms of the loan
agreement. In accordance with these standards impaired loans within their scope
are measured based on the present value of expected future cash flows discounted
at the loan's original effective interest rate, or the observable market price
of the impaired loan or the fair value of the collateral if the loan is
collateral dependent. Any valuation reserve necessary under the standards are to
be considered in determining the adequacy of the Bank's overall reserve for
possible loan losses. As a result of adopting these standards, no additional
loan loss reserves were required as of January 1, 1995.
The reserve for possible loan losses is maintained at levels considered by
management to be adequate to absorb losses inherent in the loan portfolio. As
revisions to the reserve become necessary, it is adjusted as appropriate in that
period. Accordingly, management regularly monitors the adequacy of the reserve
for possible loan losses. Management has a formal credit review function to
evaluate the credit and market risk of loans, which includes obtaining
appraisals reflecting current market conditions. In addition, loan credit
concentrations by borrower, industry and collateral type are accumulated and
monitored quarterly. The evaluation of potential losses includes a review of the
current financial status and credit standing of borrowers and their prior
payment history, an evaluation of available collateral, a review of loss
experience in relation to outstanding loans and management's judgment as to
prevailing economic conditions, among other relevant factors. This evaluation is
inherently subjective as it requires material estimates including the amounts
and timing of future cash flows expected to be received on impaired loans that
may be susceptible to significant change.
Premises and equipment
Premises and equipment, excluding land, are stated at original cost less
accumulated depreciation and amortization. Land is reported at original cost.
Depreciation and amortization is computed on a straight-line basis over the
estimated useful lives of the assets, except for leasehold improvements which
are amortized over the shorter of the terms of the respective leases or the
estimated useful lives of the improvements. Major improvements are capitalized,
and recurring repairs and maintenance are charged to noninterest expense.
Purchased mortgage servicing rights
Purchased mortgage servicing rights are carried at the lower of amortized cost
or the discounted value of the related estimated future net cash flow stream.
The discount rate used is the discount rate currently reflected in the market.
This methodology approximates a fair market valuation which is primarily based
upon the related estimated future net cash flow stream discounted at a rate
reflective of the approximate required return of investors when bidding for
similar servicing portfolios.
The cost of purchased mortgage servicing rights is amortized over the estimated
period of net servicing revenues. Certain estimates are made involving assumed
prepayments, put options and deposit balances in recording
61
<PAGE>
this amortization. These estimates are based on facts and circumstances existing
at the date of the financial statements and are particularly sensitive to change
in the future depending upon changes in interest rates.
Securities sold under repurchase agreements
The Bank enters into sales of securities under repurchase agreements. Such
agreements are treated as financings, and the obligations to repurchase
securities sold are reflected as liabilities and the securities underlying the
agreements remain in the securities accounts in the consolidated balance sheets.
The securities underlying the agreements are held as collateral by the
counterparties or in third party safekeeping accounts for the benefit of
counterparties.
Cash flows
For purposes of reporting cash flows, cash and cash equivalents include cash and
due from banks, interest bearing deposits with banks and Federal funds sold.
Income taxes
The Bank and its subsidiaries file a consolidated Federal income tax return.
Certain items of income and expense are recorded in different periods for
financial reporting than for income tax reporting purposes and current tax
liabilities or assets are recognized, through charges or credits to the current
tax provision, for the estimated taxes payable or refundable for the current
year. Net deferred tax liabilities or assets are recognized, through charges or
credits to the deferred tax provision, for the estimated future tax effects,
based on enacted tax rates, attributable to temporary differences and tax
benefit carryforwards. Deferred tax liabilities are recognized for temporary
differences that will result in amounts taxable in the future and deferred tax
assets are recognized for temporary differences and tax benefit carryforwards
that will result in amounts deductible or creditable in the future. A deferred
tax valuation reserve is established if it is more likely than not that all or a
portion of the Bank's deferred tax assets will not be realized. Changes in the
deferred tax valuation reserve are recognized through charges or credits to the
deferred tax provision.
Income (loss) per common share
Income (loss) per common share is determined by dividing net income (loss) by
the weighted average number of common shares outstanding during the year giving
effect to the assumed exercise of outstanding dilutive common stock options and
warrants. The effect of the convertible preferred shares outstanding and stock
options outstanding in 1993 was anti-dilutive and therefore not reflected in the
computation of per common share amounts. All prior period per share amounts and
average outstanding common shares have been retroactively adjusted for the
one-for-two reverse stock split which was effected as of the close of business
on May 31, 1994.
62
<PAGE>
Dividend capability
In accordance with a Board of Director resolution and regulatory approval,
during the third quarter of 1995 a transfer from the Bank's capital surplus
account to retained earnings was recorded in the amount of $13,028,000. Such
transfer eliminated the Bank's accumulated deficit as of June 30, 1995 and
certain technical requirements regarding dividend payments which apply while an
accumulated deficit exists.
On October 11, 1995, the Board of Directors of the Bank declared its first cash
dividend since the second quarter of 1990. The dividend amounted to $.05 per
common share payable on November 3, 1995 to shareholders of record on October
23, 1995.
Under Connecticut law, the Bank may declare and pay cash dividends only from the
current year's and the prior two year's retained net profits as defined.
Trust assets
Trust assets administered by the Bank in a fiduciary or agency capacity are not
included in these financial statements because they are not assets of the Bank.
On September 29, 1995, the Bank completed the sale of its Trust Department
assets of approximately $160,000,000 to Sachem Trust National Association
(Sachem Trust). As of December 31, 1995, the Bank maintains fiduciary
responsibility with respect to certain accounts with assets of approximately
$22,008,000 which have not consented to the transfer of their relationship to
Sachem Trust. It is the Bank's intent to eventually terminate all such
nonconsenting accounts. As of December 31, 1994, the fair value of trust assets
was $169,330,000. The Bank recognized trust income prior to the sale of its
trust operations on an accrual basis.
Recent accounting pronouncements
Effective January 1, 1996, the Bank will be required to adopt SFAS No. 121,
"Accounting for Impairment of Long-Lived Assets and for Long-Lived Assets to be
Disposed of". This standard requires that long-lived assets and certain
identifiable intangibles held and used by an entity be reviewed for impairment
whenever events or changes in circumstances indicate that the carrying amount of
an asset may not be recoverable. Management believes that the adoption of the
standard will not have a material impact on the Bank's financial position or
results of operations.
Effective January 1, 1996, the Bank will also be required to adopt SFAS No. 123,
"Accounting for Stock-Based Compensation". This statement establishes financial
accounting and reporting standards for stock-based employee compensation plans
and will allow companies to choose either 1) a fair value method of valuing
stock-based compensation plans which will affect reported net income, or 2) to
continue following the existing accounting rules for stock option accounting but
disclose what the impacts would have been had the new standard been adopted. The
Bank will choose the disclosure option of this standard which would require
disclosing the pro forma net income and
63
<PAGE>
earnings per share amounts assuming the fair value method was adopted on January
1, 1995. As a result, the adoption of this standard will not impact the Bank's
financial position or results of operations.
2. Regulatory Actions
During the second quarter of 1995, the State of Connecticut Department of
Banking (the "State") and the Federal Deposit Insurance Corporation (the "FDIC")
concluded concurrent full "safety and soundness" examinations of the Bank.
Subsequent to June 30, 1995, the Bank was formally notified by the FDIC that the
FDIC and State were in agreement that the June 25, 1992 Stipulation and Consent
to a Cease and Desist Order (the "FDIC Order") under which the Bank had been
operating, should be terminated upon their receipt of an acceptable Board of
Directors' resolution. In compliance with their request, on July 26, 1995, the
Bank's Board of Directors adopted a resolution which included, among other
matters, a commitment that the Bank maintain a Tier 1 leverage capital ratio at
a minimum of 6%. On July 31, 1995, the FDIC terminated the FDIC Order.
3. Securities
A summary comparison of securities available for sale, by type, was as follows:
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------- ---------- ---------- -----
(in thousands)
<S> <C> <C> <C> <C>
December 31, 1995:
- ------------------
U.S. Treasury................ $ 3,520 $-- $ (6) $ 3,514
U.S. Government agencies..... 14,935 98 (56) 14,977
Mortgage-backed securities... 86,358 593 (627) 86,324
Obligations of states and
political subdivisions..... 125 -- -- 125
Other debt securities........ 5,407 -- (41) 5,366
Marketable equity securities. 3,290 46 (27) 3,309
-------- ---- ------- --------
Total.................... $113,635 $737 $ (757) $113,615
======== ==== ======= ========
December 31, 1994:
- ------------------
U.S. Treasury................ $ 21,967 $-- $ (906) $ 21,061
U.S. Government agencies..... 9,989 -- (228) 9,761
Mortgage-backed securities... 33,854 -- (2,250) 31,604
Obligations of states and
political subdivisions..... 125 -- -- 125
Other debt securities........ 2,216 -- -- 2,216
Marketable equity securities. 313 386 -- 699
-------- ---- ------- --------
Total.................... $ 68,464 $386 $(3,384) $ 65,466
======== ==== ======= ========
</TABLE>
64
<PAGE>
A summary comparison of securities held to maturity, by type, was as follows:
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------- ---------- ---------- -----
(in thousands)
<S> <C> <C> <C> <C>
December 31, 1995:
- ------------------
Mortgage-backed securities... $ 27,854 $361 $ (32) $ 28,183
======== ==== ======= ========
December 31, 1994:
- ------------------
U.S. Government agencies..... $ 27,908 $-- $(2,134) $ 25,774
Mortgage-backed securities... 78,821 11 (4,676) 74,156
Other debt securities........ 3,007 -- (11) 2,996
-------- ---- ------- --------
Total.................... $109,736 $ 11 $(6,821) $102,926
======== ==== ======= ========
</TABLE>
As of December 31, 1995, the amortized cost and fair value of debt securities
available for sale and held to maturity, by contractual maturity, are summarized
below. Expected maturities will differ from contractual maturities because
borrowers may have the right to call or prepay obligations with or without call
or prepayment penalties.
<TABLE>
<CAPTION>
Available for Sale Held to Maturity
------------------------- ----------------------
Amortized Fair Amortized Fair
Cost Value Cost Value
--------- ----- --------- --------
(in thousands)
<S> <C> <C> <C> <C>
Due in one year or less....... $ 1,751 $ 1,748 $ -- $ --
Due after one year through
five years.................. 21,961 21,958 -- --
Due after five years through
ten years................... 150 150 -- --
Due after ten years........... 3,415 3,435 -- --
Mortgage-backed securities.... 86,358 86,324 27,854 28,183
-------- -------- ------ -------
$113,635 $113,615 $27,854 $28,183
======== ======== ======= =======
</TABLE>
Net realized gains on sales of marketable equity securities included in net
securities gains were $528,000 and $3,000 in 1995 and 1993, respectively. There
were no sales of marketable equity securities in 1994.
65
<PAGE>
Proceeds, gross gains and gross losses from sales of investments in debt
securities were:
Year Ended December 31,
-----------------------------------
1995 1994 1993
---- ---- ----
(in thousands)
Available for Sale/
Held for Sale:
-----------------
Proceeds............. $24,749 $ 5 $112,411
Gross Gains.......... -- -- 1,666
Gross Losses......... 249 -- 22
During the fourth quarter of 1995, the Financial Accounting Standards Board
issued a special report "A Guide to Implementation of Financial Accounting
Standards No. 115 on Accounting for Certain Investments in Debt and Equity
Securities" that allows for the transfer of debt securities from the held to
maturity category to the available for sale category without tainting the
classification of the remaining held to maturity portfolio. In December, 1995,
the Bank transferred held to maturity securities in the amount of $87,518,000 to
the available for sale category resulting in an adjustment to fair value of
$28,000, net of income taxes, decreasing shareholders' equity. The Bank sold
$24,998,000 of these securities in December, 1995 realizing a loss of $249,000.
During 1994, held to maturity securities in the amount of $1,216,000 were
transferred to the securities available for sale category to conform to
regulatory classifications.
As of December 31, 1995 and 1994, securities having carrying values of
$34,949,000 and $58,634,000, respectively, were pledged to secure public funds
or for other purposes as required by law or were pledged as collateral for
repurchase agreements, interest rate swaps, certain deposits and Federal funds.
4. Loans
As of December 31, 1995 and 1994, the composition of the loan portfolio was:
1995 1994
-------- --------
(in thousands)
Commercial loans.............. $112,422 $ 98,913
Loans secured by real estate:
Commercial and other........ 202,849 183,272
1-4 Family residential...... 179,437 131,535
Construction................ 6,575 6,599
Loans to individuals.......... 16,763 15,437
-------- --------
Total....................... $518,046 $435,756
======== ========
The Bank grants commercial, residential and consumer loans primarily in
Fairfield and New Haven counties in Connecticut. Although the Bank has a
diversified loan portfolio, a significant portion of its borrowers' ability
66
<PAGE>
to honor their contracts is dependent upon the real estate sector of the economy
in its market area. The Connecticut economy is recovering and real estate values
are leveling as compared to the severe decline in economic conditions and
deterioration of real estate values experienced during the period 1989 through
1993. The Connecticut economy remains sluggish and does not appear to be
returning at the rate of the national and New England recoveries. However,
economic statistics indicate that Fairfield County has rebounded more rapidly
than, and its recovery is out-pacing, other sectors within the state.
Loans outstanding for which the primary source of repayment is the sale of real
estate collateral or cash flow from income producing properties were
approximately $209,424,000 and $189,871,000 as of December 31, 1995 and 1994,
respectively. Commercial loans collateralized by real estate generally are
underwritten with initial loan to value ratios not exceeding 80% although more
stringent standards are being employed in many cases due to increased regulation
and a slowly recovering economy.
As of December 31, 1995 and 1994, the outstanding balance of loans sold or
participated to other parties and serviced by the Bank totaled $28,043,000 and
$25,283,000, respectively. In addition, as of December 31, 1995 and 1994 the
Bank had servicing rights on an FHA-insured multi-family mortgage loan portfolio
with outstanding balances of $163,114,000 and $169,264,000, respectively.
For the year ended December 31, 1995 related party loan activity was (in
thousands):
1995
----
Balance, beginning of year......... $ 8,504
Originations....................... 8,890
Payments........................... (8,191)
-------
Balance, end of year............... $ 9,203
=======
Related parties include directors, executive officers, their respective
affiliates, their respective associates in which they have a controlling
interest and their immediate family members. Management believes that all loan
transactions with related parties were made on substantially the same terms as
comparable loan transactions with others, and all such transactions were
approved by the Board of Directors. All new loans and payments subsequent to an
individual ceasing to serve in a related party capacity are not included in the
above schedule. All related party loans were current as to principal and
interest as of December 31, 1995.
5. Reserves for Possible Loan and Foreclosed Property Losses
The reserves for possible loan and foreclosed property losses are based on
estimates, and ultimate losses may vary from the current estimates. These
estimates are reviewed periodically and, as adjustments become necessary, they
are reflected in operations in the periods in which they become known.
67
<PAGE>
An analysis of the changes in the reserves for possible loan and foreclosed
property losses are as follows:
Year Ended December 31,
------------------------------------------
1995 1994 1993
------- -------- --------
(in thousands)
Reserve for possible
loan losses:
Balance, beginning
of year.................... $ 9,631 $15,353 $ 16,540
Provision charged
to expense................. 3,190 3,325 23,500
Recoveries................... 808 981 800
Loans charged-off............ (5,067) (11,463) (18,705)
Transferred from (to) assets
held for sale.............. -- 1,362 (6,782)
Transferred from reserve for
foreclosed property losses. -- 73 --
------- -------- --------
Balance, end of year......... $ 8,562 $ 9,631 $ 15,353
======= ======== ========
Year Ended December 31,
------------------------------------------
1995 1994 1993
------ ------- -------
(in thousands)
Reserve for foreclosed
property losses:
Balance, beginning
of year.................... $ -- $ -- $ 268
Provision charged
to expense................. 316 1,137 4,401
Real estate write-downs, net. (316) (1,064) (3,501)
Transferred to assets held
for sale................... -- -- (1,168)
Transferred to reserve for
possible loan losses....... -- (73) --
------ ------- -------
Balance, end of year......... $ -- $ -- $ --
====== ======= =======
As of December 31, 1995, the recorded investment in loans that are considered to
be impaired under SFAS 114 was $9,032,000 (of which $7,103,000 were on a
nonaccrual basis). Included in this amount is $244,000 of impaired loans for
which the related reserve for possible loan losses is $39,000 and $8,788,000 of
impaired loans that as a result of write-downs do not have a reserve for
possible loan losses. The average recorded investment in impaired loans during
the year ended December 31, 1995 was approximately $8,459,000. For the year
ended December 31, 1995, the Bank recognized interest income on those impaired
loans of $418,000, which included $290,000 of interest recognized using the cash
basis method of income recognition.
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<PAGE>
6. Nonperforming Assets
The balances of nonperforming assets and accruing loans past due 90 days or more
(included in loans, and other real estate owned in the consolidated balance
sheets) were:
Year Ended December 31,
------------------------------------
1995 1994 1993
------ ------- -------
(in thousands)
Nonaccrual loans.................... $ 7,103 $ 8,893 $34,703
Restructured loans.................. 676 3,070 10,071
--- ----- ------
Total nonperforming loans......... 7,779 11,963 44,774
Other real estate owned............. 5,460 6,966 10,100
----- ----- ------
Total nonperforming assets........ $13,239 $18,929 $54,874
======= ======= =======
Accruing loans past due 90 days
or more as to principal or
interest.......................... $ 1 $ 24 $ 1,068
======= ======= =======
For the years ended December 31, 1995, 1994 and 1993, interest income recognized
on nonaccrual and restructured loans outstanding was $290,000, $237,000 and
$1,213,000, respectively. Interest income that would have been recognized during
1995, 1994 and 1993 on such loans if such loans had been current in accordance
with their original terms and had been outstanding throughout the year (or since
origination if held for part of the year) was $1,130,000, $1,316,000 and
$3,310,000, respectively.
Included on the consolidated balance sheets as of December 31, 1995 and 1994 is
$5,347,000 and $5,581,000, respectively, of net cash surrender value (net of
insurance premium loans in the amount of $1,521,000 and $585,000, respectively)
pertaining to life insurance policies issued by a company (affiliated with
Confederation Life Insurance Company of Canada) which was placed in
rehabilitation during the third quarter of 1994. Although uncertainties exist as
a result of the rehabilitation process and although the Bank has ceased accruing
interest on this asset, the information available to the Bank does not indicate
that this asset (which is not included in the preceding nonperforming asset
table) is impaired.
7. Premises and Equipment
The net book value of premises and equipment was comprised of the following:
December 31,
-------------------
1995 1994
------- -------
(in thousands)
Land.............................. $ 69 $ 69
Buildings......................... 36 36
Leasehold improvements............ 5,788 5,539
Furniture and equipment........... 8,427 8,144
------- -------
14,320 13,788
Less accumulated depreciation
and amortization................ (9,517) (9,066)
------- -------
Total......................... $ 4,803 $ 4,722
======= =======
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<PAGE>
Provisions for depreciation and amortization on premises and equipment of
$1,486,000 in 1995, $1,507,000 in 1994 and $1,647,000 in 1993 were included in
net occupancy expense or furniture and equipment expense, depending upon the
nature of the asset. Included in branch closure and restructuring costs in 1993
is $620,000 of costs which represent the write-off of the net book value of
building, leasehold improvements and furniture and equipment related to the
three branches closed on March 15, 1994.
The Bank leases certain other premises and rents equipment under operating
leases with terms extending through 2006. The Bank has rights to exercise
renewal and/or purchase options at fair value for various leased premises.
Rental expense for leased premises and equipment was $1,750,000 in 1995,
$1,822,000 in 1994 and $1,820,000 in 1993, net of sublease income and
amortization of a deferred gain on a sale-leaseback transaction totaling
$118,000 in 1995, $53,000 in 1994 and $50,000 in 1993.
The Bank leases certain facilities at rates which management believes were
market rates as they existed at lease inception or lease renewal from related
parties, including in some instances directors and partnerships which include
directors and officers as partners. The leases expire at various dates through
1999. Generally, independent appraisals were used to determine the annual
rentals contained in the leases. Rental expense under leases with related
parties was approximately $235,000, $270,000 and $583,000 for the years ended
December 31, 1995, 1994 and 1993, respectively.
As of December 31, 1995, minimum annual rental commitments under noncancellable
building and equipment leases, net of annual sublease income, were (in
thousands):
Operating
Years Leases
----- ---------
1996.............................. $1,541
1997.............................. 1,425
1998.............................. 1,355
1999.............................. 1,039
2000.............................. 809
2001-2006......................... 3,552
70
<PAGE>
8. Time Deposits
As of December 31, 1995, maturities of time deposits were:
Denomination
------------------------------
$100,000
Maturity or more Other Total
-------- -------- ----- -----
(in thousands)
1996.......... $34,835 $210,617 $245,452
1997.......... 427 9,304 9,731
1998.......... -- 770 770
1999.......... 100 2,767 2,867
2000.......... 132 49 181
------- -------- --------
$35,494 $223,507 $259,001
======= ======== ========
Interest expense on time deposits in denominations of $100,000 or more was
$1,720,000, $826,000 and $591,000 for the years ended December 31, 1995, 1994
and 1993, respectively.
9. Funds Borrowed
Funds borrowed consisted of the following (in thousands):
December 31,
---------------------
1995 1994
------- -------
Federal funds purchased............ $ 1,800 $ 3,100
Securities sold under repurchase
agreements....................... 18,459 27,453
Demand notes issued to the
U.S. Treasury.................... 3,500 3,500
Federal Home Loan Bank advances.... 8,315 24,315
Other.............................. 1,521 585
------- -------
Total.......................... $33,595 $58,953
======= =======
A summary of securities sold under repurchase agreements as of December 31, 1995
follows:
Repurchase Borrowing
-------------------- Carrying Fair
Collateral Securities Amount Rate Value Value
--------------------- ---------- ---- ----- -----
(in thousands)
U.S. Government agencies....... $ 6,978 5.12% $ 6,928 $ 6,928
Mortgage-backed securities:
GNMA......................... -- -- 81 81
Other........................ 11,481 5.12 17,776 17,973
------- ------- -------
$18,459 5.12 $24,785 $24,982
======= ======= =======
The weighted average maturity and contractual rates of securities sold under
repurchase agreements were 4 days and 5.12% as of December 31, 1995 and eight
71
<PAGE>
days and 5.70% as of December 31, 1994, respectively.
As of December 31, 1995, the Bank's off-balance sheet risk with counterparties
to securities sold under repurchase agreements was approximately $6,815,000. The
amount at risk with counterparties represents the excess of the greater of the
carrying value or fair value of underlying collateral plus related accrued
interest receivable over the total repurchase borrowing and related accrued
interest payable.
As of December 31, 1995, all of the securities sold under repurchase agreements
provided for the repurchase of identical securities.
Securities sold under repurchase agreements averaged $47,062,000 and $14,301,000
during 1995 and 1994, respectively, and the maximum amounts outstanding at any
month-end during 1995 and 1994 were $68,175,000 and $29,704,000, respectively.
The weighted average interest rates during 1995 and 1994 were 5.82% and 4.29%,
respectively.
As of December 31, 1995, a summary of the Bank's advances with the Federal Home
Loan Bank of Boston was as follows (in thousands):
Maturity Amount Rate
-------- ------ ----
March 5, 1996 ................. $8,000 6.06%
March 5, 2008 ................. 315 4.50
------
$8,315
======
These advances were collateralized by residential mortgage loans with a carrying
value of approximately $44,003,000 as of December 31, 1995. As of December 31,
1995, the Bank had no unused borrowing capacity with the Federal Home Loan Bank
of Boston.
10. Stock Options and Warrants
The Bank has stock option arrangements which provide for granting of options to
key employees to purchase Bank common stock at prices equal to or less than the
fair market value at the date of grant. Generally, options become exercisable
beginning after ten months but within seven to ten years of the date of grant,
except in the event of a change in control (such as the Bank's merger with
HUBCO) at which time certain outstanding options would become fully exercisable.
On May 24, 1994 shareholders approved the allocation of 250,000 shares of common
stock for a 1994 Incentive Stock Option Plan. Certain options granted during
1995 and 1994 were at less than fair market value at the date of grant which
resulted in the Bank recognizing compensation expense of $184,000 and $130,000
in 1995 and 1994, respectively.
72
<PAGE>
A summary of transactions under the Bank's stock option arrangements follows:
Option
Number of Price
Shares Per Share
--------- -----------
Outstanding January 1, 1993.......... 18,750 $6.00-14.00
Expired............................ (5,834) 9.28-14.00
-------
Outstanding December 31, 1993........ 12,916 6.00-14.00
Grants............................. 433,500 5.00
Expired............................ (1,666) 9.28
-------
Outstanding December 31, 1994........ 444,750 5.00-14.00
Grants............................. 56,000 5.00
Expired............................ (22,000) 5.00
Exercised.......................... (8,333) 5.00
-------
Outstanding December 31, 1995........ 470,417 5.00-14.00
=======
Options exercisable as of
December 31, 1995.................. 196,874 5.00-14.00
=======
Shares of common stock available
for future grants as of
December 31, 1995.................. 32,500
=======
On February 24, 1994, in connection with the Bank's common stock rights
Offering, the Bank issued warrants to standby purchasers to purchase in
aggregate 125,000 common shares at $4.40 per share. The warrants are exercisable
between three and five years from the closing of the Offering, February 24,
1994, except in the event of a change in control at which time all outstanding
warrants would become fully exercisable. They also include anti-dilution
protection in the event of mergers, consolidations, stock splits and other
reorganizations and would also have the benefit of certain rights to demand or
participate in registrations of Bank stock. The proceeds received from the
Offering attributable to the fair value of the warrants issued was credited to
capital surplus. During 1994, 2,005.5 warrants were retired resulting in
122,994.5 outstanding warrants as of December 31, 1994. There were no warrant
transactions during 1995.
11. Benefit Plans
Employee Pension Plan
The Bank has a defined benefit pension plan which is non-contributory and covers
all employees who meet certain age and service requirements. Prior to 1990,
benefits were based on years of service and the employee's compensation during
the last five years before normal retirement. As of January 1, 1990, the benefit
formula was revised prospectively to be comparable to a percentage of each
eligible participant's compensation as earned each year. The Bank's funding
policy is to contribute annually amounts at least equal to minimum required
contributions under the Employee Retirement Income Security Act of 1974 (ERISA).
73
<PAGE>
The plan's assets are held in an irrevocable trust fund and its funded status
and the Bank's funding obligations recognized in the consolidated balance sheets
were:
December 31,
-----------------------
1995 1994
----- ----
(in thousands)
Actuarial present value of benefit obligations:
Accumulated benefit obligation - vested........... $2,868 $2,253
Accumulated benefit obligation - non-vested....... 111 83
------ ------
Total accumulated benefit obligation............ 2,979 2,336
Effect of projected future compensation levels...... 25 24
------ ------
Projected benefit obligation (PBO) for service
rendered to date.................................. 3,004 2,360
Plan assets, at fair value (comprised of equity
and debt securities, including Bank common stock
with a fair value of $273,000 and $185,000
as of December 31, 1995 and 1994, respectively)... 2,566 1,944
------ ------
Plan assets less than PBO........................... (438) (416)
Unrecognized net asset existing at January 1, 1987
being recognized over approximately 15 years...... (248) (289)
Unrecognized prior service.......................... (82) (126)
Unrecognized net losses from past
experience different from that assumed and
effects of changes in assumptions................. 475 447
------ ------
Accrued pension cost included in other
liabilities................................... $ (293) $ (384)
====== ======
The components of net pension expense reflected in the consolidated statements
of operations and significant actuarial assumptions used were:
Year Ended December 31,
------------------------
1995 1994 1993
------- ------ ------
(in thousands)
Service cost - benefits earned during the year..... $ 192 $ 189 $ 175
Interest cost on PBO............................... 204 182 185
Actual loss (return) on plan assets................ (413) 129 (156)
Net amortization and deferral...................... 199 (344) (95)
----- ----- -----
Net pension expense.............................. $ 182 $ 156 $ 109
===== ===== =====
Actuarial assumptions:
Weighted average discount rate................... 7.50% 8.00% 7.00%
Rate of increase in future compensation levels... 5.00% 5.00% 5.00%
Expected long-term rate of return on plan assets. 8.00% 7.50% 8.25%
74
<PAGE>
Employee Savings and Profit Sharing Plan
The Bank sponsors a savings and profit sharing plan (the "Savings Plan") under
Section 401(k) of the Internal Revenue Code, covering all employees who meet
certain age and service requirements. The Savings Plan has a discretionary
non-contributory profit sharing feature, and also allows for voluntary employee
contributions. Bank profit sharing contributions are based on profitability and
other appropriate factors as determined by the Board of Directors. No profit
sharing contributions were made for 1995, 1994 or 1993.
The Savings Plan allows participants to make contributions by salary deduction
of up to 10% of their salary on a tax-deferred basis pursuant to section 401(k)
of the Internal Revenue Code. The Bank matches employee contributions in Bank
common stock at the rate of 50 cents per dollar on contributions up to the first
2% of the employee's compensation and 25 cents per dollar on contributions up to
the next 4% of the employee's compensation. Employee contributions in excess of
6% of the employee's compensation are not matched by the Bank. Employee
contributions vest immediately while the Bank's matching contributions vest
after 5 years.
Shares of Bank common stock, which are purchased in the open market, are held in
trust for the benefit of the participants. Total contributions made by the Bank
and participants in 1995, 1994 and 1993 were $435,000, $347,000 and $341,000,
with stock purchases of $346,000, $88,000 and $127,000 (41,221, 15,276 and
17,822 shares), respectively. Contributions by the Bank included in the total
contribution amounts were $87,000, $50,000 and $44,000 for the years ended
December 31, 1995, 1994 and 1993, respectively.
Deferred Compensation Arrangements
The Bank has established deferred compensation arrangements for the directors
and certain management members. The plans provide for annual payments (10-15
year certain) upon retirement. The liabilities under these agreements are being
accrued from the commencement of the plans over the participants' remaining
periods of service. In conjunction with these arrangements, the Bank is the
beneficiary under life insurance policies that it has purchased on the
respective participants and other nonparticipating employees. These plans do not
hold any assets.
As of December 31, 1995 and 1994, the deferred compensation liability related to
the plans was $2,397,000 and $2,552,000, respectively, net of $142,000 and
$167,000, respectively, of an unrecognized transition obligation, which is being
amortized over the individuals' remaining service period with the Bank. For the
years ended December 31, 1995, 1994 and 1993, deferred compensation expense
related to the plans was $64,000, $209,000 and $1,149,000, respectively. Net
income (expense) resulting from transactions relating to the life insurance
policies used as a funding vehicle for these plans was $(41,000), $262,000 and
$630,000 for the years ended December 31, 1995, 1994 and 1993, respectively. See
Note 6 for an explanation of the nonaccrual status of certain life insurance
policies.
75
<PAGE>
The Bank also has established non-contributory defined benefit income retirement
plans covering certain directors which became effective January 1, 1991. The
benefits are based on years of service. The actuarial present value, assuming a
7.0% discount rate, of the benefit obligation attributed to prior service as of
January 1, 1996 was $992,711. The amount attributed to prior service is being
amortized over a period of 10 years. As of December 31, 1995 and 1994, the
retirement plan liability was $326,000 and $286,000, respectively. Retirement
plan expense was $170,000 and $180,000 for the years ended December 31, 1995 and
1994, respectively.
12. Income Taxes
For the years ended December 31, 1995, 1994 and 1993, the provision (benefit)
for Federal and state income taxes was:
1995 1994 1993
---- ----- ----
(in thousands)
Current:
Federal............ $ 1,078 $ 170 $(248)
State.............. 30 545 16
-------- ------- -----
1,108 715 (232)
Deferred Federal..... (11,935) (3,439) 248
-------- ------- -----
Provision (benefit)
for income taxes... $(10,827) $(2,724) $ 16
======== ======= =====
The reconciliation between total income tax expense and the amount determined by
applying the statutory Federal income tax rate of 34% to income (loss) before
income taxes and cumulative effect of change in accounting principle was:
Year Ended December 31,
--------------------------------------
1995 1994 1993
----- ---- -----
(in thousands)
Expected tax provision (benefit)
at statutory rate................ $ 2,754 $ 1,160 $(8,841)
Increase (decrease) in taxes
resulting from:
Change in valuation reserve.... (15,073) (4,552) 10,222
Provision for assessments...... 1,078 530 --
State income tax differential.. -- - (1,231)
Non-deductible (non-taxable)
net insurance plan expense
(income)..................... 12 (91) (236)
Other, net..................... 402 229 102
-------- ------- --------
Provision (benefit) for income
taxes............................ $(10,827) $(2,724) $ 16
======== ======= =======
76
<PAGE>
The components of and changes in the net deferred tax asset were:
Deferred
January 1, (Expense) December 31,
1995 Benefit 1995
---------- --------- ------------
(in thousands)
Federal and state tax operating
loss carryforwards............. $ 10,654 $(2,709) $ 7,945
Provision for possible loan
losses......................... 3,990 (480) 3,510
Purchased mortgage servicing
rights......................... 1,250 (110) 1,140
Director and officer
compensation plans............. 1,176 (60) 1,116
Federal AMT credit carryforward.. - 856 856
Provision for foreclosed
property losses................ 1,259 (583) 676
Depreciation..................... 260 243 503
Cash basis of reporting tax
return income.................. 729 (251) 478
Branch closure and
restructuring costs............ 292 (149) 143
Other............................ 26 113 139
-------- ------- -------
19,636 (3,130) 16,506
Valuation reserve................ (16,197) 15,073 (1,124)
-------- ------- -------
Deferred tax asset............. $ 3,439 $11,943 $15,382
======== ======= =======
As of December 31, 1995 and 1994, the Bank had a net deferred tax asset of
$15,382,000 and $3,439,000, respectively, and a current net tax receivable of
$241,000 and $780,000, respectively. The deferred tax valuation reserve of
$1,124,000 as of December 31, 1995 represents management's estimate of state
operating losses carryforwards which may not be fully realizable. Management
periodically evaluates the realizability of its deferred tax asset and will
adjust the level of the valuation reserve if it is deemed more likely than not
that all or a portion of the asset is realizable.
As of December 31, 1995, the Bank had the following Federal and state
carryforwards available for tax reporting purposes (in thousands):
Expiration
Amount Dates
------ ----------
Federal regular net operating
loss carryforwards................ $17,472 1998-2009
=======
Federal AMT credit
carryforwards..................... $ 856 N/A
=======
State net operating loss
carryforwards..................... $28,786 1996-1999
=======
77
<PAGE>
The Bank's ability to take advantage of "built-in-losses" and net operating loss
and AMT credit carryforwards could be limited if the Bank undergoes an
"ownership change" within the meaning of Section 382 of the Internal Revenue
Code. If such an "ownership change" occurred, the utilization of built-in
deductions and net operating loss and AMT credit carryforwards would be limited.
The Bank has not determined the amount of such carryforwards that would be
limited in the event that a Section 382 "ownership change" occurs, although if
an ownership change has occurred that the Bank is not aware of, the limitation
could be significant. The Bank's management believes that, based on certain
assumptions, the 1994 common stock rights offering did not result in an
ownership change and the Bank will not be subject to Section 382 limitations on
the utilization of its net operating loss carryforwards and built-in losses.
Furthermore, based on the Bank's estimated fair value, as defined, on the
anticipated closing date of the merger contemplated with HUBCO, the Bank does
not expect that this change in ownership will result in a significant limitation
on the utilization of its net operating loss carryforwards and built-in losses.
13. Commitments and Contingencies
Certain claims, suits and complaints arising in the ordinary course of business
have been filed or are pending against the Bank and its subsidiaries. In the
opinion of management, based on opinions of legal counsel, adequate reserves, if
deemed necessary, have been established for these matters and their outcome will
not result in a significant adverse effect on the financial condition or future
operating results of the Bank and its subsidiaries.
On February 2, 1996, the Bank was named a defendant in a suit commenced by
Amplicon, Inc. in the Superior Court of the State of California regarding the
termination of a computer hardware and software lease. The complaint seeks
monetary damages in excess of $1 million. Management believes, after
consultation with legal counsel, that the Bank has substantial defenses to the
claim. Although outcomes of legal proceedings cannot be assured, the Bank does
not believe that this matter will result in a material adverse effect on the
financial condition or future operating results of the Bank.
Legal fees, including fees for loan workouts, collections and foreclosures, paid
to related parties were approximately $112,000, $164,000 and $418,000 for the
years ended December 31, 1995, 1994 and 1993, respectively.
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. As of
December 31, 1995 and 1994, these financial instruments include commitments to
extend lines of credit of approximately $63,835,000 and $59,559,000,
respectively, and outstanding letters of credit of $5,448,000 and $2,456,000,
respectively, of which $5,438,000 and $2,456,000, respectively, represent
standby letters of credit. 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
78
<PAGE>
fixed expiration dates or other termination clauses and may require payment of a
fee.
Standby letters of credit are conditional commitments issued to guarantee the
performance of a customer to a third party. The Bank may or may not obtain
collateral in connection with the issuance of standby letters of credit.
These financial instruments involve, to varying degrees, elements of credit and
interest rate risk. The Bank's exposure to credit loss in the event of
nonperformance by the other party to the financial instrument is represented by
the contractual amount of those instruments. The Bank uses the same credit
policies in making commitments as they do for existing loans. The credit risk of
these financial instruments is controlled through credit approvals, limits,
monitoring procedures and the receipt of collateral deemed necessary.
The Bank is required by regulation to maintain with a Federal Reserve Bank
reserve balances based principally on deposits outstanding. These reserve
balances, included in cash and due from banks, were approximately $11,203,000
and $8,907,000 as of December 31, 1995 and 1994, respectively.
14. Fair Values of Financial Instruments
Statement of Financial Accounting Standards No. 107, "Disclosures about Fair
Value of Financial Instruments," requires that the Bank disclose estimated fair
values for certain of its financial instruments. Financial instruments include
such items as loans, securities, deposits, swaps and other instruments as
defined in the standard.
The Standard requires that where available, quoted market prices be used to
estimate fair values. Many of the Bank's financial instruments, however, lack an
available trading market as characterized by a willing buyer and willing seller
engaging in an exchange transaction. It is the Bank's general practice and
intent to hold the majority of its financial instruments, such as loans and
deposits, to maturity and not engage in trading or sales activities. Therefore,
valuation techniques permitted by the Standard, such as present value
calculations, were used by the Bank for the purposes of this disclosure.
Management notes that reasonable comparability between financial institutions
may not necessarily be made due to the wide range of permitted valuation
techniques and numerous estimates which must be made given the absence of active
secondary markets for many of the financial instruments.
This lack of uniform valuation methodologies also introduces a greater degree of
subjectivity to these estimated fair values.
The methods and assumptions used to estimate the fair values of each class of
financial instruments are as follows:
79
<PAGE>
Cash and Due from Banks and Interest Bearing Deposits with Banks. These items
are generally short-term in nature and, accordingly, the carrying amounts
reported in the consolidated balance sheets are reasonable approximations of
their fair values.
Securities Available for Sale and Held to Maturity. Fair values are based
principally on quoted market prices.
Loans. The fair value of accruing loans is estimated by discounting the future
cash flows using the current rates at which similar loans would be made to
borrowers with similar credit ratings and for the same remaining maturities or
for classified loans using a discount rate that reflects the risk inherent in
the loan.
The fair value of nonaccrual loans is estimated based on the estimated fair
market value of the underlying collateral held.
Accrued Interest Receivable and Other Assets. The carrying amount of accrued
interest receivable approximates its fair value. The carrying amounts of
short-term receivables are considered to approximate their fair values.
Deposits. The fair value of demand, NOW, savings and money market deposits is
the amount payable on demand at the reporting date. The fair value of time
deposits is estimated using discounted value of contractual cash flows. The
discount rates are the rates currently offered for deposits of similar remaining
maturities.
Funds Borrowed. The carrying amount of Federal Home Loan Bank advances
approximates their fair value because the interest rate on the advances is
primarily adjustable monthly. Repurchase agreements and other borrowed funds
consist of short-term liabilities and the carrying amounts approximate their
fair values.
Accrued Interest Payable. The carrying amount of accrued interest payable
approximates its fair value.
Loan Servicing Fees. The fair value of loan servicing fees, exclusive of those
related to purchased mortgage servicing rights, is estimated by discounting
estimated future cash flows using appropriate discount rates.
Commitments to Extend Credit and Standby Letters of Credit. The fair value of
commitments is estimated using the fees currently charged to enter into similar
agreements, taking into account the remaining terms of the agreements and the
present creditworthiness of the counterparties. For fixed-rate loan commitments,
fair value also considers the difference between current levels of interest
rates and the committed rates. The fair value of letters of credit is based on
fees currently charged for similar agreements or on the estimated cost to
terminate them or otherwise settle the obligations with the counterparties at
the reporting date. The fair value of commitments to extend credit and standby
letters of credit was not significant and therefore not disclosed as of December
31, 1995 and 1994.
80
<PAGE>
As of December 31, 1995 and 1994, the estimated fair values of the Bank's
financial instruments were as follows:
1995 1994
------------------- -------------------
Estimated Estimated
Carrying Fair Carrying Fair
Amount Value Amount Value
-------- -------- -------- --------
(in thousands)
ASSETS
Cash and Due from Banks.......... $ 41,546 $ 41,546 $ 35,238 $ 35,238
Interest Bearing Deposits
with Banks..................... 649 649 1,279 1,279
Securities:
Available for Sale............. 113,615 113,615 65,466 65,466
Held to Maturity............... 27,854 28,183 109,736 102,926
Loans, Net (includes Loans
Held for Sale)................. 509,484 452,100 426,125 359,364
Accrued Interest Receivable...... 4,641 4,641 4,432 4,432
Financial Instruments
Included in Other Assets
(cash surrender value
of life insurance
policies)...................... 8,487 8,487 7,592 7,592
LIABILITIES
Deposits......................... 636,343 637,539 570,409 570,398
Funds Borrowed................... 33,595 33,595 58,953 58,953
Accrued Interest Payable......... 532 532 451 451
OTHER UNRECOGNIZED FINANCIAL
INSTRUMENTS
Loan Servicing Fees.............. - 886 - 601
81
<PAGE>
<TABLE>
<CAPTION>
QUARTERLY RESULTS OF OPERATIONS
A summary of unaudited quarterly results of operations for 1995 and 1994 follows:
(dollars in thousands, execpt per share data) Three Months Ended
- -----------------------------------------------------------------------------------------------------
March 31 June 30 Sept. 30 Dec. 31
-------- ------- -------- -------
<S> <C> <C> <C> <C>
1995
Interest Income........................... $12,307 $12,976 $13,423 $13,717
Interest Expense.......................... 4,700 5,163 5,520 5,598
------- ------- ------- -------
Net Interest Income....................... 7,607 7,813 7,903 8,119
Provision for Possible Loan Losses........ 1,100 890 500 700
Noninterest Income........................ 1,920 1,734 1,338 1,086
Noninterest Expense....................... 7,174 6,749 6,212 6,095
Income Tax Benefit........................ 895 5,223 2,366 2,343
------- ------- ------- -------
Net Income................................ $ 2,148 $ 7,131 $ 4,895 $ 4,753
======= ======= ======= =======
Average Shares Outstanding................ 10,165,064 10,219,481 10,265,042 10,283,603
Per Common Share:
Net Income.............................. $.21 $.70 $.48 $.46
Cash Dividends Declared................ - - - .05
1994
Interest Income........................... $ 9,798 $10,130 $10,893 $11,762
Interest Expense.......................... 3,205 3,108 3,393 4,053
------- ------- ------- -------
Net Interest Income....................... 6,593 7,022 7,500 7,709
Provision for Possible Loan Losses........ 622 1,000 600 1,103
Noninterest Income........................ 1,646 1,500 1,407 1,784
Noninterest Expense....................... 6,837 7,013 7,305 7,268
Provision (Benefit) for Income Taxes...... 10 (1,196) (846) (692)
------- ------- ------- -------
Net Income................................ $ 770 $ 1,705 $ 1,848 $ 1,814
======= ======= ======= =======
Average Shares Outstanding................ 5,102,058 10,081,375 10,087,396 10,095,290
Net Income Per Common Share............... $.15 $.17 $.18 $.18
</TABLE>
Note - See "Management's Discussion and Analysis of Financial Condition and
Results of Operations" for discussion of significant variations. All
prior period per share amounts and average outstanding common shares
presented have been retroactively adjusted for the one-for-two reverse
stock split which was effected as of the close of business on May 31,
1994.
82
<PAGE>
PART III
ITEM 9. DIRECTORS AND PRINCIPAL OFFICERS OF THE BANK
With respect to Directors, the information required by this item will appear
under the caption, "ELECTION OF LAFAYETTE DIRECTORS," in the Bank's proxy
statement which will be dated and filed with the FDIC on or before April 26,
1996 for the 1996 annual meeting of shareholders and is incorporated by
reference.
The following is a list as of February 29, 1996 showing the name and age of all
principal officers of the Bank. Also shown are the positions and offices with
the Bank held by them during the past five years and the dates from which those
positions and offices have been continuously held. There are no family
relationships between any of the principal officers or directors of the Bank.
Positions and Offices Held and
Name Age Dates from Which Held
---- --- ---------------------
Donald P. Calcagnini..... 60 Chairman of the Board of Directors,
since March 1993, Chief Executive
Officer from March 1993 to April 1994,
Lafayette American Bank and Trust
Company; Chairman of the Board of
Directors, March, 1992 to February 1994,
President, 1986 to 1992 and Chief
Executive Officer, 1986 to February
1994, Lafayette American Bancorp, Inc.;
Chairman of the Board of Directors and
President, 1965 to March 1993, American
National Bank; Chairman of the Board of
Directors and President, 1985 to 1988,
American Bancorp, Inc.
Robert B. Goldstein...... 55 Director and President since December
1993, Chief Executive Officer since
April 1994, Chief Operating Officer from
December 1993 to April 1994, Lafayette
American Bank and Trust Company; Vice
Chairman, National Community Banks,
Inc., West Paterson, N.J. from January
1992 to November 1993; President and
Chief Operating Officer of Crossland
Savings Bank, Brooklyn, NY, from March
1991 to January 1992; Executive Officer
of First Interstate Bank of Texas, N.A.
from 1985 to January 1991.
83
<PAGE>
ITEM 9. DIRECTORS AND PRINCIPAL OFFICERS OF THE BANK - CONTINUED
<TABLE>
<CAPTION>
Positions and Offices Held and
Name Age Dates from Which Held
---- --- ---------------------
<S> <C> <C>
Phillip J. Mucha......... 48 Executive Vice President and Chief Financial
Officer since July 1995, Senior Vice President
and Chief Financial Officer, March 1993 to
June 1995, Lafayette American Bank and Trust
Company; Senior Vice President and Chief
Financial Officer, August 1992 to February
1994, Lafayette American Bancorp, Inc.; Chief
Financial Officer and Controller of Citytrust
Bancorp, Inc., for more than five years prior
to March 1992.
Kenneth M. Klieback...... 51 Executive Vice President, Support Services
Division since July 1995, Senior Vice
President, Support Services Division, March
1993 to June 1995, Lafayette American Bank and
Trust Company; Senior Vice President, Director
of Operations, Lafayette American Bancorp,
Inc. from April 1990 to March 1993; Senior
Vice President, Director of Operations,
Lafayette Bank and Trust Company from March
1989 to April 1990; Vice President, Shawmut
Bank for more than five years prior to 1989.
Raymond J. Peach......... 59 Executive Vice President and Director of
Business Banking, since March 1993, Lafayette
American Bank and Trust Company; Director and
Secretary, Executive Vice President and
Cashier, for more than five years, prior to
March 1993, American National Bank.
Amanda V. Perkins........ 38 Executive Vice President and Chief Credit
Policy Officer since July 1995, Senior Vice
President and Chief Credit Policy Officer,
December 1993 to June 1995, Lafayette American
Bank and Trust Company; Senior Vice President,
Deputy Credit Policy Officer, The Bank of New
York N.A. from February 1992 to December 1993;
Senior Vice President, Asset Quality
Reporting, Crossland Savings Bank from July
1991 to February 1992; Vice President, Credit
and Financial Administration, First Interstate
Bank of Texas, N.A. from August 1984 to May
1991.
</TABLE>
84
<PAGE>
ITEM 10. MANAGEMENT COMPENSATION AND TRANSACTIONS
The information required by this item will appear under the captions, "EXECUTIVE
COMPENSATION", "Certain Transactions with Management" and "Indebtedness of
Management" in the Bank's proxy statement which will be dated and filed with the
FDIC on or before April 26, 1996 for the 1996 annual meeting of shareholders and
is incorporated by reference. See also ITEM 8, "FINANCIAL STATEMENTS AND
SUPPLEMENTARY DATA" - Notes 4, 7, and 11 of Notes to Consolidated Financial
Statements.
The information required by this item with respect to the disclosure of
delinquent filers of reports of insiders required by Section 16 of the
Securities Exchange Act of 1934 will appear under the caption "Compliance with
Section 16 of the Securities Exchange Act of 1934" in the Bank's proxy statement
which will be dated and filed with the FDIC on or before April 26, 1996 for the
1996 annual meeting of shareholders and is incorporated by reference.
PART IV
ITEM 11. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM F-3
(a) 1) The financial statements listed in the index set forth in ITEM 8 of
this annual report on Form F-2 are filed as part of this annual
report.
2) The following schedules and related documents are filed as part of
this annual report on Form F-2 on the following pages:
Page
----
Report of Independent Public Accountants
on Schedules...................................... 86
Schedule I - Securities............................. 87
Schedule II - Loans to Officers, Directors
Principal Security Holders,
and any Associates of the
Foregoing Persons................... 87
Schedule III - Loans................................ 88
Schedule IV - Premises and Equipment................ 89
Schedule V - Investments in, Income from
Dividends, and Equity in Earnings
or Losses of Subsidiaries and
Associated Companies................ 89
Schedule VI - Reserve for Possible Loan Losses...... 89
85
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON SCHEDULES
To the Shareholders and Board of Directors of
Lafayette American Bank and Trust Company:
We have audited, in accordance with generally accepted auditing standards, the
consolidated financial statements included in Lafayette American Bank and Trust
Company's December 31, 1995 Annual Report on Form F-2 and have issued our report
thereon dated January 17, 1996 (except with respect to the matter discussed in
Note 1, as to which the date is February 6, 1996 and the matter discussed in
Note 13, as to which the date is February 2, 1996). Our audit was made for the
purpose of forming an opinion on those statements taken as a whole. The
schedules listed in the index in ITEM 11. are the responsibility of the Bank's
management and are presented for purposes of complying with the Securities and
Exchange Commission's rules and are not part of the basic financial statements.
These schedules have been subjected to the auditing procedures applied in the
audit of the basic financial statements and, in our opinion, fairly state in all
material respects the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.
ARTHUR ANDERSEN LLP
New York, New York
January 17, 1996
86
<PAGE>
Schedule I - Securities.
- ----------
See Note 3 of Notes to Consolidated Financial Statements on pages 64 to 66 of
this Form F-2 Report.
Schedule II - Loans to Officers, Directors, Principal Security Holders, and any
- -----------
Associates of the Foregoing Persons.
<TABLE>
<CAPTION>
Deductions No Balance
Balance at ------------------------ Longer at End
Name of Beginning Amounts Amounts Related of
Borrower of Period Additions Collected Charged-Off Parties Period
- -------- --------- --------- --------- ----------- -------- --------
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
1995
- ----
Associates of One(1) Director/Officer:
Associate 1:
(A)............ $ 83 $ 60 $ 143 $ - $ - $ -
(B)............ - 40 - - - 40
Associate 2:
(C)............ 115 - 115 - - -
(D)............ - 400 - - - 400
Associate 3:(E).. 10 - - - - 10
Directors as a Group:
Eight(8)
Persons.......... 5,159 8,054 7,554 - - 5,659
1994
- ----
Associates of One(1) Director/Officer:
Associate 1:
(A)............ $ - $ 180 $ 97 $ - $ - $ 83
(F)............ 9 - 9 - - -
Associate 2:
(C)............ 215 - 100 - - 115
(G)............ 250 - 250 - - -
Associate 3(E)... 10 - - - - 10
Directors as a Group:
Eight(8)
Persons.......... 8,216 8,263 11,316 - 4 5,159
1993
- ----
Associates of One(1) Director/Officer:
Associate 1:
(A)............ $ 90 $ - $ 90 $ - $ - $ -
(F)............ - 12 3 - - 9
Associate 2:
(C)............ 315 - 100 - - 215
(G)............ - 250 - - - 250
(H)............ 112 - 112 - - -
Associate 3-(E).. 10 - - - - 10
Associate 4-(I).. 1,972 - 1,972 - - -
Directors as a Group:
Fourteen(14)
Persons.......... 23,241 8,971 11,507 2,245 10,244 8,216
</TABLE>
87
<PAGE>
<TABLE>
<CAPTION>
Notes:
Maturity Interest
Date Rate Repayment Terms Collateral
- ------------ -------- --------------- ----------
<S> <C> <C> <C>
(A) 12-01-95 Prime + 2% Demand Note 2 Blanket liens on all
business assets
(B) 05-01-96 Prime + 1% Demand Note 3 Blanket liens on all
business assets
(C) 01-01-96 Prime + 1.5% Demand Note 2 Blanket liens on all
business assets
(D) 05-01-96 Prime + .5% Demand Note 1 Guarantor
(E) 09-30-96 Prime + 1% Demand Note Unsecured
(F) 06-01-95 Prime + 1% Monthly Principal Security Agreement and
and Interest UCC-1
(G) 04-01-94 Prime Demand Note Unsecured
(H) 05-01-93 Prime + 1% Demand Note Unsecured
(I) 09-20-93 Prime Demand Note 5 Guarantors
</TABLE>
Schedule III - Loans.
- ------------
See Note 4 of Notes to Consolidated Financial Statements on page 66 of this Form
F-2 Report.
88
<PAGE>
Schedule IV - Premises and Equipment.
- -----------
See Notes 1 and 7 of Notes to Consolidated Financial Statements on pages 61 and
69 to 70, respectively.
Schedule V - Investments in, Income from Dividends, and Equity in Earnings or
- ----------
Losses of Subsidiaries and Associated Companies.
<TABLE>
<CAPTION>
Retained
Earnings
(Accumulated
Deficit) in
Underlying Bank's
Net Assets Proportional
Percent of as of Part of
Name of Voting Stock Total December 31, Amount of Loss for
Issuer Owned Investment 1995 Dividends the Year 1995
- ------- ------------ ---------- ------------- --------- --------------
(dollars in thousands)
<C> <C> <C> <C> <C> <C>
AMBA Realty
Corporation<F1> 100% $15,446<F2> $(8,383) $ - $(1,086)
AMBA II Realty
Corporation<F1> 100% $ 1<F3> $ - $ - $ -
LAI Company<F1> 100% $ 2,901<F4> $ 2,912 $ - $ -
<FN>
<F1> Subsidiary consolidated.
<F2> Includes common stock $1,000 (100 shares), capital surplus of $1,000,000
and advances of $14,445,000.
<F3> Includes common stock $1,000 (1,000 shares) and advances of $1,000.
<F4> Includes common stock $1,000 (100 shares) and capital surplus of
$2,900,000.
</TABLE>
Schedule VI - Reserve for Possible Loan Losses.
- -----------
See Notes 5 and 12 of Notes to Consolidated Financial Statements on pages 67 to
68 and 76 to 78, respectively.
(b) Reports on Form F-3
No reports on Form F-3 were filed during the fourth quarter of 1995.
(c) Exhibits: The following exhibits are incorporated by reference herein or
annexed to this report:
89
<PAGE>
Designation Description
- ----------- -----------
1.1 Amended and Restated Certificate of Incorporation of Lafayette
American Bank and Trust Company (incorporated by reference to
Exhibit 1.1 to the Bank's 1994 Form F-2).
1.2 Amended and Restated By-Laws of Lafayette American Bank and
Trust Company (incorporated by reference to Exhibit 1.2 to the
Bank's Form F-1 filed on November 22, 1993).
3.1 Senior Management Deferred Compensation Agreements of Lafayette
American Bank and Trust Company (incorporated by reference to
Exhibit 4.1 to the Bank's Form F-1 filed on November 22, 1993).
3.2 Amendments to Senior Management Deferred Compensation
Agreements of Lafayette American Bank and Trust Company
(incorporated by reference to Exhibit 3.2 to the Bank's 1994
Form F-2).
3.3 Directors' Deferred Compensation Agreements of Lafayette
American Bank and Trust Company (incorporated by reference to
Exhibit 4.2 to the Bank's Form F-1 filed on November 22, 1993).
3.4 Directors' Retirement Income Plans of Lafayette American Bank
and Trust Company (incorporated by reference to Exhibit 4.3 to
the Bank's Form F-1 filed on November 22, 1993).
3.5 Director's Supplemental Compensation Agreements of Lafayette
American Bank and Trust Company (incorporated by reference to
Exhibit 4.4 to the Bank's Form F-1 filed on November 22, 1993).
3.6 Fiscal 1984 Incentive Stock Option Plan of Lafayette American
Bank and Trust Company (incorporated by reference to Exhibit
5.1 to the Bank's Form F-1 filed on November 22, 1993).
3.7 1994 Stock Option Plan as amended October 26, 1995 of Lafayette
American Bank and Trust Company (incorporated by reference to
Exhibit 3.3 to the Bank's Form F-4 for the quarter ended
September 30, 1995).
3.8 Stock Option Grant Agreements, dated June 22, 1994, between
Lafayette American Bank and Trust Company and certain of its
principal officers (incorporated by reference to Exhibit 3.8 to
the Bank's 1994 Form F-2).
3.9 Stock Option Grant Agreements, dated July 26, 1995, between
Lafayette American Bank and Trust Company and certain of its
principal officers (incorporated by reference to Exhibit 3.2 to
the Bank's Form F-4 for the quarter ended September 30, 1995).
90
<PAGE>
3.10 Employment Agreement, dated April 25, 1994, between Lafayette
American Bank and Trust Company and its Chairman of the Board
of Directors (incorporated by reference to Exhibit 3.9 to the
Bank's 1994 Form F-2).
3.11 Stock Option Grant Agreement, dated June 15, 1994, between
Lafayette American Bank and Trust Company and its Chairman of
the Board of Directors (incorporated by reference to Exhibit
3.10 to the Bank's 1994 Form F-2).
3.12 Health Care Coverage Agreement, dated June 15, 1994, between
Lafayette American Bank and Trust Company and its Chairman of
the Board of Directors (incorporated by reference to Exhibit
3.11 to the Bank's 1994 Form F-2).
3.13 Employment Agreement, dated February 24, 1994 as amended
October 28, 1994, between Lafayette American Bank and Trust
Company and its President and Chief Executive Officer
(incorporated by reference to Exhibit 3.12 to the Bank's 1994
Form F-2).
3.14 Stock Option Grant Agreement, dated February 24, 1994, between
Lafayette American Bank and Trust Company and its President and
Chief Executive Officer (incorporated by reference to Exhibit
3.10 to the Bank's 1993 Form F-2).
3.15 Employment Contract, dated March 23, 1995, between Lafayette
American Bank and Trust Company and its Executive Vice
President and Chief Financial Officer (incorporated by
reference to Exhibit 3.1 to the Bank's Form F-4 for the quarter
ended June 30, 1995).
3.16 Amended and Restated Severance Pay Agreement, dated June 30,
1995, between Lafayette American Bank and Trust Company and its
Executive Vice President, Support Services Division
(incorporated by reference to Exhibit 3.1 to the Bank's Form F-4
for the quarter ended September 30, 1995).
3.17 Employment Agreement and Stock Option Grant Agreement, dated
December 20, 1994 and May 24, 1994, respectively, between
Lafayette American Bank and Trust Company and its Executive
Vice President and Chief Credit Policy Officer (incorporated by
reference to Exhibit 3.17 to the Bank's 1994 Form F-2).
3.18 Lease Agreement and Option to Purchase, dated September 29,
1972, between Lafayette American Bank and Trust Company and
Consolidated Equities Co. (incorporated by reference to Exhibit
7.2 to the Bank's Form F-1 filed on November 22, 1993).
3.19 Lease Agreement, dated September 1, 1992 and October 1, 1994,
between Lafayette American Bank and Trust Company and Chestnut
Hill South (incorporated by reference to Exhibit 3.20 to the
Bank's 1994 Form F-2).
91
<PAGE>
3.20 Asset Purchase Agreement, dated May 11, 1995, between Sachem
Trust National Association and Lafayette American Bank and
Trust Company (incorporated by reference to Exhibit 3.2 to the
Bank's Form F-4 for the quarter ended June 30, 1995).
3.21 Agreement and Plan of Merger, dated February 5, 1996 between
HUBCO, Inc. and Lafayette American Bank and Trust Company
(incorporated by reference to Exhibit A to the Bank's Form F-3
for the month of February 1996).
3.22 Stock Option Agreement, dated February 5, 1996, between HUBCO,
Inc. and Lafayette American Bank and Trust Company
(incorporated by reference to Exhibit B to the Bank's Amendment
No. 1 to Form F-3 for the month of February 1996).
4. A statement regarding computation of per share earnings is omitted
because the computation can be clearly determined from the material
contained in this report.
9. Lafayette American Bank and Trust Company, bank and
subsidiaries (Exhibit 9 - Annexed Hereto).
92
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 of the Securities Exchange Act of
1934, the Bank has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Lafayette American Bank and Trust Company
Date March 18, 1996 By /s/ Robert B. Goldstein
------------------ -----------------------------
Robert B. Goldstein
President and Chief Executive
Officer
93
<PAGE>
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
Board of Directors
/s/ Donald P. Calcagnini March 18, 1996
- ------------------------------------------- ----------------
Donald P. Calcagnini, Chairman of the Board Date
/s/ Robert B. Goldstein March 18, 1996
- ------------------------------------------- ----------------
Robert B. Goldstein, Director, President and Date
Chief Executive Officer
/s/ Steven Bangert March 18, 1996
- ------------------------------------------- ----------------
Steven Bangert, Director Date
/s/ Linda Walker Bynoe March 18, 1996
- ------------------------------------------- ----------------
Linda Walker Bynoe, Director Date
/s/ Bertram Frankenberger, Jr. March 18, 1996
- ------------------------------------------- ----------------
Bertram Frankenberger, Jr., Director Date
/s/ Gary R. Ginsberg March 18, 1996
- ------------------------------------------- ----------------
Gary R. Ginsberg, Director Date
/s/ Donald W. Harrison March 18, 1996
- ------------------------------------------- ----------------
Donald W. Harrison, Director Date
/s/ Roderick C. McNeil III March 18, 1996
- ------------------------------------------- ----------------
Roderick C. McNeil III, Director Date
/s/ Leonard R. Meyers March 18, 1996
- ------------------------------------------- ----------------
Leonard R. Meyers, Director Date
/s/ Enzo R. Montesi March 18, 1996
- ------------------------------------------- ----------------
Enzo R. Montesi, Director Date
/s/ Leif H. Olsen March 18, 1996
- ------------------------------------------- ----------------
Leif H. Olsen, Director Date
94
<PAGE>
/s/ John W. Rose March 18, 1996
- ------------------------------------------- ----------------
John W. Rose, Director Date
/s/ Louis F. Tagliatela March 18, 1996
- ------------------------------------------- ----------------
Louis F. Tagliatela, Director Date
/s/ John H. Tatigian, Jr. March 18, 1996
- ------------------------------------------- ----------------
John H. Tatigian, Jr., Director Date
/s/ Phillip J. Mucha March 18, 1996
- ------------------------------------------- ----------------
Phillip J. Mucha, Executive Vice President and Date
Chief Financial Officer (principal
financial and accounting officer)
95
<PAGE>
EXHIBIT 9.
LAFAYETTE AMERICAN BANK AND TRUST COMPANY
BANK SUBSIDIARIES
- --------------------------------------------------------------------------------
Bank: Lafayette American Bank and Trust Company
(Connecticut corporation)
Subsidiaries, all of
whose voting
securities are
owned by the
Bank: AMBA Realty Corporation
(Connecticut corporation)
AMBA II Realty Corporation
(Connecticut corporation)
LAI Company
(Connecticut corporation)
EXHIBIT 13.1(b)
---------------
FEDERAL DEPOSIT INSURANCE CORPORATION
Washington, D. C. 20006
FORM F-3
CURRENT REPORT
UNDER SECTION 13 OF THE
SECURITIES EXCHANGE ACT OF 1934
For the month of February 1996 FDIC Certificate Number 19353
----------------------------- --------
Lafayette American Bank and Trust Company
- ---------------------------------------------------------------------------
(Exact name of bank as specified in its charter)
Connecticut 06-0795235
- ---------------------------------------------------------------------------
(State of incorporation) (IRS Employer Identification No.)
1087 Broad Street, Bridgeport, Connecticut 06604
- ---------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Bank's telephone number, including area code (203) 336-6200
------------------------------
Item 12. Other Materially Important Events
---------------------------------
On February 6, 1996, Lafayette American Bank and Trust Company ("Lafayette
American") announced a strategic alliance, through merger, with HUBCO, Inc.,
a New Jersey based bank holding company.
Under the proposed merger, which is subject to various conditions including
regulatory approvals and approval by the shareholders of both Lafayette
American and HUBCO, each share of Lafayette American common stock will
convert into 0.588 of a share of HUBCO common stock. Under the merger
agreement, HUBCO will have an option to purchase 2,400,000 shares of
Lafayette American's common stock at $10.75 per share, which option is
exercisable in certain circumstances. The proposed transaction is expected
to close in the second or third quarter of 1996.
Item 13. Financial Statements and Exhibits
---------------------------------
(b) Exhibits:
A copy of the Agreement and Plan of Merger is attached
as Exhibit A.
<PAGE>
SIGNATURE
---------
Under the requirements of the Securities and Exchange Act of 1934, the Bank
has duly caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
Lafayette American Bank and Trust Company
-----------------------------------------
(Bank)
Dated: February 9, 1996 By:
-------------------------------
Phillip J. Mucha
Executive Vice President and
Chief Financial Officer
EXHIBIT 13.1(c)
---------------
FEDERAL DEPOSIT INSURANCE CORPORATION
Washington, D. C. 20006
Amendment No. 1 to
FORM F-3
CURRENT REPORT
UNDER SECTION 13 OF THE
SECURITIES EXCHANGE ACT OF 1934
For the month of February 1996 FDIC Certificate Number 19353
-------------------------- ---------
Lafayette American Bank and Trust Company
- --------------------------------------------------------------------------
(Exact name of bank as specified in its charter)
Connecticut 06-0795235
- --------------------------------------------------------------------------
(State of incorporation) (IRS Employer Identification No.)
1087 Broad Street, Bridgeport, Connecticut 06604
- --------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Bank's telephone number, including area code (203) 336-6200
------------------------------
The purpose of this Amendment No. 1 is to clarify that the option referred to
in the original Form F-3 filing dated February 9, 1996 was granted pursuant
to a separate Stock Option Agreement and to include a copy of such agreement
as an exhibit thereto.
Item 12. Other Materially Important Events
---------------------------------
On February 6, 1996, Lafayette American Bank and Trust Company ("Lafayette
American") announced a strategic alliance, through merger, with HUBCO, Inc.,
a New Jersey based bank holding company.
Under the proposed merger, which is subject to various conditions, including
regulatory approvals and approval by the shareholders of both Lafayette
American and HUBCO, each share of Lafayette American common stock will
convert into 0.588 of a share of HUBCO common stock. In connection with the
merger agreement, Lafayette American and HUBCO entered into a Stock Option
Agreement dated February 5, 1996 pursuant to which HUBCO will have an option
to purchase 2,400,000 shares of Lafayette American's common stock at $10.75
per share, which option is exercisable in certain circumstances. The
proposed transaction is expected to close in the second or third quarter of
1996.
Item 13. Financial Statements and Exhibits
---------------------------------
(b) Exhibits:
(1) A copy of the Agreement and Plan of
Merger was attached as Exhibit A to
the original Form F-3 dated February
9, 1996.
(2) A copy of the Stock Option Agreement
is attached as Exhibit B.
<PAGE>
SIGNATURE
---------
Under the requirements of the Securities and Exchange Act of 1934, the Bank
has duly caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
Lafayette American Bank and Trust Company
-----------------------------------------
(Bank)
Dated: February 16, 1996 By:
-----------------------------------
Phillip J. Mucha
Executive Vice President and
Chief Financial Officer
EXHIBIT 23(a)
-------------
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
-----------------------------------------
To HUBCO, Inc.
As independent public accountants, we hereby consent to the incorporation by
reference in this Registration Statement on Form S-4 of our report dated
January 11, 1996 (except with respect to the matters discussed in Note 20, as
to which the date is February 6, 1996) incorporated by reference in the
Company's Form 10-K and to all references to our Firm included in or made a
part of this Registration Statement.
ARTHUR ANDERSEN LLP
Roseland, New Jersey
March 18, 1996
EXHIBIT 23(b)
-------------
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
-----------------------------------------
To HUBCO, Inc.
As independent public accountants, we hereby consent to the incorporation by
reference in this Registration Statement on Form S-4 of our report dated
January 17, 1996 (except with respect to the matters discussed in Note 1, as
to which the date is February 6, 1996) with respect to the consolidated
financial statements of Lafayette American Bank and Trust Company (the
Company) included in the Company's Form F-2 and to all references to our
Firm included in or made a part of this Registration Statement.
ARTHUR ANDERSEN LLP
New York, New York
March 18, 1996
EXHIBIT 23(c)
-------------
[FORM OF CONSENT]
[Date]
Board of Directors
HUBCO, Inc.
1000 MacArthur Blvd.
Mahwah, NJ 07430
Re: Prospectus/Proxy Statement of HUBCO, Inc. and
Lafayette American Bank and Trust Company
---------------------------------------------
Gentlemen and Mesdames:
Attached is our opinion letter dated [February 5, 1996]
with respect to the fairness to HUBCO, Inc. (the "Company") of the exchange
ratio of 0.588 shares (the "Exchange Ratio") of common stock, no par value,
of the Company (the "Shares") to be paid by the Company for each share of
common stock, no par value, of Lafayette American Bank and Trust Company
("Lafayette") pursuant to the merger (the "Merger") contemplated by the
Agreement and Plan of Merger dated February 5, 1996 between Lafayette and the
Company (the "Agreement").
The foregoing letter is solely for the information and
assistance of the Board of Directors of the Company in connection with its
consideration of the transaction contemplated therein and is not to be used,
circulated, quoted or otherwise referred to for any other purpose, nor is it
to be filed with, included in or referred to in whole or in part in any
registration statement, proxy statement or any other document, except in
accordance with our prior written consent.
In that regard, we hereby consent to the reference to the
opinion of our Firm under the captions, "The Merger - Fairness Opinions" and
"THE PROPOSED MERGER - Opinions of Financial Advisors" and to the inclusion
of the foregoing opinion in the above mentioned Prospectus/Proxy Statement.
In giving such consent, we do not thereby admit that we come within the
category of persons whose consent is required under Section 7 of the
Securities Act of 1933 or the rules and regulations of the Securities and
Exchange Commission thereunder.
[Goldman, Sachs & Co.]
EXHIBIT 99(a)
-------------
LAFAYETTE AMERICAN BANK AND TRUST COMPANY
PROXY
FOR THE ANNUAL MEETING OF SHAREHOLDERS
MAY 29, 1996
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF
LAFAYETTE AMERICAN BANK AND TRUST COMPANY
The undersigned hereby appoints DONALD P. CALCAGNINI and
PHILLIP J. MUCHA, and each of them, as Proxy, each with full power of
substitution, to vote all of the stock of Lafayette American Bank and Trust
Company ("Lafayette") standing in the undersigned's name at the Annual
Meeting of Shareholders of Lafayette to be held on Wednesday, May 29, 1996 at
11:00 a.m., and at any adjournment thereof. The undersigned hereby revokes
any and all proxies heretofore given with respect to such meeting.
This proxy will be voted as specified herein. IF NO
CHOICE IS SPECIFIED, THE PROXY WILL BE VOTED FOR THE BOARD OF DIRECTORS'
NOMINEES AND FOR APPROVAL OF THE AGREEMENT AND PLAN OF MERGER.
(continue on reverse side)
<PAGE>
PLEASE DATE, SIGN AND RETURN THIS PROXY IN THE ENCLOSED ENVELOPE.
The Board of Directors recommends a vote FOR the Board of Directors' nominees
and FOR approval of the Agreement and Plan of Merger.
1. Approval of the Agreement and Plan of Merger with HUBCO, Inc.
FOR ________ AGAINST __________ ABSTAIN _______
2. Election of
Directors
Nominees: Linda Walker Bynoe, Roderick C. McNeil III, Enzo R. Montei, Louis
F. Tagliatela, John H. Tatigian, Jr.
FOR _______ WITHHOLD AUTHORITY _______ AGAINST _______
For, except vote withheld from the following nominee(s). To withhold
authority to vote for any nominee(s) write that name(s) on the line below:
___________________________________________________________________
3. Such other business as may properly come before the Meeting.
SIGNATURE(S)_________________ DATE______________,1996
SIGNATURE(S)_________________ DATE______________,1996
NOTE: Please sign exactly as name appears hereon. Joint owners should each
sign. When signing as attorney, executor, administrator, trustee or
guardian, please give full title as such.
EXHIBIT 99(b)
-------------
HUBCO, INC.
PROXY
FOR THE ANNUAL MEETING OF SHAREHOLDERS
JUNE 11, 1996
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF
HUBCO, INC.
The undersigned hereby appoints JOAN DAVID, THOMAS R.
FARLEY and KENNETH T. NEILSON and each of them, as Proxy, each with full
power of substitution, to vote all of the stock of HUBCO, Inc. standing in
the undersigned's name at the Annual Meeting of Shareholders of HUBCO, Inc.,
to be held at the Sheraton Crossroads, Crossroad Corporate Center, Route 17
North, Mahwah, New Jersey 07495, on Tuesday, June 11, 1996 at 11:00 a.m., and
at any adjournment thereof. The undersigned hereby revokes any and all
proxies heretofore given with respect to such meeting.
This proxy will be voted as specified herein. IF NO
CHOICE IS SPECIFIED, THE PROXY WILL BE VOTED FOR THE BOARD OF DIRECTORS'
NOMINEES, FOR APPROVAL OF THE ISSUANCE OF HUBCO COMMON STOCK AS CONSIDERATION
IN CONNECTION WITH THE AGREEMENT AND PLAN OF MERGER, AND FOR THE AMENDMENT TO
THE CERTIFICATE OF INCORPORATION TO INCREASE THE AUTHORIZED STOCK.
(continue on reverse side)
<PAGE>
PLEASE DATE, SIGN AND RETURN THIS PROXY IN THE ENCLOSED ENVELOPE.
The Board of Directors recommends a vote FOR approval of the issuance of
HUBCO Common Stock in connection with the Agreement and Plan of Merger and
FOR the Board of Directors' nominees and FOR approval of the proposal to
amend HUBCO's Certificate of Incorporation.
1. Approval of the issuance of HUBCO Common Stock in connection with the
Agreement and Plan of Merger with Lafayette American Bank and Trust Company.
FOR ________ AGAINST ________ ABSTAIN _______
2. Election of Directors
Nominees: W. Peter McBride, Bryant Malcolm, James E. Schierloh
FOR _______ WITHHOLD AUTHORITY _______ AGAINST________
For, except vote withheld from the following nominee(s). To withhold
authority to vote for any nominee(s) write that name(s) on the line below:
__________________________________________________________________________
3. Approval of the Amendment to the Certificate of Incorporation to
increase the authorized Common Stock to 50,000,000 shares and the
authorized preferred stock to 10,000,000.
FOR ________ AGAINST ________ ABSTAIN _______
4. Such other business as may properly come before the Meeting.
SIGNATURE(S)_______________________________DATE_______________________
NOTE: Please sign exactly as name appears hereon. Joint owners should each
sign. When signing as attorney, executor, administrator, trustee or
guardian, please give full title as such.
