As filed with the Securities and Exchange Commission on October 1, 1997
REGISTRATION NO. ___________
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM S-4
REGISTRATION STATEMENT
under
THE SECURITIES ACT OF 1933
HUBCO, INC.
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(Exact name of registrant as specified in its charter)
NEW JERSEY
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(State or other Jurisdiction of Incorporation or Organization)
6711
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(Primary Standard Industrial Classification Code Number)
22-2405746
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(I.R.S. Employer Identification No.)
1000 MacARTHUR BOULEVARD
MAHWAH, NEW JERSEY 07430
(201) 236-2600
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(Address, including zip code, and telephone number, including area
code, of registrant's principal executive offices)
KENNETH T. NEILSON
CHAIRMAN, PRESIDENT AND CHIEF EXECUTIVE OFFICER
1000 MacARTHUR BOULEVARD
MAHWAH, NEW JERSEY 07430
(201) 236-2600
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(Name, address, including zip code, and telephone number,
including area code, of agent for service)
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Please send copies of all communications to:
MICHAEL W. ZELENTY, ESQ. WILLIAM W. BOUTON III, ESQ.
Pitney, Hardin, Kipp & Szuch Tyler Cooper & Alcorn, LLP
P.O. Box 1945 CityPlace I, 35th Floor
Morristown, New Jersey 07962 Hartford, Connecticut 06103
(201) 966-8125 (860) 725-6210
<PAGE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: At the
Effective Time of the Merger, as defined in the Agreement and Plan of Merger
dated August 18, 1997 (the "MERGER AGREEMENT"), by and among HUBCO, Inc.
("HUBCO"), Lafayette American Bank and Trust Company ("LAFAYETTE") and The Bank
of Southington ("SOUTHINGTON"), attached as Appendix A to the 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. [ ]
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CALCULATION OF REGISTRATION FEE
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Title of each Proposed Proposed
class of Maximum Maximum
securities offering aggregate Amount of
to be Amount to be price offering registration
registered registered* per unit per unit fee
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Common Stock,
No Par Value 994,164 Shares $27.00 $26,842,428** $8,134.07
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* The number of shares of HUBCO Common Stock issuable in the Merger in
exchange for shares of Southington Common Stock, assuming the maximum
Exchange Ratio of 0.764 set forth in the Merger Agreement, and assuming
that all currently outstanding options to acquire shares of Southington
Common Stock are exercised prior to the Effective Time of the Merger. The
Registrant 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.
** Estimated solely for the purpose of calculating the registration fee for
the filing on Form S-4 pursuant to Rule 457(f)(1) under the Securities Act
based on the average of the high and low prices reported by the AMEX for
Southington Common Stock as of September 25, 1997, a date within five
business days prior to the filing of this Registration Statement.
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THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SECTION 8(A), MAY
DETERMINE.
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2
<PAGE>
[THE BANK OF SOUTHINGTON LOGO]
____________, 1997
To the Shareholders of The Bank of Southington:
You are cordially invited to attend a special meeting of shareholders (the
"MEETING") of The Bank of Southington ("SOUTHINGTON") to be held at [Location]
on [Date and Time].
At the Meeting, you will be asked to approve an Agreement and Plan of
Merger, dated August 18, 1997 (the "MERGER AGREEMENT"), by and among HUBCO, Inc.
("HUBCO"), HUBCO's Connecticut banking subsidiary, Lafayette American Bank and
Trust Company ("LAFAYETTE"), and Southington, which provides for Southington to
be merged with and into Lafayette (the "MERGER"). A copy of the Merger Agreement
is included as Appendix A to the accompanying Proxy Statement-Prospectus. If the
proposed Merger is consummated, each share of common stock of Southington, par
value $6.00 ("SOUTHINGTON COMMON STOCK"), will be converted into a number of
shares (the "EXCHANGE RATIO") of common stock of HUBCO, without par value
("HUBCO COMMON STOCK"), equal to a fraction, the numerator of which will be
$21.00 and the denominator of which will be 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 a 10 trading day period
shortly prior to the closing of the Merger), with a minimum Exchange Ratio of
0.600 (which will apply if the Median Pre-Closing Price is at or above $35.00)
and a maximum Exchange Ratio of 0.764 (which will apply if the Median
Pre-Closing Price is at or below $27.50), subject to adjustment provisions set
forth in the Merger Agreement and described in the Proxy Statement-Prospectus,
with cash paid in lieu of fractional shares. If the Median Pre-Closing Price is
less than $22.00, the Board of Directors of Southington will have certain rights
to terminate the Merger Agreement unless HUBCO agrees to increase the Exchange
Ratio to a fraction with a numerator of $16.81 and a denominator equal to the
Median Pre-Closing Price.
Consummation of the Merger is subject to certain conditions, including the
receipt of certain regulatory approvals and approval of the Merger Agreement by
the affirmative vote, in person or by proxy, of at least two-thirds of the
outstanding shares of Southington Common Stock.
YOUR BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED THE MERGER AGREEMENT AND
RECOMMENDS THAT YOU VOTE "FOR" APPROVAL OF THE MERGER AGREEMENT.
You are urged to read the Proxy Statement-Prospectus, which provides you
with a description of the terms of the Merger. IT IS VERY IMPORTANT THAT YOUR
SHARES BE REPRESENTED AT THE MEETING. WHETHER OR NOT YOU PLAN TO ATTEND THE
MEETING, YOU ARE REQUESTED TO COMPLETE, DATE AND SIGN THE PROXY CARD AND RETURN
IT AS SOON AS POSSIBLE IN THE ENCLOSED POSTAGE PAID ENVELOPE. Failure to return
a properly executed proxy card or to vote at the Meeting will have the same
effect as a vote against the Merger Agreement.
Sincerely,
BRYAN P. BOWERMAN ROMAN F. GARBACIK
President and Chief Chairman
Executive Officer
<PAGE>
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON ____________, 1997
To the Shareholders of The Bank of Southington:
NOTICE IS HEREBY GIVEN that a special meeting of shareholders (the
"MEETING") of The Bank of Southington ("SOUTHINGTON") will be held on [Day of
Week], [Date], 1997, at [Time], at [Location], for the following purposes:
(1) To consider and vote upon a proposal to approve and adopt an Agreement
and Plan of Merger, dated August 18, 1997 (the "MERGER AGREEMENT"), by
and among HUBCO, Inc. ("HUBCO"), HUBCO's Connecticut banking
subsidiary, Lafayette American Bank and Trust Company ("LAFAYETTE"),
and Southington, which provides for Southington to be merged with and
into Lafayette (the "MERGER"). A copy of the Merger Agreement is
included as Appendix A to the accompanying Proxy Statement-Prospectus.
If the proposed Merger is consummated, each share of common stock of
Southington, par value $6.00 ("SOUTHINGTON COMMON STOCK"), will be
converted into the number of shares (the "EXCHANGE RATIO") of common
stock of HUBCO, without par value ("HUBCO COMMON STOCK"), equal to a
fraction, the numerator of which will be $21.00 and the denominator of
which will be 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 a 10 trading day period shortly
prior to the closing of the Merger), with a minimum Exchange Ratio of
0.600 (which will apply if the Median Pre-Closing Price is at or above
$35.00) and a maximum Exchange Ratio of 0.764 (which will apply if the
Median Pre-Closing Price is at or below $27.50), subject to adjustment
provisions set forth in the Merger Agreement and described in the
Proxy Statement-Prospectus, with cash paid in lieu of fractional
shares. If the Median Pre-Closing Price is less than $22.00, the Board
of Directors of Southington will have certain rights to terminate the
Merger Agreement unless HUBCO agrees to increase the Exchange Ratio to
a fraction with a numerator of $16.81 and a denominator equal to the
Median Pre-Closing Price.
(2) To transact such other business as may properly come before the
Meeting or any adjournment or postponement thereof.
If the Merger Agreement is approved, adopted and consummated, each holder
of Southington Common Stock will have the right to dissent and demand payment of
the fair value of his or her shares. This right is contingent upon strict
compliance with the procedures set forth in the applicable statute. The full
text of this statute is included as Appendix D to the accompanying Proxy
Statement-Prospectus.
The Board of Directors has fixed the close of business on ____________,
1997 as the record date for the determination of shareholders entitled to notice
of and to vote at the Meeting. Only shareholders of record at the close of
business on the record date will be entitled to notice of and to vote at the
Meeting or any adjournments or postponements thereof.
All shareholders are urged to attend the Meeting in person. IT IS IMPORTANT
THAT PROXIES BE RETURNED PROMPTLY. THEREFORE, WHETHER OR NOT YOU PLAN TO BE
PRESENT IN PERSON AT THE MEETING, PLEASE DATE, SIGN AND COMPLETE THE ENCLOSED
PROXY AND RETURN IT IN THE ENCLOSED ENVELOPE, WHICH REQUIRES NO POSTAGE IF
MAILED IN THE UNITED STATES. If you decide to attend the Meeting, you may revoke
your proxy and vote your shares in person.
Southington, Connecticut
____________, 1997
By Order of the Board of Directors
PETER G. PFAU
Corporate Secretary
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YOUR BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED THE MERGER AGREEMENT AND
RECOMMENDS THAT YOU VOTE "FOR" APPROVAL OF THE MERGER AGREEMENT.
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<PAGE>
PROXY STATEMENT OF PROSPECTUS OF HUBCO, INC.
THE BANK OF SOUTHINGTON for its Common Stock to be issued
for its Special Meeting in connection with the merger of
of Shareholders The Bank of Southington
to be held on ____________, 1997 with and into HUBCO's subsidiary,
and all adjournments or Lafayette American Bank
postponements thereof and Trust Company
THIS PROXY STATEMENT-PROSPECTUS (SOMETIMES REFERRED TO AS THIS "PROXY
STATEMENT") is first being furnished to the shareholders of The Bank of
Southington ("SOUTHINGTON") on or about ___________, 1997 in connection with the
solicitation of proxies by the Board of Directors of Southington to be used at
the Special Meeting of its shareholders (the "MEETING") to be held on [Day of
Week], [Date], 1997. The purpose of the Meeting is for holders of Southington
common stock, $6.00 par value per share (" SOUTHINGTON COMMON STOCK"), to
consider and vote upon an Agreement and Plan of Merger, dated August 18, 1997
(the "MERGER AGREEMENT"), by and among HUBCO, Inc., a New Jersey corporation
("HUBCO"), HUBCO's Connecticut banking subsidiary, Lafayette American Bank and
Trust Company ("LAFAYETTE"), and Southington. In accordance with the terms of
the Merger Agreement, upon approval of the Merger Agreement by the shareholders
of Southington, receipt of all requisite regulatory approvals, and the
satisfaction or waiver of all other conditions, Southington will be merged with
and into Lafayette, with Lafayette as the surviving entity in the Merger. In
connection with the Merger, each share of Southington Common Stock will be
converted into the right to receive a number of shares (the "EXCHANGE RATIO") of
common stock of HUBCO , without par value ("HUBCO COMMON STOCK"), equal to a
fraction, the numerator of which will be $21.00 and the denominator of which
will be 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 a 10 trading day period shortly prior to the closing of the Merger), with
a minimum Exchange Ratio (the "MINIMUM EXCHANGE RATIO") of 0.600 (which will
apply if the Median Pre-Closing Price is at or above $35.00) and a maximum
Exchange Ratio (the "MAXIMUM EXCHANGE RATIO") of 0.764 (which will apply if the
Median Pre-Closing Price is at or below $27.50), subject to adjustment
provisions set forth in the Merger Agreement and more fully described in this
Proxy Statement, with cash paid in lieu of fractional shares. If the Median
Pre-Closing Price is less than $22.00, the Board of Directors of Southington
will have certain rights to terminate the Merger Agreement unless HUBCO agrees
to increase the Exchange Ratio to a fraction with a numerator of $16.81 and a
denominator equal to the Median Pre-Closing Price. In addition, each option to
purchase a share of Southington Common Stock pursuant to Southington's existing
stock option plans and agreements will be converted in the Merger into the right
to receive shares of HUBCO Common Stock with a value (based on the Median
Pre-Closing Price) equal to the difference between the per share option exercise
price and the product of the Exchange Ratio multiplied by the Median Pre-Closing
Price, all as more fully described in this Proxy Statement. A COPY OF THE MERGER
AGREEMENT IS ATTACHED AS APPENDIX A TO 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 which will be issued in connection with the Merger. In addition to
constituting the Proxy Statement for the Meeting, this document constitutes a
Prospectus of HUBCO with respect to the HUBCO Common Stock to be issued if the
Merger is consummated.
Certificates representing Southington stock or options (together,
"SOUTHINGTON SECURITIES") should NOT be returned to Southington with the
enclosed proxy and should not be forwarded to HUBCO until after receipt of a
letter of transmittal which will be provided to holders of Southington
Securities following consummation of the Merger.
This Proxy Statement does not serve as a prospectus to cover any resales of
HUBCO Common Stock to be received by holders of Southington Securities upon
consummation of the Merger. Affiliates of Southington 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".
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 PROXY STATEMENT-PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
ALL INFORMATION AND STATEMENTS CONTAINED OR INCORPORATED BY REFERENCE
HEREIN WITH RESPECT TO SOUTHINGTON WERE SUPPLIED BY SOUTHINGTON. ALL INFORMATION
AND STATEMENTS CONTAINED OR INCORPORATED BY REFERENCE HEREIN WITH RESPECT TO
HUBCO WERE SUPPLIED BY HUBCO.
THE SECURITIES OFFERED HEREBY ARE NOT SAVINGS ACCOUNTS, DEPOSITS OR OTHER
OBLIGATIONS OF A BANK OR SAVINGS ASSOCIATION AND ARE NOT INSURED BY THE FEDERAL
DEPOSIT INSURANCE CORPORATION (THE "FDIC") OR ANY OTHER GOVERNMENTAL AGENCY.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION OTHER THAN THOSE CONTAINED IN THIS PROXY STATEMENT-PROSPECTUS
AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED.
THIS PROXY STATEMENT-PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A
SOLICITATION OF AN OFFER TO 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 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 Proxy Statement-Prospectus is ___________, 1997.
<PAGE>
TABLE OF CONTENTS
Page
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AVAILABLE INFORMATION.....................................................
INFORMATION DELIVERED AND INCORPORATED BY REFERENCE.......................
SUMMARY OF PROXY STATEMENT-PROSPECTUS.....................................
General.............................................................
The Meeting.........................................................
The Companies ......................................................
The Merger..........................................................
SELECTED CONSOLIDATED FINANCIAL DATA OF HUBCO.............................
SELECTED CONSOLIDATED FINANCIAL DATA OF SOUTHINGTON.......................
MARKET PRICE AND DIVIDEND MATTERS.........................................
Market Price and Dividend History...................................
Limitations on Dividends Under the Merger Agreement.................
Dividend Limitations on HUBCO.......................................
ACTUAL AND PRO FORMA PER SHARE DATA.......................................
INTRODUCTION .............................................................
CERTAIN INFORMATION REGARDING HUBCO ......................................
General.............................................................
Recent Developments.................................................
CERTAIN INFORMATION REGARDING SOUTHINGTON.................................
THE MEETING ..............................................................
Purpose of the Meeting..............................................
Record Date; Voting Rights; Proxies.................................
Solicitation of Proxies.............................................
Quorum..............................................................
Required Vote.......................................................
THE PROPOSED MERGER.......................................................
General Description.................................................
Closing; Determination Date.........................................
Consideration ......................................................
Conversion of Southington Options...................................
Cash in Lieu of Fractional Shares ..................................
Dissenters' Rights of Appraisal.....................................
Background of and Reasons for the Merger............................
Interests of Certain Persons in the Merger .........................
Opinion of Financial Advisor........................................
Resale Considerations with Respect to the HUBCO Common Stock........
Conditions to the Merger............................................
Conduct of Business Pending the Merger..............................
Customary Representations, Warranties and Covenants.................
Regulatory Approvals................................................
Management and Operations After the Merger..........................
Exchange of Certificates, Issuance of Shares for Options............
Effective Time; Amendments; Termination ............................
Accounting Treatment of the Merger..................................
Federal Income Tax Consequences ....................................
RIGHTS OF DISSENTING SOUTHINGTON SHAREHOLDERS ............................
DESCRIPTION OF HUBCO CAPITAL STOCK........................................
General ............................................................
Description of HUBCO Common Stock...................................
Description of HUBCO Series B Preferred Stock.......................
COMPARISON OF THE RIGHTS OF SHAREHOLDERS OF SOUTHINGTON AND HUBCO.........
General ............................................................
Voting Requirements.................................................
Preferred Stock.....................................................
Classified Board of Directors ......................................
2
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Page
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Rights of Dissenting Shareholders...................................
Shareholder Consent to Corporate Action.............................
Dividends ..........................................................
By-laws.............................................................
Preemptive Rights...................................................
Shareholder Protection Legislation
Limitations of Liability of Directors or Officers
SHAREHOLDER PROPOSALS.....................................................
OTHER MATTERS.............................................................
LEGAL OPINION.............................................................
EXPERTS...................................................................
APPENDIX A--Agreement and Plan of Merger by and among HUBCO,
Lafayette and Southington .................................... A-1
APPENDIX B--Stock Option Agreement by and between HUBCO and
Southington .................................................. B-1
APPENDIX C--Form of Fairness Opinion of Endicott Financial
Advisors, LLC ................................................ C-1
APPENDIX D--Sections 36a-125(h) and 33-855 through 33-872,
inclusive, of the General Statutes of Connecticut ............ D-1
3
<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 Citicorp Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661-2511, 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. The Commission
maintains a web site that contains reports, proxy and information statements and
other information regarding registrants that file electronically with the
Commission (such as HUBCO). The address of the Commission's web site is
http://www.sec.gov. In addition, 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.
Southington 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 Southington 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 Registration and Disclosure Section of the
FDIC at 1776 F Street, N.W., Washington, D.C. 20006, at prescribed rates and may
be examined at the Federal Reserve Bank of Boston, Bank Examination Department
T-21, 600 Atlantic Avenue, Boston, Massachusetts 02106. In addition, Southington
Common Stock is listed on The American Stock Exchange (the "AMEX"), and certain
material as to Southington can be inspected at the offices of the AMEX, 86
Trinity Place, New York, New York, 10006-1881.
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 Proxy Statement-Prospectus. As permitted by the rules and regulations of
the Commission, this Proxy Statement-Prospectus omits certain information,
exhibits and undertakings contained in the Registration Statement. For 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 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
The following documents filed by HUBCO with the Commission are incorporated
herein by reference:
1. Annual Report on Form 10-K for the year ended December 31, 1996.
2. Quarterly Reports on Form 10-Q for the quarters ended March 31, 1997
and June 30, 1997.
3. Current Reports on Form 8-K filed with the Commission on August 21,
1997 and September 9, 1997.
4. Form 8-A filed by HUBCO to register its Common and Preferred Stock
pursuant to Section 12(g) of the Exchange Act.
A copy of Southington's Annual Report to Shareholders for the year ended
December 31, 1996 ("Southington's Annual Report") and Southington's Form F-4
filed with the FDIC for the quarter ended June 30, 1997 ("Southington's
Quarterly Report") accompany each copy of this Proxy Statement-Prospectus
delivered to holders of Southington Common Stock.
The following documents, or portions thereof indicated, initially filed by
Southington with the FDIC and subsequently filed by HUBCO with the Commission,
are incorporated herein by reference:
4
<PAGE>
1. Annual Report on Form F-2 filed with the FDIC for the year ended
December 31, 1996. The Form F-2 is included as Exhibit 13(a), to this
Registration Statement.
2. Quarterly Reports on Form F-4 filed with the FDIC for the quarters
ended March 31, 1997 and June 30, 1997 and included as Exhibits 13(b)
and 13(c), respectively, to this Registration Statement.
3. Current Reports on Form F-3 filed with the FDIC on August 13, 1997 and
August 20, 1997 and included as Exhibits 20(a) and 20(b),
respectively, to this Registration Statement.
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 Meeting 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. Documents filed
by Southington subsequent to the date hereof and incorporated herein by
reference shall also be filed by HUBCO on Forms 8-K.
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. THESE DOCUMENTS (NOT INCLUDING EXHIBITS
THERETO, UNLESS SUCH EXHIBITS ARE SPECIFICALLY INCORPORATED BY REFERENCE INTO
THE INFORMATION INCORPORATED HEREIN) ARE AVAILABLE FREE OF CHARGE TO ANY HOLDER
OF SOUTHINGTON COMMON STOCK, INCLUDING ANY BENEFICIAL OWNER, UPON WRITTEN OR
ORAL REQUEST WITH RESPECT TO HUBCO MATERIALS, TO THE OFFICE OF THE HUBCO
CORPORATE SECRETARY, D. LYNN VAN BORKULO-NUZZO, ESQ., HUBCO, INC.,
1000 MACARTHUR BOULEVARD, MAHWAH, NEW JERSEY 07430; TELEPHONE (201) 236-2641.
ADDITIONAL COPIES OF SOUTHINGTON'S ANNUAL REPORT AND SOUTHINGTON'S QUARTERLY
REPORT ARE AVAILABLE FREE OF CHARGE TO ANY HOLDER OF SOUTHINGTON COMMON STOCK,
INCLUDING ANY BENEFICIAL OWNER, UPON WRITTEN OR ORAL REQUEST TO THE OFFICE OF
THE BANK OF SOUTHINGTON CORPORATE SECRETARY, PETER G. PFAU, THE BANK OF
SOUTHINGTON, 130 NORTH MAIN STREET, SOUTHINGTON, CONNECTICUT 06489-0670;
TELEPHONE (860) 620-5000. 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 ENSURE TIMELY DELIVERY OF THE DOCUMENTS IN
ADVANCE OF THE MEETING, ANY REQUEST SHOULD BE MADE BY __________, 1997.
5
<PAGE>
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SUMMARY OF PROXY STATEMENT-PROSPECTUS
The following is a summary of certain information regarding the matters to
be considered at the Meeting. This summary is necessarily incomplete and is
qualified by the more detailed information contained elsewhere in this Proxy
Statement. Holders of Southington common stock and options (together,
"Southington Securities") should carefully read the entire Proxy Statement.
GENERAL
This Proxy Statement solicits, on behalf of the Board of Directors of The
Bank of Southington ("SOUTHINGTON"), approval by the holders of shares of common
stock of Southington, $6.00 par value per share ("SOUTHINGTON COMMON STOCK"), of
the Agreement and Plan of Merger, dated August 18, 1997 (the "MERGER
AGREEMENT"), by and among HUBCO, Inc., a New Jersey corporation ("HUBCO"),
HUBCO's Connecticut banking subsidiary, Lafayette American Bank and Trust
Company ("LAFAYETTE"), and Southington. Pursuant to the Merger Agreement,
Southington will be merged with and into Lafayette (the "MERGER"). As more fully
described elsewhere in this Proxy Statement, upon consummation of the Merger
each outstanding share of Southington Common Stock, except for Excluded Shares
(as defined below), will be converted into the right to receive a number of
shares (the "EXCHANGE RATIO") of common stock of HUBCO, without par value
("HUBCO COMMON STOCK"), equal to a fraction, the numerator of which will be
$21.00 and the denominator of which will be 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 a 10 trading day period
shortly prior to the closing of the Merger), with a Minimum Exchange Ratio of
0.600 (which will apply if the Median Pre-Closing Price is at or above $35.00)
and a Maximum Exchange Ratio of 0.764 (which will apply if the Median
Pre-Closing Price is at or below $27.50), subject to adjustment provisions set
forth in the Merger Agreement and more fully described in this Proxy Statement,
with cash paid in lieu of fractional shares. If the Median Pre-Closing Price is
less than $22.00, the Board of Directors of Southington will have certain rights
to terminate the Merger Agreement unless HUBCO agrees to increase the Exchange
Ratio to a fraction with a numerator of $16.81 and a denominator equal to the
Median Pre-Closing Price. See "THE PROPOSED MERGER".
THE MEETING
Time, Date, Place and Purpose
The Special Meeting of Shareholders of Southington (the "MEETING") will be
held on [Day of Week], [Date], 1997 at [Time] , at [Location]. At the Meeting,
holders of shares of Southington Common Stock will be asked to approve the
Merger Agreement. See "THE MEETING" and "THE PROPOSED MERGER".
Record Date, Quorum, Vote Required
Only holders of record of Southington Common Stock at the close of business
on ___________, 1997 (the "RECORD DATE") are entitled to notice of and to vote
at the Meeting. At such date, there were _________ shares of Southington Common
Stock outstanding held by approximately ___ holders of record. The presence, in
person or by proxy, of at least a majority of Southington Common Stock issued
and outstanding and entitled to be voted at the Meeting is necessary to
constitute a quorum. THE AFFIRMATIVE VOTE, IN PERSON OR BY PROXY, OF AT LEAST
TWO-THIRDS OF THE OUTSTANDING SHARES OF SOUTHINGTON COMMON STOCK ENTITLED TO BE
VOTED AT THE MEETING IS REQUIRED IN ORDER TO APPROVE AND ADOPT THE MERGER
AGREEMENT. As of the Record Date, the directors and executive officers of
Southington beneficially owned (excluding shares which could be acquired upon
the exercise of options) an aggregate of ______ shares of Southington Common
Stock (___% of the issued and outstanding shares). The Southington directors
have agreed to vote the shares of Southington Common Stock that they
beneficially own in favor of the Merger Agreement. As of the Record Date, HUBCO
owned ______ shares of Southington Common Stock (___% of the issued and
outstanding shares). See "THE MEETING".
Recommendation of the Southington Board of Directors
THE SOUTHINGTON BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED THE MERGER
AGREEMENT AND UNANIMOUSLY RECOMMENDS THAT HOLDERS OF SOUTHINGTON COMMON STOCK
VOTE FOR THE MERGER AGREEMENT.
- --------------------------------------------------------------------------------
6
<PAGE>
- --------------------------------------------------------------------------------
THE COMPANIES
HUBCO
HUBCO is a bank holding company whose principal operating subsidiaries are
Hudson United Bank ("HUB"), a New Jersey-chartered commercial bank, and
Lafayette, a Connecticut chartered bank and trust company. 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. Lafayette's corporate headquarters are located at 1000
Lafayette Boulevard, Bridgeport, Connecticut 06604. The telephone number of
HUBCO is (201) 236-2600. HUB is a full-service commercial bank which primarily
serves small and mid-sized businesses and consumers through 57 branches in
Northern New Jersey. Lafayette is a full-service commercial bank which serves
small-to-medium-sized business firms as well as individuals through 27 banking
offices located mainly in Fairfield and New Haven counties in Connecticut. As of
June 30, 1997, HUBCO had consolidated assets of $3.0 billion, consolidated
deposits of $2.4 billion and consolidated stockholders' equity of $212 million.
Based on assets as of June 30, 1997, HUBCO was the fourth 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
70 branches and approximately $2.5 billion in assets through 17 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".
Southington
Southington is a Connecticut-chartered bank and trust company, which is
headquartered at 130 North Main Street, Southington, Connecticut 06489-0670. The
telephone number of Southington is (860) 620-5000. Southington is engaged
primarily in the business of attracting deposits from the public and using such
deposits, with other funds to make various types of loans and investments.
Deposits at Southington are FDIC insured.
As of June 30, 1997, Southington reported total assets of $135 million,
total deposits of $122 million and stockholders' equity of $11 million.
Southington, which was originally chartered in 1985, operates from its main
office in Southington, Connecticut and from two branch offices located in
Bristol, Connecticut. See "CERTAIN INFORMATION REGARDING SOUTHINGTON";
"AVAILABLE INFORMATION"; AND "INFORMATION DELIVERED AND INCORPORATED BY
REFERENCE".
THE MERGER
Description of the Merger
At the Effective Time, Southington will be merged with and into Lafayette,
with Lafayette as the surviving entity. See "THE PROPOSED MERGER -- General
Description". A COPY OF THE MERGER AGREEMENT IS ATTACHED AS APPENDIX A TO THIS
PROXY STATEMENT.
Consideration
At the Effective Time, each outstanding share of Southington Common Stock
(except for Excluded Shares, as defined below) will be converted into the right
to receive a number of shares (the "EXCHANGE RATIO") of HUBCO Common Stock equal
to a fraction, the numerator of which will be $21.00 and the denominator of
which will be 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 a 10 trading day period shortly prior to the closing of the
Merger), with a Minimum Exchange Ratio of 0.600 (which will apply if the Median
Pre-Closing Price is at or above $35.00) and a Maximum Exchange Ratio of 0.764
(which will apply if the Median Pre-Closing Price is at or below $27.50),
subject to adjustment provisions set forth in the Merger Agreement and more
fully described in this Proxy Statement, with cash paid in lieu of fractional
shares. If the Median Pre-Closing Price is less than $22.00, the Board of
Directors of Southington will have certain rights to terminate the Merger
Agreement unless HUBCO agrees to increase
- --------------------------------------------------------------------------------
7
<PAGE>
- --------------------------------------------------------------------------------
the Exchange Ratio to a fraction with a numerator of $16.81 and a denominator
equal to the Median Pre-Closing Price. "EXCLUDED SHARES" are those shares of
Southington Common Stock which (i) are held by Southington as treasury shares,
(ii) are held by HUBCO or any of its subsidiaries (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), or as to which dissenters' rights have been
validly exercised ("DISSENTING SHARES").
The calculation of the Exchange Ratio called for by the Merger Agreement
was intended by HUBCO and Southington to result in stockholders of Southington
receiving in the Merger HUBCO Common Stock with a value of $21.00 for each share
of Southington Common Stock, provided that the initial Exchange Ratio
calculation (before taking into effect the Minimum and Maximum Exchange Ratios)
results in an Exchange Ratio which is neither below the Minimum Exchange Ratio
nor above the Maximum Exchange Ratio (i.e. provided the Median Pre-Closing Price
of HUBCO Common Stock is between $35.00 and $27.50). However, because of the
Minimum Exchange Ratio and Maximum Exchange Ratio, and because the price of
HUBCO Common Stock at the Effective Time may not be the same as the Median
Pre-Closing Price, Southington stockholders are not assured of receiving any
specific market value of HUBCO Common Stock. The price of HUBCO Common Stock at
the Effective Time may be higher or lower than the Median Pre-Closing Price, and
may be higher or lower than the market price at the time of entering into the
Merger Agreement, the time of mailing this Proxy Statement-Prospectus or at the
time of the Meeting. Southington stockholders are urged to obtain current market
quotations for the HUBCO Common Stock and Southington Common Stock.
Conversion of Southington Options
Pursuant to the Merger Agreement, each outstanding option to purchase a
share of Southington Common Stock (a "SOUTHINGTON OPTION") granted under
Southington's existing stock option plans and agreements will be assigned a
value (the "OPTION VALUE") equal to (a) the Median Pre-Closing Price of a share
of HUBCO Common Stock, multiplied by the Exchange Ratio minus (b) the stated
exercise price for the Southington Option. At the Effective Time, each
Southington 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. See "THE PROPOSED MERGER -- Conversion of Southington Options".
Cash in Lieu of Fractional Shares
No fractional shares of HUBCO Common Stock will be issued in exchange for
Southington Securities. Instead, holders of Southington Securities 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 holder of Southington Securities 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 provisions of the Banking Law of Connecticut (the "CBL") and the
Connecticut Business Corporation Act (the "CBCA"), Southington shareholders are
entitled to dissenters' rights of appraisal in connection with the Merger with
respect to their shares of Southington Common Stock. See "RIGHTS OF DISSENTING
SOUTHINGTON SHAREHOLDERS" and Appendix D to this Proxy Statement, which set
forth the steps to be taken by a holder of Southington Common Stock 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".
- --------------------------------------------------------------------------------
8
<PAGE>
- --------------------------------------------------------------------------------
Accounting Treatment of the Merger
The Merger is expected to be accounted for as a pooling of interests for
financial reporting purposes and HUBCO's obligation to consummate the Merger is
conditioned upon HUBCO's receipt of assurances from its independent accountants
that the Merger will be so treated. Under the pooling of interests method of
accounting, Southington'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 Southington had been combined for all periods
presented. See "PRO FORMA FINANCIAL INFORMATION" and "THE PROPOSED MERGER --
Accounting Treatment of the Merger".
Required Regulatory Approvals
Consummation of the Merger is subject to prior receipt of approval of the
Merger by the Commissioner (the "COMMISSIONER") of the Connecticut Department of
Banking (the "CTDOB") and the FDIC and the approval of the Merger Agreement and
the transactions contemplated thereby or waiver of such approval by the Board of
Directors of the Federal Reserve System (the "FRB"). Applications for these
approvals have been filed and HUBCO and Southington 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 Southington. 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 Agreement and the transactions contemplated thereby, by the requisite
vote of the shareholders of Southington; an opinion of Pitney, Hardin, Kipp &
Szuch, counsel to HUBCO, that the Merger will result in a tax-free
reorganization; and assurances to HUBCO from its independent accountants that
the Merger will be accounted for as a pooling of interests. See "THE PROPOSED
MERGER -- Regulatory Approvals" and "-- Conditions to the Merger".
Termination Rights
The Merger Agreement may be terminated by either Southington or HUBCO if,
among other reasons, the Effective Time has not occurred by March 31, 1998 other
than due to failure of the terminating party to perform its obligations under
the Merger Agreement. In addition, Southington may terminate the Merger
Agreement if the Median Pre-Closing Price of HUBCO Common Stock is less than
$22.00, unless HUBCO elects to increase the Exchange Ratio to a fraction with a
numerator of $16.81 and a denominator equal to the Median Pre-Closing Price. The
Merger Agreement may be terminated by Southington if Southington's Board of
Directors approves another acquisition transaction after determining, upon
advice of counsel, that approval is necessary in the exercise of its fiduciary
obligations under applicable laws. For a more complete description of the
foregoing termination rights, and for a description of other termination rights
available to Southington 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 on a date
(the "CLOSING DATE") to be determined by HUBCO and set forth in a notice (the
"CLOSING NOTICE") to Southington. The Closing Date specified by HUBCO in the
Closing Notice must be at least five business days after the date of the Closing
Notice, but not more than 15 business days after receipt of all necessary
approvals and consents, the expiration of all statutory waiting periods and the
satisfaction or waiver of the other conditions to consummation of the Merger,
(other than the delivery of documents to be delivered at the Closing). The
Closing may also be set for another day mutually agreed to by HUBCO and
Southington. The parties currently anticipate closing in December 1997.
Immediately following the Closing, HUBCO will file a certificate of merger with
the Secretary of State of the State of Connecticut, which will specify the
effective time of the Merger (the "EFFECTIVE TIME"), which HUBCO and Southington
anticipate will be the close of business on the Closing Date. The exact Closing
Date is dependent upon satisfaction of all conditions precedent, some of which
are
- --------------------------------------------------------------------------------
9
<PAGE>
- --------------------------------------------------------------------------------
not under the control of HUBCO or Southington. See "THE PROPOSED MERGER --
Effective Time; Amendments; Termination"; and "-- Regulatory Approvals".
Fairness Opinion
The Southington Board of Directors has retained Endicott Financial
Advisors, LLC ("ENDICOTT") to evaluate the terms of the Merger. Endicott expects
to deliver a written opinion to the Southington Board of Directors dated on or
about the date of this Proxy Statement to the effect that, as of the date of
such opinion, the terms of the Merger Agreement are fair to the Southington
shareholders from a financial point of view. HOLDERS OF SOUTHINGTON 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
Endicott, see "THE PROPOSED MERGER -- Opinion of Financial Advisor" and Appendix
C to this Proxy Statement, which sets forth a draft of Endicott's fairness
opinion. Southington's obligation to consummate the Merger is subject to its
receipt of such fairness opinion and HUBCO not having taken any action which
causes Endicott to withdraw its fairness opinion prior to the Closing.
Stock Option to HUBCO for Southington Shares
HUBCO and Southington entered into a Stock Option Agreement dated August
18, 1997 (the "STOCK OPTION AGREEMENT") in connection with the negotiation by
HUBCO and Southington of the Merger Agreement. Pursuant to the Stock Option
Agreement, Southington has granted to HUBCO an option (the "OPTION"),
exercisable only under certain limited and specifically defined circumstances,
to purchase up to 275,000 authorized but unissued shares of Southington Common
Stock, representing upon issuance approximately 18.2 % of the shares of
Southington Common Stock which would be outstanding immediately following the
exercise of the Option, for an exercise price of $16.00 per share. HUBCO does
not have any voting rights with respect to the shares of Southington 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 Southington Common Stock received pursuant to the exercise
of the Option if such shares of Southington Common Stock were sold at prices
exceeding $16.00 per share. The ability of HUBCO to exercise the Option and to
cause up to an additional 275,000 shares of Southington Common Stock to be
issued may be considered a deterrent to other potential acquisitions of control
of Southington, as it is likely to increase the cost of an acquisition of all of
the shares of Southington 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 Southington Common Stock."
Interests of Certain Persons in the Merger
Pursuant to a Change in Control Agreement between Southington and Bryan P.
Bowerman, its President and CEO, Mr. Bowerman will have the right to receive a
severance payment of $312,500 payable in 30 equal monthly installments upon
consummation of the Merger, as well as continued coverage under Southington's
medical benefits plan during such 30-month period. Other Southington executive
officers and employees are covered by Southington's severance policy, pursuant
to which they could receive payments based on their years of service with
Southington as a consequence of the Merger if their employment is terminated or
constructively terminated following the Merger. Southington, with HUBCO's
consent, has also agreed that certain officers and other key employees may
receive stay-on bonuses to assure their continuation with Southington through
the Effective Time and for a period of time thereafter.
Certain executive officers of Southington have stock options which will
become vested by virtue of the Merger. For information regarding the treatment
of Southington Options, see "THE PROPOSED MERGER--Conversion of Southington
Options".
In addition to the foregoing, the Merger Agreement requires HUBCO to
indemnify each director, officer, employee or agent of Southington or any of its
subsidiaries to the fullest extent which Southington would have been permitted
under applicable law and Southington's Articles of Incorporation and By-laws had
the Merger not occurred, 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 Southington s officers and directors with directors'
and officers' liability
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10
<PAGE>
- --------------------------------------------------------------------------------
insurance for at least six years after the Effective Time. See "THE PROPOSED
MERGER -- Conversion of Southington Options"; and "-- Interests of Certain
Persons in the Merger."
Differences in Shareholders' Rights
Southington is a bank and trust company organized under the CBL and HUBCO
is a business corporation incorporated under the New Jersey Business Corporation
Act (the "NJBCA"). The rights of Southington shareholders are currently governed
by the CBL, CBCA and Southington's articles of incorporation and by-laws. At the
Effective Time, each Southington 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. See "COMPARISON OF THE RIGHTS OF SHAREHOLDERS OF
SOUTHINGTON AND HUBCO."
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11
<PAGE>
<TABLE>
SELECTED CONSOLIDATED FINANCIAL DATA OF HUBCO
<CAPTION>
Years Ended December 31,
---------------------------------------------------------------------------
1996 1995 1994 1993 1992
---------- ---------- ---------- ---------- ----------
(Dollars in thousands, except for per share amounts)
<S> <C> <C> <C> <C> <C>
EARNINGS SUMMARY:
Interest income ............................. $ 204,182 $ 203,651 $ 170,929 $ 149,528 $ 164,348
Interest expense ............................ 72,828 70,440 53,126 50,771 67,749
---------- ---------- ---------- ---------- ----------
Net interest income ......................... 131,354 133,211 117,803 98,757 96,597
Provision for possible loan loss ............ 12,295 9,515 9,309 31,917 26,320
---------- ---------- ---------- ---------- ----------
Net interest income after
provision for possible loan .............. 119,059 123,696 108,494 66,840 70,277
Other income ................................ 30,276 28,223 22,420 24,571 25,530
Other expenses .............................. 116,239 102,842 94,931 97,098 93,764
---------- ---------- ---------- ---------- ----------
Income before income taxes .................. 33,096 49,077 35,983 (5,887) 2,043
Income tax provision ........................ 11,599 14,512 12,595 321 (6,441
---------- ---------- ---------- ---------- ----------
Net income .................................. 21,497 34,565 23,388 (6,008) 8,484
---------- ---------- ---------- ---------- ----------
PER SHARE DATA:
Weighted average
shares outstanding ........................ 23,225 24,116 22,945 18,708 14,678
Net income per share ........................ $ 0.93 $ 1.44 $ 1.02 $ (0.32) $ 0.58
Cash dividend per common share .............. $ 0.68 $ 0.58 $ 0.35 $ 0.30 $ 0.26
BALANCE SHEET SUMMARY:
Securities held to maturity ................. 280,914 294,057 715,509 599,587 456,709
Securities available for sale ............... 655,492 502,381 213,815 179,267 130,789
Loans ....................................... 1,884,355 1,652,022 1,569,059 1,303,397 1,373,631
Total assets ................................ 3,115,687 2,778,416 2,770,667 2,322,713 2,219,105
Deposits .................................... 2,592,092 2,446,273 2,414,999 2,103,895 2,021,029
Stockholders' equity ........................ 206,333 216,796 187,305 117,965 122,406
PERFORMANCE RATIOS:
Return on average assets .................... 0.76% 1.27% 0.91% -0.27% 0.38%
Return on average equity .................... 10.44% 17.31% 15.77% -5.01% 7.57%
Dividend payout ............................. 73.12% 40.28% 34.31% -93.75% 44.83%
Average equity to average assets ............ 7.25% 7.35% 5.79% 5.39% 5.02%
Net interest margin ......................... 5.05% 5.34% 5.03% 4.75% 4.81%
ASSET QUALITY RATIOS:
Allowance for possible loan
losses to total loans ..................... 1.87% 1.82% 1.97% 2.57% 2.39%
Allowance for possible loan losses
to non-performing loans ................... 111% 118% 74% 44% 42%
Non-performing loans to
total loans ................................. 1.69% 1.55% 2.65% 5.78% 5.64%
Non-performing assets to total
loans, plus other real estate ............. 1.98% 2.23% 3.62% 7.39% 7.54%
Net charge-offs to average loans ............ 0.69% 0.66% 1.28% 1.84% 1.76%
</TABLE>
12
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA OF HUBCO
For Six Months Ended June 30,
-----------------------------
1997 1996
---------- ----------
(Dollars in thousands,
except for per share amounts)
EARNINGS SUMMARY:
Interest income .............................. $ 110,701 $ 99,771
Interest expense ............................. 40,261 34,760
---------- ----------
Net interest income .......................... 70,440 65,011
Provision for possible loan losses ........... 3,102 4,996
---------- ----------
Net interest income after
provision for possible loan losses ........ 67,338 60,015
Other income ................................. 18,499 14,677
Other expenses ............................... 47,138 48,522
---------- ----------
Income before income taxes ................... 38,699 28,170
Income tax provision ......................... 15,174 10,121
---------- ----------
Net income ................................... 23,525 16,049
---------- ----------
PER SHARE DATA:
Weighted average
shares outstanding ......................... 22,832 23,540
Net income per share ......................... $ 1.03 $ 0.68
Cash dividend per common share ............... $ 0.38 $ 0.34
BALANCE SHEET SUMMARY:
Securities held to maturity .................. 240,923 265,144
Securities available for sale ................ 633,471 586,908
Loans ........................................ 1,835,905 1,684,821
Total assets ................................. 3,001,823 2,788,248
Deposits ..................................... 2,368,261 2,393,647
Stockholders' equity ......................... 211,721 204,319
PERFORMANCE RATIOS:
Return on average assets ..................... 1.56% 1.16%
Return on average equity ..................... 22.85% 15.56%
Dividend payout .............................. 36.89% 50.00%
Average equity to average assets ............. 6.72% 7.48%
Net interest margin .......................... 5.14% 5.21%
ASSET QUALITY RATIOS:
Allowance for possible loan
losses to total loans ...................... 2.03% 1.83%
Allowance for possible loan losses
to non-performing loans .................... 125% 92%
Non-performing loans to total loans .......... 1.63% 1.99%
Non-performing assets to total
loans, plus other real estate .............. 1.78% 2.39%
Net charge-offs to average loans ............. 0.18% 0.25%
13
<PAGE>
<TABLE>
SELECTED CONSOLIDATED FINANCIAL DATA OF THE BANK OF SOUTHINGTON
<CAPTION>
Years Ended December 31,
---------------------------------------------------------------------
1996 1995 1994 1993 1992
-------- -------- -------- ------- -------
(Dollars in thousands, except for per share amounts)
<S> <C> <C> <C> <C> <C>
EARNINGS SUMMARY:
Interest income ..................................... $ 9,327 $ 8,607 $ 7,123 $ 6,217 $ 6,206
Interest expense .................................... 3,343 2,945 2,058 2,299 2,619
-------- -------- -------- ------- -------
Net interest income ................................. 5,984 5,662 5,065 3,918 3,587
Provision for possible loan losses .................. 225 759 760 602 504
-------- -------- -------- ------- -------
Net interest income after
provision for possible loan losses................. 5,759 4,903 4,305 3,316 3,083
Other income ........................................ 535 416 632 297 276
Other expenses ...................................... 4,507 3,706 3,977 2,908 2,398
-------- -------- -------- ------- -------
Income before income taxes .......................... 1,787 1,613 960 705 961
Income tax provision ................................ 649 570 236 200 340
-------- -------- -------- ------- -------
Net income .......................................... 1,138 1,043 724 505 621
PER SHARE DATA:
Weighted average
shares outstanding (000) .......................... 1,230 1,216 1,193 1,190 1,188
Net income per share ................................ $ 0.93 $ 0.86 $ 0.61 $ 0.42 $ 0.52
Cash dividend per common share ...................... $ 0.25 $ 0.24 $ 0.20 $ 0.13 $ 0.06
BALANCE SHEET SUMMARY:
Investment Securities (Mkt value)................... $ -- $ -- $ -- $ -- $13,410
Securities held to maturity (Mkt value) ............. $ -- $ -- $ 17,995 $17,333 $ --
Securities available for sale (Mkt value)........... 35,473 27,078 1,095 2,467 --
Loans (net of deferred fees &
allowance for loan losses) ........................ 79,290 72,623 72,120 67,239 60,943
Total assets ........................................ 128,014 112,825 102,446 95,256 85,821
Deposits ............................................ 116,278 101,404 92,643 86,396 77,348
Stockholders' equity ................................ 11,065 10,220 9,230 8,656 8,240
PERFORMANCE RATIOS:
Return on average assets ............................ 0.95% 0.97% 0.72% 0.56% 0.77%
Return on average equity ............................ 10.77% 10.75% 8.08% 5.92% 7.78%
Dividend payout ..................................... 26.88% 24.41% 32.78% 30.95% 11.54%
Average equity to average assets .................... 8.90% 9.03% 8.93% 9.38% 9.93%
Net interest margin ................................. 5.48% 5.71% 5.51% 4.73% 4.83%
ASSET QUALITY RATIOS:
Allowance for possible loan
losses to total loans ............................ 1.90% 2.24% 1.75% 2.07% 2.03%
Allowance for possible loan losses
to non-performing loans ........................... 66% 69% 102% 67% 121%
Non-performing loans to total loans ................. 3.14% 3.66% 1.90% 3.50% 2.24%
Non-performing assets to total
loans, plus other real estate ..................... 3.62% 3.66% 1.89% 3.49% 2.20%
Net charge-offs to average loans .................... 0.47% 0.52% 1.30% 0.70% 0.42%
</TABLE>
14
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA OF THE BANK OF SOUTHINGTON
For Six Months Ended
June 30,
-------------------------
1997 1996
-------- --------
(Dollars in thousands,
except for per share amounts)
EARNINGS SUMMARY:
Interest income .................................. $ 5,168 $ 4,511
Interest expense ................................. 1,804 1,651
-------- --------
Net interest income .............................. 3,364 2,860
Provision for possible loan losses ............... 403 95
-------- --------
Net interest income after
provision for possible loan losses ............. 2,961 2,765
Other income ..................................... 219 228
Other expenses ................................... 2,451 2,063
-------- --------
Income before income taxes ....................... 729 930
Income tax provision ............................. 271 333
-------- --------
Net income ....................................... 458 597
PER SHARE DATA:
Weighted average
shares outstanding (000) ....................... 1,243 1,230
Net income per share ............................. $ 0.37 $ 0.49
Cash dividend per common share ................... $ 0.14 $ 0.12
BALANCE SHEET SUMMARY:
Securities available for sale (Mkt value)......... $ 37,810 $ 31,461
Loans (net deferred fees &
allowance for loan losses) ..................... 83,313 74,333
Total assets ..................................... 135,279 120,458
Deposits ......................................... 122,158 109,334
Stockholders' equity ............................. 11,432 10,339
PERFORMANCE RATIOS:
Return on average assets ......................... 0.71% 1.01%
Return on average equity ......................... 8.19% 11.31%
Dividend payout .................................. 37.84% 24.48%
Average equity to average assets ................. 8.64% 8.93%
Net interest margin .............................. 5.70% 5.39%
ASSET QUALITY RATIOS:
Allowance for possible loan
losses to total loans ......................... 1.66% 2.09%
Allowance for possible loan losses
to non-performing loans ........................ 86.08% 48.81%
Non-performing loans to total loans .............. 1.18% 3.82%
Non-performing assets to total
loans, plus other real estate .................. 1.92% 4.27%
Net charge-offs to average loans ................. 0.62% 0.22%
15
<PAGE>
MARKET PRICE AND DIVIDEND MATTERS
MARKET PRICE AND DIVIDEND HISTORY
HUBCO Common Stock is quoted on The Nasdaq Stock Market (formerly known as
the "Nasdaq National Market System") under the symbol "HUBC" and Southington
Common Stock is quoted on the AMEX under the symbol "BSO". The following tables
set forth, for the periods indicated, the high and low closing prices per share
of HUBCO Common Stock and Southington Common Stock, as reported by The Nasdaq
Stock Market and by the AMEX, 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 a 3-for-2 HUBCO Common Stock split effective January 14, 1995.
<TABLE>
<CAPTION>
Equivalent Pro Forma Market Price Per
Share of Southington Common Stock(1)
Market Market ---------------------------------------
Price Per Share Price Per Share Maximum Minimum
of HUBCO of Southington Exchange Exchange
Common Stock Common Stock Ratio (0.764) Ratio (0.600)
----------------- ----------------- ----------------- -----------------
High Low High Low High Low High Low
------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1995:
- ----
First Quarter....... $16.87 $14.24 $ 7.00 $ 6.63 $12.89 $10.88 $10.12 $ 8.54
Second Quarter...... $17.48 $15.02 $ 8.38 $ 6.88 $13.35 $11.48 $10.49 $ 9.01
Third Quarter....... $20.51 $16.75 $ 9.25 $ 7.50 $15.67 $12.80 $12.31 $10.05
Fourth Quarter...... $21.48 $18.69 $ 9.63 $ 8.50 $16.41 $14.28 $12.89 $11.21
1996:
- ----
First Quarter....... $21.97 $18.87 $19.38 $ 9.50 $16.79 $14.42 $13.18 $11.32
Second Quarter...... $21.12 $17.84 $16.38 $13.00 $16.14 $13.63 $12.67 $10.70
Third Quarter....... $21.00 $19.17 $16.38 $11.88 $16.04 $14.65 $12.60 $11.50
Fourth Quarter...... $24.87 $20.15 $15.25 $13.25 $19.00 $15.39 $14.92 $12.09
1997:
- ----
First Quarter....... $26.63 $22.50 $14.50 $13.75 $20.35 $17.19 $15.98 $13.50
Second Quarter...... $29.38 $21.75 $16.50 $13.13 $22.45 $16.62 $17.63 $13.05
Third Quarter
(through 9/ /97..
- -------------
(1) Equivalent pro forma market price per share of Southington Common Stock represents the high
and low closing prices per share of HUBCO Common Stock, multiplied by the Exchange Ratio.
</TABLE>
16
<PAGE>
Equivalent Pro Forma
Dividends Per
Share of Southington
Common Stock(1)
HUBCO Southington ---------------------------
Common Stock Common Stock Maximum Minimum
Dividends Dividends Exchange Exchange
Per Share Per Share Ratio (0.764) Ratio (0.600)
--------- --------- ------------- -------------
1995:
- -----
First Quarter............... $0.145 $0.055 $0.111 $0.087
Second Quarter.............. $0.145 $0.060 $0.111 $0.087
Third Quarter............... $0.145 $0.060 $0.111 $0.087
Fourth Quarter.............. $0.145 $0.060 $0.111 $0.087
1996:
- -----
First Quarter............... $0.165 $0.060 $0.126 $0.099
Second Quarter.............. $0.165 $0.060 $0.126 $0.099
Third Quarter............... $0.165 $0.060 $0.126 $0.099
Fourth Quarter.............. $0.190 $0.070 $0.145 $0.114
1997:
- -----
First Quarter............... $0.190 $0.070 $0.145 $0.114
Second Quarter.............. $0.190 $0.070 $0.145 $0.114
Third Quarter .............. $0.190 $0.070 $0.145 $0.114
- ----------
(1) Equivalent pro forma cash dividends per share of Southington Common Stock
represents HUBCO historical dividend rates per share, multiplied by the
Exchange Ratio, rounded to the nearest hundredth of a cent. The current
annualized dividend rate per share of HUBCO Common Stock, based upon the
most recently declared quarterly dividend rate of $.19 per share of HUBCO
Common Stock payable on March 1, June 1, September 1 and December 1, would
be $.76. On an equivalent pro forma basis, such current annualized HUBCO
dividend per share of Southington Common Stock would be $.58, based on the
Maximum Exchange Ratio (0.764), or $.46, based on the Minimum Exchange
Ratio (0.600), in each case rounded to the nearest hundredth of a 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) August 15, 1997, the last full trading
day before public announcement of the signing of the Merger Agreement, and
(ii) the most recent date prior to the date of this Proxy Statement on which
such stock traded, the reported closing price per share of HUBCO Common Stock
and Southington Common Stock on The Nasdaq Stock Market and the AMEX,
respectively, and the equivalent price per share of Southington Common Stock
computed by multiplying the closing price of HUBCO Common Stock on each of the
dates specified by the Maximum Exchange Ratio (0.764) and the Minimum Exchange
Ratio (0.600), respectively.
Equivalent Price Per Share
of Southington
Common Stock(1)
----------------------------
Maximum Minimum
HUBCO Southington Exchange Exchange
Common Stock Common Stock Ratio (0.764) Ratio (0.600)
------------ ------------ ------------- -------------
August 15, 1997..... $31.00 $21.00 $ 23.68 $18.60
___________, 1997...
The calculation of the Exchange Ratio called for by the Merger Agreement
was intended by HUBCO and Southington to result in stockholders of Southington
receiving in the Merger HUBCO Common Stock with a value of $21.00 for each share
of Southington Common Stock, provided that the initial Exchange Ratio
calculation (before taking into effect the Minimum and Maximum Exchange Ratios)
results in an Exchange Ratio
17
<PAGE>
which is neither below the Minimum Exchange Ratio nor above the Maximum Exchange
Ratio (i.e., provided the Median Pre-Closing Price of HUBCO Common Stock is
between $35.00 and $27.50). However, because of the Minimum Exchange Ratio and
Maximum Exchange Ratio, and because the price of HUBCO Common Stock at the
Effective Time may not be the same as the Median Pre-Closing Price, Southington
stockholders are not assured of receiving any specific market value of HUBCO
Common Stock. The price of HUBCO Common Stock at the Effective Time may be
higher or lower than the Median Pre-Closing Price, and may be higher or lower
than the market price at the time of entering into the Merger Agreement, the
time of mailing this Proxy Statement-Prospectus or at the time of the Meeting.
SOUTHINGTON STOCKHOLDERS ARE URGED TO OBTAIN CURRENT MARKET QUOTATIONS FOR THE
HUBCO COMMON STOCK AND SOUTHINGTON COMMON STOCK.
LIMITATIONS ON DIVIDENDS UNDER THE MERGER AGREEMENT
The Merger Agreement prohibits Southington from declaring, setting aside or
paying any dividend or other distribution in respect of its capital stock,
except that Southington may declare, set aside or pay regular quarterly cash
dividends of up to $0.07 per share for the third quarter of 1997 (up to $0.08
per share for the fourth quarter of 1997 and thereafter). Southington is
expected to pay the maximum permissible dividends on Southington Common Stock
each quarter until the Merger is consummated.
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 on its common stock since its
inception in 1982. The HUBCO Preferred Stock also is entitled to receive
dividends when and if declared by HUBCO's Board of Directors out of funds
legally available therefor. HUBCO has no obligation to pay dividends on the
HUBCO Preferred Stock regardless of any dividends which may be paid on the HUBCO
Common Stock. The primary source for HUBCO's dividends is dividends from HUBCO's
banking subsidiaries 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. Under the Banking Law of Connecticut (the "CBL"),
Lafayette may pay dividends only from its net profits, and the total of all
dividends in any calendar year may not (unless specifically approved by the
Commissioner) exceed the total of its net profits of that year combined with its
retained net profits of the preceding two years. 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.
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 Southington Common Stock, both
on an actual (historical) basis and on a pro forma combined basis, as adjusted
for the HUBCO Stock Split. The actual per share data have been derived from the
consolidated financial statements of HUBCO and Southington incorporated by
reference herein. See "INFORMATION DELIVERED AND INCORPORATED BY REFERENCE".
The Pro Forma unaudited book value per share data for the six months ended
June 30, 1997 and the Pro Forma unaudited net income per share data at June 30,
1997 and for the years ended December 31, 1996, 1995 and 1994 have been derived
from the Pro Forma unaudited combined condensed financial statements of HUBCO
and Southington, giving effect to HUBCO's acquisitions of Southington accounted
for as a pooling of interests.
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 Southington incorporated by reference. See "INFORMATION DELIVERED AND
INCORPORATED BY REFERENCE". 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.
18
<PAGE>
For The Year Ended
For the Six December 31,
Months Ended ---------------------
June 30, 1997 1996 1995 1994
------------- ---- ---- ----
CASH DIVIDENDS DECLARED PER COMMON SHARE:
HUBCO -- Actual (1) ..................... $0.38 $0.68 $0.58 $0.35
Southington -- Actual (1) ............... $0.14 0.25 0.24 0.20
Southington -- Pro forma equivalent
(maximum)(2)........... ............... 0.29 0.52 0.44 0.27
Southington -- Pro forma equivalent
(minimum)(3)........... ............... 0.23 0.41 0.35 0.21
NET INCOME (LOSS) PER COMMON SHARE:
HUBCO -- Actual:
Primary ............................... 1.03 0.93 1.45 1.03
Fully diluted ......................... 1.03 0.93 1.44 1.02
Southington -- Actual:
Primary ............................... 0.37 0.93 0.86 0.61
Fully diluted ......................... 0.37 0.93 0.86 0.61
HUBCO and Southington -- Pro forma
Primary, maximum ...................... 1.02 0.94 1.43 1.02
Primary, minimum ...................... 1.03 0.94 1.44 1.02
Fully diluted, maximum ................ 1.02 0.94 1.42 1.01
Fully diluted, minimum ................ 1.03 0.94 1.43 1.02
Southington -- Pro forma equivalent:
Primary, maximum (4)................... 0.78 0.72 1.09 0.78
Primary, minimum (5)................... 0.62 0.56 0.86 0.61
Fully diluted, maximum (6)............. 0.78 0.72 1.08 0.77
Fully diluted, minimum (7)............. 0.62 0.56 0.86 0.61
As of
June 30, 1997
-------------
NET BOOK VALUE PER COMMON AND
COMMON EQUIVALENT SHARE:
HUBCO -- Actual ....................... 9.27
Southington -- Actual ................. 9.17
HUBCO and Southington -- Pro forma
maximum ............................. 9.36
HUBCO and Southington -- Pro forma
minimum ............................. 9.44
Southington -- Pro forma equivalent
maximum(8)........................... 7.15
Southington -- Pro forma equivalent
minimum(9)........................... 5.66
- ----------
(1) For information regarding HUBCO's and Southington's dividends, and the
market price of HUBCO and Southington Common Stock, see "MARKET PRICE AND
DIVIDEND MATTERS".
(2) Represents HUBCO's Actual Dividends Declared Per Common Shares multiplied
by the .764 Maximum Exchange Ratio.
(3) Represents HUBCO's Actual Dividends Declared Per Common Shares multiplied
by the .600 Minimum Exchange Ratio.
(4) Represents HUBCO and Southington pro forma Primary Net Income Per Common
Share multiplied by the .764 Maximum Exchange Ratio.
(5) Represents HUBCO and Southington pro forma Primary Net Income Per Common
Share multiplied by the .600 Minimum Exchange Ratio.
(6) Represents HUBCO and Southington pro forma Fully Diluted Net Income Per
Common Share multiplied by the .764 Maximum Exchange Ratio.
(7) Represents HUBCO and Southington pro forma Fully Diluted Net Income Per
Common Share multiplied by the .600 Minimum Exchange Ratio.
(8) Represents HUBCO and Southington pro forma Net Book Value Per Common Share
multiplied by the .764 Maximum Exchange Ratio.
(9) Represents HUBCO and Southington pro forma Net Book Value Per Common Share
multiplied by the .600 Minimum Exchange Ratio.
19
<PAGE>
INTRODUCTION
This Proxy Statement solicits, on behalf of the Board of Directors of The
Bank of Southington ("SOUTHINGTON"), approval by the holders of shares of common
stock of Southington, $6.00 par value per share ("SOUTHINGTON COMMON STOCK"), of
the Agreement and Plan of Merger, dated August 18, 1997 (the "MERGER
AGREEMENT"), by and among HUBCO, Inc. ("HUBCO"), Lafayette American Bank and
Trust Company ("LAFAYETTE") and Southington. Pursuant to the Merger Agreement,
Southington will be merged with and into Lafayette (the "MERGER"). A copy of the
Merger Agreement is attached as Appendix A to this Proxy Statement. Upon
consummation of the Merger, each outstanding share of Southington Common Stock,
except for Excluded Shares (as defined below), will be converted into the right
to receive a number of shares (the "EXCHANGE RATIO") of common stock of HUBCO,
without par value ("HUBCO COMMON STOCK"), equal to a fraction, the numerator of
which will be $21.00 and the denominator of which will be 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 a 10 trading day period
shortly prior to the closing of the Merger), with a minimum Exchange Ratio (the
"MINIMUM EXCHANGE RATIO") of 0.600 (which will apply if the Median Pre-Closing
Price is at or above $35.00) and a maximum Exchange Ratio (the "MAXIMUM EXCHANGE
RATIO") of 0.764 (which will apply if the Median Pre-Closing Price is at or
below $27.50), subject to adjustment provisions set forth in the Merger
Agreement and more fully described in this Proxy Statement, with cash paid in
lieu of fractional shares. If the Median Pre-Closing Price is less than $22.00,
the Board of Directors of Southington will have certain rights to terminate the
Merger Agreement unless HUBCO agrees to increase the Exchange Ratio to a
fraction with a numerator of $16.81 and a denominator equal to the Median
Pre-Closing Price. In addition, each option to purchase a share of Southington
Common Stock pursuant to Southington's existing stock option plans and
agreements will be converted in the Merger into the right to receive shares of
HUBCO Common Stock with a value (based on the Median Pre-Closing Price) equal to
the difference between the per share option exercise price and the product of
the Exchange Ratio multiplied by the Median Pre-Closing Price, all as more fully
described in this Proxy Statement. See "THE PROPOSED MERGER".
All information and statements contained or incorporated by reference
herein with respect to Southington were supplied by Southington and all
information and statements contained or incorporated by reference herein with
respect to HUBCO were supplied by HUBCO.
CERTAIN INFORMATION REGARDING HUBCO
GENERAL
HUBCO is a New Jersey corporation and registered bank holding company whose
principal operating subsidiaries are Hudson United Bank ("HUB"), a New
Jersey-chartered commercial bank, and Lafayette American Bank and Trust Company
("LAFAYETTE"), a Connecticut chartered bank and trust company. 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 07084. Lafayette's corporate headquarters are located at 1000
Lafayette Boulevard, Bridgeport, Connecticut 06604. The telephone number of
HUBCO is (201) 236-2600. HUB is a full-service commercial bank which primarily
serves small and mid-sized businesses and consumers through 57 branches in
Northern New Jersey. Lafayette is a full-service commercial bank which serves
small-to-medium-sized business firms as well as individuals through 27 banking
offices located mainly in Fairfield and New Haven counties in Connecticut. As of
June 30, 1997, HUBCO had consolidated assets of $3.0 billion, consolidated
deposits of $2.4 billion and consolidated stockholders' equity of $212 million.
Based on assets as of June 30, 1997, HUBCO was the fourth 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
70 branches and approximately $2.5 billion in assets through 17 acquisitions of
financial institutions in both government-assisted and private transactions.
HUBCO EXPECTS TO CONTINUE ITS ACQUISITION STRATEGY. HUBCO is continually
evaluating acquisition opportunities and frequently conducts discussions,
certain financial analyses and 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. From time to time, HUBCO may issue new equity or debt
securities to fund its
20
<PAGE>
acquisition plans or for other purposes. For additional information, see
"AVAILABLE INFORMATION" and "INFORMATION DELIVERED AND INCORPORATED BY
REFERENCE".
RECENT DEVELOPMENTS
On August 27, 1997, HUB and Security National Bank & Trust Company of New
Jersey ("Security National") signed a definitive agreement to merge Security
National into HUB. In the merger, shareholders of Security National will receive
$34.00 in cash for each share of Security National common stock. Security
National is an $86 million asset bank and trust company headquartered in Newark,
New Jersey with branches in Nutley and Kearny, New Jersey. The transaction will
be accounted for by HUBCO as a purchase.
Simultaneously with execution of the merger agreement between HUB and
Security National, HUBCO and an acquisition subsidiary entered into a parallel
merger agreement with Fiduciary Investment Company of New Jersey ("FIC"), a
closely-held corporation which owns approximately 79.6% of the outstanding
shares of Security National. Consummation of both mergers are subject to
approval by federal and New Jersey bank regulatory authorities and approval by
the shareholders of Security National and FIC, as well as other customary
conditions.
CERTAIN INFORMATION REGARDING SOUTHINGTON
Southington is a Connecticut-chartered bank and trust company,
headquartered in Southington, Connecticut. Southington is engaged primarily in
the business of attracting deposits from the public and using such deposits,
with other funds, to make various types of loans and investments. Deposits at
Southington are FDIC insured. As of June 30, 1997, Southington reported total
assets of $135 million, total deposits of $122 million and stockholders' equity
of $11 million. Southington, which was originally chartered in 1985, operates
from its home office in Southington, Connecticut and from two branch offices
located in Bristol, Connecticut. See "AVAILABLE INFORMATION" AND "INFORMATION
DELIVERED AND INCORPORATED BY REFERENCE".
THE MEETING
PURPOSE OF THE MEETING
This Proxy Statement-Prospectus is first being mailed to the holders of
Southington Common Stock on or about [Date], 1997 and is accompanied by a
proxy card furnished in connection with the solicitation of proxies by the
Southington Board of Directors for use at the Meeting. The Meeting is scheduled
to be held on [Day of Week], [Date], 1997 at [Time], at [Location]. At the
Meeting, the holders of Southington Common Stock will consider and vote upon the
approval of the Merger Agreement and any other matters as may properly be
brought before the Meeting and at any adjournments or postponements thereof.
THE BOARD OF DIRECTORS OF SOUTHINGTON HAS UNANIMOUSLY APPROVED THE MERGER
AGREEMENT AND RECOMMENDS A VOTE "FOR" APPROVAL AND ADOPTION OF THE MERGER
AGREEMENT.
RECORD DATE; VOTING RIGHTS; PROXIES
The Board of Directors of Southington has fixed the close of business on
________, 1997 as the record date for determining the holders of Southington
Common Stock entitled to receive notice of and to vote at the Meeting (the
"RECORD DATE"). Only holders of record of Southington Common Stock at the close
of business on that date will be entitled to vote at the Meeting or at any
adjournment or postponement thereof.
At the close of business on the Record Date, there were ________ shares of
Southington Common Stock issued and outstanding and entitled to vote at the
Meeting. Each share of Southington Common Stock will be entitled to one vote
upon each matter properly submitted at the Meeting or at any adjournment or
postponement thereof.
All properly executed proxies will, unless such proxies have been
previously revoked, be voted in accordance with the instructions indicated on
such proxies. IF NO INSTRUCTIONS ARE INDICATED THEREON, SUCH SHARES
21
<PAGE>
WILL BE VOTED "FOR" APPROVAL OF THE MERGER AGREEMENT. The Board of Directors of
Southington is not aware of any matters other than as described in the Notice of
Special Meeting that are to come before the Meeting. If any other matter or
matters are properly presented for action before the Meeting, the persons named
in the enclosed form of proxy will have discretion to vote on such matters in
accordance with their best judgment, unless such authorization is withheld.
The presence of a shareholder at the Meeting will not automatically revoke
such shareholder's proxy. A shareholder may revoke any proxy that he or she has
given any time prior to its exercise. To do so, the shareholder must file a
written notice of revocation with, or deliver a duly executed proxy bearing a
later date to, Peter Pfau, Secretary, The Bank of Southington, 130 North Main
Street, Southington, Connecticut 06489-0670, or attend the Meeting and vote in
person.
Votes cast by proxy or in person at the Meeting will be tabulated by the
election inspectors appointed for the Meeting, who will determine whether or not
a quorum is present. Where, as to any matter submitted to a vote of the
Southington shareholders, proxies are marked as abstentions (or shareholders
appear in person but abstain from voting) or a broker indicates on a proxy that
it does not have discretionary authority with respect to certain shares, such
abstentions and "broker non-votes" will be treated as shares that are present
and entitled to vote for purposes of determining the presence of a quorum.
SOUTHINGTON SHAREHOLDERS SHOULD NOT FORWARD ANY STOCK CERTIFICATES WITH
THEIR PROXY CARDS. IF THE MERGER IS CONSUMMATED, STOCK CERTIFICATES SHOULD BE
DELIVERED IN ACCORDANCE WITH INSTRUCTIONS SET FORTH IN A LETTER OF TRANSMITTAL
WHICH WOULD BE SENT TO SOUTHINGTON SHAREHOLDERS BY THE EXCHANGE AGENT PROMPTLY
AFTER THE EFFECTIVE TIME.
SOLICITATION OF PROXIES
In addition to using the mails, the directors, officers and employees of
Southington may solicit proxies for the Meeting from shareholders personally, by
telephone or by telegraph. These officers, directors and employees will not be
specifically compensated for their services. Southington will also make
arrangements with brokerage firms and other custodians, nominees and fiduciaries
to send proxy materials to their principals and will reimburse such parties for
their expenses in doing so. The cost of soliciting proxies for the Meeting will
be borne by Southington.
QUORUM
The presence, in person or by proxy, of at least a majority of Southington
Common Stock issued and outstanding and entitled to be voted at the Meeting is
necessary to constitute a quorum.
REQUIRED VOTE
Each share of Southington Common Stock will be entitled to one vote upon
each matter properly submitted at the Meeting or at any adjournment or
postponement thereof. THE AFFIRMATIVE VOTE, IN PERSON OR BY PROXY, OF AT LEAST
TWO-THIRDS OF THE OUTSTANDING SHARES OF SOUTHINGTON COMMON STOCK ENTITLED TO BE
VOTED AT THE MEETING IS REQUIRED IN ORDER TO APPROVE AND ADOPT THE MERGER
AGREEMENT.
THE REQUIRED VOTE OF THE SOUTHINGTON SHAREHOLDERS ON THE MERGER AGREEMENT
IS BASED UPON THE TOTAL NUMBER OF OUTSTANDING SHARES OF SOUTHINGTON STOCK AND
NOT UPON THE NUMBER OF SHARES WHICH ARE ACTUALLY VOTED. ACCORDINGLY, THE FAILURE
TO SUBMIT A PROXY CARD, TO VOTE IN PERSON AT THE MEETING, ABSTENTION FROM VOTING
BY A SHAREHOLDER AND ANY BROKER NON-VOTE WILL HAVE THE SAME EFFECT AS A "NO"
VOTE WITH RESPECT TO THE MERGER AGREEMENT.
As of the Record Date, the directors and executive officers of Southington
beneficially owned (excluding shares which could be acquired upon exercise of
options) an aggregate of _______ shares of Southington Common Stock (____% of
the issued and outstanding shares). The Southington directors have agreed to
vote the shares of
22
<PAGE>
Southington Common Stock that they beneficially own in favor of the Merger
Agreement. No consideration was paid to any of the directors for this agreement.
HUBCO required that the directors enter into this agreement as a condition to
HUBCO entering into the Merger Agreement.
The obligations of Southington and HUBCO to consummate the Merger Agreement
are subject, among other things, to the condition that the Merger Agreement and
the transactions contemplated thereby be approved by the requisite vote of the
shareholders of Southington. See "THE PROPOSED MERGER -- Conditions to the
Merger".
THE MATTERS TO BE CONSIDERED AT THE MEETING ARE OF GREAT IMPORTANCE TO THE
SHAREHOLDERS OF SOUTHINGTON. ACCORDINGLY, SHAREHOLDERS ARE URGED TO READ AND
CAREFULLY CONSIDER THE INFORMATION PRESENTED IN THIS PROXY STATEMENT-PROSPECTUS,
AND TO COMPLETE, DATE, SIGN AND PROMPTLY RETURN THE ENCLOSED PROXY IN THE
ENCLOSED POSTAGE PAID ENVELOPE.
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, Southington will
be merged into Lafayette, with Lafayette as the surviving entity (the "SURVIVING
ENTITY"). The separate identity and existence of Southington will cease upon
consummation of the Merger and all property, rights, powers and franchises of
each of Southington and Lafayette will vest in the Surviving Entity.
CLOSING; DETERMINATION DATE
A closing under the Merger Agreement (the "CLOSING") will occur on a date
(the "CLOSING DATE") to be determined by HUBCO and set forth in a notice (the
"CLOSING NOTICE") to Southington. The Closing Date specified by HUBCO in the
Closing Notice must be at least five business days after the date of the Closing
Notice, but not more than 15 business days after receipt of all necessary
approvals and consents, the expiration of all statutory waiting periods and the
satisfaction or waiver of the other conditions to consummation of the Merger,
(other than the delivery of documents to be delivered at the Closing). The
Closing may also be set for another day mutually agreed to by HUBCO and
Southington. The parties currently anticipate closing in December 1997.
Immediately following the Closing, HUBCO will file a certificate of merger with
the Secretary of State of the State of Connecticut, which will specify the
effective time of the Merger (the "EFFECTIVE TIME"), which HUBCO and Southington
anticipate will be the close of business on the Closing Date. The exact Closing
Date is dependent upon satisfaction of all conditions precedent, some of which
are not under the control of HUBCO or Southington. In the Closing Notice, HUBCO
is also required to specify the "DETERMINATION DATE," which is used in
determining the Median Pre-Closing Price. The Determination Date is to be not
more than ten business days prior to the Closing Date set forth in the Closing
Notice.
CONSIDERATION
At the Effective Time, each outstanding share of Southington Common Stock
(except for Excluded Shares, as defined below) will be converted into the right
to receive a number of shares (the "EXCHANGE RATIO") of HUBCO Common Stock,
equal to a fraction, the numerator of which will be $21.00 and the denominator
of which will be the Median Pre-Closing Price (as defined below) of HUBCO Common
Stock, with a Minimum Exchange Ratio of 0.600 (which will apply if the Median
Pre-Closing Price is at or above $35.00) and a Maximum Exchange Ratio of 0.764
(which will apply if the Median Pre-Closing Price is at or below $27.50).
"EXCLUDED SHARES" are those shares of Southington Common Stock which (i) are
held by Southington as treasury shares, (ii) are held by HUBCO or any of its
subsidiaries (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), or
(iii) as to which dissenters' rights have been validly exercised ("DISSENTING
SHARES").
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Under the Merger Agreement, the "MEDIAN PRE-CLOSING PRICE" will be
determined by taking the price half-way between the Closing Prices left after
discarding the 4 lowest and 4 highest Closing Prices in the 10 consecutive
trading day period which ends on (and includes) the Determination Date. The
"CLOSING PRICE" means the closing price of HUBCO Common Stock as supplied by the
NASDAQ Stock Market and published in The Wall Street Journal. A "TRADING DAY"
means a day for which a Closing Price is so supplied and published.
The Exchange Ratio is subject to adjustment to take into account any stock
split, stock dividend, reclassification, recapitalization, merger, combination
or exchange or similar transaction by HUBCO with respect to the HUBCO Common
Stock occurring subsequent to August 18, 1997. The Exchange Ratio may also be
subject to adjustment in connection with provisions relating to the termination
of the Merger Agreement described below.
The Merger Agreement may be terminated by Southington if the Median
Pre-Closing Price is less than $22.00. However, Southington is obligated to
provide notice of such termination to HUBCO, which may then elect, at its sole
option, to increase the Exchange Ratio to a fraction with a numerator of $16.81
and a denominator equal to the Median Pre-Closing Price. If HUBCO so elects and
increases the Exchange Ratio, the Merger Agreement will not be terminated. There
can be no assurance that Southington will exercise its right to terminate the
Merger Agreement if the conditions described above exist (a "TERMINATION
EVENT"), and if Southington does exercise its right to 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 described above.
The effects of the above provisions on the Exchange Ratio may be
illustrated as follows:
<TABLE>
<CAPTION>
MEDIAN PRE-CLOSING PRICE OF HUBCO
COMMON STOCK AS OF THE DETERMINATION DATE EXCHANGE RATIO
- ----------------------------------------- --------------
<S> <C>
Equal to or greater than $35.00 ............................. 0.600
Less than $35.00 but greater than $27.50 .................... $21.00 (divided by) the Median Pre-Closing Price
Equal to or less than $27.50 and greater than or
equal to $22.00 ............................................. 0.764
Less than $22.00 ............................................ 0.764; provided, that the Southington Board of Directors
will have the right to terminate the Merger Agreement and
HUBCO will have the right to nullify that termination by
agreeing to an Exchange Ratio of $16.81 (divided by) the
Median Pre-Closing Price.
</TABLE>
For illustrative purposes, if, hypothetically, the Median Pre-Closing Price
of HUBCO Common Stock were $31.50, the Exchange Ratio would be 0.667 ($21.00
(divided by) 31.50, with the result rounded to the nearest one-thousandth) and
the holder of 100 shares of Southington Common Stock would receive 66 whole
shares of HUBCO Common Stock and $22.05 (0.7 x $31.50) in respect of the
fractional share.
The calculation of the Exchange Ratio called for by the Merger Agreement
was intended by HUBCO and Southington to result in stockholders of Southington
receiving in the Merger, HUBCO Common Stock with a value of $21.00 for each
share of Southington Common Stock, provided that the initial Exchange Ratio
calculation (before taking into effect the Minimum and Maximum Exchange Ratios)
results in an Exchange Ratio which is neither below the Minimum Exchange Ratio
nor above the Maximum Exchange Ratio (i.e , provided the Median Pre-Closing
Price of HUBCO Common Stock is between $35.00 and $27.50). However, there can be
no assurance that the Median Pre-Closing Price will fall between $35.00 and
$27.50 or, even if it does, that the number of shares of HUBCO Common Stock
issued in exchange per share of Southington Common Stock in the Merger will have
a value of $21.00 on the Effective Time or the date on which certificates
representing such shares of HUBCO Common Stock are issued or delivered to
Southington shareholders. The Median Pre-Closing Price of HUBCO Common Stock
will be based on the median closing prices of HUBCO Common Stock during a 10-day
period ending on the Determination Date (as hereinafter defined). The price of
HUBCO Common Stock at the Effective Time may be higher or lower than the Median
Pre-Closing Price, and may be higher or lower than the market price at the time
of entering into the Merger Agreement, the time of mailing this Proxy Statement,
the time of the Meeting or the
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<PAGE>
time certificates representing shares of HUBCO Common Stock are delivered in
exchange for shares of Southington Common Stock following consummation of the
Merger. Thus, the value of the HUBCO Common Stock actually received by holders
of Southington Common Stock may be more or less than (i) the Median Pre-Closing
Price, or (ii) the value of the HUBCO Common Stock on the Effective Time
resulting from the Exchange Ratio or any possible adjustment to the Exchange
Ratio as illustrated above. SOUTHINGTON STOCKHOLDERS ARE URGED TO OBTAIN CURRENT
MARKET QUOTATIONS FOR THE HUBCO COMMON STOCK AND THE SOUTHINGTON COMMON STOCK.
The Merger Agreement provides that the Exchange Ratio will be fixed as of
the "Determination Date." Unless HUBCO and Southington agree to a different
date, the Determination Date will be any date selected by HUBCO which is not
more than ten business days prior to the Closing Date set forth in HUBCO's
Closing Notice to Southington (which Closing Date, in turn, may be any date
selected by HUBCO which is at least five business days after the date of the
Closing Notice, but not more than 15 business days after receipt of all
necessary approvals and consents, the expiration of all statutory waiting
periods and the satisfaction or waiver of the other conditions to consummation
of the Merger, other than the delivery of documents to be delivered at the
Closing). Because of the Minimum Exchange Ratio and the Maximum Exchange Ratio,
and because the price of HUBCO Common Stock at the Effective Time may not be the
same as the Median Pre-Closing Price, Southington stockholders are not assured
of receiving any specific market value of HUBCO Common Stock. SOUTHINGTON
SHAREHOLDERS WILL BE REQUIRED TO VOTE ON THE PROPOSAL TO APPROVE THE MERGER
AGREEMENT PRIOR TO KNOWING THE EXCHANGE RATIO.
It is not possible to know whether a Termination Event will occur until
after the Determination Date. The Southington Board of Directors 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 Southington Board of Directors
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 Southington at the Meeting will confer on the Southington Board
of Directors 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 Southington. If Southington elects to
exercise its termination right, Southington must give HUBCO prompt notice of
that decision by 11:59 p.m. on the third business day following the
Determination Date (or the third business day following receipt by Southington
of the Closing Notice, if later). During a three business-day period commencing
with its receipt of such notice from the Southington Board of Directors, 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 Southington 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 Southington notice of that election by 11:59 p.m. on the third business day
following receipt of the notice of termination from Southington, 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
Appendix A to this Proxy Statement) relating to calculation of the Exchange
Ratio and a possible increase of the Exchange Ratio as the result of a
Termination Event.
CONVERSION OF SOUTHINGTON OPTIONS
At the Effective Time, each option to purchase a share of Southington
Common Stock (a "SOUTHINGTON OPTION") granted under Southington's existing stock
option plans and agreements will be converted into the right to receive one or
more shares of HUBCO Common Stock. Each Southington Option will be assigned a
value (the "OPTION VALUE") equal to (a) the Median Pre-Closing Price multiplied
by the Exchange Ratio, minus (b) the stated exercise price for the Southington
Option. At the Effective Time, each Southington Option will be converted into
that number of shares of HUBCO Common Stock equal to the Option Value,
multiplied by the number of shares of Southington Common Stock for which the
option may be exercised, divided by the Median Pre-Closing Price. Southington
currently has options outstanding under The Bank of Southington 1995 Incentive
Stock Option Plan and the Bank of Southington 1997 Employee Stock Option Plan.
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<PAGE>
CASH IN LIEU OF FRACTIONAL SHARES
No fractional shares of HUBCO Common Stock will be issued in exchange for
either Southington Common Stock or Southington Options. Instead, holders of
Southington Securities 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 holder of
Southington Securities will be aggregated to constitute as many whole shares as
possible before determining such person's fractional share interest.
DISSENTERS' RIGHTS OF APPRAISAL
Holders of Southington Common Stock who follow the procedures specified in
Section 36a-125(h) of the CBL and 33-855 through 33-872, inclusive, of the
Connecticut General Statutes will be entitled to the rights and remedies of
dissenting shareholders. Pursuant to Section 36a-125(h), Southington
shareholders have the right to dissent from the Merger and to obtain payment of
the fair value of their shares of Southington Common Stock if the Merger is
consummated. Necessary procedural steps are set forth in Sections 36a-125(h) and
33-855 through 33-872, inclusive, of the Connecticut General Statutes. See
"RIGHTS OF DISSENTING SOUTHINGTON SHAREHOLDERS" and Appendix D to this Proxy
Statement, which set forth the steps to be taken by a holder of Southington
Common Stock who wishes to exercise the right to dissent.
BACKGROUND OF AND REASONS FOR THE MERGER
Background of the Merger
Southington was formed as a state chartered bank in 1985. The period since
the organization of Southington has been one of continuous and significant
change in the financial services industry, marked by steadily increasing
competition and widespread consolidation. These issues were even more pronounced
in Connecticut which was particularly impacted by the recession which began in
1989, and its devastating impact on the banking sector. In light of the
Southington Board's belief that continued consolidation and competition in the
financial services industry would make it increasingly difficult for smaller
banks like Southington to maintain their competitive position and market share,
the Southington Board has from time to time considered and analyzed
Southington's strategic alternatives.
In November 1996, Southington hired Endicott to help Southington prepare a
three year strategic plan. Endicott met with management and the Board of
Directors to discuss the operations, prospects and valuation of Southington.
Pursuant to these discussions, the Southington Board became increasingly
concerned with Southington's ability to provide a reasonable rate of return to
its shareholders given (1) the bank's size, (2) the capital investment necessary
to keep up with technology change, (3) the increasingly complex regulatory
environment, and (4) the rapid consolidation in the industry generally and
Connecticut in particular.
In April 1997, the Southington Board discussed Southington's prospects
regarding mergers and acquisitions. In May 1997, Southington engaged Endicott to
advise the Board of Directors on these issues. Endicott reviewed for the Board
of Directors various alternatives involving continued independence or a merger
or acquisition transaction. The Southington Board met numerous times to discuss
(1) the ongoing review of Southington's strategic alternatives as part of the
development of the strategic plan; (2) a review of potential acquisition, merger
and sale candidates; (3) a review of the financial institutions merger and
acquisition market and recent regional transactions which could impact
Southington's ability to compete and Southington's acquisition value; and (4)
detailed reviews of certain potential merger candidates and analyses of the pro
forma impact of a business combination with such candidates on Southington's
shareholders.
In June 1997, the Southington Board of Directors met to further discuss
analyses of selected potential merger candidates, to review the general merger
and acquisition environment and to further discuss strategic alternatives. Based
on these discussions, the Board of Directors authorized Endicott to contact
certain selected financial institutions on a discreet basis to discuss their
potential interest in engaging in a business combination transaction with
Southington. The institutions were selected by the Board of Directors based on
their suitability in light of certain characteristics including size, location,
performance, operating strategy, share value pro forma impact, ability to
service local consumers and small businesses and the possibility that a merger
with Southington and any such institution could be followed by the
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<PAGE>
acquisition of the combined entity by another, larger financial institution. In
these discussions, Endicott was instructed to ascertain the level of preliminary
interest that such potential merger partners might have in Southington. The
Board of Directors wanted this information so that it might evaluate the
difference, if any, between the value it could provide to its shareholders by
remaining independent versus a business combination.
In June 1997, Endicott contacted seven institutions concerning their
interest in a business combination transaction with Southington. Of these, five
expressed interest in pursuing discussions while two were not interested. Each
of the five interested parties met with a representative of Endicott or
Southington, or both, to discuss the nature of a possible transaction and to
answer questions that such interested party might have. These preliminary
indications implied a range of value per share of Southington Common Stock of
$17 - $20.25, and implied a range of structures including 100% stock-for-stock
merger, stock-cash mix, or a 100% cash transaction. On July 29, 1997, the Board
of Directors reviewed these preliminary indications of interest and instructed
Endicott to meet with HUBCO and to ascertain their interest in a transaction at
$21.00 per share in stock, to discuss the prospects for employees and customers
of Southington and to discuss the manner in which HUBCO would approach managing
the transition process of such transaction.
Endicott and Southington management reviewed with the Board of Directors
the results of this meeting and HUBCO's willingness to meet Southington's
requests. Given this, the Board of Directors authorized entering into a
confidentiality agreement with HUBCO, providing confidential information to
HUBCO, and continuing confidential discussions to determine if an agreeable
structure could be negotiated to effect an acquisition of Southington by HUBCO.
Over the next several days, Southington's management and representatives of
Endicott held meetings and discussions with HUBCO's management concerning the
proposed transaction and the terms of a definitive merger agreement.
On August 13, 1997, due to unusual volume in the trading of its stock and
unusual share appreciation, Southington publicly released a statement that
Southington was in receipt of an acquisition proposal and that there could be no
assurances that a transaction would be negotiated. Following this press release,
Southington received telephone calls from two additional institutions interested
in a potential acquisition of Southington. A representative of Endicott reviewed
with these institutions the nature of the discussions which had taken place to
date, and provided guidance in the manner in which to inform Southington of any
interest such institution would have in a transaction. Over the following few
days, each party indicated interest in a stock-for-stock transaction, one at
$20.00 and one in a range of $20.00-$22.00.
Endicott reviewed these additional indications with Southington and was
instructed to continue in the discussions with HUBCO under the terms which had
been previously outlined by the Board of Southington. The representatives of
HUBCO conducted on-sight due diligence of Southington. Representatives of
Southington conducted documentary due diligence of HUBCO and held interviews
with HUBCO's senior management. On August 16, 1997, the Southington Board of
Directors met to review presentations by both Endicott and Tyler Cooper &
Alcorn, LLP, special legal counsel to Southington. Members of executive
management, together with its financial and legal advisors, reviewed the
background of the proposed transaction, the potential benefits of the
transaction, a summary of the due diligence investigation of HUBCO and financial
and valuation analyses of the proposed transaction. Endicott reviewed the
financial analyses performed by it in connection with the preparation of its
fairness opinion (See "Opinion of Southington Financial Advisor"). Counsel
reviewed the terms of the proposed agreements and discussed the obligations of
the Southington Board of Directors in its consideration of the proposed merger
with HUBCO, including the specific statutory considerations required by
Connecticut General Statutes Section 33-756(d).
Following review by the Southington Board of Directors of the foregoing
matters and the delivery by Endicott of its oral opinion that, as of such date,
the Exchange Ratio was fair to Southington shareholders from a financial point
of view, the Southington Board of Directors unanimously approved the Merger
Agreement and related agreements and the Merger, and the definitive Agreement
and Plan of Merger was executed. Public announcement of the proposed merger was
made before the opening of the AMEX on August 18, 1997.
Recommendation of the Southington Board of Directors and Reasons for the
Merger
The Southington Board of Directors has unanimously approved the Merger
Agreement and has determined that the Merger is fair to, and in the best
interests of, Southington and its shareholders. The Southington Board therefore
unanimously recommends that holders of Southington Common Stock vote to approve
and adopt the Merger
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<PAGE>
Agreement. The Southington Board believes that the Merger will enable holders of
Southington's Common Stock to realize increased value due to the premium over
net income per share and book value per share of Southington's Common Stock. The
Board also believes that the Merger may enable Southington Shareholders to
participate in opportunities for appreciation of HUBCO Common Stock. In reaching
its decision to approve the Merger Agreement, the Southington Board consulted
with its outside counsel regarding legal terms of the Merger and the Southington
Board's fiduciary obligations in its consideration of the proposed Merger, its
financial advisor, Endicott, regarding the financial aspects and fairness of the
proposed Merger Agreement, as well as with management of Southington, and,
without assigning any relative or specific weight, considered the following
material factors, both from a short-term and long-term perspective:
(i) The Southington Board's familiarity with, and review of, the business,
financial condition, results of operations and prospects of Southington,
including, but not limited to, its potential growth, development, productivity
and profitability and the business risks associated therewith;
(ii) The current and prospective environment in which Southington operates,
including national and local economic conditions, the highly competitive
environment for financial institutions generally, the increased regulatory
burden on financial institutions, and the trend toward consolidation in the
financial services industry;
(iii) The potential appreciation in market and book value of Southington's
Common Stock on both a short- and long-term basis, as a stand alone entity;
(iv) Information concerning the business, financial condition, result of
operations, asset quality and prospects of HUBCO including the long-term growth
potential of HUBCO Common Stock, the future growth prospects of HUBCO combined
with Southington following the proposed Merger, and the potential synergies
expected from the Merger and the business risks associated therewith;
(v) The fact that HUBCO's offer of HUBCO Common Stock in exchange for
Southington's Common Stock can be effected on a tax-free basis for Southington
shareholders, and the potential for appreciation and growth for the market and
book value of HUBCO Common Stock following the proposed Merger;
(vi) The oral presentation and opinion of Endicott that the terms of the
Merger Agreement are fair to the holders of Southington's Common Stock from a
financial point of view (see "Opinion of Financial Advisor" below);
(vii) The advantages and disadvantages of Southington remaining as an
independent institution or affiliating with a larger institution; and
(viii) The short- and long-term interests of Southington and its
shareholders, the interests of the employees, customers, creditors and suppliers
of Southington, and the interests of the Southington community that may be
served to advantage by an appropriate affiliation with a larger institution with
increased economies of scale, and with a greater capacity to serve all of the
banking needs of the community.
HUBCO's Reasons
HUBCO entered into the Merger Agreement with Southington 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 expects to have a network of 30
branch banking offices through central and southwestern Connecticut. The HUBCO
Board believes that Southington's earnings capacity will be enhanced as a result
of the Merger -- through cost savings from HUBCO's
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provision of back-office and support services to Southington, HUBCO's ability to
offer expanded services to Southington customers and HUBCO's financial strength
- -- thereby positively contributing to HUBCO's earnings.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
In considering the recommendation of the Southington Board of Directors
with respect to the Merger, holders of Southington Common Stock should be aware
that certain members of the Board of Directors and management of Southington
have certain interests in the Merger in addition to their interests generally as
stockholders of Southington. 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 Southington, no material interest in the Merger apart
from those of stockholders generally. The Southington 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.
Beneficial Ownership of Southington Common Stock
As of the Record Date, the directors and executive officers of Southington
and its affiliates beneficially owned (excluding shares which could be acquired
upon the exercise of options) an aggregate of __________ shares of the
Southington Common Stock (____% of the issued and outstanding shares). The
Southington directors have agreed to vote the shares of Southington Common Stock
that they beneficially own in favor of the Merger Agreement. No consideration
was paid to any of the directors for this agreement. HUBCO required that the
directors enter into this agreement as a condition to HUBCO entering into the
Merger Agreement. See "THE MEETING -- Required Vote".
Lafayette Board Membership
The Merger Agreement provides that one nominee designated by Southington
and acceptable to HUBCO will be appointed to Lafayette's Board of Directors,
effective at the Effective Time. Such nominee is to be Roman F. Garbacik,
currently Southington's Chairman. The Merger Agreement also provides that any
current director of Southington who is not elected to the Board of Directors of
Lafayette will be invited to become a member of a Lafayette advisory board for
one year from the Effective Time and as such will be paid an annual retainer of
$1,000. Thus, all such persons will continue to receive compensation from
Lafayette for a period of time after the Merger.
Indemnification
In the Merger Agreement, HUBCO has agreed to indemnify, defend and hold
harmless each person who is, has been, or becomes prior to the Effective Time, a
director, officer, employee or agent of Southington, or who serves or has served
at the request of Southington in any capacity with any other entity
(collectively, the "INDEMNITEES"), to the fullest extent which Southington would
have been permitted under applicable law and Southington's Articles of
Incorporation and By-laws had the Merger not occurred, with respect to any
claims made against such person because he or she is or was a director, officer,
employee or agent of Southington or serves or has served at the request of
Southington in any capacity with any other entity. In the Merger Agreement,
HUBCO has also agreed to cover Southington's officers and directors under either
an extension of Southington'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.
Change in Control Agreements, Severance Policy and Option Acceleration
Pursuant to a Change in Control Agreement between Southington and Bryan P.
Bowerman, its President and CEO, Mr. Bowerman will have the right to receive a
severance payment of $312,500 payable in 30 equal monthly installments upon
consummation of the Merger, as well as continued coverage under Southington's
medical benefits plan during such 30-month period. Other Southington executive
officers and employees are covered by Southington's severance policy, pursuant
to which they could receive substantial payments as a consequence of the Merger
if their employment is terminated or constructively terminated following the
Merger. Southington, with HUBCO's consent, has also agreed that certain officers
and other key employees may receive stay-on bonuses to assure their continuation
with Southington through the Effective Time and for a period of time thereafter.
New employment arrangements for Mr. Bowerman and possibly other officers may be
entered into after consummation of the Merger.
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<PAGE>
Certain executive officers of Southington have stock options which will
become vested by virtue of the Merger. For information regarding the treatment
of Southington Options, see "--Conversion of Southington Options".
OPINION OF SOUTHINGTON'S FINANCIAL ADVISOR
Pursuant to a letter agreement dated as of May 27, 1997, (the "ENDICOTT
AGREEMENT"), Southington retained Endicott as its financial advisor in
connection with strategic planning and merger and acquisition transactions.
Pursuant to the Endicott Agreement, Endicott assisted Southington in negotiating
and structuring the terms of the Merger, particularly the terms of the Merger
described under the caption "The Proposed Merger -- Consideration."
The investment banking business of Endicott includes the valuation of
financial institutions and their securities in connection with mergers and
acquisitions and other corporate transactions. The Southington Board chose
Endicott because of its expertise, experience and familiarity with the financial
institutions industry.
In connection with its acting as financial advisor to Southington, at the
August 16, 1997 meeting at which the Southington Board approved the merger
agreement, Endicott delivered its oral opinion to the Southington Board, that,
as of such date, the Exchange Ratio was fair, from a financial point of view, to
the holders of shares of Southington Common Stock. Endicott expects to deliver
to Southington a written opinion (the "ENDICOTT OPINION") dated the date of this
Proxy Statement that, as of the date of such opinion, the Exchange Ratio is
fair, from a financial point of view, to the holders of Southington Common
Stock. The full text of the form of the Endicott Opinion is attached as Appendix
C to this Proxy Statement and is incorporated herein by reference. The
description of such opinion set forth herein is qualified in its entirety by
reference to Appendix C. Holders of Southington Common Stock are urged to read
the form of the Endicott Opinion in its entirety for a description of the
procedures followed, assumptions made, matters considered and qualifications on
the review undertaken by Endicott in connection herewith. The Endicott Opinion
is directed only to the Exchange Ratio and does not constitute a recommendation
to any shareholder of Southington as to how such shareholder should vote at the
Meeting.
No limitations were imposed on Endicott by the Southington Board with
respect to the investigation made or procedures followed by Endicott in
rendering its fairness opinion. In connection with rendering such fairness
opinion to the Southington Board, Endicott performed a variety of financial
analyses. The following is a summary of the material financial analyses
performed by Endicott, but does not purport to be a complete description of
Endicott's analyses or presentation at the August 16, 1997 meeting of the
Southington Board. Endicott believes that its analyses must be considered as a
whole and that selecting portions of such analyses and the factors considered
therein, without considering all factors and analyses, could create an
incomplete view of the analyses and the processes underlying the fairness
opinion of Endicott. The preparation of a fairness opinion is a complex process
involving subjective judgments and is not necessarily susceptible to partial
analyses or summary description. In its analyses, Endicott made numerous
assumptions with respect to industry performance, business and economic
conditions and various other matters, many of which are beyond the control of
Southington and HUBCO. Any estimates contained in Endicott's analyses are not
necessarily indicative of future results or values, which may be significantly
more or less favorable than such estimates. Estimates of values of companies do
not purport to be appraisals or necessarily reflect the prices at which the
companies or their securities may be sold.
ANALYSES OF SELECTED MERGER TRANSACTIONS
Endicott reviewed merger and acquisition transactions announced since
January 1, 1990 involving public commercial banking institutions as acquirees
and having a transaction value over $15 million (each a "TRANSACTION"). Among
those reviewed were: (i) Transactions announced between January 1, 1996 and
December 31, 1996 ("1996 NATIONWIDE TRANSACTIONS"), (ii) Transactions announced
between January 1, 1997 and August 9, 1997 ("1997 NATIONWIDE TRANSACTIONS"), and
(iii) Transactions involving institutions located in the New England States
announced between January 1, 1997 and August 9, 1997 ("1997 REGIONAL
TRANSACTIONS"). Endicott reviewed the price to last twelve months earnings,
price to book value, price to tangible book value, price to deposits, price to
assets, and deposit premium paid in each such transaction and computed high,
low, mean and median ratios and premiums for the respective groups of
transactions. Endicott also computed the foregoing ratios for the Merger
assuming a price per share of Southington Common Stock in the Merger of $21.00.
Endicott's computations yielded the following median multiples for the 1996
Nationwide Transactions, the 1997 Nationwide Transactions and the 1997 Regional
Transactions, respectively, as compared with the following indicated multiples
for the Merger: (i) price to last twelve months earnings multiples of 17.05x,
18.69x, and 14.02x, compared with 22.68x for the Merger; (ii) price to book
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value multiples of 203.4%, 224.5% and 214.5% as compared with 234.83% for the
Merger; (iii) price to tangible book value of 207.5%, 229.4% and 222.3% as
compared with 234.83% for the Merger; and (iv) core deposit premiums of 13.3%,
15.6% and 11.5% as compared with 13.47% for the Merger. Based upon the median
multiples for 1996 Nationwide Transactions, Endicott derived an imputed range of
values per share of Southington Common Stock of $15.35 to $21.13. Based upon the
median multiples for 1997 Nationwide Transactions, Endicott derived an imputed
range of values per share of Southington Common Stock of $12.62 to $19.63.
DISCOUNTED EARNINGS AND DIVIDEND STREAM AND TERMINAL VALUE ANALYSIS
Using a discounted earnings dividend stream and terminal value analysis,
Endicott estimated the future stream of earnings flows that Southington could be
expected to produce through 1999 under various circumstances, assuming
Southington performed in accordance with the earnings forecasts of Southington's
management. To approximate the terminal value of Southington Common Stock at the
end of the three year period (December 31, 1999), Endicott applied price to
earnings multiples ranging from 8 to 20 and applied multiples of tangible book
value ranging from 100% to 250%. The net income streams and terminal values were
then discounted to present values using different discount rates (ranging from
10% to 12%) chosen to reflect different assumptions regarding the required rates
of return holders or prospective buyers of Southington Common Stock would
expect. This analysis assumed that Southington will continue its current cash
dividends policy and indicated a reference range of between $7.89 and $22.16 per
share. When an 11.5% discount rate was applied to the median merger market
multiples for Nationwide Transactions, the analysis indicated a reference range
of $13.55 to $19.09 per share.
PRO FORMA MERGER ANALYSIS
Endicott performed pro forma merger analyses that combined Southington's
and HUBCO's current and projected income statement and balance sheets based on
earnings forecasts of Southington and HUBCO management, respectively.
Assumptions and analyses of the accounting treatment, acquisition adjustments,
operating efficiencies and other adjustments were made to arrive at a base case
pro forma analysis to determine the effect of the transaction on both
Southington and HUBCO. Endicott noted that, based on the $21.00 per share price
for each share of Southington Common Stock, the impact of the Merger on HUBCO's
earnings per share and tangible book value per share based on such forecasts did
not appear to be material.
ANALYSIS OF PUBLICLY TRADED COMPANIES
In preparing its presentation, Endicott used publicly available information
to compare selected financial and market information, including book value,
tangible book value, earnings, asset quality ratios, loan loss reserve levels,
profitability and capital adequacy for HUBCO and other publicly traded regional
commercial banks located in the Mid-Atlantic United States. This peer group
consisted of institutions ranging in assets from 1 billion to 5 billion Endicott
used similar data for nationwide high-performing commercial banks in the same
asset size range that had a return on equity for the last fiscal quarter of
greater than 15% and a price-to-tangible book value greater than 175% Endicott
reviewed the historical financial information for HUBCO and the median value for
each group since December 1992. Endicott calculated a range of stock market
valuation of the selected peer groups based on their valuation multiples at
December 31, 1996, June 30, 1997, and at August 5, 1997. The range for December
31, 1996 was $15.53 to $30.26, for June 30, 1997 was $16.76 to $32.16, and for
August 5, 1997 was $18.96 to $34.70.
In connection with rendering its opinion, Endicott reviewed and considered,
among other things: (a) the Merger Agreement; (b) audited consolidated financial
statements and management's discussion and analysis of financial condition and
results of operations for Southington for the three fiscal years ended December
31, 1994, December 31, 1995, and December 31, 1996 and the unaudited
consolidated financial statements of Southington for the periods ending March
31, 1997 and June 30, 1997; (c) audited consolidated financial statements and
management's discussion and analysis of financial condition and results of
operations for HUBCO for the three fiscal years ended December 31, 1994,
December 31, 1995, and December 31, 1996 and the unaudited consolidated
financial statements of HUBCO for the periods ending March 31, 1997 and June 30,
1997; (d) financial analyses and forecasts for Southington and HUBCO prepared by
and/or reviewed with the respective managements of Southington and HUBCO; (e)
the views of senior management of Southington and HUBCO of their respective past
and current business operations, results thereof, financial condition and future
prospects; (f) certain reported price and trading activity for Southington
Common Stock and HUBCO Common Stock, including a comparison of certain financial
and stock market information for Southington and HUBCO with similar information
for certain other companies the securities of which are publicly traded; (g) the
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financial terms of recent business combinations in the banking industry; (h) the
pro forma impact of the transaction on HUBCO; (i) the current market environment
generally and the banking environment in particular; and (j) such other
information, financial studies, analyses and investigations and financial,
economic and market criteria which Endicott considered relevant.
Pursuant to the Endicott Agreement, Southington retained Endicott to act as
independent financial advisor, to render general advisory services and also to
specifically advise Southington in connection with its strategic planning and
merger and acquisition activities. Pursuant to the Endicott Agreement,
Southington paid Endicott a fee of $25,000 for rendering its fairness opinion
relating to the Merger at the August 16, 1997 meeting of the Southington Board.
Also pursuant to the Endicott Agreement, Southington is obligated to pay
Endicott quarterly retainer fees of $5,000 for the quarters ending June 30, 1997
and thereafter. Southington has paid such fees through the quarter ending
September 31, 1997. In addition, and pursuant to the terms of the Endicott
Agreement, Southington will pay Endicott a transaction fee equal to 0.75% of the
aggregate transaction value of the consideration to be paid by HUBCO in the
Merger, (calculated at the Effective Time), of which approximately 25% was paid
upon the signing of the Merger Agreement and the remaining portion is payable at
the closing of the Merger. Pursuant to the Endicott Agreement, the $25,000
fairness opinion fee and the $5000 quarterly retainer payments (up to a maximum
of four such quarterly payments) will be credited against the transaction fee.
Based upon the Merger closing as contemplated in the Merger Agreement and
assuming a market price for HUBCO Common Stock of $31.625 (the closing price for
HUBCO Common Stock on September 28, 1997), Endicott would be paid a total
transaction fee of approximately $200,000 for its services in connection with
the Merger. Southington has also agreed to reimburse Endicott for its reasonable
out-of-pocket expense in connection with its engagement and to indemnify
Endicott and its affiliates and their respective partners, directors, officers,
employees, agents and controlling persons against certain expenses and
liabilities, including liabilities under securities laws.
THE FULL TEXT OF THE FORM OF ENDICOTT'S UPDATED FAIRNESS OPINION IS
ATTACHED AS APPENDIX C TO THIS PROXY STATEMENT AND IS INCORPORATED HEREIN BY
REFERENCE. THE DESCRIPTION OF THE FAIRNESS OPINION SET FORTH HEREIN IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO APPENDIX C. HOLDERS OF SOUTHINGTON STOCK ARE
URGED TO READ THE OPINION IN ITS ENTIRETY FOR A DESCRIPTION OF THE PROCEDURES
FOLLOWED, ASSUMPTIONS MADE, MATTERS CONSIDERED AND QUALIFICATIONS OF THE REVIEW
UNDERTAKEN BY ENDICOTT IN CONNECTION THEREWITH. ENDICOTT'S OPINION IS DIRECTED
SOLELY TO THE FAIRNESS, FROM A FINANCIAL POINT OF VIEW, OF THE TERMS OF THE
MERGER AGREEMENT AND DOES NOT CONSTITUTE ANY RECOMMENDATION TO THE BOARD OF
DIRECTORS OF SOUTHINGTON OR TO THE HOLDERS OF SOUTHINGTON STOCK WITH RESPECT TO
ANY VOTE AT THE MEETING.
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 of 1933, as amended
(the "SECURITIES ACT") and will be freely transferable, except for shares
received by persons, including directors and executive officers of Southington,
who may be deemed to be "affiliates" of Southington 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 Southington 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 Southington
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 Southington have been published or filed by HUBCO. Also, in connection with
the pooling of interests rules, such persons have agreed not to transfer their
Southington 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
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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 Southington.
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 Agreement and the transactions contemplated thereby by the requisite vote
of the holders of Southington Common Stock; (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 Southington shareholders, and the qualification of the
issuance of HUBCO Common Stock in every state where such qualification is
required under applicable state securities laws; (iv) the absence of any
litigation that would restrain or prohibit the consummation of the Merger;
(v) the receipt of a letter from HUBCO's independent accountants that the Merger
will qualify 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 Southington 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 Southington contained in the Merger Agreement;
and (ii) the performance by Southington, in all material respects, of all its
obligations under the Merger Agreement.
The obligation of Southington 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;
and (ii) the performance by HUBCO, in all material respects, of all its
obligations under the Merger Agreement.
CONDUCT OF BUSINESS PENDING THE MERGER
The Merger Agreement requires Southington to conduct its business prior to
the Effective Time only in the ordinary course of business and consistent with
prudent banking practices, except as permitted under the Merger Agreement or
with the written consent of HUBCO. Under the Merger Agreement, Southington 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 any provision of its Articles of Incorporation or By-laws;
(b) change the number of shares of its authorized or issued capital stock other
than as disclosed to HUBCO or issue or grant any option, warrant, call,
commitment, subscription, right to purchase or agreement of any character
relating to its authorized or issued capital stock, 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 for the equivalent quarterly cash dividend
on Southington Common Stock of up to $.07 per share (up to $.08 per share for
the fourth quarter of 1997 and thereafter) described under "MARKET PRICE AND
DIVIDEND MATTERS -- Limitations on Dividends Under the Merger Agreement"; (c)
grant any severance or termination pay (other than pursuant to written policies
or contracts of Southington 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; (d) 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; (e) 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 its
business; (f) make any capital expenditures other than capital expenditures
which are either pursuant to binding commitments existing on the date of the
Merger Agreement or necessary to maintain existing assets in good repair and
expenditures described in business plans or budgets previously furnished to
HUBCO; (g) file any
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applications or make any contracts with respect to branching or site location or
relocation; (h) agree to acquire in any manner whatsoever (other than to realize
upon collateral for a defaulted loan) any business or entity (i) make any
material change in its accounting methods or practices, other than changes
required in accordance with generally accepted accounting principles or
regulatory authorities; (j) take any action that would result in any of
Southington's representations or warranties being untrue or incorrect at the
Effective Time in any material respect or that would cause any of its conditions
to closing not to be satisfied; or (k) agree to do any of the foregoing.
Under the Merger Agreement, Southington 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 of capital stock 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, Southington may enter into discussions or negotiations or provide any
information in connection with an unsolicited possible Acquisition Transaction
if the Board of Directors of Southington, 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. Southington 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.
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 Southington; (c) authorization, execution, delivery, performance
and enforceability of the Merger Agreement and related matters; (d) documents
filed by each of HUBCO and Southington with the Commissioner and the FDIC,
respectively, and the accuracy of information contained therein; (e) the
accuracy of information supplied by each of HUBCO and Southington 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 material
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 June 30, 1997; (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; (s) cooperation on
applications and filings; and (t) the absence of an agreement with bank
regulators which restricts materially the conduct of HUBCO's or any of its
subsidiaries' or Southington's business.
REGULATORY APPROVALS
Consummation of the Merger is subject, among other things, to prior receipt
of all necessary regulatory approvals. Consummation of the Merger requires
approval of the Merger by the Commissioner under the CBL, and the FDIC under the
Bank Merger Act (the "BANK MERGER ACT"), and the approval of the Merger or
waiver of the need for such approval by the FRB. Approval by the Commissioner or
the FDIC 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
Southington. Applications for approval were filed on September 12, 1997 with the
Commissioner and on September 12, 1997 with the FDIC. While HUBCO and
Southington 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
Southington.
MANAGEMENT AND OPERATIONS AFTER THE MERGER
At the Effective Time, as a result of the Merger, Southington will be
merged with and into Lafayette, with Lafayette as the Surviving Entity.
Following the Merger, Lafayette will continue to operate as a wholly-owned
subsidiary of HUBCO. At the Effective Time, one person designated by Southington
and acceptable to HUBCO who is to be Roman F. Garbacik will become a director of
Lafayette.
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EXCHANGE OF CERTIFICATES, ISSUANCE OF SHARES FOR OPTIONS
At the Effective Time, holders of certificates formerly representing shares
of Southington Common Stock will cease to have any rights as Southington
shareholders and their certificates automatically will represent the shares of
HUBCO Common Stock into which their shares of Southington 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 Southington Common Stock, indicating the method for exchanging such holder's
stock certificates for the certificates representing those shares of HUBCO
Common Stock into which such holder's shares of Southington Common Stock have
been exchanged. HOLDERS OF SOUTHINGTON COMMON STOCK SHOULD NOT SEND IN THEIR
STOCK CERTIFICATES UNTIL THEY RECEIVE INSTRUCTIONS FROM HUBCO.
Each share of HUBCO Common Stock for which shares of Southington Common
Stock or Southington Options are exchanged will be deemed to have been issued at
the Effective Time. Accordingly, holders of Southington Securities 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 such 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 Southington 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 Southington 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 Southington 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 Southington Options will receive, promptly after the Effective
Time, a certificate representing the full number of shares of HUBCO Common Stock
into which the Southington Options have been converted. At the time of issuance
of the stock certificates, each holder of a Southington Option will receive a
check for the amount of the fractional share interest, if any, to which the
holder of the Southington Option may be entitled.
EFFECTIVE TIME; AMENDMENTS; TERMINATION
The Closing will occur on the Closing Date to be determined by HUBCO and
set forth in the Closing Notice to Southington. The Closing Date specified by
HUBCO in the Closing Notice must be at least five business days after the date
of the Closing Notice, but not more than 15 business days after receipt of all
necessary approvals and consents, the expiration of all statutory waiting
periods and the satisfaction or waiver of the other conditions to consummation
of the Merger, (other than the delivery of documents to be delivered at the
Closing). The Closing may also be set for another day mutually agreed to by
HUBCO and Southington. The parties currently anticipate closing in December
1997. Immediately following the Closing, HUBCO will file a certificate of merger
with the Secretary of State of the State of Connecticut, which will specify the
Effective Time of the Merger, which HUBCO and Southington anticipate will be the
close of business on the Closing Date. The exact Closing Date is dependent upon
satisfaction of all conditions precedent, some of which are not under the
control of HUBCO or Southington. In the Closing Notice, HUBCO is also required
to specify the "Determination Date," which is used in determining the Median
Pre-Closing Price. The Determination Date is to be not more than ten business
days prior to the Closing Date set forth in the Closing Notice. 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 Southington at any time
prior to the Effective Time. However, after approval of the Merger Agreement by
the shareholders of Southington, no amendment can be made which reduces the
amount or changes the form of consideration to be delivered to the shareholders
of Southington without the approval of such shareholders.
The Merger Agreement may be terminated by the mutual consent of Southington
and HUBCO. The Merger Agreement may also be terminated by Southington or HUBCO
if, among other things, (i) the Effective Time has not occurred on or before
March 31, 1998 (the "CUTOFF DATE") unless the failure of such occurrence is due
to the failure of
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the party seeking to terminate to perform or observe its covenants in the Merger
Agreement; (ii) a vote of the stockholders of Southington to approve the Merger
Agreement is taken and such stockholders fail to approve the Merger Agreement at
their meeting; or (iii) any regulatory approvals necessary to consummate the
transaction have been denied or withdrawn at the request of the regulatory
agency or such approval is given with conditions which materially impair the
value of Southington, taken as a whole, 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
Southington, taken as a whole, from that disclosed by Southington to HUBCO in
its Quarterly Report on Form F-4 for the six months ended June 30, 1997 and
Southington's Annual Report to shareholders for the year ended December 31,
1996, or Southington breaches in a material respect any representation, warranty
or covenant, agreement or obligation under the Merger Agreement and does not
cure such breach within 30 days after receipt by Southington 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 are not capable of being
satisfied by the Cutoff Date.
Southington may terminate the Merger Agreement if there has been 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 its
Quarterly Report on Form 10-Q for the six months ended June 30, 1997 and its
Annual Report on Form 10-K for the fiscal year ended December 31, 1996, or HUBCO
and its subsidiaries, taken as a whole, breaches in a material respect any
representation, warranty or covenant, agreement or obligation under the Merger
Agreement and does not cure such breach within 30 days after receipt by HUBCO of
a notice of breach, or if Southington's Board of Directors approves another
acquisition transaction after determining, upon advice of counsel, that approval
was necessary in the exercise of its fiduciary obligations under applicable
laws. Southington may also terminate the Merger Agreement if the conditions for
Southington to close are not satisfied and are not capable of being satisfied by
the Cutoff Date.
In addition, the Merger Agreement may be terminated by Southington upon
occurrence of a Termination Event, as described above under the caption "THE
PROPOSED MERGER -- Consideration."
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.
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. HUBCO's obligation to consummate the Merger is conditioned upon
HUBCO's receipt of assurances 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 Southington would be added to those
of HUBCO at their recorded book values and the stockholders' equity accounts of
HUBCO and Southington 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 Southington as if the Merger had taken place
prior to the periods covered by such financial statements.
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 SOUTHINGTON COMMON STOCK
PURSUANT TO THE EXERCISE OF EMPLOYEE STOCK OPTIONS OR RIGHTS OR OTHERWISE AS
COMPENSATION. SOUTHINGTON 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.
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General. It is intended that the Merger will be treated as a tax-free
reorganization as defined in Section 368(a)(1)(A) of the Code and that,
accordingly, no gain or loss will be recognized by HUBCO or Southington or by
the shareholders of Southington upon the exchange of their shares of Southington
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 Southington, 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 to both HUBCO and Southington.
Consequences of Receipt of Cash in Lieu of Fractional Shares. Cash received
by a Southington shareholder in lieu of any fractional share interest will be
treated as having been received as a 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
Southington Common Stock allocable to the fractional share interest.
Basis of HUBCO Common Stock. The basis of HUBCO Common Stock received by a
Southington shareholder who receives solely HUBCO Common Stock will be the same
as the basis of such shareholder's Southington Common Stock surrendered in
exchange therefor.
Holding Period. The holding period of shares of HUBCO Common Stock received
in the Merger by holders of Southington Common Stock will include the period
during which such shares of Southington Common Stock surrendered in exchange
therefor were held by the holder thereof, provided such shares of Southington
Common Stock were held as capital assets.
Holders of Southington Options. Holders of Southington Options will receive
HUBCO Common Stock and cash in lieu of fractional shares in cancellation of
their Southington 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 Southington Options. Holders of Southington Options will be required to
deposit an amount for withholding taxes with HUBCO upon receipt of the HUBCO
Common Stock.
Consequences to Dissenting Southington Shareholders. Holders of Southington
Common Stock who perfect their dissenters' rights will receive only cash for
their shares of Southington 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 Southington Common Stock surrendered
therefor. The gain or loss will be characterized as a capital gain or loss if
(a) the holder's shares of Southington Common Stock are held as capital assets
and (b)_the holder receives cash with respect to all shares of Southington
Common Stock which the holder owns actually and constructively (pursuant to the
attribution rules of Section 318 of the Code). If a shareholder is not
considered as having disposed of all of his or her 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.
RIGHTS OF DISSENTING SOUTHINGTON SHAREHOLDERS
Holders of Southington Common Stock who follow the procedures specified in
Section 36a-125(h), which in turn incorporates the provisions of Sections 33-855
through 33-872, inclusive, of the Connecticut General Statues (the "CGS") will
be entitled to the rights and remedies of dissenting shareholders. Section
33-856 of the CGS provides that, in connection with a merger for which
shareholder approval is required by Section 33-817 of the CGS, any shareholder
of a constituent bank who dissents from the merger is entitled to assert
dissenters' rights under Section 33-855 to 33-872, inclusive, of the CGS
(collectively such rights, "DISSENTERS' RIGHTS"). In accordance with Sections
33-855 through 33-872, inclusive, of the CGS, if the proposed Merger is approved
and consummated, holders of shares of Southington's Common Stock who do not vote
in favor of the Merger will have the right to demand the purchase of their
shares at the "fair value" immediately before effectuation of the Merger
(exclusive of any appreciation or depreciation in anticipation of the Merger) if
they fully comply with the provisions of Sections 33-855 through 33-872 of the
CGS.
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The following is a brief summary of the procedures set forth in Sections
33-855 through 33-872 which are required to be followed by holders of shares of
Southington's Common Stock who wish to dissent from the Merger and demand the
purchase of their shares at their fair value. This summary is qualified in its
entirety by reference to Sections 33-855 through 33-872, inclusive, the complete
texts of which are attached to this Proxy Statement/Prospectus as Appendix D.
Dissenting shareholders are advised to seek independent counsel with respect to
exercising their dissenters' rights. This Proxy Statement/Prospectus constitutes
notice to holders of shares of Southington's Common Stock concerning the
availability of Dissenters' Rights under Sections 33-855 through 33-872 of the
CGS.
Dissenting shareholders must satisfy all of the conditions of Sections
33-855 through 33-872. Each dissenting shareholder must, before the taking of
the vote on the adoption of the Merger at the Meeting, give written notice to
the Secretary of Southington of such shareholder's intent to demand payment for
his shares if the Merger is effectuated. This notice must be in addition to and
separate from any abstention or any vote, in person or by proxy, cast against
approval of the Merger.
NEITHER VOTING "AGAINST," ABSTAINING FROM VOTING, OR FAILING TO VOTE ON THE
ADOPTION OF THE MERGER WILL CONSTITUTE NOTICE OF INTENT TO DEMAND PAYMENT OR
DEMAND FOR PAYMENT OF FAIR VALUE WITHIN THE MEANING OF SECTIONS 33-855 THROUGH
33-872, INCLUSIVE.
A dissenting shareholder must NOT vote for approval and adoption of the
Merger. If a holder of shares of Southington's Common Stock returns a signed
proxy but does not specify therein a vote "AGAINST" adoption of the Merger
Agreement and the Merger provided for therein or an instruction to abstain, the
proxy will be voted "FOR" adoption of the Merger Agreement and the Merger, which
will have the effect of waiving the rights of that holder of Southington Common
Stock to have his shares purchased at fair value. Abstaining from voting or
voting against the adoption of the Merger Agreement and the Merger will NOT
constitute a waiver of such shareholder's rights.
After the vote is taken at the Meeting, if the Merger is approved, and in
any event no later than 10 days after consummation of the Merger, a "Dissenters'
Notice" shall be sent to each dissenting shareholder who has given the written
notice described above and did not vote in favor of the Merger. The Dissenters'
Notice will state the results of the vote on the Merger Agreement, where the
payment demand must be sent, where and when certificates must be deposited and
will set a date, not fewer than thirty nor more than sixty days after delivery
of such notice, by which the payment demand must be received from the dissenting
shareholders. Such notice will include a form for demanding payment that will
require that the dissenting shareholder certify whether or not such shareholder
acquired beneficial ownership of the shares before August 18, 1997. (PLEASE NOTE
THAT SHARES ACQUIRED AFTER AUGUST 18, 1997 ("AFTER ACQUIRED SHARES"), MAY BE
SUBJECT TO DIFFERENT TREATMENT IN ACCORDANCE WITH SECTION 33-867 OF THE CGS THAN
ARE SHARES ACQUIRED PRIOR TO SUCH DATE). The Dissenters' Notice will also
include a copy of Sections 33-855 through 33-872, inclusive, of the CGS. A
dissenting shareholder who receives a Dissenters' Notice must comply with the
terms of such notice. A dissenting shareholder who does so by demanding payment,
depositing his certificates in accordance with the terms of the notice and
certifying that beneficial ownership was acquired before August 18, 1997 will
retain all other rights of a shareholder until such rights are canceled or
modified by the Merger. A dissenting shareholder who receives a Dissenters'
Notice and does not comply with the terms therein is not entitled to payment for
his shares under Sections 33-855 through 33-872 of the CGS.
Dissenters' Rights under Sections 33-855 through 33-872, inclusive, may be
asserted by either a beneficial shareholder or record shareholder. A record
shareholder may assert Dissenters' Rights as to fewer than every share
registered in his name only if he dissents with respect to all shares
beneficially owned by any one person. A beneficial shareholder may assert
Dissenters' Rights as to shares held on his behalf only if he submits the record
shareholder's written consent prior to or at the time he asserts Dissenters'
Rights and he does so with respect to all shares of which he is beneficial owner
or over which he has the power to direct the vote.
After the Merger is consummated, or upon receipt of a payment demand, the
Corporation shall pay each dissenting shareholder who complied with the terms of
the Dissenters' Notice the amount the Corporation estimates to be the fair value
of the shares, plus accrued interest. Within 30 days of such payment, if a
dissenting shareholder believes that the amount paid is less than the fair value
of the shares or that the interest due is incorrectly calculated, such
shareholder may notify the Corporation in writing of his own estimate of the
fair value of the shares and interest
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due. If such a claim is made by a dissenting shareholder, and it cannot be
settled, the Corporation will within 60 days after receiving the payment demand,
petition the court to determine the fair value of the shares and accrued
interest.
The costs and expenses of any such court proceeding shall be determined by
the court and shall be assessed against the Corporation, but such costs and
expenses may be assessed as the court shall deem equitable against any or all
dissenting shareholders who are parties to the proceeding if the court finds the
action of such dissenting shareholders in failing to accept the Corporation's
offer was arbitrary or vexatious or not in good faith. Such expenses may include
the fees and expenses of counsel and experts employed by the respective parties.
All written notices of intent to demand payment of fair value should be
sent or delivered to Peter Pfau, The Bank of Southington, 130 North Main Street,
Southington, Connecticut 06489-0670. Southington suggests that shareholders use
registered or certified mail, return receipt requested, for this purpose.
HOLDERS OF SHARES OF SOUTHINGTON'S COMMON STOCK CONSIDERING DEMANDING THE
PURCHASE OF THEIR SHARES AT FAIR VALUE SHOULD KEEP IN MIND THAT THE FAIR VALUE
OF THEIR SHARES DETERMINED UNDER SECTIONS 33-855 THROUGH 33-872, INCLUSIVE,
COULD BE MORE, THE SAME, OR LESS THAN THE MERGER CONSIDERATION THEY ARE ENTITLED
TO RECEIVE PURSUANT TO THE MERGER IF THEY DO NOT DEMAND THE PURCHASE OF THEIR
SHARES AT FAIR VALUE.
THE SUMMARY SET FORTH ABOVE DOES NOT PURPORT TO BE A COMPLETE STATEMENT OF
THE PROVISIONS OF THE CGS RELATING TO THE RIGHTS OF DISSENTING SHAREHOLDERS OF
SHARES OF SOUTHINGTON'S COMMON STOCK AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SECTIONS 33-855 THROUGH 33-872 OF THE CGS, WHICH ARE INCLUDED AS
APPENDIX D TO THIS PROXY STATEMENT/PROSPECTUS. HOLDERS OF SHARES OF
SOUTHINGTON'S COMMON STOCK INTENDING TO DEMAND THE PURCHASE OF THEIR SHARES AT
FAIR VALUE ARE URGED TO REVIEW CAREFULLY APPENDIX D AND TO CONSULT WITH LEGAL
COUNSEL AS TO BE IN STRICT COMPLIANCE THEREWITH.
DESCRIPTION OF HUBCO CAPITAL STOCK
GENERAL
The authorized capital stock of HUBCO presently consists of 51,500,000
million shares of HUBCO Common Stock and 10,300,000 million shares of preferred
stock. As of June 30, 1997, 21,624,468 shares of HUBCO Common Stock were issued,
21,619,164 shares of HUBCO Common Stock were outstanding, and 35,850 shares of
HUBCO preferred stock were outstanding. Of the authorized but unissued shares of
HUBCO Common Stock, 232,162 shares are reserved for issuance under HUBCO's
Restricted Stock Plan, 506,942 shares are reserved for issuance upon exercise of
stock options and 66,693 are reserved for issuance upon exercise of warrants.
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 Convertible Preferred Stock was issued pursuant to
such authority in connection with HUBCO's acquisition of Washington Bancorp,
Inc. on July 1, 1994; no HUBCO Series A Preferred Stock remains outstanding. In
December, 1996, as part of the Westport Acquisition, HUBCO issued HUBCO Series B
Convertible Preferred Stock; 35,850 shares of HUBCO Series B Convertible
Preferred Stock remain outstanding as of June 30, 1997. See " -- Description of
HUBCO Preferred Stock".
HUBCO's Certificate of Incorporation authorizes the Board of Directors of
HUBCO (except in connection with certain business combinations), from time to
time and without further shareholder action, to issue new shares of authorized
but unissued HUBCO Common Stock or preferred stock. Because of its broad
direction with respect to the creation and issuance of HUBCO Common Stock or
preferred stock without shareholder approval, the Board of Directors could
adversely affect the voting power of holders of HUBCO Common Stock or preferred
stock and, by
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issuing shares of preferred stock with certain voting, conversion and/or
redemption rights, could discourage any attempt to gain control of HUBCO.
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 THE RIGHTS OF SHAREHOLDERS OF
SOUTHINGTON AND HUBCO".
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
subsidiaries, as a practical matter, restrictions on the ability of HUB and
Lafayette 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 CBL, Lafayette may
pay dividends only from its net profits, and the total of all dividends in any
calendar year may not (unless specifically approved by the Commissioner) exceed
the total of its net profits of that year combined with its retained net profits
of the preceding two years. 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 or Lafayette 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 June 30, 1997, HUB had $123.2 million available for the payment of
dividends to HUBCO, and as of June 30, 1997 Lafayette had $16.2 million
available for the payment of dividends to HUBCO. At June 30, 1997, HUBCO had
$114.5 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.
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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 affiliates, 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.
DESCRIPTION OF HUBCO SERIES B PREFERRED STOCK
Dividend Rights
The holders of HUBCO Series B Convertible Preferred Stock (the "HUBCO
SERIES B PREFERRED STOCK") are entitled to received, when, as and if declared by
the Board of Directors of HUBCO out of funds legally available therefore,
dividends at a rate to be determined by the Corporation's Board of Directors.
All dividends declared on the HUBCO Series B Preferred Stock are pro rata per
share and noncumulative. The only statutory limitation is that such dividends
may not be paid when HUBCO is insolvent.
Liquidation Rights
The holders of HUBCO Series B Preferred Stock are entitled to receive
$100.00 per share in the event of any liquidation, dissolution or winding up of
HUBCO, subject to the rights of creditors. In the event of liquidation,
dissolution or winding up, the preferential amounts with respect to the HUBCO
Series B Preferred Stock and any stock on parity with HUBCO Series B Preferred
Stock, shall be distributed pro rata in accordance with the aggregate
preferential amounts of the HUBCO Series B Preferred Stock and such stock on
parity, if any, out of or to the extent of the net assets of HUBCO legally
available for such distribution before any distributions are made with respect
to any stock junior to the rights of HUBCO Series B Preferred Stock.
Redemption
The HUBCO Series B Preferred Stock is not redeemable at the option of the
issuer or the holders thereof.
Preemptive and Conversion Rights
Holders of HUBCO Series B Preferred Stock have an option to convert such
stock into fully paid and nonassessable shares of HUBCO Common Stock. As of June
30, 1997, the conversion rate was 33.2175 shares of Common Stock for each share
of HUBCO Series B Preferred Stock (the "CONVERSION RATIO"). The Conversion Ratio
is subject to adjustment upon certain events, including the issuance of HUBCO
Common Stock as a dividend with respect to the outstanding HUBCO Common Stock,
subdivision or combinations of HUBCO Common Stock,
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the issuance to holders of HUBCO Common Stock generally of rights or warrants to
subscribe for HUBCO Common Stock, or the distribution to holders of HUBCO Common
Stock generally of evidences of indebtedness, assets (excluding dividends in
cash out of retained earnings) or rights or warrants to subscribe for securities
of HUBCO other than those mentioned herein. Notwithstanding the foregoing, the
Conversion Ratio is not subject to adjustment to the extent HUBCO issues any
HUBCO Common Stock in connection with any employee compensation and benefits
plans, employee agreements and contracts.
Voting Rights
Holders of shares of HUBCO Series B Preferred Stock vote together as a
class with holders of HUBCO Common Stock for the election of directors and all
other matters to which holders of HUBCO Common Stock are entitled to vote. Each
share of HUBCO Series B Preferred Stock is entitled to a number of votes equal
to the Conversion Ratio as the same may be adjusted from time to time.
COMPARISON OF THE RIGHTS OF SHAREHOLDERS
OF SOUTHINGTON AND HUBCO
GENERAL
Southington is a Connecticut bank and trust company (sometimes referred to
as a "capital stock bank") incorporated under the CBL and HUBCO is a business
corporation incorporated in New Jersey under the NJBCA. The rights of
Southington shareholders are currently governed by Connecticut banking law and
with respect to corporate administration and procedure, to the extent not
inconsistent or inapplicable by its terms, Connecticut corporate law. At the
Effective Time, each Southington 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 Southington and HUBCO. This summary does not purport to be
complete and is qualified in its entirety by reference to the CBL, the
Connecticut Business Corporation Act (the "CBCA"), and the NJBCA, which statutes
may change from time to time, and the respective certificates of incorporation
and by-laws of HUBCO and Southington, which also may be changed. Effective
January 1, 1997, the Stock Corporation Act (the "SCA") was repealed and replaced
by the CBCA, which represents a substantial rewriting and recodification of
Connecticut corporate law.
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 bank may amend its certificate
of incorporation, generally, if more shareholders vote for the amendment than
vote against. Higher voting requirements are necessary in the event of a
proposed change of name, merger, voluntary dissolution, or sale of all or
substantially all assets (two-thirds of outstanding shares of each class
entitled to vote thereon) or where dissenters' rights are thereby created (a
majority of the votes cast). 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, Southington's Articles of
Incorporation presently contain no such variations.
All shareholder voting rights of Southington presently are vested in the
holders of Southington Common Stock. All shareholder voting rights of HUBCO
presently are vested in the holders of the HUBCO Common Stock.
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PREFERRED STOCK
The authorized capital stock of HUBCO consists of 51,500,000 million shares
of HUBCO Common Stock and 10,300,000 million shares of preferred stock. As of
June 30, 1997, 21,624,468 shares of HUBCO Common Stock were issued, 21,619,164
shares of HUBCO Common Stock were outstanding, and 35,850 shares of HUBCO Series
B Convertible 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.")
Southington does not have authorized preferred stock.
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.
Applicable Connecticut law permits a capital stock Connecticut bank to
provide for the classification of directors in its certificate of incorporation.
Southington's Articles of Incorporation contain such a provision and divides the
Southington 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 capital stock Connecticut bank who dissent
from a merger or consolidation of the bank are entitled to appraisal rights. The
shareholders of Southington have statutory rights of appraisal with respect to
the Merger. See "RIGHTS OF DISSENTING SOUTHINGTON 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.
The CBCA permits any action which may be taken at a meeting of
shareholders to be taken without a meeting as follows: (i) by consent in
writing, setting forth the action so taken or to be taken, signed by all of the
persons who would be entitled to vote upon such action at a meeting, or by their
duly authorized attorneys; or (ii) if the certificate of incorporation so
provides, by consent in writing, setting forth the action to be taken, signed by
persons holding such designated proportion, not less than a majority, of the
voting power of shares, or of the shares of any particular class, entitled to
vote thereon or to take such action, as may be provided in the certificate of
incorporation, or their duly authorized attorneys; except that directors may not
be elected by action of shareholders without a meeting of
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shareholders other than by unanimous written consent, or pursuant to a plan of
merger. The Southington Articles of Incorporation are silent on this issue of
shareholder consent to corporate action.
DIVIDENDS
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 subsidiaries, as a practical matter, restrictions on the ability of HUB or
Lafayette to pay dividends act as restrictions on the amount of funds available
for the payment of dividends by HUBCO. At June 30, 1997, HUBCO had approximately
$114.5 million available for shareholder dividends. For a description of the
regulatory restrictions on dividend payments by HUB and Lafayette, see
"DESCRIPTION OF HUBCO CAPITAL STOCK -- Description of HUBCO Common Stock --
Dividend Rights."
Under applicable Connecticut law, the amount of cash dividends that
Southington may declare in any calendar year is limited to the current year's
"net profits" and the prior two years' retained "net profits," as defined. At
June 30, 1997, Southington had approximately $2,234,313 million available for
shareholder dividends.
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 Southington's Articles of
Incorporation and By-Laws, Southington'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 Southington Board or the vote of the majority of the
outstanding shares of Southington entitled to vote thereon.
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" (as such terms
are defined in the statute) of a resident domestic corporation and, at any time
within the previous two 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 a majority of such corporation's nonemployee
directors (of which there shall be at least two), prior to the date on which the
interested shareholder first became an interested shareholder under the
applicable definition.
Applicable Connecticut law also contains so-called "fair price" provisions
that prohibit certain business combinations between a target corporation and an
"interested shareholder", being defined for these purposes as a person, other
than the target corporation or any of its subsidiaries, that (i) is the
beneficial owner, directly or indirectly,
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of 10% or more of the voting power of the outstanding shares of voting stock of
the target corporation or (ii) is an affiliate of the target corporation and at
any time within the two-year period immediately prior to the date in question
was the beneficial owner, directly or indirectly, of 10% or more of the voting
power of the then outstanding shares of voting stock of the target corporation.
Under such provisions, the board of directors of the target corporation can
approve a business combination at any time prior to the time the interested
shareholder first became an interested shareholder. In the absence of such
pre-approval, however, the proposed business combination must first be approved
by the board of directors of the target corporation and, unless complex fair
price and other conditions are met, thereafter, by the affirmative vote of a
specified super majority of shareholders of the target corporation, i.e., 80% of
the voting power of shares of the target corporation and two-thirds of the
voting power of shares other than those held by the interested shareholder and
his affiliates and associates.
LIMITATIONS OF LIABILITY OF DIRECTORS AND OFFICERS
Under New Jersey law, a corporation may include in its certificate of
incorporation a provision which would, subject to the limitations described
below, eliminate or limit directors' or officers' liability to the corporation
or its shareholders for monetary damage for breaches of their fiduciary duty as
a director. A similar provision under Delaware law applies to directors, but not
officers.
Under New Jersey law, a director or officer cannot be relieved from
liability or otherwise indemnified for any breach of duty based upon an act or
omission (i) in breach of such person's duty of loyalty to the corporation or
its shareholders, (ii) not in good faith or involving a knowing violation of
law, or (iii) resulting in receipt by such person of an improper personal
benefit. HUBCO's Certificate of Incorporation contains a provision which limits
a director's or officer's liability to the full extent permitted by New Jersey
law.
Under Connecticut law, unless a corporation's certificate of incorporation
provides otherwise (Southington's does not), a corporation shall indemnify a
director or officer who was wholly successful, on the merits or otherwise, in
the defense of any proceeding to which he was a party because he is or was a
director or officer of the corporation against reasonable expenses incurred by
him in connection with the proceeding. A corporation may indemnify an individual
made a party to a proceeding because he is or was a director or officer against
liability incurred in the proceeding if: (i) he conducted himself in good faith;
and (ii) he reasonably believed (a) in the case of conduct in his official
capacity with the corporation, that his conduct was in its best interests, and
(b) in all other cases, that his conduct was at least not opposed to its best
interests; and (iii) in the case of any criminal proceeding, he had no
reasonable cause to believe his conduct was unlawful.
Southington's Articles of Incorporation provide that to the extent
permitted by applicable law, the personal liability of the directors to
Southington or its members or its shareholders for monetary damages for breach
of duty as a director shall be limited to an amount equal to the compensation
received by the director for serving the institution during the year of
violation. Certain exceptions to this limitation apply by law.
SHAREHOLDER PROPOSALS
Any proposal which a Southington shareholder wishes to have included in the
proxy materials of Southington if Southington has a 1998 Annual Meeting of
Shareholders must be presented to Southington no later than January 23, 1998.
OTHER MATTERS
As of the date of this Proxy Statement, the Southington Board of Directors
knows of no other matters to be presented for action by the stockholders at the
Meeting. If any other matters are properly presented, however, it is the
intention of the persons named in the enclosed proxy to vote in accordance with
their best judgment on such matters.
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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 627 shares of HUBCO Common Stock as of September 15, 1997.
EXPERTS
The financial statements of Southington as of December 31, 1996 and 1995
and for each of the years in the three year period ended December 31, 1996,
incorporated herein by reference, have been audited by KPMG Peat Marwick LLP,
independent certified public accountants, as indicated in their report with
respect thereto, incorporated by reference herein and given upon the authority
of said firm as experts in accounting and auditing. The aforementioned report of
KPMG Peat Marwick LLP refers to an uncertainty in connection with a lawsuit in
which Southington is a defendant.
The consolidated financial statements of HUBCO as of December 31, 1996 and
1995 and for each of the years in the three year period ended December 31, 1996,
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.
KPMG Peat Marwick LLP will have a representative at the Meeting who will
have an opportunity to make a statement if such representative desires, and who
will be available to respond to appropriate questions.
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Appendix A
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER, dated August 18, 1997 (this
"Agreement"), among HUBCO, INC. ("HUBCO"), a New Jersey corporation and
registered bank holding company, LAFAYETTE AMERICAN BANK AND TRUST COMPANY, a
state bank and trust company organized under the laws of Connecticut and a
wholly-owned subsidiary of HUBCO ("Lafayette"), and THE BANK OF SOUTHINGTON, a
state bank and trust company organized under the laws of Connecticut
("Southington").
RECITALS
HUBCO desires to acquire Southington and Southington's Board
of Directors has determined, based upon the terms and conditions hereinafter set
forth, that the acquisition is in the best interests of Southington and its
shareholders. The acquisition will be accomplished by merging Southington with
and into Lafayette, with Lafayette surviving.
As a condition for HUBCO to enter into this Agreement, HUBCO
has required that it receive an option on certain authorized but unissued shares
of Southington Common Stock (as hereinafter defined) and, simultaneously with
the execution of this Agreement, Southington is issuing an option to HUBCO to
purchase 275,000 shares of the authorized and unissued Southington Common Stock
at an option price of $16.00 per share, subject to adjustment and subject to the
terms and conditions set forth in the agreement governing such option.
The Boards of Directors of Southington, HUBCO and Lafayette
have duly adopted and approved this Agreement and the Board of Directors of
Southington has directed that it be submitted to Southington's shareholders for
approval.
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), Southington 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 Bank"), the name of which shall
continue to be Lafayette American Bank and Trust Company. The principal office
of the Surviving Bank shall be the principal office of Lafayette. Exhibit 1 to
this Agreement lists (i) the locations of the principal offices of and branch
offices of Southington and Lafayette; (ii) the locations of all branch offices
and the main office of the Surviving Bank; and (iii) the amount of the capital
stock, the number of shares, the par value and the amount of surplus of the
Surviving Bank.
1.2. Effect of the Merger. At the Effective Time, the
Surviving Bank shall be considered the same business and corporate entity as
each of Lafayette and Southington and thereupon and thereafter, all the
property, rights, privileges, powers and franchises of each of Lafayette and
Southington shall vest in the Surviving Bank and the Surviving Bank shall be
subject to and be deemed to have assumed all of the debts, liabilities,
obligations and duties of each of Lafayette and Southington 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 Bank. In addition, any reference to either of
Lafayette or Southington in any contract or document, whether executed or taking
effect before or after the Effective Time, shall be considered a reference to
the Surviving Bank if not inconsistent with the other provisions of the contract
or document; and any pending action or other judicial proceeding to which either
of Lafayette or Southington 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 Bank 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 Lafayette or Southington
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 Bank and shall not be
amended by this Agreement or the Merger but thereafter may be amended as
provided by law.
1.4. By-laws. As of the Effective Time, the By-laws of
Lafayette shall be the By-laws of the Surviving Bank until otherwise amended as
provided by law.
1.5. Directors and Officers. As of the Effective Time, the
directors and officers of Lafayette shall become the directors and officers of
the Surviving Bank. The names of the current directors and officers of Lafayette
are listed on Exhibit 1.
1.6. Closing Date, Closing and Effective Time. Unless a
different date, time and/or place are agreed to by the parties hereto, the
closing of the Merger (the "Closing") shall take place at 10:00 a.m., at the
offices of Pitney, Hardin, Kipp & Szuch, 200 Campus Drive, Florham Park, New
Jersey, on a date determined by HUBCO on at least five business days notice (the
"Closing Notice") given to Southington, which date (the "Closing Date") shall be
not later than 15 business days 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). In the Closing Notice, HUBCO
shall specify the "Determination Date" for purposes of determining the Median
Pre-Closing Price (as hereinafter defined), which date shall be not more than
ten business days prior to the Closing Date set forth in the Closing Notice. The
Merger shall become effective (and be consummated) upon the date specified in a
certificate executed by HUBCO, Lafayette and Southington filed with the
Connecticut Secretary of State after the approval of the Connecticut
Commissioner of Banking (the "Commissioner"). Southington shall not unreasonably
withhold its approval of the Effective Time, which shall be consistent with this
section. 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 Southington. Following the execution of this Agreement, HUBCO
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and Southington 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 SOUTHINGTON SHARES
2.1. Conversion of Southington Common Stock. Each share of
common stock, par value $6.00 per share, of Southington ("Southington 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 Southington Common Stock issued and outstanding immediately
prior to the Effective Time (excluding Dissenting Shares and shares to be
cancelled pursuant to Section 2.1(d)) shall be converted at the Effective Time
into the number of shares of Common Stock, no par value, of HUBCO ("HUBCO Common
Stock") equal to the exchange ratio (the "Exchange Ratio") determined as
follows:
(i) If the Median Pre-Closing Price (as hereinafter
defined) is equal to or greater than $35.00, the Exchange Ratio shall be 0.600;
(ii) If the Median Pre-Closing Price is less than
$35.00 but greater than $27.50, the Exchange Ratio shall be equal to the
quotient obtained by dividing $21.00 by the Median Pre-Closing Price and
rounding the result to the nearest one-thousandth; and
(iii) If the Median Pre-Closing Price is equal to or
less than $27.50, the Exchange Ratio shall be 0.764; provided, however, that if
the Median Pre-Closing Price is less than $22.00, the Board of Directors of
Southington shall have the right, exercisable only until 11:59 p.m. on the third
business day following the Determination Date (or the third business day
following receipt by Southington of the Closing Notice, if later), to terminate
this Agreement by giving HUBCO notice of such termination, referring to this
Section 2.1, and this Agreement shall be terminated pursuant to such notice,
subject to Section 7.1, effective as of 11:59 p.m. on the third business day
following receipt of such notice by HUBCO, unless prior to 11:59 p.m. on the
third business day following receipt of such termination notice, HUBCO sends
notice to Southington agreeing that the Exchange Ratio shall be equal to the
quotient obtained by dividing $16.81 by the Median Pre-Closing Price.
The "Median Pre-Closing Price" shall be determined by taking
the price half-way between the Closing Prices left after discarding the 4 lowest
and 4 highest Closing Prices in the 10 consecutive trading day period which ends
on (and includes) the Determination Date. The "Closing Price" shall mean the
closing price of HUBCO Common Stock as supplied by the NASDAQ Stock Market and
published in The Wall Street Journal. A "trading day" shall mean a day for which
a Closing Price is so supplied and published.
(b) Conversion of Southington Certificates. At the Effective
Time, all shares of Southington 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 Southington
Common Stock outstanding immediately prior to the Effective Time shall cease to
have any rights with respect to such shares of Southington Common Stock except
as otherwise provided herein or by law. Certificates previously evidencing
shares of Southington 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 2.1(a)) shall be correspondingly adjusted
to reflect such stock dividend, stock split, reclassification, recapitalization,
merger, combination or exchange of shares.
(d) Cancelled Shares. All shares of Southington Common Stock
held by Southington in its treasury or held immediately prior to the Effective
Time by HUBCO or any of its subsidiaries (other than shares held by it as
trustee or in a fiduciary capacity or held as collateral on or in lieu of a debt
previously contracted) shall be cancelled.
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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, which may be the Trust Department of Lafayette or of another banking
subsidiary of HUBCO (the "Exchange Agent"), for the benefit of the holders of
shares of Southington 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, HUBCO 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
Southington Common Stock (other than Dissenting Shares and shares cancelled
pursuant to Section 2.1(d)) (the "Certificates"), (i) a letter of transmittal
(which is reasonably agreed to by HUBCO and Southington and 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
shall be in such form and have such other provisions as HUBCO may reasonably
specify) and (ii) instructions for use in 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 Southington
Common Stock formerly evidenced by such Certificate in accordance with Section
2.1, (B) cash in lieu of fractional shares of HUBCO Common Stock to which such
holder may be entitled pursuant to Section 2.2(e) and (C) any dividends or other
distributions to which such holder is entitled pursuant to Section 2.2(c) (the
shares of HUBCO Common Stock, dividends, distributions and cash described in
clauses (A), (B) and (C) 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 Southington Common Stock which is not
registered in the transfer records of Southington, 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 Southington 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.
(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. 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 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 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. No interest shall be paid on the Merger Consideration.
(d) No Further Rights in Southington Common Stock. All shares
of HUBCO Common Stock issued and cash paid upon conversion of the shares of
Southington 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 Southington 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 shareholder of HUBCO. Cash shall
be paid in lieu of fractional shares of HUBCO Common Stock, in an amount
determined by multiplying the fraction by the Median Pre-Closing Price.
(f) Termination of Exchange Fund. Any portion of the Exchange
Fund which remains undistributed to the holders of Southington Common Stock for
two years after the Effective Time shall be delivered to HUBCO, upon demand, and
any holders of Southington Common Stock who have not theretofore complied with
this Article II shall thereafter look only to HUBCO for the Merger Consideration
to which they are entitled.
(g) No Liability. Neither HUBCO nor Lafayette nor the Exchange
Agent shall be liable to any holder of shares of Southington 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 the
consideration otherwise payable pursuant to this Agreement to any holder of
shares of Southington Common Stock, the minimum amounts (if any) that HUBCO is
required to deduct and withhold with respect to the making of such payment under
the Internal Revenue Code of 1986, as amended (the "Code"), 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 shares of Southington Common Stock in
respect of which such deduction and withholding was made by HUBCO.
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2.3. Stock Transfer Books. At the Effective Time, the stock
transfer books of Southington shall be closed and there shall be no further
registration of transfers of shares of Southington Common Stock thereafter on
the records of Southington. 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 Southington 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 the Surviving Bank of the fair value
of such shares as determined in accordance with the Connecticut Banking Act. All
shares of Southington Common Stock as to which the holder 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. Lafayette Common Stock. The shares of common stock of
Lafayette outstanding immediately prior to the Effective Time shall not be
effected by the Merger but shall be the same number of shares of the Surviving
Bank.
2.6 Southington Stock Options.
At the Effective Time, each option (each, a "Stock Option")
outstanding pursuant to either the Southington 1995 Incentive Stock Option Plan
or the Southington 1997 Employee Stock Option Plan (collectively, the
"Southington Stock Option Plan") shall be converted into HUBCO Common Stock in
accordance with the following formula:
(i) Each outstanding Stock Option shall be valued at
an amount (the "Option Value") determined by multiplying the Median
Pre-Closing Price by the Exchange Ratio and then subtracting the stated
exercise price for the Stock Option.
(ii) Each holder of 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 Stock Options,
divided by the Median Pre-Closing Price.
(iii) Cash shall be paid in lieu of fractional
shares, in an amount determined by multiplying the fraction by the
Median Pre-Closing Price.
ARTICLE III - REPRESENTATIONS AND WARRANTIES OF SOUTHINGTON
References herein to the "Southington 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
Southington to HUBCO. Southington hereby represents and warrants to HUBCO and
Lafayette as follows:
3.1. Corporate Organization.
(a) Southington is a state bank and trust company duly
organized, validly existing and in good standing under the laws of the State of
Connecticut. Southington 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
Southington. Southington is a state-chartered bank and trust company whose
deposits are insured by the Bank Insurance Fund of the Federal Deposit Insurance
Corporation (the "FDIC") to the fullest extent permitted by law. The Southington
Disclosure Schedule sets forth true and complete copies of the Certificate of
Incorporation and By-Laws of Southington, as in effect on the date hereof.
(b) Except as set forth in the Southington Disclosure
Schedule, Southington has no subsidiaries. When used with reference to
Southington, the term "subsidiary" means any corporation, partnership, joint
venture or other legal entity in which Southington, directly or indirectly, owns
at least a 50 percent stock or other equity interest or for which Southington,
directly or indirectly, acts as a general partner.
3.2. Capitalization. The authorized capital stock of
Southington consists of 4,000,000 shares of Southington Common Stock. As of the
date hereof, there are 1,246,012 shares of Southington Common Stock issued and
outstanding. All issued and outstanding shares of Southington Common Stock have
been duly authorized and validly issued, are fully paid and no assessment has
been made on such shares. Except as set forth in the Southington Disclosure
Schedule, Southington 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 Southington 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. Each Stock Option
which will be outstanding on the Closing Date is now, or on the Closing Date
will be automatically by virtue of the Merger and without further action on the
part of Southington or the holder thereof, fully vested.
3.3. Authority; No Violation.
(a) Subject to the approval of this Agreement and the
transactions contemplated hereby by the shareholders of Southington, Southington
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 Southington in accordance with the Certificate of
Incorporation of Southington and applicable laws and regulations. Except for
such approval, no other corporate proceedings on the part of Southington are
necessary to consummate the transactions so contemplated. This Agreement has
been duly and validly executed and delivered by Southington and constitutes the
valid and binding obligation of Southington, enforceable against Southington in
accordance with its terms.
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(b) Neither the execution and delivery of this Agreement by
Southington, nor the consummation by Southington of the transactions
contemplated hereby in accordance with the terms hereof, or compliance by
Southington with any of the terms or provisions hereof, will (i) violate any
provision of Southington'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 Southington or any of its properties or
assets, or (iii) except as set forth in the Southington 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
Southington 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 Southington 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 Southington 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 (the "DEP"), the Securities
and Exchange Commission (the "SEC"), state blue sky authorities or other
applicable governmental authorities, and the shareholders of Southington, 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
Southington in connection with (x) the execution and delivery by Southington of
this Agreement and (y) the consummation by Southington of the Merger and the
other transactions contemplated hereby, except such as are listed in the
Southington Disclosure Schedule and 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 Southington or prevent or delay the
consummation of the transactions contemplated hereby. To the best of
Southington's knowledge, no fact or condition exists which Southington has
reason to believe will prevent it from obtaining the aforementioned consents or
approvals.
3.4. Financial Statements.
(a) The Southington Disclosure Schedule sets forth copies of
the balance sheets of Southington as of December 31, 1996 and 1995, and the
related income statements, statements of changes in stockholders' equity and
cash flow statements for the periods ended December 31, in each of the three
years 1994 through 1996, in each case accompanied by the audit report (which
report includes explanatory paragraphs relating to certain regulatory matters)
of KPMG Peat Marwick, LLP ("KPMG"), independent public accountants with respect
to Southington, and the unaudited balance sheets of Southington as of March 31,
1997 and June 30, 1997, and the related unaudited income statements, unaudited
statements of changes in stockholders' equity and unaudited cash flow statements
of Southington for the periods ended March 31, 1997 and June 30, 1997 as
reported in HUBCO's Quarterly Report on Form F-4, filed with the FDIC
(collectively, the "Southington Financial Statements"). The Southington
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 fairly present the financial position of Southington as
of the respective dates set forth therein, and the related income statements,
statements of changes in stockholders' equity and cash flow statements fairly
present the results of operations, changes in stockholders' equity and cash
flows of Southington for the respective fiscal periods set forth therein.
(b) The books and records of Southington 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 Southington Financial Statements (including the notes
thereto), as of June 30, 1997, Southington had no liabilities, whether absolute,
accrued, contingent or otherwise, material to the business, operations, assets
or financial condition of Southington which were required by GAAP (consistently
applied) to be accrued in Southington's balance sheet as of June 30, 1997 or
disclosed in the footnotes to the financial statements in accordance with FSAS
No. 5. Since June 30, 1997, Southington 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.
3.5. Broker's and Other Fees. Except for Endicott Financial
Advisors LLC ("Endicott"), neither Southington 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. Southington's agreement with
Endicott is set forth in the Southington 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 Southington.
3.6. Absence of Certain Changes or Events.
(a) Except as set forth in the Southington Disclosure
schedule, there has not been any material adverse change in the business,
operations, assets or financial condition of Southington since June 30, 1997 and
to the best of Southington's knowledge, no facts or condition exists which
Southington believes will cause such a material adverse change in the future.
(b) Except as set forth in the Southington Disclosure
Schedule, Southington has not taken or permitted any of the actions set forth in
Section 5.2 hereof between June 30, 1997 and the date hereof and, except for
execution of this Agreement and the agreement described in Section 3.5,
Southington has conducted its business only in the ordinary course, consistent
with past practice.
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3.7. Legal Proceedings. Except as disclosed in the Southington
Disclosure Schedule, and except for ordinary routine litigation incidental to
the business of Southington, Southington is not a party to any, and there are no
pending or, to the best of Southington's knowledge, threatened legal,
administrative, arbitral or other proceedings, claims, actions or governmental
investigations of any nature against Southington which, if decided adversely to
Southington, individually or in the aggregate could have a material adverse
effect on the business, operations, assets or financial condition of
Southington. Except as disclosed in the Southington Disclosure Schedule,
Southington is not a party to any order, judgment or decree entered in any
lawsuit or proceeding.
3.8. Taxes and Tax Returns.
(a) Southington 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). Southington has
established (and until the Effective Time will establish) on its 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 Southington
through such date. The Southington Disclosure Schedule identifies the federal
income tax returns of Southington which have been examined by the Internal
Revenue Service (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 Southington Disclosure Schedule identifies the applicable state
income tax returns of Southington 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 Southington, 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 Southington, nor has Southington
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 Southington Disclosure
Schedule, Southington (i) has not requested any extension of time within which
to file any Return which Return has not since been filed, (ii) is not a party to
any agreement providing for the allocation or sharing of taxes, (iii) is not
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
Southington (nor does Southington have any knowledge that the IRS has proposed
any such adjustment or change of accounting method) and (iv) has not filed a
consent pursuant to Section 341(f) of the Code or agreed to have Section
341(f)(2) of the Code apply.
3.9. Employee Benefit Plans.
(a) Except as disclosed in the Southington Disclosure
Schedule, Southington does not maintain or contribute to any "employee pension
benefit plan" (the "Southington 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 "Southington Welfare Plans"), stock option plan, stock purchase plan,
deferred compensation plan, severance plan, bonus plan, employment agreement or
other similar plan, program or arrangement. Southington 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 Southington Disclosure
Schedule, Southington has delivered to HUBCO in the Southington Disclosure
Schedule a complete and accurate copy of each of the following with respect to
each of the Southington Pension Plans and Southington 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 under each of
the Southington Pension Plans subject to Title IV of ERISA, based upon the
actuarial assumptions used for purposes of the most recent actuarial valuation
prepared by such Southington Pension Plan's actuary, did not exceed the then
current value of the assets of such plans allocable to such accrued benefits.
(d) During the last five years, the Pension Benefit Guaranty
Corporation (the "PBGC") has not asserted any claim for liability against
Southington 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 Southington Pension
Plan have been paid. All contributions required to be made to each Southington
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
Southington which have not been paid have been properly recorded on the books of
Southington.
(f) Except as disclosed in the Southington Disclosure
Schedule, each of the Southington Pension Plans, the Southington Welfare Plans
and each other plan and arrangement identified on the Southington Disclosure
Schedule has been operated in compliance in all material respects with the
provisions of ERISA, the Code, all regulations, rulings and announcements
promulgated or issued thereunder, and all other applicable governmental laws and
regulations. Furthermore, if Southington maintains any Southington Pension Plan,
Southington intends to apply, if necessary, for, or the IRS has issued, a
favorable determination letter with respect to such Southington Pension Plan
and, except as disclosed in the Southington Disclosure Schedule, Southington is
not aware of any fact or circumstance which would disqualify any plan, that
could not be retroactively corrected (in accordance with the procedures of the
IRS).
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(g) To the best knowledge of Southington, 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 Southington
Welfare Plans or Southington Pension Plans.
(h) No Southington Pension Plan or any trust created
thereunder has been terminated, nor have there been any "reportable events",
within the meaning of Section 4034(b) of ERISA, with respect to any of the
Southington 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
Southington Pension Plans.
(j) There are no pending or, to the best knowledge of
Southington, threatened or anticipated claims (other than routine claims for
benefits) by, on behalf of or against any of the Southington Pension Plans or
the Southington Welfare Plans, any trusts created thereunder or any other plan
or arrangement identified in the Southington Disclosure Schedule.
(k) Except as disclosed in the Southington Disclosure
Schedule, no Southington Pension Plan or Southington 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 Southington Pension Plan.
(l) Except with respect to customary health, life and
disability benefits or as disclosed in the Southington Disclosure Schedule,
Southington has no unfunded benefit obligations which are not accounted for by
reserves shown on the financial statements and established under GAAP or
otherwise noted on such financial statements.
(m) With respect to each Southington Pension Plan and
Southington Welfare Plan that is funded wholly or partially through an insurance
policy, there will be no liability of Southington 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 as set forth in the Southington 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 Southington to severance
pay, unemployment compensation or any similar payment, (ii) accelerate the time
of payment, vesting, or increase the amount, of any compensation due to any
current employee or former employee under any Southington Pension Plan or
Southington Welfare Plan, or (iii) result in payments not deductible by reason
of Section 280G of the Code.
3.10. Reports.
(a) The Southington Disclosure Schedule lists, and Southington
has previously delivered to HUBCO a complete copy of, each communication (other
than general advertising materials and press releases) mailed by Southington to
its shareholders as a class since January 1, 1995, 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) Southington has, since January 1, 1995, duly filed with
the FDIC in form which was correct in all material respects the 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, Southington promptly will deliver or make available to
HUBCO accurate and complete copies of such reports. The Southington Disclosure
Schedule lists all examinations of Southington conducted by either the
Department or the FDIC since January 1, 1995 and the dates of any responses
thereto submitted by Southington.
3.11. Southington Information. The information relating to
Southington to be contained in the Proxy Statement/Prospectus (as defined in
Section 5.6(a) hereof) to be delivered to shareholders of Southington in
connection with the solicitation of their approval of the Merger, as of the date
the Proxy Statement/Prospectus is mailed to shareholders of Southington, and up
to and including the date of the meeting of shareholders 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. Except as set forth in
the Southington Disclosure Schedule, Southington holds all material licenses,
franchises, permits and authorizations necessary for the lawful conduct of its
business and since January 1, 1995 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 Southington (other than where such defaults or noncompliances, individually
or in the aggregate, will not result in a material adverse effect on the
business, operations, assets or financial condition of Southington) and
Southington has not received notice of violation of, and does not know of any
violations of, any of the above.
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3.13. Certain Contracts.
(a) Except for plans referenced in Section 3.9 hereof,
contracts described in Section 3.5 hereof and as disclosed in the Southington
Disclosure Schedule, (i) Southington 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 Southington to
any officer, employee, director or consultant thereof. The Southington
Disclosure Schedule sets forth true and correct copies of each severance or
employment agreement with officers, directors, employees, agents or consultants
to which Southington is a party.
(b) Except as disclosed in the Southington 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, Southington 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
Southington (but in no event shall a contract for less than $50,000 a year be
deemed material under this paragraph) (ii) no commitment, agreement or other
instrument to which Southington is a party or by which it is bound limits the
freedom of Southington to compete in any line of business or with any person,
and (iii) Southington is not a party to any collective bargaining agreement.
(c) Except as disclosed in the Southington Disclosure
Schedule, neither Southington nor, to the best knowledge of Southington, 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 Southington 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 Southington.
3.14. Properties and Insurance.
(a) Southington 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 Southington's statement of
condition as of December 31, 1996, 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 December 31, 1996), 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 Southington and (iv)
with respect to owned real property, title imperfections noted in title reports
delivered to HUBCO prior to the date hereof. Except as affected by the
transactions contemplated hereby, Southington as lessee has the right under
valid and subsisting leases to occupy, use, possess and control all real
property leased by Southington in all material respects as presently occupied,
used, possessed and controlled by Southington.
(b) The business operations and all insurable properties and
assets of Southington are insured for its benefit against all risks which, in
the reasonable judgment of the management of Southington, 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 Southington adequate for the
business engaged in by Southington. As of the date hereof, Southington 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.
3.15. Minute Books. The minute books of Southington contain
accurate records of all meetings and other corporate action held of the
shareholders and Board of Directors (including committees of the Board of
Directors), 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 Southington.
3.16. Environmental Matters.
(a) Except as disclosed in the Southington Disclosure
Schedule, Southington has not received any written notice, citation, claim,
assessment, proposed assessment or demand for abatement alleging that
Southington (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 Southington. Except as
disclosed in the Southington Disclosure Schedule, Southington 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 Southington.
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(b) Southington has no knowledge that any of the Properties
have 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 Southington.
(c) Except as set forth on the Southington Disclosure
Schedule, (i) Southington has no knowledge that any of the real property owned
or leased by Southington, as other real estate owned ("OREO") or otherwise, or
owned or controlled by Southington 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 Southington `s knowledge,
Southington and any and all of its 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 Southington Disclosure
Schedule, to the knowledge of Southington, 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 Southington.
3.17. Reserves. As of June 30, 1997, the allowance for
possible loan losses in the Southington Financial Statements was adequate based
upon all factors required to be considered by Southington at that time in
determining the amount of such allowance. Except as set forth in the Southington
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. As of June 30, 1997, the valuation allowance for OREO properties in
the Southington Financial Statements was adequate based upon all factors
required to be considered by Southington at that time in determining the amount
of such allowance.
3.18. No Parachute Payments. No officer, director, employee or
agent (or former officer, director, employee or agent) of Southington 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 Southington, HUBCO or Lafayette
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
the Southington Disclosure Schedule, Southington is not 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 Southington 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 set forth in the
Southington Disclosure Schedule, Southington 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 Southington. HUBCO hereby represents and warrants to Southington 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. Lafayette is a
state bank and trust company 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
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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 each of HUBCO and Lafayette as in effect on the
date hereof.
4.2. Capitalization. The authorized capital stock of HUBCO
consists of 51,500,000 shares of HUBCO Common Stock and 10,300,000 shares of
preferred stock ("HUBCO Authorized Preferred Stock"). As of June 30, 1997, there
were 21,624,468 shares of HUBCO Common Stock issued and outstanding, excluding
5,304 shares of treasury stock. Since such date, and from time to time
hereafter, HUBCO may sell or repurchase shares of HUBCO Common Stock. As of June
30, 1997, there were 35,580 shares of HUBCO Authorized Preferred Stock
outstanding, all of which are designated Series B, no par value, Convertible
Preferred Stock. Except as described in the HUBCO Disclosure Schedule, 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 HUBCO Authorized Preferred 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 as described in the
HUBCO Disclosure Schedule, 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.
4.3. Authority; No Violation.
(a) Each of HUBCO and Lafayette has 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
respective Boards of Directors of HUBCO and Lafayette in accordance with their
respective Certificates of Incorporation and applicable laws and regulations. No
other corporate proceedings on the part of HUBCO or Lafayette are necessary to
consummate the transactions so contemplated. This Agreement has been duly and
validly executed and delivered by each of HUBCO and Lafayette and constitutes
the valid and binding obligations of each of HUBCO and Lafayette, enforceable
against each of them in accordance with its terms.
(b) Neither the execution or delivery of this Agreement by
HUBCO or Lafayette, nor the consummation by HUBCO or Lafayette of the
transactions contemplated hereby in accordance with the terms hereof or
compliance by HUBCO or Lafayette with any of the terms or provisions hereof will
(i) violate any provision of the respective Certificates of Incorporation or
By-laws of HUBCO or Lafayette, (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 either
HUBCO or Lafayette or any of their 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 or Lafayette 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 either HUBCO or Lafayette is a party,
or by which either HUBCO or Lafayette or any of their respective 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 FDIC, the
Commissioner, the Department, the Board of Governors of the Federal Reserve
System (the "FRB"), if required, the 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 or Lafayette in connection with (x) the
execution and delivery by HUBCO and Lafayette 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 and its
subsidiaries, taken as a whole. To the best of HUBCO's knowledge, no fact or
condition exists which HUBCO has reason to believe will prevent HUBCO or
Lafayette 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, 1996
and 1995, 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 1994 through 1996, in each case accompanied by the
audit report of Arthur Andersen LLP ("Arthur Andersen"), independent public
accountants with respect to HUBCO, and the unaudited consolidated statements of
condition of HUBCO as of June 30, 1997 and June 30, 1996 and the related
unaudited consolidated statements of income, cash flows for the six months then
ended as reported in HUBCO's Quarterly Report on Form 10-Q, filed with the SEC
under the Securities Exchange Act of 1934, as amended (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.
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(b) The books and records of HUBCO and Lafayette 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 June 30, 1997 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
accrued in HUBCO's consolidated statement of condition as of June 30, 1997 or
disclosed in the footnotes to the financial statements in accordance with FSAS
No. 5. Neither HUBCO nor any of its subsidiaries have incurred any liabilities,
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 June 30, 1997
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 any of HUBCO's
subsidiaries is a party to any order, judgment or decree entered in any lawsuit
or proceeding which is material to HUBCO and its subsidiaries, taken as a whole.
4.8. Compliance With Applicable Law.
(a) 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,
1995, HUBCO and Lafayette 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 (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
its 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
Lafayette (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 shareholders of Southington 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,
each of HUBCO and Lafayette 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 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 Southington in
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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
Lafayette through such date. The HUBCO Disclosure Schedule identifies the
federal income tax returns of HUBCO, Lafayette and HUBCO's other 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, Lafayette and HUBCO's other 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, Lafayette or
HUBCO's other subsidiaries, nor has HUBCO, Lafayette or HUBCO's other
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 Lafayette nor any other 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, (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 or Lafayette (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) HUBCO and its subsidiaries maintain or contribute to
certain "employee pension benefit plans" (the "HUBCO Pension Plans"), as such
term is defined in Section 3(2)(A) of ERISA, and "employee welfare benefit
plans" (the "HUBCO Welfare Plans"), as such term is defined in Section 3(1) of
ERISA. Since September 2, 1974, neither HUBCO nor its subsidiaries have
contributed to any "Multiemployer Plan", as such term is defined in Section
3(37) of ERISA.
(b) Each of the HUBCO Pension Plans and each of the HUBCO
Welfare Plans has been operated in compliance in all material respects with the
provisions of ERISA, the Code, all regulations, rulings and announcements
promulgated or issued thereunder, and all other applicable governmental laws and
regulations. HUBCO is not aware of any fact or circumstance which would
disqualify any plan that could not be retroactively corrected (in accordance
with the procedures of the IRS).
(c) The present value of all accrued benefits under each of
the HUBCO Pension Plans subject to Title IV of ERISA, based upon the actuarial
assumptions used for purposes of 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.
(d) During the last five years, the PBGC has not asserted any
claim for liability against HUBCO 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 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.
(f) 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.
(g) There are no pending or, to the best knowledge of HUBCO,
threatened or anticipated claims (other than routine claims for benefits) by, on
behalf of or against any of the HUBCO Pension Plans or the HUBCO Welfare Plans,
any trusts created thereunder or any other plan or arrangement identified in the
HUBCO Disclosure Schedule.
(h) Except with respect to customary health, life and
disability benefits or as disclosed in the HUBCO Disclosure Schedule, HUBCO has
no unfunded benefit obligations which are not accounted for by reserves shown on
the financial statements and established under GAAP or otherwise noted on such
financial statements.
4.14. Contracts. Except as disclosed in the HUBCO Disclosure
Schedule, neither HUBCO nor any of its subsidiaries, or to the best knowledge of
HUBCO, 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 a banking subsidiary of HUBCO 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 its subsidiaries, taken
as a whole.
4.15. Properties and Insurance.
(a) HUBCO and its subsidiaries 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 December 31, 1996, 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 December 31, 1996), 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
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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 its subsidiaries 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 its subsidiaries as lessees have the right under valid and subsisting
leases to occupy, use, possess and control all property leased by HUBCO or its
subsidiaries in all material respects as presently occupied, used, possessed and
controlled by HUBCO and its subsidiaries.
(b) The business operations and all insurable properties and
assets of HUBCO and its subsidiaries 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 its subsidiaries. As of the date
hereof, neither HUBCO nor any of its subsidiaries 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 any of its subsidiaries has received any
written notice, citation, claim, assessment, proposed assessment or demand for
abatement alleging that HUBCO or any of its subsidiaries (either directly 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 its
subsidiaries 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 any of its subsidiaries in any manner that
violates or, after the lapse of time is reasonably likely to violate, 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 its subsidiaries, taken as a whole.
4.17. Reserves. As of June 30, 1997, 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,
Department and New Jersey Department of Banking policies. As of June 30, 1997,
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 any
of its subsidiaries 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 Southington 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 Southington by HUBCO prior to the date of this Agreement. Neither
HUBCO nor any of its subsidiaries 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 Southington 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 Southington . During the
period from the date of this Agreement to the Effective Time, Southington 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.
Southington 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) Southington 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, it will not:
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(i) change any provision of its Certificate of
Incorporation or By-laws or any similar governing documents of
Southington;
(ii) change the number of shares of its authorized or
issued capital stock 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
Southington 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, other than regular quarterly cash dividends in per
share amounts not in excess of $0.07 (or, for the fourth quarter of
1997 or thereafter, not in excess of $0.08);
(iii) grant any severance or termination pay (other
than pursuant to policies or contracts of Southington in effect on the
date hereof and 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 the
Southington Disclosure Schedule; 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 except with respect to
employee increases in the ordinary course of business and consistent
with past practices and policies; or employ any new senior officers,
whether or not pursuant to written agreements;
(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 Southington;
(v) except as set forth in the Southington Disclosure
Schedule and except for other capital expenditures not exceeding
$20,000 individually or $50,000 in the aggregate, make any capital
expenditures other than pursuant to binding commitments existing on the
date hereof and other than expenditures necessary to maintain existing
assets in good repair;
(vi) except as set forth in the Southington
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
GAAP;
(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. Southington 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 Southington (an "Acquisition Transaction").
Notwithstanding the foregoing, Southington may enter into discussions or
negotiations or provide information in connection with an unsolicited possible
Acquisition Transaction if the Board of Directors of Southington, after
consulting with counsel, determines in the exercise of its fiduciary
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responsibilities that such discussions or negotiations should be commenced or
such information should be furnished. Southington will promptly communicate to
HUBCO the 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 Southington 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,
Southington agrees to provide HUBCO, and HUBCO agrees to provide Southington,
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 September 30, 1997,
Southington will deliver to HUBCO and HUBCO will deliver to Southington their
respective quarterly reports. As soon as reasonably available, but in no event
more than 90 days after the end of each calendar year, Southington will deliver
to HUBCO and HUBCO will deliver to Southington their respective Annual Reports.
5.5. Access to Properties and Records; Confidentiality.
(a) Southington shall permit HUBCO and its representatives,
and HUBCO and Lafayette shall permit Southington and its representatives,
reasonable access to their respective properties, and shall disclose and make
available to HUBCO and its representatives, or Southington 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 shareholders'
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 Southington 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, Southington
acknowledges that HUBCO may be involved in discussions concerning other
potential acquisitions and HUBCO shall not be obligated to disclose such
information to Southington except as such information is disclosed to HUBCO's
shareholders generally.
(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 Shareholders Meeting
referred to in Section 5.7 hereof and qualifying under applicable federal and
state securities laws the HUBCO Common Stock to be issued to Southington
shareholders in connection with the Merger, the parties hereto shall cooperate
in the preparation and filing by HUBCO or Southington (as applicable) of a
Registration Statement with the SEC which shall include an appropriate 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 (such proxy statement and prospectus in the form
mailed by Southington to the Southington 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 Southington with such information
concerning HUBCO and its subsidiaries 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 Southington
if at any time prior to the Shareholders Meeting referred to in Section 5.7
hereof, any information provided by HUBCO in the Proxy Statement/Prospectus
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becomes incorrect or incomplete in any material respect and to provide
Southington with the information needed to correct such inaccuracy or omission.
HUBCO shall furnish Southington 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 Southington shareholders.
(c) Southington shall furnish HUBCO with such information
concerning Southington as is necessary in order to cause the Proxy
Statement/Prospectus, insofar as it relates to Southington, to comply with
Section 5.6(a) hereof. Southington agrees promptly to advise HUBCO if at any
time prior to the Shareholders Meeting referred to in Section 5.6(a) hereof, any
information provided by Southington 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. Southington shall
furnish HUBCO with such supplemental information as may be necessary in order to
cause the Proxy Statement/Prospectus, insofar as it relates to Southington, to
comply with Section 5.6(a) after the mailing thereof to Southington
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. Southington shall promptly furnish HUBCO with such
information regarding the Southington shareholders as HUBCO requires to enable
it to determine what filings are required hereunder. Southington authorizes
HUBCO to utilize in such filings the information concerning Southington provided
to HUBCO in connection with, or contained in, the Proxy Statement/Prospectus.
HUBCO shall furnish Southington's counsel with copies of all such filings and
keep Southington advised of the status thereof. HUBCO shall as promptly as
practicable file the Registration Statement containing the Proxy
Statement/Prospectus with the SEC, Southington shall as promptly as practicable
file the Proxy Statement/Prospectus with the FDIC, and each of HUBCO and
Southington 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 to be listed on the NASDAQ Stock Market 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 FDIC, the Commissioner, the
Department and the DEP. The parties shall each have the right to review in
advance all 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) Southington 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 Southington 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.
Southington agrees to provide HUBCO with any information, certificates,
documents or other materials about Southington 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.
Southington 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 Southington for expenses thus
incurred by Southington should this transaction be terminated for any reason
other than Section 7.1(i). HUBCO shall not file with the SEC any registration
statement or amendment thereto or supplement thereof containing information
regarding Southington unless Southington shall have consented to such filing.
Southington 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 FDIC, the Commissioner and the FRB, to be made by
October 31, 1997.
5.7. Approval of Shareholders. Southington will (a) take all
steps necessary duly to call, give notice of, convene and hold a meeting of the
shareholders of Southington (the "Shareholders Meeting") for the purpose of
securing the approval of shareholders of this Agreement, (b) subject to the
qualification set forth in Section 5.3 hereof and the right not to make a
recommendation or to withdraw a recommendation if its investment banker
withdraws its fairness opinion prior to the Shareholders Meeting, recommend to
the shareholders of Southington the approval of this Agreement and the
transactions contemplated hereby and use its reasonable efforts to obtain, as
promptly as practicable, such approvals, and (c) cooperate and consult with
HUBCO with respect to each of the foregoing matters.
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5.8. Further Assurances. 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.
HUBCO agrees that from the date hereof to the Effective Time,
except as otherwise approved by Southington in writing or as permitted or
required by this Agreement, it will not, nor will it permit Lafayette 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.
5.9. Public Announcements. HUBCO and Southington 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 transactions contemplated hereby, and HUBCO and Southington 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 Southington determines that a material condition to its obligation to
consummate the transactions contemplated hereby cannot be fulfilled on or prior
to March 31, 1998 (the "Cutoff Date") 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, Southington and HUBCO will
promptly inform the other of any facts applicable to Southington 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 Southington or any subsidiary of
Southington or serves or has served at the request of Southington 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, in connection with, arising out of
or relating to (i) 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 Southington,
or by any present or former shareholder of Southington (each a "Claim" and
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, this Agreement, any of the transactions contemplated by
this Agreement, the Indemnitee's service as a member of Southington's Board of
Directors or any committee of Southington'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) the enforcement of
the obligations of HUBCO set forth in this Section 5.11, in each case to the
fullest extent which Southington would have been permitted under any applicable
law, Southington's Certificate of Incorporation and its By-Laws had the Merger
not occurred (and HUBCO shall also advance expenses as incurred to the fullest
extent so permitted). Notwithstanding the foregoing, HUBCO shall not provide any
indemnification or advance any expenses with respect to any Claim which relates
to a personal benefit improperly paid or provided, or alleged to have been
improperly paid or provided, to the Indemnitee, but HUBCO shall reimburse the
Indemnitee for costs incurred by the Indemnitee with respect to such Claim when
and if a court of competent jurisdiction shall ultimately determine, and such
determination shall have become final and nonappealable, that the Indemnitee was
not improperly paid or provided with the personal benefit alleged in the Claim.
(b) From and after the Effective Time, HUBCO shall assume and
honor any obligation of Southington immediately prior to the Effective Time with
respect to the indemnification of the Indemnitees arising out of Southington's
Certificate of Incorporation or By-Laws as if such obligations were pursuant to
a contract or arrangement between HUBCO and such Indemnitees.
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(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 Southington's officers and directors
covered under either Southington'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 Southington'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; Directors.
(a) Following consummation of the Merger, HUBCO shall honor
the existing written contracts with officers and employees of Southington that
are included in the Southington Disclosure Schedule.
(b) Immediately following consummation of the Merger, HUBCO
will cause Lafayette to elect as a director of Lafayette one person selected by
the current Board of Directors of Southington from among its members and
reasonably acceptable to HUBCO. Any Southington director who is not elected to
the Board of Directors of Lafayette will become a member of a Lafayette advisory
board for one year from the Effective Time and as such will be paid an annual
retainer of $1,000.
(c) Following consummation of the Merger, HUBCO shall make
available to all employees and officers of Southington employed by the Surviving
Bank coverage under the benefit plans generally available to Lafayette's
employees and officers (including pension and health and hospitalization) on the
terms and conditions available to Lafayette's employees and officers, and shall
honor the severance policies of Southington previously disclosed to HUBCO in
writing. After the Effective Time, HUBCO may terminate, merge or change existing
Southington benefit plans. Employees of Southington employed by Lafayette will
receive credit for prior employment by Southington for the sole purpose of
determining whether such employees are eligible to participate in or be vested
under Lafayette's medical, vacation, sick leave, disability, pension, and other
employee benefit plans. Credit for prior service will not be given for purposes
of benefit accrual under any defined benefit pension plan of HUBCO. No prior
existing condition limitation shall be imposed with respect to any medical
coverage plan of Lafayette.
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. Transaction Expenses of Southington.
(a) For planning purposes, Southington shall, within 15 days
from the date hereof, provide HUBCO with its estimated budget of
transaction-related expenses reasonably anticipated to be payable by Southington
in connection with this transaction, including the fees and expenses of counsel,
accountants, investment bankers and other professionals. Southington shall
promptly notify HUBCO if or when it determines that it will expect to exceed its
budget.
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(b) Promptly after the execution of this Agreement,
Southington shall ask all of its attorneys and other professionals to render
current and correct invoices for all unbilled time and disbursements.
Southington shall accrue and/or pay all of such amounts as soon as possible.
(c) Southington shall advise HUBCO monthly of all
out-of-pocket expenses which Southington has incurred in connection with this
transaction.
(d) HUBCO, in reasonable consultation with Southington, shall
make all arrangements with respect to the printing and mailing of the Proxy
Statement/Prospectus and, subject to Section 8.1 hereof, HUBCO shall pay all
expenses related to such printing and mailing. In addition, HUBCO shall pay all
expenses and fees related to filing of the Proxy Statement/Prospectus and
related documents with the SEC and filings pursuant to state "blue sky" laws and
regulations in connection with the Merger, if any.
5.15. Compliance with Antitrust Laws. Each of HUBCO and
Southington 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 Antitrust Improvements Act of 1976. In
the event a suit is threatened or instituted challenging the Merger as violative
of antitrust laws, each of HUBCO and Southington shall use its best efforts to
avoid the filing of, resist or resolve such suit. HUBCO and Southington 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 Southington, 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 Southington 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 Lafayette or Southington 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, its
independent public accountants, to deliver to Southington, and Southington shall
cause KPMG, 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 Shareholders Meeting,
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, Southington shall deliver to
HUBCO (a) a letter identifying all persons who, to the knowledge of Southington,
may be deemed to be affiliates of Southington under Rule 145 of the 1933 Act and
the pooling-of-interests accounting rules, including, without limitation, all
directors and executive officers of Southington 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 Southington 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 combined operations of HUBCO and Southington as soon as practicable
but in no event later than 20 days after the last day of the first full calendar
month following the Effective Time in form and substance sufficient to remove
the restrictions set forth in paragraph "B" of Exhibit 5.17.
5.18. Pooling in Tax-Free Reorganization Treatment. Prior to
the date hereof, HUBCO has not taken any action or failed to take any action
which would disqualify the Merger for pooling of interests accounting treatment,
and before the Effective Time, neither HUBCO nor Southington 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" unless
HUBCO agrees to waive the condition contained in Section 6.2(c) for accounting
purposes or as a "reorganization" within the meaning of Section 368(a) of the
Code.
5.19. Reserves. Notwithstanding that Southington believes that
it has established all reserves and taken all provisions for possible loan
losses required by GAAP and applicable laws, rules and regulations, Southington
recognizes that HUBCO has adopted different loan, accrual and reserve policies
(including loan classifications and levels of reserves for possible loan
losses). From and after the date of this Agreement to the Effective Time and in
order to formulate the plan of integration for the Merger, Southington and HUBCO
shall consult with each other with respect to (i) conforming, based upon such
consultation, Southington's loan, accrual and reserve policies to those policies
of HUBCO to the extent appropriate, provided, that any required change in
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Southington's practices in connection with the matters described in this clause
(i) need not be effected until the parties receive all necessary governmental
approvals and consents to consummate the transactions contemplated hereby, (ii)
new extensions of credit or material revisions to existing terms of credits by
Southington, in each case where the aggregate exposure exceeds $500,000.00, and
(iii) conforming, based upon such consultation, the composition of the
investment portfolio and overall asset/liability management position of
Southington to the extent appropriate.
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 Southington Shareholders; SEC Registration.
This Agreement and the transactions contemplated hereby shall have been approved
by the requisite vote of the shareholders of Southington. The Proxy
Statement/Prospectus shall have been cleared for distribution by the FDIC. The
Registration Statement 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 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 Commissioner, the FDIC and the DEP) required to
consummate the transactions contemplated hereby shall have been obtained without
any term or condition which would materially impair the value of Southington 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 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 Southington 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 Southington shall each have
received an opinion, dated as of the Closing Date, of Pitney, Hardin, Kipp &
Szuch, reasonably satisfactory in form and substance to Southington and its
counsel 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)(D) of the Code; (ii) no gain or loss will be recognized
by Southington; (iii) no gain or loss will be recognized upon the
exchange of Southington Common Stock solely for HUBCO Common Stock;
(iv) the basis of any HUBCO Common Stock received in exchange for
Southington Common Stock will equal the basis of the recipient's
Southington 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 Southington
Common Stock will include the period during which the Southington
Common Stock surrendered on the exchange was held, provided such stock
was held as a capital asset on the date of the exchange.
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 Southington. Except for those representations which are made as of a
particular date, the representations and warranties of Southington 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. Southington 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 Southington 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
Southington 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 Southington Disclosure Schedule, materially adversely affect
the representation as to which the supplement or amendment relates.
(b) Opinion of Counsel to Southington. HUBCO shall have
received an opinion of counsel to Southington, dated the Closing Date, in form
and substance reasonably satisfactory to HUBCO, covering the matters set forth
on Exhibit 6.2 hereto.
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<PAGE>
(c) Pooling of Interests. HUBCO shall have received assurances
from its accountants, Arthur Andersen, to the effect that the Merger shall be
qualified to be treated by HUBCO as a pooling-of-interests for accounting
purposes.
(d) Certificates. Southington 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.
(e) Directors' Voluntary Deferral Compensation Plan. All
current Southington Directors shall be paid in a lump sum amounts due under the
Directors' Voluntary Deferral Compensation Plan and shall release Southington
from all obligations pursuant to such plan.
6.3. Conditions to the Obligations of Southington Under this
Agreement. The obligations of Southington 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 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. Southington shall have
received an opinion of counsel to HUBCO, dated the Closing Date, in form and
substance reasonably satisfactory to Southington , covering the matters set
forth on Exhibit 6.3 hereto.
(c) Fairness Opinion. Southington shall have received an
opinion from Endicott, dated no more than three business days prior to the date
the Proxy Statement/Prospectus is mailed to Southington's shareholders, to the
effect that, in its opinion, the consideration to be paid to shareholders of
Southington hereunder is fair to such shareholders from a financial point of
view ("Fairness Opinion").
(d) Certificates. HUBCO shall have furnished Southington 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 Southington 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
shareholders of Southington:
(a) by mutual written consent of the parties hereto;
(b) (i) by Southington or HUBCO if the Effective Time shall
not have occurred on or prior to the Cutoff Date 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
Southington if a vote of the shareholders of Southington is taken and such
shareholders fail to approve this Agreement at the meeting (or any adjournment
or postponement thereof) held for such purpose;
(c) by HUBCO or Southington 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
Southington if any such application is approved with conditions which materially
impair the value of Southington to HUBCO;
(d) by HUBCO if (i) there shall have occurred a material
adverse change in the business, operations, assets, or financial condition of
Southington from that disclosed by Southington in Southington's Form F-4 for
June 30, 1997 and Southington's Annual Report to Shareholders for the year ended
December 31, 1996; or (ii) there was a material breach in any representation,
warranty, covenant, agreement or obligation of Southington hereunder and such
breach shall not have been remedied within 30 days after receipt by Southington
of notice in writing from HUBCO to Southington specifying the nature of such
breach and requesting that it be remedied;
(e) by Southington, 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 six months ended June 30,
1997 and HUBCO's Annual Report on Form 10-K for the fiscal year ended December
31, 1996; 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 Southington specifying the nature of such breach and requesting that it be
remedied;
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<PAGE>
(f) by HUBCO if the conditions set forth in Section 6.2 are
not satisfied and are not capable of being satisfied by the Cutoff Date;
(g) by Southington if the conditions set forth in Section 6.3
are not satisfied and are not satisfied and are not capable of being satisfied
by the Cutoff Date;
(h) by Southington in accordance with Section 2.1(a)(iii); and
(i) by Southington, if Southington'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.
7.2. Effect of Termination. In the event of the termination
and abandonment of this Agreement by either HUBCO or Southington pursuant to
Section 7.1, this Agreement (other than Section 5.5(b), the third from the last
sentence of Section 5.6(h), 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 shareholders. 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 shareholders of Southington 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 shareholders of Southington without the approval of such
shareholders. 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 8.1(c) 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 5.12 and Section 5.17 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.
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<PAGE>
8.3. 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:
(a) If to HUBCO, to:
HUBCO, Inc.
1000 MacArthur Blvd.
Mahwah, New Jersey 07430
Attn.: Kenneth T. Neilson, Chairman,
President and Chief Executive Officer
Copy to:
1000 MacArthur Blvd.
Mahwah, New Jersey 07430
Attn.: D. Lynn Van Borkulo-Nuzzo, Esq.
And a Copy to:
Pitney, Hardin, Kipp & Szuch
(Delivery) 200 Campus Drive
Florham Park, New Jersey
(Mail) P.O. Box 1945
Morristown, New Jersey 07962-1945
Attn.: Ronald H. Janis, Esq.
(b) If to Southington, to:
The Bank of Southington
130 North Main Street
Southington, Connecticut 06489-0670
Attn.: Bryan P. Bowerman, President
Copy to:
130 North Main Street
Southington, Connecticut 06489-0670
Attn.: Roman F. Garbacik, Chairman of the Board
And a Copy to:
Tyler Cooper & Alcorn, LLP
CityPlace I, 35th Floor
Hartford, Connecticut 06103
Attn.: William W. Bouton III, 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).
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, the Southington directors immediately prior to the Closing Date who
are third-party beneficiaries under Section 5.12(b) hereof and the persons
signing letter agreements pursuant to Section 5.17 hereof who shall be entitled
to the benefits of such Section 5.17.
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.
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<PAGE>
IN WITNESS WHEREOF, HUBCO, Lafayette and Southington have
caused this Agreement to be executed by their duly authorized officers as of the
day and year first above written.
ATTEST: HUBCO, INC.
By: D. LYNN VAN BORKULO-NUZZO By: KENNETH T. NEILSON
- ----------------------------- ------------------------------------
President and Chief
Executive Officer
ATTEST: LAFAYETTE AMERICAN BANK
AND TRUST COMPANY
By: KENNETH T. NEILSON By: D. LYNN VAN BORKULO-NUZZO
- ----------------------------- ------------------------------------
Executive Vice President and
Corporate Secretary
ATTEST: THE BANK OF SOUTHINGTON
By: BRYAN P. BOWERMAN By: ROMAN F. GARBACIK
- ----------------------------- ------------------------------------
Chairman
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<PAGE>
DIRECTORS OF THE BANK OF SOUTHINGTON
BRYAN P. BOWERMAN JOSEPH J. CALVANESES, JR.
- ------------------------------------- ------------------------------------
Bryan P. Bowerman Joseph J. Calvanese, Jr.
HAROLD CHARETTE NICHOLAS DEPAOLA
- ------------------------------------- ------------------------------------
Harold Charette Nicholas DePaola
PHILIP FERRARO ROMAN F. GARBACIK
- ------------------------------------- ------------------------------------
Philip Ferraro Roman F. Garbacik
JEAN MARTIN ELIZABETH MILO
- ------------------------------------- ------------------------------------
Jean Martin Elizabeth Milo
JAMES PRYOR BENJAMIN RUBIN
- ------------------------------------- ------------------------------------
James Pryor Benjamin Rubin
BOARD OF DIRECTORS OF LAFAYETTE AMERICAN BANK AND TRUST COMPANY
DONALD P. CALCAGNINI
- ------------------------------------- ------------------------------------
William A. Brennan Donald P. Calcagnini
GARY R. GINSBERG DONALD W. HARRISON
- ------------------------------------- ------------------------------------
Gary R. Ginsberg Donald W. Harrison
- ------------------------------------- ------------------------------------
John F. McIlwain Roderick C. McNeil, III
ENZO R. MONTESI
- ------------------------------------- ------------------------------------
Douglas D. Milne, III Enzo R. Montesi
KENNETH T. NEILSON
- ------------------------------------- ------------------------------------
Kenneth T. Neilson Leif H. Olsen
DAVID A. ROSOW
- ------------------------------------- ------------------------------------
David A. Rosow William D. Rueckert
LOUIS F. TAGLIATELA
- ------------------------------------- ------------------------------------
Louis F. Tagliatela, Sr. John H. Tatigian, Jr.
D. LYNN VAN BORKULO-NUZZO
- ------------------------------------- ------------------------------------
D. Lynn Van Borkulo-Nuzzo
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<PAGE>
CERTIFICATE OF THE BANK OF SOUTHINGTON DIRECTORS
Reference is made to the Agreement and Plan of Merger dated August 18,
1997, (the "Agreement"), among HUBCO, Inc., Lafayette American Bank and Trust
Company and The Bank of Southington. Capitalized terms used herein have the
meaning given to them in the Agreement.
Each of the following persons, being all of the directors of
Southington agrees to vote or cause to be voted all shares of Southington stock
which are held by such person, or over which such person exercises full voting
control (except as trustee or in a fiduciary capacity, or as nominee), in favor
of the Merger.
BRYAN P. BOWERMAN ROMAN F. GARBACIK
- ------------------------------------- ------------------------------------
Bryan P. Bowerman Roman F.Garbacik
JOSEPH J. CALVANESE, JR. JEAN MARTIN
- ------------------------------------- ------------------------------------
Joseph J. Calvanese, Jr. Jean Martin
HAROLD CHARETTE ELIZABETH MILO
- ------------------------------------- ------------------------------------
Harold Charette Elizabeth Milo
NICHOLAS DEPAOLA JAMES PRYOR
- ------------------------------------- ------------------------------------
Nicholas DePaola James Pryor
PHILIP FERRARO BENJAMIN RUBIN
- ------------------------------------- ------------------------------------
Philip Ferraro Benjamin Rubin
Dated: August 18, 1997
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<PAGE>
Appendix B
STOCK OPTION AGREEMENT
THIS STOCK OPTION AGREEMENT (this "Agreement") dated August
18, 1997, is by and between HUBCO, INC., a New Jersey corporation and registered
bank holding company ("HUBCO"), and THE BANK OF SOUTHINGTON, a state bank and
trust company organized under the laws of the State of Connecticut
("Southington").
BACKGROUND
1. HUBCO, Southington and Lafayette Bank and Trust
Company, a state bank and trust company organized under the laws of the State of
Connecticut and a wholly-owned subsidiary of HUBCO ("Lafayette"), are prepared
to execute an agreement and plan of merger (the "Merger Agreement") pursuant to
which Southington will be merged with and into Lafayette (the "Merger").
2. HUBCO has advised Southington that it will not
cause the Merger Agreement to be executed unless Southington executes this
Agreement.
3. The Board of Directors of Southington has
determined that the Merger Agreement provides substantial benefits to the
shareholders of Southington.
4. As an inducement to HUBCO to enter into the Merger
Agreement and in consideration for such entry, Southington desires to grant to
HUBCO an option to purchase authorized but unissued shares of common stock of
Southington 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 Southington,
intending to be legally bound hereby, agree:
1. Grant of Option. Southington hereby grants to HUBCO the
option to purchase 275,000 shares of common stock, $6.00 par value, of
Southington (the "Common Stock") at a price of $16.00 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.
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 10% of the then
outstanding shares of Common Stock; or
(b) enters into a letter of intent or an agreement, whether
oral or written, with Southington pursuant to which such person or any affiliate
of such person would (i) merge or consolidate, or enter into any similar
transaction, with Southington, (ii) acquire all or a significant portion of the
assets or liabilities of Southington, or (iii) acquire beneficial ownership of
securities representing, or the right to acquire beneficial ownership or to vote
securities representing, 10% 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, Southington or any other business
combination involving Southington, 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, 10% 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
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<PAGE>
prior to the meeting of stockholders of Southington called to vote on the Merger
and Southington'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, Southington 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 Southington 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 Southington, 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 10% of the assets or
liabilities of Southington. 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 Southington 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 Southington 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.
Southington 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 Southington shall not be a condition to the right of
HUBCO to exercise the Option. Southington will not take any action which would
have the effect of preventing or disabling Southington 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 Southington (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 Southington of the aggregate price for
the Option Shares so purchased by wire transfer of immediately available funds
to an account designated by Southington; (b) Southington 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 Southington, 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 Bank of
Southington, 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,
Southington 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 (the "FDIC")
and any state securities bureau covering the Option and such number of Option
Shares as HUBCO shall specify in its request, and Southington 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, Southington 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 Southington 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 Southington and blue sky fees and expenses, shall be paid by
Southington. 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, Southington 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
B-2
<PAGE>
amendment or supplement thereto, or arise out of a material fact required to be
stated therein or necessary to make the statements therein not misleading; and
Southington 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 Southington 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 Southington 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 Southington for any legal or other expense
reasonably incurred by Southington 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
Southington with another entity, or any sale of all or substantially all of the
assets of Southington, 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
Southington 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
FDIC and the Connecticut Department of Banking, and Southington 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 Southington.
Southington hereby represents and warrants to HUBCO as follows:
a. Due Authorization. Southington 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 Southington.
b. Authorized Shares. Southington 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 Southington or any
agreement, instrument, judgment, decree, statute, rule or order applicable to
Southington.
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 Southington 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.
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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:
(a) If to HUBCO, to:
HUBCO, Inc.
1000 MacArthur Boulevard
Mahwah, New Jersey 07430
Attn.: Kenneth T. Neilson, Chairman,
President and Chief Executive Officer
Copy to:
1000 MacArthur Boulevard
Mahwah, New Jersey 07430
Attn.: D. Lynn Van Borkulo-Nuzzo, Esq.
And a Copy to:
Pitney, Hardin, Kipp & Szuch
(Delivery) 200 Campus Drive
Florham Park, New Jersey
(Mail) P.O. Box 1945
Morristown, New Jersey 07962-1945
Attn.: Ronald H. Janis, Esq.
(b) If to Southington, to:
The Bank of Southington
130 North Main Street
Southington, Connecticut 06489-0670
Attn.: Bryan P. Bowerman, President
Copy to:
The Bank of Southington
130 North Main Street
Southington, Connecticut 06489-0670
Attn.: Roman F. Garbacik, Chairman of the Board
Copy to:
Tyler Cooper & Alcorn, LLP
CityPlace I, 35th Floor
Hartford, Connecticut 06103
Attn.: William W. Bouton III, 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.
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.
WITNESS: THE BANK OF SOUTHINGTON
WILLIAM W. BOUTON, III By: ROMAN F. GARBACIK
- ------------------------------------- ------------------------------------
William W. Bouton, III, Counsel Roman F. Garbacik, Chairman
WITNESS: HUBCO, INC.
D. LYNN VAN BORKULO-NUZZO By: KENNETH T. NEILSON
- ------------------------------------- ------------------------------------
D. Lynn Van Borkulo-Nuzzo, Secretary Kenneth T. Neilson, Chairman
President and Chief Executive
Offcer
B-4
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Appendix C
FORM OF OPINION OF
ENDICOTT GROUP
ENDICOTT PARTNERS, L.P.
, 1997
Board of Directors
The Bank of Southington
130 North Main Street
Southington, CT 06489-0670
Attention: Mr. Roman F. Garbacik
Chairman of the Board
Directors:
You have requested our opinion as to the fairness, from a
financial point of view, to the holders of the outstanding shares of common
stock, par value $6.00 per share (the "Southington Shares"), of The Bank of
Southington ("Southington") of the exchange ratio (as described below, the
"Exchange Ratio") pursuant to the Agreement and Plan of Merger, dated as of
August 18, 1997 (the "Merger Agreement"), between Southington, HUBCO, Inc.
("HUBCO"), and HUBCO's Connecticut banking subsidiary, Lafayette American
Bank and Trust Company ("Lafayette").
Pursuant to the Merger Agreement, Southington will merge with and
into Lafayette (the "Merger") and each Southington Share issued and
outstanding immediately prior to the Effective Time (subject to certain
exceptions) shall be converted into the number of shares (the "Exchange
Ratio") of common stock of HUBCO, without par value ("HUBCO Common Stock"),
equal to $21.00 subject to adjustment as described in the Merger Agreement.
It is our understanding that the merger will be accounted for as a
pooling-of-interests under generally accepted accounting principles.
The investment banking business of Endicott Financial Advisors,
L.L.C. ("Endicott") includes the valuation of financial institutions and
their securities in connection with mergers and acquisitions and other
corporate transactions.
In connection with this opinion, we have reviewed and considered,
among other things: (a) the Merger Agreement; (b) audited consolidated
financial statements and management's discussion and analysis of the
financial condition and results of operations for Southington for the three
fiscal years ended December 31, 1994, December 31, 1995, December 31, 1996;
(c) audited consolidated financial statements and management's discussion
and analysis of the financial condition and results of operations for HUBCO
for the three fiscal years ended December 31, 1994, December 31, 1995,
December 31, 1996; (d) unaudited consolidated financial statements and
management's discussion and analysis of the financial condition and results
of operations for each of Southington and HUBCO for the quarters ended
March 31, 1997 and June 30, 1997; (e) financial analyses and forecasts for
Southington and HUBCO prepared by and/or reviewed with the respective
managements of Southington and HUBCO; (f) the views of senior management of
Southington and HUBCO of their respective past and current business
operations, results thereof, financial condition and future prospects; (g)
certain reported price and trading activity for the Southington and HUBCO
common stock, including a comparison of certain financial and stock market
information with similar information for certain other companies the
securities of which are publicly traded; (h) the financial terms of recent
business combinations in the banking industry; (i) the pro-forma impact of
the transaction on HUBCO; (j) the current market environment generally and
the banking environment in particular; and (k) such other information,
financial studies, analyses and investigations and financial, economic and
market criteria as we considered relevant.
In performing our review, we have assumed and relied upon,
without independent verification, the accuracy and completeness of all of
the financial information, analyses and other information reviewed by and
discussed with us, and we did not make an independent evaluation or
appraisal of the specific assets, the collateral securing assets or the
liabilities of Southington or HUBCO or any of their subsidiaries, or the
collectibility of any such assets (relying, where relevant on the analyses
and estimates of Southington and HUBCO). With respect to the financial
projections reviewed with management, we have assumed that they reflect the
best currently available estimates and judgments of the respective
managements of the respective future financial performances of each of
Southington and HUBCO and of the combined company, and that such
performances will be achieved. We have also assumed that there has been no
material change in Southington's or HUBCO's assets, financial condition,
results of operations, business or prospects since the date of the last
financial statements made available to us. We have also assumed without
independent verification that the aggregate consolidated allowance for loan
losses for Southington and HUBCO were adequate to cover such losses. We
have further assumed that the conditions precedent in the Agreement are not
waived.
Our opinion is necessarily based on economic, market and other
conditions as in effect on, and the information made available to us as of,
the date hereof. Events occurring after the date hereof could materially
affect the assumptions used in preparing this opinion. We have not
undertaken to reaffirm or revise this opinion or otherwise comment upon any
events occurring after the date hereof.
We have acted as Southington's financial advisor in connection
with the Merger and will receive a fee for our services, a significant
portion of which is continent upon consummation of the Merger. We will also
receive a fee for rendering this opinion.
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It is understood that this opinion is not to be quoted or
referred to, in whole or in part, in a registration statement, prospectus,
or proxy statement, or in any other document used in connection with the
offering or sale of securities, nor shall this letter be used for any other
purposes, without Endicott's prior written consent, provided, however, that
we hereby consent to the inclusion of this opinion in this Joint Proxy
Statement/Prospectus and the Registration Statement on Form S-4 of which it
comprises a part.
Based upon and subject to the foregoing, it is our opinion that,
as of the date hereof, the Exchange Ratio is fair from a financial point of
view to the holders of Southington Shares.
Very truly yours,
DRAFT
ENDICOTT FINANCIAL ADVISORS, L.L.C.
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Appendix D
SECTIONS 36a-125(h) AND 33-855 THROUGH 33-872 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 a capital stock resulting
bank. Unless such agreement otherwise provides, the resulting bank may require
each shareholder to surrender such shareholder's certificates of stock in the
constituent bank and in that event no shareholder, until such surrender of that
shareholder's certificates, shall be entitled to receive a certificate of stock
of the resulting bank or to vote thereon or to collect dividends declared
thereon, or to receive cash, property or other securities of the resulting bank,
or shares or other securities of any other corporation. Any shareholder of any
of such constituent banks who dissents from the merger or consolidation is
entitled to assert dissenters' rights under sections 33-855 to 33-872,
inclusive. The rights and obligations of the objecting shareholders and the bank
shall be determined in accordance with said sections. The stock of a capital
stock resulting bank up to an amount of the combined stock of the constituent
banks shall be exempt from any franchise tax.
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RIGHT TO DISSENT AND OBTAIN PAYMENT FOR SHARES
Sec. 33-855. Definitions. As used in sections 33-855 to 33-872,
inclusive:
(1) "Corporation" means the issuer of the shares held by a dissenter
before the corporate action or the surviving or acquiring corporation by merger
or share exchange of that issuer.
(2) "Dissenter" means a shareholder who is entitled to dissent from
corporate action under section 33-856 and who exercises that right when and in
the manner required by sections 33-860 to 33-868, inclusive.
(3) "Fair value," with respect to a dissenter's shares, means the value
of the shares immediately before the effectuation of the corporate action to
which the dissenter objects, excluding any appreciation or depreciation in
anticipation of the corporate action.
(4) "Interest" means interest from the effective date of the corporate
action until the date of payment, at the average rate currently paid by the
corporation on its principal bank loans or, if none, at a rate that is fair and
equitable under all the circumstances.
(5) "Record shareholder" means the person in whose name shares are
registered in the records of a corporation or the beneficial owner of shares to
the extent of the rights granted by a nominee certificate on file with a
corporation.
(6) "Beneficial shareholder" means the person who is a beneficial owner
of shares held in a voting trust or by a nominee as the record shareholder.
(7) "Shareholder" means the record shareholder or the beneficial
shareholder.
Sec. 33-856. Right to dissent. (a) A shareholder is entitled to dissent
from, and obtain payment of the fair value if his shares in the event of, any of
the following corporate actions:
(1) Consummation of a plan of merger to which the corporation is a
party (A) if shareholder approval is required for the merger by section 330-817
or the certificate of incorporation and the shareholder is entitled to vote on
the merger of (B) if the corporation is a subsidiary that is merged wit its
parent under section 33-818;
(2) Consummation of a plan of share exchange to which the corporation
is a party as the corporation whose shares will be acquired, if the shareholder
is entitled to vote on the plan;
(3) Consummation of a sale or exchange of all, or substantially all, of
the property of the corporation other than in the usual and regular course of
business, if the shareholder is entitled to vote on the sale or exchange,
including a sale in dissolution, but not including a sale pursuant to court
order or a sale for cash pursuant to a plan by which all or substantially all of
the net proceeds of the sale will be distributed to the shareholders within one
year after the date of sale;
(4) An amendment of the certificate of incorporation that materially
and adversely affects rights in respect of a dissenter's shares because it: (A)
Alters or abolishes a preferential right of the shares; (B) creates, alters or
abolishes a right n respect or redemption or repurchase, of the share; (C)
alters or abolishes a preemptive right of the holder of the shares to acquire
shares or other securities; (D) excludes or limits the right of the shares to
vote on any matter, or to cumulate votes, other than a limitation by dilution
through issuance of shares or other securities with similar voting rights; or
(E) reduces the number of shares owned by the shareholders to a fraction of a
share if the fractional share so crated is to be acquired for cash under section
33-668; or
(5) Any corporation action taken to a shareholder vote to the extent
the certificate of incorporation, bylaws or a resolution of the board of
directors provides that voting or nonvoting shareholders are entitled to dissent
and obtain payment for their shares.
(b) Where the right to be paid the value of shares is made available
to a shareholder by this section, such remedy shall be his exclusive remedy as
holder of such shares against the corporate transactions described in this
section, whether or not the proceeds as provided in sections 33-855 to 33-872,
inclusive.
Sec. 33-857. Dissent by nominees and beneficial owners. (a) A record
shareholder may assert dissenters' rights as to fewer than all the shares
registered in his name only if he dissents with respect to all shares
beneficially owned by any one person and notifies the corporation in writing of
the name and address of each person on whose behalf he asserts dissenters'
rights. The rights of a partial dissenter under this subsection are determined
as if the shares as to which he dissents and his other shares were registered in
the names of different shareholders.
(b) A beneficial shareholder may assert dissenters' rights as to
shares held on his behalf only if: (1) He submits to the corporation the record
shareholder's written consent to the dissent not later than the time the
beneficial shareholder asserts dissenters' rights; and (2) he does so with
respect to all shares of which he is the beneficial shareholder or over which he
has power to direct the vote.
Secs. 33-858 and 33-859. Reserved for future use.
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(B)
PROCEDURE FOR EXERCISE OF DISSENTERS' RIGHTS
Sec. 33-860. Notice of dissenters' rights. (a) If proposed corporate
action creating dissenters' rights under section 33-856 is submitted to a vote
at a shareholders' meeting, the meeting notice shall state that shareholders are
or may be entitled to assert dissenters' rights under section 33-855 to 33-872,
inclusive, and be accompanied by a copy of said sections.
(b) If corporate action creating dissenters' rights under section
33-856 is taken without a vote of shareholders, the corporation shall notify in
writing all shareholders entitled to assert dissenters' rights that the action
was taken and send them the dissenters' notice described in section 33-862.
Sec. 33-861. Notice of intent to demand payment. (a) If proposed
corporate action creating dissenters' rights under section 33-856 is submitted
to a vote at a shareholders' meeting, a shareholder who wishes to assert
dissenters' rights (1) shall deliver to the corporation before the vote is taken
written notice of his intent to demand payment for his shares if the proposed
action is effectuated and (2) shall not vote his shares in favor of the proposed
action.
(b) A shareholder who does not satisfy the requirements of subsection
(a) of this section is not entitled to payment for his shares under sections
33-855 to 33-872, inclusive.
Sec. 33-862. Dissenters' notice. (a) If proposed corporate action
creating dissenters' rights under section 33-856 is authorized at a
shareholders' meeting, the corporation shall deliver a written dissenters'
notice to all shareholders who satisfied the requirements of section 33-861.
(b) The dissenters' notice shall be sent no later than ten days after
the corporate action was taken and shall:
(1) State where the payment demand must be sent and where and when
certificate for certificated shares must be deposited;
(2) Inform holders of uncertificated shares to what extent transfer of
the shares will be restricted after the payment demand is received;
(3) Supply a form for demanding payment that includes the date of the
first announcement to news media or to shareholders of the terms of the proposed
corporate action and requires that the person asserting dissenters' rights
certify whether or not he acquired beneficial ownership of the shares before
that date;
(4) Set a date by which the corporation must receive the payment
demand, which date may not be fewer than thirty nor more than sixty days after
the date the subsection (a) of this section notice is delivered; and
(5) Be accompanied by a copy of sections 33-855 to 33-872, inclusive.
Sec. 33-863. Duty to demand payment. (a) A shareholder sent a
dissenters' notice described in section 33-862 must demand payment, certify
whether he acquired beneficial ownership of the shares before the date required
to be set forth in the dissenters' notice pursuant to subdivision (3) of
subsection (b) of said section and deposit his certificates in accordance with
the terms of the notice.
(b) The shareholder who demands payment and deposits his share
certificates under subsection (a) of this section retains all other rights of a
shareholder until these rights are canceled or modified by the taking of the
proposed corporate action.
(c) A shareholder who does not demand payment or deposits his share
certificates where required, each by the date set in the dissenters' notice, is
not entitled to payment for his shares under sections 33-855 to 33-872,
inclusive.
Sec. 33-864. Share restrictions. (a) The corporation may restrict the
transfer of uncertificated shares from the date the demand for their payment is
received until the proposed corporate actions is taken or the restrictions
released under section 33-866.
(b) The person for whom dissenters' rights are asserted as to
uncertificated shares retains all other rights of a shareholder until these
rights are canceled or modified by the taking of the proposed corporate action.
Sec. 33-865. Payment. (a) Except as provided in section 33-867, as soon
as the proposed corporate action is taken, or upon receipt of a payment demand,
the corporation shall pay each dissenter who complied with section 33-863 the
amount the corporation estimates to be the fair value of his shares, plus
accrued interest.
(b) The payment shall be accompanied by: (1) The corporation's balance
sheet as of the end of a fiscal year ending not more than sixteen months before
the date of payment, an income statement for that year, a statement of changes
in shareholders' equity for that year and the latest available interim financial
statements, if any; (2) a statement of the corporation's estimate of the fair
value of the shares; (3) an explanation of how the interest was calculated; (4)
a statement of the dissenter's right to demand payment under section 33-860; and
(5) a copy of sections 33-855 to 33-872, inclusive.
Sec. 33-866. Failure to take action. (a) If the corporation does not
take the proposed action within sixty days after the date set for demanding
payment and depositing share certificates, the corporation shall return the
deposited certificates and release the transfer restrictions imposed on
uncertificated shares.
(b) If after returning deposited certificates and releasing transfer
restrictions, the corporation takes the proposed action, it must send a new
dissenters' notice under section 33-862 and repeat the payment demand procedure.
Sec. 33-867. After-acquired shares. (a) A corporation may elect to
withhold payment required by section 33-865 from a dissenter unless he was the
beneficial owner of the shares before the date set forth in the dissenters'
notice as the date of the first announcement to news media or to shareholders of
the terms of the proposed corporate action.
D-3
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(b) To the extent the corporation elects to withhold payment under
subsection (a) of this section, after taking the proposed corporate action, it
shall estimate the fair value of the shares, plus accrued interest, and pay this
amount to each dissenter who agrees to accept it in full satisfaction of his
demand. The corporation shall send with its offer a statement of its estimate of
the fair value of the shares, an explanation of how the interest was calculated
and a statement of the dissenter's right to demand payment under section 33-868.
Sec. 33-868. Procedure if shareholder dissatisfied with payment or
offer. (a) A dissenter may notify the corporation in writing of his own estimate
of the fair value of his shares and amount of interest due, and demand payment
of his estimate, less any payment under section 33-865, or reject the
corporation's offer under section 33-867 and demand payment of the fair value of
his shares and interest due, if:
(1) The dissenter believes that the amount paid under section 33-865 or
offered under section 33-867 is less than the fair value of his shares or that
the interest due is incorrectly calculated;
(2) The corporation fails to make payment under section 33-865 within
sixty days after the date set for demanding payment; or
(3) The corporation, having failed to take the proposed action, does
not return the deposited certificates or release the transfer restrictions
imposed on uncertificated shares within sixty days after the date set for
demanding payment.
(b) A dissenter waives his right to demand payment under this section
unless he notifies the corporation of his demand in writing under subsection (a)
of this section within thirty days after the corporation made or offered payment
of his shares.
Secs. 33-869 and 33-870. Reserved for future use.
(C)
JUDICIAL APPRAISAL OF SHARES
Sec. 33-871. Court action. (a) If a demand for payment under section
33-868 remains unsettled, the corporation shall commence a proceeding within
sixty days after receiving the payment demand and petition the court to
determine the fair value of the shares and accrued interest. If the corporation
does not commence the proceeding within the sixty-day period, it shall pay each
dissenter whose demand remains unsettled the amount demanded.
(b) The corporation shall commence the proceeding in the superior
court for the judicial district where a corporation's principal office or, if
none in this state, its registered office is located. If the corporation is a
foreign corporation without a registered office in this state, it shall commence
the proceeding in the superior court for the judicial district where the
registered office of the domestic corporation merged with or whose shares were
acquired by the foreign corporation was located.
(c) The corporation shall make all dissenters, whether or not
residents of this state, whose demands remain unsettled parties to the
proceeding as in an action against their shares and all parties must be served
with a copy of the petition. Nonresidents may be served by registered or
certified mail or by publication as provided by law.
(d) The jurisdiction of the court in which the proceeding is commenced
under subsection (b) of this section is plenary and exclusive. The court may
appoint one or more persons as appraisers to receive evidence and recommend
decision on the question of fair value. The appraisers have the powers described
in the order appointing them, or in any amendment to it. The dissenters are
entitled to the same discovery rights as parties in other civil proceedings.
(e) Each dissenter made a party to the proceeding is entitled to
judgment (1) for the amount, if any, by which the court finds the fair value of
his shares, plus interest, exceeds the amount paid by the corporation, or (2)
for the fair value, plus accrued interest, of his after-acquired shares for
which the corporation elected to withhold payment under section 33-867.
Sec. 33-872. Court costs and counsel fees. (a) The court in an
appraisal proceeding commenced under section 33-871 shall determine all costs of
the proceeding, including the reasonable compensation and expenses of appraisers
appointed by the court. The court shall assess the costs against the
corporation, except that the court may assess costs against all or some of the
dissenters, in amounts the court finds equitable, to the extent the court finds
the dissenters acted arbitrarily, vexatiously or not in good faith in demanding
payment under section 33-868.
(b) The court may also assess the fees and expenses of counsel and
experts for the respective parties, in amounts the court finds equitable: (1)
Against the corporation and in favor of any or all dissenters if the court finds
the corporation did not substantially comply with the requirements of section
33-860 to 33-868, inclusive; or (2) against either the corporation or a
dissenter, in favor of any other party, if the court finds that the party
against whom the fees and expenses are assessed acted arbitrarily, vexatiously
or not in good faith with respect to the rights provided by section 33-855 to
33-872, inclusive.
(c) If the court finds that the services of counsel for any dissenter
were of substantial benefit to other dissenters similarly situated, and that the
fees for those services should not be assessed against the corporation, the
court may award to these counsel reasonable fees to be paid out of the amounts
awarded the dissenters who were benefited.
Secs. 33-873 to 33-879. Reserved for future use.
D-4
<PAGE>
PART II
INFORMATION NOT REQUIRED IN 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 person's 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. Exhibits and Financial Statement Schedules.
-------------------------------------------
A. Exhibits
Exhibit
Number Description
- ------- -----------
2(a) Agreement and Plan of Merger, dated August 18, 1997, by and among
HUBCO, Inc. ("HUBCO") and The Bank of Southington ("Southington") and
Lafayette Bank & Trust Company ("Lafayette") (included as Appendix A to
the Proxy Statement).
2(b) Stock Option Agreement, dated August 18, 1997, by and between HUBCO and
Southington (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 Opinion of Pitney, Hardin, Kipp & Szuch as to certain tax consequences
of the Merger.
13(a) Annual Report of Southington on Form F-2 filed with the FDIC for the
year ended December 31, 1996.
13(b) Quarterly Report of Southington on Form F-4 filed with the FDIC for
the quarter ended March 31, 1997.
13(c) Quarterly Report of Southington on Form F-4 filed with the FDIC for
the quarter ended June 30, 1997.
20(a) Current Report of Southington on Form F-3 filed with the FDIC on
August 13, 1997.
20(b) Current Report of Southington on Form F-3 filed with the FDIC on
August 20, 1997.
23(a) Consent of KPMG Peat Marwick LLP.
23(b) Consent of Arthur Andersen LLP.
23(c) Consent of Endicott Financial Advisors, LLC.
23(d) Consent of Pitney, Hardin, Kipp & Szuch (included in Exhibits 5 and 8
hereto).
99(a) Form of Proxy Card to be utilized by the Board of Directors of
Southington.
B. Financial Statement Schedules
All financial statement 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
The Form of the Fairness Opinion of Endicott Financial Advisors, LLC is
included as Appendix C to the Proxy Statement-Prospectus.
II-1
<PAGE>
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 information
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 Securities 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 Securities 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 became effective.
7. The undersigned registrant hereby undertakes to deliver or cause to
be delivered with the prospectus, to each person to whom the prospectus is sent
or given, the latest annual report to security holders that is incorporated by
reference in the prospectus and furnished pursuant to and meeting the
requirements of Rule 14a-3 and Rule 14c-3 under the Securities Exchange Act of
1934; and, where interim financial information required to be presented by
Article 3 of Regulation S-X are not set forth in the prospectus, to deliver, or
cause to be delivered to each person to whom the prospectus is sent or given,
the latest quarterly report that is specifically incorporated by reference in
the prospectus to provide such interim financial information.
II-2
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant has duly caused this amended 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 30th day of September, 1997.
HUBCO, INC.
By: KENNETH T. Neilson
Kenneth T. Neilson,
Chairman, President and
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
amended registration statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
KENNETH T. NEILSON
- ----------------------------- Chairman, President, Chief September 30, 1997
(Kenneth T. Neilson) Executive Officer and Director
ROBERT J. BURKE
- -----------------------------
(Robert J. Burke) Director September 30, 1997
- -----------------------------
(Donald P. Calcagnini) Director September __, 1997
- -----------------------------
(Joan David) Director September __, 1997
THOMAS R. FARLEY
- -----------------------------
(Thomas R. Farley) Director September 30, 1997
- -----------------------------
(Bryant D. Malcolm) Director September __, 1997
W. PETER MCBRIDE
- -----------------------------
(W. Peter McBride) Director September 30, 1997
- -----------------------------
(David S. Rosow) Director September __, 1997
CHARLES F.X. POGGI
- -----------------------------
(Charles F.X. Poggi) Director September 30, 1997
JAMES E. SCHIERLOH
- ----------------------------- Director September 30, 1997
(James E. Schierloh)
JOHN H. TATIGIAN
- -----------------------------
(John H. Tatigian) Director September 30, 1997
- -----------------------------
(Sister Grace Frances Strauber) Director September __, 1997
JOSEPH F. HURLEY
- ----------------------------- Executive Vice President and Chief
(Joseph F. Hurley) Financial Officer September 30, 1997
CHRISTINA L. MAIER
- ----------------------------- Senior Vice President and Chief
(Christina L. Maier) Accounting Officer September 30, 1997
</TABLE>
II-3
<PAGE>
INDEX TO EXHIBITS
Exhibit
Number Description
- -------- -----------
2(a) Agreement and Plan of Merger, dated August 18, 1997, by and among
HUBCO, Inc. ("HUBCO") and The Bank of Southington ("Southington") and
The Southington Bank & Trust Company (included as Appendix A to the
Proxy Statement).*
2(b) Stock Option Agreement, dated August 18, 1997, by and between HUBCO and
Southington (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 Opinion of Pitney, Hardin, Kipp & Szuch as to certain tax consequences
of the Merger.
13(a) Annual Report of Southington on Form F-2 filed with the FDIC for the
year ended December 31, 1996.
13(b) Quarterly Report of Southington on Form F-4 filed with the FDIC for
the quarter ended March 31, 1997.
13(c) Quarterly Report of Southington on Form F-4 filed with the FDIC for
the quarter ended June 30, 1997.
20(a) Current Report of Southington on Form F-3 filed with the FDIC on
August 13, 1997.
20(b) Current Report of Southington on Form F-3 filed with the FDIC on
August 20, 1997.
23(a) Consent of KPMG Peat Marwick LLP.
23(b) Consent of Arthur Andersen LLP.
23(c) Consent of Endicott Financial Advisors, LLC
23(d) Consent of Pitney, Hardin, Kipp & Szuch (included in Exhibits 5 and 8
hereto).
99(a) Form of Proxy Card to be utilized by the Board of Directors of
Southington.
- ---------------------------------
* Included elsewhere in this registration statement.
Exhibit 5
October 1, 1997
HUBCO, Inc.
1000 MacArthur Boulevard
Mahwah, NJ 07430
Attn: Kenneth T. Neilson, Chairman, President
and Chief Executive Officer
Re: Merger of The Bank of Southington with and into
Lafayette American Bank and Trust Company, the
Subsidiary of HUBCO, Inc.
---------------------------------------------------------
We have acted as counsel to HUBCO, Inc. ("HUBCO") in
connection with its proposed issuance of common stock, no par value (the "Common
Stock"), pursuant to the Agreement and Plan of Merger among HUBCO, The Bank of
Southington and Lafayette American Bank & Trust Company, dated August 18, 1997.
The Common Stock is 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, relevant resolutions of the Board of Directors
of HUBCO, and such other documents as we have deemed necessary or appropriate in
order to express the opinion set forth in this letter.
Based on the foregoing and assuming that 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.
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
September 30, 1997
HUBCO, Inc.
1000 MacArthur Boulevard
Mahwah, New Jersey 07430
Attn.: Kenneth T. Neilson, Chairman, President
and Chief Executive Officer
The Bank of Southington
130 North Main Street
Southington, Connecticut 06103
Attn.: Mr. Bryan P. Bowerman
Chief Executive Officer, President
Re: Merger of The Bank of Southington with and into
Lafayette American Bank and Trust Company, a Subsidiary of HUBCO, Inc.
We have represented HUBCO, Inc. ("HUBCO"), a New Jersey
corporation which is a registered bank holding company, in connection with the
proposed merger of The Bank of Southington ("TBOS"), a state bank and trust
company organized under the laws of the State of Connecticut with and into
Lafayette American Bank and Trust Company, the Subsidiary of HUBCO (the
"Merger"). The Merger shall be effected pursuant to the provisions of the
Agreement and Plan of Merger dated August 18, 1997 (the "Merger Agreement"),
among HUBCO, The Bank of Southington and Lafayette American Bank and Trust
Company, a subsidiary of HUBCO, Inc. The Merger Agreement defines those
capitalized terms appearing in this letter which are not defined in this letter.
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, attached to this letter 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 Section 6.1(d) of the
Merger Agreement. At this time, we expect to deliver such opinion substantially
in the form attached at the closing of the Merger.
Very truly yours,
PITNEY, HARDIN, KIPP & SZUCH
<PAGE>
Mahwah, New Jersey 07430
Attn.: Kenneth T. Neilson, Chairman, President
and Chief Executive Officer ________________, 1997
The Bank of Southington
130 North Main Street
Southington, Connecticut 06489-0670
Attn.: Bryan B. Bowerman, Chief Executive Officer
and President
Re: Merger of the Bank of Southington with and into
Lafayette American Bank and Trust Company
-----------------------------------------------
Ladies and Gentlemen:
We have represented HUBCO, Inc. ("HUBCO"), a New Jersey corporation
which is a registered bank holding company and its wholly-owned subsidiary
Lafayette American Bank and Trust Company ("Lafayette"), a state bank and trust
company organized under the laws of the State of Connecticut, in connection with
the proposed merger of The Bank of Southington ("Southington"), a state bank and
trust company organized under the laws of the State of Connecticut, with and
into Lafayette (the "Merger"). The Merger shall be effectuated pursuant to the
provisions of an Agreement and Plan of Merger dated August 18, 1997 (the "Merger
Agreement"), among HUBCO, Lafayette and Southington. This opinion is delivered
pursuant to Section 6.1(d) of the Merger Agreement. The Merger Agreement defines
those capitalized terms appearing in this letter which are not defined in this
letter. Unless otherwise indicated, all sections refer to the Internal Revenue
Code of 1986, as amended (the "Code").
Pursuant to the Merger Agreement, at the Effective Time, the Merger
shall be effectuated by the merger of Southington with and into Lafayette, in
accordance with Connecticut General Corporation Law.
Pursuant to the Merger Agreement, at the Effective Time, each
outstanding share of common stock, $6.00 par value, of Southington (the
"Southington Common Stock"), other than shares owned by HUBCO or any of HUBCO's
wholly-owned subsidiaries (other than shares held in a fiduciary capacity or as
collateral on or in lieu of a debt previously contracted) and shares held by
Southington in its treasury, shall be converted into the right to receive and be
exchanged for a number of shares (the "Exchange Ratio") of common stock of
HUBCO, without par value ("HUBCO Common Stock"), equal to a fraction, the
numerator of which will be $21.00 and the denominator of which will be 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 a
10 trading day period shortly prior to the closing of the Merger), with a
Minimum Exchange Ratio of 0.600 (which will apply if the Median Pre-Closing
Price is at or above $35.00) and a Maximum Exchange Ratio of 0.764 (which will
apply if the Median Pre-Closing Price is at or below $27.50), subject to
adjustment provisions set forth in the Merger Agreement. No fractional shares of
HUBCO Common Stock will be issued in exchange for Southington Common Stock.
Instead, cash will be paid in lieu of fractional shares of HUBCO Common Stock,
based upon the Median Pre-Closing Price of HUBCO Common Stock.
In addition to the foregoing facts, on the date of this letter, you
have delivered to us 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 opinions contained in this
letter.
1. The fair market value of HUBCO's Common Stock and other
consideration received by holders of the Southington Common Stock will be
approximately equal to the fair market value of the Southington Common Stock
surrendered in the exchange.
2. None of the compensation received by any shareholder-employees of
Southington will be separate consideration for, or allocable to, any of their
shares of Southington Common Stock; none of the shares of HUBCO Common Stock
received by any shareholder-employees 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.
3. HUBCO has no plan or intention to redeem or otherwise reacquire any
of its stock issued in the Merger.
4. 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.
5. Following the Merger, HUBCO will continue the historic business of
Southington or use a significant portion of Southington's business assets in the
business of HUBCO.
6. There is no intercorporate indebtedness existing between HUBCO and
Southington that was issued, acquired, or will be settled at a discount.
7. Neither HUBCO nor Southington is an investment company as defined in
Section 368(a)(2)(F)(iii) and (iv).
8. HUBCO has no plan or intention to liquidate, sell or otherwise
dispose of any of the assets of Southington acquired in the Merger, except for
dispositions made in the ordinary course of business, or, transfers described in
Section 368(a)(2)(C).
9. HUBCO, Southington and the shareholders of Southington will pay
their respective expenses, if any, incurred in connection with the Merger.
10. Other than the contemplated merger of Southington with and into one
of HUBCO's wholly-owned subsidiaries, there is no larger integrated transaction
of which the Merger constitutes only one step.
<PAGE>
11. Southington is not under the jurisdiction of a court in a Title 11
or similar case within the meaning of Section 368(a)(3)(A).
12. There is no plan or intention by the shareholders of Southington
who own 5% or more of the Southington Common Stock, and to the best knowledge of
the management of Southington, there is no plan or intention on the part of the
remaining shareholders of Southington to sell, exchange or otherwise dispose of
a number of shares of HUBCO Common Stock received in the Merger that would
reduce the Southington shareholders' 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 Southington Common Stock as of the same
date. For purposes of this representation, shares of Southington Common Stock
exchanged for cash in lieu of fractional shares of HUBCO Common Stock or
surrendered by dissenters will be treated as outstanding Southington Common
Stock on the date of the Merger. Moreover, shares of Southington Common Stock
held by Southington shareholders and otherwise sold, redeemed or disposed of
prior or subsequent to the Merger will be considered in making this
representation.
13. The liabilities of Southington to be assumed by HUBCO and the
liabilities to which the transferred assets of Southington are subject were
incurred by Southington in the ordinary course of its business.
14. The fair market value of the assets of Southington transferred to
HUBCO will equal or exceed the sum of the liabilities assumed by HUBCO, plus the
amount of liabilities, if any, to which the transferred assets are subject.
As counsel to HUBCO, we have examined the Merger Agreement and copies
of ancillary agreements, certificates, instruments and documents pertaining to
the Merger delivered by the parties to the Merger. 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 in this
letter, we have relied on representations of the parties to the Merger and have
not undertaken to verify any of those representations by independent
investigation. We have based our opinions contained in this letter on our
analysis of the Code, Treasury Regulations promulgated thereunder, and relevant
interpretive authorities as in effect on the date of this letter.
Based on the foregoing, we are of the opinion that:
1. The Merger qualifies as a "reorganization" within the meaning of
Section 368(a)(1)(A). HUBCO and Southington each are 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 or Southington in connection with the Merger. Sections 361(a) and
1032(a).
3. No gain or loss will be recognized for federal income tax purposes
by holders of shares of Southington Common Stock upon the exchange in the Merger
of such shares solely into shares of HUBCO Common Stock (except with respect to
cash received in lieu of a fractional share interest in Southington Common
Stock). Section 354(a).
4. Cash received by a holder of Southington Common Stock in lieu of a
fractional share interest in HUBCO Common Stock will be treated as received for
such fractional share interest, and provided the fractional share would have
constituted a capital asset in the hands of such holder, the holder 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 tax basis in
Southington Common Stock allocable to the fractional share interest. Section
1001.
5. The basis of shares of HUBCO Common Stock received in the Merger by
holders of Southington Common Stock will be the same as the basis of such shares
of Southington Common Stock surrendered in exchange therefor. Section 358.
6. The holding period of shares of HUBCO Common Stock received in the
Merger by holders of Southington Common Stock will include the period during
which such shares of Southington Common Stock surrendered in exchange therefor
were held by the holder thereof, provided such shares of Southington Common
Stock were held as capital assets.
Section 1223(1).
================================================================================
FEDERAL DEPOSIT INSURANCE CORPORATION
WASHINGTON, D.C. 20429
----------------
FORM F-2
----------------
ANNUAL REPORT UNDER SECTION 13
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR FISCAL YEAR ENDED DECEMBER 31, 1996
F.D.I.C. INSURANCE CERTIFICATE NUMBER 26694-9
THE BANK OF SOUTHINGTON
INCORPORATED JANUARY 9, 1985
IN THE STATE OF CONNECTICUT
CONNECTICUT STATE CHARTERED BANK
130 NORTH MAIN STREET
SOUTHINGTON, CT 06489-0670
TELEPHONE: (860) 620-5000
I.R.S. EMPLOYER IDENTIFICATION NO. -- 06-1122656
Securities registered under Section 12(b) of the Act:
-----------------------------------------------------
NONE
Securities registered under Section 12(g) of the act:
-----------------------------------------------------
COMMON STOCK
PAR VALUE $6.00 PER SHARE
1,239,646 SHARES ISSUED AND OUTSTANDING
AS OF MARCH 17, 1997
Name of each Exchange on which registered:
------------------------------------------
AMEX
Indicate by checkmark 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
--- ---
MARKET VALUE OF STOCK: $16,735,221
BASED ON A $13.50 BID PRICE AT MARCH 17, 1997
================================================================================
<PAGE>
TABLE OF CONTENTS
PART I PAGE
- ------ ----
Item 1 - Business.......................................................
Item 2 - Properties.....................................................
Item 3 - Legal Proceedings..............................................
Item 4 - Security Ownership of Certain Beneficial Owners and
Management...................................................
PART II
- -------
Item 5 - Market for the Bank's Common Stock and Related Security
Holder Matters...............................................
Item 6 - Selected Financial Data........................................
Item 7 - Management's Discussion and Analysis of Financial
Condition and Results of Operation...........................
Item 8 - Financial Statements and Supplementary Data....................
PART III
- --------
Item 9 - Directors and Executive Officers of the Bank...................
Item 10 - Management Remuneration and Transactions.......................
PART IV
- --------
Item 11 - Exhibits, Financial Statement Schedules and Reports on
Form F-3.....................................................
Documents Incorporated by Reference
Documents Part of F-2 into which incorporated
- --------- ----------------------------------
Proxy Statements for the Part I, Item 4
Annual Meeting of Shareholders Part III, Items 9 and 10
1
<PAGE>
PART I
ITEM 1 - BUSINESS
The Bank of Southington, (the "Bank"), was incorporated under the laws of the
State of Connecticut on January 9, 1985, and commenced operations as a state
chartered commercial bank on June 30, 1986. The Bank of Southington is an
insured bank under the Federal Deposit Insurance Corporation Act up to its
maximum limits, and like most state chartered banks, it is not a member of the
Federal Reserve System.
The Bank conducts business operations at its office located at 130 North Main
Street, Southington, Connecticut, and two branch offices located at 414 Broad
Street and 641 Farmington Avenue, Bristol, Connecticut.
The Bank of Southington is a locally owned independent commercial bank and is
engaged in substantially all of the business operations customarily conducted by
independent commercial banks in Connecticut. The Bank is primarily engaged in
the acceptance of checking, savings and time deposits and the granting of
commercial, real estate, personal, home improvement home equity, automobile and
other types of loans. A substantial amount of business is done with individuals
as well as with commercial customers. In addition to loan and deposit services,
the Bank offers safe deposit boxes, money orders, collections, travelers checks
and other customary services. For the convenience of its customers, the Bank
offers extended operating hours and has drive-up and walk-up facilities.
The Bank competes with all institutions in its market area. Most have greater
financial resources and capitalization which give them higher lending limits and
the ability to conduct larger advertising campaign to attract business.
Generally the larger institutions offer services such as trust and international
banking which The Bank of Southington is not equipped to offer directly. When
the need arises, arrangements are made with correspondent institutions to
provide such services. To attract business in this competitive environment the
Bank relies on local promotional activities and personal contact by officers,
directors and shareholders and on its ability to offer personalized services.
The customer base of the Bank is diversified so that there is not a
concentration of either loans or deposits within a single industry, a group of
industries, a single person or groups of people.
The Bank does not have any material patents, trademarks, licenses, franchise and
other concessions that would affect business operations other than those granted
by or required by regulatory authorities.
The Bank has not conducted any material research programs in the last two years
relating to the development of new services. Management, however, continually
reviews its present services and marketing activities in an attempt to maintain
and improve its competitive position within the community it serves. The cost
associated with these activities cannot be calculated with any degree of
accuracy.
2
<PAGE>
There are presently no plans to develop a new product or line of business that
would require the investment of a material amount of assets.
The Federal, state and local regulations that have been enacted that regulate
the discharge of materials into the environment have no material effect on the
Bank's asset or capital structures.
At December 31, 1996, the Bank had 59 full-time employees and 15 part-time
employees.
The business of the Bank is not seasonal.
ITEM 2 - PROPERTIES
The Main office of The Bank of Southington is located at 130 North Main Street,
Southington, Connecticut 06489-0670.
The land is approximately 1.3 acres with one building structure. The main
banking area is approximately 5,100 square feet. It contains a tellers lobby
with seven teller windows, a walk-up window, which is used when the lobby is
closed, a drive-up window with two remote teller units, a customer service area
and the President's office. The second floor of the main banking area houses a
conference room, an employees lounge and two vacant rooms. In 1989 an addition
to the main banking area was completed. The main floor of the addition connects
to the tellers lobby area. This area, of approximately 3,800 square feet, houses
the loan operations area. The lower level, also approximately 3,800 square feet,
houses the Bank's operation center. The total area of the Bank is approximately
12,700 square feet. The building is accessible via town approved handicap ramps
and the interior has been constructed to adequately handle handicap persons.
The Bank opened an office at the corner of Broad and Andrew Streets in Bristol,
CT on June 30, 1992. The full service branch office is approximately 3,000
square feet on a lot of approximately 3/4 acres. There are five lobby tellers, a
walk-up window, which is used when the lobby is closed, a drive-up window with
one remote teller unit, a customer service area, a conference room, two offices
and a room available for future expansion. The building is accessible via town
approved handicap ramps and the interior has been constructed to adequately
handle handicap persons. All property, furniture and fixtures and equipment are
owned by the Bank. There are no leases or mortgages.
The Bank opened a new branch at 641 Farmington Avenue in Bristol, CT in 1996.
The full service branch is approximately 1,600 square feet and is located in a
shopping center plaza. There are four lobby tellers, a walk-up window, a
conference room and an ATM in the lobby. All furniture and fixtures are owned by
the Bank. The Bank has a five year lease on the branch space.
ITEM 3 - LEGAL PROCEEDINGS
A former customer (the "Plaintiff") of the Bank filed a lawsuit against the
Bank, one of the Bank's directors and the director's company in Connecticut
Superior Court. The lawsuit arises out of two loans made by the Bank to the
Plaintiff and others, secured by real estate and business assets. The Bank has
successfully foreclosed on the real estate and has realized a recovery from
3
<PAGE>
the subsequent sale of the real estate and the secured party auction of the
business assets. The lawsuit, which was originally brought by Plaintiff and now
belongs to the Plaintiffs bankruptcy estate, alleges among other things, breach
of fiduciary duty and tortuous interference with business opportunities. The
complaint makes no demand for a specific amount of damages. Management believes
the allegations in the complaint to be unfounded and intends to contest the case
vigorously. At this time, due to the early nature of the proceedings, an
evaluation of the outcome or any potential loss cannot be made.
The Bank of Southington does not have any other pending legal proceedings, other
than ordinary routine litigation incidental to business, to which the Bank is a
party or of which any of its property is the subject.
ITEM 4 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
This information is included in the Proxy Statement for the Annual Meeting of
Shareholders to be held on May 15, 1997 (the "Proxy Statement"), incorporated by
reference into this Form F-2 "Security Ownership of Certain Beneficial Owners
and Management" which appears on pages 5-6 of the Proxy Statement.
PART II
ITEM 5 - MARKET FOR THE BANK'S COMMON STOCK AND RELATED SECURITY HOLDER MATTERS
The Bank of Southington became a member of the American Stock Exchange on May 7,
1993. The common stock ticker symbol is BSO.
The Bank's securities consists of one class of common stock with a $6 par value
per share. As of March 17, 1997 there were 1,239,646 shares outstanding to
approximately 955 shareholders of record.
The Bank's shareholders are entitled to dividends when, and if declared by the
Board of Directors out of funds legally available therefrom. Connecticut law
prohibits the Bank from paying cash dividends except for its net profits, which
are defined by state statutes. See additional information on page 18.
ITEM 6 - SELECTED FINANCIAL DATA
This information is submitted on page 8.
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
This information is submitted on pages 9 to 23.
ITEM - 8 FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA
This information is submitted on pages 23 to 46.
4
<PAGE>
PART III
ITEM 9 - DIRECTORS AND OFFICERS OF THE BANK
This information is included in the Proxy Statement for the Annual Meeting of
Shareholders to be held on May 15, 1997, incorporated by reference into this
Form F-2 "Directors and Officers of the Bank."
ITEM 10 - MANAGEMENT REMUNERATION AND TRANSACTIONS
This information is included in the Proxy Statement for the Annual Meeting of
Shareholders to be held on May 15, 1997, incorporated by reference into this
Form F-2 "Management Remuneration arid Transactions."
PART IV
ITEM 11 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM F-3
(a) the following documents are filed as a part of this report:
(1) Financial Statements:
Independent Auditors' Report
Balance Sheets as of December 31, 1996 and 1995
Statements of Income for the years ended December 31, 1996,
1995 and 1994
Statements of Change in Stockholders Equity for the years ended
December 31, 1996, 1995 and 1994
Statements of Cash Flows for the years ended December 31, 1996, 1995
and 1994
Notes to Financial Statements
(2) Financial Statement Schedules References
----------------------------- ----------
Schedule I Form F2, Pages 12 and 32
Schedule II Form F2, Page 35
Schedule III Form F2, Pages 13 and 34
Schedule IV Form F2, Pages 3 and 36
Schedule V Not Applicable
Schedule VI Form F2, Pages 16 and 34
(b) Reports on Form F-3
The Bank was not required to file, and did not file, a current report on
Form F-3 during
5
<PAGE>
the quarter ended December 31, 1996
(c) Exhibits
(3) There were no material contracts entered into during 1996.
(4) See notes to the financial statements, page 31 of the F-2.
(5) Not applicable
(6) Not applicable
(7) Not applicable
(8) Not applicable
(9) Not applicable
6
<PAGE>
The Bank of Southington
Pursuant to the Requirement of Section 13
of the Securities Exchange Act of 1934,
Annual Filing, Form F-2,
the Bank has duly caused this report to be
signed on its behalf by undersigned,
thereunto duly authorized.
/s/ Bryan P. Bowerman
------------------------------------------
BRYAN P. BOWERMAN, President
/s/ Matthew A. Byrne
------------------------------------------
MATTHEW A. BYRNE, CFO-Vice President
/s/ Joseph Calvanese, Jr.
------------------------------------------
JOSEPH CALVANESE, JR., Director
/s/ Harold Charette
------------------------------------------
HAROLD CHARETTE, Director
/s/ Nicholas Depaola
------------------------------------------
NICHOLAS DEPAOLA, Director
/s/ Phillip Ferraro
------------------------------------------
PHILLIP FERRARO, Director
/s/ Roman F. Garback
------------------------------------------
ROMAN F. GARBACK, Director
/s/ Jean Martin
------------------------------------------
JEAN MARTIN, Director
/s/ Elizabeth C. Milo
------------------------------------------
ELIZABETH C. MILO, Director
/s/ James Pryor
------------------------------------------
JAMES PRYOR, Director
/s/ Benjamin Rubin
------------------------------------------
BENJAMIN RUBIN, Director
7
<PAGE>
FINANCIAL HIGHLIGHTS
The following is financial data as of and for the years ended December 31, 1992
to 1996
<TABLE>
STATEMENT OF OPERATIONS DATA
<CAPTION>
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Interest Income ......... $ 9,327,036 $ 8,607,193 $ 7,122,645 $ 6,217,240 $ 6,206,290
Interest Expense ........ 3,342,594 2,945,171 2,057,864 2,299,478 2,619,298
Net Interest Income ..... 5,984,442 5,662,022 5,064,781 3,917,762 3,586,992
Provision for loan losses 225,000 759,000 760,000 602,203 503,827
Other Income ............ 534,781 415,568 632,407 297,020 275,978
Non-interest expense .... 4,507,251 3,705,452 3,977,103 2,907,514 2,398,267
Net income .............. 1,138,436 1,042,863 723,978 505,065 620,876
Net income per share .... 0.93 0.86 0.61 0.42 0.52
Dividends per share ..... 0.25 0.24 0.20 0.13 0.06
Dividends paid .......... 309,431 288,625 240,193 154,456 66,334
Average shares issued ... 1,230,447 1,215,571 1,193,235 1,189,631 1,188,399
Book value per share .... 8.94 8.34 8.01 7.60 7.29
BALANCE SHEET DATA
Cash and cash equivalents 8,457,358 9,176,139 6,915,705 4,813,895 4,035,723
Investment securities ... 35,472,597 27,077,703 19,703,434 19,673,425 16,635,210
Loans, net .............. 79,290,082 72,623,373 72,120,326 67,238,887 60,943,390
Total assets ............ 128,013,716 112,825,058 102,446,242 95,255,882 85,821,548
Total deposits .......... 116,278,492 101,403,625 92,643,161 86,396,010 77,347,638
Total shareholders'
equity ................ 11,064,933 10,219,579 9,229,788 8,656,287 8,239,600
SELECTED STATISTICAL DATA
Return on assets ........ 0.95% 0.97% 0.72% 0.56% 0.77%
Return on average equity 10.77% 10.75% 8.08% 5.92% 7.78%
Interest rate spread .... 4.75% 4.95% 4.94% 4.22% 4.24%
Interest rate margin .... 5.48% 5.71% 5.51% 4.73% 4.83%
</TABLE>
On November 22, 1995 and December 22, 1993, the Board of Directors voted a
five (5%) and ten (10%) stock dividend, respectively payable on December 29,
1995 and January 28, 1994 to shareholders' of record on December 8, 1995 and
January 7, 1994, respectively. The average shares of stock issued and the per
share data have been retroactively adjusted to reflect the stock dividend.
8
<PAGE>
MANAGEMENT DISCUSSION AND ANALYSIS
YEAR-END OVERVIEW
The Bank of Southington ("the Bank or Bank's") reports net earnings of
$1,138,436 ($0.93 per share) which exceeds the prior year's earnings of
$1,042,863 ($0.86 per share) in 1995. The Bank's net interest margin declined in
1996 to 5.48%, down 23 basis points from 5.71% at year-end 1995. Total assets
increased $15.2 million to $128.0 million and the Bank's leverage capital is
9.37% at December 31, 1996 compared to 9.51% at December 31, 1995. The Bank's
1996 return on assets is 0.95%, a decline of 2 basis points over 1995 return on
assets of 0.97%. Also, the Bank's return on equity is 10.77% for 1996 compared
to 10.75% return on equity in 1995.
Earnings in 1996 were affected by a decline in the bank's interest margins,
reduced provision for loan losses as compared to recent years, higher expenses
due to branch expansion and data system conversion costs and higher effective
tax rates. The Bank has steadily increased earnings per share as shown below:
Year
-----------------------------------------
1992 1993 1994 1995 1996
----- ----- ----- ----- -----
Earnings per Share.................. $0.52 $0.42 $0.61 $0.86 $0.93
Noninterest income of $534,781 in 1996 contributed greatly to current year
earnings. Noninterest income increased in 1996 due to a $120,077 gain on sale of
other real estate owned. Basic service fee charges have remained unchanged but
the increased volume of new accounts resulted in increased service fee income
for 1996.
Noninterest expense totaled $4.5 million in 1996 up $766 thousand from $3.7
million reported in 1995. Operating expenses increased as a result of additional
staff and occupancy costs due to the opening of a new branch in Bristol during
1996, legal expenses related to foreclosure and costs associated with computer
system conversion.
Gross loans at December 31, 1996, were $80.8 million, compared to $74.3
million, at December 31, 1995. Increase in loan demand began in the second half
of 1996 after a twelve month prior period decline in loan demand. Securities
portfolio rose $8.4 million to $35.5 million at December 31, 1996. During the
first half of 1996, as a result of the slow loan demand, the Bank increased its
securities portfolio by purchasing callable U.S. agency securities.
Total deposits increased $14.9 million to $116.3 million at December 31,
1996. This increase was due to opening a new branch and aggressive time deposit
marketing within our geographical locale.
9
<PAGE>
INCOME STATEMENT ANALYSIS
NET INTEREST INCOME
Year ended December 31,
Dollars in thousands 1996 1995 1994
-------------------- ---- ---- ----
Interest income ....... $ 9,327 $8,607 $7,123
Interest expense ...... 3,343 2,945 2,058
Net interest income ... 5,984 5,662 5,065
Net interest income rose as interest income increased due to the growth in
earning assets. The interest expense portion related to the sources of funding
also rose but was offset by the large increase in noninterest bearing demand
deposits. Net interest income on a Fully Tax Equivalent Basis (FTE) totaled $6.1
million for the year ending December 31, 1996 as compared to $5.8 million in
1995 and $5.3 million in 1994, respectively.
<TABLE>
NET INTEREST MARGIN AND INTEREST RATE SPREAD
<CAPTION>
Year ended December 31, 1996 1995 1994
FTE basis Average Average Average
Dollars in thousands Balance Rate Balance Rate Balance Rate
- ---------------------- ------- ---- ------- ---- -------- ----
<S> <C> <C> <C> <C> <C> <C>
Securities ............ $ 30,848 6.64% $22,315 6.37% $20,235 5.47%
Loans ................. 74,896 9.65 71,819 9.84 68,843 8.82
Federal funds sold .... 3,482 5.41 5,005 5.99 2,888 4.02
-------- ------- ------
Total interest-earning
assets .............. 109,227 8.65% 99,139 8.68% 91,966 7.75%
Savings ............... 43,876 2.36% 41,169 2.22% 47,884 2.14%
Time deposits ......... 41,715 5.53 37,322 5.38 25,503 4.06
Other ................. 16 6.25 388 6.19 -- --
-------- ---- ------- ---- ------ ----
Total interest-bearing
liabilities ......... 85,607 3.90% 78,879 3.73% 73,387 2.80%
-------- ---- ------- ---- ------ ----
Interest rate spread .. -- 4.75% -- 4.95% -- 4.94%
Interest-free sources
of funds ............ $ 21,525 -- $18,121 -- $17,276 --
Total sources of funds $107,132 -- $97,000 -- $90,663 --
Net interest margin ... 5.48% 5.71% 5.51%
</TABLE>
10
<PAGE>
Net interest margin is a measurement of how efficiently the bank manages
its difference between the yield on its earning assets and its rate paid on its
sources of funds used to create those assets. Overall, it evaluates how well the
bank allocates its mix of interest-earning assets and interest-bearing
liabilities. Several factors affect the net interest margin specifically the
trend in interest rates, funding sources, mix of asset allocation, ability to
raise noninterest bearing deposits as well as the repricing and maturities of
the bank's assets and/or liabilities and the bank's sensitivity to changes in
interest rates.
<TABLE>
RATE, VOLUME AND MIX ANALYSIS OF NET INTEREST INCOME
<CAPTION>
1996 1995
------------------------------------------ ------------------------------------
Change Due to Change Due to
Interest ------------------------- Interest -------------------------
Composition income or income or
Analysis expense Rate Volume Mix expense Rate Volume Mix
- ----------- -------- ---- ------ --- --------- ---- ------ ---
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$ in Thousands
Securities ... $1,915 122 604 (54) $1,243 176 117 15
Loans ........ 7,224 (143) 297 6 7,064 699 262 31
Federal funds
sold ....... 189 (20) (82) (9) 300 57 85 42
- ----------------------------------------------------------------------------------------------
Total ........ $9,328 (41) 819 (57) $8,607 932 464 88
- ----------------------------------------------------------------------------------------------
Deposits
Savings ...... $1,034 62 64 (4) 912 38 143 6
Time ......... 2,308 62 243 (6) 2,009 338 480 156
Other ........ 1 -- (23) -- 24 -- -- 24
- ----------------------------------------------------------------------------------------------
Total ........ $3,343 124 284 (10) $2,945 376 337 174
- ----------------------------------------------------------------------------------------------
Change in net
interest
income....... $5,985 165 535 (47) $5,662 556 127 86
</TABLE>
The Bank's net interest margin for 1996 declined 23 basis points as the
yield on loans fell from 9.84% in 1995 to 9.65% in 1996, federal funds sold
yield declined 58 basis points to 5.41% in 1996 from a year ago. Another factor
contributing to the decline in the net interest margin is the increase in the
cost of funds to 3.90% in 1996 from 3.73% in 1995. Taxable securities yield rose
50 basis points to 6.59% which mitigated the declines in tax-exempt and
advantaged securities and also in the other earning assets categories.
1996 Average Asset Mix
----------------------
Loans.................................................... 63%
Securities............................................... 26%
Other.................................................... 8%
Federal Funds............................................ 3%
1995 Average Asset Mix
----------------------
Loans.................................................... 66%
Securities............................................... 21%
Other.................................................... 8%
Federal Funds............................................ 5%
In 1995, the Bank's net interest income increased $597,241 (11.79%) over
1994 to $5,662,022. Interest income rose due to increases in the prime rate in
1995 over the 1994 level. Taxable securities also rose during this time period
as yields on these investments started 1995 with the upward movement that began
in 1994. In latter 1995, a decline in securities yield began.
11
<PAGE>
Comparative analysis between 1995 and 1994 shows the effect of the shift into
higher time deposit account balances and increasing interest cost (rates) on net
interest income.
NONINTEREST INCOME
Other income also known as noninterest income totaled $534,781 for 1996, up
18% from a year ago principally due to a $120,077 gain resulting from the sale
of other real estate owned properties in 1996 and also from an increase in the
volume of fees on commercial demand deposit accounts. Service fee charges on
consumer demand deposit accounts are not assessed by the bank. Miscellaneous
income fell in 1996 by $21,419 to $75,441 for the year ended December 31, 1996.
A decline in the letter of credit business in 1996 is responsible for part of
this decline while the remainder is attributable to declines in other fee-based
product volumes.
For 1995, the Bank's service fee income remained flat compared to 1994 as
many depositors had higher average demand deposit balances which are not subject
to service charges and depositors with regular saving accounts that were subject
to service charges in 1994 moved into time deposit certificates. In 1994, the
Bank had a non-taxable gain on life insurance due to the death of a bank
director. The sale of other real estate owned properties generated a net gain of
$36,169 in 1995. Finally, the Bank sold its small holdings of common stock in
July of 1995 which netted a gain on securities of $8,816.
NONINTEREST EXPENSE
Operating expenses grew at a rate of 20.5% in 1996 increasing noninterest
expense to $4.5 million up from the prior year noninterest expense of $3.7
million. Salary and benefit costs were the biggest increase rising 28% to $2.4
million in 1996. This increase is the result of an additional branch and full
year effect of new support departments within the bank such as credit, finance
and audit. Bank operation's staffing increased due to the data processing
conversion and the use of additional part-time help after the conversion. Loan
administration expenses increased in 1996 primarily due to legal fees incurred
to foreclose on real estate property and equipment. All other noninterest
expense items were higher in 1996 primarily as a result of costs associated with
the new branch.
In 1995, salaries rose over the prior year as the Bank's expansion created
new departments and positions. During the year, lending, credit, audit and
finance areas were either established or staffing was increased to meet the
Bank's need for reasonable growth and internal and administrative control
supervision. The Bristol office had an increase in staffing due to increased
total hours and our growth in the Bristol market. Printing and supplies expense
increased $41,684 to $227,900 as a result of the addition of automatic teller
machines in both of the branches. Advertising also increased in 1995 as a result
of a major advertising campaign to announce the Bank's new ATM services to the
local market.
In 1994, the Bank had an unexpected death of a director resulting in a
charge to expense of $150,963 in death benefits payable over ten years according
to the directors' pre-retirement death benefit plan. Directors compensation also
increased in 1995 as a result of increases in annual
12
<PAGE>
retainer and increased meeting fees. This resulted in the increase in Directors'
compensation expense that coupled with the life insurance premiums on Bank owned
policies to pay the directors death and retirement benefits earned through
directors' deferred compensation plan.
INCOME TAXES
In 1996, the bank recognized income tax expense of $643,536, an effective
tax rate of 36.29%. In 1995, the bank's income tax expense was $570,275 with an
effective rate of 35.35%. The increase in the effective tax rate in 1996 is
principally due to a decline in tax exempt interest income. The effective tax
rate was lower in 1994 due to life insurance proceeds which were non-taxable.
BALANCE SHEET ANALYSIS
HIGHLIGHTS
Total assets rose $15.2 million to $128.0 million at December 31, 1996. The
composition of assets did change as loans to total assets fell to 61.94% from
64.37% while securities to total assets increased to $35.5 million (27.71%) from
the prior year-end. Deposits to assets increased slightly to 90.83% from 89.88%.
Cash and cash equivalents, in 1996, fell to $8.5 million from $9.2 million in
1995 as cash balances were put into earning assets to improve earnings. Other
real estate owned is $405,363 at December 31, 1996 compared to zero one year
ago.
13
<PAGE>
BALANCE SHEET REVIEW
--------------------
December 31,
Dollars in thousands 1996 1995 Change
-------------------- ---- ---- ------
Total assets .... $128.0 $112.8 13%
Earning assets .. 109.2 99.1 10
Securities ...... 35.5 27.1 31
Loans ........... 80.8 74.3 9
Deposits ........ 116.3 101.4 15
Equity .......... 11.1 10.2 9
SECURITIES
The composition of the securities available for sale portfolio compared to
prior years investment securities mix has changed significantly. Below is a
table for a three year period reflecting the change in securities composition
and duration.
1996 1996 1995 1995 1994 1994
December 31 Amortized Market Amortized Market Amortized Market
Dollars in thousands cost value cost value cost value
- -------------------- --------- ------ --------- ------ --------- ------
Securities available
for sale
U.S. Treasuries .... $ 1,001 $ 1,005 $ 2,253 $ 2,266 $ 793 $ 792
U.S. Agencies ...... 28,678 28,574 17,392 17,487 -- --
Municipals ......... 3,916 3,878 5,228 5,233 -- --
Security securities. 1,674 1,678 1,773 1,786 320 303
FHLB stock ......... 338 338 307 307 -- --
------- ------- ------- ------- ------ ------
Total ............... $35,607 $35,473 $26,953 $27,078 $1,113 $1,095
======= ======= ======= ======= ====== ======
Held to maturity
U.S. Treasuries -- -- -- -- $ 4,252 $ 4,151
U.S. Agencies -- -- -- -- 7,262 6,914
Municipals -- -- -- -- 6,551 6,388
Auctioned preferred -- -- -- -- 200 200
U.S. Treasuries -- -- -- -- 344 343
------- ------- ------- ------- ------- ------
Total -- -- -- -- $18,609 $17,996
======= ======= ======= ======= ======= =======
The securities portfolio has shifted from a higher concentration in
municipals and treasuries to a high concentration in callable US
agency-sponsored securities such as FHLB, FHLMC, SALLIE MAE and FCCB. The equity
portfolio no longer invests in common stock but is invested in auctioned
preferreds, cumulative preferred stock, a short term government agency mutual
fund and FHLB stock. This re-allocation of securities mix has been done to
position the bank to earn a higher yield on the callable US agencies than an
alternative investment could otherwise yield. The callable US agency security
pays a higher yield since the call option premium paid to investors is greater
than a comparable US treasury securities. The higher yield is paid for the risk
that the
14
<PAGE>
callable US agency-sponsored bond may be called earlier than the maturity date
stated on the bond. This has increased the yield on taxable securities 50 basis
points to 6.59% in 1996 over 1995.
This table represents the maturities of fixed maturity securities at
amortized cost values at December 31, 1996:
Within One to Five to
($ in thousands) one year five years ten years Total
- ---------------- -------- ---------- --------- -----
U.S. Treasuries .. $1,000,732 -- -- $ 1,000,732
US Agencies ...... -- $14,489,443 $14,188,857 28,678,300
Municipals ....... 1,732,621 1,549,792 633,376 3,915,789
---------- ----------- ----------- -----------
Totals ........... $2,733,353 $16,039,235 $14,822,233 $33,594,821
========== =========== =========== ===========
LOANS
The Bank's gross loan portfolio grew to $81.0 million at December 31, 1996,
an 9% increase over the prior year. Net loans at December 31, 1996 are $80.8
million which is net of deferred loan fees receivable of $205,705. Both
Commercial and Industrial (C & I) and residential loans categories grew in 1996.
In 1995 loan demand was flat reflecting the overall loan growth of only 1%.
Since 1994 the Commercial Real Estate (CRE) loan portfolio has increased from
$30.2 million (41% of total loans) in 1994 to $35.1 million or 43% of total
loans. CRE loan balances are up $1 million from 1995 year-end total of $34.2
million or 46% of total loans yet as a percentage of total loans this category
is down to 43%. This downward trend is likely to continue as commercial real
estate vacancy rates remain high in the Hartford County marketplace. C&I loans
have increased from $23.0 million (31%) in 1995 to $28.2 million (36%) of the
total loans at December 31, 1996.
($ in thousands) 1996 1995
---------------- ------- -------
Residential ............. $15,913 $15,829
CRE ..................... 35,133 34,170
C&I ..................... 28,913 23,033
Consumer ................ 1,076 1,472
------- -------
Total gross loans . $81,035 $74,504
======= =======
[insert graph]
15
<PAGE>
This table represents the maturities of loans in the bank's portfolio:
Within One to After
($ in thousands) one year five years five years Total
- ---------------- -------- ---------- ---------- -------
Fixed rate ...... $ 2,289 $12,046 $12,734 $27,069
Floating rate ... 34,189 17,653 2,124 53,966
------- ------- ------- -------
Totals .......... $36,478 $29,699 $14,858 $81,035
======= ======= ======= =======
1996 Loan Portfolio Composition
-------------------------------
Consumer .................. 2%
C & I ..................... 35%
CRE ....................... 43%
Residential ............... 20%
1995 Loan Portfolio Composition
--------------------------------
Consumer .................. 2%
C & I ..................... 31%
CRE ....................... 46%
Residential ............... 21%
NONPERFORMING ASSETS
Nonperforming loans and past due loans have decreased overall as a
percentage of loans to 3.14%. Nonaccruing loans are lower in 1996 than 1995 yet
the year-end total of $2.3 million remains a concern of management. Management
has taken a conservative approach to reclassifying certain non-accruing loans.
While management expects to return a number of nonaccrual loans to performing
status early in 1997, there can be no assurance that this declining trend will
continue further into 1997. Classified loans are $3.7 million at December 31,
1996 which is down from $4.0 million last year and $5.1 million in 1994. During
1996, the bank foreclosed on loans totaling $947,286 of which $405,363 is held
as other real estate owned as of December 31, 1996. These properties are carried
at their fair value.
The following table represents non-accruing and past due loans as of
December 31:
($ IN THOUSANDS) 1996 1995 1994 1993
- ---------------- ---- ---- ---- ----
Loans delinquent over
90 days still accruing .. $ 206 $ 306 $ 140 $ 278
Non-accrual loans ......... 2,338 2,416 1,257 2,128
------ ------ ------ ------
Total ................ $2,544 $2,722 $1,397 $2,406
====== ====== ====== ======
% of total loans .......... 3.14% 3.66% 1.90% 3.50%
% of total assets ......... 1.99% 2.41% 1.36% 2.53%
16
<PAGE>
ALLOWANCE FOR LOAN LOSSES
Year ended December 31,
Dollars in thousands 1996 1995 1994
- ---------------------- ---- ---- ----
Balance at beginning
of year ................ $1,670,686 $1,286,156 $1,424,509
Gross charge-offs
Real estate ............ (334,978) (436,201) (696,409)
C & I ................... (47,451) (7,389) (213,283)
Consumer ................ (6,344) (4,840) (15,816)
---------- ---------- ----------
Total gross charge-offs . (388,773) (448,430) (925,508)
---------- ---------- ----------
Recoveries:
Real estate ............. 27,648 67,124 1,839
C & I ................... 3,237 6,100 21,181
Consumer ................ 1,509 736 4,135
---------- ---------- ----------
Total recoveries ........ 32,394 73,960 27,155
---------- ---------- ----------
Net charge-offs ......... (356,379) (374,470) (898,353)
Provision for loan
losses ................. 225,000 759,000 760,000
---------- ---------- ----------
Balance at year-end ..... $1,539,307 $1,670,686 $1,286,156
========== ========== ==========
% of allowance for
loan losses to
total loans ............. 1.90% 2.24% 1.75%
% of allowance for
loan losses to NPAs ..... 66% 69% 102%
The Bank's allowance for loan losses is $1,539,307 at December 31, 1996.
This amount creates a coverage ratio of 66% to non-accrual loans compared to 69%
in 1995 and 102% in 1994. During 1996, the Bank reserved $225,000 in provision
for loan losses. At December 31, 1996, the Bank had $2.3 million in non-accruing
loans.
Management believes the allowance for loan losses is adequate and real
estate owned is properly valued. While management uses available information to
recognize losses on loans and other real estate owned, future additions to the
allowance for loan losses or valuation adjustments to other real estate owned
may be necessary based on changes in economic conditions and loan portfolio
growth. In addition, various regulatory agencies, as an integral part of their
examination process, periodically review the Bank's allowance for loan losses
and valuation of other real estate owned. Such agencies may require the bank to
recognize additions to the allowance or adjustments to them at the time of their
examination.
17
<PAGE>
FUNDING SOURCES
Deposits as a source of funds made up 91% of total assets. Interest-bearing
and non-interest bearing deposits were $116,278,492 which included $25,507,735
of noninterest-bearing demand deposit accounts. Regular saving account balances
have declined due to dis-intermediation of funds caused by savers transferring
savings balances from the traditional saving accounts to higher paying Money
Market Deposit Accounts (MMDA's), Certificates of Deposit (CD's) and mutual
funds. CD deposit balances increased $8.5 million to $48.7 million at December
31, 1996. The Bank does not purchase brokered deposits. During 1995 the bank
bought stock in the Federal Home Loan Bank of Boston ("FHLB") and through our
membership in the FHLB the Bank has available to it credit facility services in
the form of FHLB advances and collateralized FHLB borrowing. In addition, the
bank has credit line facilities with brokerage firms to transact reverse
repurchase agreements. Because of the availability of new credit facilities and
the flexibility to raise cash through sales of available for sale securities,
the bank's liquidity ratio improved over the prior year. Thus management seeks
to utilize its excess liquidity by investing in callable agencies to maximize
yield and reduce interest rate and liquidity risk.
1996 Sources of Funding
-----------------------
Savings .................. 24%
MMDA's ................... 12%
DDA's .................... 22%
CD's ..................... 42%
1995 Sources of Funding
-----------------------
Savings .................. 29%
MMDA's ................... 12%
DDA's .................... 19%
CD's ..................... 40%
As of December 31, 1996 the Bank's maturities of time deposits were:
($ in thousands) $100,000 or greater Less than $100,000 Totals
--------------- ------------------- ------------------ ------
Three months or less ........ $2,683 $17,603 $ 20,286
Three to six months ......... 1,205 7,304 8,509
Six months to one year ...... 2,279 12,641 14,920
Over one year ............... 1,485 3,539 5,024
------ ------- -------
Totals ............ $7,652 $41,087 $48,739
====== ======= =======
CAPITAL
Capital adequacy is one of the most important factors used to determine the
safety and soundness of the financial institution and the banking system. The
Bank's capital adequacy is evaluated by Tier I leverage capital measures and
total risk-based capital measures. At December 31, 1996 the bank's capital
ratios are above minimum regulatory requirements and in excess of the minimum
level established by bank regulatory agencies.
18
<PAGE>
AT DECEMBER 31, THE BANK'S CAPITAL RATIOS ARE:
12/31/96 12/31/95
-------- --------
Tier 1 leverage capital ......... 9.37% 9.51%
Tier 1 Risk-based capital ....... 10.99% 12.95%
Total Capital ratio ............. 12.24% 15.45%
On November 22, 1995, the bank declared a 5% stock dividend, payable on
December 29, 1995 which is accounted for as a reduction of retained earnings and
an increase in common stock outstanding and paid in capital. Also, during the
recent year the bank's dividend re-investment program (DRIP) for cash dividend
paid added to the bank's overall capital. In 1996, the bank paid cash dividends
of $309,431, which included the first three quarters 1996 dividend per share of
$.06 and a $.07 per share in the fourth quarter of 1996. The dividend payout
ratio is 27.18% of 1996 compared to 27.68% in 1995 and 33.18% in 1994.
The following table set forth the range of high and low bid quotations for
the Bank's common stock for the periods shown:
Quarter ended High Low Cash Dividends Paid
- ------------- ---- --- -------------------
March 31, 1995 .......... $ 7.00 $ 6.625 $.055
June 30, 1995 ........... 8.375 6.875 .06
September 30, 1995 ...... 9.25 7.50 .06
December 31, 1995 ....... 9.625 8.50 .06
March 31, 1996 .......... 19.375 9.50 .06
June 30, 1996 ........... 16.375 13.00 .06
September 30, 1996 ...... 16.375 11.875 .06
December 31, 1996 ....... 15.25 13.25 .07
ASSET-LIABILITY MANAGEMENT
Asset and liability management is a continual process of balancing the risk
and return factors of a variety of financial decisions. Asset and liability
management is governed by policies reviewed and approved annually by the Bank's
Board of Directors (the "Board"). The Board delegates responsibility for
asset-liability management to the corporate asset and liability committee
(ALCO). ALCO set strategic directives that guide the bank's daily pricing,
funding and asset-liability allocation. Management through its ALCO decides on
the appropriate level of interest rate risk, prepayment risk and credit risk. In
doing this, decisions must be made on the pricing of assets (i.e., loans) and
liabilities (i.e., deposits), the duration of assets and liabilities and the
amount of liquidity. Management's overall objective for effective asset and
liability coordination is to maximize long-term profitability and return to
investors through improved return on equity and asset ratios.
19
<PAGE>
The Bank's market niche is defined by its geographical basis serving the
Southington and Bristol Connecticut area. Because we are a community commercial
bank, we seek to provide local businesses with the necessary source of capital
to expand and improve their operations. Therefore, our current strategies for
lending in our market area include commercial and industrial loans at
competitive interest rates, with repayments generally within five years, and
contribution to the improvement of the community's economic condition. We are
expanding our residential mortgage lending and will seek to make available
adjustable rate mortgage loans. When lending demand is slow we will seek to
deploy our assets in local municipal market instruments or federally sponsored
mortgage corporation that sell fixed income instruments of a callable nature.
Our intended goal is to maintain liquidity while putting our assets into
reasonable interest rate ranges that maximize income, reduce business and market
risk and provide continued growth in earnings.
INTEREST RATE RISK
Interest rate risk is the bank's sensitivity of income to changes in
interest rates over the short and longer term horizons. Our goal of interest
rate risk management is to control this risk within approved limits by the board
and the ALCO guidelines. The Bank attempts to control interest rate risk through
the identification of market exposures, analyzing them and adjusting its pricing
and funding strategy as appropriate and within its approved guidelines. The Bank
estimates its interest rate risk as to sensitivity of earnings at risk and its
economic value of equity at risk within a 200 basis point rise or decline in
interest rates. If interest rates were to shift immediately (increase or
decrease by 200 basis points) the effect on estimated net interest income should
not fluctuate by more than 7.5%.
The following table reflects the estimated exposure to earnings as a
percentage of net interest income for the next twelve months:
Rate change
(basis points) Earnings at risk:
------------- -----------------
+200 1.18%
-200 (1.83%)
The bank's economic value of equity at risk is the estimated change in net
present value of its assets, liabilities and off-balance sheet items. The
interest sensitivity of economic value is a measurement of the sensitivity of
changes in long-term earnings. The Bank's guidelines on interest rate risk state
that if interest rates were to shift immediately up or down 200 basis points,
the estimated economic value of equity at risk should decline no more than 10%.
The following table shows the effect on the bank of the estimated exposure as a
percentage of estimated economic value of equity at risk, assuming an immediate
200 basis point shift in interest rates.
Rate change Economic value
(basis Points) of equity at risk:
-------------- ------------------
+200 (11.63%)
-200 7.02%
20
<PAGE>
INTEREST-RATE GAP ANALYSIS
Interest rate gap analysis provides a static look of the maturity and
repricing aspects of the on/off balance sheet position of the bank. The interest
rate gap schedule below shows the scheduled and anticipated repricing or
maturity of assets and liabilities. The bank does not use off-balance positions
(i.e., swap, caps, floors or collars) to hedge interest rate risk. Static gap
analysis offers a simplistic look at known maturity and repricing. The approach
also calculates mismatched or unmatched periods of time of assets and
liabilities repricings or maturities to determine whether the bank is asset or
liability sensitive in a given time frame. Therefore, an inference can be made
as to the effect of changes in interest rates and their impact on net interest
margin.
The Bank has a 15% of total asset limitation on the change in cumulative
one-year gap position. For 1996 the bank has a negative 13.8% one-year gap
position. A negative gap indicates that the bank is liability sensitive within
the one year time frame. This will negatively impact earnings if interest rates
rise since more liabilities would be repricing at higher rates. Management
believes that the exposure of the Bank's income is small and/or infrequent
change in interest rates is controllable. However, as indicated by the earnings
at risk and economic value of equity at risk analysis, any sudden and steep
changes in interest rates will tend to reduce both net income and economic value
of equity.
Under a static gap analysis, the decline in rates would seem to favor the
bank's one-year gap position and beyond. However, the value of dynamic analysis
such as earnings at risk and economic value of equity at risk shows that a
decline in interest rates would negatively impact earnings. Under this dynamic
analysis, the bank's exposure to falling rates is reinvestment risk of its
callable agency portfolio and that 64% of the bank's loans are floating rate
notes. The combined effect of lower earnings results since the bank is liability
sensitive within the one year time frame. Comparatively, the bank is near-term
asset sensitive under three months which would mean that assets would reprice
faster than liabilities. From the static gap viewpoint, earnings would be
negatively impacted when short-term rates fall. However, the economic value of
equity at risk simulation analysis shows that if rates continued to fall the one
year gap would tend to favor an improvement in longer-term earnings. This may be
the correct assessment of the overall effect of falling interest rates.
Contrast the result attained from the simulation analysis model used under
the calculation of economic value of equity at risk. In a falling interest rate
scenario, the bank's longer term earnings improvement could be achieved through
repositioning the bank's balance sheet with longer-term CD's at lower rates with
variable rate loans or adjustable mortgaged-backed securities. Conversely
earnings at risk show a negative 1.83% effect if interest rates fall in the
near-term. Thus, under that same interest rate drop shock scenario of 200 basis
points, a positive effect of 7.02% on economic value of equity at risk results
in an improved longer-term earnings ability of the bank through repositioning
its assets and liabilities. Yet, an unfavorable result may occur to current
year's earnings as indicated by the earnings at risk simulation when an
immediate 200 basis point interest rate decline affects current year's earnings.
The Bank's cumulative one-year gap position reveals the effect on longer-term
earnings if rates rise as indicated by the negative 11.63% exposure of economic
value of equity at risk when rate rise immediately by 200 basis points.
Management
21
<PAGE>
<TABLE>
believes it can lower its economic value of equity at risk through alternative
funding sources, special deposit rate products and improvements in credit
pricing.
INTEREST-RATE GAP ANALYSIS
December 31,1996
Dollars in thousands, by repricing date
- ---------------------------------------
<CAPTION>
3-12 1-3 3-5 5-10 More Than
ASSETS 3 Months Months Years Years Years 10 Years Totals
------ -------- ------ ------ ------ ------ -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
AFS-Securities $ 2,709 $ 3,736 $ 10,400 $ 8,483 $ 7,242 $ 4,637 $ 37,207
--------- --------- --------- --------- --------- --------- ---------
Real Estate ................... 19,122 14,718 14,519 6,423 9,260 0 64,042
C & I ......................... 7,520 4,903 2,694 0 0 0 15,117
Consumer ...................... 279 326 415 349 301 0 1,670
--------- --------- --------- --------- --------- --------- ---------
Total Loans ................... 26,921 19,947 17,628 6,772 9,561 0 80,829
--------- --------- --------- --------- --------- --------- ---------
Reserves ...................... 0 0 0 0 0 (1,539) (1,539)
--------- --------- --------- --------- --------- --------- ---------
Net Loans ..................... 26,921 19,947 17,628 6,772 9,561 (1,539) 79,290
--------- --------- --------- --------- --------- --------- ---------
Other Assets .................. 6,857 0 0 0 0 4,659 11,516
--------- --------- --------- --------- --------- --------- ---------
Total Assets .................. $ 36,487 $ 23,683 $ 28,028 $ 15,255 $ 16,803 $ 7,757 $ 128,013
========= ========= ========= ========= ========= ========= =========
LIABILITIES
- -----------
Non-Interest deposits ......... 7,629 9,614 4,214 4,050 0 0 $ 25,507
Sav & NOW ..................... 2,913 8,685 11,498 11,049 0 0 34,145
MMDA's ........................ 1,334 3,953 1,326 1,274 0 0 7,887
CD's<$100 ..................... 17,603 19,945 1,805 1,734 0 0 41,087
CD's>$100 ..................... 2,683 3,484 757 728 0 0 7,652
--------- --------- --------- --------- --------- --------- ---------
Total Deposits ................ 32,162 45,681 19,600 18,835 0 0 116,278
--------- --------- --------- --------- --------- --------- ---------
Other Liabilities.............. 0 0 0 0 0 670 670
Equity ........................ 0 0 0 0 0 11,065 11,065
--------- --------- --------- --------- --------- --------- ---------
Liabilities & Equity .......... 32,162 45,681 19,600 18,835 0 11,735 128,013
--------- --------- --------- --------- --------- --------- ---------
Period GAP .................... 4,325 (21,998) 8,428 (3,581) 16,803 (3,977)
--------- --------- --------- --------- --------- --------- ---------
Cumulative GAP ................ 4,325 (17,673) (9,245) (12,826) 3,977 0
--------- --------- --------- --------- --------- --------- ---------
Cumulative GAP as a % of
Total Assets ................ 3.4% (13.8%) (7.2%) (10%) 3.1%
--------- --------- --------- --------- --------- --------- ---------
</TABLE>
LIQUIDITY RISK
Liquidity risk management's objective is to assure the bank's ability to
meet its financial obligations. These obligations are customer withdrawal of
demand deposits, contractual certificates of deposits, funding for new loans,
and the repayment of loans and borrowings as they mature. The bank's liquidity
is comprised of a strong core of demand deposits, access to its short-term
22
<PAGE>
investment funds, the ability to sell securities available for sale, access to
credit lines at the FHLB and it repurchase security lines with existing capital
market firms. Liquidity is monitored daily and measured monthly through the
Liquidity Management report. This helps management to react to balance sheet
trends and provide analysis of the funding availability to meet market
opportunities. ALCO is responsible for implementing the Board's policies and
guidelines governing liquidity.
The Bank's liquidity ratio is 26.14% and 19.79% at December 31, 1996 and
1995, respectively.
1997 AND BEYOND
1997 will be a challenging year at the Bank. The bank has undergone branch
expansion, data system conversions, ATM locations for customers and we continue
to seek market opportunities within contiguous geographic locations. In the past
five years, the bank has grown its total assets from $77.9 million to $128
million. During that same period of time earnings grew from $394,887 in 1991 to
$1,138,436 for the year ended December 31, 1996. The bank's book value has also
increased over the comparable period from $6.80 in 1991 to $8.94 at year-end
1996.
Community banks will be viable providers of financial services well into
the next century. Although competition is tightening we have a good marketplace
and loyal customers. For our shareholders', our goal is to maximize
profitability through the efficient use of capital, thus providing investors
with an above average return on their investment. Our efforts in 1997 will be to
improve the retailer-service portion of our financial services. We plan to
assist our customers through our array of financial products and enhance out
point of sale business. We seek to expand our product and customer base,
delivery of fee-based investment and savings products and re-affirm our
commitment to meet our customers full-service financial needs. This is
consistent with our community-based strategy to be a friendly, accurate and
timely provider of the deposit, credit and investment needs of our community.
23
<PAGE>
Peat Marwick LLP
CityPlace II
Hartford, CT 061034103
INDEPENDENT AUDITORS' REPORT
The Board of Stockholders and Directors
The Bank of Southington:
We have audited the accompanying balance sheets of The Bank of Southington
as of December 31, 1996 and 1995 and the related statements of income, changes
in stockholders' equity and cash flows for each of the years in the three-year
period ended December 31, 1996. 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 The Bank of Southington as
of December 31, 1996 and 1995, and the results of its operations and its cash
flows for each of the years in the three-year period ended December 31, 1996 in
conformity with generally accepted accounting principles.
As discussed in Note 17 to the financial statements, the Bank is a
defendant in a lawsuit alleging among other things, breach of fiduciary duty and
tortuous interference with business opportunities by the Bank, one of its
directors and the director's company. The ultimate outcome of the litigation
cannot presently be determined. Accordingly, no provision for any liability that
may result upon adjudication has been recognized in the accompanying financial
statements.
/s/ KPMG Peat Marwick LLP
Hartford, Connecticut
March 12, 1997
24
<PAGE>
BALANCE SHEETS
As of December 31,
----------------------------
1996 1997
ASSETS ------------ ------------
Cash and due from banks (note 2) ............. $ 6,857,358 $ 5,401,139
Federal funds sold ........................... 1,600,000 3,775,000
------------ ------------
Total cash & cash equivalents ............. 8,457,358 9,176,139
------------ ------------
Securities available for sale at fair value,
amortized cost of $35,606,932 in 1996 and
$26,953,305 in 1995 (note 3) ............... 35,472,597 27,077,703
Loans, net of deferred fees (notes 4 and 6) .. 80,829,389 74,294,059
Allowance for loan losses .................... (1,539,307) (1,670,686)
------------ ------------
Net loans ............................. 79,290,082 72,623,373
Premises and equipment, net (note 7) ......... 2,519,649 2,147,376
Accrued interest receivable .................. 987,564 927,199
Deferred income taxes (note 9) ............... 632,885 610,964
Other real estate owned (note 5) ............. 405,363 --
Other assets ................................. 248,218 262,304
------------ ------------
Total Assets .......................... 128,013,716 112,825,058
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits (Note 8)
Demand Deposits .............................. 25,507,735 19,227,074
Regular Savings .............................. 27,655,235 29,700,825
Money Market accounts ........................ 14,376,777 12,195,766
Time Deposits ................................ 48,738,745 40,279,960
------------ ------------
Total Deposits ........................ 116,278,492 101,403,625
------------ ------------
Other Liabilities
Accrued Expenses ............................. 275,184 432,948
Director's death benefit payable (Note 13) ... 116,813 129,495
Deferred compensation payable (Note 12) ...... 194,829 253,238
Other Liabilities ............................ 83,465 386,173
------------ ------------
Total Other Liabilities ................ 670,291 1,201,854
------------ ------------
Total deposits and other liabilities ... 116,948,783 102,605,479
------------ ------------
Commitments and Contingencies (Notes 6 & 17)
Stockholders' equity (notes 14, 15 and 16):
Common stock, $6 par value per share
2,000,000 authorized (1,237,320 issued
and outstanding on December 31, 1996,
and 1,225,471 on December 31, 1995) ..... 7,423,920 7,352,826
Paid-in capital ............................ 1,004,034 905,584
Net unrealized gain (loss) on securities
available for sale ...................... (80,329) 72,866
Retained earnings .......................... 2,717,308 1,888,303
------------ ------------
Total stockholders' equity ............ 11,064,933 10,219,579
------------ ------------
Total liabilities and stockholders'
equity .............................. $128,013,716 $112,825,058
============ ============
25
<PAGE>
STATEMENTS OF INCOME
For the years ended December 31,
------------------------------------
1996 1995 1994
---------- ---------- ----------
INTEREST INCOME
Interest and fees on loans .............. $7,223,630 $7,064,391 $6,071,805
Interest on federal funds sold .......... 188,599 299,864 116,327
Interest on investment securities ....... 1,631,291 882,760 599,905
Interest on municipal bonds ............. 196,474 261,537 298,092
Dividend Income ......................... 87,042 98,641 36,516
---------- ---------- ----------
Total interest income ................ 9,327,036 8,607,193 7,122,645
---------- ---------- ----------
INTEREST EXPENSE
Regular savings and money market accounts 1,034,492 912,417 1,022,933
Time deposits ........................... 2,307,060 2,008,557 1,034,931
Other borrowings ........................ 1,042 24,197 --
---------- ---------- ----------
Total interest expense ............... 3,342,594 2,945,171 2,057,864
---------- ---------- ----------
Net interest income .................. 5,984,442 5,662,022 5,064,781
Provisions for loan losses (note 4) ..... 225,000 759,000 760,000
---------- ---------- ----------
Net interest income after provision
for loan losses .................... 5,759,442 4,903,022 4,304,781
---------- ---------- ----------
NON-INTEREST INCOME
Non-interest income service charges ..... 337,428 309,892 309,721
Miscellaneous income .................... 75,441 96,860 101,032
Gain on life insurance .................. -- -- 219,933
Net gains (loss) on sale of other real
estate owned ............................ 120,077 36,169 (24,744)
Net gains on securities (note 3) ........ 1,835 8,816 1,721
---------- ---------- ----------
Total non-interest income ............ 534,781 451,737 607,663
---------- ---------- ----------
NON-INTEREST EXPENSE
Salaries and benefits ................... 2,374,320 1,850,676 1,425,113
Occupancy expense ....................... 457,827 244,939 305,538
Premises and equipment .................. 272,016 335,191 332,513
Printing and supplies ................... 260,492 227,910 186,226
Professional services ................... 235,060 197,471 281,060
EDP services ............................ 316,249 232,619 178,393
Advertising and promotion ............... 96,929 108,657 81,460
Other real estate owned expenses ........ 78,070 116,738 390,460
Loan administration expenses ............ 119,585 93,671 158,440
FDIC Insurance premium .................. 2,000 103,112 221,721
Directors compensation & life insurance . 171,765 179,920 136,000
Director death benefit .................. -- -- 150,963
Other ................................... 122,938 50,717 104,472
---------- ---------- ----------
Total non-interest expense ........... 4,507,251 3,741,621 3,952,359
---------- ---------- ----------
Income before income taxes .............. 1,786,972 1,613,138 960,085
Income taxes (note 9) ................... 648,536 570,275 236,107
---------- ---------- ----------
Net income ........................... $1,138,436 $1,042,863 $ 723,978
========== ========== ==========
Earning per share ....................... $ 0.93 0.86 0.61
Average common shares outstanding ....... 1,230,447 1,215,571 1,193,235
26
<PAGE>
<TABLE>
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
For the years ended December 31,
<CAPTION>
Net
unrealized
gain
Common Paid-in Retained (loss) on
Stock capital earnings securities Total
---------- ---------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1993 .............. $6,831,708 $ 696,352 $1,128,227 $ -- $ 8,656,287
Impact on adoption of change
in accounting for
investment securities ................... -- -- -- 4,651 4,651
Reinvested Cash Dividends ................. 67,662 23,456 -- -- 91,118
Exercise of stock options ................. 6,000 3,250 -- -- 9,250
Dividends declared on commons
stock ($.05 and $6.05 per share) ........ -- -- (240,193) -- (240,193)
Net Income ................................ -- -- 723,978 -- 723,978
Change in unrealized loss on
securities available for sale ........... -- -- -- (15,303) (15,303)
---------- ---------- ---------- --------- -----------
BALANCE AT DECEMBER 31, 1994 .............. 6,905,370 723,058 1,612,012 (10,652) 9,229,788
5% Stock dividend (note 15) ............... 337,374 140,573 (447,947) -- --
Reinvested Cash Dividends ................. 110,082 41,953 -- -- 152,035
Dividends declared on common
stock ($.0 and $.06 per share) .......... -- -- (288,625) -- (288,625)
Net Income ................................ -- -- 1,042,863 -- 1,042,863
Change in unrealized loss on
securities available for sale .......... -- -- -- 83,518 83,518
---------- ---------- ---------- --------- -----------
BALANCE AT DECEMBER 31, 1995 .............. 7,352,826 905,584 1,888,303 72,866 10,219,579
Reinvested cash dividends ................. 61,464 88,053 -- -- 149,517
Issuance of common stock
investment plan ......................... 9,630 10,397 -- -- 20,027
Dividends declared on common
stock ($.06 per share
for Q1-3, $.07 for Q4) .................. -- -- (309,431) -- (309,431)
Net income ................................ -- -- 1,138,436 -- 1,138,436
Change in unrealized loss on
securities available for sale ........... -- -- -- (153,195) (153,195)
---------- ---------- ---------- --------- -----------
BALANCE AT DECEMBER 31, 1996 .............. $7,423,920 $1,004,034 $2,717,308 $ (80,329) $11,064,933
========== ========== ========== ========= ===========
</TABLE>
27
<PAGE>
<TABLE>
STATEMENTS OF CASH FLOWS
<CAPTION>
For the years ended December 31,
-------------------------------------------------
1996 1995 1994
------------ ------------ -----------
<S> <C> <C> <C>
Cash flow form operating activities:
Net income ................................................. $ 1,138,436 $ 1,042,863 $ 723,978
Adjustment to reconcile net income to net
cash provided by operating activities:
Provision for loan losses ............................... 225,000 759,000 760,000
Deferred income taxes ................................... 83,617 32,638 17,135
Other real estate owned write-downs ..................... -- -- 90,983
Depreciation ............................................ 272,016 230,385 236,054
Amortization of premiums on investment
securities net of discount accretion ................. 27,938 -- --
Net gain on sales of investment securities .............. (1,835) (8,816) (1,721)
Net (gain) loss on sale of OREO ......................... (120,077) (36,169) 15,353
Increase in accrued interest receivable ................. (60,365) (281,545) (183,446)
(Decrease) increase in other liabilities ................ (499,446) 617,851 370,593
(Decrease) increase in income tax payables .............. (32,117) 22,033 (25,266)
(Increase) decrease in income tax receivable ............ -- (11,323) 11,323
Decrease in other assets ................................ 14,086 44,568 64,066
------------ ------------ -----------
Net cash provided by operating activities ............ 1,047,253 2,411,485 2,079,052
------------ ------------ -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Maturities of securities available for sale ................ 9,330,000 1,300,000 2,000,000
Process from sale of securities available for sale ......... 4,952,708 648,323 1,106,082
Maturities of investment securities ........................ -- 14,490,000 10,655,000
Purchase of investment securities .......................... -- (24,019,155) (14,708,769)
Purchase of securities available for sale .................. (22,962,438) (295,677) (839,697)
Increase in loan receivables ............................... (7,838,995) (887,577) (4,754,730)
Purchase of premises and equipment ......................... (646,789) (699,158) (62,165)
Proceeds from sale of fixed assets, net .................... 2,500 -- 21,211
Proceeds from sale of OREO ................................. 662,000 688,319 498,000
------------ ------------ -----------
Net cash used by investing activities ................ (16,501,014) (8,774,925) (6,085,068)
------------ ------------ -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in deposits ................................... 14,874,867 8,760,464 6,247,651
Payment of cash dividends .................................. (309,431) (288,625) (240,193)
Proceeds from issuance of common stock ..................... 20,027 -- 9,250
Reinvested cash dividends .................................. 149,517 152,035 91,118
------------ ------------ -----------
Net cash provided by financing activities ............ 14,734,980 8,623,874 6,107,826
------------ ------------ -----------
Increase (decrease) in cash and cash equivalents .............. (718,781) 2,260,434 2,101,810
Cash and cash equivalent-beginning of period .................. 9,176,139 6,915,705 4,813,895
============ ============ ===========
Cash and cash equivalent-end of period ........................ $ 8,457,358 $ 9,176,139 $ 6,915,705
============ ============ ===========
Supplemental disclosure of cash flow information:
Interest paid .............................................. 3,440,213 2,890,173 2,051,018
Income taxes paid .......................................... 629,851 623,559 232,915
Transfer of loans to OREO .................................. 947,286 82,173 836,907
Transfer of held-to-maturity securities
to available for sale ................................... -- 26,953,305 --
</TABLE>
28
<PAGE>
NOTES TO THE FINANCIAL STATEMENTS
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accounting policies of The Bank of Southington (the "Bank") conform
with generally accepted accounting principles in all material respects. The
following is a description of the more significant accounting policies.
BUSINESS
The Bank provides a full range of banking services to individual and
corporate customers primarily in the Southington and Bristol, Connecticut area.
The Bank is subject to competition from other financial institutions and is a
member of the Federal Deposit Insurance Corporation ("FDIC"). The Bank is
subject to the regulations of certain Federal and State of Connecticut agencies
and undergoes periodic examinations by those regulatory authorities.
BASIS OF FINANCIAL STATEMENT PRESENTATION
In preparing the financial statements, management is required to make
estimates and assumptions that affect the reported amounts of assets and
liabilities as of the date of the balance sheet and revenues and expenses for
the period. Actual results could differ significantly from those estimates.
Material estimates that are particularly susceptible to significant change
in the near-term relate to the determination of the allowance for loan losses
and the valuation of real estate acquired in connection with foreclosures or in
satisfaction of loans. In connection with the determination of the allowance for
loan losses and the valuation of other real estate owned, management obtains
independent appraisals for significant properties.
Substantially all of the Bank's loans are to customers located in
Connecticut, of which approximately 85% are secured by real estate located
therein. In addition, all of the other real estate owned is located in the same
market. The State currently has a weakened economy and depressed real estate
markets. Accordingly, the ultimate collectibility of a substantial portion of
the bank's loan portfolio and the recovery of the carrying amount of other real
estate owned are susceptible to market conditions within Connecticut.
Management believes the allowance for loan losses is adequate and other
real estate owned is properly valued. While management uses available
information to recognize losses on loans and other real state owned, future
additions to the allowance for loan losses or valuation adjustments to other
real estate owned may be necessary based on changes in economic conditions. In
addition, various regulatory agencies, as an integral part of their examination
process, periodically review the Bank's allowance for loan losses and valuation
of other real estate owned. Such agencies may require the Bank to
29
<PAGE>
recognize additions to the allowance or adjustments to other real estate owned
based on their judgments about information available to them at the time of
their examination.
INVESTMENT SECURITIES
Securities are classified among three categories, Held-to-Maturity,
Available-for-Sale and Trading. Debt securities for which there exists the
ability and intent to hold to maturity are classified as held-to maturity and
are stated at amortized cost. The amortization of premiums and accretion of
discounts is recorded using a method which approximates the level yield method.
Securities classified as available-for-sale are intended to be held for
indefinite periods of time, but not necessarily to maturity. Available-for-sale
securities are reported at fair value with unrealized gains or losses reported
in stockholders' equity net of income tax effect. Trading account assets are
held in anticipation of short- term market movements and are carried at market
value. Any resulting gain or loss is reflected in the bank's statement of
income. At December 31, 1996 and 1995, all investment securities are classified
as Available-for-Sale.
Gains and losses on sales of investment securities are determined on the
specific identification method and are recognized upon realization. Any decline
in value of a security which is considered to be other than temporary is
reflected as a realized loss in the statement of income.
LOANS
The Bank considers a loan as impaired when it is probable that the creditor
will be unable to collect amounts due, both principal and interest, according to
the contractual terms of the loan agreement. When a loan is considered impaired,
impairment is measured using one of the three methods: (1) the present value of
expected cash flows discounted at the loan's effective rate; (2) the observable
market price of the loan; or (3) the fair value of the collateral if the loan is
collateral dependent. The Bank excludes large groups of homogenous loans,
including residential mortgages and consumer loans, which are collectively
evaluated for impairment. The Bank's method of recognition of interest income on
impaired loans is consistent with the method of recognition of interest on all
loans.
Interest on loans is credited to income as earned based on contractual
rates applied to principal amounts outstanding. The Bank's policy is to
discontinue the accrual of interest when the collection of accrued interest is
in doubt and recognize income going forward as cash is collected or apply the
total payment to principal based upon an individual assessment of each loan.
Loan origination fees and certain direct loan origination costs are
deferred and amortized as an adjustment of the related loan's yield over the
contractual life of the related loan. A loan may be restored to accrual status
when the loan is brought current and collection of principal is sufficiently
insured.
Statement of Financial Accounting Standards No. 122 (SFAS No. 122),
Accounting for Mortgage Servicing Rights, became effective for the Bank on
January 1, 1996. SPAS No. 122 requires that a mortgage banking enterprise
recognize as separate assets, rights to service mortgage loans for others,
regardless of how those servicing rights are acquired. Additionally, the
Statement requires
30
<PAGE>
that the capitalized mortgage servicing rights be assessed for impairment based
on the fair value of those rights, and that impairment be recognized through a
valuation allowance. Mortgage servicing rights are amortized in proportion to
and over the period of estimated net servicing income. All related amortization
and impairment valuations are charged to mortgage servicing income. The adoption
of SFAS No. 122 did not have any impact on the financial statements of the Bank.
ALLOWANCE FOR LOAN LOSSES
The provision for loan losses charged to operations is based on
management's best judgment of the amount necessary to maintain the allowance for
loan losses at an appropriate level considering the risks inherent in the
portfolio, current delinquencies, past experience, economic conditions and
trends and other pertinent factors. Loans are charged off against the allowance
when management believes the collectibility of the principal is unlikely, taking
into consideration such factors as the customer's financial condition,
underlying collateral and guarantees or when the present value of the expected
cash flows discounted is less than the fair value of the collateral of the loan.
Recoveries of amounts previously charged off are credited to the allowance for
loan losses.
PREMISES AND EQUIPMENT
Premises and equipment are stated at cost less accumulated depreciation.
Depreciation is accumulated on a straight-line basis over the estimated useful
lives of the assets. Estimated lives are forty years for buildings and
improvements, seven years for land improvements and three to five years for
equipment, furniture and fixtures.
OTHER REAL ESTATE OWNED
Properties acquired through foreclosure or deed in lieu of foreclosure and
in-substance foreclosures are transferred to other real estate owned at the
lower of the unpaid balance of the loan at the transfer date, or fair value
minus estimated costs to sell.
Adjustments made to the carrying value at transfer date are charged to the
allowance for loan losses. After the transfer of foreclosed properties,
subsequent write-downs are charged to earnings in the period incurred. Costs
relating to the development and improvement of the property are capitalized,
while carrying costs related to holding the property are charged to operations.
Gains on the sales of other real estate owned are recognized, to the extent
allowable, upon disposition of the property. Losses on sales in excess of
amounts previously provided are charged to operations upon disposition of the
property.
STOCK OPTION PLANS
Statement of Financial Accounting Standards No. 123 (SFAS 123), Accounting
for Stock-Based Compensation, became effective on January 1, 1996. This
Statement establishes a fair value based method of accounting for stock-based
compensation plans under which compensation cost is measured at the grant date
based on the value of the award and is recognized over the service period.
However, the Statement allows a company to continue to measure compensation cost
for such plans under Accounting Principles Board (APB) Opinion No. 25,
Accounting for Stock issued to
31
<PAGE>
Employees. Under APB No. 25, no compensation cost is recorded if, at the grant
date, the exercise price of the options is equal to the fair market value of the
Company's common stock. SFAS 123 requires companies which elect to continue to
follow the accounting provisions of APB No. 25 to disclose in the notes to their
financial statements pro forma net income and earnings per share as if the fair
value method of accounting had been applied. The Bank has elected to continue to
follow the accounting provisions of APB No. 25.
INCOME TAXES
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and operating loss and tax credit carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date.
IMPAIRMENT OF LONG-LIVED ASSETS
On January 1, 1996, the provisions of Statement of Financial Accounting
Standard No. 121, Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed of (SFAS 121), became effective for the Bank.
SFAS 121 requires that long-lived assets be reviewed for impairment whenever
events or changes in circumstances indicate the carrying amount of an asset may
not be recoverable. The adoption of SFAS 121 had no impact on the Bank's
operations.
TRANSFERS AND SERVICING OF FINANCIAL ASSETS AND EXTINGUISHMENTS OF LIABILITIES
In June 1996, the Financial Accounting Standard Board issued Statement of
Financial Accounting Standards (SFAS 125), Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities. SFAS 125 is
effective for servicing of financial assets and extinguishments of liabilities
occurring after December 31, 1996. The transfer and collateral provisions of
SFAS 125 are effective for transfers occurring after December 31, 1997. The
provisions of the statement are to be applied prospectively. This Statement
provides accounting and reporting standards for transfers and servicing of
financial assets and extinguishments of liabilities based on consistent
application of a financial-components approach that focuses on control. It
distinguishes transfers of financial assets that are sales from transfers that
are secured borrowings. The Bank does not expect that adoption of SFAS 125 will
have a material impact on the Bank's financial position, results of operations,
or liquidity.
STATEMENT OF CASH FLOWS
For purposes of reporting cash flows, cash and cash equivalents include
cash on hand, due from banks and liquidity investments, which includes federal
funds sold.
32
<PAGE>
PER SHARE DATA
Net income per share was calculated by dividing net income by the weighted
average number of shares outstanding during the period of 1,230,447, 1,215,571
and 1,193,235, for the years ended December 31, 1996, 1995 and 1994,
respectively, after giving effect for the 5% stock dividends in 1995 as
described in Note 15.
The effect of stock options on income per share for each period presented
was not included as it was not materially dilutive.
RECLASSIFICATIONS
Certain prior period amounts have been reclassified to conform with the
current financial statement presentation
(2) CASH AND CASH EQUIVALENTS
The Bank is required to maintain certain average cash reserve balances with
the Federal Reserve Bank. For the year-ended December 31, 1996, the average
reserve balance was $1,065,000.
1996 1995
---------- ----------
NON-INTEREST BEARING:
Cash and cash items ......................... $1,739,118 $ 994,166
Federal Reserve Bank of Boston .............. 4,348,129 3,586,135
Due from Banks .............................. 426,211 750,843
INTEREST BEARING:
FHLB interest bearing ....................... 343,900 69,995
---------- ----------
Total cash and due from Banks ......... 6,857,358 5,401,139
---------- ----------
Federal funds sold .......................... 1,600,000 3,775,000
---------- ----------
Total cash and due from Banks ......... $8,457,358 $9,176,139
========== ==========
(3) INVESTMENT SECURITIES
The carrying value and estimated market values of investment securities,
grouped by stated maturities, at December 31, 1996 and 1995 are as follows:
33
<PAGE>
<TABLE>
<CAPTION>
Gross Gross
Amortized unrealized unrealized Market
cost 1996 gains losses value 1996
----------- -------- --------- -----------
<S> <C> <C> <C> <C>
AVAILABLE FOR SALE
U.S. Treasuries:
Within one year .................................. $ 1,000,732 $ 3,948 $ -- $ 1,004,680
Common and preferred stock .......................... 200,000 4,000 -- 204,000
FHLB stock .......................................... 338,300 -- -- 338,300
Auctioned preferreds ................................ 600,000 -- -- 600,000
Government money market fund ........................ 873,811 -- -- 873,811
Municipal bonds:
Within one year ................................. 1,732,621 3,950 (904) 1,735,667
One to five years ............................... 1,549,792 4,981 (9,011) 1,545,762
Over ten years .................................. 633,376 -- (37,300) 596,076
U.S. Agencies:
One to five years ............................... 14,489,668 38,482 (38,154) 14,489,996
Five to ten years ............................... 11,928,632 35,461 (93,776) 11,870,317
Over ten years .................................. 2,260,000 1,625 (47,637) 2,213,988
----------- -------- --------- -----------
TOTALS .................................. $35,606,932 $ 92,447 $(226,782) $35,472,597
=========== ======== ========= ===========
<CAPTION>
Gross Gross
Amortized unrealized unrealized Market
cost 1995 gains losses value 1995
----------- -------- --------- -----------
<S> <C> <C> <C> <C>
AVAILABLE FOR SALE
U.S. Treasuries:
Within one year .................................. $ 1,249,922 $ 2,656 $ -- $ 1,252,578
One to five years ................................ 1,003,146 9,854 -- 1,013,000
Common and preferred stock .......................... 223,125 13,125 -- 236,250
FHLB stock .......................................... 307,400 -- -- 307,400
Auctioned preferreds ................................ 1,550,000 -- -- 1,550,000
Municipal bonds:
Within one year ................................. 2,045,844 9,295 (212) 2,054,927
One to five years ............................... 2,942,489 8,947 (16,098) 2,935,338
Five to ten years ............................... -- -- -- --
Over ten years .................................. 240,000 1,200 -- 241,200
U.S. Agencies:
Within one year ................................. -- -- -- --
One to five years ............................... 12,243,594 70,070 (1,540) 12,312,124
Five to ten years ............................... 4,147,785 39,350 (15,717) 4,171,418
Over ten years .................................. 1,000,000 3,468 -- 1,003,468
----------- -------- --------- -----------
TOTALS .................................. $26,953,305 $157,965 $ (33,567) $27,077,703
=========== ======== ========= ===========
</TABLE>
The Bank realigned its available for sale and held to maturity portfolios
in December 1995, in accordance with the provisions of a special report issued
by the Financial Accounting Standards Board, A Guide to Implementing SFAS No.
115. The realignment resulted in the transfer of $26.9 million of held to
maturity securities to the available for sale portfolio on December 31, 1995.
34
<PAGE>
Investment securities pledged for municipal deposit purposes are $1,000,000
in U.S. Treasury Notes at December 31, 1996 and 1995.
1996 1995 1994
---------- -------- ----------
Proceeds from sale of available
for sale securities .................... $4,952,708 $648,323 $1,106,082
Gross realized gains from sale of
available for sale securities .......... 5,501 12,409 4,482
Gross realized losses from sale of
available for sale securities .......... (3,666) (3,593) (2,761)
(4) LOANS AND ALLOWANCE FOR LOAN LOSSES
The Bank grants residential loans, commercial real estate loans, commercial
loans and a variety of consumer loans. Credit is extended primarily to borrowers
located in Connecticut.
A summary of loans at December 31, 1996 and 1995 follows:
1996 1995
----------- -----------
Mortgage loans:
Residential ........................... $15,913,041 $15,829,231
Commercial property ................... 35,133,488 34,169,930
----------- -----------
51,046,529 49,999,161
Consumer loans ........................ 1,075,904 1,471,636
Commercial loans ...................... 28,912,661 23,032,991
Less:
Deferred loan fees, net ............... 205,705 209,729
Allowance for loan losses ............. 1,539,307 1,670,686
----------- -----------
$79,290,082 $72,623,373
=========== ===========
Activity in the allowance for loan losses for the years ended December 31,
1996, 1995 and 1994 follows:
1996 1995 1994
---------- ---------- ----------
ALLOWANCE FOR LOAN LOSSES
Balance at beginning of year ........ $1,670,686 $1,286,156 $1,424,509
Provision for loan losses ........... 225,000 759,000 760,000
Recoveries .......................... 32,394 73,960 27,155
Loans charged-off ................... (388,773) (448,430) (925,508)
---------- ---------- ----------
Balance at end of year .............. $1,539,307 $1,670,686 $1,286,156
========== ========== ==========
At December 31, 1996 and 1995, the Bank had $2,120,367 and $2,416,027,
respectively, of impaired loans with impairment measured based upon the fair
value of the underlying collateral. Of the total impaired loans at December 31,
1996, $1,127,096 had allowances for loan losses on impaired loans of $365,800.
Of the impaired loans at December 31, 1995, $1,910,208 had allowances for loan
losses on impaired loans of $542,000. In 1996, the average balance of impaired
loans was $1,577,600. The allowance for loan losses on impaired loans was
established
35
<PAGE>
as a result of an allocation from the allowance for loan losses. All
payments received on impaired loans were applied to the outstanding balance of
the impaired loans.
On December 31, 1996 and 1995, the Bank had as non-accrual loans with
outstanding balances of approximately $2,338,000 and $2,416,000, respectively.
The interest income that would have been recorded if the non-accrual loans had
been current in accordance with original terms was approximately $246,000,
$176,000 and $137,000 for the years ended December 31, 1996, 1995 and 1994,
respectively. The actual amount of interest income recognized on those loans was
approximately $172,000, $55,000 and $76,000 for the years ended December
31,1996, 1995 and 1994, respectively.
Certain officers and directors of the Bank and individuals related to such
persons incurred indebtedness, in the form of loans, as customers in the normal
course of business. These loans were made on substantially the same terms,
including interest rates and collateral, as those prevailing at the time for
comparable transactions with other customers and did not involve more than the
normal risk of collectibility. The activity with respect to these loans for the
current year is as follows:
Balance Balance
December 31, Principal December 31,
1995 New loans repayments 1996
------------ --------- ---------- ------------
$2,219,080 $1,254,000 $37,888 $3,435,192
========== ========== ======= ==========
(5) OTHER REAL ESTATE OWNED
At December 31, 1996 and 1995, other real estate owned consist of the
following:
1996 1995
-------- --------
Real estate acquired through foreclosure ............. $405,363 --
======== =======
The results from other real estate operations for the years ended December
31, 1996, 1995 and 1994 is summarized as follows:
1996 1995 1994
-------- -------- --------
Gain on sale of other real
estate owned ....................... $120,077 $ 46,547 $ --
Loss on sale of other real
estate owned ....................... -- 10,378 24,744
Write-down of other real
estate owned ....................... -- -- 90,983
Cost of holding other real
estate owned ....................... 78,070 116,738 299,477
-------- -------- --------
$ 42,007 $ 80,569 $415,204
======== ======== ========
36
<PAGE>
(6) FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK
The Bank is party to financial instruments with off-balance sheet risk in
the normal course of business to meet the financing needs of its customers.
These financial instruments include commitments to extend credit and standby
letters of credit. These commitments involve, to varying degrees, elements of
credit and interest rate risk in excess of the amounts recognized in the balance
sheets. The contract amounts of these instruments reflect the extent of the
Bank's involvement in particular classes of financial instruments.
The Bank's exposure to credit loss in the event of nonperformance by the
other party to the commitments to extend credit and standby letters of credit is
represented by the contractual amount of those instruments. The Bank uses the
same credit policies in making commitments and conditional obligations as it
does for on-balance-sheet instruments.
Commitments to extend credit are agreements to lend to a customer as long
as there is no violation of any condition established in the contract.
Commitments generally have fixed expiration dates or other termination clauses
and may require payment of a fee. Since many of the commitments are expected to
expire without being drawn upon, the total commitment amounts do not necessarily
represent future cash requirements. In extending commitments, the Bank evaluates
each customer's creditworthiness on a case-by-case basis. The amount of
collateral obtained, if deemed necessary by the Bank upon extension of credit,
is based on management's credit evaluation of the counterparty.
Standby letters of credit are conditional commitments issued by the Bank to
guarantee the performance of a customer to a third party. The credit risk
involvement in issuing letters of credit is essentially the same as that
involved in a loan commitment.
The following table summarizes these financial instruments and other
commitments and contingent liabilities at December 31, 1996 and 1995:
1996 1995
---- ----
Loan commitments ......................... $ 1,585,000 $2,285,000
Unadvanced lines of credit ............... 11,475,000 8,911,000
Outstanding performance and standby
letters of credit ...................... 1,604,000 2,074,000
37
<PAGE>
(7) PREMISES AND EQUIPMENT
A summary of premises and equipment at December 31, 1996 and 1995 is as
follows:
1996 1995
---- ----
Land and land improvements ................ $ 932,014 $ 892,880
Building and improvements .................. 1,202,777 1,153,238
Equipment .................................. 1,557,171 1,238,081
Furniture and fixtures ..................... 316,919 311,084
Computer software .......................... 305,231 180,698
---------- ----------
4,314,112 3,775,981
Less accumulated depreciation............... 1,794,463 1,628,605
---------- ----------
Premises and Equipment, net................. $2,519,649 $2,147,376
========== ==========
(8) DEPOSITS
Deposit account balances at December 31, 1996 and 1995 are summarized as
follows:
<TABLE>
<CAPTION>
Weighted Weighted
average average
Amount % rate Amount % rate
------ --- --------- ------ --- --------
<S> <C> <C> <C> <C> <C> <C>
Demand deposits .. ............ $ 25,507,735 22% -- $ 19,227,074 19% --
Savings ....................... 27,655,235 24 2.00 29,700,825 29 2.00
Money markets &
NOW accounts ...... .......... 14,376,777 12 2.25 12,195,766 12 3.63
Time deposits:
Three month certificates .... 1,006,364 1 3.81 922,061 1 3.98
Six month certificates....... 9,166,078 8 4.94 5,323,838 5 4.91
One year certificates........ 14,256,302 12 5.61 12,442,934 12 5.48
Jumbo certificates .......... 7,451,970 6 5.75 4,248,803 4 5.00
Greater than one
year certificates ......... 16,858,031 15 5.85 17,342,324 18 5.65
------------ --- ---- ------------ --- ----
Total time deposits ........... 48,738,745 42 -- 40,279,960 40 5.38
------------ --- ---- ------------ --- ----
Total deposits ................ $116,278,492 100% 3.15% $101,403,625 100% 3.73%
============ === ==== ============ === ====
</TABLE>
38
<PAGE>
Time deposits maturities at December 31, 1996 and 1995 are summarized as
follows:
1996 1995
---- ----
Within 12 months ....................... $40,558,921 $31,010,634
12 to 24 months ........................ 5,253,389 5,267,069
Over 24 months ......................... 2,926,435 4,002,257
----------- -----------
$48,738,745 $40,279,960
=========== ===========
The total amount of time deposits in denominations of $100,000 or more was
$7,652,000 and $7,039,000 at December 31,1996 and 1995, respectively. Interest
on time deposits of $100,000 or more was $336,000, $233,000 and $95,252 for the
years ended December 31, 1996, 1995 and 1994, respectively.
(9) INCOME TAXES
The components of income taxes are as follows:
1996 1995 1994
---- ---- ----
Current:
Federal ................ $447,987 $420,009 $138,208
State .................. 116,932 176,744 73,179
-------- -------- --------
564,919 596,753 211,387
-------- -------- --------
Deferred:
Federal ................ 42,373 (10,252) 5,589
State .................. 41,244 (16,226) 19,131
-------- --------
83,617 26,478 24,720
-------- -------- --------
Total ................. $648,536 $570,275 $236,107
======== ======== ========
The effective tax rates differ from the federal statutory rate due to the
following:
<TABLE>
<CAPTION>
1996 1995 1994
---------------------- --------------------- -----------------------
<S> <C> <C> <C> <C> <C> <C>
Computed "expected"
income taxes .................... $607,570 34.00% $548,467 34.00% $ 326,429 34.00%
Increase (decrease) resulting from:
State taxes, net of
Federal tax benefit ........... 104,396 5.84 105,942 6.57 60,925 6.35
Dividends received
deduction ..................... (14,243) (.80) (19,717) (1.22) (9,382) (.98)
Tax exempt interest income ...... (65,387) (3.66) (88,923) (5.51) (101,350) (10.56)
Interest expense disallowed ..... 8,312 .47 10,805 .67 9,903 1.03
Proceeds for life insurance ..... -- -- -- -- (74,777) (7.79)
Cash surrender value ............ -- -- -- -- (4,212) (.44)
Premium on life insurance ....... 14,528 .81 18,542 1.15 19,378 2.02
Other, net ...................... (6,640) (.37) (4,841) (.31) 9,193 .96
-------- ----- -------- ----- --------- ------
Total income taxes ........... $648,536 36.29% $570,275 35.35% $ 236,107 24.59%
======== ===== ======== ===== ========= ======
39
<PAGE>
</TABLE>
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at December 31,
1996 and 1995 are presented below:
1996 1995
---- ----
DEFERRED TAX ASSETS
Excess of book allowance for loan
losses over tax allowance for
loan losses ........................ $405,746 $498,969
Deferred directors' fees ............. 78,458 104,904
Deferred loan fee .................... 82,837 86,880
Non-accrual interest ................. 31,881 12,526
OREO charge-off ...................... 6,040 6,214
Death benefit payable ................ 47,041 53,643
Unrealized loss on securities
available for sale ................. 54,006 --
-------- --------
Total gross deferred tax assets ... $706,009 $763,136
-------- --------
DEFERRED TAX LIABILITIES:
Premises and equipment,
principally due to
differences in
depreciation ....................... $ 38,014 $ 68,038
Accrued dividend income .............. 4,273 2,903
Unrealized gain on securities
available for sale ................. -- 51,532
-------- --------
Other ................................ 30,837 29,699
-------- --------
Total gross deferred
liabilities ...................... 73,124 152,172
-------- --------
Net deffered tax asset ................. $632,885 $610,964
-------- --------
In order to fully realize the net deferred tax asset of $632,885 at
December 31, 1996, the Bank must generate tax losses to carryback or future
taxable income. Based on the Bank's historical and current taxable earnings,
management believes it is more likely than not that the Bank will realize the
net deferred tax asset.
(10) LINE OF CREDIT
The Bank has an approved line of credit with the Federal Home Loan Bank for
up to $2,255,000. All of the FHLB stock is pledged as collateral against the
line. The Bank is required to maintain a balance of $338,300 in FHLB stock. As
of December 31, 1996 there were no outstanding advances.
(11) 401(K) PLAN
The Bank has a defined contribution employee benefit plan covering
substantially all employees whereby employees can invest up to 10% of their
earnings up to maximum limits determined by the Bank annually. The Bank
contributed $37,000, $26,000 and $8,000 to the 401(k) plan for its employees for
the years ended December 31, 1996, 1995 and 1994, respectively.
40
<PAGE>
(12) DEFERRED COMPENSATION PLAN
In 1990, the Bank directors established a non-qualified deferred
compensation plan which would pay each director a retirement benefit upon age 65
for a ten year period. In 1991 and 1994 the nonqualified deferred compensation
plan was amended to include a phase two and three portion. Each director could
defer all or a portion of their directors fees. During 1996, the plan was
discontinued and deferrals have ceased. In 1996, 1995 and 1994, the directors
deferred $15,446, $71,625 and $54,900 of fees, respectively. Separately, the
Bank's purchased life insurance contracts on each director as a source of
repayment for this deferred liability. The cost of life insurance for 1996, 1995
and 1994 was $42,730, $54,536 and $59,492, respectively. The Bank's deferred
director liability is $194,829 and $253,238 at December 31, 1996 and 1995,
respectively. During 1996, a total of $104,000 of deferred compensation benefits
were paid out to directors.
(13) DEATH BENEFIT PAYABLE
The Bank has a directors' pre-retirement death benefit which is part of the
deferred directors' compensation plan that provides an annuity payment for ten
years to the directors' beneficiary. The Bank is the beneficiary on all
directors life insurance contracts. During 1994 a director's pre-retirement
death created a $150,963 liability, net of deferred interest of $50,157.
The scheduled principal repayments are as follows:
AMOUNT
------
1997 ................ $ 13,463
1998 ................ 14,294
1999 ................ 15,175
2000 ................ 16,138
2001 ................ 17,190
Thereafter .......... 40,553
========
$116,813
========
(14) STOCK OPTION PLANS
The Bank maintains Stock Option Plans (the "Plans") for officers, other key
employees and directors of the Bank. Stock options are issued at an option price
not less than fair market value of the common stock on the date of the grant.
Expiration dates for employee stock options are determined by the Board of
Directors.
The Bank applies APB Opinion No. 25 and related Interpretations in
accounting for its plans. Accordingly, no compensation cost has been recognized
for its stock option plans. There were no stock options granted in 1996. Had
compensation cost for the Bank's stock options been determined consistent with
FASB Statement No. 123, the Bank's net income and earnings per share
41
<PAGE>
for the year ended December 31, 1995 would have been reduced to the pro forma
amounts indicated below.
1995
----
Net Income As Reported 1,042,863
Pro forma 947,903
Earnings per share As Reported .86
Pro forma .78
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option-pricing model with the following weighted-average
assumptions used for grants in 1995: dividend yield of 1.9%; expected volatility
of 32%; risk free interest rate of 6.1%; and expected lives of three years for
employee options and five years for director's options.
A summary of the status of the Bank's stock option plans and changes in
them is presented below. All options granted in 1995 and 1994 were immediately
exercisable.
<TABLE>
<CAPTION>
Years ended December 31,
-------------------------------------------------------------
1996 1994 1995
------------------ -------------------- ------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
------ -------- ------ -------- ------ --------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at
beginning of year ........ 58,000 $8.18 8,050 $9.41 8,100 $9.44
Granted .................... -- -- 57,000 8.16 3,000 9.25
Exercised .................. -- -- -- -- 1,000 9.25
Forfeited/canceled ......... 2,000 9.31 7,050 9.44 2,050 9.35
------ ----- ------ ----- ----- -----
Outstanding at end
of year .................. 56,000 8.14 58,000 8.18 8,050 9.41
Options exercisable ====== ===== ====== ===== ===== =====
at year-end .............. 56,000 $8.14 58,000 $8.18 8,050 $9.41
====== ===== ====== ===== ===== =====
Weighted-average
fair value of
options granted .......... $ 2.52
======
</TABLE>
(15) STOCKHOLDERS' EQUITY
The Bank approved a stock dividend of 5% on November 22, 1995. The
information in the financial statements as to the number of shares outstanding
and per share data have been adjusted retroactively to reflect the stock
dividends.
The Bank can legally pay dividends only out of net earnings, if any, as
defined by the Connecticut Banking Law. In addition, the approval of the
Connecticut Banking Commissioner is required to pay dividends in excess of the
Bank's earnings retained in the current year plus retained net profits for the
preceding two years.
42
<PAGE>
(16) REGULATORY CAPITAL REQUIREMENTS
The Bank is subject to various regulatory capital requirements administered
by the federal banking agencies. Failure to meet minimum capital requirements
can initiate certain mandatory--and possibly additional discretionary--actions
by regulators that, if undertaken, could have a direct material effect on the
Bank's financial statements. Under capital adequacy guidelines and the
regulatory framework for prompt corrective action, the Bank must meet specific
capital guidelines that involve quantitative measures of the Bank's assets,
liabilities, and certain off-balance sheet items as calculated under regulatory
accounting practices. The Bank's capital amounts and classifications are also
subject to qualitative judgments by the regulators about components, risk
weightings, and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Bank to maintain minimum amounts and ratios (set forth in the table
below) of total and Tier I capital to risk-weighted assets, and of Tier I
capital to average assets. Management believes, as of December 31, 1996, that
the Bank meets all capital adequacy requirements to which it is subject.
As of December 31, 1996, the most recent notification from the FDIC
categorized the Bank as Well Capitalized under the regulatory framework for
prompt corrective action. To be categorized as Well Capitalized the Bank must
maintain minimum total risk-based, Tier I risk-based, Tier I leverage ratios as
set forth in the table. There are no conditions or events since that
notification that management believes have changed the institution's category.
The Bank's actual capital amounts and ratios are also presented in the table.
To Be Well
Capitalized
Under
Prompt
For Capital Corrective
(dollar in thousands) Actual Adequacy Purposes Action Provisions
----------------- ----------------- -----------------
Amount Ratio Amount Ratio Amount Ratio
------ ----- -------- ----- -------- -------
December 31, 1996:
Total Capital (to
Risk Weighted
Assets) ........ $ 12,412 12.2% $ 8,110 8.0% $ 10,138 10.0%
Tier I Capital (to
Risk Weighted
Assets) ........ 11,145 11.0 4,055 4.0 6,083 6.0
Tier I Capital (to
Average Assets). 11,145 9.4 4,981 4.0 6,226 5.0
December 31, 1995:
Total Capital (to
Risk Weighted
Assets) ........ $ 12,186 15.5% $ 6,310 8.0% $ 7,887 10.0%
Tier I Capital (to
Risk Weighted
Assets) ........ 10,214 13.0 3,155 4.0 4,732 6.0
Tier I Capital (to
Average Assets). 10,214 9.5 4,296 4.0 5,370 5.0
(17) CONTINGENCIES
A former customer (the "Plaintiff") of the Bank filed a lawsuit against the
Bank, one of the Bank's directors, and the director's company in Connecticut
Superior Court. The lawsuit arises out
43
<PAGE>
of two loans made by the Bank to the Plaintiff and others, secured by real
estate and business assets. The Bank has successfully foreclosed on the real
estate and has realized a recovery from the subsequent sale of the real estate
and the secured party auction of the business assets. The lawsuit, which was
originally brought by the Plaintiff and now belongs to the Plaintiff's
bankruptcy estate, alleges among other things, breach of fiduciary duty and
tortious interference with business opportunities. The complaint makes no demand
for a specific amount of damages. Management believes the allegations in the
complaint to be unfounded and intends to contest the case vigorously. At this
time, due to the early nature of the proceedings, an evaluation of the outcome
or any potential loss cannot be made.
The Bank is party to various other legal proceedings normally incident to
the kind of business conducted. Management believes that no material liabilities
will result from such proceedings.
(18) FAIR VALUE OF FINANCIAL INSTRUMENTS
The Bank is required to disclose fair value information about financial
instruments for which it is practicable to estimate fair value, whether or not
recognized in the statements of financial condition. In cases where quoted
market prices are not available, fair values are based on estimates using
present value or other valuation techniques. The calculation of fair value
estimates of financial instruments is dependent upon certain subjective
assumptions and involves significant uncertainties, resulting in variability in
estimates with changes in assumption. Potential taxes and other expenses that
would be incurred in an actual sale or settlement are not reflected in the
amounts disclosed. Fair value estimates are not intended to reflect the
liquidation value of the financial instruments.
CASH EQUIVALENTS
The carrying amounts of these financial instruments as reported in the
balance sheets approximate their fair values.
INVESTMENT SECURITIES
Fair values for these assets are based on quoted market prices, where
available. If quoted market prices are not available, fair values are based on
quoted market prices of comparable instruments. FHLB stock is carried at cost
which is its redeemable value since the market for the stock is limited.
LOANS
For adjustable rate loans that reprice regularly and have not had
significant change in credit risk, fair values are based on carrying values.
Fair value for fixed rate loans is estimated by using discounted cash flow
analyses, using interest rates currently being offered for loans with similar
terms to borrowers of similar credit quality.
44
<PAGE>
ACCRUED INTEREST RECEIVABLE
The fair value of accrued interest receivable approximates its carrying
amount.
DEPOSITS
The fair values for demand deposits, passbook savings accounts and money
market accounts are by definition equal to the amount payable on demand
(carrying value) at the reporting date. The fair values of fixed time deposits
are estimated using a discounted cash flow calculation that applies current
incremental interest rates being offered on time deposits to a schedule of
aggregated expected monthly maturities of the outstanding time deposits.
OFF-BALANCE SHEET ITEMS
The estimated fair value of the Bank's off-balance sheet items is
considered to approximate the contract amounts.
The carrying amounts and fair values of the Bank's financial instruments
consist of the following at December 31, 1996 and 1995:
1996 1995
----------------------- -----------------------
Carrying Fair Carrying Fair
($ In Thousands) amount amount amount amount
------ ------ ------ ------
FINANCIAL ASSETS
Cash and cash
equivalents ................. $ 8,457 $ 8,457 $ 9,176 $ 9,176
Securities available
for sale .................... 35,135 35,135 26,770 26,770
FHLB stock .................... 338 338 307 307
Loans ......................... 79,290 80,742 72,623 74,325
Accrued interest
receivable .................. 988 988 927 927
FINANCIAL LIABILITIES
Demand, money market and
savings accounts ............ $67,540 $67,540 $61,124 $61,124
Time deposits ................. 48,739 48,982 40,280 40,718
45
FORM F-4
ANNUAL REPORT UNDER SECTION 13
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR QUARTER ENDED MARCH 31, 1997
F. D. I. C. INSURANCE CERTIFICATE NUMBER 26694- 9
INCORPORATED JANUARY 9, 1985
IN THE STATE OF CONNECTICUT
CONNECTICUT STATE CHARTER BANK
THE BANK OF SOUTHINGTON
130 NORTH MAIN STREET
SOUTHINGTON, CT 06489-0670
TELEPHONE : (203) 620-5000
I. R. S. EMPLOYER IDENTIFICATION NO. -- 06-1122656
Securities registered under Section 12 (b) of the Act:
NONE
Securities registered under Section 12 (g) of the act:
COMMON STOCK
PAR VALUE $6.00 PER SHARE
1,240,260 SHARES ISSUED AND OUTSTANDING
AS OF MAY 7, 1997
Name of each Exchange on which registered:
AMEX
Indicate by checkmark 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_______
MARKET VALUE OF STOCK : $ 17,053,575
BASED ON A $13.75 BID PRICE at MAY 7, 1997
<PAGE>
THE BANK OF SOUTHINGTON
Form F-4
March 31, 1997
Table of Contents
Page
Item I. Notes to the Financial Statements 2
Item II. Management Discussion and Analysis 3-5
of Financial Condition & Results of Operation
Appendix A:
Rate and Volume Table
Appendix B
Exhibit A- Balance Sheet
Exhibit B- Income Statement
Exhibit C- Cash Flow Statement
Exhibit D- Statement of Changes in
Stockholders' Equity
Signatures 6
<PAGE>
ITEM I
The Bank of Southington
Notes to the Financial Statements
1. Basis of Presentation
The accompanying unaudited financial statements should be read with the
audited financial statements and notes included in the Bank of Southington's
1996 Annual Report. In the opinion of management, the accompanying statements
reflect all necessary adjustments, consisting of normal recurring accruals
and reclassification, for fair presentation of results as of the dates and for
the periods covered by the unaudited consolidated financial statements.
Certain prior year amounts have been reclassified to conform to current year
classifications.
2. Securities Available For Sale
<TABLE>
<CAPTION>
$ in 000's March 31, March 31, March 31, March 31,
1997 1997 1996 1996
Amortized Market Amortized Market
Cost Value Cost Value
<S> <C> <C> <C> <C>
Auction
Preferreds 600,000 600,000 1,000,000 1,000,000
Short-term
Funds 201,507 201,507 719,595 719,595
US Treasuries 1,000,122 1,001,480 1,252,563 1,248,815
US Agencies 30,323,984 29,801,257 21,946,470 21,733,644
Municipals 3,373,977 3,359,372 5,274,048 5,254,213
FHLB Stock 384,400 384,400 0 0
Corp. Bonds 500,000 500,000 0 0
Common Stock 0 0 338,300 338,300
Cum. Pref. Stock 200,000 204,000 200,000 207,000
TOTAL 36,583,990 36,052,015 30,730,976 30,501,567
</TABLE>
<PAGE>
ITEM II
Management's Discussion and Analysis
of Financial Condition and Results of Operation
Summary
The Bank of Southington (aka "The Bank") earned $183,567 or $0.15 per share
in the first quarter of 1997 compared to $225,255 or $0.18 per share in
March 1996. The Bank's net interest margin is 5.71% for the first quarter 1997
which is up from the 5.30% reported in the first quarter 1996. The Bank's
return on assets for the first quarter 1997 is .58% compared to the .80% one
year ago. Total assets grew $2.3 million to $130.3 million since year-end
1996. Leverage capital is 8.85% at March 31, 1997. As of March 31,1997,
total deposits have grown $2.5 million to $$118.8 million since year-end 1996,
while increasing $14.6 million since March 31, 1996.
Results of Operation
Increases in interest income were the result of higher average earning
balances in the securities available for sale and the increased coupon rates
earned on securities. Loan interest income is increased due to a rise in
average loan balances and the first quarter 1997 prime rate increase as the
Federal Reserve Bank raised interest rates 25 basis points. The Bank's cost
of funds also rose as interest bearing time deposit balances increased.
This was the result of competition in the market place for time deposits and
the new branch. Increases in funding costs as shown by the rise in interest
expense for time deposits was directly related to higher average balances
and rates which were offset by a decrease in the rate paid on money market
accounts over $25,000. Increases in net interest income margin is the
result of higher yields on investment securities and loan portfolio and
higher average balances for both earning asset groups.
Operating expenses continue to rise as a result of the new branch opening.
Financial Condition
At March 31, 1997 the Bank's total assets grew $2.2 million to $130.3 million
since year-end 1996. Asset growth was caused by increases in deposit
balances. Loan demand has remained low during the past year, however, loan
pricing remains exceptionally competitive with low margins. The Bank has
increased its securities portfolio by $400 thousand since year end.
<TABLE>
<CAPTION>
Loan Loss Allowance as of March 31,
1997 1996 1995
<S> <C> <C> <C>
Balance at beginning
of period $1,539,307 $1,670,686 $1,286,156
Charge-offs 389,373 77,054 35
Recoveries 10,015 5,954 3,720
Addition to the provision for
loan losses 253,000 50,000 225,000
Balance at March 31, $1,412,949 $1,649,586 $1,514,841
</TABLE>
<PAGE>
Management has determined that its allowance for loan losses of $1,412,949 at
March 31, 1997 is adequate and real estate owned is properly valued. While
management uses available information to recognize losses on loans and other
real estate owned, future additions to the allowance for loan losses or
valuation adjustments to other real estate owned may be necessary based on
changes in economic conditions and loan portfolio growth.The allowance for
loan losses is established through a provision for loan losses which is a
charge to operations based upon a review of the loan portfolio, economic
conditions and other factors which in management's judgment deserve current
recognition in estimating loan losses. The provision for loan losses for the
three months ending March 31, 1997 was $253,000 which related to the
impairment of certain loans. In addition, various regulatory agencies, as an
integral part of their examination process, periodically review the Bank's
allowance for loan losses and valuation of other real estate owned. Such
agencies may require the Bank to recognize additions to the allowance for
loan losses or adjustments to them at the time of their examination. The
Bank's lending remains conservative in nature and relies upon securing quality
loans with at least 60% of its loan portfolio in adjustable rate loans.
<TABLE>
<CAPTION>
Nonaccruing Loan Statistics as of March 31,
1997 1996
<S> <C> <C>
Non-accrual loans to loans
net of deferred fees 2.40% 2.60%
Non-accrual loans to total assets 1.49% 2.38%
Coverage ratio for non-accrual loans 64% 55%
</TABLE>
Non-accrual loans are $2.2 million as of March 31,1997. The Bank's total
problem loans including those loans consider watched assets is $2.7 million
at March 31, 1997.
Liquidity
The Bank's liquidity position is fully capable to meet customer demands for
deposit withdrawals while maintaining adequate funding for all credit-worthy
loans. The Bank is a member of the Federal Home Loan Bank (FHLB) in Boston.
The bank's liquidity is more than adequate to meet its deposit withdrawal
and loan demand, the Bank has a liquidity position of approximately 25% at
March 31, 1997.
Capital
The Bank's leverage capital ratio is 8.85% at March 31, 1997. The Bank's tier
one risk-based capital ratio is 10.75% at March 31, 1997. Both capital
ratios are above the minimum standards set by federal regulatory agencies that
supervise banks for safety and soundness.
<TABLE>
<CAPTION>
To Be Well
Capitalized Under
For Capital Prompt Corrective
Dollars in 000's Actual Adequacy Purposes Action Provisions
March 31, 1997: Amount Ratio Amount Ratio Amount Ratio
<S> <C> <C> <C> <C> <C> <C>
Total Capital $12,593 12.0% $8,399 8.0% $10,985 10.0%
(to Risk Weighted Assets)
Tier I Capital $11,281 10.75% $4,199 4.0% $6,299 6.0%
(to Risk Weighted Assets)
Tier I Capital $11,281 8.85% $5,100 4.0% $6,375 5.0%
(to Average Assets)
</TABLE>
<PAGE>
APPENDIX A
<TABLE>
<CAPTION>
The Bank of Southington
Rate Volume Analysis
1st Quarter 1997 Actual
Average Interest Average
Balance Income Rate
<S> <C> <C> <C>
ASSETS
Taxable Securities $ 31,744 $ 538 6.78%
Tax Exempt Securities* $ 3,575 $ 34 5.29%
Tax Advantaged Securities* $ 800 $ 11 7.75%
Federal Funds Sold $ 1,953 $ 26 5.36%
Net Loans $ 80,414 $ 1,976 9.83%
Total Earning Assets $118,486 $ 2,585 8.78%
Cash & Non-Earning Assets $ 9,015
Total Assets $127,501
LIABILITIES AND Average Interest Average
SHAREHOLDERS' EQUITY Balance Expense Rate
Deposits:
Savings $ 41,271 $ 234 2.27%
Time $ 49,329 $ 659 5.34%
Other Borrowings $ 25 $ - 0.00%
Total Deposits $ 90,625 $ 893 3.94%
Demand Deposits $ 25,146
Other Liabilities $ 687
Stockholders' Equity $ 11,044
Liabilities and
Stockholders' Equity $ 127,501
Net Interest Income $ 1,692
Interest Rate Spread 4.84%
Interest Rate Margin 5.71%
<PAGE>
1st Quarter 1996 Actual
Average Interest Average
Balance Income Rate
ASSETS
Taxable Securities $ 20,364 $ 355 6.97%
Tax Exempt Securities* $ 5,196 $ 59 6.88%
Tax Advantaged Securities* $ 2,176 $ 18 4.80%
Federal Funds Sold $ 3,366 $ 45 5.35%
Net Loans $ 71,884 $ 1,714 9.54%
Total Earning Assets $102,986 $ 2,191 8.51%
Cash & Non-Earning Assets $ 9,492
Total Assets $112,478
LIABILITIES AND Average Interest Average
SHAREHOLDERS' EQUITY Balance Expense Rate
Deposits:
Savings $ 42,362 $ 258 2.44%
Time $ 40,478 $ 568 5/61%
Other Borrowings $ - $ - 0.00%
Total Deposits $ 82,840 $ 826 3.99%
Demand Deposits $ 17,984
Other Liabilities $ 562
Stockholders' Equity $ 11,092
Liabilities and
Stockholders' Equity $ 112,478
Net Interest Income $ 1,365
Interest Rate Spread 4.52%
Interest Rate Margin 5.30%
</TABLE>
<TABLE>
<CAPTION>
Interest Change due to:
Variance Volume Rate Mix
<S> <C> <C> <C> <C>
ASSETS
Taxable Securities $ 183 $ 193 $(15) $ 5
Tax Exempt Securities* $ (25) $ (15) $ (6) $ (4)
Tax Advantaged Securities* $ (7) $ (17) $ 4 $ 6
Federal Funds Sold $ (19) $ (19) $ 0 $ 0
Net Loans $ 262 $ 210 $ 58 $ (6)
Total Earning Assets $ 394 $ 352 $ 41 $ 1
Cash & Non-Earning Assets
Total Assets
LIABILITIES AND Interest Change due to:
SHAREHOLDERS' EQUITY Variance Volume Rate Mix
Deposits:
Savings $ (24) $ (6) $(17) $ (0)
Time $ 91 $ 118 $(33) $ 6
Other Borrowings $ - $ - 0 $ 0
Total Deposits $ 67 $ 112 $(51) $ 6
Demand Deposits
Other Liabilities
Stockholders' Equity
Liabilities and
Stockholders' Equity
Net Interest Income $ 327 $ 240 $ 91 $ (4)
Interest Rate Spread
Interest Rate Margin
</TABLE>
This table shows the effect on net interest income of rate and volume changes
between comparative periods.
*Yields were calculated at a tax equivalent rate.
<PAGE>
Appendix B
<TABLE>
<CAPTION>
The Bank of Southington
Balance Sheet
As of March 31, 1997
Exhibit A Actual Average Average Budget Average
Balance Balance Balance Avg.Bal. Balance
(Dollars in Mar.1997 Mar.1997 Mar.YTD Mar.1997 Mar.1996
Thousands)
<S> <C> <C> <C> <C> <C>
Assets
Cash and
Due from Banks 8,105 $6,526 $6,225 $7,166 $4,416
Federal Funds Sold 1,900 2,961 1,953 2,200 4,300
Total cash and cash
equivalents 10,005 9,487 8,178 9,366 $8,716
Investment securities
available for sale, net 36,052 35,954 35,809 34,467 30,502
Investment securities - - - - -
Loans, net of deferred
fees 80,694 80,259 80,414 81,987 73,552
Less: Allowance for
loan losses (1,413) (1,633) (1,586) - (1,650)
Net loans 79,281 78,626 78,828 81,987 71,902
Other real estate owned 405 405 405 - 81
Other assets 4,553 4,303 4,281 4,239 4,032
Total assets 130,296 128,775 127,501 130,059 115,233
Liabilities and
Stockholders' Equity
Deposits:
Demand Deposits $27,416 $25,647 $25,146 $24,933 $18,974
Regular Savings &
Money Markets $41,946 $41,982 $41,271 $46,700 $44,032
Time Deposits 49,422 49,474 49,329 47,527 41,164
Total deposits 118,784 117,104 115,746 119,160 104,170
Reserve repo
borrowing - - - - -
Other liabilities 565 648 687 0 832
Total liabilities 119,349 117,752 116,433 119,160 105,002
Stockholders' equity
Common stock, $6 par value;
2,000,000 shares authorized;
issued 1,231,412 in 1996
1,159,969 in 1995 7,441 7,432 7,427 7,443 7,377
Paid-in-Capital 1,026 1,014 1,008 1,034 921
Net unrealized gains
(loss)-avail for sale (334) (133) (131) (130) (135)
Retained Earnings 2,814 2,675 2,741 2,909 2,068
Total stockholders'
equity 10,947 10,988 11,044 11,257 10,231
Unposted items $0 $34 $24 ($358)
Total Liabilities &
Stockholders' Equity 130,296 128,774 127,501 130,059 115,233
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
The Bank of Southington
Income Statement
As of March 31, 1997
Exhibit B
31-March 31-March Variance Variance
(Cumulative) 1997 YTD 1997 YTD ($) (%)
Interest Income
<S> <C> <C> <C> <C>
Interest & Fees on Loans $1,955,172 $1,714,056 $ 241,116 14%
Int. on Fed. Funds Sold/
Short Term Funds $ 26,163 $ 44,966 $ (18,803) (42%)
Interest and Dividends on
Securities $ 582,751 $ 432,170 $ 150,581 35%
Total Interest Income $2,564,085 $2,191,192 $ 372,893 17%
Interest Expense
Regular Savings & Money
Market Accts. $ 234,054 $ 257,853 $ 23,799 9%
Time Deposits $ 658,860 $ 567,564 $ (91,296) (16%)
Other Borrowings $ - $ - $ -
Total Interest Expense $ 892,915 $ 825,417 $ (67,498) (8%)
Net Interest Income $1,671,171 $1,365,775 $ 305,396 22%
Provision for Loan Losses $ 253,000 $ 50,000 $(203,000) (406%)
Net Interest Income After
Provision for Loan Losses $1,418,171 $1,315,775 $ 102,396 8%
Non-interest Income
Service Charges $ 88,812 $ 74,375 $ 14,437 19%
Miscellaneous Income $ 24,768 $ 24,550 $ 218 1%
Gain on Sale of Oreo $ - $ - $ -
Gain on Life Insurance $ - $ - $ -
Securities Gains (Losses) $ (4,141) $ 5,511 $ (9,652)
Total Non-interest Income $ 109,440 $ 104,436 $ 5,004 5%
Non-interest Expense
Salaries and Benefits $ 621,321 $ 564,008 $ (57,313) (10%)
Occupancy Expense $ 140,856 $ 92,016 $ (48,840) (53%)
Premises & Equipment $ 92,575 $ 78,474 $ (14,101) (18%)
Printing & Supplies $ 44,832 $ 62,269 $ 17,437 28%
Professional Services $ 97,071 $ 51,045 $ (46,026) (90%)
EDP Services $ 115,507 $ 72,086 $ (43,421) (60%)
Advertising and Promotion $ 15,787 $ 33,286 $ 17,499 53%
Other Real Estate Owned
Expenses $ 29,906 $ - $ (29,906) 0%
Loan Administration Expense $ 30,417 $ 54,323 $ 23,906 44%
FDIC Insurance Premium $ - $ 1,001 $ 1,001 100%
Director Compensation &
Life Insurance $ 48,211 $ 48,760 $ 549 1%
Miscellaneous Expense $ 1,386 $ 7,688 $ 6,302 82%
Total Non-Interest Expense $1,237,869 $1,064,956 $ (172,913) (16%)
Income Before Taxes $ 289,742 $ 355,255 $ (65,513) (18%)
Income Taxes $ 106,175 $ 130,000 $ (23,825) (18%)
Net Income $ 183,567 $ 225,255 $ (41,688) (19%)
Earnings Per Share $ 0.15 $ 0.18 $ (0.04) (19%)
Annualized Earnings Per Share $ 0.59 $ 0.73 $ (0.14) (19%)
Average Common Shares
Outstanding 1,239,646 1,227,947 11,699 0.95%
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
The Bank of Southington
Statement of Cashflows
As of March 31,
Exhibit C
1997 1996
<S> <C> <C>
Net income 183,567 225,255
Cash flow from operating activities
Adjustment to reconcile net income to net
cash provided by operating activities:
Provision for loan losses 253,000 50,000
Other real estate owned write-downs -
Depreciation 92,575 61,829
(Gain) loss on sale of securities held for sale 4,141 (5,516)
(Gain) on sale of OREO - -
Loss on sale of OREO - -
Decrease (increase) in accretion & amortization 11,636 -
Decrease (increase) in accrued interest receivable (237,291) (22,801)
Decrease (increase) in deferred tax asset (192,905) (67,036)
Decrease (increase) in other assets 117,373 (21,163)
Decrease (increase) in other real estate
owned assets - (81,000)
(Decrease) increase in other liabilities (48,735) (421,344)
(Decrease) increase in income tax payables (77,004) -
(Decrease) increase in deferred compensation
& benefits (19,088) 11,267
Net cash provided by operating activities 87,269 (270,509)
Cash flows from investing activities
Decrease (Increase) in short term funds AFS 672,304
Maturities of securities held for sale 1,785,000 6,835,000
Proceeds from sale of securities held for sale 245,859 1,028,373
Purchase of securities held for sale (3,696,100) (11,473,472)
Decrease (increase) in net loan receivables 9,000 742,000
Purchase of premises and equipment (17,113) (15,265)
Proceeds from sale of fixed assets, net 2,500 -
Proceeds from sale of OREO - -
Net cash used by investing activities (998,549) (2,883,364)
Cash flows from financing activities
Net increase in deposits 2,506,000 2,766,000
Payment of cash dividends (86,622) (73,583)
Purchase Common Stock 1,820 1,317
Reinvested Cash dividends 37,557 39,000
Fractional shares paid for stock dividend - -
Net cash provided by financing activities 2,458,755 2,732,734
Increase (decrease) in cash and cash equivalents 1,547,475 (421,139)
Cash and cash equivalent-beginning of period 8,457,358 9,176,139
Cash and cash equivalent-end of period $10,004,833 $8,755,000
Supplemental disclosure of cash flow information:
Interest paid 309,833 818,848
Income taxes paid 165,000 220,000
Transfer of loans to OREO - 81,529
See accompanying notes to financial statements
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
The Bank of Southington
Statement of Changes in Stockholders' Equity
As of March 31, 1997
Exhibit D
Net
unrealized
gain
Common Paid-in Retained (loss) on
Stock capital earnings securities Total
<S> <C> <C> <C> <C> <C>
Balance at
December 31,
1995 $7,352,826 $905,584 $1,888,303 $72,866 $10,219,579
Reinvested Cash
Dividends $61,464 $88,053 $149,517
Issuance of common
stock investment
plan $9,630 $10,397 $20,027
Dividends declared
on common stock
($.06 per share for
Q1-3, $.07 for Q4) ($309,431) ($309,431)
Net Income $1,138,436 $1,138,436
Change in unrealized
loss on securities
available for
sale ($153,195) ($153,195)
Balance at
December 31,
1996 $7,423,920 $1,004,034 $2,717,308 ($80,329) $11,064,933
Reinvested Cash
Dividends $16,692 $20,865 $37,557
Issuance of common
stock investment
plan $804 $1,016 $1,820
Dividends declared
on common stock
($.07 per share for
Q1 1997) ($86,622) ($86,622)
Net income $183,567 $183,567
Change in unrealized
loss on securities
available for sale ($253,671) ($253,671)
Balance at
March 31,
1997 $7,441,416 $1,025,915 $2,814,253 ($334,000) $10,947,584
</TABLE>
See accompanying notes to the financial statements
<PAGE>
The Bank of Southington
Form F-4
March 31, 1997
Under the requirements 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.
May 14, 1997 Bryan P. Bowerman, President
May 14, 1997 Matthew A. Byrne CPA-CFO
FORM F-4
ANNUAL REPORT UNDER SECTION 13
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR QUARTER ENDED JUNE 30, 1997
F. D. I. C. INSURANCE CERTIFICATE NUMBER 26694-9
INCORPORATED JANUARY 9, 1985
IN THE STATE OF CONNECTICUT
CONNECTICUT STATE CHARTER BANK
THE BANK OF SOUTHINGTON
130 NORTH MAIN STREET
SOUTHINGTON, CT 06489-0670
TELEPHONE : (203) 620-5000
I. R. S. EMPLOYER IDENTIFICATION NO. -- 06-1122656
Securities registered under Section 12 (b) of the Act:
NONE
Securities registered under Section 12 (g) of the act:
COMMON STOCK
PAR VALUE $6.00 PER SHARE
1,246,012 SHARES ISSUED AND OUTSTANDING
AS OF AUGUST 8, 1997
Name of each Exchange on which registered:
AMEX
Indicate by checkmark 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_______
MARKET VALUE OF STOCK : $ 27,412,264
BASED ON A $22.00 BID PRICE at AUGUST 7, 1997
<PAGE>
THE BANK OF SOUTHINGTON
Form F-4
JUNE 30, 1997
Table of Contents
Page
Item I. Notes to the Financial Statements 2
Item II. Management Discussion and Analysis 3-5
of Financial Condition & Results of Operation
Appendix A:
Rate and Volume Table
Appendix B
Exhibit A- Balance Sheet
Exhibit B- Income Statement
Exhibit C- Cash Flow Statement
Exhibit D- Statement of Changes in
Stockholders' Equity
Signatures 7
<PAGE>
ITEM I
The Bank of Southington
Notes to the Financial Statements
1. Basis of Presentation
The accompanying unaudited financial statements should be read with the
audited financial statements and notes included in the Bank of Southington's
1996 Annual Report. In the opinion of management, the accompanying
statements reflect all necessary adjustments, consisting of normal recurring
accruals and reclassification, for fair presentation of results as of the
dates and for the periods covered by the unaudited consolidated financial
statements. Certain prior year amounts have been reclassified to conform to
current year classifications.
2. Securities Available For Sale
<TABLE>
<CAPTION>
$ in 000's June 30, 1997 June 30, 1997 June 30, 1996 June 30, 1996
Amortized Market Amortized Market
Cost Value Cost Value
<S> <C> <C> <C> <C>
Auction
Preferreds 1,209 1,209 200 200
Short-term Funds 55 55 - -
US Treasuries - - 1,002 1,006
US Agencies 29,387 29,212 25,920 25,403
Municipals 3,397 3,409 4,369 4,300
FHLB Stock 384 384 346 346
Corp. Bonds 900 911 - -
Cum. Pref.Stock 200 205 200 206
Mtg-backed Sec 2,425 2,425 - -
TOTAL 37,957 37,810 32,038 31,461
</TABLE>
<PAGE>
ITEM II
Management's Discussion and Analysis
of Financial Condition and Results of Operation
Summary
The Bank of Southington (BSO-AMEX). The Bank's six months 1997 net earnings
were $458,000 or $0.37 per share while one year ago the Bank earned $597,441
or $0.49 per share. The Bank ended the quarter with $135 million in assets,
increasing $15 million over the end of last year's second quarter when the
bank had $120 million in assets. The drop in net income was attributed to the
unexpected costs associated with a troubled systems conversion, increased
loan loss provision due to a single credit and higher loan growth, and the
expenses of a new branch.
Second quarter ended June 30, 1997 net income was $ 274,433 or $0.22 compared
to the second quarter 1996 net income of $372,186 or $0.30 per share.
The provision for loan losses was $150,000 in the second quarter of 1997
compared to $45,000 in the second quarter of last year. For the six months
ending June 30, 1997, the provision for loan losses was $403,000 up $308,000
over last year's provision of $95,000 for the same period.
The Bank of Southington reported net interest income of $1.7 million for the
second quarter 1997 compared to $1.5 million for the second quarter of 1996.
Net interest margin was 5.70% for the six month basis in 1997 compared to
5.39% one year ago.
The Board of Directors declared a $.07 cash dividend on July 23, 1997, for
shareholders of record on August 27, 1997, payable on September 17, 1997.
Results of Operation
Increases in interest income were the result of higher average earning balances
in the securities available for sale and the increased coupon rates earned
on securities. Loan interest income is increased due to a rise in average
loan balances and the second quarter 1997 prime rate increase as the Federal
Reserve Bank raised interest rates 25 basis points. The Bank's cost of funds
also rose as interest bearing time deposit balances increased. This was the
result of competition in the market place for time deposits and the new branch.
Increases in funding costs as shown by the rise in interest expense for time
deposits was directly related to higher average balances and rates which
were offset by a decrease in the rate paid on money market accounts
over $25,000. During the second quarter 1997 the Bank also borrowed one
million advance from the FHLB.
<PAGE>
Financial Condition
At June 30, 1997 the Bank's total assets grew $7.2 million to $135.3 million
since year-end 1996. Asset growth was caused by increases in deposit
balances. Loan demand has remained low during the past year, however, loan
pricing remains exceptionally competitive with lower margins.
The Bank has changed its investment portfolio allocation mix by purchasing
mortgage-backed securities and corporate medium term notes.
<TABLE>
<CAPTION>
Loan Loss Allowance as of March 31,
1997 1996
<S> <C> <C>
Balance at beginning of
period $1,539,307 $1,670,686
Charge-offs 503,813 198,957
Recoveries 48,199 16,000
Addition to the provision
for loan losses 403,000 95,000
Balance at June 30, $1,409,573 $1,582,729
</TABLE>
Management has determined that its allowance for loan losses of $1,409,573 at
June 30, 1997 is adequate and real estate owned is properly valued. While
management uses available information to recognize losses on loans and other
real estate owned, future additions to the allowance for loan losses or
valuation adjustments to other real estate owned may be necessary based on
changes in economic conditions and loan portfolio growth. The allowance for
loan losses is established through a provision for loan losses which is a
charge to operations based upon a review of the loan portfolio, economic
conditions and other factors which in management's judgment deserve current
recognition in estimating loan losses. The provision for loan losses for the
six months ending June 30,1997 was $403,000 which related to the impairment of
certain loans. In addition, various regulatory agencies, as an integral part
of their examination process, periodically review the Bank's allowance for
loan losses and valuation of other real estate owned. Such agencies may
require the Bank to recognize additions to the allowance for loan losses or
adjustments to them at the time of their examination. The Bank's lending
remains conservative in nature and relies upon securing quality loans with
at least 60% of its loan portfolio in adjustable rate loans.
<TABLE>
<CAPTION>
Nonaccruing Loan Statistics as of June 30,
1997 1996
<S> <C> <C>
Non-accrual loans to loans net of
deferred fees 1.18% 3.82%
Non-accrual loans to total assets 1.21% 2.40%
Coverage ratio for non-accrual
loans 86% 55%
</TABLE>
Non-accrual loans are $1.6 million as of June 30, 1997. The Bank's total
problem loans, including those loans considered watched assets, are $4.1
million at June 30, 1997.
Liquidity
The Bank's liquidity position is fully capable to meet customer demands for
deposit withdrawals while maintaining adequate funding for all credit-worthy
loans. The Bank is a member of the Federal Home Loan Bank (FHLB) in Boston.
The bank's liquidity is more than adequate to meet its deposit withdrawal and
loan demand, the Bank has a liquidity position of approximately 25% at
June 30,1997.
<PAGE>
Capital
The Bank's leverage capital ratio is 8.98% at June 30, 1997. The Bank's tier
one risk-based capital ratio is 10.83% at June 30, 1997. Both capital
ratios are above the minimum standards set by federal regulatory agencies
that supervise banks for safety and soundness.
<TABLE>
<CAPTION>
To Be Well
Capitalized Under
Dollars in (000's) for Capital Prompt Corrective
Actual Adequacy Purposes Action Provisions
JUNE 30, 1997: Amount Ratio Amount Ratio Amount Ratio
<S> <C> <C> <C> <C> <C> <C>
Total Capital $12,741 13.29% $8,399 8.0% $10,985 10.0%
(to Risk Weighted Assets)
Tier I Capital $11,627 12.04% $4,199 4.0% $6,299 6.0%
Tier I Capital $11,534 8.98% $5,100 4.0% $6,375 5.0%
(to Average Assets)
</TABLE>
<TABLE>
<CAPTION>
The Bank of Southington
Rate Volume Analysis
2nd Quarter 1997 Actual
Average Interest Average
Balance Income Rate
<S> <C> <C> <C>
ASSETS
Taxable Securities $ 33,111 $ 561 6.78%
Tax Exempt Securities* $ 3,165 $ 32 5.67%
Tax Advantaged Securities* $ 981 $ 15 8.40%
Federal Funds Sold $ 2,342 $ 31 5.23%
Net Loans (net of deferred fees) $ 81,773 $ 1,998 9.63%
Total Earning Assets $ 121,371 $ 2,636 8.69%
Cash & Non-Earning Assets $ 9,948
Total Assets $ 131,319
LIABILITIES AND Average Interest Average
SHAREHOLDERS' EQUITY Balance Expense Rate
Deposits:
Savings $ 42,138 $ 235 2.23%
Time $ 49,582 $ 662 5.34%
Other Borrowings $ 1,000 $ 14 5.65%
Total Deposits $ 92,720 $ 911 3.93%
Demand Deposits $ 26,833
Other Liabilities $ 604
Stockholders' Equity $ 11,163
Total Liabilities and Equity $ 131,319
Net Interest Income $ 1,725
Interest Rate Spread 4.76%
Interest Rate Margin 5.69%
This table shows the effect on net interest income of rate and volume
changes between comparative period.
*Yields were calculated at a tax equivalent rate.
<PAGE>
2nd Quarter 1996 Actual
Average Interest Average
Balance Income Rate
ASSETS
Taxable Securities $ 24,920 $ 401 6.44%
Tax Exempt Securities* $ 5,077 $ 53 6.33%
Tax Advantaged Securities* $ 775 $ 12 8.98%
Federal Funds Sold $ 5,062 $ 81 6.40%
Net Loans (net of deferred fees) $ 73,465 $ 1,768 9.63%
Total Earning Assets $ 109,299 $ 2,315 8.47%
Cash & Non-Earning Assets $ 8,671
Total Assets $ 117,970
LIABILITIES AND Average Interest Average
SHAREHOLDERS' EQUITY Balance Expense Rate
Deposits:
Savings $ 44,225 $ 260 2.35%
Time $ 41,470 $ 565 5.45%
Other Borrowings $ - $ - 0.00%
Total Deposits $ 85,695 $ 825 3.85%
Demand Deposits $ 21,113
Other Liabilities $ 635
Stockholders' Equity $ 10,527
Total Liabilities and Equity $ 117,970
Net Interest Income $ 1,490
Interest Rate Spread 4.62%
Interest Rate Margin 5.45%
</TABLE>
This table shows the effect on net interest income of rate and volume
changes between comparative period.
*Yields were calculated at a tax equivalent rate.
<TABLE>
<CAPTION>
Interest Change due to:
Variance Volume Rate Mix
<S> <C> <C> <C> <C>
ASSETS
Taxable Securities $ 160 $ 139 $ 28 $ (7)
Tax Exempt Securities* $ (21) $ (17) $ (2) $ (2)
Tax Advantaged Securities* $ 3 $ 4 $ (1) $ 0
Federal Funds Sold $ (50) $ (36) $ (7) $ (8)
Net Loans (net of deferred fees) $ 230 $ 230 $ (1) $ 0
Total Earning Assets $ 321 $ 321 $ 17 $ (17)
Cash & Non-Earning Assets
Total Assets
LIABILITIES AND Interest Change due to:
SHAREHOLDERS' EQUITY Variance Volume Rate Mix
Deposits:
Savings $ (25) $ (12) $ (13) $ (1)
Time $ 97 $ 108 $ (14) $ 2
Other Borrowings $ 14 $ 14 $ 0 $ 0
Total Deposits $ 86 $ 111 $ (27) $ 2
Demand Deposits
Other Liabilities
Stockholders' Equity
Total Liabilities and Equity
Net Interest Income $ 235 $ 210 $ 44 $ (18)
Interest Rate Spread
Interest Rate Margin
</TABLE>
This table shows the effect on net interest income of rate and volume
changes between comparative period.
*Yields were calculated at a tax equivalent rate.
<PAGE>
<TABLE>
<CAPTION>
The Bank of Southington
Rate Volume Analysis
2nd Quarter YTD 1997 Actual
Average Interest Average
Balance Income Rate
<S> <C> <C> <C>
ASSETS
Taxable Securities $ 32,431 $ 1,099 6.78%
Tax Exempt Securities* $ 3,369 $ 65 5.47%
Tax Advantaged Securities* $ 891 $ 26 8.10%
Federal Funds Sold $ 2,149 $ 57 5.29%
Net Loans (net of deferred fees) $ 81,143 $ 3,973 9.79%
Total Earning Assets $ 119,982 $ 5,221 8.70%
Cash & Non-Earning Assets $ 9,515
Total Assets $ 129,497
LIABILITIES AND Average Interest Average
SHAREHOLDERS' EQUITY Balance Expense Rate
Deposits:
Savings $ 41,707 $ 469 2.25%
Time $ 49,456 $ 1,321 5.34%
Other Borrowings $ 500 $ 14 5.65%
Total Deposits $ 91,663 $ 1,804 3.94%
Demand Deposits $ 25,994
Other Liabilities $ 657
Stockholders' Equity $ 11,184
Total Liabilities and Equity $ 129,497
Net Interest Income $ 3,417
Interest Rate Spread 4.77%
Interest Rate Margin 5.70%
This table shows the effect on net interest income of rate and volume
changes between comparative period.
*Yields were calculated at a tax equivalent rate.
<PAGE>
2nd Quarter YTD 1996 Actual
Average Interest Average
Balance Income Rate
ASSETS
Taxable Securities $ 22,829 $ 755 6.61%
Tax Exempt Securities* $ 5,138 $ 112 6.61%
Tax Advantaged Securities* $ 1,248 $ 30 7.07%
Federal Funds Sold $ 4,216 $ 125 5.93%
Net Loans (net of deferred fees) $ 72,708 $ 3,489 9.60%
Total Earning Assets $ 106,139 $ 4,511 8.50%
Cash & Non-Earning Assets $ 8,845
Total Assets $ 114,984
LIABILITIES AND Average Interest Average
SHAREHOLDERS' EQUITY Balance Expense Rate
Deposits:
Savings $ 43,352 $ 518 2.39%
Time $ 40,974 $ 1,133 5.53%
Other Borrowings $ - $ - 0.00%
Total Deposits $ 84,326 $ 1,651 3.92%
Demand Deposits $ 19,555
Other Liabilities $ 613
Stockholders' Equity $ 10,490
Total Liabilities and Equity $ 114,984
Net Interest Income $ 2,860
Interest Rate Spread 4.58%
Interest Rate Margin 5.39%
</TABLE>
This table shows the effect on net interest income of rate and volume
changes between comparative period.
*Yields were calculated at a tax equivalent rate.
<TABLE>
<CAPTION>
Interest Change due to:
Variance Volume Rate Mix
<S> <C> <C> <C> <C>
ASSETS
Taxable Securities $ 344 $ 325 $ 27 $ (8)
Tax Exempt Securities* $ (47) $ (32) $ (8) $ (7)
Tax Advantaged Securities* $ (4) $ (7) $ 2 $ 1
Federal Funds Sold $ (68) $ (55) $ (7) $ (7)
Net Loans (net of deferred fees) $ 484 $ 414 $ 79 $ (8)
Total Earning Assets $ 710 $ 646 $ 93 $ (29)
Cash & Non-Earning Assets
Total Assets
LIABILITIES AND Interest Change due to:
SHAREHOLDERS' EQUITY Variance Volume Rate Mix
Deposits:
Savings $ (49) $ (18) $ (30) $ (1)
Time $ 188 $ 226 $ (47) $ 8
Other Borrowings $ 14 $ 14 $ 0 $ 0
Total Deposits $ 153 $ 222 $ (76) $ 7
Demand Deposits
Other Liabilities
Stockholders' Equity
Total Liabilities and Equity
Net Interest Income $ 557 $ 423 $ 169 $ (35)
Interest Rate Spread
Interest Rate Margin
</TABLE>
This table shows the effect on net interest income of rate and volume
changes between comparative period.
*Yields were calculated at a tax equivalent rate.
<PAGE>
<TABLE>
<CAPTION>
The Bank of Southington
Balance Sheet - Exhibit A
Actual Average Average Average Budget Actual
Balance Balance Balance Balance Avg.Bal. Balance
June 1997 June YTD June 1997 Qtr.2 1997 June 1997 June 1997
(Dollars in thousands)
Assets
<S> <C> <C> <C> <C> <C> <C>
Cash and Due
from Banks $8,230 $ 6,800 $7,316 $7,216 $7,739 $5,092
Federal Funds Sold 1,000 2,149 2,653 2,342 1,500 5,100
Total cash and
cash equivalents 9,230 8,949 9,970 9,558 9,239 $10,192
Investment Securities
Avail. for Sale, net 37,810 36,158 36,774 36,504 34,044 31,461
Investment Securities - - - - - -
Loans, net of deferred
fees & non-accr. 84,723 81,069 83,049 81,717 86,664 75,916
Less: Allowance for
Loan Losses (1,410) (1,488) (1,356) (1,391) - (1,583)
Net loans 83,313 79,581 81,694 80,326 86,664 74,333
Other real estate
owned 455 417 455 428 - 30
Other assets 4,470 4,393 4,518 4,505 4,102 4,442
Total Assets $135,279 $129,498 $133,410 $131,321 $134,049 $120,458
Liabilities and
Stockholders' Equity
Deposits:
Demand Deposits $27,054 $25,994 $27,025 $26,833 $25,563 $21,872
Regular Savings &
Money Markets $43,821 $41,707 $42,375 $42,138 $46,832 $46,371
Time Deposits 51,283 49,456 50,695 49,582 47,835 41,091
Total Deposits 122,158 117,157 120,095 118,552 120,230 109,334
Other borrowings 1,000 500 1,400 1,000 - -
Other liabilities 659 650 685 613 - 785
Total Liabilities 123,817 118,307 122,180 120,165 120,230 110,119
Stockholders' equity
Common stock,
$6 par value;
2,000,000 shares
authorized; issued
1,231,412 in 1996,
1,159,969 in 1995 $7,475 $7,440 $7,462 $7,454 $7,461 $7,409
Paid-in-Capital 1,057 1,019 1,036 1,031 1,060 968
Net unrealized
gains (loss)-Avail.
for Sale (102) (233) (327) (333) (130) (340)
Retained Earnings 3,002 2,957 3,060 3,012 3,104 2,302
Total Stockholders'
Equity 11,432 11,184 11,231 11,164 11,495 10,339
Unposted Items $30 $7 ($1) ($9) $2,324
Total Liabilities &
Stockholders'
Equity 135,279 129,498 133,410 131,321 134,049 120,458
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
The Bank of Southington
Income Statements - Exhibit B
Three Months Ended
30-Jun-97 30-Jun-96
<S> <C> <C>
Interest Income
Interest & fees on loans $ 1,965,434 $ 1,767,391
Interest on Federal Funds Sold $ 30,644 $ 80,119
Interest and dividends on securities $ 607,977 $ 471,930
Total interest income $ 2,604,055 $ 2,319,440
Interest expense
Regular savings & Money Mkt accounts $ 234,725 $ 259,687
Time deposits $ 662,005 $ 565,901
Other borrowings $ 14,122 $ -
Total interest expense $ 910,852 $ 825,588
Net interest income $ 1,693,203 $ 1,493,852
Provision for loan losses $ 150,000 $ 45,000
Net Interest Income after Provision $ 1,543,203 $ 1,448,852
Non-interest income
Service charges $ 79,185 $ 76,837
Miscellaneous income $ 33,098 $ 20,055
Gain on sale of oreo $ - $ 28,375
Gain on life insurance $ - $ -
Securities gains (losses) $ (2,782) $ (1,398)
Total non-interest income $ 109,501 $ 123,869
Non-interest expense
Salaries and benefits $ 662,535 $ 506,547
Occupancy expense $ 119,206 $ 68,453
Premises & equipment $ 71,611 $ 80,211
Printing & supplies $ 50,092 $ 64,171
Professional services $ 132,076 $ 76,407
EDP services $ 105,824 $ 74,703
Advertising and promotion $ 16,408 $ 22,399
Other real estate owned expenses $ 5,589 $ 12,000
Loan administration expenses $ 17,310 $ 37,350
FDIC Insurance premium $ - $ 500
Director Comp. & Life Insurance $ 16,764 $ 33,228
Other $ 16,274 $ 21,725
Total non-interest expense $ 1,213,688 $ 997,696
Income before taxes $ 439,016 $ 575,025
Income taxes $ 164,582 $ 202,839
Net income $ 274,433 $ 372,186
Six Months Ended
30-Jun-97 30-Jun-96
Interest Income
Interest & fees on loans $ 3,920,606 $ 3,481,447
Interest on Federal Funds Sold $ 56,807 $ 125,085
Interest and dividends on securities $ 1,190,727 $ 904,100
Total interest income $ 5,168,141 $ 4,510,632
Interest expense
Regular savings & Money Mkt accounts $ 468,779 $ 517,540
Time deposits $ 1,320,865 $ 1,133,465
Other borrowings $ 14,122 $ -
Total interest expense $ 1,803,767 $ 1,651,005
Net interest income $ 3,364,374 $ 2,859,627
Provision for loan losses $ 403,000 $ 95,000
Net Interest Income after Provision $ 2,961,374 $ 2,764,627
Non-interest income
Service charges $ 167,997 $ 151,212
Miscellaneous income $ 57,866 $ 44,605
Gain on sale of oreo $ - $ 28,375
Gain on life insurance $ - $ -
Securities gains (losses) $ (6,923) $ 4,113
Total non-interest income $ 213,940 $ 228,305
Non-interest expense
Salaries and benefits $ 1,283,855 $ 1,070,557
Occupancy expense $ 260,062 $ 160,469
Premises & equipment $ 164,186 $ 158,685
Printing & supplies $ 94,924 $ 126,440
Professional services $ 229,146 $ 127,452
EDP services $ 221,331 $ 146,789
Advertising and promotion $ 32,196 $ 55,685
Other real estate owned expenses $ 35,495 $ 12,000
Loan administration expenses $ 47,725 $ 91,673
FDIC Insurance premium $ - $ 1,501
Director Comp. & Life Insurance $ 64,975 $ 81,988
Other $ 17,659 $ 29,413
Total non-interest expense $ 2,451,557 $ 2,062,652
Income before taxes $ 728,757 $ 930,280
Income taxes $ 270,757 $ 332,839
Net income $ 458,000 $ 597,441
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
The Bank of Southington
Statement of Cash Flow
Exhibit C
Three Months Ended
30-Jun-97 30-June-96
<S> <C> <C>
Net income $ 274,433 $ 372,186
Cash flow from operating activities
Adjustment to reconcile net income to net
cash provided by operating activities:
Provision for loan losses 150,000 45,000
Other real estate owned write-downs - -
Depreciation 71,611 61,783
(Gain) loss on sale of securities held for sale (2,782) 1,398
(Gain) on sale of OREO - -
Loss on sale of OREO - (28,375)
Decrease (increase) in accretion & amortization (49,994) -
Decrease (increase) in accrued interest receivable 48,216 -
Decrease (increase) in deferred tax asset 236,793 -
Decrease (increase) in other assets (139,489) (295,478)
Decrease (increase) in other real estate owned assets (50) -
(Decrease) increase in other liabilities 36,892 (47,000)
(Decrease) increase in income tax payables 34,582 -
(Decrease) increase in deferred compensation & benefits (3,340) -
Net cash provided by operating activities $ 656,872 $ 109,514
Cash flows from investing activities
Decrease (Increase) in short term funds AFS 146,083 -
Maturities of securities held for sale 1,235,000 1,795,000
Proceeds from sale of securities held for sale 4,350,000 198,632
Purchase of securities held for sale (8,216,872) (3,286,563)
Decrease (Increase) in net loan receivables (4,032,000) (2,431,000)
Purchase of premises and equipment (119,095) (114,522)
Proceeds from sale of fixed assets, net - -
Proceeds from sale of OREO - 79,375
Net cash used by investing activities $ (5,782,967) $(3,759,078)
Cash flows from financing activities
Net increase in deposits 3,374,000 5,164,000
Payment of cash dividends (87,029) (73,727)
Purchase Common Stock 25,180 150
Reinvested Cash dividends 39,592 35,384
Fractional shares paid for stock dividend - -
Increase (decrease) in other borrowings 1,000,000 -
Net cash provided by financing activities $ 4,351,743 $5,125,807
Increase (decrease) in cash and cash equivalents (774,352) 1,476,243
Cash and cash equivalent-beginning of period 10,004,833 8,716,000
Cash and cash equivalent-end of period $ 9,230,481 $10,192,243
Supplemental disclosure of cash flow information:
Interest paid $ 913,182 $ 745,646
Income taxes paid $ 70,000 $ 215,000
Transfer of loans to OREO $ - $ -
See accompanying notes to financial statements
<PAGE>
Six Months Ended
30-Jun-97 30-June-96
Net income $ 458,000 $ 598,245
Cash flow from operating activities
Adjustment to reconcile net income to net
cash provided by operating activities:
Provision for loan losses 403,000 95,000
Other real estate owned write-downs -
Depreciation 164,186 123,612
(Gain) loss on sale of securities held for sale 6,923 (4,113)
(Gain) on sale of OREO - -
Loss on sale of OREO - (28,375)
Decrease (increase) in accretion & amortization (38,359) -
Decrease (increase) in accrued interest receivable 41,616 -
Decrease (increase) in deferred tax asset 43,888 -
Decrease (increase) in other assets 1,384 (391,000)
Decrease (increase) in other real estate owned assets (50) -
(Decrease) increase in other liabilities (11,843) (337,000)
(Decrease) increase in income tax payables (42,422) -
(Decrease) increase in deferred compensation & benefits (22,428) -
Net cash provided by operating activities $ 920,663 $ 56,369
Cash flows from investing activities
Decrease (Increase) in short term funds AFS 818,387 -
Maturities of securities held for sale 4,020,000 8,080,000
Proceeds from sale of securities held for sale 4,595,859 1,227,005
Purchase of securities held for sale (12,235,972) (14,445,951)
Decrease (Increase) in net loan receivables (4,023,000) (1,710,000)
Purchase of premises and equipment (136,208) (129,787)
Proceeds from sale of fixed assets, net 2,500 -
Proceeds from sale of OREO - 79,375
Net cash used by investing activities $ (6,958,434) $(6,899,358)
Cash flows from financing activities
Net increase in deposits 5,880,000 7,930,000
Payment of cash dividends (173,651) (147,310)
Purchase Common Stock 27,000 1,377
Reinvested Cash dividends 77,149 75,026
Fractional shares paid for stock dividend - -
Increase (decrease) in other borrowings 1,000,000 -
Net cash provided by financing activities $ 6,810,498 $7,859,093
Increase (decrease) in cash and cash equivalents 772,727 1,016,104
Cash and cash equivalent-beginning of period $ 8,457,358 9,176,139
Cash and cash equivalent-end of period $ 9,230,085 $10,192,243
Supplemental disclosure of cash flow information:
Interest paid $ 1,223,015 $ 1,564,494
Income taxes paid $ 235,000 $ 435,000
Transfer of loans to OREO $ - $ 81,529
</TABLE>
See accompanying notes to financial statements
<PAGE>
<TABLE>
<CAPTION>
The Bank of Southington
Statement of Changes in Stockholders' Equity
As of June 30, 1997
Exhibit D
Net unrealized
Common Paid-in Retained gain(loss)
Stock capital earnings on securities Total
<S> <C> <C> <C> <C> <C>
Balance at
December 31, 1995 $7,352,826 $905,584 $1,888,303 $72,866 $10,219,579
Reinvested
Cash Dividends $61,464 $88,053 $149,517
Issuance of common stock $9,630 $10,397 $20,027
Dividends declared on
common stock ($.06 per
share for Q1-3,
$.97 for Q4) ($309,431) ($309,431)
Net Income $1,138,436 $1,138,436
Change in unrealized
loss on securities
available for sale ($153,195) ($153,195)
Balance at
December 31, 1996 $7,423,920 $1,004,034 $2,717,308 ($80,329) $11,064,933
Reinvested Cash
Dividends $31,656 $45,493 77,149
Issuance of
common sto ck $19,410 $7,590 $27,000
Dividends delcared
on common stock
($0.7 per share for
Q1, Q2 1997) ($173,651) ($173,651)
Net Income $458,000 $458,000
Change in unrealized
loss on securities
available for sale ($21,671) ($21,671)
Balance at
June 30, 1997 $7,474,986 $1,057,117 $3,001,657 ($102,000) $11,431,761
</TABLE>
See accompanying notes to the financial statements
<PAGE>
The Bank of Southington
Form F-4
June 30, 1997
Under the requirements 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.
August 12, 1997 Bryan P. Bowerman, President
August 12, 1997 Matthew A. Byrne CPA-CFO
EXHIBIT 20(A)
FEDERAL DEPOSIT INSURANCE CORPORATION
FORM F-3
CURRENT REPORT
Under Section 13 of the Securities Exchange Act of 1934
August 13, 1997
THE BANK OF SOUTHINGTON
(Exact name of bank as specified in charter)
130 North Main Street
Southington, Connecticut 06489-0670
(Address of principal office)
<PAGE>
ITEM 13 - OTHER MATERIALLY IMPORTANT EVENTS
Exhibit A attached hereto is a statement that was made to the public on August
7, 1997.
SIGNATURES
Under the requirements 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.
THE BANK OF SOUTHINGTON
By: BRYAN P. BOWERMAN
--------------------------------------
Bryan P. Bowerman
Its: Presidents
Dated: August 13, 1997
<PAGE>
THE BANK OF SOUTHINGTON
130 North Main Street
Southington, CT 06489
FOR IMMEDIATE RELEASE
Wednesday, August 13, 1997
Contact: Bryan Bowerman, President
Telephone 860-620-5000
FAX 860 620-6289
Southington, CT-August 7, 1997, The Bank of Southington (AMEX-BSO) has received
and is reviewing proposals for the acquisition of the Bank. There is no
assurance whether or when the Bank will enter into any agreement with respect to
such a transaction.
There will be no further comment on this subject pending the announcement of a
transaction or the abandonment of all acquisition discussions. The Endicott
Group is advising the Bank.
Board of Directors
Bank of Southington
EXHIBIT 20(B)
FEDERAL DEPOSIT INSURANCE CORPORATION
FORM F-3
CURRENT REPORT
UNDER SECTION 13 OF THE SECURITIES EXCHANGE ACT OF 1934
AUGUST 20, 1997
THE BANK OF SOUTHINGTON
(EXACT NAME OF BANK AS SPECIFIED IN CHARTER)
130 NORTH MAIN STREET
SOUTHINGTON, CONNECTICUT 06489-0670
(ADDRESS OF PRINCIPAL OFFICE)
<PAGE>
HUBCO, INC. AND THE BANK OF SOUTHINGTON
SIGN A DEFINITIVE AGREEMENT
The Bank of Southington (AMEX: BSO) today announced the signing of a definitive
agreement with HUBCO, Inc. (NASDAQ: HUBC) to merge The Bank of Southington into
Lafayette American Bank and Trust Company, HUBCO's Connecticut banking
subsidiary. In the merger, each share of Southington common stock will be
exchanged for HUBCO common stock valued at $21.00, provided that the median
closing sales price of HUBCO common stock during a pricing period prior to
closing is between $27.50 and $35.00. If the median HUBCO common stock price
during the pricing period is at or above $35.00. Southington shareholders will
receive .6 of a share of HUBCO for each share of Southington common stock. If
the median HUBCO price during the pricing period is at or below $27.50,
Southington shareholders will receive .764 of a share of HUBCO for each share of
Southington Common stock. The Southington Board of Directors have certain rights
to terminate the deal if the median HUBCO stock price during the pricing period
is below $22.00. The $21.00 value is equal to 229% of Southington's book value
and 22.6 times Southington's 1996 earnings per share.
In connection with the transaction Southington has issued an option to HUBCO
which, based on certain events, could result in the issuance of 275,000
Southington common shares to HUBCO. The transaction, which is expected to be
treated as a tax-free exchange to holders of Southington common stock, will be
accounted for as a pooling of interest.
<PAGE>
Lafayette American Bank will have assets of approximately $1.4 billion and 30
banking offices. Hudson United Bank, HUBCO's Northern New Jersey banking
subsidiary has 57 offices and $1.7 billion in assets.
Kenneth T. Neilson, HUBCO's Chairman, President and CEO commented "We are
pleased that The Bank of Southington has chosen to join the HUBCO family. The
investments which HUBCO has made in products and technology over the past two
years will bring new products and services to Southington's customers while the
acquisition will continue HUBCO's drive to increase revenues and achieve
efficiencies."
Roman Garbacik, Chairman of the Southington Board said, "The Board of Directors
after a lengthy review process is pleased to reach an agreement with HUBCO.
While HUBCO is a much larger institution it has a similar mission as the Bank of
Southington -- to provide superior banking services to its customers, better
than average industry returns on investments to stockholders, but in no event to
risk the safety and soundness of the Bank. We plan on keeping all our branches
open along with our convenient hours and personal services, but now will be
adding those addition services we have been unable to provide in the past. HUBCO
is a preferred SBA lender which will allow us to directly underwrite these loans
and speedup the approval process, there will be 24 hour telephone banking, loans
by phone, trust services, brokerage services, a two day turn around on most loan
requests under $250,000.00, generally a two hour consumer loan turnaround, and
alternative investment vehicles for customers."
<PAGE>
The merger is subject to approval by the Federal and Connecticut bank regulatory
authorities and the shareholders of Southington, as well as other customary
conditions. The Bank of Southington is a $130 million asset commercial bank
headquartered in Southington, Connecticut with branches in Bristol.
Exhibit 23(a)
CONSENT OF KPMG PEAT MARWICK, LLP
The Board of Directors
The Bank of Southington
We consent to the incorporation by reference in this Registration Statement on
Form S-4 of HUBCO, Inc. of our report dated March 12, 1997 relating to the
balance sheets of The Bank of Southington as of December 31, 1996 and 1995 and
the related statements of income, changes in stockholders' equity and cash flows
for each of the years in the three-year period ended December 31, 1996, which
report appears in the 1996 Annual Report of The Bank of Southington. The report
refers to an uncertainty in connection with a lawsuit in which The Bank of
Southington is a defendant.
KPMG PEAT MARWICK LLP
Hartford Connecticut
September 30, 1997
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
February 7, 1997 included in HUBCO's Annual Report on Form 10-K and to all
references to our firm included in this Registration Statement.
ARTHUR ANDERSEN LLP
Roseland, New Jersey
September 30, 1997
Exhibit 23(c)
CONSENT OF ENDICOTT FINANCIAL ADVISORS, LLC
We hereby consent to the use of our firm's name in the Form
S-4 Registration Statement of HUBCO, Inc. ("HUBCO") and amendments thereto
relating to the registration of shares of HUBCO's common stock to be issued in
connection with the proposed acquisition of The Bank of Southington
("Southington"). We also consent to the inclusion of our opinion letter dated
September 29, 1997 as an Appendix to the Proxy Statement-Prospectus included as
part of the Form S-4 Registration Statement, and to the references to our
opinion included in the Proxy Statement-Prospectus.
ENDICOTT FINANCIAL ADVISORS, LLC
Date: September 29, 1997
- --------------------------------------------------------------------------------
Exhibit 99(a)
- --------------------------------------------------------------------------------
REVOCABLE PROXY
THE BANK OF SOUTHINGTON
PROXY
FOR THE SPECIAL MEETING OF SHAREHOLDERS
____________, 1997
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF
THE BANK OF SOUTHINGTON
The undersigned shareholder of The Bank of Southington
("SOUTHINGTON") hereby appoints ________________, _______________ and
__________________, and each of them, as Proxy, each with full power of
substitution, and hereby authorizes such proxy to represent the undersigned and
to vote all of the shares of stock of Southington standing in the undersigned's
name at the Special Meeting of Shareholders of Southington to be held at
[Location], on [Day of Week], ____________, 1997 at [Time], and at any
adjournments or postponements thereof. The undersigned hereby revokes any and
all proxies heretofore given with respect to such Special Meeting.
This proxy, when properly executed, will be voted as specified
herein. IF NO CHOICE IS SPECIFIED, THE PROXY WILL BE VOTED FOR APPROVAL OF THE
AGREEMENT AND PLAN OF MERGER.
(continued on reverse side)
<PAGE>
A |X| Please mark your votes as in this example.
The Board of Directors 1. Approval of the Agreement FOR AGAINST ABSTAIN
recommends a vote for and Plan of Merger, and [_| |_| |_|
approval of the Agreement dated August 18, 1997, by
and Plan of Merger. and among HUBCO, Inc.,
Lafayette Bank& Trust Company
and the Bank of Southington
2. To vote, in its discretion,
upon any such other business
as may properly come before
the Special Meeting or any
adjournments or postponements
thereof.
THIS PROXY MAY BE REVOKED AT ANY TIME PRIOR
TO THE TIME IT IS VOTED AT THE SPECIAL MEETING.
PLEASE DATE, SIGN AND RETURN THIS PROXY IN THE ENCLOSED ENVELOPE.
SIGNATURE SIGNATURE
---------------------------------- -------------------------
DATE: , 1997 DATE: , 1997
------------------------- -----------------------
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.
